Technologist and product experience leader that bridges business, engineering, and design. Part time researcher.
The freelancing economy has taken over the world. In less than 10 years, there may be more freelancers in the US than full-time workers. This growth is largely technology-driven, as freelance intermediary exchanges such as Upwork, Fiverr, or Toptal host projects with a combined budget of billions of dollars annually.
Despite their popularity, these services find it difficult to solve several pressing problems. Making payments quickly and efficiently to millions of freelancers in hundreds of different countries has proven to be a daunting task. Ensuring the quality of work done for clients is another source of headaches, as is helping new freelancers get started on their own freebies.
However, the new technological revolution promises to revolutionize this industry and provide solutions to these problems. Blockchain-based alternatives hold a bright future for both freelancers and customers, with low fees, fast payments, and new incentives to improve everyone’s experience. Let’s see how realistic these promises are, and whether they will be enough to lure clients and freelancers into a new, decentralized business model.
The current state of the freelance market
In the United States alone, 57 million freelancers are making $ 1.4 trillion a year. A large survey conducted by Payoneer found that 70% of freelancers are looking for work on online exchanges. This is a colossal market that is growing and hungry for new ways of communication.
What kind of work do these freelancers do?
A quick search on Upwork, the largest online freelance platform, yields the following results:
- 33% – software and application development for web and mobile platforms
- 18% – design and creativity
- 15% – sales and marketing
- 11% – texts
- 8% – administration and support
- 15% – other
Freelance platform types
There are hundreds of job search sites online with offers in all kinds of niches. But these platforms can be divided into several general categories:
Sites like Upwork – for any job, including hourly, project, and even full-time or part-time jobs. You can even create your own team or agency. They are fully functional platforms. Freelancer.com is a good example of this type of platform.
Sites like Fiverr – for small projects with a budget of about $5, from where the site got its name (“fiver” – “penny”). These are simple types of work that do not require special skills. GigBucks has a similar structure.
Sites like Toptal are for highly qualified freelancers. Such platforms have a rigorous screening process for freelancers who wish to sign up.
Sites like Codeable – for finding frames in a specific niche. Freelancers are selected by the site operators to ensure they have the skills in a specific niche.
How are profits distributed on these platforms?
Today’s centralized freelance platforms have a simple payment structure. The platforms charge a commission on all payments. Some have a flat rate for all transactions, while for others the rate varies depending on the type of work. Here’s a quick overview of the commissions of the largest platforms:
- Upwork: 20% up to $ 500, 10% up to $ 10,000, 5% for amounts over $ 10,000 per client
- Codeable: 15%
- Fiverr: 20% ($ 1 off a $ 5 order)
- Freelancer.com: 13% (3% from the customer, 10% from the freelancer)
- TopTal: not reported high hourly rate – $ 65-200
These fees can increase rapidly. For a small freelance project on Upwork for $ 500, the commission will be $ 100, to which you also need to add the PayPal commission. For a large Codeable project for $ 100,000, the commission will be $ 15,000.
The payment options across all platforms are similar: most accept credit cards, PayPal, or bank transfers, and pay freelancers through PayPal, Payoneer, and bank transfers. No major platform accepts or makes payments in cryptocurrencies yet. There are small startups that accept cryptocurrency payments such as XBTFreelancer, a freelance platform that is 100% Bitcoin powered. But these projects have failed to gain momentum: in all categories, only a few projects are published per day.
How can blockchain make a breakthrough in this market?
Blockchain technology is already disrupting banking, remittances, and healthcare, so what about the freelance market? There are three main areas where blockchain promises to improve the current service for both freelancers and customers:
- More rapid and efficient payments in cryptocurrency
- Abolition of intermediary commissions
- Using tokens and smart contracts for new incentives and better user experience
1. Cryptocurrency payments
16% of freelancers want to get paid for their work faster. This is understandable, as getting paid online can be a serious cause for concern. In the case of Upwork, you need to wait for the client to confirm the payment, then wait another 5 days for the funds to become available in your account, and then wait again for the payment to be processed by the bank. It can easily take a few weeks.
Cryptocurrency payments are instant, even between different countries. This is useful for freelancers as the cryptocurrency can be easily exchanged so that funds can be withdrawn and used immediately after confirmation.
Cryptocurrencies are also opening up opportunities for 39% of the world’s population without access to bank accounts. Billions of people now have access to the Internet, but not to banks. Cryptocurrency markets eliminate the need for banks altogether.
2. Lower commissions of intermediaries
Blockchain applications threaten intermediaries in all areas of the economy. When users can interact directly through a protocol rather than through a centralized service, the value of the intermediary drops rapidly. We are already seeing this in international money transfers and online advertising.
3. Tokens and smart contracts for new incentives
Probably the most interesting development is the ability to tokenize anything using blockchain applications. One of the biggest challenges for customers and freelancers on today’s platforms is trust. Some customers and freelancers are acting dishonestly, which negatively affects the entire system.
By using crypto tokens and smart contracts, everyone can be motivated to always act honestly and professionally. Ethearnal tokenizes reputation and gives it real market value on a freelance platform. A negative reputation hits your wallet. This is a win-win for clients and freelancers who want to use the platform honestly.
Decentralization can also mean fairer, distributed dispute resolution, leading to better performance, more accurate ratings, and less centralized control.
Benefits for freelancers
Freelancers benefit from all of the above.
- Money goes to the wallet faster
- Lower commissions mean you can either increase profits or lower rates to improve competitiveness
- Billions of people without access to banking can start participating in the freelancing economy
- Tokenized reputation means reputation = money, and customers have something at stake too
- Less centralized control means your business and income are more secure and cannot be taken away from unfairly
Some of these key benefits do not directly affect customers. It doesn’t matter to them how quickly the freelancers receive their payments. If freelancers decide to increase their profits by lowering commissions, then they won’t save anything either. Customers also have less at stake if a centralized authority decides to change or intervene. In addition, paying with cryptocurrencies is likely to be inconvenient – at least until they gain massive popularity.
However, there are some indirect benefits possible. With a 15-20% cut in commissions, there is a chance that freelancers will lower their rates to stay competitive, resulting in significantly lower service costs. In addition, if blockchain platforms are significantly better for freelancers, they will attract the best talent.
If a platform that uses blockchain, smart contracts, and tokenized incentives work more efficiently, then this will be a clear benefit for customers. If implemented correctly, this will reduce hiring risk and improve the quality of work.
Wouldn’t it be difficult to move to new platforms?
It is difficult to say if it will be difficult to move to new platforms, as mature blockchain applications for freelancing simply do not exist yet. But if done right, the transition can be easier than ever, especially for freelancers. First, big projects like Ethearnal and Canya cite practicality as one of their top priorities, and their added benefit is the ability to learn from the latest generation of freelance platforms.
But there is an even greater incentive. Every freelancer faces a chicken and egg problem when starting work on a new platform. To get orders you need reputation, but to get the reputation you need orders. Nobody wants to work with a person with zero reputation since that person has nothing to lose in case of dishonest behavior. This is an age-old problem for which there is as yet no simple solution.
Reputation tokenization means that the reputation can have real monetary value, as it should. Freelancers and well-intentioned customers can pre-invest real money in their reputation and sell and buy this reputation or use it in projects. The incentive to act professionally is very high, as it will cost you money otherwise.
Problems to be solved
We know that it is possible to solve the problems of escrow payments, issuing tokens, and collecting funds using smart contracts and ICOs. All this has already been done. However, blockchain technology is still immature and usability is a key issue. Decentralized apps are slower and harder to use than centralized apps, and developers need to find ways to get around this.
Other challenges facing new blockchain applications are somewhat more subjective. The correct use of economic incentives is extremely difficult, especially since many of these incentives have not been previously studied, and decentralized protocols and smart contracts are difficult or impossible to change on the go. There is also the issue of community activity and network size. The main asset of the freelance platform is its network of performers and orders.
Is it Time to Move to Decentralized Freelance Economy Yet?
Centralized systems are a modern-day form of slavery. They have enslaved many people by forcing them to work in unfair conditions without much power over their own lives. Centralization can be seen as nothing more than an exploitative system that loots from the masses while offering very little in return, and sooner or later it will come crashing down under its weight like all structures built on inequality do eventually fall apart because we live on this Earth together not separately with separate needs for each person who inhabits our planet.
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