It was crypto-currencies that seized the attention of global investors last year, but it is their underlying technology, blockchain, which offers the world a whole new range of frictionless functionalities and liberating potential.
Even so, while a broad range of players – investors, consultants, startups – gathered at the sold-out Beyond Blocks conference at Seoul’s Shilla Hotel last week, there was considerable agonizing over the tiny user base and lack of successful commercial application.
The empowering potential of blockchain – an instantly accessible digital ledger, with the ability to simultaneously decentralize operations, tokenize assets and upgrade transferability, while reducing user friction, strengthening data sovereignty and upgrading transparency – was certainly center-stage.
“The computer destroyed physical barriers, and with mobiles you can get any information into your hand, so this broke the barrier of time,” said Jason Han, CEO of Ground X, the blockchain affiliate of mobile messenger service Kakao. “I am going to call this ‘the token era.’ The ‘double-spending’ problem can be solved. In the past, when you transferred money, you needed to pay fees twice, and that spending was stolen by intermediary agencies. You can eradicate that through the power of tokens.”
This advantage is currently being applied to crypto-currencies, “but can also be applied to any other assets,” Han said.
Jon Choi of Ethereum Foundation added: “The key feature is the ability to receive and send digital value. The person you used to trust – Uber or Facebook or a bank – you don’t have to wait for him to look. You don’t pay for the salary, or the offices, or the intermediary. This is about economic efficiency – and you have transparency.”
But currently, there is no clear winner among blockchains, which, as Michael Novogratz, the billionaire founder and CEO of Galaxy Digital Capital Management, noted “…are all trying to become the same thing: A decentralized, global super-computer that processes and authenticates data. The race is on to see who will get there first.”
The sector remains in its infancy, he warned. “This is still an experiment, it is like a third-grade revolution,” he said. “We are not at the PhD level now.”
Even so, these words of caution did not prevent some participants from laying out plans to change the world in sectors varying from finance to tourism to machine-to-machine transactions.
Blockchain: Barriers to adoption
One conference goer called blockchain “a solution looking for a problem.” And despite the noise the sector has generated, its actual user base is tiny at present.
“20-30 million people currently are crypto users – less than 1% of internet users,” said Han. “Blockchain should prove itself. We are developing platforms and they are important, but they are very empty. The success of a platform depends on services. A platform alone cannot succeed.”
One issue holding back mass adoption and sound commercialization is the problem of crypto transferability, particularly given the speculative investments and trades that surround tokens. “The concept of the token economy confused many people. I earn tokens – what should I do with them?” asked Han. Users, when they transfer out, are at the mercy of volatile value swings. “Users don’t have an interest in investments,” he said, noting that governance was an issue of concern to the general public.
And the sector may have a bigger, more fundamental problem: lack of real-world focus. “The blockchain industry is more like an R&D sector than a business sector,” lamented Justin Park, CEO of Metadium.
Perhaps as a result of this mindset, the technology is not yet user-friendly enough for mass adoption. “The user interface and user experience of blockchain is so difficult,” said Han of Ground X. “We should think of redesigns. Could your parents use blockchain?”
A further problem is that many users may not want to forfeit the convenience of established platforms for the freedoms and data sovereignty offered by blockchain solutions.
“We give the right to control our own identity, but the user has to understand the proposal and bear the responsibility of controlling their own data,” said Metadium’s Park. “We are so used to Google and Facebook, as they take care of everything. Blockchain is like the Internet: nobody cares what that is, people care about Google and search results.”
Indeed, the technology is frightening due to the freedoms it offers the user. “Cryptos store and access value on your phone and nobody can stop you,” said Choi of the Ethereum Foundation. “That is the key innovation we have. That is exciting and terrifying – I don’t want to blow my life savings with an error on my phone!”
And the technology has not – at least, not yet – proven its commercial viability.
“We have seen a lot of projects – thousands of projects – all of which, from a consumer perspective, have absolutely failed,” said Scott Walker, chairman of DNA. “I have not seen an app that a venture capital investor would say has succeeded: there are zero.”
For all these reasons, the likeliest adoption solution is for consumer-savvy, existing brands to take blockchain out of the hands of the geeks and revolutionaries, graft it onto their own businesses, and place it at the disposal of ordinary end users.
“You take an existing business that can generate millions of new user applications, and can turn it into a decentralized application,” Walker said. “Consumer adoption is going to drive the industry. Until then, is it is going to be a niche. There needs to a breakout on a scale of magnitude.”
Loretta Joseph, industry chair of the Australian Digital Commerce Association, said: “Centralization does not work, but I don’t think anarchy and decentralization works.” Novogratz agreed, suggesting that it will be existing enterprises that will lead the future. “They are not decentralizing,” he said. “They are creating better systems.”
“Is decentralization the only answer?” asked Ground X’s Han. He suggested transparency, transferability and features should be top priorities for developers. “They may not be full decentralization, but how important is decentralization to users?” he said. “It should be a tool, not a goal. There is no reason to decentralize Kakao Talk – it works well. Why would we do that?”
Still, bigger, better and more accessible networks create new possibilities. “From Kakao’s perspective, all assets can be digitized, tokenized and assetized,” said Han. “After tokenization, all assets can be further segmented and traded and that kind of new structure can be created at this time.”
Yet even Han was vague on visualizing how this will actually work. “It is hard to imagine what new services can be created,” he admitted. This was particularly problematic, as it is major companies that will lead the space, he said. “We need to make sure the value of blockchain is proven; to that end. Large companies should advance into the market with real apps and real services. They should do something to prove it.”
New user interfaces and governance models are corporate concerns. “Can we upload our business to blockchain? There is no practice at all and no experience of large companies adopting it,” he said.
If enterprise solutions are the applications most likely to drive mass adoption, mass adopters themselves do not necessarily need to understand the technology’s nuts and bolts.
“For regular adoption – banking applications, or telco apps – a regular user does not need to know [the technological details],” said Maja Vujinovic, the CEO of O Group. “Do you know what goes on when you use an Uber app? For the user, the utility, functionality and value is important.”
Blockchain apps: finance, travel and robots
The technology’s killer app for users is clear. “I think I would focus on where there is the most amount of friction – that has utility for me,” said Vujinovic. “Uber was one click and you have a car. What friction can you take out with your token?”
When it comes to sectors, clear opportunities are presented in finance.
“What if all financial products can be accessible to an SME or individual? If you can lower the cost of representing an asset, and having transactions on top of that, people can have a very specific capital structure that fits them,” said Ethereum Foundation’s Choi. “You and your family can have that – you have the informational advantage.”
Still, banks might not be ideal adopters. “Banks are too regulated and too complex, so I am looking at telcos as the next layer of banking,” Vujinovic said. “We can give savings accounts to millions of people around the world who do not have savings accounts.”
Sang Lee, founder and CEO of DarcMatter, sees the decentralization and frictionless benefits of blockchain working best in asset management.
“We are connecting investors and asset managers, instead of relying on personal connections and personal bankers,” he said. “You can access information from the comfort of a personal computer or mobile.” The sector currently manages some US$70 trillion worth of wealth, and 60% of that is in the US, “so the rest of the world is unserved,” Lee said.
A former investment banker who was appalled by the 2008 financial crisis and the centralization and silos which had underwritten it, Lee listed current user frictions hobbling the sector. “Historically, interactions have been done offline – you have stacks of papers and you pay a lawyer to read it on your behalf, which will cost you 2-3%.” Additionally, with today’s soaring compliance costs, it makes little economic sense for major players to service small, everyday investors.
This is where DarcMatter adds value, he said. “We automate much of the work that is now being done offline,” he said. “We have automated 70-80% of that.” Moreover, blockchain, which leaves a clear audit trail, engenders transparency. “We can remove fraud; things like Ponzi cannot occur, as it is being verified by other people who will say, ‘That is not correct.’”
These issues align the interests of investors and other participants, cut costs and obviate third-party verification and paperwork. “You can get decent and democratic access to wealth management cheaper faster and safer,” he said. “All investors around the world should be able to access the same types of opportunities, and we tokenize this ecosystem away from centralization: participants verify transactions, trade and compliance.”
Another sector where users suffer hideous friction is international travel: obtaining visas, transport tickets and accommodation, all in different currencies. This US$8.3 trillion sector is the opportunity that Phil Yuen, chief technical officer (CTO) of Tink Labs, is setting out to tap with an upcoming crypto, Passport.
The solution will piggyback a hardware solution, Handy, which Tink Labs provide to 800,000 hotel rooms worldwide. Handy is a bespoke smartphone placed in hotel rooms which converges normal telco services with room controls, hotel services and destination-specific data. “Essentially, every major brand of hotels has integrated with Handy already,” Yuen said. “This creates a platform for Passport’s growth: We can reach 146 million travelers.”
On top of this user base, Yuen aims to create a specialized global travel token. “Travel is uniquely suited to the adoption of a new currency,” he said. “We will start in the hotel room and extend into every part of the ecosystem.” The end goal for Passport, Yuen said, is to become “the de facto travel currency.”
Like Yuen, Joseph of the Australian Digital Commerce Association was upbeat on future uptake. “In five years, I think we will all use blockchain the way we do email,” she said.
But one participant ventured to suggest that the biggest potential users of blockchain and related cryptos might be inhabitants of a sector where the central friction in life – emotion – does not exist. To perfectly leverage the mathematical purity of blockchain, the human element could be removed altogether.
“Machine-to-machine communications will happen on a mass scale,” said O Group’s Vujiinovic, who was formerly the new technologies CTO at GE. “At GE we created a wallet for a machine, and it buys a part for itself. With machines, you don’t need to satisfy emotion. So, that may be the mass adoption.”