How Decentralization Encourages Sharing

You already heard about the innovation of blockchain technology. But do you know how your life will change once decentralization will be everywhere? The shift is already happening and it encourages more sharing!

What is decentralization

Some people say that decentralization is the future of the global economy, and with that come some of the most exciting new startups on the market. In this article, we will take a closer look at some of these new startups – in particular, the company Zangll who has set out to disrupt the rental market.

Traditionally, the role of the middle man is a very important one to all economies. Many markets have not been transparent in the past because of geographical barriers and information imbalances. Some examples include:

  • Prices of goods would be vastly different between countries or regions – for example because of different prices of raw materials or labor in another country.
  • Customers did not have the necessary skills to be independent actors in a market – for example when they were trading shares or financial options.
  • Customers were lacking the expertise to understand whether or not a certain product or service was worth its price – for instance if a medical doctor provided high-quality medical care, or if a lawyer was good at his job or not.

Thus, for centuries, consumers had to rely on third parties and middle men to take part in most markets, except the most limited and local ones. And of course, these middle men took their share of the profits, resulting in a disadvantage to both suppliers of goods and services, and their customers.

This started to change with the advent of the Internet: Geographical barriers were falling when e-commerce allowed customers to deal with merchants in other regions directly. No middle men required. Also, information on even the most niche topics became widely available, allowing consumers to educate themselves about the quality and standards of goods and services.

However, it is difficult to build trust via electronic media. This limited the possibilities of individuals trading with one another: If I bought a laptop from you via the Internet, how can I make sure that you don’t just take the money and vanish? This distrust eventually led to the rise of new middle men, even larger than before: Amazon, Paypal, Airbnb, Upwork, and several others. They guaranteed the honesty of transactions, but were not always honest themselves. Paypal, for example, has complete power over whether or not they can close an individual’s or company’s account if illicit activities are suspected – whether these suspicions are confirmed or not.

These are the major disadvantages of a centralized economy with big and influential middle men:

  • They raise the prices because their services are expensive to maintain, and thus need to take a large share of the profits.
  • They have the power to arbitrarily make decisions, the consequences of which can be disastrous to individuals and small businesses.
  • Finally, they can develop a bureaucracy that makes dealing with them slow and onerous.

Decentralization – the removal of middlemen and the development of a peer-to-peer economy – is the antidote to these problems. As discussed above, the greatest barrier to decentralization in the past has been the necessity to build trust between individuals through electronic media. With the advent of the Blockchain, we have a new tool to establish this trust by using an algorithm. No longer do customers and sellers need to rely on central authorities anymore. This is why the Blockchain has been embraced enthusiastically by startups spanning all industries – especially those that are based on sharing.

Sharing is a special case among business models. In a sharing economy, companies do not sell their own products or services to other businesses (B2B) or consumers (B2C). Rather, they sell goods that they receive from other consumers – essentially C2C, consumer to consumer. Companies in B2B and B2C often produce real value. For example, it is hard to imagine how one could make a steel factory or a bakery redundant by establishing a Blockchain around their business models. However, this is different in the sharing economy, in C2C: Here, companies are really only middlemen who can be cut out of the process by establishing an alternative source of trust between consumers.

Thus, the sharing economy is uniquely suited to decentralization via the Blockchain.

Currently, there are some large and successful middlemen in the sharing economy, such as:

  • Uber (sharing of car rides)
  • BlaBlaCar (sharing of cars)
  • Airbnb (short-term apartment sharing)

In principle, sharing has many advantages compared to traditional business models. It improves the ecological footprint because existing resources are being used in an optimal way instead of producing ever new things. They also bring people closer to each other, supplying them with new social connections in an age in which these often get lost due to high job mobility and small families.

However, all of these big players in the sharing economy have been criticized extensively for a number of reasons. They take large profit shares without taking responsibility for the “sharers,” who often rely on those middlemen for their income, and they are also allowing commercial entities to enter into a market that was originally advertised for private individuals only.

Thus, small and disruptive players that have the advantage of the Blockchain are entering the markets and challenging the incumbents.

Top 3 of current sharing apps on the Blockchain

The use of Blockchain apps in the sharing economy is still in its infancy. However, there are a couple of promising applications with sizable user bases that anyone who is interested in the sharing and crypto-economy should keep an eye on.

1. Storj

Most applications in the sharing economy are based on the idea that resources currently unused by their owner can be profitably shared with others who need these resources at present. This is no different in the case of Storj. They have identified a field in which unused resources are the norm rather than the exception: Hard disk storage space.

Storj users can rent out their unused disk space – even unused space on external hard drives – to other users who require this space. In order to preserve privacy and confidentiality, stored files are broken up into minuscule shards, and each user supplying the storage space (“storage farmer”) receives only a shard of the original file. This also makes sure that retrieval of the files by the file owner is not unduly delayed by the insufficient bandwidths of some storage farmers. In addition, these shards are encrypted. If the system detects any tampering with those shards, the respective storage farmer is excluded from the network as a malicious node. These are the mechanisms that build trust among the Storj user community.

Storage farmers earn Storj’s native token, STORJ, and can themselves buy storage space and pay with this token. This is an elegant way for all Storj users to deal with the changing requirements on their systems. For instance, if a user wants to store a large movie file this week, she can rent storage space and pay with the STORJ tokens she earned by renting out her surplus disk space last week.

Potential advantages of Storj are cheaper prices for storing and downloading compared to AWS, to give one example. Although this is claimed by representatives of the company, there are currently no known fixed prices for their services since these depend on current usage and bandwidth of the system. A disadvantage of using Storj is the fact that no large entity, such as Amazon, can be held responsible for the service level of the network.

However, the case of Storj demonstrates another advantage of the Blockchain for decentralized apps: Payment inside these apps can be implemented elegantly by offering a native token. The natural redundancy inherent in any Blockchain also makes it possible to drop any malicious node without suffering data loss.

2. Zangll

One of the most successful, and the most criticized, players in the sharing economy is rental sharing platform Airbnb. Although they charge hefty commissions of 15% to 20%, they are hugely successful. User statistics show that with 4 million listings, 150 million users and 640,000 hosts, the company is currently valued at 31 billion USD. It is present in 64,000 cities in 191 countries. It is so dominant on the market that there are even companies and non-profit initiatives wholly dedicated to analyzing Airbnb stats and business figures.

However, the startup Zangll is attempting to disrupt this incumbent. Zangll is developing a decentralized rental network based on the Blockchain with the purpose to make Airbnb redundant. Its main selling proposition is having vastly lower fees, due to higher automatization: 0.45% instead of 15 to 20%. In addition, they will offer tamper-resistant Blockchain-based reviews, and are working on the implementation of e-locks, further automating the rental process.

One of the most important features that distinguish Zangll from Airbnb is the fact that individual insurance for rental properties will also be available on the Blockchain. With Airbnb owners often have to rely on the centralized authority (and some would say, the whims) of Airbnb. With smart contracts, the insurance for each property can at the same time be standardized and reliable, all while offering the owner individual choice about the extent of the insurance.

Zangll’s ICO is due to start at the end of November, and the platform will enter the alpha testing stage in February 2018.

3. Toyota Car-Sharing

While the examples mentioned above are fast little startups looking to disrupt the status quo, there are a few industry giants who have noticed the disruptive potential of the Blockchain as well. One of the avant gardists here is the car manufacturer Toyota. Instead of hoping that the sharing economy and decentralization will miraculously refrain from interfering with new car sales, Toyota is being proactive and launching its own project in the car sharing space, using the Blockchain.

For this, Toyota has partnered with MIT Media Lab and several Blockchain startups to develop the car sharing and ride sharing app of the future, running on Ethereum. The concept includes GPS (of course), RFID for car identification, smart contracts between car owners, drivers and passengers, and data sharing with insurance companies. This idea has won 2017’s UAE Virtual Blockchain Hackathon.

The aim of this project is to make transportation by car even more flexible and efficient. Not only will it be possible to share rides with car owners, but current unused cars can be shared as well, not only by a single driver, but by ride sharers as well. Since all of this will be managed in the Blockchain, it promises to solve one of the most important challenges in car sharing today: How to safely transmit access rights to the appropriate individual. To put it simply: To authorize someone to use the car without having a human employee hand out the keys. Because the Blockchain offers manipulation-free recordkeeping, it is uniquely suited to offering an efficient solution to this very problem.

Further details about the use of a native token and the exact timeline of the project are awaited by the crypto-community with great curiosity.

Conclusion

There has never been a technological development that was as advantageous to decentralization and peer-to-peer business models as the Blockchain is today. Although it is still in its infancy, comparable to the early days of the Internet in the 1990s, there are already several promising applications. Who will be the first to push an incumbent corporation from its throne (will Zangll replace Airbnb)? Anyone interested in Blockchain and decentralization, or in promising business models for that matter, should keep a close eye on them.

Finally, the industries discussed above are not the only ones being disrupted by the Blockchain today. Other examples include:

  • Healthcare – doctors and patients exchange notes and records in decentralized systems without all power being centralized in doctors’ offices and hospitals. This is exemplified by the startup Gem.
  • Betting and forecasting – the reliance on traditional bookies will soon become outdated with the rise of startups such as Augur.
  • Travel booking – even big industry players are interested in increased efficiency of this process, as proven by the joint venture between Lufthansa and Winding Tree.
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