The “long tail” of currencies

by Daniel Funes Fuentes, via Unsplash
by Daniel Funes Fuentes, via Unsplash

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.

A business model emerges

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.



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!)

Bitcoin and governments… Wait, what??

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.

by Thomas Brault for Unsplash - bitcoin and governments
by Thomas Brault for Unsplash

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.

The US defense and research agency DARPA wants to look at ways to use the blockchain for secure messaging. The Department of Homeland Security is funding research into blockchain authentication of IoT devices. And the initiatives are not just federal: in May the State of Delaware launched an initiative that includes the blockchain trial to store and secure government archives.

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.

Ukraine announced a few days ago that it would start to use eAuction, a blockchain-based auction platform, to sell government assets, eliminating the possibility of official interference. A few weeks ago Sweden revealed that it is testing the blockchain for land registration, and the Republic of Georgia has been trialling blockchain-based land titling since April. The city of Zug, in Switzerland, allows its residents to pay for public services with bitcoin. The Finnish city of Kouvola has just received €2.4m of public funding for a blockchain-based smart container shipping system.

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.

Blockchain electricity

I’ve been doing some research recently into the role that blockchains could play in the management of supply chains. The fit seems obvious (one chain on top of another… geddit?), but it’s actually complex, and the potential impact is huge. In brief (and I’ll go into more detail in other posts), the blockchain could be used to track the progress of a good as it passes from one development stage to another. From design through to production through to shipping, with components’ information verified and embedded. Less bureaucracy, fewer middlemen, less chance of corruption, contamination or substitution. Greater transparency, lower costs. There’s a lot to talk about here.

But let’s step to one side for a moment and look at a supply chain that doesn’t move physical goods, or even digital goods. A supply chain that moves energy. The electricity grid. How can the blockchain help there?

From distributed generation to micro-supply, innovators both large and small are coming up with unusual ideas. Here are some examples:

RWE, a large German electricity producer, is working on a prototype (together with Ethereum Internet of Things specialist for an electric car charging station that communicates directly with your car. Your car downloads the electricity it needs, either at a plug-in station or while stationary over an induction point (such as at traffic lights), and pays exactly the right amount via its digital wallet on the blockchain. The contract is between the charging station and your car. Neither you nor the energy company need to get involved.  This system, if extended, would not only make it possible to keep your car charged in any country, since a contract with an electricity company is not needed. It also would make fleets of driverless cars more economically and logistically feasible, since responsibility for charging would fall to the car, not the owner.

Taking a huge distributed step forward, TransActive Grid (a joint venture between distributed tech company L03 Energy and Ethereum developer Consensys) can set up solar panels on your roof, and enable you to sell any excess electricity you generate to your neighbours through a “microgrid”. The aim isn’t to replace the big electricity companies, but to see if a peer-to-peer electricity network is technologically possible. At the moment the main obstacle is that these exchanges have to happen off the electricity grid, which puts physical barriers (distance) in the way of their potential spread. But if the exchange turns out to be practical, grid regulation could in the future allow adaptation of the existing electricity network. This experiment is already underway in Brooklyn, NY, and the first transaction took place successfully just a couple of weeks ago.

On the quirky end of the spectrum, SolarChange was created to reward generators of solar power, via the blockchain. For every 1Mw of green electricity produced, the producer is awarded 1 SolarCoin, which can be stored in a SolarCoin wallet and held for value appreciation, or converted into bitcoin (the current exchange rate is 0.00010001 BTC, or about 5 cents – a year ago it was a tenth of that).


Not as much for decentralized supply as for decentralized funding, South-Africa based Bankymoon – which develops bitcoin payment gateways for smart electricity meters – has set up Usizo, a crowdfunding platform for electricity supply. Schools are equipped with a smart meter, and donors are invited to contribute to the school’s electricity supply by sending bitcoin to the meter’s bitcoin address. Talk about a feel-good application.

Usizo - blockchain electricity

They are supported in this project by Vienna-based Grid Singularity, cofounded and led by some of Ethereum’s core team (and Bankymoon’s founder Lorien Gamaroff is a “Vision Partner”). Grid Singularity is developing a platform to use blockchain technology to connect power companies, and is exploring how to use the blockchain for smart grid management, energy trade verification and other applications. Their focus is use in developing countries, to help develop their solar energy deployment.

And as if to prove that things are warming up in the sector (there are so many opportunities for puns in this topic), just last week a potential new entrant emerged. Consensus 2016, a big bitcoin and blockchain conference organized by CoinDesk, was in full swing in New York. One of their features is a hackathon, in which ideas using the blockchain to improve lives compete for a $5,000 prize. Not a lot of money, true, but the PR isn’t bad. The winner this year is, drumroll, Decentralized Energy Utility, which aims to enable a network of smart meters and blockchain-based payments.

So, while the current electricity grid system is not about to be disrupted tomorrow, the talk about the blockchain disrupting the power supply seems to be passing from the theoretical to the practical. The potential is huge. Decentralized energy is more secure (less likelihood of power outages), involves less wastage (the power goes to where it’s needed), and once scale is reached, will save money (lower generation, distribution and maintenance costs). It also puts efficient electricity within reach of those without a bank account, even those without access to the power grid. Could we be witnessing the beginning of a fragmentation of the electricity market? How will this play out with the regulators? Could it be that the blockchain will reverse the centralization tendency of capitalism? With the stage set for the first act of a suspenseful disruption, the pre-show performance looks promising, and the cast of characters looks hopeful.