Commons, zebras and team economy

The platform economy is much more than business giants Uber, Amazon or Google. Platforms can facilitate a transformation in ways of organising work, value creation, sharing, and resources. While the currently dominant development direction tends to favour large platform companies with monopoly statuses, alternative undercurrents can be identified.

Why is this important?

The focus in the platform economy has largely been on how it enables new ways to create value. Value comes from both users and producers while the platform adds its value to the ecosystem by providing tools for matching and curating the content. Network effects further multiply the value based on the extensiveness of the network.

The sole focus on value creation has, however, lead to ignoring the mechanisms by which value is distributed in the network. Platforms both mediate value creation and add value through connecting actors, sharing resources, and integrating systems, but the question is, how is this value shared? Especially platforms with near monopoly status tend to aggregate much of the value to the platform itself and not share it back to the users of the platforms in a fair amount. Platform companies, like other companies, give the surplus to their shareholders. In some cases, it could even be said that platforms exploit their users by treating them as workforce without benefits or as sources of data to be sold to advertisers. At the same time, little attention is put into how platforms serve society. The discussion is more about how they disrupt existing industries and navigate in the gray areas of legislation.

Three approaches challenging the dominant platform business

Although the big platform companies produce most of the headlines, there are interesting initiatives for alternative forms of platform economy. One is the revitalisation of the idea of commons. In the context of platforms and peer-to-peer economy, commons is understood as a mode of societal organisation, along with market and the state, and combines a resource with a community and a set of protocols. A key question related to platform economy is what data, tools or infrastructure should be treated as commons, how to govern them and how to build both for-profit and non-profit services on top of them. These and other questions of a “commons economy” are being experimented with in peer-to-peer initiatives, platform cooperatives, and blockchain-based distributed autonomous organizations.

In the same way that commons challenges the notion of ownership, a growing number of companies called “Zebras” are challenging the notion of growth. “Zebras” are companies that aim for a sustainable prosperity instead of maximal growth like “Unicorns”. They can still be for-profit but also do social good. An interesting question is whether platform economy can be used to transform the current growth-based economic system towards a more sustainable version, or will the “Zebras” as well as cooperatives and commons be left to the margins in the dominance of platform monopolies.

A third interesting idea utilising the new possibilities of connecting and collaborating through digital platforms is the idea of team economy by GoCo. It challenges the idea of a permanent organisation. In team economy, groups form around an issue or a problem and disperse once the work is done. In contrast to gig economy, the tasks aren’t simplified or clearly defined, but rather what needs to be done is jointly explored with the customer. A platform is needed to connect and offer a collaborative workplace but also provides a record of everything a person has done, a sort of online CV for the platform age.

It remains to be seen to what extent commons, “zebras” and team economy can influence the development of platform economy, but they are interesting ideas to keep an eye on.

Selected articles and websites

Mikko Dufva

Research Scientist VTT Technical Research Centre of Finland Ltd
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Problems with blockchain

A lot of hopes are placed on blockchain technology. They range from more modest aspirations, like ensuring secure food chains, to hyperbolic claims of creating economic and socio-political emancipation of humankind. Blockchain is said to offer a decentralised way of doing things while solving the problem of trust, which makes it very appealing for platform economy. What is often left out is the consideration of the negative consequences and the barriers to the wide adoption of the blockchain.

Negative consequences and barriers

The main negative impact on current implementations of blockchain relates to energy usage and consequential environmental and other impacts. Blockchains require a lot of computing power, which in turn requires a lot of electricity and cooling power. For example, for Bitcoin alone it has been calculated that by 2020 it might use as much energy as Denmark. While blockchain-based solutions – or cryptogovernance in general – has been offered as a way to alleviate some environmental problems by increasing traceability and ensuring ownership, the negative impact of these solutions to the environment should not be ignored.

The current architecture of the blockchain is high on energy consumption, and also has problems with scaling. The root problem is that all transactions in the blockchain have to be processed by basically everyone and everyone must have a copy of the global ledger. As the blockchain grows, more and more computing power and bandwidth are required and there is a risk of centralisation of decision making and validation power in the blockchain as only a few want to devote their efforts to keeping the blockchain running.

Along with problems of scaling, the issue of governance in blockchains is an unsolved challenge. Since there is no central actor, there needs to be mechanisms for solving disputes. The forking of The DAO and the discussions around it are a case in point. So while blockchain may offer new decentralised solutions to governance, the technology in itself is not enough.

Possible solutions

There are some solutions to the problem of scaling, such as increasing block size, sharding (breaking the global ledger into smaller pieces) and moving from proof of work consensus mechanism to proof of stake. One interesting solution that also decreases the computational power needed is Holochain. Instead of having a global ledger of transactions, in a holochain everyone has their own “blockchain”, and only the information needed to validate the chains is shared. This means basically that while a blockchain validates transactions with global consensus, a holochain validates people – or to be more precise, the authenticity of the chains of transactions people own.

Whatever the technological solution, a discussion on the negative consequences of blockchain is required to balance the hype. Do we want to implement blockchains everywhere no matter the environmental costs? What are the tradeoffs we are willing to make?

Selected articles and websites

 

Mikko Dufva

Research Scientist VTT Technical Research Centre of Finland Ltd
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Platforms and blockchain to bring on beneficial disruption to taxation

Digitalisation and platform economy are usually perceived as a challenge to taxation as it is difficult to monitor and enforce taxation in the digital and global economy. New rules are needed for deciding which activities are taxable and which are not in the in sharing, collaborative and platform economies. A recent US study points out that platform businesses such as Uber and Airbnb have an impact on all three of the major categories of revenue sources: consumption taxes, income taxes and property taxes. The situation is especially relevant for Nordic countries, where the tradition of a strong tax base has been the precondition for an affluent society. The main goal is to develop taxation so that the platform economy can strive while ensuring sufficient tax revenue without compromising innovativeness.

The platform economy could, however, be the solution to these new challenges. If we have a more comprehensive look at taxation, expanding from acute challenges to long-term system-level opportunities, platforms together with blockchain and artificial intelligence technologies could help reform and improve taxation systems.

Why is this important?

Tax authorities around the world are urgently trying to find short-term and long-term fixes to the challenges linked to digitalisation and platforms. The sharing economy is one of the areas, where heated debates have accompanied the introduction of new tax measures (see e.g. Finland, France, Sweden, the US or Australia). Approaches vary from exempting small-scale peer-to-peer activities from taxes to treating gig workers as business owners or considering ride-sourcing equal to taxi travel. The importance of the issue is put into the scale in a study by PwC, estimating the value of transactions in Finland’s collaborative market in 2016 to over 100 million euros.

The European Union (EU) has been active in surveying tax challenges in the digital economy and collaborative economy. Counter measures are being designed and implemented by the Member States respectively, but joint actions and strategies on a European level and globally are also needed to ensure fair operating environment. The EU agenda stresses that all economic operators, including those in collaborative economy, are subject to taxation either according to personal income, corporate income or value added tax rules.

While the authorities are baffled, so are the individual users and producers of platforms. We are currently in a paradoxical situation, where online platforms rely on digitalisation and automation, yet the related tax procedures, deductions and declarations are largely a manual and messy burden.

Things to keep an eye on

The responses from tax authorities do not, and should not, limit to quick fixes within current tax schemes but also explore long-term considerations on principles of taxation and novel means to implement them. Examples of progressive ideas include the suggestion of a specific tax on digital economy and taxation of platforms based on bandwidth or other activity measures such as number of users, flow of data, computational capacity, electricity use or number of advertisers. It has also been proposed that tax rates should differentiate according to the origin of revenues to better steer platform-based business: a different tax burden for revenues generated by one-time access and another tax rate for revenues generated by data exploitation.

Curiously enough, the challenge could be turned into the solution, as the platform economy especially together with blockchain and artificial intelligence technologies could provide the means to more efficient future schemes of taxation. One key problem is that information of and data from platforms does not reach tax authorities. By employing blockchain and distributed ledger it would be possible to remove the need for any intermediary and improve transparency and confidentiality. For example, blockchain applied to payroll would enable removal of businesses as a middle man and allow automatic tax collection using smart contracts. And having data in distributed ledgers would enable analysis of that data for monitoring of tax compliance and horizontal communication between authorities among other things. In fact, blockchain has been argued to provide solutions from digitalisation challenges ranging from anonymity and lack of paper trail to tax havens.

Another forward-looking idea to taxation from the world programmable economy domain involves smart contracts, cryptocurrencies and programmable money, such as Bitcoin or ether by Ethereum. These are currently perceived as a source of trouble to tax authorities, but what if they were soon to be the favoured choice and solution promoted by the state as an active party? This would mean tax authorities having access to the information on payments, on which employers would be obliged to report. Authorities could thus stay on-track in real-time even when the banking and currency system grows more and more decentralised. Furthermore, even national tax planning and writing could be transformed using artificial intelligence and machine learning in time.

Selected articles and websites

Australian Taxation office: Providing taxi travel services through ride-sourcing and your tax obligations
Australian Taxation office: The sharing economy and tax
EUobserver: Nordic tax collectors set sights on new economy
European Commission: A European agenda for the collaborative economy and supporting analysis
European Parliament: Tax Challenges in the Digital Economy
France Stratégie: Taxation and the digital economy: A survey of theoretical models
IBM: Blockchain: Tackling Tax Evasion in a Digital Economy
Institute on Taxation & Economic Policy (ITEP): Taxes and the On-Demand Economy
Kathleen Delaney Thomas, University of North Carolina Law School: Taxing the Gig Economy
OECD: Addressing the Tax Challenges of the Digital Economy
PWC: How blockchain technology could improve the tax system
Sitra: Digitalisation and the future of taxation
Sky Republic: Automating & Assuring Trust Using Enterprise Blockchain in the Era of the Programmable Economy
Skatteverket: Delningsekonomi – Kartläggning och analys av delningsekonomins påverkan på skattesystemet
TEM: Jakamistalous Suomessa 2016 – Nykytila ja kasvunäkymät (Collaborative Economy in Finland –Current State and Outlook)
The Financial: Artificial Intelligence to transform tax world
Verohallinto: Jakamistalous
Wikipedia: Bitcoin
Wikipedia: Ethereum
WU & NET Team: Blockchain: Taxation and Regulatory Challenges and Opportunities, Background note

Heidi Auvinen

Research Scientist VTT Technical Research Centre of Finland Ltd
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Distributed autonomous organization

A distributed (or decentralised) autonomous organisation (DAO) is a new form of organising business transactions, one in which all agreements and transactions are done through code and saved in a shared ledger. It is enabled by blockchain and smart contracts. In a DAO there is no management, but instead complete transparency (as all the transactions are shared) and total shareholder control (as anyone that takes part in a DAO can decide what to do with the funds invested). More broadly, a DAO is an experiment of organising business transactions, where trust is outsourced to code and blockchain. The prominent example of a DAO is aptly named “The DAO”, which is an investment fund without management.

Why is this important?

DAO is a structure built upon a blockchain platform such as Ethereum. It is itself also a type of platform in that through it many types of transactions can be done. DAO is an example of how platforms do not just transfer old ways of organising to digital, networked world, but instead enable new forms of organising and governance. DAO is a structure on which to build different types of activities from investment funds to shared data repositories. It can be used to organise an autonomous ridesharing ecosystem, where there are competing applications for matching, payment, user interface etc, all working seamlessly together. It enables new governance models, such as “futarchy”, which uses a prediction market to choose between policies.

DAO can also be seen as a response to the transformation in work, much like platform cooperativism. As work becomes more like a risky investment than a steady source of income, organisational structures can help cope with the new reality. Whereas platform cooperatives solve the problem by using digital platform to enable fair distribution of value and power, DAOs try to achieve the same through smart contracts, code and blockchain – in other words without humans who could risk the fairness of the system.

Things to keep an eye on

DAOs are based on the idea that all rules can be embedded in the code and system. Smart contracts are described as plain English, but what matters really is the code that defines what the contracts do. Code is susceptible to human error, which means that those agreeing on the conditions of the contract must be able to decipher the code or trust that someone has checked it. An interesting example of what this can lead to happened last spring in The DAO.

In June 2016 a hacker managed to use a vulnerability in a smart contract and transfer a large amount of funds to another contract within the DAO. This led to an ideological discussion about what to do: should this transaction be cancelled and the immutability of the blockchain thus questioned, or should those who lost their money just accept what happened. Because there is no one officially in control, the developers of the Ethereum platform, on which The DAO operates, recommended as their preferred solution “hard fork”, i.e. to cancel the transaction and gave the decision to participants of The DAO. A majority voted in favour of the hard fork, but the original version of the blockchain containing the disputed transaction still exists as “Ethereum Classic”.

The example above indicates how the practices around DAOs are developing. Blockchain technology is still in its infancy and lots of failures and experimentation on the applications are to be expected. There is now clearly a need for built-in governance systems for dispute settlement. One example of this is Microsoft’s project Bletchley, which aims to develop a distributed ledger marketplace and “cryptlets” that would work in the interface between humans and the blockchain implementations. Cryplets would basically mix more traditional methods to ensure trust with blockchain.

On a broader level there is the question of whether or not a DAO is an organisation and what is its legal status or the role of the tokens that represent funds or other assets. There is also the question of whether there is really a need for such an organisation, which eliminates middlemen completely, as middlemen can be useful and provide services other than just matching demand and supply. On a technological and more long-term note, as the blockchain is based on encryption, it is vulnerable to quantum computers, which could break the encryption by calculating private keys from public keys in minutes.

Selected articles and websites

Post-blockchain smart contracts creating a new firm
TED Talk: How the blockchain will radically transform the economy | Bettina Warburg
The humans who dream of companies that won’t need them
The Tao of “The DAO” or: How the autonomous corporation is already here
The DAO: a radical experiment that could be the future of decentralised governance
Why Ethereum’s Hard Fork Will Cause Problems in the Coming Year
The gateway to a new business order: Why crowdfunding is just the start of the next era of organisations

Mikko Dufva

Research Scientist VTT Technical Research Centre of Finland Ltd
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Alternative forms of platforms in ridesharing

Services like Uber and Lyft are the dominant platforms when it comes to getting a ride from A to B. Recently there has been a movement to delete the Uber app, driven the companies actions in relation to president Trump’s so called Muslim ban. This has benefited Lyft, but also drawn attention to other alternatives. These alternatives use platform thinking not only to optimize the matching of drivers and customers, but also to restructure the way value is shared.

Why is this important?

Different forms of platforms lead to different impacts. Lyft and Uber operate as companies seeking growth and maximizing value for their shareholders. This leads them to focus on scaling and increasing efficiency. On the other hand, locally based platform cooperatives, such as Denver-based Green Taxi Cooperative, try to grow to a sustainable size and share the profits among workers and users of the platform. Green Taxi Cooperative was born as a reaction to Uber by the local taxi industry and could be seen as an example of a counter trend to global winner-takes-all platforms.

La’Zooz, on the other hand, utilizes the decentralization enabled by blockchain and is an example of a distributed, decentralized organization owned by its users. Libre Taxi is an open-source app freely implementable by anyone. What is noteworthy in these decentralized alternatives is that they can cater for situations where companies like Uber have no interest, such as ridesharing in Siberia.

Things to keep an eye on

The #DeleteUber issue is an interesting example of the direct power of consumers in platforms. The question that remains to be seen is whether these kinds of movements have any actual impact, or does the ease of use make users forget about the behaviour of the platform company. The emergence of platform cooperatives and the adoption of blockchain-based services will undoubtedly change the forms of platforms. Also it is interesting how complex services can already be built on top of other platforms (Libre Taxi is built on top of messaging service Telegram).

Selected articles and websites

#DeleteUber reportedly led 200,000 people to delete their accounts
Denver Taxi Drivers Are Turning Uber’s Disruption on Its Head
Green Taxi Cooperative: Building an alternative to the corporate “Sharing Economy”
La’Zooz: The Decentralized, Crypto-Alternative to Uber
La’Zooz website
LibreTaxi website
Uber-like app in no time with JavaScript and secret sauce

Mikko Dufva

Research Scientist VTT Technical Research Centre of Finland Ltd
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Digital Twins (of products)

The concept of a ‘digital twin’ has been suggested as one of the top technology trends for 2017, but what is it all about? The digital twin is the virtual counterpart of a real physical product, and it captures the data and information related to a product’s lifecycle from design and manufacturing all the way to use and final disposal.

Why is this important?

The existing applications of digital twins include for example storing and accessing product information using RFID codes and computer-aided 3D design models. However, technology development under the megatrend of digitalisation holds promise for way more radical progress with digital twins: In-house manufacturing applications are about to step up towards solutions across entire supply chains and end-use. The lacking connection and integration between the virtual model and the physical product will be intensified towards dynamic use of data and information flow. And the advances in blockchain technologies, artificial intelligence (AI) and autonomous systems will level up the importance of digital twins, as decision-making, transactions and learning will growingly rely on interconnected products and systems, i.e. Industry 4.0 and the internet of things (IoT).

Things to keep an eye on

The role of the digital twin in the platform economy is central, as it can ideally be the universal access point for all product information as well as accumulated data along a product’s lifecycle. For design, modelling and manufacturing of products the use of digital twins is typically managed with dynamic software models. These will be in the near-future even more closely interconnected to production processes and equipment, and applications are expected to spread and evolve from manufacturing industries to many other contexts such as end-user interfaces, transport sector, service industries, etc. Platforms managing and making use of all these data, information and interconnections will evolve, and the business models to product and service industries are going to change too. Visionaries anticipate even more radical opportunities in the longer term as digital twins of products and services will be followed by digital representations of facilities, environments, people, businesses and processes.

The digital twin is much more an opportunity than a threat, as the involvement of the virtual dimension aims to improve the quality, efficiency and performance of products, services and processes rather than replacing or displacing the real physical counterpart. In fact, the digital twin has been claimed to support the human knowledge kit, boosting problem solving and innovation by enhancing our uniquely human capacity to conceptualise, compare and collaborate.

Selected articles and websites

Gartner’s Top 10 Strategic Technology Trends for 2017
How To Put Your Digital Twin On Steroids
Leveraging Digital Twins To Breathe New Life Into Your Products And Services
Digital Twin: Manufacturing Excellence through Virtual Factory Replication
About The Importance of Autonomy and Digital Twins for the Future of Manufacturing
Digital Twin Data Modeling with AutomationML and a Communication Methodology for Data Exchange
Digitalization in machine building: The digital twin
GE Digital Twin Game

Heidi Auvinen

Research Scientist VTT Technical Research Centre of Finland Ltd
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Hyperledger and open blockchain

Why is this important?

Blockchain can be used for many services in platforms, such as for distributed and secure digital rights management or payments, ensuring identity or making smart, self-actualising contracts. While it is currently being used mainly for digital currencies such as bitcoin, it is increasingly being used in other areas. In order to enable more wide and open use and seamless cross-industry interaction between different blockchain-based services, Linux foundation launched an open-source project called Hyperledger. The goal is to create a common infrastructure and standard regarding membership management, blockchain technology implementation, transactions and the blockchain code for writing e.g. smart contracts. The project is already backed by many major players, such as IBM, Intel and Accenture.

Things to keep an eye on

Hyperledger aims to define the underlying frame for ensuring interoperability and transparency of blockchain technologies. While there is an increasing number of organisations backing the project, it is interesting to see what kinds of services and applications will eventually be built on top of the common framework. Collaboration or cooperation between other general implementations of blockchain such as Ethereum are also something to keep an eye on.

Selected articles and websites

How the blockchain will radically transform the economy
Introduction to Hyperledger; Why open Blockchain is critical
Hyperledger vs. Ethereum: Yes? No? Maybe?
4 reasons why entrepreneurs should build blockchain companies
Deloitte Survey Results on Blockchain Across Industries

Mikko Dufva

Research Scientist VTT Technical Research Centre of Finland Ltd
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Blockchain

Blockchain is a technology that enables distributed permission-less database of transactions, verified by the network. It is mostly known for powering the Bitcoin, but it will have an impact far broader than enabling digital currency.

Why is this important?

The blockchain is said to be a disruption on the scale of the internet itself. The most prominent impact is on the financial sector – blockchain has been claimed to replace 80-90% of the cost of Wall street (Coinfox) and there are several blockchain powered trading and investment platforms available (LTP). However, in addition to banking and financial markets, blockchain is said to disrupt any sector with legacy databases, including healthcare, insurance, real estate, government and voting (VLAB, ShapingTomorrow). Estonia is already looking into using blockchain for health care records (Quartz), and Sony is developing an education platform powered by blockchain (TechCrunch).

One of the key impacts of blockchain is that it provides a technology of trust and eliminates the need for a middleman. This will allow truly distributed systems as well as new functionality such as smart contracts (LTP). Ethereum is one blockchain app platform, which aims to make blockchain based smart contracts easy to make (Medium). MIT has developed a platform called Enigma for secure data sharing, which enables analyzing the data by external applications while keeping the data itself private (BitcoinMagazine).

Things to keep an eye on

Blockchain potential has been noted by the business community, and 55% of firms in the global securities industry are engaged in R&D around it (ChainFinance). However, it is also useful to be aware of the challenges facing blockchain, which have less to do with the technology itself, but more on how it is applied. For example Bitcoin is suffering from problems in scaling and the power in the network falling to just a handful of people (Medium).

In Finland there is growing interest in blockchain, but it is not yet in the everyday vocabulary (Digitalist). It is included in one of the recent TEKES calls and there is a new Facebook group on the subject. ETLA has made a report on the subject last Autumn (ETLA). There are some startups focusing exclusively on blockchain, such as Nordledger, ”a blockchain venture production studio”. The potential of blockchain beyond the financial sector has been recognised also in Finland. One recent interesting initiative is the Thing2Data project, which aims to provide a platform for making everyday object ”smart” by adding unique identifiers to them and utilising blockchain to store and verify the data (TiVi).

Selected articles and websites

Know more about blockchain: overview, technology, application areas and use cases
Satoshi Roundtable: Blockchain is bigger than the Internet
Blockchain-Powered Trading and Investment Platforms
More than Money: Get the gist on bitcoins, blockchains, & smart contracts
Blockchain-Enabled Smart Contracts: Applications and Challenges
Programmable blockchains in context: Ethereum’s future
Global Securities Industry Group Survey Finds 55% of Firms Engaging in Blockchain Tech R&D
The resolution of the Bitcoin experiment

 

Mikko Dufva

Research Scientist VTT Technical Research Centre of Finland Ltd

Victor Vurpillat

Global X-Network
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