True sharing economies have not yet been realized on the internet, but blockchains may change that. Marketplaces like Google, Facebook, eBay, Uber and Airbnb aren’t democratic economies because they all hold monopolies within their respective industries. Once a marketplace’s user base reaches a certain critical mass, it achieves a network effect that causes explosive growth. This process usually forces its competitors out of business, resulting in a monopoly.
Marketplaces currently generate revenue by serving as middlemen between buyers and sellers. For example, eBay maintains a single database on all its buyers and sellers, many of which can only be found on eBay. This arrangement means that online buyers can often find what they need only on eBay, which tends to maximize selling prices. Blockchains could change the role of marketplaces as middlemen, resulting in fewer monopolies and lower prices.
Marketplaces essentially connect buyers with sellers for both products and services. eBay specializes in products, while other marketplaces like Uber provide services like transportation. Airbnb connects home owners with people who need to rent rooms. Other marketplaces may offer services such as dog-walking services, housecleaning and personal errands.
All of these companies earn most of their income by taking a cut from the fee that the seller charges to the buyer. However, some marketplaces also make money with the data they collect on buyers and sellers, either by using it themselves or selling it to other businesses. This business model has proven to be highly successful for many companies. For example, Uber was founded in 2009 and is worth $68 billion as of 2017.
A blockchain is a list of records, also known as blocks. Each block contains the data for a transaction, a timestamp and a pointer to the previous block in the list. Blockchains are typically used as distributed ledgers, which are usually managed with a peer-to-peer network. The use of a hash pointer and protocols for validating new blocks makes blockchains a highly secure method of recording transactions. The data in a block can’t be altered once recorded without modifying the subsequent blocks in the chain, which would require collusion with the network host.
Blockchains are best known as the technology used by Bitcoin, which is often used to make anonymous purchases on the internet. They perform the same logical function as a current marketplace’s centralized database of buyers and sellers, except the data in a blockchain is stored on every computer in the network without a central platform. A marketplace could therefore add its transaction data to a blockchain that would be stored on the users’ computers. Each marketplace could then create its own interface for the same blockchain.
Benefits For The Sharing Economy.
Blockchains allow participants to conduct transactions directly, rather than going through a middleman. These transactions are fully transparent and don’t require the permission of a third party, since blockchains are peer-to-peer distributed ledger.
Furthermore, multiple marketplaces can share blockchains, which increases competition. For example, a marketplace for transportation services could build their own application for the same blockchain Uber uses. This app could also offer the same functionality as Uber’s app, with the addition of a native payment system. This capability eliminates the need for a centralized agency to process payments, nor does it require Uber to organize the app’s functionality because it’s distributed across a network. This operational model would thus provide drivers with greater flexibility since they would no longer be required to abide by Uber’s pricing structure.
Related: What Exactly Is The Sharing Economy?
A number of startups are already using blockchain to compete with established marketplaces. Arcade City uses the Ethereum blockchain to offer ride-sharing services with a peer-to-peer network that connects drivers with riders. This model allows drivers to be true entrepreneurs gives riders better control over their experience. Arcade City has received favorable reviews from both drivers and riders, and also won the blockchain startup category at the 2016 GTEC Awards.