Kirill Shilov

@kirillshilov

Can the blockchain really disrupt the middleman freelance platform market?

February 13th 2018

The freelance economy has taken the world by storm. There could be more freelancers than full-time workers in the US in just under ten years. Technology is driving much of this growth, with online middleman platforms like Upwork and Fiverr hosting billions of dollars worth of freelance gigs annually.

Thanks to agency.howtotoken.com for support in creating this topic (First platform with proven ICO contractors)

About the author:

Kirill Shilov — Founder of Geekforge.io and Howtotoken.com. Interviewing the top 10,000 worldwide experts who reveal the biggest issues on the way to technological singularity. Join my #10kqachallenge: GeekForge Formula.

Despite their popularity, these freelance marketplaces have struggled to solve a number of ongoing problems. Making prompt and efficient payments to millions of freelancers in hundreds of different countries is proving to be a real challenge. Ensuring the quality of work delivered to clients is another major headache, as is helping new freelancers get started on a platform.

However, a new tech revolution promises to disrupt this industry and deliver solutions to these problems. Blockchain-based alternatives are promising a brighter future for both freelancers and employers with low fees, fast payments, and new incentives that make the experience better for everyone. Let’s take a look to see if these promises are realistic, and if they will be enough to lure employers and freelancers to the new, decentralized way of doing business.

The Current State of the Freelance Market

There are 57 million freelancers in the US alone, bringing in over $1.4 trillion dollars a year. A large Payoneer survey found that 70% of freelancers use online marketplaces to find work. It’s a colossal market that’s only getting bigger and hungrier for new ways to connect.

So, what kinds of work are all these freelancers doing? A quick search for recent posts on Upwork, the largest online freelance platform, gives the following results:

  • 33% Web, mobile, and software development
  • 18% Design and creative
  • 15% Sales and marketing
  • 11% Writing
  • 8% Admin and support
  • 15% Other

Types of freelance platforms

There are hundreds of online job sites with all sorts of niche offerings. But there are a few broad categories that these platforms fall into.

  • Upwork-like — For any kind of job including hourly, project-based, and even full-time or part-time positions. You can even set up your own team or agency. These types have all the bells and whistles. Freelancer.com is a good example of this type of platform.
  • Fiverr-like — For small gigs around $5, where the site gets its name. These are simple, low skilled jobs. GigBucks has a similar structure.
  • TopTal-like — For high-quality freelancers. These platforms have a rigorous screening process for freelancers who want to sign up.
  • Codeable-like — For niche talent. These freelancers are handpicked by the site’s operators to ensure that they have the skills for a particular niche.

The Pros and Cons of Each Platform

Upwork is packed with all kinds of features, but the real value that the company delivers is in the size of its network. Employers have access to millions of freelancers with profiles and ratings, meaning that it’s possible to find someone with the exact skill set they need for a low rate. There are also extra features such as recruit services to help companies find the right talent. Freelancers get an endless browsable database of jobs to apply for, saving time and money in regards to expensive online advertising.

However, the platform does have a few problems. Its army of freelancers is littered with bad eggs, and employers regularly have to deal with poor quality work and sift through dozens of sub-par applications. Freelancers also constantly have their Upwork profile, business, and income at the mercy of a centralized authority. This can lead to unfortunate situations like this one, where a freelancer’s income was taken away instantly and unfairly by the platform operators.

Fiverr is great for several reasons. You can easily browse their huge catalog of services and know exactly what you’re getting into. You can have a simple task like writing, translating, and logo design finished in hours for only $5. Many freelancers love it too, as there are usually options to upsell clients to additional, higher-value services which can generate significant revenues.

TopTal attempts to tackle the problem of low quality work on open platforms like Upwork. Freelancers are screened and only the top 3% are accepted; work quality is guaranteed. This is attractive for corporations and well-funded startups that want quality, full-time freelancers who are willing to pay well for them. The downside to this model is that by definition, most of the freelance market is left out. Ninety-seven percent of freelancers are never allowed near the platform, and most employers won’t pay the high premiums.

Codeable style platforms are even more exclusive than TopTal. These freelancers are hand-picked to fit a particular niche, reducing the risk even further for employers that need quality work. Naturally, these platforms are also very expensive for employers (there is a $60 per hour minimum rate), and out of those 57 million freelancers in the US, only a few hundred freelancers will make it onto the Codeable team.

With all of the services above, both parties get escrow payment protection, customer support, and dispute resolution services. They also all have rating systems for both freelancers and clients.

How are Profits Distributed on These Platforms?

The current centralized freelance platforms have a simple pay structure. The platform takes a cut of all payments. Some charge a flat rate on all transactions, while others charge variable rates depending on the type of work. Here’s a quick breakdown of the fees of the major platforms:

  • Upwork: 20% up to $500, 10% up to $10,000, 5% over $10,000 per client
  • Codeable: 15%
  • Fiverr: 20% ($1 for a $5 gig)
  • Freelancer.com: 13% (3% to employers, 10% to freelancers)
  • TopTal: Undisclosed. High hourly rates of $65–200

These fees can quickly add up. For a small $500 freelance project on Upwork, the fees will already be at $100 before the PayPal fees are added. For large $100,000 project on Codeable, the fee would be $15,000 for just a single gig.

The payment options are pretty similar for all the platforms, with most accepting credit cards, PayPal, or bank transfers, and paying freelancers via PayPal, Payoneer, and bank transfers. None of the major platforms accept or payout in cryptocurrency yet. There are some smaller startups that accept cryptocurrency payments such as XBTFreelancer, a 100% Bitcoin-based freelancer platform. But these projects haven’t really taken off, with only a few projects posted a day in all categories.

How Can the Blockchain Disrupt this Marketplace?

Blockchain technology is already disrupting banking, money transfers, and healthcare, so what about the online freelance market? There are three main ways that the blockchain promises to improve the current services for both freelancers and employers:

  1. Faster, more efficient payments with cryptocurrencies.
  2. The elimination of middleman fees.
  3. The use of tokens and smart contracts to give new incentives for a better overall experience.

1. Cryptocurrency Payments

Sixteen percent of freelancers want faster payments from their freelance work. This makes sense, as getting paid online can be a major headache. With Upwork, you need to wait for a client to approve a payment, then wait a further five days just for the funds to be available in your account, then you have to wait again for the payment to be processed into your bank account. It can easily take weeks.

Cryptocurrency payments are instant, even across international borders. This is useful to freelancers as cryptocurrency can be easily exchanged, so funds can be withdrawn and used as soon as they’ve been approved.

Cryptocurrencies also unlock the potential of the 39% of the world’s population that don’t have access to bank accounts. Billions now have access to the Internet, but not to banks. Marketplaces that run on cryptocurrencies leapfrog the need for banks altogether.

2. Lower middleman fees

Blockchain applications are threatening middlemen all over the economy. When users can interact directly with each other via a protocol rather than through a centralized service, the value of the middleman plummets. We’re already seeing this with international money transfers and with online advertising.

Openbazaar has 0% fees on all transactions on its Bitcoin online marketplace, and up-and-coming blockchain freelance platforms are already promising 0–1% fees on their platforms.

3. Tokens and smart contracts for new incentives

Perhaps the most interesting development is the ability to tokenize anything with a blockchain application. One of the biggest problems for employers and freelancers on the current platforms is trust. Some employers and freelancers don’t treat others fairly, and this drags the whole system down.

Crypto-tokens and smart contracts can be used in clever ways to incentivize everyone to act fairly and professionally at all times. Ethearnal is tokenizing reputation, and giving it a real market value on their freelance platform; a blow to your reputation is also a blow to your wallet. This is a win-win for employers and freelancers who honestly want to use the platform.

Decentralization can also mean fairer, distributed dispute resolution, leading to better contract outcomes, more accurate ratings, and less centralized authoritarian control.

Benefits for freelancers

Freelancers get the full benefit of all of the things mentioned above.

  • Cash in their wallets faster.
  • Lower fees mean that they can either increase profits or reduce their rates to be more competitive.
  • The unbanked billions can start participating in the freelancer economy.
  • Tokenized reputation means reputation = money, and clients always have something on the line too.
  • Less centralized control means their business and income is safer, and can’t be unfairly held hostage.

Benefits for employers

Some of these key benefits don’t really affect employers directly. They don’t really care how quickly their payments get to their freelancers. If freelancers decide to take the reduction in fees as extra profits, they won’t save any money either. Employers also have less at stake if the centralized authority decides to change something or intervene. Moreover, paying with cryptocurrencies will likely be a hassle — at least until they go mainstream.

However, some of the benefits will likely shine through indirectly. With that 15–20% reduction in fees, freelancers would likely reduce their rates to stay competitive, resulting in significantly cheaper freelancers. Also, if blockchain platforms are significantly better for freelancers, they will lure the best freelancers.

A clear bonus for employers will be if the whole platform runs more efficiently by using the blockchain and leveraging smart contracts and tokenized incentives. If done correctly, this would lead to less risk when hiring and there would be higher quality work.

Won’t Moving to New Platforms be Difficult?

It’s hard to tell if moving to new platforms would be difficult, as mature blockchain freelance apps just don’t exist yet. But done correctly, it could be the easiest transition ever, especially for freelancers. First, the major projects such as Ethearnal and Canya state that usability is one of their top priorities, and they have the added advantage of being able to learn from the last generation of freelance platforms.

But there’s an even bigger incentive. Every freelancer has the “chicken and the egg” problem when starting on a new platform. You need a reputation to get gigs, but you need gigs to get a reputation. Nobody wants to work with someone who has a zero reputation, as they have nothing to lose by acting unfairly. It’s an ancient problem that has no simple solution, up until now.

Tokenized reputation means reputation can have a real, monetary value, just as it should. Freelancers and employers with good intentions can invest upfront in their reputation with cold hard cash, and buy, sell, and use that reputation for projects. The incentive to act professionally is skyhigh, and anything less will cost you money.

Problems That Need Solving

We know it’s possible to solve the problems of payment escrow, issuing tokens and fundraising with smart contracts and ICOs. These have all been done before. However, blockchain tech is still immature, and usability is a key problem. Decentralized apps are slower and harder to use than their centralized counterparts, and developers need to find ways around this.

Other problems that new blockchain apps face are a little more subjective. Getting economic incentives right is extremely difficult, especially since many of these incentives have never been studied before, and decentralized protocols and smart contracts are hard or impossible to change on the fly. There’s also the issue of community engagement and network size. A freelance platform’s main asset is its network of workers and jobs.

So, who is looking to solve these problems?

New Blockchain Solutions

The market is new, but there are already some great projects looking to build platforms and protocols that reap the benefits above. Here are some of the most exciting ones so far.

Openbazaar: A Decentralized Marketplace for Anything

The closest thing that exists at the moment is Openbazaar.org. Launched in 2014, it’s a general online marketplace where anyone can sell anything peer-to-peer, all with crypto. Openbazaar has faced the many of the same problems that we’ve previously addressed.

Right out of the gate, Openbazaar had to tackle the usability problem, with the CEO commenting, “We found very quickly that doing things in a decentralized fashion is not always super intuitive for people. You have to design around it. You have to make it really really good.”

They also found that building a decentralized network that actually works without central control is no trivial task. For Openbazaar, privacy and anonymity were the main motivations for using the platform, not usability, and the reasons for success were in the support of the community and staff.

Canya.io

CanYa is a blockchain-based freelance platform that boasts “Decentralized payments, decentralized governance, decentralized storage, and eventually decentralized computers.” Even more ambitious and general than Upwork, digital and in-home freelancer services are available on CanYa, and the hiring of a plumber is the main case that they talk about.

CanYa’s main selling points are its:

  • Simplicity. You can find, book, and rate service providers.
  • The CanYaCoin. A cryptocurrency that can be used to buy real-world services.
  • Trustless, decentralized escrow with a hedge against cryptocurrency volatility.
  • Low fees. At around 1%, some of which goes back into rewards to encourage growth and desired user behavior.

The ICO was in November 2017, and the app is partly available and feature-rich, and the global launch is set for March 2018. CanYa currently claims to have 10,000 users and 46,000 service providers. Their system has built-in mechanisms and incentives to nurture their ecosystem.

Ethearnal

Ethearnal is currently in alpha, and the ICO is still underway, but it promises to be the most complete and disruptive platform in the near future. It’s looking to be the decentralized Upwork, with all of the blockchain-specific features that we’ve discussed.

Ethearnal is leading the way in this regard. The white paper suggests it’s the first blockchain project to attempt to tokenize and monetize reputation — the most valuable asset in the freelance economy. Ethearnal tokens (ERT) represent reputation (contracts are paid in Ethereum), and they can be traded and used on the Ethearnal platform for work. Freelancers can buy or earn ERT to get better jobs, and employers need ERT to put in a stake on projects.

ERT can also be used in a distributed dispute resolution system. When a dispute arises, ERT holders can help resolve it, and earn ERT reputation tokens if they back the winning side. Everyone is always incentivized to act honorably, as being on the losing side of a dispute will cost you money.

Transaction fees are 0–1%, all of which will go back into the system to “align the initiatives of all sides involved.” The developers themselves won’t take a penny from transactions on the platform. Funding is done through the ICO.

Ethearnal’s ICO is cutting-edge. It was one of the first companies to announce the use of Vitalik Buterin’s DAICO model for its ICO. This allows funding from the ICO to be spread out over time, reducing the risk for investors and putting less trust in the central team. Only 10% of the funds are released to developers.

The rest is delivered in milestones (similar to jobs on freelancing platforms) as the community votes for funds to be released. If the community votes for a refund, whatever funds are left (90% originally) will be refunded to everyone that has kept their tokens. This could also keep the community active during the platform’s development, which is very important for long-term growth.

Conclusion

The global freelance marketplace is huge and has many inefficiencies. Users struggle with high fees, slow payments, low work quality, dishonest employers, and an all-powerful centralized control structure that can ruin entire careers in mere seconds.

Decentralized solutions are now possible thanks to the blockchain. There are some fascinating projects under development that are looking to make the marketplace work better for everyone, in the hopes of enticing freelancers and employers over to their way of doing things. The only question now is, will they be able to pull it off?

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