@ Ivan Makedonski
2024-08-18 06:55:26
*The spread of the Lightning Network may change the incentives behind human interactions, thus also affecting the world of jobs. In the first episode: the construction industry.*
When talking about the social implications of Bitcoin, reference is often made to the potential effects of Bitcoin's spread that are not immediately evident: these are second, third, and fourth-degree effects that could change the way people behave in everyday life. Even if the thought might sound hyperbolic, the fact of the matter is that technology has already changed the features of our everyday life, more than once.
Raise your hand if, in the 1980s, you would not have found crazy the idea that one-day people would choose which restaurant to go to based on star ratings and reviews on a digital screen.
Who would have thought that one day it would no longer be necessary to pay attention to the route to take by car to reach one's destination and, possibly, learn it by heart, because software would calculate the best route for them based on traffic?
How would you have reacted if, back in the 1970s, a friend had told you that in the future he might fall in love with a girl he had never seen who lived on the other side of the world, thanks to text messages processed by software that allows you to meet like-minded people?
Innovation changes social interactions: it always has and will continue to do so, especially if technology is particularly disruptive.
The effects of the large-scale diffusion of the Lightning Network - a technology that allows instant payments from one part of the world to another at almost non-existent costs - can be extremely profound, and can act to change entire sectors. In the first example, in this article, we will discuss how instant settlement could revolutionize the construction industry.
The construction industry is a complex ecosystem involving a myriad of stakeholders, each with its own set of incentives. These often conflicting interests lead to inefficiencies, delays, and increased costs.
The Lightning Network offers a solution to align these disparate interests.
## The problems
### Misaligned Incentives
In the traditional construction setup, each stakeholder operates with a different set of incentives. More specifically:
Buyers aim for high-quality construction within a stipulated time and budget.
Planners, including architects, designers, and engineers, are primarily concerned with their designs and less about the actual construction.
Construction companies are focused on maximizing profits, realizing the building as quickly as possible and with the lowest possible quality at the agreed price.
Supervisors' incentives are tied to bonuses, which may or may not align with the project's overall goals.
Construction workers are paid for their time, not the quality or efficiency of their work.
Let's step outside the imagery of the construction site for a moment and think about football.
Can you imagine if defenders had a bonus for putting the ball out of bounds? And midfielders had one for the most passes? And strikers for the most goals? Imagine the chaos on the pitch if the different skills of all the players were not employed for only two goals: to score goals and to avoid conceding them. Such a team would hardly be efficient or successful.
The construction industry, with its varied incentives, faces a similar problem, leading to delays, increased costs, and compromised quality.
#### The underlying issues
Several other issues exacerbate the inefficiencies in the construction industry.
Machinery and tools, often owned by the construction company, are not well-maintained by the workers. This leads to faster wear and tear, increasing costs for the company.
Small changes in the project requested by the buyer are not usually compensated, adding to the company's costs.
Planners are not held accountable for design flaws that manifest during construction, leading to additional costs and delays.
## The solution: instant task-based payments
### Construction workers
In a hyperbitcoinized world, the Lightning Network's instant settlement feature can be a game-changer.
Workers would be paid for tasks completed rather than time spent. For instance, upon successful construction of a wall or installation of windows, payments could be made instantly. This aligns the workers' incentives with quality and efficiency, as they would aim to complete as many tasks as possible to earn more.
Because workers are paid per task there will be no need for a company to hire workers on a payroll. The company just needs to post the tasks, for example on its app, and anyone can apply for them, do their tasks, and get paid for each execution. The more tasks a worker does, the more bitcoin he earns, the better his skills become, the better his reputation will be in the app. Isn't that what already happens with Uber drivers - except for the Bitcoin part, for now?
#### Supervisors
This system would also eliminate the need for supervisors to focus on time management, allowing them to concentrate solely on quality assurance. If a task meets the quality standards, the worker gets paid instantly. This would eliminate the need for time-based bonuses or penalties.
Supervisors would be incentivized to focus even more on quality alone by the split payments feature made possible by the Lightning Network. When a specific task is up for grabs, multiple workers can apply for it via a specialized app. The workers then negotiate among themselves to determine the division of payment - be it an even 50/50 split or a more nuanced arrangement like 60/40. This self-organization extends to scenarios involving more than two workers, where payment divisions could be negotiated as 33.3% for each in a three-way split, or perhaps a 40/40/20 arrangement.
The self-organizing mechanism alleviates the supervisory burden. Instead of mediating disputes or assigning tasks, the supervisor's role becomes even more focused on quality control. Once a task is completed to satisfaction, the supervisor approves it in the app, triggering the release of funds. The app itself is programmed to automatically split the payments among the workers based on their pre-negotiated terms, streamlining the entire process and eliminating the need for manual intervention.
#### Tools ownership
Since workers are compensated for completed tasks rather than time spent, there's a heightened incentive to complete tasks as efficiently as possible. More tasks, more money. The quickest route to efficiency? Utilizing high-quality, well-maintained tools.
When multiple workers vie for the same task, the one equipped with the best tools gains a distinct advantage, capable of completing the task more swiftly and effectively. This system has a ripple effect on tool ownership. Over time, workers might prefer using their own tools over company-provided ones, ensuring better maintenance and ultimately contributing to a more efficient and effective construction process.
In short, the instant payment system would also encourage workers to invest in and maintain their own high-quality tools, further improving efficiency and competition in the construction workers market. This would also reduce the company's costs related to tool maintenance and replacement.
#### Planners and buyers
Planners would be more involved in the construction process, ensuring that their designs are being followed accurately. They would be paid partially upfront for their blueprints, with the rest being released upon successful completion of tasks. This system would make planners more accountable and invested in the successful execution of their plans.
The task-based payment system also benefits the buyer and the construction company by reducing financial risks. Payments would be made for completed tasks, ensuring that neither party is financially exposed. This would also make the negotiation process smoother, as both parties would know exactly what is included in the price for each task.
#### Construction companies
While the Lightning Network's instant settlement feature promises to decentralize many aspects of the construction industry, the need for centralized oversight cannot be entirely eliminated. A single entity must be accountable for the holistic execution of the project, meticulously tracking resources required for each construction phase and ensuring the right personnel are deployed at the appropriate times.
Technological advancements have made it possible for specialized apps to manage these complex tasks. Such apps could, in theory, allow the buyer of the finished building to oversee the entire project. However, this assumes that the buyer possesses the requisite expertise in construction management, which is often not the case. As a result, most buyers prefer to employ specialized companies to manage the project until its completion.
This scenario closely mirrors the current state of Lightning Network nodes. While anyone can set up a node, doing so effectively requires a certain level of expertise. Some individuals may choose to manage their own nodes to earn revenue, but the majority are willing to pay fees for expert management, opting for non-custodial apps to simplify the process. Similarly, some buyers may use construction management apps to avoid paying a construction company, but they must then assume full responsibility for the project's outcome.
### Now go and build
The next logical step is clear: it's time to build that pay-per-task app and usher in a new era of decentralized construction. By leveraging the capabilities of the Lightning Network and Bitcoin, we can shift the balance of power towards those who are at the heart of every construction project—the workers. These are the individuals who bring blueprints to life, who lay each brick and install each window. By empowering them with instant, task-based payments, we not only align incentives across the board but also elevate the entire industry to new heights of efficiency and quality.