One of most consistent laws of economics is that all good bubbles must come to an end. By any measure, cryptocurrency has been a fantastic bubble. The pace of the boom has made it hard to track the total market capitalisation of cryptocurrency, but it is currently around $720bn. Bitcoin, the most well-known cryptocurrency, is just below $12,000, at the time of writing, down from an all-time high of almost $20,000 in mid-December.
Although most analysts argue that the heyday of cryptocurrencies is behind us, much of the underlying technology is likely to be in use for decades to come. In particular, the ‘blockchain’ has a number of proposed applications beyond digital currency…
Banking can be expensive. According to the World Trade Organisation, transferring money across the world costs the global economy $1.6 trillion a year. This cost arises from the difficult process of encrypting and securing transactions against interception.
Blockchain promises to make secure transactions both faster and cheaper. While transaction costs in Bitcoin average $30, OpenCoin has created a set of costless payment protocols known as Ripple. The blockchain allows money to be moved instantly and directly between two parties, without the need for an intermediary like Visa. More than 100 banks, including Santander and Standard Chartered, have already subscribed to Ripple’s package of services.
However, Ripple’s optimistic forecasts assume blockchain will remain unregulated. This seems fanciful. If blockchain should become a major tool for financial transactions, regulators will undoubtedly intervene, increasing the transaction cost. There have also been questions about how much Ripple is actually being used at the moment. Ripple claims that over 75 clients are deploying it commercially, but there is a large gulf between deployment in an experimental fintech division, and being used as part of standard trading.
Precisely how financial services will implement blockchain is unclear. But it seems certain that they will. Ripple itself may well prove to be a false dawn— the current lack of regulatory oversight seems certain to provoke a government backlash should it truly take off. Equally, it seems evident that Ripple has not removed all liquidity barriers: Ripple was, until recently, valued at a 30% premium in South Korea, which in turn implies an artificial scarcity brought about by illiquidity. Nevertheless, the concept of blockchain-backed transactions seems a solid one, and, in one form or another, looks set to revolutionise digital payments.
Likelihood: High — Electronic payments are ripe for disruption, and blockchain has unrivalled strengths for quick, secure transactions.
On January 9th, the Photography company Kodak announced it was launching an ICO. The share price has promptly doubled. Kodak’s “photo-centric” coin is for buying and selling photos on KodakOne, an online marketplace for photographs. In a similar fashion, Telegram, a messaging service, has launched a token called “Gram” which can be spent on its own services, ranging from online storage through to proxy servers. The difference between these ICOs and the ‘traditional’ cryptocurrencies is that they are tied much more closely to a particular company or service. Kodak Coins are essentially useless outside of KodakOne; Telegram will doubtless continue to price its services in US dollars. There is no suggestion, as there is with bitcoin, that these will come to replace normal money.
In many respects, then, these innovationsy resemble traditional gift cards and book tokens: a way to spend money on a particular platform, albeit with an exciting technological sheen. Of more concern is the rapid uptake of these tokens by gambling firms. A loophole in current regulations mean that the usual restrictions and limits on gambling, intended to protect consumers, do non’t apply to gambling with cryptocurrency. In response, the gambling firms such as Betrium are using them in the same manner as traditional casino chips– the firm launches its own cryptocurrency, gamblers buy a stack, gamble away, then cash out. It remains to be seen how long this ‘innovation’ will be allowed to last, it seems likely that the various gambling watchdogs will take action soon enough.
Likelihood: High – Firm-specific coins are simple to regulate, useful for firms, and fill a niche on for online gift vouchers mostly unmet. Attempts to skirt regulations on fiat transactions, however, will either remain small-scale, or be shut down by the relevant authorities.
In response to the rise of bikes-for-rent such as Boris Bikes, a new organisation called Fairview is offering ‘blockchains for bicycles’. Promising a communitarian utopia of self-owning bicycles, a combination of blockchain and other technologies would be used to create ‘smart contracts’: self-enforcing rental agreements between cyclists and Velocracy. The blockchain, in conjunction with a set of decision algorithms, would monitor the fleet, allocate repair orders by lottery to nearby bike shops, and use the rental income to replace any bikes which fell out of the fleet due to damage or theft.
The use of blockchain has social benefits over existing technology in the sharing economy. Firstly, fewer overheads means lower costs, and, since the fleet is independently owned, any profit could be delivered back to consumers in the form of lower prices. In addition, unlike company fleets such as that of Mobike, the wealth of data generated by Fairbike could be made publicly accessible, to assist town planning. As an added bonus, the data could all be anonymised before a human ever sees it, improving user privacy. Marcel Schowenaar, the architect of the idea, hopes to launch a pilot programme next summer in the Dutch city of Rotterdam.
Whether or not Fairbike is successful, it seems unlikely that attempts like this will stop at bicycles. Why not blockchain cars? With the seemingly inevitable rise of self-driving vehicles, it seems highly plausible that a ‘Faircar’ system could be developed as an alternative to the likes of Uber. This would probably be an even stronger bet than bikes, because it would be much easier to make the cars theft-proof (by, say, making the autopilot cut out if payment is not received).
Likelihood: Medium – If the technical challenge of making the fleet truly self-sufficient in setting prices and paying for repairs is overcome, such innovations could take the sharing economy by storm.
“Don’t ruin the moment” says LegalFling, a recently launched app. “Asking to sign a contract to have sex can be awkward. Get sexual consent with a single tap”. Users can request consent via a whole range of technologies: WhatsApp, Telegram, Facebook Messenger, or even good old- fashioned texting.
The idea is that the “transaction” will be stored and timestamped in the blockchain, providing a means to verify mutual consent. As an added bonus, it matches sexual preferences with that of your “fling”. This defines the limits of consent in advance, and makes the sharing of any photos or videos taken a breach of contract. Such behaviour is currently illegal, but hard to enforce. LegalFling claims that their contract-based approach will protect victims of revenge porn better than current law. Other features include group consent for when “one guy or girl just won’t do”, and the option to “escalate a breach” with just one tap.
Reception has been predictably disastrous, with lawyers, academics and technology experts alike lining up to slate the company. “It’s based on a flawed notion of consent; that it’s something that can be done in the absence of context. It’s a ridiculous idea that’s doomed to failure” were the scathing words of Bernie Hogan, of the Oxford Internet Institute.
Perhaps the most serious criticism is that, by the very nature of blockchain, there is no way to withdraw consent once given. “A blanketed contract ahead of engaging in sexual contact signals that consent is simply a one-time checklist,” Ehrenkranz wrote. “Consent, however, is something that occurs continually throughout a sexual encounter.” Although LegalFling rushes to claim that, of course, “No means no at any time”, the reality is that in the event of a dispute, the blockchain would be used to verify the initial granting of consent, and nothing else, and provides absolutely no way to verify if either party went further than the boundaries defined in the contract. Fortunately, it seems unlikely that a court will ever take LegalFling too seriously.
Likelihood: Low – Some ideas should be left in Black Mirror where they belong.