The Peer to Peer Economy

The 21st Century has already seen a series of substantial shifts in the nature and structure of the global economy, primarily driven by new technology. Although the effects of technological progress on the economy are many and varied, broad global trends can be identified. Perhaps the most significant of these broad trends, in both its economic and social impact, is the emergence and phenomenal growth of the peer to peer (P2P) economy.

Prior to this recent period in our history the economy was structured in a firmly hierarchical manner. Although some people worked as self-employed sole traders, the vast bulk of economic activity took place between an individual and a large organisation - either a business or some branch of the government. Although this kind of unequal relationship still dominates the economy, there is now a growing trend towards direct economic relationships between individuals, facilitated by technology.

The apparent development path of current technologies, as well as social trends which now seem to be well established, suggest that this move away from an economy built on business-consumer relationships and towards an economy based on peer-to-peer relationships looks set to continue, and perhaps even accelerate.

Peer to Peer Marketplaces

One of the most obvious examples of this trend comes from the massive success of peer to peer internet marketplaces. These are websites which allow ordinary people to both buy and also sell products and services over the internet. The first of these P2P marketplaces to hit the big time was, with its on-line auctions. Although eBay has now become a huge corporation itself, and although many of the products listed are sold by 'power sellers' who are running a business, eBay still facilitates a huge number of direct, peer to peer financial transactions. It allows anybody to sell any product they want directly to other individuals, either to make a little bit of extra cash on the side or to set up a home-based business with minimal expense and without needing the technical skills to develop a custom website.

This business model has proven to be so successful, it has inspired the launch of hundreds of new start-ups over the last few years. You can now rent out your spare room, for example, to provide people with a P2P alternative to hotels, hostels or B&Bs through websites like Airbnb ( You can also find people who want odd jobs done in your area or find yourself a local dog walker or babysitter, rent out your car or parking space when you aren't using it, buy or sell small 'gigs' through site's like, self-publish a book you've written and sell it direct to the public without a publishing deal, sell your music through websites like Soundcloud direct to the public without a recording contract, and much more besides.

The range of different peer to peer marketplaces of this kind, which serve to facilitate trade between individuals rather than selling their own products, is growing every year - and so is the number of people who are using them.

Peer to Peer Currency & Financial Services

The latest 'game-changing' innovation which promises to push us even further away from the old hierarchical economic model is the emergence of peer to peer digital currency.

The success of Bitcoin has stunned many observers, and has opened the floodgates to a wide range of innovative new peer to peer currency initiatives. These new digital currencies do not require central banks to issue the currency, or large banking institution to process payments. Money can be held in a digital wallet on an individual's own computer or phone. Payments can then be sent to anybody else, anywhere in the world, with the transaction being processed by a distributed network of computers belonging to thousands of different people (at a minimal cost compared to the traditional alternatives), rather than by a central financial institution.

Peer to peer currency has the potential to go a long way towards taking the massive power and profits of the financial services industry out of the hands of the kind of greedy bankers and 'casino banking' derivatives traders who caused the global financial crisis of 2008. But although this seems to be the most significant P2P innovation within financial services at the moment, it was by no means the first.

Even before the rise of Bitcoin, a whole host of new services were threatening to take on the banks and bring the 'power to the people' in the arena of financial services. Crowdfunding services were amongst the first, allowing people to fund community initiatives, new business ventures or media projects through small contributions from ordinary people over the web rather than through traditional routes such as bank loans. At first contributors could only expect to be rewarded with small perks and freebies, as well as the satisfaction of supporting a project they wanted to see succeed; today you can actually buy a virtual share in a project like this, and be rewarded with a profit if it is successful.

Crowdloans are an even more direct P2P competitor to traditional banking, allowing individuals or businesses to take out loans built up using small contributions from 'the crowd' rather than having to go to their bank or a large loan company.

In the next few years we can expect to see the emergence of a range of new 'cryptocurrency 2.0' projects which more fully combine the power of digital currency with the full range of potential crowdbanking services. Already Ripple ( has a functioning P2P financial services platform which can compete with Paypal (see: Ripple vs Paypal) and can be used for currency exchange (even between fiat currencies), issuing stocks, and a wide range of other services. Projects like Ethereum ( and Open Transactions (Open Transactions) are aiming to take this even further.

The Sharing Economy

Everything that I have written about above focusses on 'for profit' transactions. These are essentially new peer to peer implementations of the same kind of services, products and relationships which were available within the traditional hierarchical economy. But a large part of the new economy I am writing about here actually eschews the profit motive altogether - its not about profit, its about pleasure.

Sharing is a massive driving force behind this new type of economy. Although this sharing can take many different forms, at its heart it is about freely sharing both products and services with peers rather than purchasing them.

Torrent services which allow users to freely share all kinds of media and other files is a classic example. At times this can be the illegal sharing of consumer products driven by our new found scepticism of traditional ideas of economic ownership and control. But it can also involve people creating things specifically to be shared for free.

A good example of this is the open source movement - which this website and the digital currency of Devcoins which drives it were designed to support. Open source projects have begun to revolutionize our ideas about intellectual property and its effects on innovation. Combined with creative commons copyright licenses, open source projects provide both software and hardware projects which anybody can copy and distribute, or make changes to in order to create their own improved or niche version. Open source products are generally given away for free, and are often built by a community of users and enthusiasts who each contribute their own time and skills, often for free, to build up the project. Not only are these products shared for free through peer to peer channels, they are even built in the first place through open collaboration between peers.

The success of these ventures is turning once dominant ideas on their head. It used to be thought that in order for innovation to flourish there had to be strong intellectual property laws - so that companies could invest in professional research and development in the secure knowledge that they would be able to profit from the results of this research without others stealing their ideas and discoveries. But the open source movement takes the opposite view - by making an innovation freely available 'the crowd' is able to refine and improve a rough idea, bringing it to the level of a finished consumer product without a huge capital investment. If others are then able to freely use that innovation as the basis for their own creations and their own innovations, you are effectively amplifying the impact of that original innovation. Even without the profit motive, large and complex products can be (and have been) built purely for the love of it, or because enough people wanted to make it happen.

Technology is also facilitating a more idealistic and conscious form of 'free economy', in which people seek to bolster community spirit and step back from the rampant consumerism which has come to dominate western culture. As an example of this, websites such as Freecycle ( have built P2P marketplaces in which people give away their unwanted things for free.

Peer to Peer Manufacturing

While the open source idea began with software, it is quickly spreading to include physical products. There are already many open source hardware products in the electronics sector, allowing people to build their own electronics and gadgets at home. An open source hardware project is one which freely shares its design and technical details, allowing people to build their own version of a product themselves, or to use a product as part of something bigger without having to pay a fee.

With the continuing rise of 3D printing, peer to peer manufacturing looks set to explode. Being able to 'print out' almost any physical product using a desktop machine in your home has massive implications for the way we manufacture our consumer products. What's more, these products can be printed from a digital file - which can be shared over the internet. If you thought that people sharing music or ebooks without paying for them had a big impact on the economy, just wait until ordinary people are downloading everything from their kitchen utensils to their jewellery.

Micro-Jobs and The Prosumer Economy

All of this should lead us to consider what the economy of the future will look like. If the peer to peer economy is able to grow enough to truly challenge the dominance of the hierarchical economy, what will our lives be like? How will it impact our jobs - for example?

One of the things which I have been predicting since I became interested in this subject is the diversification of income for the ordinary person. What I mean by this is that we will gradually start to shift away from the current situation in which a person having a single full-time job is the norm, and towards a situation in which most people have multiple sources of income.

Large numbers of people are already earning extra money on top of their regular income through peer to peer marketplaces, through writing blogs or contributing articles to sites like Devtome, selling their art or crafts or music, taking small odd jobs or freelance work, and so on. Statistics are already showing that in many western countries (certainly the UK and USA) the proportion of the population in part-time work compared to full-time work has increased.

As I wrote about in How to be a Prosumer, one of the effects of the P2P economy is to blur the lines between the producer and the consumer. The number of opportunities for consumers to take part in the process of production, to be involved in creating and improving products rather than being a passive consumer, is increasing. Alongside this, the number of opportunities for people to take a share in the revenue from a product, or enjoy cheaper prices, in return for doing this is also increasing.

In the future I believe that more of us will earn secondary incomes through our hobbies, by sharing our knowledge and skills or by directly selling the result of our 'labour of love'. At the same time, if the adoption of open source alternatives to corporate products increases and the sharing economy grows, we may enjoy a wider range of free or cheaper products, reducing the amount of money we need to earn in order to maintain our standard of living. This will allow some to reduce the hours that they work in order to spend more time on those hobbies, others to drop out of employment altogether, and the rest to simply be that little bit richer.

Categories: Economics | Business | Finance | Work

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