While looking into passports for sale the other day (not for me, you understand… not yet, anyway), I came across a name that I had heard before but knew very little about. So I did some digging and almost had my mind blown.
The Sovereign Military Order of Malta – also known as the Knights of Malta, or Knights Hospitaller – is a religious order with ties to the Holy See that dates back to the early 12th century. But, it is also an independent, sovereign subject of international law.
Its mission is still, almost 1000 years later, to care for the sick and infirm, especially those displaced by conflict. As well as its 13,500 members, it has 80,000 volunteers and employs approximately 25,000 medical personnel.
So, it is an NGO with sovereign status. It can negotiate with other governments as a sovereign entity. Other global NGOs such as Caritas, Greenpeace and Médecins sans Frontières need the backing of a sovereign power. The Knights of Malta don’t, because they are one.
It doesn’t have any territory, except for two buildings in Rome, both of which have extraterritorial status (which means that they are technically not part of Italy – much like embassies).
In 1998, however, it signed a treaty with Malta for the use of the upper portion of Fort St. Angelo in the city of Birgu (for the next 99 years). Technically, this will also be a sovereign territory, but the Order will not be able to grant asylum to anyone, and Maltese law applies. At the moment, it appears to be used for historical and cultural activities.
And get this: the Sovereign Military Order of Malta can issue stamps, currency and passports.
Three of them, to be precise. The Order issues passports to the Grand Master, the Deputy Grand Master, and the Chancellor of the Order.
It has diplomatic relations with over 100 states, including the European Union, which means embassies. It also has observer status at the United Nations (along with the Red Cross, the Council of Europe, the African Development Bank, the European Organization for Nuclear Research and a host of other not-for-profit academic and regional associations), which entitles it to participate in the work of the UN General Assembly.
What I find most intriguing about this is the concept of sovereignty being granted to an organization that has no territory and no citizens (sort of). True, it was granted almost a millennium ago, and no government has dared to attempt to alter that.
Personally, I hope that they never do. I find the mix of chivalry and honour, combined with the long reach of history, totally captivating.
And the notion that sovereignty does not always require the traditional parameters of borders and citizens opens up a new understanding of what could become possible as identity is redefined.
According to an article I stumbled on in Fortune, approximately $2bn a year is spent on buying citizenship. The exchange is usually dressed up as real estate or business investment and a certain minimum is generally established, but the purpose is clear, and an increasing number of nations are making good money on this.
For example, an IMF report from 2015 puts the income from selling passports for St. Kitts and Nevis at about 25% of GDP. While the economy is small, that is still a staggering statistic.
A recent report in the Financial Times highlighted this growing global phenomenon from a tax perspective:
“The search for second passports and offshore havens is beginning to take on a last-helicopter-out-of-Saigon urgency as capital controls, tax reporting and visa procedures tighten up around the world.”
Other reasons cited are political instability and fear of persecution. According to the IMF, there has recently been a surge of wealthy Chinese and Russians buyers, with an increasing number coming from the Middle East, where tax avoidance is obviously not the issue.
This raises the question: why shouldn’t citizenship be a commodity?
What does citizenship actually mean?
According to Merriam Webster, a citizen is “a native or naturalized person who owes allegiance to a government and is entitled to protection from it”. So, it’s an exchange of allegiance in exchange for protection.
Why, then, is it not transferable? If your state is not protecting you, why can’t you transfer your allegiance to one that will?
Because citizens are considered resources by the countries they are born into. They work, which contributes to economic development. And they pay taxes, which contributes to public finance. This “what’s mine is mine” mentality also explains the concept of capital controls imposed by some countries to stop citizens from sending their wealth abroad.
In the increasingly free market world in which we live – in which we can choose who gives us our electricity, phone service, groceries – it is extraordinary that a similar philosophy isn’t being applied to citizenship. If governments actually had to convince (rather than force) their people to stay, it’s very likely that there would greater efficiency and less corruption in government spending.
If market incentives came into play, the role of government could evolve to focus more on protection and service. Tax rates would be more directly associated with the amenities offered, and citizenship would become a matter of proud choice rather than limiting obligation.
A totally free market concept, though, would perhaps leave the geopolitical balance vulnerable to instability. If a country cannot, for whatever reason, compete with another then the unstoppable flow of people would leave one poor and bankrupt, which would open up the temptation of annexation or even invasion.
And it’s not hard to envision circumstances beyond a government’s control. Natural disasters, a lack of natural resources or poor geography could condemn a nation to poverty and chaos, no matter how pure the government’s intentions. The resulting flood of people to neighbouring regions would put a strain on the receiving country’s resources in the short term, until the entrants find their feet and start contributing.
Along with aid from international organizations, nations depleted by exodus could be helped by the offering appealing amenities at relatively low prices. Attractive investment opportunities, for example, or education facilities, or simply relative stability. As with businesses, the affected governments would need to develop a differentiating offering to attract citizens.
As the article in Fortune pointed out, the possibility of buying citizenship exists, but the choices are limited and available only to the very rich.
Now, bring into the picture the concept of blockchain-based sovereign identity, in which a person’s official name does not depend on a state-issued document, but can be held securely and electronically by each individual. No government would have the right to take that name away, or to pretend that the person does not exist – a blockchain-based solution could ensure that. This name could be assigned the nationality it chooses. It would also reveal any financial or even criminal history, if applicable, which – on a blockchain-based solution – could not be retroactively altered.
Add the financial commitment of a purchase, and you can begin to imagine a whole new business model. Individuals that cannot afford the initial purchase price could enter into a financing agreement with one of a range of approved institutions, and pay the lender back through future earnings, possibly with the help of subsidies from the receiving government.
This could lead to selection bias – only those with reasonable prospects would be welcomed by their chosen domicile. After all, criminal records would be harder to hide. This could lead to some unfair calls, but since the bulk of anti-immigration sentiment usually stems from fear of increased crime, some sort of filter could end up making immigrants more readily accepted by their new neighbours. Those that through no fault of their own end up being blocked could perhaps be eligible for additional aid and/or the opportunity to seek a sponsor.
Education would also be easier to prove, as verified certification could be added to the identity’s history. Governments could even end up “bidding” for the best-educated immigrants.
The paperwork involved would be eased by the validation inherent in a blockchain platform. And the immigrants would have a much easier time integrating, as access to financial services, accomodation and utilities would be helped by reduced documentation and history requirements.
Cost vs benefit? It would be up to individual governments to decide what they offer, and at what price. This quasi-free market approach would have effects beyond that of economic value. It would make governments more conscious of their role, and see it less as a privilege and more as an opportunity. (Imagine if public salaries were tied to the results of satisfaction polls…). Also, citizens around the world would be more conscious of what their government does for them.
Obviously the idea is a lot more complicated than the brief suppositions laid out here. But passport shopping is already an economic fact. Should it be only available to the very rich?
Blockchain technology could offer the breakthrough that will enable the activation of sovereign identities tied to convenient nationalities – while at the same time incentivizing governments around the world to better understand what their purpose is.
An issue is currently being debated in India’s courts that could affect the development of blockchain-based identity programs worldwide.
I’m talking about the Aadhaar platform, which is leaving a trail of takeaways for others to learn from.
Given the proliferation of startups and official institutions looking at the problem of self-sovereign, immutable digital identities, a look at Aadhaar’s successes and obstacles could help with the design of lofty goals and sweeping implementation.
In 2010, the Indian government issued the first Aadhaar identity number, a unique rendering of personal data, with the aim of documenting all of India on a digital platform using biometric identifiers.
That in itself is staggering – how do you coordinate the inscription of 1.3bn people, including the scanning of fingerprints and irises for each individual?
The first main takeaway is that it is possible. In just over 6 years, approximately 1.15bn people have been issued Aadhaar numbers, including almost 100% of the over-18 population. That’s more than the entire populations of the US, Europe, Australia and South Korea combined.
True, it took a massive rollout of administrators and digital readers, but the Unique Identification Authority of India (UIDAI) showed that it could be done. At its peak, over 1 million people were being processed each day.
Second, certain rules need to be set out from the beginning. Is the program mandatory or optional? If mandatory, how will enforcement be carried out? If optional, how will the old and new systems cohabitate?
The Aadhaar program is optional. But a recent amendment to the Income Tax act stipulated that an Aadhaar number was required to file a return – which pretty much makes it mandatory. Last week the Supreme Court upheld this law, but also ruled that those without an Aadhaar number should still be able to pay taxes, until the broader privacy issues can be decided by the Constitutional bench. On the one hand, good news (for now) for privacy activists and for citizens who don’t (for whatever reason) have a card. On the other, an administrative mess for the government, which could have been mitigated with clearer parameters at the outset.
Also, one of the main incentives for the government is the opportunity to streamline administration and reduce “leakage”, the amount of aid paid to “false” identities. However, there is still some confusion as to whether or not an Aadhaar number is a requisite for government aid. Several official agencies seem to think that it is, but the Supreme Court has ruled that it isn’t.
Furthermore, while the first cards were introduced in 2010, legislation backing the project (the Aadhaar Act and the Aadhaar Regulations) did not pass until 2016, and is often criticized as being unclear.
Third, the privacy issue will always be a problem, however great the efficiencies. Concerns have been raised about the lack of clear regulation on the process of sharing identity information, as well as the lack of redress and appeal if you feel your data has been mishandled.
The Aadhaar Act mentioned above authorises any official at the level of District Judge or higher to access an individual’s identity information, excluding the biometric data – that limitation doesn’t apply to officials with rank of Joint Secretary or higher. Given India’s reputation as the “most corrupt country in Asia”, this raises some concerns.
And while the government understandably wants to standardize administration, some groups are raising the alarm over the volume of data on each individual the government would have in its power, the capacity for tracking and the spectre of mass surveillance.
The fourth lesson, a surprising one, is that biometrics are complicated. It turns out that not everyone has fingerprints that lend themselves to being scanned. Apart from the very young, manual labourers often have worn hands due to repeated handling of rough objects. One area in north Delhi reported a 10% fail rate when reading fingerprints.
The same goes for eyes – the elderly often have degraded irises, so getting a clear reading can be challenging.
Fifth, even with biometrics, falsifications will emerge. In some cases, inscription agencies took advantage of a rule that said that biometrics were not always required (if fingerprints or irises were not clear, for instance), In others, hackers were able to bypass the scanning requirements.
Sixth, census statistics are unreliable, which makes it more difficult to plan and implement projects that affect populations. The Aadhaar web page shows what percentage of the population are inscribed, by province. In Delhi, that reaches almost 120%. It turns out that the population figures are “estimates”.
Seventh, “inclusion” is elusive but possible. While bringing undocumented citizens “into” the system was touted as one of the main goals – millions of people don’t even have a birth certificate due to an inefficient registry system – apparently almost all of those who enrolled in Aadhaar already had an official ID.
So, what about those without? Over 200,000 undocumented citizens took advantage of the “introducer” option, in which someone with an Aadhaar number vouches for someone with no official identification.
And, it’s worth noting that the Aadhaar number does not substitute a government-issued ID, so it cannot be used for cross-border travel, for instance. However, Aadhaar holders without any other ID can now get mobile phones and open bank accounts, something that they couldn’t do before.
Takeaway number eight is that any broad platform needs to be designed for growth. Even after the successful rollout and the years of experience with the system, experts admit that they don’t know what else the platform will be adapted for, or what other functionalities will be built on top. However, Aadhaar has been designed to allow other private and public applications, and already innovations and apps are emerging from the ecosystem.
The hope is that Aadhaar will become a “universal id”, in that it grants the holder access to a wide range of services. Also, it aims to reduce onboarding expenses for businesses such as mobile operators, landlords, employers and even banks, allowing them to bypass most of the cumbersome KYC requirements by using information already in the system.
The last lesson is to question the technology. Aadhaar is not a blockchain solution. That in itself calls into question the need to use the blockchain for national identity. If the verification of the data needs to be centralized, and if transparency is not a fundamental feature, then a distributed database could suffice.
True, the idea of identity being centralized in the hands of the government may be disquieting to many. But for a digital version to be useful on a national or pan-national scale, it needs to be accepted by the jurisdictions in question. What will incentivize governments to cede control over the fundamental role of granting citizenship?
The Aadhaar project is encouraging in that it is leading the way in showing what can be done today. Blockchain technology, however, allows us to contemplate other forms of identity, new uses for that information, and evolving roles for government. It is inviting us to think about what could be done tomorrow.
The search for the holy grail of blockchain technology – robust, global and easy-to-use identity solutions – seems to be picking up.
When you think about it, all blockchain applications rely on identity. Your bitcoin wallet, trade finance operation, connected device and energy transaction – they all count on data originating somewhere. The degrees of available information about the identity may change according to the application – but everything needs to have a reliably-identified origin and a destination, even if it’s just aseries of characters.
So it’s understandable that activity in this space is heating up.
What’s staggering about this is the public acknowledgement by all involved – competitors as well as tech incumbents – that identity has to be a collaborative effort. From realizing that “data is the new gold” to being willing to share that gold (in this case, identity data) with others in the ecosystem is a huge step. It’s a step encouraged, though, by the knowledge that a solid digital identity is not very useful if it can only be used in limited applications. That’s pretty much where we are today, with different logins for each website, and repetitive information needed for each sign-up.
There is so much more going on in the identity space that volumes could be written (and I will get around to it), but for today I just want to take a brief look at the members of the consortium, to get a feel for the type of products that could emerge:
Microsoft has been working on decentralized identity for some time. Over a year ago it partnered with ethereum consultancy ConsenSys and startup Blockstack Labs (more on them below) to build an open-source identity platform aimed at integrating the bitcoin and ethereum blockchains. Earlier this year it announced a new partnership with startup Tierion (more on them below) to investigate how decentralized identities linked to a blockchain could validate data, claims and agreements.
Professional services giant Accenture doesn’t seem to have been quite as active on the blockchain-based identity front, but its work on blockchain in general has been ramping up, with the unveiling of an innovative hardware solution for the protection of private keys.
Tierion has built a platform that creates a verifiable record of any data, file or business process on the blockchain. It is currently working with Microsoft on blockchain-based attestations (= something that confirms and authenticates) and with Dutch giant Philips on an unspecified project in the healthcare sector.
Gem pivoted in early 2016 away from bitcoin APIs to custom blockchain applications focusing on healthcare and supply chains. It is working with US financial services company Capital One in blockchain-based healthcare claims management, and Philips Healthcare on the creation of blockchain-based wellness apps, global patient ID software and secure electronic medical records. Its web states that it is also working on “global identifiers to link together data belonging to a person or asset, eliminating time consuming reconciliation, providing real-time transparency, reducing risk and creating better outcomes”.
Blockstack is building a “decentralized internet”, in which the content is pulled from peers rather than from centralized servers. Users access locally-owned apps and websites via a login based on identity… that the user owns. The startup began life in 2013 as Onename, which registered blockchain-based domain names. Initially built on the Namecoin blockchain, the system migrated to bitcoin and now also supports ethereum and zcash.
Netki was founded in 2014, and early the following year launched an innovative wallet naming service. It has since developed a system for blockchain-based identity in which a user’s details are not recorded on the blockchain itself, but on an application layer that allows for the system to work on multiple protocols. It is also a member of Hyperledger, and has contributed its work on digital identity solutions for worldwide regulatory compliance and legal non-repudiation. Late last year it participated in the launch, together with PwC, Bloq and Libra, of an enterprise platform based on bitcoin, called Vulcan Digital Asset Services. Its service is part of the IBM blockchain ecosystem. And at Consensus last month, it announced its collaboration with Barbados-based exchange Bitt in the compliant on-boarding of customers.
Uport was built by ethereum consultancy ConsenSys, with the aim of creating an open-source identity service on the ethereum blockchain, in the hope of giving users control of their information. Crypto exchange Coinbase has indicated that its messaging app Token (currently in testing) will include support for Uport’s identity service.
Berlin-based BigchainDB was originally Ascribe, a blockchain-based art authentication service. Since then the firm has rebranded, and now focuses on developing blockchain solutions for enterprises. It offers a combination of blockchain-like features with some traditional database characteristics, such as noSQL query language and faster transaction rates. In early 2016 it launched the IPDB Foundation, a non-profit aimed at developing the ecosystem around a new kind of blockchain-based database, built to serve identity and licensing needs.
The not-for-profit Sovrin Foundation (created in 2016 by blockchain startup Evernym) has an international board of trustees that includes representatives from banks, credit unions, education and retail. Its goal is to develop an ecosystem around a ledger (built and contributed by Evernym) on which individuals control their identities. It recently handed over its Project Indy – an identity solution built on a hybrid blockchain platform – to the Hyperledger consortium (of which is is a member). One of the innovations is that the identity information is never written to the ledger. Bits of it get anchored to the ledger, so there’s proof it existed on a certain day.
Civic launched in 2016 to stop identity theft, and recently announced the launch of a login authentication service – a blockchain-based platform that will offer users the chance to develop one digital identity, and use that to log in to any website without being tracked. Civic users will be able to prove their identity when logging in, without sharing that information with the website.
IDEO is an international design and consulting firm. Its research arm IDEO CoLab has identified blockchain technology as one of four key technologies that will impact society.
Mooti has developed a blockchain-based service that not only protects your identity, but will also validate the relevant components for web services or logins, without actually revealing information. Like Netki, its “Identity Chain” is part of IBM’s blockchain ecosystem.
Blockchain Foundry grew out of Syscoin, a cryptocurrency and protocol that allows near-zero cost financial transactions on a wide variety of marketplaces. The foundry focuses mainly on data security, leveraging decentralized networks, and later this year will roll out proof-of-concepts for medical, legal and real estate applications.. Last year it incorporated into Microsoft’s Azure platform, offering e-commerce solution Blockchain Market.
Iceland-based Authenteq offers automatic identity verification that can be installed via an API on just about any online marketplace or website. Its goal is to increase trust in P2P communities.
Taqanu, based in Norway, is developing banking services for people without a fixed address. It offers financial inclusion to refugees and others without a fixed address, by offering them a blockchain-based self-sovereign digital ID and the chance to accumulate a credit history.
Cybersecurity company RSA – known for its work in encryption, identity and cyber threat detection – has been ramping up its involvement in the blockchain space, giving sector startups an increasing amount of attention at the company’s renowned cybersecurity conferences.
South Africa-based Consent initially launched in 2015 with the goal of helping secure the integrity of medical records on a blockchain, but soon widened its scope to include financial know-your-customer (KYC) processes.
Danube Tech was set up in Vienna in 2015 to develop technology related to digital identity, such as blockchain-based identifier registration infrastructure including personal clouds, data transfer protocols and connectivity.
IOTA has focused on developing a blockchain for the Internet of Things, with fast throughput of micropayments. The protocol makes users and validators the same entity, eliminating the need to charge transaction fees. One of its current partners is German electrical utility’s R&D group Innogy Consulting.
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:
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.
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.
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.
Over the weekend CoinDesk published a thought-provoking opinion piece on the “long tail” of digital assets.
Galia Benartzi, founder of Bancor, argues that we are on the brink of an ecosystem of “user-generated currencies”, each with specific uses and characteristics.
“Communities of any flavor can now be empowered to agree on credit-issuing policies and governance structures, and enjoy internal marketplaces from which to buy and sell goods or services, without relying on access to national money.
…as technical barriers to entry are removed, we are on the precipice of millions of user-generated currencies, of all shapes and sizes.”
The author compares the potential with the impact that WordPress and YouTube had on user-generated content. The result was chaos and information overload, but also empowerment and freedom of expression.
The result of a proliferation of tokens (beyond the bewildering array we already have) is also likely to be chaos, information overload, empowerment and greater freedom.
It could also, however, imply less freedom.
For instance, through lack of fungibility. If I hold tokens issued by you that can only be used in your business or community, then I am tied in. With cash, I can use my notes and coins almost anywhere. (True, this is changing as we move towards a “cashless society”, but you get the idea.)
Also, digital transactions are more traceable. Activity around communities will be easier to monitor, and even anonymous tokens send an indirect message to those watching (nothing is more guaranteed to arouse suspicion than to deny access to information).
Finally, the resulting chaos could lead to loss of value through “leakage” – people not understanding the systems, misallocating resources and eventually dropping out. Several studies have shown that too much choice tends to paralyze consumers. When you’re talking about jam or detergent, the cost is not material (except to the manufacturers, I suppose). But when you’re talking about “money”, the cost – to the functioning of the economy – is greater.
The idea of a “long tail” of currencies is heartening and exciting. Personally, I love the stimulation of the “long tail” of music and books. But the proliferation of online information brought us blogs and fun videos, but also click-bait, fake news, trolling, piracy and identity theft. The end result of a blossoming diversity in means of exchange will also not be as empowering and uplifting as we had hoped.
Actually, IBM’s business model was never really in doubt (unlike some other players in the sector), but it’s worth looking at anyway, for what it says about consortiums and open-source development.
Just under a year ago, IBM announced plans to develop a suite of blockchain services for enterprise clients. Today it revealed the first commercial applications: IBM Blockchain.
Housed in the IBM BlueMix cloud computing store, it differs from the Hyperledger Fabric codebase mainly in the extra security layers.
There’s the business model: while the underlying code is open source (ie. free), IBM will charge for access to the extra secure version.
It makes sense. The target clients are mainly large enterprises, such as financial institutions or conglomerates. They are not going to want even the slightest hint of a risk that their information might not remain secure, or that the processes may get interrupted. Paying extra for access to a blockchain service with additional security features – that is going to save them a lot of money in operation costs – is likely to seem a winning proposition.
Other businesses, such as Microsoft, Intel, Ripple, Chain and R3, have followed the same pattern. The underlying code is free, and the revenue comes from the development of additional services, from consulting fees and in some cases from the sale of specialized hardware and other security precautions.
Why make the underlying code free? To generate a vibrant developer community. If it’s out there for people to tinker with, tinker they will. And while they’re at it, they’ll find bugs, help to fix them, and probably invent some curious use cases that could lead to grand innovations.
It’s curious to think that we live in a time in which proprietary information is no longer the advantage it once was. In the blockchain world, for now at least, success seems to stem from giving your product away, and then charging for the value-added layers. Freemium meets the blockchain.
Whether that will remain the case when blockchain is no longer a “new” technology remains to be seen.
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.
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!)
Wasn’t bitcoin about evading the control of governments? Weren’t we at the dawn of a truly global currency that knew no politics? What happened to freedom from boundaries? Won’t governments moving in take out all the fun?
No. Bitcoin was and still is about evading the control of governments. But that doesn’t mean that governments can’t also benefit from bitcoin’s advantages. And the official entities aren’t interested in bitcoin as much as in its underlying technology, the blockchain. Governments, both national and local, as well as central banks, are sniffing around, speaking at conferences, writing papers and trying to figure out how this new financial development can extend their reach and reduce their costs. It makes sense.
But how, exactly, can governments use the blockchain? Leaving aside the potential as a currency and the impact on monetary policy, the list of possible uses is long, and includes archive management, welfare distribution, budget allocation, voting mechanisms… A respectable roster of sovereign organizations are officially “investigating the technology”, which sounds very much like a me-too policy. But more and more concrete use-case studies are emerging, with powerful public backing.
The UK government has been particularly active in the sector. Late last year it pledged funding of £10 million to investigate blockchain technology, and has been coming up with interesting applications. From record keeping to tracking financial movements such as student loans and international aid, the Cabinet Office has been running trials on and investigating practical solutions to bureaucracy-heavy processes.
Just a few days ago, the UK government revealed that it is experimenting with distributing welfare payments on the blockchain, through a digital “benefit coin” which could replace welfare payments. This has raised significant privacy concerns, which in turn is generating healthy focus on the technology and debate on the advantages and drawbacks.
Tomorrow the House of Lords is holding a hearing to debate potential governance applications, which you can watch live at this link if you’re interested.
The US government is not quite as proactive in applying blockchain efficiencies, but is stepping up its funding for research projects. In June, it awarded $600,000 in grants to six projects investigating the application of blockchain technology to the issue of identity, privacy and security. And last week it issued a call for papers on blockchain research relating to the healthcare industry.
Estonia is often held up as an example of blockchain governance. Over a decade ago it launched an e-residency program (not blockchain-based) which allows anyone to establish “fiscal” residence in the nation, to set up companies and administer their finances. Late last year it announced a collaboration with BitNation to offer a blockchain notary service to these e-residents, which would not just cover company documents but also marriage licenses, birth certificates, etc. Earlier this year it started the process of storing all of its health records on the blockchain.
In spite of the huge potential scope, it does look like the most advanced initial projects are the relatively “easy” ones of managing documents. Which is, of course, totally understandable, as well as efficient and necessary. The problem in most cases is not that the systems are not digital. The problem is more one of inter-communication between different systems, and the portability of data. A file on one system in this day and age still needs to be replicated on another, even if the end use is similar, and even if the end owner of that information is the same. The blockchain gives governments the opportunity to streamline processes, optimize storage, and extract and share more useful information while keeping it private and secure. The integrity of public registries is fundamental, not only as a matter of trust in authority, but because the information they contain – property and automobile ownership, passports, birth certificates, marriage certificates, business licenses, penal records, and a long etc. – is often the base of a democracy and an economy.
A few intrepid initiatives are looking at the sticky problem of voting, an issue which fundamentally affects most sovereign nations in this day and age. The current process is cumbersome, inefficient and often subject to tampering. But since this revolves around the even sticker problem of online identity, few initiatives have progressed much beyond the initial stage.
The will is there, though, and it is only a matter of time. Most governments have moved from rejecting the frivolous notion of a universal and immutable digital currency, to realizing that bitcoin is just a certain type of information, and that the blockchain can be used for other types of information as well. We have seen some practical applications, and will see many more emerge over the coming months. And we will all of us, soon, be enjoying greater blockchain-enhanced bureaucratic efficiency, without even noticing the technology that makes it work.