[New Wave] What It Takes for the Protocol Economy to Succeed

[Asia Economy] The "protocol economy" is a hot topic. The concept, first introduced by Park Young-sun, Minister of SMEs and Startups, in November last year, aims to solve the monopoly problem of the existing platform economy by having all members create agreed-upon protocols (rules) and distribute outcomes accordingly. Minister Park calls this a "participatory fair economic system," but simply put, it means transforming existing platform businesses into cooperative forms where members become employee shareholders, thereby changing the structure so that profits are shared among all members rather than being monopolized by the business owner. The U.S. Securities and Exchange Commission allowed Uber to pay drivers up to 15% of their annual salary in stock, which can be seen as a representative example of the protocol economy.

In an interview with a media outlet, Minister Park stated, "The protocol economy does not mean the blockchain economy," but in fact, the ideals pursued by the protocol economy and blockchain are quite similar. However, the problem is that, as with blockchain, there are many difficulties in realizing the protocol economy in practice.

First, issues related to conflicts and leadership can be pointed out. In July 2015, taxi drivers invested 20 to 25 million KRW each to launch Korea's first taxi cooperative, "Co-op Taxi." In the existing corporate taxi model, companies rent cars to drivers and take a portion of daily earnings under the name of "daily quota." In contrast, Co-op Taxi collects all money first and distributes profits monthly in the form of dividends. Co-op Taxi operated stably for two years after its launch, with similar cooperative taxi models emerging in Daegu, Gwangju, Pohang, and Gyeongju. However, repeated conflicts between management and members led to financial difficulties, and eventually, the cooperative filed for corporate rehabilitation procedures in November last year. In cooperatives, the chairman and executives have equal voting rights of one vote each, making them horizontal entities, so members naturally have strong voices. Therefore, conflicts in cooperatives often surface at lower levels of tension compared to regular companies, much like a "hard fork" in blockchain.

Another issue is whether it is technically feasible. In the protocol economy, it is crucial that the promised rules have clarity and continuity. To achieve this effectively, "smart contract" technology, which programs rules permanently on the blockchain, and "tokenization," which facilitates easier and simpler profit sharing, are essential. However, this is not easy. Rules mean contracts, and contracts must have legal effect, but the biggest question is whether program code on the blockchain (smart contracts) can accurately represent numerous legal provisions in detail and whether they can have legal validity. Although there is the "Ricardian Contract" to bridge the gap between the real world and code, it is still too early for it to become widespread. Moreover, since the internet has no borders, legal jurisdiction issues may also arise.

The ideals of coexistence and mutual growth are very important and must be upheld. However, no matter how good a policy is, if it is pushed forward recklessly while related technologies and systems are immature, only superficial protocol economy imitation projects or projects of moderate difficulty with easily achievable goals will proliferate, which will soon lead to waste of tax money and public indifference. More meticulous policy design is needed at this point.

Kim Seung-joo (Head of the Department of Cyber Defense, Korea University)