Blockchain as a force for good: How this technology could transform the sharing economy

Blockchain has become one of those buzzwords that commands attention and carries a powerful social glow, yet in the likes of similar buzzwords that have attained such a prized status, it has lost much of its meaning. Blockchain has become a catchall term for just about any digital ledger system regardless of crucial variations in its design. With so many blockchain projects ranging from social impact initiatives to opportunistic marketing ploys, it can be difficult to discern which projects hold real potential. For this reason, here's a deep dive on blockchain applications in our niche: social impact.

The volatility in the price of cryptocurrencies doesn't matter to restaurateur Helena Fabiankovic, who started Baba's Pierogies in Brooklyn with her partner Robert in 2015. Yet she and her business are already positioned to reap the real-world benefits of the technology that underpins these digital currencies — the blockchain — and they will be at the forefront  of a sustainable, community-based peer-to-peer energy revolution because of it.

So what does a restaurateur have to do with the blockchain and local energy? Fabiankovic is one of the early participants in the Brooklyn Microgrid, a project of the startup LO3 Energy that uses a combination of innovative technologies — blockchain and smart meters — to operate a virtual microgrid in the borough of Brooklyn in New York City, New York. This microgrid enables residents to buy and sell green energy directly to their neighbors at much better rates than if they only interacted with centralized utility providers.

Photo of Helena Fabianokovic of Baba's Pierogies courtesy of LO3

Just as we don't pay much attention to the critical infrastructure that powers our digital world and exists just out of sight — from the Automated Clearing House (ACH), which undergirds our financial system, to the undersea cables that enable the Internet to be globally useful, blockchain is likely to change our lives in ways that will eventually be invisible. In the sharing economy, we have traditionally just used existing infrastructure and built platforms and services on top of it. Considering that those undersea cables are owned by private companies with their own motives and that the locations of ACH data centers are heavily classified, there is a lot to be desired in terms of transparency, resilience, and independence from self-interested third parties. That's where open-source, decentralized infrastructure of the blockchain for the sharing economy offers much promise and potential.

In the case of Brooklyn Microgrid, which is part of an emerging model for shared energy use via the blockchain, this decentralized infrastructure would allow residents like Fabiankovic to save money and make sustainable choices. Shared ownership and community financing for green infrastructure like solar panels is part of the model. "Everyone can pay a different amount and you can get a proportional amount of energy that’s put off by the panel, based on how much that you own," says Scott Kessler, director of business development at LO3. "It's really just a way of crowdfunding an asset."

The type of blockchain used by the Brooklyn Microgrid makes it possible to collect and communicate data from smart meters every second, so that the price of electricity can be updated in real time and users will still transact with each other using U.S. dollars. The core idea of the Brooklyn Microgrid is to utilize a tailored blockchain to align energy consumption with energy production, and to do this with rapidly-updated price information that then changes behavior around energy.

One of the Brooklyn Microgrid's core goals is to upend traditional energy pricing and change people's energy use by adjusting pricing in real time. All of this happens on a local level, between neighbors. "I really like the idea of the community sourcing energy to one another," Fabiankovic says. "I thought it was a smart way of sourcing energy, and we try our best to maintain sustainability as well, whenever we can. So this is just another way to do that."

Localizing the energy grid is indeed a smart way of sourcing energy that also offers a way to reduce a neighborhood’s carbon footprint. "What we're trying to do is create a real tight market that reflects the time value and the locational value of where energy is used," says Scott Kessler, director of business development at LO3. The Brooklyn Microgrid utilizes LO3's hardware, but it's the blockchain-based software that really does the legwork, providing a kind of infrastructure layer for the energy-sharing economy. LO3 is not the only organization doing this — groups like Power LedgerSwytch, and WePower, are experimenting with other versions of blockchain-based P2P energy grids.

Photo of LO3 founder Lawrence Orsini, courtesy of LO3

What exactly is a blockchain?

Before diving further into the uses of the blockchain in shared enterprises, let's take a quick look at how exactly this emerging technology operates. In its original form, the term blockchain refers to a type of database that is permanent, public, distributed and uses cryptography for security. Here, distributed means that multiple computers simultaneously update and store data once they have come to a consensus about which data makes the cut. Permanent and public means that all changes to this type of database will be visible to all, going back to the moment the database was started.

Yet there are exceptions, and the term blockchain is becoming increasingly vague as many networks marketed as using "blockchain" are often not public or distributed in any meaningful way. Crucially, not all blockchains have a native cryptocurrency, which are the exchangeable digital money-like units with a market price. For blockchains that do have a native cryptocurrency, units of cryptocurrency are usually issued into existence as incentives for running and securing the network. This occurs either through a process of repeated, energy-intensive computations called "mining" or through other means.

Mining has fueled criticism about some blockchains' enormous use of electricity, especially mining on the Bitcoin blockchain which eats up more energy than many countries. The practice of mining however, is becoming outdated as more efficient mechanisms of securing blockchains crop up. Moreover, as demonstrated by up-and-coming sharing economy entities that utilize blockchains, the technology isn't limited just for speculative assets like Bitcoin or other cryptocurrencies. Organizations around the globe are finding innovative ways to use blockchain for as a mechanism for good, providing the powerful rails that the sharing economy of the future runs on.

Blockchain for a better economy

One organization creating these rails is Origin, which is working to reduce the cost, difficulty, and barriers to entry for building marketplaces, enabling people to build truly peer-to-peer marketplaces on the blockchain. In creating this kind of decentralized underpinning, blockchains offer communities alternatives to one-size-fits all solutions and economies of scale.

"Decentralization will enable people to self-organize and have more unique or highly-localized offerings," says Coleman Maher, who handles Origin's partnerships. "It's convenient from a user experience perspective, in some ways, that AirBnB is the exact same experience in San Francisco as it is in Rio de Janeiro as it is in Tokyo. But all those cities have different cultural environments, regulatory environments, and different specialized, local concerns. It doesn't really make sense that the same organization is running the home-share market in these three, vastly different cities. We think it makes sense that home-sharers host self-organized get-togethers and say, 'Hey, we want to have our own home-sharing decentralized marketplace that's fair to us and fair to our guests. We don’t want to have to play by AirBnB's rules.'"

Another crucial part of the sharing economy infrastructure is financial infrastructure. Consider the two billion unbanked and underbanked adults around the world. Can blockchain benefit them as well? WeTrust is one of the blockchain startups working to do this, and has already put out a lending circle product on Ethereum, the second most popular blockchain after Bitcoin.

Lending circles (also called money pools, tandas, susus, chit funds, and a whole lot of other things depending where in the world you are) facilitate shared community finance and peer-to-peer credit for those who do not have the ability to take out bank loans. Plus, lending circles have "been around and used by millions of unbanked people for millennia," says Jake Kuczeruk, former director of partnerships at WeTrust. Lending circles are democratic and allow people to lend to their peers without requiring any financial institution to mediate them — practically, at least. Regulation is another story. Still, "most of these circles are being done with cash, with fiat currency, which obviously has some real safety and security issues, not to mention just being crazy inconvenient," Kuczeruk says.

Since blockchain can deal with these issues, reduce administrative costs, and increase transparency, WeTrust sees potential in applying this technology to people’s existing behavior around finances. "We're realistic here," he says. "Bitcoin and blockchain technology in general only have about a 15 million person ecosystem. Obviously the global unbanked/underbanked aren’t really familiar with this technology yet … But now we’ve reached a point where it's like 'Hey, this is live. Let’s sit down together, we'll walk you though this.' Because at the end of the day, we want to make this as easy to use as Venmo."

Other startups are taking a different approach. Companies like Kora are making the blockchain immediately accessible to populations in need of financial services by finding ways to integrate it with technologies they already use, such as mobile phones.

In addition to creating what is effectively an open-source payments infrastructure, Kora has been working directly with a range of groups — from farmers in Nigeria to coffee producers in Peru to a cooperative in Bangladesh — to make financial products that are accessible and work for groups that may otherwise go without them. The blockchain allows these groups to access financial services at a lower cost, increase transparency around where their funds are and how they get used, and allow projects to scale up more easily. "We just think about what users need, and then blockchain just happens to be a nice way to get there," Maomao Hu, co-founder and chief operating officer of Kora, says.

Kora staff member with farmers. Photo courtesy of Kora

Plus, the types of groups that stand to gain the most by integrating blockchain into their daily lives are very often the existing sharing economy entities that were disadvantaged by traditional finance and market forces. "Everywhere we go, the co-op has become a centerpiece," Hu says. "They're a really powerful structure for raising economies of scale, locally. The blockchain is actually this really powerful tool that almost overlaps, word for word, with some of the academic research that’s been done on co-ops."

Another player using blockchain in the financial inclusion space is Moeda, a cooperative crypto-credit banking platform. "Moeda provides a transparent impact investment platform to impact investors and a banking-as-a-service platform to entrepreneurs who will be receiving loans to not only fund, but to scale and grow their businesses," Taynaah Reis, CEO of Moeda, told Shareable in 2017. "In turn, their local communities will directly benefit." Moeda has provided a round of microloans and seed funding for businesses in Brazil, and has partnered with a network of agricultural cooperatives in Brazil called Unicafes to do so.

Not all that glitters is digital gold

But there are still quite a few reasons to be wary of using blockchains. Emin Gün Sirer is computer science professor at Cornell University and co-director of the Initiative For Cryptocurrencies & Contracts (IC3), a group of academics and researchers working on cryptocurrency and blockchain development. Sirer created a digital distributed currency, Karma, that predated Bitcoin and is also familiar with the sharing economy and its reluctance to embrace blockchain. "Deep down, the underlying ethos is different," says Sirer, about the two worlds. "In one, you have these highly individualistic, highly profit-driven people and they want to make money. And in the other, you have the exact opposite type of people. They want to make the world a better place and they don’t care about personal monetary compensation, typically." But, Sirer explains that many in the latter "have a bootstrapping problem, they find it difficult to raise money."

"But at the intersection of these two worlds are fantastic ideas. If you can come up with something that is easy to bootstrap, that does have some incentives built in for the people operating the schemes, and also makes the world a better place — then we’re talking. And we’re beginning to see such projects." Some, like Chelsea Rustrum, co-author of the book "It's a Shareable Life" and a contributor to Shareable, are focused on reconciling these two worlds so that they can work together. Rustrum started a group called Blockchain for Good which runs regular meetups in the San Francisco Bay Area and New York City and has also organized around diversifying this space, since women are severely underrepresented in the blockchain space, and minorities are still underrepresented in the tech industry.

Blockchain for Good meet up photo courtesy of Chelsea Rustrum

But other problems still exist. This ecosystem is still rapidly emerging. As such, applications and code are getting deployed as fast as possible by startups that feel acute pressure to move first — lest they allow competitors to swoop in, dominate a niche, and lock them out of the market. This rapid pace has made it particularly easy to lose funds due to hacks resulting from bugs in code and mistakes, in addition to scams and phishing attacks that prey on those new to the ecosystem.

Furthermore, the regulatory environment around assets issued and sold on a blockchain remains highly uncertain, and laws are playing out differently across countries and individual states. Decisions about whether certain types of blockchain assets are securities, commodities, money, or a new asset class are still being made and are changing over time. On top of that, a few Initial Coin Offerings (ICOs) have been outright scams, and many others are nothing more than honest, but inadequate ideas presented in a whitepaper, along with a website and some team photos.

Blockchain for cities

Still, the idea of crowdfunding on the blockchain goes beyond ICOs. Cities are finding innovative ways to use the blockchain to raise and distribute funds for public projects. In the U.S., the city of Berkeley in California announced that it would be using blockchain as the backbone for municipal bonds, allowing for more flexible funding for small directed projects, along with increased transparency. Importantly, this model would allow the less-wealthy residents of cities to peer-fund small projects in their locality and receive a financial benefit from doing so. "Normally, because the bonds are so expensive — these fiduciary firms  looking to scale their profits," says Ben Bartlett, Vice Mayor of Berkeley. "They disallow small projects. You have to pay $100 million [to issue a bond], and things like that. But this way you can issue a bond for something small like a firetruck." And that's exactly what Berkeley is planning on doing.

Photo of Berkeley City Council meeting by Scott Morris

Separately, the City of Austin recently announced that it plans on using blockchain technology to provide identity services to its homeless population, simplifying the process of offering services and benefits to a demographic that frequently runs into obstacles due to lack of identity.

This is where the concept of a self-sovereign identity comes in. Simply put, a self-sovereign identity on the blockchain is a permanent identity that can only be accessed in full by the person or entity to whom it belongs, yet portions of that identity can be shown to any individual, organization, or agency whenever it becomes relevant. Since self-sovereign identities are decentralized and encrypted, identity theft or incidents like last-year's Equifax hack become much less of a problem.

The existence of self-sovereign identities could allow individuals and small organizations to verify information about each other without having to go through third parties, again facilitating peer-to-peer uses. For example, instead of waiting on a credit report for a rental application, a landlord would be able to verify an applicant's rental payment history, after the applicant chooses to authorize the landlord to see that information. Furthermore, the existence of self-sovereign identities would allow startups, NGOs, and government agencies to provide services to beneficiaries  and vulnerable populations while granting agency and protections to recipients of those services.

Blockchain for education and aid

One organization moving toward implementing a self-sovereign identity indirectly by providing a different set of services first is Amply near Cape Town, South Africa. Similar to the way a person could fund a new fire truck in Berkeley, they might also fund an educational center facilitated by blockchain. In Durban, some early childhood development centers receive government subsidies based on how many children attend its programs, but to date, the recordkeeping for these centers have been done on hand, on paper. As a result, the quality of the data is quite low and reporting is cumbersome.

Amply’s smartphone app simplifies the process of recording student attendance, and the organization aims to increase the app's versatility via blockchain in quite a few ways. "The longer term goal, also here is that each child and staff member gets a decentralized identity (a DID). That identity, we hope, will eventually build up to become a self-sovereign identity," explains Joyce Zhang, project lead at Amply.

By using a blockchain to track specific outcomes, Amply and partner organization ixo will make it significantly easier and more transparent for the South African government, nonprofits, and individual donors to measure and track impact with high levels of precision. If widely adopted, this won't just make it easier for entities to see where their funds have the greatest cost-to-impact ratios, but it will vastly simplify and enable the sharing of impact data and information about what works between organizations and across borders — all while protecting the sensitive information of vulnerable populations.

Photo courtesy of Amply

Potential donors can decide that "this is a really cool project, I want to donate $100," says Zhang, who is also the program manager at ixo. "And then for those attendances, instead of the teachers getting it from the government, they can get it from private funders or whoever else is using this system."

One of the main aspects of the blockchain is that when any type of information gets put onto it, it is unfeasible and nearly impossible to alter or delete that information at a later time. On a secure blockchain, a record is a record and it always will be.

Blockchain as a public good

This is particularly useful for certain purposes that have nothing to do with transactions or markets, such as sharing information in the face of censorship from powerful or moneyed adversaries. The journalism platform Civil is tapping into this potential to permanently secure information in the public domain. Once something is published on Civil (planned to launch later this year), the platform enables a permanent archive of the content to be logged in the Ethereum blockchain so that no one — hackers, new management, or unsympathetic government — can alter or delete that content for private gain.

This is not a theoretical threat. In 2016, the Hungarian newspaper Nepszabadsag (People's Freedom) was abruptly shut down and all of its records were taken offline in retaliation for its criticism of Hungary's Prime Minister Viktor Orban. Closer to home, the Trump administration has taken down the Environmental Protection Agency’s climate change webpages, though its archives are still available.

In fact, the founders of the Civil platform created this functionality in response to incidents faced by local websites recently. In a post Daniel Kinsley, engineering lead at Civil, wrote that, "In 2017 alone, DNAinfo and Gothamist, two of the leading, local news-focused publications in the U.S., were abruptly shut down by their billionaire owner. Eight years of archives were taken down in a single day, and were only restored after vociferous public protest." Yet by storing or backing up journalistic on decentralized blockchains, inadvertent censorship of this sort, as well as purposeful censorship will be much less of an issue.

Today's media makes it nearly impossible to be level-headed about the potential for blockchain. It has a few reputations, all of which are extreme: blockchain as a technological panacea; blockchain as the driver of an apocalyptic crypto-bubble fueled by speculators, scammers, and ponzi schemers; blockchain as a force of revolution that will overthrow governments and bring entrenched industry incumbents to their knees.

It's possible that certain aspects of of all of these visions will be realized, but eventually much of the sound and fury will subside, outlived and overtaken by the use cases that actually serve people on a day-to day level. Originally conceived as a peer-to-peer technology, the brunt of blockchain's potential still lies in its ability to serve as the technological underpinning for the sharing economy and facilitate financial inclusion, information sharing, and even democratic self-governance and local governance.

When we find ourselves in a world fully immersed in blockchain, we will find that it is a permanently transformed one — one where cooperatives, schools, and neighborhood groups have many of the same technological advantages as governments and multinational corporations. But it will also one be a world that we take for granted and just seems normal — as normal as today's world of electric light, wireless internet, and satellites in space.

Header image of the Brooklyn Microgrid project courtesy of LO3

Curious to learn more about the projects mentioned in this piece? Read these Q&As for a deeper dive:

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