In this signal post we discuss the opportunities and threats in how the platform economy is changing the gaming industry. While digitalisation and the internet have already transformed the sector in many ways, technical and business models innovations are continuously giving new shape to the market. Legislative and regulatory approaches are also changing, with a strong need to address the risks and negative impacts involved. Consumer protection and money laundering are just two examples of the societally and economically important challenges in the core of gaming.
In simplified terms, gambling means wagering of money on an uncertain event and uncertain outcome, with the aim of winning more money. Gambling entails consideration and risk-taking as well as the promise of a prize. The word ‘gaming’ is typically, and in this signal post, used in reference to legal gambling, i.e. gambling services (not computer, video and mobile games, although connections to those will be discussed in the last paragraph) offered by companies in compliance with the law. These laws do, however, differ greatly between countries and regions, ranging from total bans to strategic gambling tourism as in Monaco or Macau.
Good (and not so good) use of platform strategies
Online gambling providers employ the same strategies found in other areas of the platform economy. Their systems are based on an eCommerce platform upon which various games and offerings are built. While many operate in a business to consumer (B2C) model, others also offer products and services in a business to business (B2B) model. By gathering feedback from their user base and testing new products and services, the online gambling providers create an ecosystem around their platform to drive innovation and build their customer base.
Providers that are licensed through countries with strict regulatory frameworks, such as in Europe and North America, are obligated to operate in a transparent and responsible manner. There are other countries with less robust regulations and in some cases, online gambling providers operating there use platform technologies such as blockchain, cryptocurrencies, and smart contracts to both build trust with their customers and to operate without complying with regulatory and tax laws.
A recent study prepared for the European Commission paints a picture of the European regulatory landscape for online gambling. Taking into account the growing consumption of online gaming, the report addresses the many challenges that urgently require a stronger regulatory response, such as gambling addiction, protection of minors, consumer protection, integrity of sports, money laundering and crime. What makes regulating and enforcing regulations extremely complex in the online environment is that gambling services are offered across borders, often by virtual gambling facilities that may consist of layered eco-systems of service providers. Services are also available 24/7, their use is made extremely convenient, transactions take place immediately and the user may perceive the game experience as being anonymous.
The study emphasizes the importance of European level action. However, specific European Union (EU) level regulation is not suggested, which is in alignment with previous communications by the European Commission. National policies, and therefore national regulations, share a lot of objectives but have also major ideological differences. Harmonisation would, therefore, be a step too far at this point, but joint efforts in effective enforcement, for example, is in the interest of all parties.
The online gaming and betting operators established, licensed and regulated within the EU have organised themselves as the European Gaming and Betting Association (EGBA). The aim of EGBA is to ensure a safe and reliable European digital environment for online gaming by working together with national authorities, EU authorities as well as other stakeholders. The association is committed to a high level of consumer protection while developing regulated services with the goal to be attractive enough to channel users away from unregulated offers.
According to EGBA, the online gambling market in Europe has an annual growth of around 10% and the gross profits of the sector are expected to grow to €24.7 billion in 2020. Comparing online and land-based gambling, in 2017 the ratio between the two was 21:79. The top three most popular online offers are sports betting (40%), casino games (32%) and lotteries (13%). Interestingly, Europe is the leader, with the share of European services accounting for 49% of the global online gambling market in 2017. The international business opportunities for European gaming services is expected to grow further, especially in several US states where sports betting was recently legalised.
Case of Finland
In Finland, the gaming system is based on the exclusive right principle, and since the merger in 2017, all gambling games are being offered by one single operator Veikkaus Oy. The company is owned by the Finnish State, and the offering covers lucky games, slot machines, instant games and skill games, with one-third of its activity taking place online. Veikkaus has a strong obligation and commitment to operate games responsibly and mitigate risks, and the revenue generated is used for societal causes in its entirety. This means that roughly one billion euros per year is distributed, via the relevant ministries, to beneficiaries in culture, sports, science, youth work, etc.
Even with the long tradition and strong value basis, debates about Veikkaus and the Finnish gaming system in general get heated from time to time. For example, last autumn Veikkaus’ new strategy aimed to address the public discussions about whether the fact that revenues benefit the common good justifies the problems caused, and typically these problems are being borne by those in the weakest position. Building a safe and more responsible gaming environment is one of the big strategic goals of Veikkaus, and the decision to speed up the adoption of compulsory identification on slot machines is one practical step. This means that starting in January 2021 Veikkaus will introduce new technology that will better prevent underage gaming as well as enable players to set a ban on their own gaming.
When it comes to the digital and online world, Veikkaus is a pioneer in esports solutions, and it was among the first companies in the world to offer legal esports betting in 2014. Service development in the esports domain is continuous, and products, services and platforms around esports have been developed in collaboration with Veikkaus and others using a unique concept, the Innovation Challenge Week. The winner last year was German GameBuddy, with their innovation of a social community platform for gamers.
Interesting insights into the Finnish case are also found in the survey commissioned by Kasino Curt in 2019 that gathered citizens’ views on the monopoly, political decision making and negative impacts around gaming. One clear finding is that Finns are not fully content with the current mitigation actions to fix problem gaming: 27% of respondents said enough was done, whereas 44% disagreed. 58% went so far as to agree that gambling machines should be removed from everyday environments such as grocery stores, but 29% would not make such changes. A majority of respondents also thought Finland should break away from the monopoly and introduce a licensing system instead, totalling 40%, whereas 29% disagreed on this. The gaming market and industry implications of such a change would be significant. Public discussions comparing future alternatives are active, and the pros and cons of the licensing system option should be studied carefully in order to see if licensing could be a viable approach in the increasingly global gaming environment expressed in the platform economy.
Connections to computer, video and mobile games
Millennials and Generation Z have grown up in a digital world with easy access to computer, video and mobile games. They have a preference for entertainment where there is skill involved and there is the option to play against other players. Not only are online gambling providers catering to this preference, but physical casinos are starting to replace traditional slot machines with games that resemble video games in an effort to attract younger customers. Additionally, these younger generations grew up playing on multi-player game platforms like Fortnite, CS:GO, and Defence Of The Ancients (DOTA) and are now driving the demand for professional esports tournaments and esports betting.
The near-ubiquitous presence of tablets and mobile device platforms means young people have unprecedented access to mobile games. In many cases, these are simple entertainment. However, there is a growing segment social casino games that are introducing young people to virtual gambling. Social casino games simulate typical card and table games but players wager virtual credits and no money changes hands. The games are often integrated into social media platforms and the outcomes are not always random. Instead, they are based on psychological theories that increase engagement and player satisfaction. In some cases, online gaming providers also produce social casino games and there is growing concern that the use of social casino games amongst young people is a “gateway” to money gambling in adulthood that may contribute to gambling addiction.
Selected articles and websites
Alison Drain: White Paper, The Converging of the Gaming and Gambling Ecosystems
Esportsearning: Top Games Awarding Prize Money
European Gaming and Betting Association (EGBA)
Hackernoon: What is the Future of Gambling Industry?
Hyoun S. Kim: Social Casino Games: Current Evidence and Future Directions
Kasino Curtin tilaama tutkimus osoittaa: suomalaiset eivät luota kansanedustajiin rahapeliasioissa
MintDice: How Cryptocurrency is Changing Online Gambling in Europe
NewsBTC: MECA Coin – Creating a Democratized Online Gambling Ecosystem on Blockchain
Publications Office of the European Union, 2018: Evaluation of regulatory tools for enforcing online gambling rules and channelling demand towards controlled offers
Veikkaus: German GameBuddy wins Veikkaus Innovation Challenge Week
Veikkaus: Responsibility for the individual in focus in Veikkaus’ new strategy – compulsory identification on slot machines brought forward by a year
Veikkaus: Veikkaus – a Finnish gaming company with a special mission
Veikkaus: Veikkaus to hold an Innovation Challenge Week to find startups and begin collaboration – focus on esports
Trust has always been a cornerstone to business success, and it has typically been developed through a personal contact with another person, organisation or brand. In this signal post we explore the importance of trust in the platform economy, where digitalisation provides a very different setting with new opportunities and threats. We use the well-established frame pieced together by Mayer et al. that views trust through its three components: ability, integrity and benevolence.
In the next sections we explain the three in the context of platforms and present some topical examples of trust problems and solutions. We focus on the viewpoint, where the user is the trustor and the platform is the trustee. However, it should be noted that these roles can also be studied in reverse, the user being the trustee and the platform the trustor. Furthermore, in platforms the trustor-trustee relationship is, additionally, often formed among two or more users or producers, or between users and producers.
Component 1: Ability
When we talk about trust, ability is the component which explains to what extent we believe that a platform embodies the competences needed to perform its tasks. Ability covers, for example, the technological skills and solutions to deliver the core service as well as preparedness regarding privacy, safety, data protection, etc.
Example: Review and rating systems are a well-established way in the platform economy to check the trustworthiness of platforms as well as their users and producers. Quality of services of all and any parties on supply or demand side can be evaluated, and reports of top performance and misbehaviour spread fast. Of course, even rating systems can be abused, but in practice they have proven very efficient.
Example: Blockchain has been envisioned to improve trust in terms of providing technological means to, for example, validate data integrity. In fact, it can be employed to promote the three factors of digital trust: security, identifiability and traceability.
Example: An important lesson the big platform giants have learnt is that when cyber-attacks happen, it is important to be open about it and inform the users of what happened and how the problem will be fixed. Preventive measures are naturally the top priority, but the user also needs to be able to trust a platform’s ability to react when hackers succeed.
Component 2: Integrity
Using integrity or honesty we assess whether a platform adheres to acceptable principles and keeps the promises it makes. The starting point for integrity is compliance with laws and transparent consistency in following service promises, delivery times, pricing, etc. Extended further, integrity measures how the values of the trustor and trustee (the user and the platform) meet.
Example: Trust can be compromised, when platforms (such as social media companies) collect and sell user data or allow fake news and fake identities in their systems. Even if such activities are legal, the essence of the issue is whether the platform is transparent and informs its users of what goes on and whether it takes an active or passive role in fixing possible problems.
Example: Trust and transparency can be fostered in platforms by engaging the user in the supply chain or sourcing process. For example, it is possible for the user in some platforms to follow their order in real-time and even take part in the decision-making (ingredients used, packaging materials, delivery times, etc.). Again, blockchain technology can be useful in these applications.
Component 3: Benevolence
Benevolence captures the intentions and motivations of a platform and whether these go beyond egocentric profit making. This component of trust blossoms when the user feels appreciated in a win-win relationship, where the value is created and distributed in a fair manner. Benevolence is all about caring, and it is the foundation for customer loyalty.
Example: A pattern we have seen with some of the current platform giants is how they grow from benevolent to predatory. At first such platforms emerge with a low-cost high-value offering, but trust may be compromised as personalised services become a trap, user policies and pricing are changed and the profit-seeking monopoly tightens its grip on both the producers and users.
Selected articles and websites
Afshar Vala, HuffPost Contributor platform: Blockchain: Every Company is at Risk of Being Disrupted by a Trusted Version of Itself.
Baldi Stefan, Munich Business School: Regulation in the Platform Economy: Do We Need a Third Path?
Frier Sarah, Bloomberg: Facebook Says Hackers Stole Detailed Personal Data From 14 Million People.
IBM: IBM Food Trust: trust and transparency in our food.
Kellogg Insight (The Trust Project): Cultivating Trust Is Critical—and Surprisingly Complex.
Mattila, Juri & Seppälä, Timo (7.1.2016). Digital Trust, Platforms, and Policy. ETLA Brief No 42.
Mayer, R., Davis, J., & Schoorman, F. (1995). An Integrative Model of Organizational Trust. The Academy of Management Review, 20(3), 709-734.
Möhlmann Mareike and Geissinger Andrea (2018). Trust in the Sharing Economy: Platform-Mediated Peer Trust. In book: The Cambridge Handbook on Law and Regulation of the Sharing Economy.
Murray Iain: The Platform Economy Can Change the World.
Sangeet Paul Choudary, INSEAD Knowledge: The Dangers of Platform Monopolies.
Sitel Group: No Trust, No Business: Hub Forum 2018 Makes the Future of Commerce Clear.
The Conversation: Social media companies should ditch clickbait, and compete over trustworthiness.
This signal post provides an overview of progress and expected future directions of digital platforms in the context of food. Firstly, we take a look at existing platforms of different type within the consumer interface. Secondly, we explore the wider opportunities of platforms along entire food production chains and ecosystems. Thirdly, we identify a handful of emerging platform innovations waiting to enter the markets.
Platforms for the consumer
In the context of food, digital platforms for consumers can make the daily life more convenient, efficient and affordable. Comparing choices is easier, payments happen online and deliveries can be arranged too. Special deals and personalised offers are being increasingly used, and customer review systems act as an in-built quality control measure. Digital platforms may also serve as gateways to widen the range of accessible choices for consumers or bring additional benefits such as social connections. A platform can help arrange a lunch date with a potential new business partner or connect like-minded people to cook and eat a meal together.
Platforms for everyday grocery shopping remain for the time being primarily company-specific initiatives, as large grocery retailers that dominate the traditional markets have preferred to build their own platforms rather than common marketplaces. The restaurant business, specialised small-scale producers and consumer-to-consumer segments have, on the contrary, been keen to adopt platforms based on two-sided or multi-sided markets. Examples of these include:
- platforms for finding, booking, paying and reviewing restaurants, e.g. Eat.fi (Finland + international) and Foursquare (USA + international)
- platforms for ordering and paying takeaway food or food deliveries from restaurants, e.g. Pizza-online (Finland), Wolt (Finland + international) Foodora (Germany + international) and Uber Eats (USA + international)
- platforms for buying and paying for food and groceries directly from typically small or local producers, e.g. Farmhouse (Australia), OurHarvest (USA), Maano (Zambia) and Forestfoody (Finland)
- platforms for buying and paying affordable surplus meal deals or food products from restaurants or grocery wholesalers, e.g. ResQ (Finland + international) and Fiksuruoka.fi (Finland)
- platforms in the consumer-to-consumer space such as meal sharing, pop up activities, food swap, etc., e.g. Ravintolapäivä (Finland + international), Meal Sharing, foodsharing (Germany) and Traveling Spoon.
It is notable that many of the established and emerging platforms contribute to (economically, environmentally or socially) sustainable consumption patterns and sharing economy principles. Restaurants and households alike are minimising food waste, and social connections and community spirit are fostered through local activities. Even the food delivery services are, instead of simply increasing motorised transport and related negative externalities, growingly using sustainable alternatives like bike couriers.
Platforms for the food production chain
Digital platforms have potential also in capturing entire supply chains and supply network ecosystems of food production. The food industry is, in fact, an exceptionally interesting application area, because benefits of digitally managed production chains do not limit to the obvious efficiency savings but extend to topics such as food safety, cold chain management and transparency in production conditions and origin.
One example of future opportunities with digitalisation is the so called Food Economy 4.0 that paints a picture of a sustainable consumer-centric ecosystem. The core of this concept relies on three change paths: (1) from mass production to personalised solutions, (2) from centralisation to agile manufacturing and delivery and (3) from horizontal to vertical food production. In Finland, a strategic roadmap has even been drafted to an envisioned consumer data-driven, digital platform model to disrupt inflexible and inefficient value chain structures among primary production, various industry sectors, logistics, retail and service sectors in the food chain. This concept foresees that industrial platform creation could proceed step-wisely and ultimately evolve from transportation, warehousing and market platforms into long-term interoperability across industries and platforms.
Similar ideas relating to the currently linear, industrialised and centralised food supply chains are also promoted in examples such as food hubs, precision agriculture and analytics, recycling applications and dietary information systems. Even if we currently see these concepts emerging as standalone applications and platforms, the next step forward would be to embed and interconnect them throughout value networks. Stakeholder collaboration and novel thinking will be a necessity, but synergetic effects and added value are expected to be substantial.
Longer term visions
Even more innovative long-term visions for food in the platform economy include initiatives that plan to use blockchain technologies to manage transactions. Russian-originated INS Ecosystem plans to transform the push-based grocery business to a pull, using a dynamic system to fulfil orders and adjust prices by connecting sellers and buyers directly. This efficiency improvement would minimise the need for shelving foods and also reduce waste. Another similar decentralised marketplace initiative is BlockFood with its technical architecture based on smart contracts that allow customers to order food from restaurants and have it delivered. A third example, FoodCoin, has perhaps even more ambitious plans, aiming to create a global marketplace of food and agricultural products using the Ethereum technology. The platform would engage all actors along the supply chain from farmers and equipment manufacturers to food manufacturers, restaurants and consumers. All of these platforms have advanced plans to make use of tokens and cryptocurrencies.
But what if the food itself that we consume will change dramatically? Powdered meals and personalised food fabrication are examples of such innovations. These would implicate even wider opportunities for digital platforms, as instead of traditional recipes and supply chains the demand would expand to smart, personalised diet planning and novel nutrient markets. The focus could thus move from platforms optimising logistics to platforms providing intelligent nutritional solutions that are tailored to personal needs. Further on, personalised approach to food to improve wellbeing and health could even be combined with measuring and monitoring of your daily condition, genetic information and personal goals. And all of this could be interlinked to platforms that use nudging and positive reinforcement to encourage positive behavioural patterns in our daily choices, a step forward from what platforms like Zipongo are already exploring.
Selected articles and websites
Allfoodexperts: Food powder. Eat what you like
Allfoodexperts: Sharing Economy Reaches Food: Startups Based on Collaborative Networks
BlockFood: BlockFood is the world’s first decentralized food ordering & delivery platform
Complexity Labs: Food Systems Innovation
FoodCoin Ecosystem: Global blockchain ecosystem for food and agriculture businesses
GreenBiz, RP Siegel: This blockchain startup is hungry to address the grocery industry’s food waste dilemma
INS Ecosystem: A Decentralized Online Grocery Marketplace: How it Works for Consumers
Kotiranta et al. (2017): Roadmap for Renewal: A Shared Platform in the Food Industry
MedTech Engine, Mariëtte Abrahams: The personalised nutrition trend – how digital health brands can revolutionise healthcare
News.com.au, Frank Chung: CSIRO sets sights on personalised ‘food generator’ based on your DNA, lifestyle and even sweat
Platform Value Now, Heidi Auvinen: Digital platforms for supply chains and logistics
Poutanen et al. (2017): Food economy 4.0 VTT’s vision towards intelligent, consumer-centric food production
The Technology Media, Elina Koskipahta: The platform combines feedback from journalists, food critics and local users
World Food Program: Maano – Virtual Farmers Market
Zipongo: Eating well made simple
Supply chains are complex systems that typically involve a multitude of actors and activities, and it can be extremely difficult to capture one entire chain, let alone the networks of criss-crossing and interlinked chains. A platform of some sort is needed to put suchlike chains together. The concept of platform economy as we understand it, involving digital platforms and advanced accessory technologies such as blockchain, offers in this context vast opportunities to more efficiently managed supply chains and logistics. Information over chains and networks can be gathered and processed in platforms, which not only helps steering and monitoring of entities but may facilitate optimisation of chains, produce reliable accounts, inspire new business innovations, etc.
In this signal post we explore possibilities with platforms for supply chains and logistics and take a look at examples from forerunner industries.
Information management in multi-actor supply chain networks
Digital platforms allow information management throughout the supply chain, enabling data to accumulate from each step of the chain. Simultaneously, access to data can be granted to any involved actor, including the end user. In essence, a product or service can be accompanied by a digital twin, i.e. a virtual counterpart for gathering data and information over the lifecycle from design and manufacturing to use and final disposal.
One practical example comes from diamond business, where platforms and blockchain technologies are used for the digital record for diamonds, especially to verify origins and authenticity. Similarly, Walmart among others is piloting tracking of food products to support food safety. Suchlike information platforms serve especially the end customer, who can be sure of, for example, the origins, fair production conditions or undisrupted cold chain of the product or service that they buy. But also supply side actors benefit, and one well established example of using backfeed information comes from elevator industry, where Kone has successfully deployed IoT-type solutions to make use of real-time information collected from their products to serve maintenance services as well as product development.
Research on this area is intensive, see for example a study from our project on platforms being used in service-driven manufacturing to orchestrate networks.
Platform innovations in freight and logistics
Logistics constitutes one specific chain of activities in supply chains. Platforms and blockchain have huge potential in this area; a fact acknowledged lately in the Transport Sector Growth Programme by the Finnish Government (full report in Finnish). Firstly, information stored on digital platforms can make the logistics chain faster and more efficient, for example by providing real-time information from one phase to the next or by replacing manual bureaucratic processes with digitalised and automated equivalents. Information of movements but also information of transport related emissions could be recorded reliably.
Secondly, platform economy enables new types of business models for logistics services, as information of material flows is available to construct centralised as well as decentralised delivery streams in new ways. For example, in urban freight novel app-based logistics services have emerged, especially as a response to growing e-commerce. Suchlike commercial and peer-to-peer services can connect demand and supply for instant deliveries via a digital platform in just a few hours. A more large-scale example is the free web-based freight brokerage platform Drive4Schenker that functions as a European-wide marketplace for deliveries and supports digital handling of documentation.
Selected articles and websites
CBINSIGHTS: How Blockchain Could Transform The Way You Buy Your Groceries
Dablanc Laetitia et al. (2017): The rise of on-demand ‘Instant Deliveries’ in European cities, Supply Chain Forum: An International Journal
DB Schenker: Drive4Schenker
Eloranta, Turunen (2016). Platforms in service-driven manufacturing: Leveraging complexity by connecting, sharing, and integrating, Industrial Marketing Management, Vol 55, pp. 178-186
Finnish Government: Transport Sector Growth Programme will give companies a boost in the international market
Forbes: IBM Forges Blockchain Collaboration With Nestlé & Walmart In Global Food Safety
Fortune: The Diamond Industry Is Obsessed With the Blockchain
Fortune: Walmart and IBM Are Partnering to Put Chinese Pork on a Blockchain
Kone: Taking elevator services to the next level
Ministry of Transport and Communications: Applying blockchain technology and its impacts on transport and communications
Techncrunch: Blockchain has the potential to revolutionize the supply chain
Työ- ja elinkeinoministeriö: Liikennealan kansallinen kasvuohjelma 2018 – 2022
World Economic Forum: The digital transformation of logistics: Threat and opportunity
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
- ETUI Policy Brief: The emergence of peer production
- Transnational Institute: Commons Transition and P2P
- Hinesight: Commons or commodities?
- Medium: Zebras Fix What Unicorns Break
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.
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
- Hackernoon: Blockchains don’t scale
- Motherboard: Bitcoin could consume as much electricity as Denmark by 2020
- Coindesk: Blockchain’s 4 biggest assumptions
- Cointelegraph: Why blockchain alone cannot fix the privacy issue
- Cryptocoinnews: Blockchains will enhance the economic and socio-political emancipation of humankind
- Nature: The environment needs cryptogovernance
- Ensia: What can blockchain do for the environment?
- Ceptr: Holochain
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
WU & NET Team: Blockchain: Taxation and Regulatory Challenges and Opportunities, Background note
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
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
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