#blockchain #cryptocurrency #payment #fintech
In the beginning it was the barter.
Exchanging goods and services is dated thousands of years. It was perfect for a while, when the needs to be satisfied were primitively basic. But it soon became impractical as the units varied largely. How many chickens for a sheep? 20? And what if I only had 10? And even if I had 20, how can I sell “half a sheep”? It was the first liquidity problem.
So titles were created as a promise to pay, but of course were easy to default as it was easy to “disappear”.
So banks were put in place to guarantee the credit and gold was chosen as store of value. Hence a piece of paper begun to carry precious metal value. It lasted for very long. It was an almost perfect system. But then in 1971, all money came to an end. The world became flooded with currency.
In fact, with the unilateral cancellation of the US dollar exchangeability for gold, President Nixon paved the road for “valueless” paper called currency. With no longer the need of storing physical value in order to back the paper currency, governments begun to print currency as if it was not going to create any impact on economy. Wrong. Inflation grew pretty much globally, making goods progressively more expensive. As a result, some Governments spiraled down into printing and/or issuing new currency without real value. The US dollar value decreased 3 to 4 times since 1985. At the extreme end of the scale, Zimbabwe saw the price of all goods in the country doubling every 25 hours, with the largest currency inflation in the history of mankind.
Currency-cash as a form of payment is simple and reliable, but carries a few risks. The first and most obvious is the total lack of security. It is ironic how access to a mobile banking nowadays requires PIN and One Time Password sent through SMS or USSD, while cash… Well, cash has no security features. It can be stolen as easily as it can be easily spent. In form of paper banknotes it can also be ruined, burnt, wet, tore or simply invalidated with a pen scribble on it. Once stolen, cash can hardly be tracked. Only freshly minted cash stolen in a bank before its release have some sort of serial number traceability, but other than that, stole cash is gone for good.
Despite the total lack of security, cash has been around for millenias. Hence security cannot be a determining reason for new technologies to succeed in replacing cash. However, when startup companies meet up, they see payment as a huge problem - although I do not fully understand why - and so they become more and more creative in generating transactions based on increasingly creative triggers.
In fact, from programming perspective, a payment is nothing but an IF / THEN condition being satisfied. And with so many data that nowadays we can track, anything could be linked to a payment. So, for example, IF my body temperature reaches 37.5 degrees celsius, THEN pay the pharmacy for my medicines that I need to collect. And since I recently bought a new steps tracking device, I could decide to reward my health and wealth by setting a trigger, so that IF I have walked my daily target of 5000 steps, THEN a $10 charity donation is made to a designated organisation. These are just fantasies for now, but today’s technology indeed allows both of the examples to be implemented in no time and with little IT development cost.
At the Fintech Festival 2017, organised in Singapore by the Monetary Authority, many startups displayed in which direction is payment going. More than one startups were offering sound driven payment solution. One of them was focused on ultra-sounds not audible to humans. Another one with sets of sounds. Another one associating the sound of our voice to a transaction… In simple words, IF my voice sounds like the sample that I have recorded upon signing up, THEN release the payment.
Lastly, startups and large organisations in the same way, are pushing towards face recognition payments. So, in future, we could enter into our favourite restaurant and while passing in front of the cashier being charged the bill by a camera that filmed us entering the restaurant and having dinner. IF the person in the restaurant looks exactly like me, THEN pay the bill. Or paying with our face while ordering takeaway food at our favourite drivethrough. Or settling the water bill, by looking into the camera and smiling. And so who needs to carry a wallet around anymore? It could be so convenient that we could only buy or sell if our face is recognised by the system. And if not… Well, we do not know. I find this idea frightening.
This scenario was already described a few thousands of years ago in a visionary book: The Bible.
Revelation 13:16 And the second beast required all people small and great, rich and poor, free and slave, to receive a mark on their right hand or on their forehead, 17 so that no one could buy or sell unless he had the mark — the name of the beast or the number of its name.
Photo by NeONBRAND on Unsplash
Blockchain is really simple. The official definition in 2 words is “distributed ledger”. But such a simplistic definition does not really emphasise how blockchain is going to be (and perhaps already is) the most disruptive technology of the decade. Calling Blockchain as a simple Distributed Ledger would be like calling Computers as a simple Plastic Box, or a Newspaper as a Piece of Paper.
Of course the core attributes of any technology are fundamental, but technically speaking there were already so many (sort of) “distributed ledger” tools in the past decade thanks to cloud computing. Blockchain became popular thanks to Bitcoin that offered a very clever way to encourage public participation in the validation of transactions.
This process is called cryptocurrency mining and I took the challenge of explaining it to my 6 years old son.
Here is how the dialogue went:
Me: “If I give you a new toy now, who will see the toy going from my hand to your hand?”
My son: “Only you and I, papa’.”
Me: “Now if Jaden (his best friend) was here watching, could you ask him to tell your teacher that now you have a new toy?”
My son: “Yes…”
Me: “That is called “witnessing” or “certifying”.”
My son: “Witnessing or certifying…”
Me: “Ok, but maybe Jaden would want something in exchange for witnessing or certifying… How about a coin?”
My son: “Ok.”
Me: “So if you give a coin to Jaden he will certify with your teacher that papa’ gave you a new toy. Clear?”
My son: “Clear.”
Me: “But now that you are offering a coin to anyone so that they can witness or certify, maybe also Mark and Dylan (his other 2 best friends) would want that coin.”
My son: “So? How?”
Me: “Well you could give them a task. The one that completes the task gets the coin. Deal?”
My son: “Yes!”
In very simple terms, that is what cryptocurrency mining is all about: witnessing and certifying (i.e. validating or signing a transaction). But when it comes to the task, that is perhaps beyond the understanding of a 6 years old.
For Bitcoin mining, the task works around a cryptographic code called SHA 256 (Secure Hash Algorithm at 256 bit). The process is a one way encryption that generates a 64 digits almost-unique code. So this very long code can start with any letter from A to Z or any digit from 0 to 9. So in order to validate the transaction, the observers would need to generate a SHA 256 code that satisfy an arbitrary rule. For instance in Bitcoin the rule is that the code must start with zero. But since there are so many “observers” interested in pocketing the prize for the validation (i.e. a token) - and computing power has grown drastically over the past 9 years since Bitcoin’s inception - the challenge of generating an SHA 256 starting with a zero has become fairly easy. That is why the founder of Bitcoin set a timeframe of 10 minutes within which the tasks is to generate the SHA 256 starting with the largest number of zeros.
The process is much simpler done than said. In the validation box we can key in any number and / or alphabet. That, together with the transaction that we want to validate, generates the SHA 256. It is a trial and error process. Mega computers right now can process very large number of attempts, hence the number of zeros needed to win the task could be 30 zeros or more. If we were to attempt manually, one by one, the likelihood of getting an SHA 256 starting with 30 zeros could be slimmer than winning the lottery in a lifetime. Therefore mega mining farms, able to process million of SHA 256 attempts, sprung over the past decade or so, making the mining process nearly impossible for the average Joe.
Transaction after transaction, blocks are created and lined up. Hence the validation of the last transaction requires inclusion of all the precedent transactions, making nearly impossible to “fraud” the process of mining Bitcoins.
#bitcoin #blockchain #cryptocurrency #mining
Photo by: Ben White - UnSplash
Finance is ancient. A currency transaction does not take place instantaneously, but technology has been able to fulfill real time transactions for the past 20 years. This anomaly in the finance system is all of a sudden under the scrupulous attention of all the fintech companies in the world. For those that did not understand the magnitude of this paradigm shift, the fact that the UK has issued more new banking licenses in the past 2 years than in the history of the UK, should clearly spell it: if your bank does not innovate within 2 years, they will run out of business within 5 years. As drastic as it may sound, there is no other possible way, but innovating.
The typical example is the one of a person in Japan transferring 100 dollars at 8 AM to a friend in Los Angeles. This is impossible with the current banking system. First of all, due to the time zone, the customer in the USA would not receive the amount until the next day, because according to standard chronology, 8AM in Japan still corresponds to the day before in Los Angeles. Secondly, if the transaction was initiated on a Saturday morning, it might not be performed until the next Monday or Tuesday in Los Angeles. In a real time society with real time technology, this is just absurd. Lastly, the friend in Los Angeles would not receive the entire sum of $100, but the balance after the expensive bank charges are applied. The other possible scenario is that the person in Japan can absorb the bank charges, but the bottom line is that someone ought to pay. This is the last absurdity. A bank transaction is nothing but a record of data being inputted from one cell to another in a database. It takes less than a second, and on a blockchain with an automatic API, even less than a second. Why in Finaince 1.0 is it charged as much as $10 or $20? In the meantime the new virtual banks are performing true 24/7 real time transactions free or charge.
And bank transfers is only one small scope of all of a bank’s operations. Mortgages are another crucial issue. For someone who wants to apply for a housing mortgage today, the number of questions to be answered and the procedure to go through are just too many and too slow. If you - reader - have applied recently for a housing mortgage, you would find yourself submitting paper after paper and answering question after question.
“Can you name a contact in case of emergency? What is their name, their telephone number, their address and their relationship to you? When was the last salary drawn? How long have you been working with this company? Do you have an original payslip of July’s payslip with a rubber stamp of your company? Do you have your employment contract on original true certified letterhead?”
All of these annoying questions could be easily, safely and in an inequivocabile way stored on a blockchain, and made accessible in real time. But the (slow) reality of Finaince 1.0 is that this process can take nowaday any amount of time between 2 week and an month. On the other hand, in Finance 2.0, a mortgage will receive approval in 1 second.
When it comes to credit cards, the process is equally slow, still involving phone call to the applicant’s boss to check if the data provided are true. This is another absurdity of Finance 1.0, while blockchain could grant uncontested access to the same data in real time.
Lastly small loans. Currently a bank would assess all the belongings of a person or a business, scrutinising the ability to repay against the assets deposited or locked in as collaterals for the loan. In Finance 2.0 this process will be running on platforms similar to crowdfunding where a collective group of users able to withstand small risk, will be issuing small units of loan to a peer-reviewed community of lender, none of which has the intention of frauding, but some of them might be unable to repay, exactly the way it is happening in Finance 1.0, with a major difference: easier access to investment and loans.
All the examples in this column might sound crazy to those that are not really involved with the development of finance. But for someone like me, it is all much more than science fiction. When I was still in the training business, teaching photographers how to edit their pictures, up until 2007 I still came across photographers who told me that digital photography would never succeeded. They got it all wrong. Innovation does not wait for anyone’s opinion.
#fintech #blockchain #finance2.0 #innovation
When Amazon started selling online back in 1994, one of the major challenges to solve was logistic. Now, more than 20 years later, the issues are the same. Although Amazon has been toying with the idea of shipping through drones, the era of future-shipping has not yet come. However, the name of the most recent trend could be quite evocative. It is called Drop Shipping and it has already started redefining the way entrepreneurship looks at e-commerce.
The idea behind Drop Shipping is the thousand years old middle-person type of approach. Traditional commerce in the past was implying that the middle-person could guarantee the transaction. Of course in a physical market or in a store, there is no need for such a guarantee, as the goods are already visible and displayed. But when the middle-person offered to go far away with the goal of purchasing on behalf of a buyer, that was when issues arose.
From a customer perspective the main fear was that the middle-person could have run away with the cash, if the customer paid in advance. From the middle-person point of view, he or she risked to make a purchase without getting to ever see the money in case the client changed his or her mind. To solve such puzzle many financial tools came into place along the centuries and in the recent decades. When electronic payments were introduced, everything became ways simpler, however some challenges still remain.
Drop Shipping is the ability for anyone with an internet connection to reach out to both customers and suppliers. A Drop Shipper is someone that intermediates between the buyer and the factory, earning a profit (usually quite small commissions) on the transaction. The Drop Shipper is not involved in the shipping process, but simply places the order of the customer to the manufacturer. In other words the transaction is a simple referral, but still carries some extra services that the Drop Shipper commits to provide.
In a perfect scenario the equation works smoothly with the 3 parties involved: The Customer, The Drop Shipper and the Manufacturer. Here is how:
Quite straightforward, isn’t it? Not quite.
Between Step 1 and Step 2 many issues may arise. For instance the customer might have questions about the product. In that case the Drop Shipper shall answer all questions and help the Customer to take a decision. If the question is beyond the grasp of the Drop Shipper, he or she shall forward the question to the Manufacturer. This may day minutes, hours, days or even weeks when the Manufacturer is not used to deal with Drop Shippers.
Between Step 3 and Step 4 the Manufacturer has large room for error. For instance by sending the product too late, or to the wrong address or even the wrong product. The beauty of Drop Shipping is that Manufacturer that are not tech savvy at all can rely on very ingenious e-entrepreneurs, however a clever Drop Shipper cannot patch the processes within the manufacturing organisation.
In this precarious balance between Drop Shippers and Manufacturers, the Customers have high expectations, mostly because they do not know (in most cases) that they are purchasing through a Drop Shipper. As the latter acts as a representative of a Manufacturer, the Customer seldom feels that is dealing with separate entities. An amateur Drop Shipper is the one who blames the Manufacturer for problem that has come to surface. By doing so the Drop Shipper has given away the secret of his enterprise. In other words, the Drop Shipper is just a regular person working from home and pretending to be an big organisation. Blaming the Manufacturer is somehow funny from Customer stand point.
Another main challenge arise with taxes and regulations. As a Drop Shipping website can be created and hosted pretty much anywhere in the world, as well as Customers can place orders from anywhere in the world, they both have to keep in mind the rules that may prevent a Manufacturer to ship to certain countries freely. Some items could be banned in certain countries or carry taxes that both Customer and Drop Shipper did not envision.
The biggest advantage for a Drop Shipper is that in no-time a new shop can be set up, without inventory, with minimal investment, small overhead and without any specific business authorisation to manufacture products. Hence the system can be replicated easily.
Some Drop Shipper have already reached the point of self competition whereby they set up multiple e-stores selling the same products are different price. If the Customer ends up on the overpriced website and purchases, good for the Drop Shipper. If the customer finds the good too expensive and goes hunting for better price, would still have a chance to find the same Drop Shipper selling the same item at the regular price, but in comparison to the overpriced one, it would look like a great bargain! And the customer will be happy.
Since ancient times, gambling has been an attractive activity to people from different cultures. Psychologically, gambling is associated with the disease of addiction, where the gamblers develop an aversion to betting. Studies show that gambling causes variation in brain chemistry that can easily shift from a form of recreation to harmful addiction.
Through history, many influencers have been connected to gambling. For instance, the Russian writer, Fyodor Dostoevsky, who was a gambler himself, describes the psychology of gambling in his book The Gambler. Among other things, he concludes that gamblers are usually drawn to the games by the idea of "getting rich quick".
By definition, "gambling is the wagering of money or something of value (referred to as "the stakes") on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods." Gambling becomes especially dangerous when gamblers invest more and more money to win back the money they have lost. The betting causes a feeling of excitement when winning, and anxiety when losing. Gambling is a pattern that forces gamblers to relieve the feeling of helplessness after a loss, by being optimistic and bet over and over again.
In 2015, at the United Nations Conference on Crime, held in Doha, it was concluded that the global sports betting market is worth $3 trillion. It was estimated that the majority of the figure is generated by illegal gambling. According to the British betting expert, Patrick Jay, 65 percent of the total number go to football betting, and 12 percent to tennis and cricket. He told the conference session that 90 percent of the whole amount of the global sports betting are illegal and the figure is much higher than the estimated $3 trillion - and growing each year.
The biggest market of sports gambling is the Asian, where "The key driver of demand in the global gaming market is the time zone, because the market is Asia and therefore if Gillingham versus Orient (two English third-tier sides) is 7pm on a Saturday night in Asia on TV, that's going to drive greater turnover than Barcelona versus Real Madrid, which is at four o'clock in the morning, and that's a fact," he added. Jay, also a former director of trading at the Hong Kong Jockey Club, said that "China is becoming the epicenter of the problem".
The conference was attended by Abdullah bin Nasser bin Khalifa Al Thani, Qatari Prime Minister, as well as by Yury Fedotov, UN Office on Drugs and Crime (UNODC). At the meeting hosted by UNODC and the Doha-based International Centre for Sports Security (ICSS), these two organizations announced their partnership to "strengthen investigations and prosecutions into match-fixing".
Today, many governments have been making an effort to regulate the new form of gambling. Online gambling gained popularity in the 1990s. In just one year, the number of online gambling websites increased from 15 in 1996 to 200 in 1997. According to the report by Frost & Sullivan, in 1998 online gambling revenues had surpassed $830 million. It was the first year when online poker rooms were introduced. Since then, the online gambling industry has developed a variety of forms. For instance, online poker tables - offering poker where players can play against each other and compete in tournaments, online casinos - where people can play casino games, as well as sports betting, online bingo, mobile gambling, and more.
The Internet changed the gambling industry and betting habits in the early 20th century. According to the UK Gambling Commission, in 2007, the entire gambling industry was worth up to £84 billion, with online gambling becoming one of the most popular Internet businesses. In 2001, the number of people that participated in online gambling was eight million, and in 2008, the online gambling revenue was $21 billion. It is expected for the online gambling market to reach a volume of $45.86 billion in 2016, and $56.05 billion growth by 2018.
The legal status of the gambling industry has not influenced its growth. Many countries such as Russia, have prohibited online gambling or passed acts - Australia, to regulate Internet gambling and protect their citizens of its harmful effects. Studies have shown that the rise of the gambling industry has become a problem, with the majority of people that have shown pathological gambling behavior. For instance, UK Gambling Commission's study showed that in 2010, 0.9 percent of the adult population had gambling issues, especially those who participated in online slot machine-style games (17%), Dog races (19%), and Poker at a pub (20%).
Most of the countries worldwide forbid gambling for minors. In the UK, any person under the age of 18 is not allowed to gamble. In most American states, individuals below 21 are not allowed to enter a casino, and below 18 to buy a lottery ticket. However, even with these regulations, with the rise of the online gambling industry, it is hard for legal organs to keep track of the people that participate in the games.
With the goal of 150 country to be visited before 2025, Stefano Virgilli is an avid traveller and expert connoisseur of the cultures of the world.