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Gig Economy: Could Blockchain Empower Workers?

The global economy has relied on permanent employment as the main source of labor since the industrial revolution of the 19th century. Silicon Valley is changing that through short-term contracting or freelancing platforms such as Uber, Lyft, Upwork and Airbnb. In October 2016, Forbes reported:

Freelancers now make up 35% of U.S. workers and collectively earned $1 trillion in the past year.

The new way of labor or service outsourcing has been dubbed the gig economy. Many platforms that have been instrumental in the economy’s growth could become fleeting fads, however, if recent reports are correct that too many workers are burning themselves out using them.

Voices in the mainstream media doubting the resilience of the current gig economy marketplaces have become more frequent lately. Are they beginning to outnumber those that sell freelancing as the future of work?

And could Blockchain and decentralized applications such as smart contracts support the online freelance economy to further empower freelancers, helping them maintain more control over their work environment?

False promise

On March 22, 2017, the New Yorker published an article titled “The Gig Economy Celebrates Working Yourself to Death.” To demonstrate how bad the situation is, the article tells the story of a pregnant Lyft driver who went into labor and continued to take on clients before checking herself into a hospital and giving birth.

Less than two weeks later, on April 2, The New York Times ran a story about “How Uber Uses Psychological Tricks to Push Its Drivers’ Buttons.” The article explains how the taxi-hailing app company uses behavioral science to turn people who are supposed to be independent entrepreneurs into those who behave like traditional employees.

The New York Times followed this with an editorial on April 10 that describes “The Gig Economy’s False Promise.” It states:

There is no utopia at companies like Uber, Lyft, Instacart and Handy, whose workers are often manipulated into working long hours for low wages while continually chasing the next ride or task.

These are just a few of the negative articles on the gig economy that have been published recently. The issues they all raise come down to the poor welfare of workers, low earnings, and deliberate opposition—through both legal and violent means—of the old economies that the new economy seeks to replace.

The blockchain fix

The blockchain could fix a large number of these weaknesses, the root cause of which lies in the centralization of the platforms on which the gig economy runs. Current online subcontracting marketplaces are said to make users into independent entrepreneurs. The reality, however, is that such platforms can easily exploit the needs of users who are simply looking for new ways to make a living.

A freelance marketplace built on top of blockchain-based peer-to-peer network would remove the control from one individual or centralized company and put it in the hands of those who use it. In such a scenario, everyone who joins the platform would contribute to the resources required to run the marketplace. This copies the model used in Bitcoin mining. A blockchain-based marketplace wouldn’t be susceptible to the expectations or control of venture capital.

Blockchain also offers technical advantages such as smart contracts, which are self-executing contracts written in code. Smart contracts remove the need for a service provider to oversee and facilitate transactions between players in the marketplace.

For instance, you could reach out to a taxi driver, negotiate price and have the contract secured on the blockchain before the ride begins. The driver could be assured that funds would move to their wallet once the ride is over, and you could be certain the driver wouldn’t try to shortchange you.

Further benefits

Blockchains come with native currencies or cryptocurrencies, which would support transactions at lower fees on gig economy platforms than those using traditional payment methods charge.

Even more, in blockchain gig economy marketplaces, the old players such as taxi companies could see an opportunity to take advantage of, rather than a competitor to oppose.

In terms of regulatory obstacles, a peer-to-peer network doesn’t have a central office on which a municipality or government could exert pressure or terminate the service. In Early April, Italian regulators banned Uber from the entire country. Such a ban would be difficult to implement if the platform was operated open source and peer to peer.

In addition, people in more areas, cities and towns could easily use the service because only the service provider and client would need to be available. No need for a company to research profitability before bringing service to a city or town.

If online marketplaces were built on top of a peer-to-peer network — which no single individual or group of people could control or use to manipulate or exploit contractors or users — then a true gig economy could grow.

Several startups are designing such marketplaces on the blockchain. One is OpenBazaar, where people can buy and sell goods and services. It is built on a peer-to-peer network that anyone can join by downloading the client software onto their devices. From the OpenBazaar blog:

OpenBazaar puts the power back in the users’ hands. Instead of buyers and sellers going through a centralised service, OpenBazaar connects them directly. Because there is no one in the middle of your transactions there are no fees, no restrictions, no accounts to create, and you only reveal the personal information that you choose.

Another is Arcade City, a taxi hailing company that lets drivers determine their own terms of service, while also keeping everything they earn. The platform was founded in January 2016 by Christopher David, a taxi driver who worked for Uber before it was banned in his city of Portsmouth, New Hampshire.