Coincidences, remittances and the blockchain

by Redd Angelo for Unsplash - remittances
by Redd Angelo for Unsplash

How time flies…

Back in November of last year, CoinDesk interviewed Peter Ohser, Chief Revenue Officer of Moneygram. He is reported as having dismissed bitcoin as a “poor fit” for cross-border commerce, largely due to the impact it could have on vital banking relationships. He also expressed skepticism as to the potential of the blockchain to revolutionize the remittance sector, on the grounds that it was “already efficient”.

Fast forward a couple of months, and Moneygram is bought by Alibaba’s Ant Financial.

A couple of weeks ago Ant Financial’s CEO gave an interview to CNBC acknowledging that the Chinese firm was exploring uses of blockchain technology.

Coincidence?

Ant Financial’s mobile payments unit Alipay has over 450,000,000 users in China, and aims to quadruple that over the next decade (according to the same CNBC interview). That’s going to require some investment in improving efficiencies and reconciling different systems.

What technologies might they be looking at?

According to the article accompanying the interview, artificial intelligence and the blockchain will be “deeply” integrated into Ant Financial’s operations.

This does not necessarily mean that Ant Financial will apply the blockchain to Moneygram’s operations. But the transition certainly looks more possible now than it did back in November.

Continuing with tenuous connections, last July Ant Financial announced that it was going to use blockchain technology to “clean up” China’s charity sector, which has a reputation of fraud and mismanagement.

Fast forward again, and cross an ocean. Last week it emerged that Western Union, Moneygram’s main competitor, has agreed to pay $586 million in fines for “aiding” money laundering and wire fraud.

I am in no way implying that Moneygram has done anything similar, not at all. But if the sector as a whole is vulnerable to the temptation, then perhaps Ant Financial will see an opportunity to prevent such incidents happening in the future? With, ooo I don’t know, the blockchain? As he did with Chinese charities?

At the moment it is no more than conjecture. But if Ant Financial decides to go ahead with explorations of how to put global remittances on the blockchain, that would be huge – not only because of the shockwaves it would send through traditional remittance suppliers, but also for the sheer size of the potential market, and the potential impact.

Bits – 29 January, 2017

Some stunning articles this week, many of them about the marches last weekend.

But first, let me share with you some of my favourite signs:

IMG_1234

My absolute favourite has to be this one:

4780CB10-69CD-4EED-BF1A-D04B6B007F0B-5180-00000C5EAEC8D4B5_tmp

The little one made her own sign, and held it proudly. It’s a start.

This article by Joan Wickersham from the Boston Globe reads almost like a poem, and had me weeping.

Jenna Wortham from The New York Times pointed out that just marching isn’t enough.

“None elected to intervene. “Isn’t this what you marched for?” my friend said to them. “Isn’t this what today was about? Standing up for injustice? Yet when you see it happen in your face, you just enjoy your meal quietly?”

The nature of American activism – and feminism – is molting, fast. The coalitions that formed on Saturday will have bigger questions to organize around, questions that will prove more urgent in the years to come. For whom are they marching? Is it only for themselves?”

Evan Osnos of The New Yorker wrote about the survivalist movement among the Super Rich, and how it’s really important to have your own plane.

“Fear of disaster is healthy if it spurs action to prevent it. But élite survivalism is not a step toward prevention; it is an act of withdrawal. Philanthropy in America is still three times as large, as a share of G.D.P., as philanthropy in the next closest country, the United Kingdom. But it is now accompanied by a gesture of surrender, a quiet disinvestment by some of America’s most successful and powerful people. Faced with evidence of frailty in the American project, in the institutions and norms from which they have benefitted, some are permitting themselves to imagine failure. It is a gilded despair.”

Kara Swisher makes me want to go out and swashbuckle in her “What would Steve (Jobs) do?” article for Recode.

“Where has that once-celebrated sentiment gone? Pirates. Break things. Disrupt. Resist. Win by being smarter and better. Believe in and embrace the future. Gone, it seems, with the election of one loud-mouthed politician, which makes me worry about what will inspire the next generation of innovators. As the old saying goes: If you stand for nothing, you fall for everything.”

More down-to-earth (sort of), Jay L. Zagorsky explains in The Conversation why the fuss over the Dow breaking 20,000 is pointless and misdirected. Enough with the “psychological breakthrough”, people.

“In sum, the presence of inflation in the U.S. and the continued efforts of editors at the Wall Street Journal to replace lagging companies in the index with companies that have high-flying prospects and stock prices will always result in headlines every so often that trumpet “turn-of-the-odometer” milestones like 25,000 and 30,000.”

Brian Armstrong (co-founder of Coinbase) looked ahead in Medium to a world in which bitcoin has given us control over our own wealth, while avoiding painting it as utopia.

“This increase in control for individuals will probably stimulate a great deal of economic growth, and improve the human condition. But it will also introduce some uncomfortable changes into society and has a long way to go, improving security, volatility, and usability, to be compelling to a more mainstream audience.”

His co-founder Fred Ersham (who recently left Coinbase) wrote a level-headed defense of token sales, while acknowledging that, as with early internet startups, the vast majority just don’t make sense.

“For every 1 huge hit there will be 3 minor successes and 100 failures, so we shouldn’t be surprised when some fail. However, the fundamentals of the token model are valuable and powerful. They allow communities to govern themselves, their economics, and rally a community in powerful ways that will allow open systems to flourish in a way that was previously impossible.”

I am still a sceptic. From what I’ve seen, they are fraught with risks, which the comparison with early Internet startups does not address. Early Internet startups did not take money from non-accredited investors – venture capitalists, sure, but not the man on the street. Plus, as we have seen, if the token relies on code, and code can have bugs, then the definition of “business model” needs some re-thinking. Still, if risks can be mitigated, the potential is intriguing, and we’ll come back to this soon.

(More blockchain and cryptocurrency articles from the past week in the CoinDesk Weekly Newsletter, which I curate. It comes out Sunday evenings, 6:00pm EST. You can subscribe here.)

— x —

A brilliant Twitter thread:

— x —

“Breathtaking” doesn’t do this justice… Lake Baikal in Southern Siberia, photographed by Kristina Makeeva, via My Modern Met.

frozen-lake-baikal-russia-kristina-makeeva-6

Bitcoin volumes and volatility – now what?

trading 700

CoinDesk reported yesterday on the change in the pricing strategy of the three largest Chinese bitcoin exchanges: BTCC, Huobi and OKCoin. This weekend they announced that they were suspending their “no fee” policy and moving to a 0.2% flat fee, “in response to guidance from the People’s Bank of China”.

Today we reported on the impact of this decision on trading volumes. No surprise – they’re much lower.

A bit of background: the “no fee” model may sound like an extraordinary business strategy (not charging for your main business), but it’s actually not very different from the “Freemium” models we see all over the place, in which most stuff is free, but some things not. The basic service is available to anyone, but for better content or service, you pay something. It’s an old strategy, even used by physical retail outlets – to get you in the store, they price some products so cheaply that they lose money on them. These are called “loss leaders”. The idea is that while you’re there, you’ll buy other stuff as well, and the store will make money there.

In the case of bitcoin exchanges, they don’t make money on the trades they execute, but they do charge a fee for entries and withdrawals. If you want to put money into your account, there’s a fee for that. If you want to take money out, also. But the trading you do in between, no charge.

The practice recently seeped into European exchanges, with London-based Coinfloor (number 25 in terms of fee-based bitcoin trading volume, according to Coinmarketcap, and the largest in the UK) announcing last week that it would adopt this pricing strategy.

The objective is to bring in liquidity. The result is to inflate volumes.

Since there is no charge for buying and selling, traders feel that they can churn holdings as much as they wish. And even small gains are worth it, especially if repeated several times during the trading day, since there is no associated monetary cost.

So, volumes are much higher under a “no fee” policy than they would be otherwise, and the PBoC regarded this as “fake volume” which added unnecessary volatility to the market.

In fact, the impact of no fees is so stark that Coinmarketcap (where I get my relative exchange volumes) only includes exchanges with fees in their main ranking (although you can get the whole list in another tab).

So, the volume hit was not a surprise. The announcement last week that the exchanges have halted margin trading (in which the exchange lends you the money to trade, which further encourages speculation) is no doubt also likely to have an impact.

The question now is: will this lower volatility? Or will it increase it?

Intuitively, less “churning” of holdings should make prices more stable. Trades are more “real” in that they are not about grasping at small gains. Positions are (in theory) held for longer, since changing them now incurs a cost. Less “fake” volumes, the PBoC’s reasoning goes, means more stable markets and less risk for non-professional investors.

But, lower volumes means lower liquidity, which means more vulnerability to swings due to large buy or sell orders. With higher liquidity, large orders have less of an impact as there are more funds available to settle those orders. Lower liquidity means that prices move more to tempt traders to take a side.

That, at least, was the argument that LedgerX gave in a CoinDesk interview yesterday. Here we have a derivatives exchange arguing that approval by the Commodity Futures Trading Commission (CFTC) would decrease bitcoin’s volume. Yes, you heard right, derivative trading can decrease volatility. Or so they say, and maybe they’re right, but I’m having a hard time getting my head around this.

The argument is that the increased liquidity from regulated bitcoin options will provide the market with a cushion to absorb large orders and avoid the price swings that usually result. My skepticism stems from the fact that it often is the need to close out derivative positions that generates these large orders in the first place, orders that often need to be filled in a hurry, at any price.

I do buy the argument that increased derivatives trading enhances price discovery, as future expected prices tend to react less to current events. And I understand that an active (and regulated) futures market can reduce the need to place large market-moving buy orders to “bet” on a certain direction – it’s cheaper and easier to buy futures contracts instead. They can also reduce the need to liquidate large positions, by “insuring” them at a relatively low cost.

However, here’s what has me worried: with derivatives, it is not very costly to accumulate large enough a position to benefit from sharp moves. It is conceivable that a speculator could accumulate a ton of puts, and then attack the bitcoin blockchain. The potential profit from the derivatives position from a sharp plunge in price could outweigh the cost of the attack.

And, I am not yet convinced by the increased liquidity argument. It could reduce volatility, but it could also increase it by encouraging speculative positions. That seems to be the PBoC’s position, that “fake” volumes are not good for the market nor for its investors.

As always, time will tell. And no doubt, other factors will throw in additional complications. Attributing changes in trends to any one announcement, in bitcoin as in life, tends to miss the bigger picture.

 

Blockchain and media independence – not so simple

by Matt Popovich, for Unsplash
image by Matt Popovich, for Unsplash

I just got back from a talk given at the MediaLab Prado in Madrid on the role of blockchain in the media. An impressive panel did a good job in conveying the potential impact on journalistic independence, through immutability, anonymity and funding.

The latter is the part that I find most interesting: media finance.

Ad-funded models don’t seem to be working (with exceptions). Subscriptions are tough (though some manage to pull it off). Crowdfunding platforms are having a hard time going mainstream, and micropayments are technologically complicated. Fiat currency micropayment platform Blendle seems to be growing, but is not releasing revenue nor profit figures.

Unless… unless… micropayments can be managed via the blockchain? The problem is the clunkiness of the user interface. No way am I going to go through a payment process for a few cents every time I want to read an article.

“Seamless” micropayment integrations, such as Brave could be a potential solution, if it manages to get enough media to participate*. It seems like the most complicated part is loading up my Brave wallet and indicating preferences (I haven’t done it yet… I will, I will…). Satoshipay, a bitcoin-based micropayments platform, could be an alternative, although it appears to require a bit more input from my part. CoinDesk published yesterday an intriguing account of cryptotokens used to fund content, reward engagement and grant access.

While I believe that these avenues need to be explored more, I worry about our resistance to change. We realize that the model doesn’t really work now, but I don’t want to have to alter my reading habits. I also don’t want to see ads. I pay for subscriptions to a ton of sites, I even donate to some, but I accept that I am in the minority. And even I don’t want to switch to micropayments, because it’s an added layer of hassle in an already pretty tight schedule (I know, I hear you, “prioritize!”).

I don’t think that the audience is ready for a fundamental shift. Which means that we will watch while media gets squeezed and independence becomes more expensive. And we need independent journalism for independent thought.

Unless we can start to change how we perceive journalism, at “entry level”. I’m talking about educating the young on the importance of paying for what we consume, of calling out things we think are wrong, of valuing differing but well-expressed opinions, and of the economics of publishing.

How else can we engineer a societal shift in how we perceive content economics? How else can we wean a culture off of free content? How else can we inculcate the idea that information is a product, and the good stuff is worth paying for?

Too general and utopian, I know. But we need to start somewhere.

One of the more interesting questions tonight was about the potential conflict between immutability (cited as a support for independent journalism – no-one can censor or edit your writing) and truth (if what you’re writing is false, should it be immutable?). There isn’t yet a clear answer to this, but one of the panelists suggested ratings, much like Uber drivers. But good ratings can be given because the reader likes the writer’s work, even if it is misleading. Who rates the raters?

*CoinDesk, for whom I work, is part of the Brave platform

 

Bits – 22 January 2017

Bits is back! With a different name and focus, though. It used to be “Bitcoin Bits”, but I’m going to drop the “Bitcoin” because 1) it’s soooo 2015, and 2) the scope will not just be bitcoin or even blockchain, but will expand to include anything I find interesting.

Plus, I now curate the CoinDesk newsletters, and the Weekly has a roundup of good blockchain-related articles from the mainstream media. No need to duplicate that. (You can subscribe here.) I’ll probably include blockchain-related stuff here (just not today), while taking care to avoid a conflict of interest.

— x —

Some moving and thought-provoking articles found this week:

The America We Lost When Trump Won”, by Kevin Baker for The New York Times

“From assorted commentators I have heard that it is unfair or condescending to say that all Trump voters were racists, or sexists, or that they hated foreigners. All right. But if they were not, they were willing to accept an awful lot of racism and sexism and xenophobia in the deal they made with their champion, and demanded precious few particulars in return.”

Why 2017 May Be the Best Year Ever”, by Nicholas Kristof for The New York Times

“Remember: The most important thing happening is not a Trump tweet. What’s infinitely more important is that today some 18,000 children who in the past would have died of simple diseases will survive, about 300,000 people will gain electricity and a cool 250,000 will graduate from extreme poverty.”

WhatsApp, Signal, and dangerously ignorant journalism“, by Jon Evans, TechCrunch

“Whether we like it or not, usability is an essential aspect of security. Any “secure” systems which pretend this is not true will fail from disuse.”

— x —

train-ride-3

(by  Mantas Kristijonas Kuliešis, via My Modern Met)

— x —

I had to read this headline twice:

“Scientists have caught viruses talking to each other—and that could be the key to a new age of anti-viral drugs”

(from Quartz)

I didn’t know that talking to each other could cause them to catch a virus… Until I realized that the viruses were talking to each other. Sentence structure can be tough…

— x —

Some great tweets from the past week:

— x —

And check out the difference between these two headlines:

With False Claims, Trump Attacks Media on Turnout and Intelligence Rift 

(New York Times article here)

White House press secretary attacks media for accurately reporting inauguration crowds

(CNN article here)

It may seem like they say the same thing. But they don’t.

The first is objective reporting, even if it calls Trump’s claims “false”. It can be verified that they are false. The article quotes authorities that contradict the allegations, and back-up of those negations would not be hard to find if anyone decided to dig deeper. Neither the headline nor the article say that Trump was being unfair, just that his claims were false. True, emphasis was on the ridiculousness (my interpretation, it wasn’t explicit) of his CIA speech and his press secretary’s version of the inauguration. But the tone was objective.

The second, however, sounds like a “I’m right and you’re wrong” gripe. “My reporting was accurate” is a brave claim to make, and when it’s positioned next to an accusation of “attack”, it almost sounds whiny (even though the NYT headline used the same strong word).

Conclusion: while both headlines seem to convey the same message (Trump is off his rocker), the first seems like good reporting and the second seems like a complaint.

In what is turning out to be a petulant start to the next administration, it would be a pity if respected news organisations descended to the same level of finger-pointing and whining.

Blockchain and the Davos Difference

davos night

While the blockchain took the World Economic Forum conference at Davos by storm last year, this year looks to be very different.

Last year, the focus was on financial technology. Deutsche Bank’s CEO predicted the disappearance of cash within a decade. JPMorgan and Banco Santander announced an investment in blockchain startup Digital Asset Holdings. Bank of America revealed that it was filing blockchain-related payments.

Blockchain was “amazeballs”, as Izzy Kaminska of the FT put it, and seemed to be everywhere. The IMF presented a paper on virtual currencies, but apart from that, the general consensus was that blockchain, not bitcoin, was the thing to watch.

Since then, work on blockchain applications has intensified, consortia have blossomed and proof-of-concepts have both spread and advanced. However, few have reached the product stage, and while encouraging announcements still shine through, there is increasing talk of “blockchain fatigue”.

Bitcoin, meanwhile, has increased over 130% in value, even though the political and social rifts (not to mention the regulatory insecurity) have yet to be overcome. The Davos pundits weren’t wrong, though: bitcoin’s potential to “disrupt” finance still seems a long way off, whereas blockchain’s impact is getting closer.

This year, the tone at Davos appears to be much more subdued. While last year the theme was the uplifting “Mastering the Fourth Industrial Revolution”, this year it is the almost reproachful “Responsive and responsible leadership”. The overriding instinct is less about trumpeting the change promised by fintech than it is about defending global trade.

Could this augur a sombre year for blockchain progress? Or could it simply mean that the 2016 focus kicked off the testing frenzy that will culminate this year in projects that can start to tackle real problems?

It’s been a while…

I’ve missed writing here, so I’m going to try to get back into the habit, time permitting. The posts will be more frequent but less structured, and will mainly consist of musings and reflections on what’s going on in cryptocurrencies, blockchain and economics.

Most of my time these days is spent helping CoinDesk with their product. I create the email newsletters – if you don’t subscribe, you really should. Great people, solid ethics and exciting ambitions…

I also occasionally teach classes in blockchain and new media business models here in Madrid. It’s an honour to play a part in helping people to understand, however superficially, the profound changes coming in finance and communication. These changes need to get talked about, because it will take collective effort to channel the changes into shaping the society that we want for the next generation.

Glad to be back. See ya tomorrow. 🙂