Digital currency, the Airbnb and Uber killer
Ride-sharing app Uber experienced a setback on Thursday (11 May), as a top EU lawyer of the European Court of Justice (ECJ) stated in an opinion that the company can be regulated as a transport business, instead of an information society business.
But the ECJ is not the only thing that is on Uber’s worry list.
Virtual currencies may one day challenge the dominance of digital giants such as Uber and home-rental app Airbnb.
Both of these firms run their services on centralised platforms and skim fees off their users around the globe. It is a business model that has earned them billions in revenue and raised tricky questions over tax and labour rights.
Destroying that business model – while keeping the service with the same level of trust when things go wrong – could be the next big step in the so-called sharing economy.
The vision of a decentralised sharing economy has gripped people who see virtual currencies as a driving force behind what today remains very much a niche movement.
Aaron Wright, director of the Blockchain project at the New York City-based Cardozo School of Law said “I think it is very early days,” referring to the new wave of cryptocurrencies.
Digital currencies first appeared eight years ago with Bitcoin, the value of which has been fluctuating up and down over time.
Despite internal turmoil among its user base, Bitcoin traded above the market price of one ounce of gold for the first time ever earlier this year.
Many similar currencies have since followed Bitcoin’s release, with a total combined market cap value of around €27 billion and growing.
Blockchains and Ethereum
Not all virtual currencies are the same, but one thing all of them share is the underlying use of blockchain technology.
Blockchains store information across a network of personal computers. It means no company, government, or person owns the system. Information on blockchains cannot be altered, reversed or changed. And everyone helps run it.
Bitcoin is by far the most popular virtual currency on the market. But two years ago, Ethereum appeared and has since become Bitcoin’s biggest rival.
Unlike Bitcoin, Ethereum is also able to transfer information and value of any kind.
“It [Ethereum] resembles a new level of understanding of what cryptocurrencies can do,” said Walid Al-Saqaf, from the US-based non-profit Internet Society (ISOC).
Sometimes described as a decentralised world computer, Ethereum can run programmes, exchange information and value.
Ethereum opens up a whole new field of opportunities that may one day rival more traditional online industries. One reason is that Ethereum is the first currency that allows for so-called smart contracts.
A smart contract is a small programme that acts as a digital middle-man, gets money from multiple people, and provides designated services.
Placed on a blockchain, which is immutable and transparent by default, it could create the trust people seek when they sign up to services like Airbnb and Uber.
“We can use this new database that nobody owns. That means Uber doesn’t own it, that means Airbnb doesn’t own it,” said Wright of the Cardozo School of Law.
Wright said people then started thinking about how the blockchain could be used in the sharing economy.
“I think people see the vision for this and the question is does it happen in the next five years or does it happen in 20 years,” he said.
Some are already trying.
Slock.it, a German-based firm, is currently developing the smart contract and Ethereum concept into practical applications.
According to the company’s website, Slock.it wants to give everyday things, like work space rental, the ability to receive payments and enter into complex agreements and transact without intermediaries.
In March, it secured some $2 million in seed money to develop its Universal Sharing Network (USN) project.
“With the USN, rental apartments and offices will become fully automated, smart objects will be rented on demand and unused vehicles get a new lease on life,” said Slock.it’s CEO, Christoph Jentzsch, on the firm’s website.
But Slock.it hasn’t been without issues.
Last year, it attempted to raise venture capital using a smart contract that was later hacked.
The smart contract contained a bug, which was exploited. Some $50 million of digital Ethereum money, also called Ether, was stolen from the project known as the Decentralised Autonomous Organisation (DAO).
“People learned from that [DAO], because it is not a simple thing to write a smart contract, it is much more demanding,” said Walid Al-Saqaf.
It means if there is a bug in the code then it becomes susceptible to hacking or other vulnerabilities.
Al-Saqaf says a critical mass is needed for people to consider Ethereum as a living application for a smart contract, rather than as a currency, before it would ever go mainstream.
“I see it developing, the thing is that there is potential and the technology is available,” he said.