What you need to know about the blockchain economy

blockchain economy

Image Credit: Pushish Images / Shutterstock

Blockchain has almost become a buzzword these days. Everyone wants to do a new “X on blockchain,” whether it’s a decentralized Dropbox, a crypto-Amazon, Upwork with insignificant commission rates, or a Facebook where you own the data, and rake in millions of dollars in Initial Coin Offerings (ICO).

Blockchain reduces transaction fees, promotes transparency, prevents cyberattacks, and puts control and ownership of data back into the hands of users. However, one of the less-discussed benefits of blockchain is the way it can reshape online services, industries and organizations.

And on that front, there’s a lot that needs to be done.

RELATED: What is blockchain?

What’s wrong with our internet services?

At its birth, the internet was meant to be a platform for consuming information. A number of publishers would post online content and a number of passive visitors would consume that information. The boundaries between the two parties were clearcut. Naturally, as publishers were the sole contributors of content, they also raked in all the profits that were made on the platforms.

However, as the internet evolved, it transformed into a platform for collaboration, and the lines between publishers and consumers blurred. Today, online services derive their value from their users, because those users are actively involved in the creation, discovery and distribution of content. However, due to the centralized way internet services are organized, that value isn’t distributed fairly.

Take Facebook for instance, which provides users with a means to connect with billions of other people present on the platform. Facebook makes billions of dollars every year from the activities that these users perform on its service. However, none of those earnings go to those users. It also collects huge amounts of information from its users to improve (the profitability of) its services, but users have little visibility or control over how that data is used.

Freelancing and resource-sharing platforms are another example. They provide the means for millions of employers and freelancers to find each other. However, they also take a considerable share of the earnings that is generated on their platforms. They also hold control over the accounts of users, and should they decide to lock down the accounts, there’s nothing users can do. Some take it even further and spy on their users. That’s why freelancers move away from these platforms whenever they can, in order to enjoy their independence and the full reward of their work.

coins

RELATED: Why does the centralized internet suck?

These are some of the reasons users loath these platforms and often feel like being cogs in the wheels of these giants, slaves that are locked in the service with no way to go. In general, the centralized, top-down way today’s online services are structured breed hatred and divide.

Moreover, the way online services and users are tied to each other creates silos and a conflict of interests. Each party stands to gain from undermining the business of others. For instance, Amazon Web Services has to pay huge amounts to support its cloud infrastructure, and so it has to charge its clients more and more to cover its costs and make its business profitable. In turn, Netflix, which is one of AWS’s customers, has to raise the price for its services in order to cover its cloud expenditures and make profits. Netflix’s end users, who are at the end of the chain, see it within their interest to obtain illegal copies of movies in order to avoid paying fees.

Another example is the distribution of digital content. In order to pay for their hosting costs, content distributors either put up paywalls on their websites or bombard their visitors with invasive ads. In return, visitors either find third party sources to gain free access to paid content, or install ad blockers to get rid of the annoying ads.

How the blockchain economy works

Blockchain provides the backbone for economies of shared interests. In blockchain ecosystems, involved parties are encouraged to cooperate and align their goals in order to improve their gains. Blockchain breaks silos and makes sure everyone shares the costs and profits of the business.

To better understand this model, let’s consider an example that runs parallel to the streaming service we examined in the previous section. Take a blockchain-based streaming service such as Flixxo. In Flixxo, users pay for services by acquiring and purchasing the platform’s cryptotokens. However, while they can always purchase tokens with fiat currency, they can also obtain them by contributing to the platform in some other way.

One of these methods is for users to become part of Flixxo’s storage network. Flixxo has replaced the traditional cloud backend with a distributed storage network managed by smart contracts and blockchain transactions. Users can share their free disk space with the network and in return earn tokens, which they can use to consume content. By removing cloud storage, blockchain reduces content hosting costs to a large extent, which results in lower prices for consumers and much lower commission rates for content providers. Also, by rewarding users with cryptocurrency for their contribution, blockchain encourages them to promote the fair use of the platform and avoid getting involved in piracy and illegal distribution.

flixxo cycle

Brave, the browser developed by Brendan Eich, creator of JavaScript and co-founder of Mozilla, provides another example of how blockchain can turn an otherwise hostile economy into one that is based on mutual consent and benefit. Brave’s ad distribution model requires advertisers to pay publishers in BAT, its proprietary cryptotoken. However ads aren’t displayed to users unless they themselves decide to see them, in which case they’re rewarded a part of the ad’s BAT tokens for their attention. By making ads profitable to all three parties involved, the blockchain-based advertising model ensures that users only see ads when they wish to. Advertisers will benefit by spending less on ads and improving conversion rates.

Another interesting aspect of the blockchain economy are cryptotokens and initial coin offerings (ICO). Most blockchain startups use their own cryptocurrency to fund the development of their projects and to enable transactions on their platforms. Owning any number of tokens not only enables users to pay for services on these platforms, but also makes them a mutual owner of the network. This gives them a stake in seeing the platform (and by consequence the tokens) rise in value and adoption and encourages them to help the network grow.

As these examples show, blockchain trades competition for collaboration. By enforcing a fair distribution of dividends and a more transparent way of doing business, it reduces friction among the involved parties, and encourages everyone to become a contributor to the success of the economy. In light of this revelation, blockchain platforms have a totally different meaning and value, and more than just another way of reproducing current centralized services, they become totally different ways of organizing economies.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s