A unicorn ICO

by Samantha Sophia via StockSnap
by Samantha Sophia via StockSnap

The news last week that messenger app Kik is creating its own cryptocurrency for users caused some ripples in the blockchain sector, but deserves even more.

First of all, Kik is a pretty big deal for the millennial generation. Apparently it has over 15m monthly users, most of whom are between 13 and 24 years old.

The cryptocurrency – called Kin – will be used to reward developers, and to let users buy things within the app.

Why reward developers? For building and maintaining apps for the platform. In other words, for strengthening the ecosystem.

If this sound familiar, it should: the bitcoin protocol also issues bitcoins to reward the maintainers of its ecosystem. Although the mechanism is different, the principle is similar.

Why does Kik want an ecosystem? The more one can do with a platform, the more people will use it.

To get a glimpse of the potential, we only need to look at Tencent’s WeChat, a Chinese messaging platform on which users can buy things online and offline, book trips, read the news and make doctor appointments. And a whole lot of other regular activities, including – whaddyaknow – send messages. Its 889m monthly users would make any potential competitor drool.

If that sounds familiar, it should. Last week Coinbase also hinted that its new Token platform was inspired by WeChat’s business model.

Compare this to Facebook’s model – it started out hoping that developers would build for its platform, but pivoted to the acquisition method of growth.

The development of Kin (to be built on ethereum) is likely to inspire other mobile services to think about how to incentivize their communities to take care of the ecosystem – and to increase “stickiness”. If you can both earn and spend on the app, without friction, users will stay longer.

And the generation and use of an app-specific currency will foster the development of microcosms of economic activity – with the impressive data harvesting potential that that implies. Given the massive sizes of the potential markets, the microcosms could soon become macrocosms.

What’s more, Kin and its ilk could end up dwarfing bitcoin in terms of use. That would be a major upheaval in the space – but one that could foster innovation and empower a certain degree of decentralization and economic independence.

And in the process, show the market that initial coin offerings (ICOs) are not just about circumventing venture capital. Kik plans to issue Kins through an ICO (selling 10% of the total coinage) within the next few months, despite having raised over $120m to date. The most recent raise gave it a valuation of over $1bn status. This would make Kik the most well-funded company to raise an ICO, as well as the most-used service.

The fact that WeChat’s owner Tencent is a major stakeholder in Kin just adds to the intrigue.

So, who’s next? Facebook, with its sprawling ecosystem and obvious desire to emulate WeChat, is an obvious candidate. In terms of size, its 1.9bn monthly users dwarfs that of WeChat. But WeChat’s users spend an average of 4 hours a day on the app (vs an average of 1 hour for Facebook).

Could it be that the metrics are shifting more to engagement than size?

 

A business model with wheels: driverless cars and data

by Eric Didier via StockSnap
by Eric Didier via StockSnap

Yesterday I talked about how the blockchain can underpin shifts in the car industry. As I mentioned, most of the utility revolves around the handling of data. Let’s look at that some more, because I believe it’s a much bigger use case than most realize, and one which will generate entirely new business models. What’s more, I don’t think it’s optional.

A report issued last year by McKinsey valued the annual revenue opportunity in car data by 2030 at between $450m and $750m. (I tend to not trust value figures given in reports like this as the variables used are subjective at best, but it serves to show that we’re talking about a lot.) Another McKinsey report highlighted that data collection will become a key focus of the automotive sector over the next few years.

I believe that the change will be deeper than that – driverless cars will do to the car industry what smartphones did to the telecommunications sector. The main function is still there, but the additional services blur business boundaries and move a large part of the value to the peripheral service providers.

Here is a list of just some of the services that autonomous car data can fuel:

  • Navigation
  • Toll payments
  • Usage-based insurance
  • Maintenance
  • Car cleaning
  • Shopping pick-up
  • Info-tainment

Bear in mind that the car companies can provide some of these, but most will end up being offered by tech or financial startups, or even innovative incumbents.

Toll payments is a particularly interesting use case, given that it could transform the financing of public roads. And it points to an entirely new, autonomous, data-driven business model.

In the current system, the user/driver pays the toll. But what if the car itself paid the toll, from its account that gets topped up when individuals pay to ride in it?

Each driverless car could become a self-sustaining business. Income would come not only from usage, but also from the “selling” of the data each car generates. For instance, a vehicle tootling around a city could earn 1 ether for each GB of data transmitted to municipal sensors. The local government could use that information to optimize its expenditure on road maintenance, garbage collection and other services.

Or, a municipality could use the data to calculate tariffs on roadside billboards, charging advertisers according to the number of cars that drive by (much like advertisers pay according to traffic on websites).

Vehicles could also earn income through in-car advertising. This could subsidize or even pay for in-car entertainment, which itself generates data that would be of value to content producers and lifestyle companies.

Autonomous cars will effectively be an extension of our mobile phone, something both Apple and Google are very aware of. After all, what will we do in the driverless car as we are ferried to our destination? Pretty much the same stuff we currently do on our smartphone: talk to friends or colleagues, listen to music, watch a video, check the news…

So, it makes sense that an account on our smartphone pays for our automobile use, automatically and according to how many kilometers we travelled. We hop in, press the sign-in button on the dashboard (which then connects the car to our phone), and sign out before we hop off.

Here’s where blockchain technology becomes an essential platform: the colossal sharing of data between our phones, the cars, the municipality and the related services.

Under today’s system, the sharing of data is possible but complicated, with permissions, APIs and security measures adding layers of friction and risk.

On a blockchain platform, access can be on a selective, needs-driven basis. Ownership can be shared when desired, and validity can be trusted in a frictionless, secure and flexible ecosystem.

Surprisingly, according to the McKinsey survey, privacy doesn’t seem to be a big issue. 88% of consumers were comfortable openly sharing their data with third parties. Interestingly, the figure went up to 93% in China, the country in which over three quarters of respondents would switch to a driverless car if no additional cost were involved.

The report does highlight the changing perception of data – that it can be used to pay for things.

“Data connectivity will generate a vast set of benefits that customers will likely want to pursue, leveraging their personal data as “currency.” The value represented by this “currency” is already significant and expected to grow rapidly over the years to come.”

While the survey focuses on the smart cars in production today, the findings are even more relevant to the autonomous cars of tomorrow.

Blockchain’s main innovation is a new way of handling information. So it’s not hard to see how, in an emerging sector that both generates and depends on data, the technology evolves from being a luxury to a necessity. Without it, friction will persist, inefficiencies will keep costs high and adoption will have to overcome even more obstacles.

With the development of resilient blockchain platforms that underlie the new services and business models, the rollout of autonomous cars will trigger a wave of further innovation and growth, based on the fluid and efficient handling of information. And metaphors referring to data as the “new oil” become even more appropriate and relevant.

Cars on blockchain

by Mike Birdy via StockSnap
by Mike Birdy via StockSnap

Something’s up in the car industry. The past week saw a couple of major announcements that point to a radically different future that suddenly seems pretty close:

Replacing a CEO is a big thing. It implies a change of culture, strategy and direction, which – coming from the second largest car maker in the US (by sales) – sets the tone for the entire market.

According to the New York Times, outgoing CEO Mark Fields failed to convince the board and investors that the company was moving fast enough on driverless cars.

He’s being replaced by Jim Hackett, who had been running the “mobility services” division, which covers future products such as autonomous cars and ride-sharing functions. Previously Mr. Hackett was CEO of office furniture maker Steelcase – in other words, he knows a thing or two about usability.

The change highlights the automaker’s awareness that just making cars is no longer an option. Profits have been declining, and competition is looming from outside the industry ­– Apple and Google are investing heavily in driverless car technology, and Tesla has a greater market capitalisation than Ford even though the latter’s sales are more than 22x.

It’s not like Ford has been doing nothing on this front. Earlier this year it invested $1bn in Argo AI, with the aim to build driverless cars. It’s a bit behind the competition, though: early last year, GM spent almost $600m on Cruise Automation, with the same aim.

More interesting news came from Toyota, which last week announced that its research institute (TRI) has embarked on a new initiative with MIT Media Lab, BigchainDB, Oaken, Gem and Commuterz to investigate the potential impact of blockchain technology on the cars of tomorrow.

Toyota began work on autonomous vehicles back in 2005, and allegedly holds more patents in the field than any other company. Earlier this year it test-drove its second-generation prototype autonomous vehicle.

Once the mechanics are worked out, blockchain is the logical next step. Why? Because of the data.

With autonomous driving, data is just as important a fuel source as electricity. Data on the surrounding environment feeds the decision-making process that propels the cars down the road and avoids obstacles.

To build intelligent algorithms, a lot of data is needed, much more than one company’s sensors can generate. What’s more, data held in proprietary silos is obviously not as useful as data shared across a decentralised database that can be verified, updated and easily accessed by all operators.

One of Toyota’s partners, BigchainDB, last week revealed the Autonomous Vehicle Data Exchange (AVDEX), a live prototype which allows researchers to buy datasets from data producers. The objective is to pool and monetise collected information.

Another partner, Gem, will adapt the blockchain applications it has been developing for the healthcare industry to the automotive sector, developing usage-based insurance policies.

Dallas-based Oaken Innovations, winner of the Dubai Blockchain Hackathon and finalist in CoinDesk’s Consensus 2017 startup competition, is developing a blockchain-based car sharing application which handles access and payments through a mobility token.

And Israel-based Commuterz is working with TRI on a P2P carpooling solution.

These are by no means the first blockchain applications aimed at the automotive industry. Among other projects underway are the blockchain-based platform developed by German energy conglomerate RWE’s subsidiary Innogy to charge electric cars. AT&T recently filed a patent for cryptocurrency car payments. German auto parts maker ZF Friedrichshafen, Innogy and Swiss Re are working together on a blockchain project called Car eWallet, which hopes to enable cars to pay for their own tolls, parking and charging. And startup BlockBox won the Consensus 2017 Hackathon with its application to collect crash data in blockchain-based “black boxes”.

Also, other car makers are looking at the technology. In April of this year, Porsche launched a blockchain startup competition. And Daimler announced that it was joining the Hyperledger blockchain consortium.

These pilots and applications are merely scratching the surface of the potential – just the data handling alone will be huge. But they are a good start, and provide a relatively broad base on which to build.

And as the developments at Ford attest, the entire sector is pointing towards an intensification of driverless car development – which in turn, will fuel the development of blockchain applications aimed at making our roads safer and cities cleaner… and saving users money.

Castles in the Air

by Markus Spiske via Stocksnap
by Markus Spiske via Stocksnap

Reuters reported today that Fidelity Investments Inc has joined IC3. This is intriguing, on many levels.

IC3 (Initiative for CryptoCurrencies & Contracts) was set up by faculty members of Cornell University, Cornell Tech, UC Berkeley, UIUC and the Technion-Israel Institute of Technology, and is based at the Jacobs Technion-Cornell Institute in New York. It has a “partners program” to encourage interaction with the business community, through which enterprises can pay an annual fee and participate in the development of new ideas and prototypes.

According to IC3’s website, partners can participate in monthly webinars, receive regular updates on and early previews of IC3 projects, access faculty and students (which could be used for recruiting purposes), and send up to two visiting researchers or embedded developers. The cost is $150,000 a year (or $450,000 for a higher-level partnership with even more access), a lot more expensive than Hyperledger’s $50,000 (or $250,000 for premium).

Fidelity joins Chain, Intel, IBM and Digital Asset, making it the first non-tech partner. According to Reuters, Fidelity wants to study how blockchain technology could make financial systems more secure and efficient.

So why not join a finance consortium? Why not sign up with Ripple, R3, Hyperledger or the Enterprise Ethereum Alliance?

While even academics acknowledge that a technology with no practical applications is not exactly useful, IC3’s approach seems to be blatantly “science first”. On its website it claims to “meets the blockchain community’s urgent need for world-class expertise in computer science” – notice that business models are not mentioned. Hyperledger, on the other hand, is also based on computer science, but seems to place the business applications front and center.

The motivation behind the choice of a consortium that takes a more scientific approach raises questions about Fidelity’s goals and strategy.

It’s important to note that Fidelity Labs will join as partner, not Fidelity Investments. Fidelity Labs was created in 1998 as the innovation arm of the financial corporation, and currently has over 100 patents to its name. This is just one indication that the multinational conglomerate has been investing heavily in technology for decades. Back in 1965 Fidelity Investments was one of the first investment firms to install a mainframe, and Fidelity Labs currently owns two of the first NVIDIA DGX-1 “artificial intelligence” computers.

But that doesn’t deter from the bigger question of “why IC3?”.

Perhaps Fidelity is looking to escape what they see as an overcrowded space in “mainstream” consortiums. Perhaps it feels that the higher fees and focus on research give IC3 a certain cachet. Perhaps it has a specific idea that aligns with a project already underway in IC3.

Or perhaps it is the beginning of a shift in priorities: business cases are interesting, but without academic proofs, you’re building castles in the air.

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 IoT examples

The Internet of Things is such a broad and confusing space, with so much potential impact in business, society and home life, that talking about it feels a bit like talking about the universe. After all, what isn’t a “thing” that can be connected to the Internet? When we’re referring to the Internet of Things, do we include our smartphones? Our cars? Our televisions? What about our satellites and our aeroplanes? Our 3d printers and our factory robots? And getting metaphysical on the issue, what about Facebook pages? Video games? Bank accounts? They’re things too, right? But to bring the discussion of the impact of the Internet of Things into the realm of practicality, most studies and businesses focus on gadgets, either big or small. The smartphone is so obviously a thing connected to the Internet that it is usually not featured in the sector studies, except as a conduit for information from other things. The same goes for computers and sensors. Those obviously-connected devices are what we embed in physical things to get them talking to us and to each other. So, when we refer to the “Internet of Things”, or IoT, we’re really talking about things connected via other things. Sensors, computers and phones talking to each other is the backbone of today’s development. But it’s not new and it’s not news. It’s what those sensors, computers and phones are talking about, what data they are transmitting and what objects they represent, that is of interest.

by Todd Quackenbush for Unsplash - blockchain and IoT
by Todd Quackenbush for Unsplash

For this discussion, I’m just focussing on physical gadgets not related to transport, the supply chain or to the energy sector (there’s so much going on there that we have the basis for a separate series of studies). While IoT is already a reality, its impact so far has been useful but fragmented, more an indication of what’s possible tomorrow than what we can change today. Blockchain technology is increasingly looking like a potential unifier for the different device-specific, manufacturer-specific and sector-specific networks currently in operation or under development. Yet its application is still fraught with obstacles and issues, most of which will be overcome with experimentation and creativity. Here I look at some of the more advanced projects participating in this journey – I fully expect that we’ll be hearing more from them in the months to come, as well as adding interesting newcomers to the list.

As with most blockchain activity these days, experimentation in the Internet of Things space is not limited to startups. In one of the first major papers on the subject, at the beginning of 2015 IBM revealed ADEPT (Autonomous Decentralized Peer-to-Peer Telemetry), a proof-of-concept of a universal IoT blockchain platform that combines P2P messaging, BitTorrent and Ethereum. Two interesting case studies were included: a washing machine that can manage its supply of detergent, self-diagnose and solve maintenance issues, and “negotiate” with other household devices the optimum time for an energy-consuming cycle run; and electronic billboards that manage, allocate and automatically charge for ad display. The proof-of-concept code was supposed to be shared on GitHub, although as far as I can tell it hasn’t yet, perhaps because the project leader left IBM at around the time of the paper release. IBM have certainly not been idle, though, and a few months ago revealed that they are working on combining the blockchain with Artificial Intelligence to manage IoT ownership, access and diagnostics. This is part of IBM’s commitment, announced in March 2015, to invest $3bn in the Internet of Things. Yes, that’s billion with a b. This should be fascinating.

One of the best-funded startups in the blockchain + IoT area is US-based Filament, which has received $7.35m in investment from VCs such as Bullpen, Pantera, Verizon, Crosslink, Samsung, Digital Currency Group and others. Its focus is long-range wireless networks, and its main product is the Tap, a device registered on the blockchain with environmental sensors that can integrate with other sensors, and which has a wireless range of over 15km that does not depend on wifi or cellular networks. These sensors help farmers to monitor soil quality, cities to control outdoor lighting, and vending machine operators to optimize inventory, among a host of other potential applications. While most uses at the moment do not need universal registry, the blockchain base will enable connectivity in the future, which will encourage the development of additional efficiencies and possibilities. Running on the bitcoin blockchain allows for micro-transactions, which will open up the project to a wide range of new business models. And if things are going to talk to and transact with each other, they’re going to need Filament’s blockchain-based help with decentralized identity creation for inanimate objects. The Patch, their other main product, is an embeddable version of the Tap that adds wireless connectivity to any hardware. Filament is one of the most advanced IoT and blockchain companies, in that it actually has paying clients and a seemingly viable business model: it owns the sensors, and charges for the configuration, the data, the maintenance and the updates.

IOTA approaches the issue from the other direction. Instead of focussing on the devices, it has created a cryptocurrency to facilitate micro-transactions between devices. Rather than a heavy blockchain, though, it runs on a lightweight “Tangle”, a “block-less” distributed ledger that makes it possible to transact without fees. Tangle doesn’t have miners that need incentivizing, but “verifiers” that are also users. They process transactions as they use the network, which allows for transactions at no cost, ideal for the high-frequency, low-value, light and constant transactions of the Internet of Things. Technically IOTA does not use a blockchain, but I include it here for its decentralized, trust-less approach to the exchange of value, and its innovative approach to the sticky problem of micro-transactions (still relatively expensive, even on the blockchain), both of which could put the goal of a viable and efficient Machine Economy within reach.

Chainofthings focusses on the security of the data collected and uploaded by the Internet of Things. Run as a consortium composed of several startups and established businesses active in the IoT and blockchain space, it supports and collates research and organizes events designed to promote solutions-based exploration. Participants and supporters include blockchains Ethereum, Lisk and Emercoin; IoT startups Filament and IOTA (mentioned above); blockchain businesses Skuchain and Everstore; bitcoin node hardware manufacturer Bitseed; solar power startups SolCrypto, SolarCoin and ElectriCChain; advisory businesses such as Zerado and Neuroware; and large international conglomerates such as electricity company RWE. Its first case study, revealed at a recent Chainofthings event in London, looked at the application of distributed ledgers to solar power generation, and the next one will focus on sensor mobility.

UniquID is a young project that was first presented at the Consensus conference in May 2016. Based in the US and in Italy, it allows users (still in beta) to create a private blockchain which acts like a sort of “wallet”, on which they can register their devices. All devices registered on that blockchain can communicate with each other, without the need for external authentication. Access to these “wallets” could be from a range of configured devices, which would give flexibility to the format and the deployment of these “local” IoT networks. Unlike other efforts in the sector, UniquID’s idea seems to be to maintain the separation of IoT networks, and it remains to be seen how this is better than a simpler database approach.

Riddle&Code is another young project in development, with an interesting twist. According to its website, the platform “connects blockchain technology to real world objects”, which is what most participants in the sector want to do. The twist is that it uses NFC technology that permits the secret exchange of data and of the cryptographic keys that determine who can access that data.

As you can see, the intersection of blockchain and the Internet of Things is attracting attention, but not yet at the scale the potential warrants, and not yet with a “success story” business model (Filament seems to be on the right track, but there is little public information, and it’s still early days). The ideal balance between hardware and software, centralization and decentralization, complexity and convenience will be difficult to find. But it will emerge as the sector gets more competition and as the businesses move along the timeline from idea to implementation to revenues. This progress is worth encouraging, as the end results will not only open up new potential Internet of Things business models. They will also teach us even more about the potential and actual real-world applications of blockchain technology and its derivatives, which will lead to more innovation and creativity. It won’t be easy – there are many conceptual issues revolving around identity and data that will need to be addressed – but the most important things in history never are.

(If I’ve gotten anything wrong on any of the businesses mentioned, please let me know! I don’t ever want to mis-represent a company or an individual, ever. A similar version of this post was published on LinkedIn. I twitter away at @NoelleInMadrid, come and say hi!)