Blockchain research & industry insights

Take an in-depth look at blockchain technology's latest developments, projects and products.

Leveraging future income with a blockchain

Income share agreements (ISAs) are on the rise for college students seeking tuition assistance. Instead of giving students a loan, universities make a deal with them. They finance the student's tuition in exchange for some percentage of the student’s future earnings for some number of years, say 10% for 5 years (with some cap). By assigning a percentage share of future income, ISAs can function like non-voting shares in a company where the individual student is treated like a company.

These agreements reduce the burden of debt on students and removes the pressure to find just any job in order to satisfy a loan bearing down on them. This financing method also puts more responsibility on the school to help students succeed. The colleges now have “skin in the game”. (Critics, however, argue it’s a small step away from indentured servitude: students indenture themselves to patrons in the investor class.)

Like any debt instrument, the creditor (the school or “investor”) may want to cash-in their share ownership today instead of waiting years to collect payment. Normally the process to transfer ownership would be cumbersome and costly, but with a blockchain it can be done seamlessly.

IncomeShare has created an app to create income share agreements on Ethereum with just a few clicks. Leveraging OpenLaw, a legal agreements platform with associated smart contracts, the worded contract produced is legally binding, and the associated smart contracts give the parties additional functionality on the blockchain. Specifically, the application creates an ERC20 token that represents the shares in the loan recipient. These tokens can now be transferred freely by the school to other parties, effectively selling their stake in the ISA. They can sell small fractions to many different parties. For the student this process is transparent and they don’t have any additional overhead when repaying their obligation. Instead of paying the various holders of the ISA shares, the student simply pays that smart contract that is managing the agreement. The smart contract will divvy up the payment proportionally to the various stakeholders.

This application demonstrates one powerful feature of blockchains and cryptocurrencies: programmable money. The way money flows amongst many parties is programmable and by taking one action—e.g. by making a single payment, a series of actions are automatically set off, paying many parties that are entitled to it.

To learn more about Income Share, see here.

The blockchain is modeling lava cooling

EDF (Électricité de France), the fifth largest electrical utility company in the world, has launched its visual simulator software on iExec, a decentralized application that uses Ethereum behind the scenes. The EDF simulator explores “smoothed particle hydrodynamics” for modeling fluids and studying all sorts of things, such as water dams or lava cooling. 

Your wallet is about to get fatter

What do Samsung, Facebook, JP Morgan and Nike have in common? They are all creating their own cryptocurrency. Samsung is not only creating Samsung Coin, but is also creating an Ethereum-clone blockchain to host it; Facebook is seeking $1B in investment for its cryptocurrency project; JPM Coin is being created (on an Ethereum spin-off) to improve the way it moves $6 trillion daily in its wholesale payments business, and Nike is working on a cryptocurrency “Cryptokicks” to be used by its sneaker fans.

These are just some of the companies creating their own blockchain-based currency. Jaguar, Mitsubishi Financial, and AirAsia are some others. Facebook's WhatsApp won’t even be the first messenger with an integrated cryptocurrency. Telegram (with 300 million users) has raised $1.7B for its cryptocurrency that will be used for in-app payments this fall.

There are already smartphones (Samsung’s Galaxy S10) that natively support cryptocurrency, as well as web browsers, such as Opera and Brave, that have built-in crypto wallets too.

At this rate many dozens of the products you use regularly will have their own associated currency, not unlike the Starbucks stars, Amazon points, and Delta SkyMiles you have today. The difference is that now these company currencies can be more robust and trustworthy and in turn may be accepted not just by the issuer, but by other vendors as well. A blockchain brings transparency into the inner workings of the currency, such as how many coins actually exist and what the creation or inflation rate is; and it allows you to hold the currency independently of your account. By holding the “keys” to the currency, you control it and are free to transfer it as you like.

A problem with national currencies today is that there’s no direct insight into how much of it has been printed. How many paper dollars are there? The FED says approximately $1.7 trillion, but you need to take them at their word. Paper money has an additional problem of counterfeiting. Roughly 1 in 10,000 US bills are counterfeit, a cost we all absorb. Not to mention the money spent to prevent, detect and punish counterfeiting.

So we’re going to have dozens or hundreds of currencies in our wallets in just a few years. This may sound like a step backwards, to before the Civil War, when there were 8,000 different kinds of money in the United States. Banks printed their own paper money. And, unlike today, a $1 bill wasn't always worth $1. Sometimes people took the bills at face value, sometimes they accepted them at a discount, and sometimes people rejected certain bills altogether. Merchants would need to keep a book detailing the reputation and value of different currencies, and generally the further away you were from the issuing bank, the less it was worth.

But with the arrival of modern cryptocurrencies those problems won’t exist. We’re in the digital age and computers will take care managing and exchanging the different currencies. Instead of selecting a credit card, you'll select the currency you want to pay with. Your digital wallet (as an app or browser extension) will automatically show you the currencies you own in common with what’s accepted by the seller.

The reason why there will be multiple currencies, and people will welcome them, is the same as why there are many different types of handbags, chairs or cars. We could just have one universal type for everyone, but why would we want to? Can you think of any everyday product or tool that there is only one type of? Some monies will be faster, some will be safer, some will be cuter (see Dogecoin). Some will be better for the young, some will be better for the old, some will be better for the single parent, and some will be better for the vegetarian. They would all be interchangeable, but the monies you hold will be in alignment with the beliefs and communities that you support and identify with.

Having a non-fiat (non-government) currency is not new.  There are over 4000 privately issued currencies in more than 35 countries. These include commercial trade exchanges that use barter credits as units of exchange, private gold and silver exchanges, local paper money, computerized systems of credits and debits, and electronic currencies such as digital gold currency.

The oldest and largest private currency in the United States still operating is the Ithaca Hours, where its primary function is to promote local economic development. Businesses who receive Hours must spend them on local goods and services, thus building a network of inter-supporting local businesses.

Soon there'll be a currency for nearly every initiative and product you support. The days of the boring dollar are numbered. See Santa and his reindeer in the banknote above.

The Greatest Indicator of Blockchain’s Future Success

The greatest indicator that blockchains are a transformative technology and will overcome whatever obstacles come their way, is how it holds the imagination of the people working on it. Developers around the world working on blockchain technology sacrifice their livelihood and even put their lives at risk for it.

When the lead developer at Prysmatic Labs, Preston Van Loon, tweeted that the biggest obstacle for them is that they don’t have enough monetary support for their work on Ethereum infrastructure, Vitalik Buterin replied “Yolo” and sends Preston 1000 ETH. Paul Hauner at Lighthouse complained they’re struggling too—Vitalik then sends him 1000 ETH. Mikera Quintyne-Collins of Chainsafe says she would “literally drop out” of school if she had financial support for the work she was doing on Ethereum. Vitalik sends her 1000 ETH, and she drops out of the University of Toronto.

Blockchains as Arbiters of Truth
Polling people on whether they think outcome A or outcome B will happen is not very effective in determining which of the two actually will happen. Polling is a poor indicator of future events for a variety of reasons: people with more expertise are given the same weight as those with little to none, people are biased, and not incentivized to give the correct answer. Even asking people about past events or facts are heavily influenced by their cultural and political leanings.

For instance if you were to ask people whether gun production increased or decreased during the Obama administration, the results are skewed by their party affiliation. (It increased 192%). However, paying people to give the right answer, or not answer at all, greatly increases the accuracy of the result.

For these reasons, prediction markets—a financial market on whether or not a particular event will occur— are more accurate than polling and other forecasting techniques, e.g. which movie will win best picture? will there be a second referendum on Brexit? will the FED raise interest rates? They’re more accurate for the simple reason that those in-the-know are incentivized to take a position, and take a more vested position, the greater their knowledge and confidence.

Many companies have used prediction markets internally for forecasting when a new product will launch or to predict sales. Simply asking managers for target dates, results in answers that are too optimistic—they’re motivated to be positive. With a monetary incentive (the more right you are, the bigger the bonus), more accurate forecasting can be made. Hewlett-Packard, Siemens, and Best Buy have all used internal prediction markets to forecast: sales, delivery date of products, store opening dates, and whether new services will be introduced on time. They outperform the companies’ traditional forecasting tools by up to 70%.

While some prediction markets do exist, they have failed to gain mass market traction. Gaining traction is hard because of the need for trust in the company making the market. There is no transparency that it’s set up fairly, that the company is not taking unfair advantage or users, nor guarantees that they will pay out the winners. In short, it’s a problem of trust.

This is where the blockchain comes in. The blockchain is the perfect platform to host the formulas and money of the markets. The code can be vetting and the payouts guaranteed to match what’s expected. Augur, Gnosis, and Stox are 3 prediction markets on Ethereum. In addition there are now user-friendly apps that are being built on these platforms. Guesser is an easy-to-use app that uses Augur smart contracts behind the scenes. I used it to make a prediction on the oscars. I predicted wrong.

For a comparison of Augur, Gnosis and Stox see here. To read more about Guesser see here.

For a good overview of prediction markets in general see this paper.
Is JPM Coin Really a Cryptocurrency?

The big news this week was the announcement of JP Morgan creating their own cryptocurrency--JPM Coin--to be used in it’s wholesale payments business, where it moves $6 trillion every day. The currency will only be available to JP Morgan’s institutional clients, where each coin is guaranteed to be redeemable for 1 US dollar.

The currency uses JP Morgan’s modified version of Ethereum called Quorum. By using a blockchain and cryptography it ensures that coins cannot be counterfeited, nor “double-spent”. It ensures that if a balance is decremented in one account, there must be some other account(s) that are incremented by an equal amount. In this way reconciliation times and costs are significantly reduced. In addition, like any cryptocurrency, accounts can be created by any participant independently, and money can be sent from party A to party B without B getting any of party A's credentials. Finally, such coins can be used in smart contracts to create complex business logic of how and when funds are moved.

In these respects, yes, JPM Coin is taking advantage of blockchain technology and can be considered a cryptocurrency. But it's only these technical efficiencies that it captures and goes no further. JPM Coin misses all the philosophical and revolutionary properties of a trustless cryptocurrency like bitcoin, or a crypto stablecoin like DAI on Ethereum.

What do we mean by trustless? It's the opposite of JPM Coin, which is a trustful currency. It only works when there is complete and total trust in JP Morgan--that they will reimburse every coin holder $1 per coin. Do we know whether JP Morgan will keep enough reserves to redeem all coins? What percentage of USD will they keep on hand? What happens if there were a run on the bank? JP Morgan is able to issue such a coin without having much oversight, or public audits of JPM Coin, because they are the largest bank in America. That is, they are too big to fail, and if they were to falter, the American taxpayer will step in as the lender of last resort.

In an ironic twist, the more trust we have in an institution, the less oversight and guarantees we demand of them. Compare JPM Coin with, say, the Gemini Dollar, a stable coin created by the Gemini exchange, which has a reserve of USD commensurate with the market cap of GUSD that is held by State Street Bank. Their balances are examined by outside auditors with public reports published monthly. Does JPM Coin have the same? It's unclear.

Bitcoin and other public cryptocurrencies take it further. There is no need to put trust in any institution for them to work. The issuance of the currency is controlled by the code of the system, which is public and resistant to manipulation. Because the supply is tightly controlled and predictable, the coins are able to take on a value of their own, with no need to be backed by any other currency. The network is the mint.

Of course, without backing by a stable asset like the dollar or gold, bitcoin and ethereum fluctuate wildly based on the whims of the market. A solution has been the creation of a new token on Ethereum, called DAI, which is backed by ether in such a way as to keep the value of DAI fixed at $1. In this way it is perfectly stable and yet completely trustless. There is no entity responsible ensuring there is enough ether to back the DAI. By design it’s guaranteed that there always will be.

So while JPM Coin is great validation of blockchain technology, it doesn't capture the philosophical and game theoretic innovations of bitcoin and other cryptocurrencies. It will find use and benefits for JP Morgan and their clients, but not be as powerful as its global, trustless counterpart. 

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