The real credo and fundamental technological belief behind blockchain is decentralization. What is really empowering about it is that individuals do not need a hierarchical organization to manage organizations and contracts that have always required a centralized position of power, which has tended to be related to corruption and human error. A decentralized system that records information with digital immutability – which is a completely new concept – powered by proof-of-work cannot be modified, and this feature changes many things. This is where the concept of smart contracts comes in handy.
Smart contracts are agreements between parties that do not need an intermediary that checks that conditions are met. They facilitate the elimination of a third party and the urgency of trust and transparency when underwriting legally binds obligations. A software written in a smart contract is identified by its universal execution, as it runs the same way on every computer on which it is performed. It is always consistent and most of the time interactions are done by means of transactions.
The smart contract technology opens new frontiers and business opportunities. Payments – which are a form of contract – can indeed be triggered at predetermined times and in response to previously set circumstances, like sending an automatic money transfer to the bus as soon as it detects one’s presence, or while scanning groceries at the supermarket.
Companies and entrepreneurs have never been so happy; the rate at which new projects are created – and funded, especially with the phenomenon of ICOs – is a clear picture of the excitement these new platforms and technologies are generating.
Slock.it, for instance, has developed several micro-devices reminiscent of a lock that anyone can pair via Bluetooth and other wireless technologies to objects. Once something has been secured with a lock, the owner shares it automatically on a network permitting anyone to freely use it. Indeed, the owner sets a deposit and a rental cost, so that anyone interested can unlock it and freely use it by sending the cost set in advance by the owner directly to the lock. After the rental has terminated, the device sends back the deposit to the user and assigns the cost to the renter. What is interesting about the project is that it overcomes the main complications that the sharing economy can encounter, completely bypassing steps like matching users, organizing, and, most importantly, security.
Golem is the first worldwide supercomputer on which anyone can run tasks, from simple operations of individuals to very complex and powerful ones like those performed by companies. What is peculiar about this supercomputer is that it is not located physically anywhere, but it is the sum of all the computing power shared by individuals on the network. This means that anyone can rent its computer – whose computing power is going to add up to that of other people – and get a monetary return. Golem represents a new way of distributing computers, where users can sell redundant computer power for others to use, having complete control on how much CPU and disk space they want to provide.
Similar to Golem, there is a startup developing an alternative to cloud services offered by companies like Google and Apple, whose main characteristics is decentralization centred on participants’ sharing of resources. Storj.io ’s solution offers the most secure, largest and cheapest cloud storage available. People share part of their computer storage on the network and get the same amount of cloud storage in return, also adding the opportunity to rent idle space present on their computer. Security is provided by the fact that every file uploaded to the network is “shredded” and then encrypted so that no one has access to it but the owner. Given the fact that the network has no point of failure and is distributed among all participants, there are no slowdowns and every node contributes to making the system lightning fast.
Besides impressive business models, what these companies are concretely doing is setting the basis for a future in which renting will be less costly than actual owning, smoothening and easing up mechanisms which companies like Airbnb and Uber have based their businesses on and have struggled with.
Indeed, the main obstacle current players face is ownership, which, with blockchain and smart contracts, will soon be dismantled. Network nodes can, in fact, be objects which can share information about who their owner is and how they changed their status over time. Moreover, property rights can easily be stored and transfers of ownership can be made in a matter of seconds. Blockchain allows people to obtain the same results as from a bureaucratic infrastructure whilst avoiding the costs of one through automating the whole process. Middlemen will cease to exist and the sharing economy’s capabilities can spread to any object that can be imagined.
Disruptors Will Be Disrupted
Uber and Airbnb, two companies that have succeeded in the sharing economy trend over the past years, see the blockchain’s capabilities as a worrisome threat to their business models. What these companies do is match supply and demand of cars and houses that people are willing to share through their platforms; this can contain inefficiencies such as high costs and processing fees, together with providing centralized points of failure that threaten the entire system. Moreover, dominant market positions – their markets can be approximated as duopolies – can attract the focus of regulators trying to foster competition and limit firms’ power. Indeed, even though they may appear as decentralized companies which empower people and offer them alternate streams of revenue, they serve their ultimate business model of making money off commissions and fees, crippling innovation and approving a waste of economic resources which could be entirely put to better use – for instance, devolved to peers who share their vehicle or to tenants and homeowners.
Moreover, owning the platform implies owning the whole network which, in turn, means that they can dictate rules and arrangements as well as pricing. These seem to be very far from a real sharing economy scenario in which peers transacting are in complete control of modalities and conditions over their property.
In a “blockchained” peer-to-peer world, most people would not own assets because sharing them would become much cheaper and easier. Communication between users would be done on an encrypted platform which, through smart contracts, can also easily overcome frictions modern companies face. These include security check-ups of drivers, which would be done automatically by looking up their history on an infinite and always up-to-date digital ledger containing criminal records, previous driving, vehicle ownership, safety inspections and insurance.
To avoid being conquered, Uber’s possibilities are limited: it should predominantly try to pivot its business and begin owning fleets of autonomous cars orchestrated by smart contracts. In fact, Uber is highly investing in self-driving cars and trucks which would lessen the blockchain menace and allow the company to ride the decentralization wave.
On the other hand, the future may not look so bright for the home-rental marketplace company Airbnb, as Slock.it is a clear picture of where the sector is going hereafter. Enabling homes to be self-managed with the possibility for renters to “unlock” them by simply paying the door and be granted access for a predetermined time is a solution the company could opt for in the short term, but, again, at that point having a company supervising the whole process would be totally useless and only result in a dissipation of resources.
The future will see people renting their homes and their cars with no companies such as Uber and Airbnb to coordinate economic agents: all actions will be regulated by self-executing smart contracts giving the power back to the people, with fresh disruptive companies approaching the end of the tunnel sooner than they think.