The first use case for Blockchain that has disrupted an industry is the ICO. The VC business will never be the same. When Ethereum did their ICO in 2014, the founders did not think that ICO would be their killer app. The ICO was like digital publishing in early days of Apple, a wonderful unplanned surprise. In 2014, the Ethereum team thought that the sharing economy would be their killer app. Maybe it will be the second killer app. That is what we explore in this chapter/post.
This is Part Two (Chapter 9) of the Blockchain Economy book. This serialised book is a practical guidebook for investors, entrepreneurs and employees who want to learn how to prosper during the transition to an economy where value exchange is permissionless and disintermediated. For the index/table of contents please click here
This chapter describes:
- Sharing Economy 101
- Will Blockchain networks replace dominant services such as Uber and AirBnB?
- Blockchain for classic car sharing
- Blockchain for bike sharing
Sharing Economy 101
The Sharing Economy idea is simple. You provide an incentive to share something you own. That could be something physical that you own – think home (AirBnB)- or your time – think of all those gig economy ventures. Uber combines both (car and driver).
The term has come in for some abuse as there are many related concepts with different names that get bundled together under the sharing economy moniker:
- Contract labor. This includes Uber, TaskRabbit and countless examples for every chore imaginable. What is being shared is the labor/time.
- Asset Share for a fee. AirBnB is the big one, but imagine this for any other asset that people want to use. A recent example is ParkGene, where the asset is parking space (ParkGene recently did an ICO led by Ilias Louis Hatzis (a serial entrepreneur who is also one of the constellation of stars writing for Daily Fintech).
- Asset share for free or barter. This is the world of neighbours sharing equipment that they only infrequently use (you can use my power washer because I like and trust you and I may want to use your power saw).
For years Crossing the Chasm was the closest that Silicon Valley startups had to an operating manual. It fell out of favor when the focus was on digital consumer ventures, but people are dusting off their copies as it is showing some relevance to the emergence of the Blockchain Economy.
Crossing the Chasm defines a phase described as the Bowling Alley:
“Market momentum picks back up in the Bowling Alley phase, as early pragmatists in certain customer segments overcome their reluctance toward discontinuity and adopt the new technology to solve niche-specific problems. By their nature, pragmatists are reluctant to adopt new technology and prefer to follow the herd. Early pragmatists are forced out of their comfort zone to find solutions for broken, mission-critical business processes.”
The question is, in which segments of the sharing economy will Blockchain first gain acceptance?
Will Blockchain networks replace dominant services such as Uber and AirBnB?
Betteridge’s law of headlines says no. So does an analysis of the Creative Destruction 7 Act Play which says this about recent incumbents such as Uber and AirBnB:
Act 7.The new old guard dominates
“Many entrepreneurs make the mistake of seeing how quickly the new guard arose and think that they can also be deposed quickly. The entrepreneurs who made it to this stage will be tenacious, paranoid and really hard to beat – until the next wave comes along.”
The fat fees enjoyed by Uber and AirBnB make them tempting targets but their network effects make them hard to beat. Next we look at two segments that are more likely to be disrupted by Blockchain.
Blockchain for classic car sharing
A classic car is an asset for the wealthy. You can tokenise any asset, including classic cars. The use of this is obvious. Ordinary people can then own fractional shares of cars where they could not afford the whole car. A company called Bitcar did a recent ICO along these lines. This satisfies the asset use, but it is likely that this will fall on hard times when the end of easy money leads to the inevitable crash in classic car prices. As Business Insider puts it – The Classic Car Market Is A Perfect Example Of How Bubbles Collapse.
“Prices of collector cars move similarly to those of other asset classes, such as equities or real estate, both residential and commercial. They surged up to the Financial Crisis. They crashed in a panic – hence the “crisis.” And they reacted in near-unison to central bank money printing, zero-interest-rate policies, and gargantuan bailouts of banks and industrial companies. Central banks made cheap liquidity available expressly to pump up asset prices. And that worked. But it doesn’t work forever.”
So, from a wealth management point of view, this is not much better than buying an index fund that goes up and down with economic cycles.
A classic car is also a hobby for car enthusiasts. At current prices these beautiful cars will stay in showrooms and get used very occasionally by their wealthy owners. If that fractional ownership also translated into usage rights it could be more interesting. If I can drive a classic Aston Martin today and a classic Ferrari tomorrow while owning shares in both and many others it becomes interesting and fun. These classic car sharing ventures may come after asset prices collapse when money printing comes to an end, so that a venture can buy a collection for a reasonable price.
In short, the classic car use case is still conceptual, without a lot of traction today.
For a more immediately compelling use case we turn to another example of First the Rest then the West (the idea that true innovation comes from the “Rest Of the World” where billions have unmet needs and there is little legacy technology standing in the way).
Blockchain for bike sharing
For those who cannot afford motorised transport, the peddle powered bicycle is the normal mode of transport. In the West we think of bikes as forms of exercise and pleasure as part of a hip urban lifestyle (and bikes are popular in many wealthy cities such as Copenhagen and Amsterdam); but in the Rest a bike is just transport. The numbers are staggering. In one city in China alone (Beijing), myth has it that there are nine million bicycles. The answer is nobody really knows how many there are – there is no economic incentive to do the work to come up with a precise number. Although we don’t have precise numbers, anybody who has travelled to China, India, Africa and other Rest Of World countries can attest with their own eyes that that the answer is “a lot”.
It makes sense to own a bike for your regular needs. A bike is cheap, so why not? A radical experiment in Amsterdam – the free bike sharing program called White Bicycles in the 1960s – showed us a tragedy of the commons. If something is free, nobody cares for it. You need a fee, albeit a tiny fee.
This is where smart locks come in. If you can have a smart lock that only opens for a customer and that records customer usage, riders will be responsible and care for the bike. One of the first smart locks to come to market was Slock.it. It was one of the first Ethereum Dapps. Note a key difference from the centralised world – the usage data stays on the lock and is used only by the bike owner and not aggregated into cloud data centers.
Slock.it (as in “Smart Lock It”) has uses beyond bicycles. It can be used for any asset that you share for a fee. If you use AirBnB as a host or a guest, you discover that the lock is critical In a traditional hotel you have a receptionist to give a key to a guest after confirming payment. If you stay with an AirBnB host you need to coordinate arrival time so that the host is there to let you in. That is a pain point for both parties. I first wrote about this emerging need in September 2015 after using AirBnB.
Sharing economy requires motivation on both sides of the network. As a user I may want to use a bike when I travel to London, New York, Copenhagen or Amsterdam, but the amount that bike owners will get in those wealthy cities is not enough to motivate them to share. So we will tend to see schemes that have advertising and where you pay by credit card (such as the famous “Boris Bikes” in London) for some time to come. But if somebody travels from Beijing to Shanghai (for example) that user will not just want a bike, they will need one. The bike owner in Shanghai will get what is a reasonable compensation for lending their bike; so both parties benefit.
Bike Sharing in China is already a big business, with a couple of big competing networks. As Zarc Gin (Daily Fintech’s Expert in China) recently reported, one of those networks (Ofo) is planning on using Blockchain.
“First, blockchain can solve the trust issues between ofo and users. Leveraging blockchain to record user information and bike usage, ofo can have an accurate and comprehensive user profile out of those information and build a credit system for users. With such a credit system, ofo users can know how they have behaved on using the bikes and get rewarded such as deposit-free and bonus tokens.
Second, the user behavior information and bike usage data recorded on blockchain can be easily shared with bike providers and manufacturers. With those data, manufacturers can deploy their maintenance team more efficiently and no longer need to manually check the bike conditions.
Third, and the most important one is, by introducing blockchain into bike-sharing economy, every individual can be the provider and the consumer-to-consumer, or peer-to-peer model can be truly implemented.”
Human nature is much the same around the world. What the White Bicycles experiment in the 1960s taught us is the same lesson that China has learned, that respect for somebody else’s property must have some economic component. However don’t expect an Uber/AirbnB model powered by Credit Cards to work in these low priced asset use cases. This is where Blockchain based models will thrive.
Bernard Lunn is the CEO of Daily Fintech and author of The Blockchain Economy. He provides advisory services to companies involved with Fintech (reach out to julia at daily fintech dot com to discuss his services).