31 Aug 2016 ConsenSys Media
This is an excerpt from the book, The Internet of Women: Accelerating Culture Change , which profiles women from over 30 countries.
One of the most exciting innovations in recent history has been the emergence of distributed computing systems, and in particular, digital currencies and the underlying technology known as the blockchain. Since it launched in 2009, Bitcoin, the first and most prominent blockchain-based digital currency, has demonstrated the viability of using the blockchain — a globally shared transaction history along with a set of rules that allows for anyone to add new, valid transactions — in order to manage asset transfers in a secure and transparent way.
Originally, the Bitcoin blockchain was only used to track bitcoin transactions, but entrepreneurs have begun to use blockchain technology for other assets like money, stock bonds, loyalty points, music files, a deed, a license, or anything that has value. Anytime an asset changes hands — whether it be a financial asset or a digital asset — that change in ownership is recorded on the blockchain, and witnessed by each computer or node in the network. The striking feature of this process is the way in which participating parties come to agree on the current state of the network. Whereas transactions in the traditional financial world always need to be facilitated by an intermediate institution like a bank, blockchains enable their participants to self-govern, making it expensive for any singular entity to control the network.
The blockchain is extremely difficult to corrupt or censor; tampering with historical records (perhaps to falsely claim ownership over an asset) requires computational resources greater than the combined resources of the rest of the network, which for Bitcoin at the time of this writing would cost roughly $150M.
Today, 50% of women around the world do not have access to bank accounts or financial services. For the first time in history, it is becoming economically feasible to extend financial services to a very long tail of consumers who may not be profitable for traditional financial institutions. Digital currencies and blockchain technology, coupled with the proliferation and spread of smart phones, are making it possible to provide banking services, credit products, investment opportunities, and a whole suite of solutions to women and other underserved groups across the world either through business-to-business, business-to-consumer, or peer-to-peer (B2B, B2C, or P2P).
Many start-ups have taken matters into their own hands, leveraging the new opportunities of blockchain technology and the low-cost, low-friction digital currency payment rail. Now a woman in a village that is hundreds or even thousands of miles from the nearest bank can receive digital currencies such as bitcoin, or digitized government fiat via her phone, save money, apply for micro-loans, make investments, and pay for goods and services, thus enabling her and others to become financial decision-makers, and financially independent.
The innovations underlying blockchain have enabled a wave of innovation beginning with money and the rise of digital currencies and has spread to data storage, digital-rights management, identity, and dozens of other assets and data types. Digital currencies represent an $8 billion financial systemthat has evolved without banks or financial institutions — just a community of software developers building open source code and early adopters using this “digital currency.”
Blockchain technology is demonstrating its ability to help facilitate the movement of ideas, digital goods, data, content, and money in simpler, safer, and more-transparent ways. According to a report from Santander, a global bank, blockchain technologies could reduce banks’ infrastructure costs by $15 to $20 billion a year by 2022, mainly because of the reduction of back-office expenses that this new technology makes possible. Digital currencies and blockchain technology could also create new revenue opportunities by enabling access to financial services at scale, through mobile phones for today’s two billion unbanked working-age adults.
Beyond just financial assets, nearly one-fifth of the world’s population does not have a formal government identity, meaning nearly 1.5 billion people are, in that sense, invisible. The United Nations recently created a special task force, ID2020, focused on providing legal identity to all by 2020, which includes blockchain entrepreneurs, policymakers, and NGOs. These groups are exploring the use of innovative identity technologies that protect vulnerable populations around the world and offer them access to legal and political protections. At the ID2020 Summit held at the UN Headquarters in New York City in May 2016, Microsoft, Blockstack Labs, and ConsenSys, announced a new collaboration to create an open-source, self-sovereign, blockchain-based identity system.
Christian Lundkvist, lead software architect of ConsenSys’s identity platform, uPort, noted: “I’m very excited about this collaboration, which promises to radically expand the reach and user base of self-sovereign digital identity systems. With this project we are taking a big step towards empowering people who suffer due to the lack of identity, as well as streamlining the fragmented identity systems in our modern society.”
Carolyn Reckhow, director of operations at ConsenSys adds, “Outside of the human rights implications that sovereign identity brings for disenfranchised populations, what really excites me about uPort are the new business models around putting personal data back into the hands of the people. In a world where AI systems profit from our personal information, blockchain identity solutions present an alternative vision of the future where people can be enriched from their data through privacy and granular permission systems, rather than threatened by the increasingly centralized data silos in the hands of major tech companies.”
The adoption of blockchain technology and its increasing number of applications, from digitized asset transfers to the backbone of the financial system to identity management, has been greatly accelerated by advances in blockchain technology itself. In 2014, Thiel Fellow Vitalik Buterin invented Ethereum, which he has described as “a next-generation cryptocurrency and decentralized application platform.” Ethereum is powered by a blockchain, just as Bitcoin is, but the key difference is that Ethereum was specifically crafted as an application platform, whereas Bitcoin was created primarily to facilitate bitcoin transfers. To this end Ethereum has a robust, built-in programming language that is far easier to use than Bitcoin’s. Ethereum co-founder Joseph Lubin founded ConsenSys in late 2014 to be the premier venture production studio for Ethereum applications and the company has been leading many of the innovations in the space, such as the uPort identity platform mentioned above.
Traditional computer-security models rely on perimeter defenses, where all security resources are devoted to making sure that no one can permeate the outer levels of the infrastructure. But once they do — which they seem to do quite regularly — they have access to the entire system. This is what exacerbated the damage Sony experienced in their hack. Blockchain technology inherently requires that each action be permissioned with strong cryptography, so that compromising one account or one computer would only affect those particular resources.
“I have no doubt we are in the earliest days, and that blockchain capabilities will be integrated in our day-to-day lives everywhere over time. I look for real leadership also to come from the growth ‘start-up’ nations of the world — societies often un- or under-banked and rapidly entering the mobile revolution,” says Christopher Schroeder, venture investor and author of Start-up Rising.
One example of an entrepreneur who has tapped into these opportunities is Elizabeth Rossiello, founder of BitPesa, who has been living and working in Kenya since 2009. Today, BitPesa is used in Nigeria, Uganda, Kenya, and Tanzania, working across five mobile-money networks, with instant access to over 60 banks. Elizabeth started her career at Credit Suisse and Goldman Sachs, before moving to Kenya to conduct micro-finance institute ratings and analysis across the region. While working across Africa, she became acutely aware of all of the payment challenges in the region, despite the emergence of mobile money solutions such as M-Pesa. Elizabeth saw an opportunity to use bitcoin to create a truly regional digital cash system. The problem she saw with existing mobile-money systems is that they’re effectively closed-loop digital-currency systems, where each country’s cellular network is exactly that: country-specific.
Prior to BitPesa, there was no regional payment solution to connect all mobile-money providers. Users of M-Pesa cannot easily transact on different mobile carriers, and digital cash is owned by the individual telecom providers in each unique country.
BitPesa started by creating a local market for bitcoin in each country enabling people to exchange local currency. Then it began enabling organizational payments where employers could exchange bitcoin with BitPesa for local currency and BitPesa could deliver the local currency proceeds of the exchange to their employees’ mobile-money accounts.
Last year, in an apparently anti-competitive move, Safaricom cut off Rossiello’s BitPesa from its M-Pesa network. Following this move, Rossiello provided the following statement:
“BitPesa does not compete directly with M-Pesa. Rather, we enable global digital transactions that build bridges between African companies and those around the world. While our first integration and corridor did connect the global bitcoin network to M-Pesa, the BitPesa team quickly added payout and collection corridors to and from Kenyan banks, Nigerian banks, and five other mobile money corridors in Uganda, Tanzania, Nigeria, and even Kenya. We have commercial partnerships with some of the biggest companies across the continent, such as Interswitch Ltd and Bhaarti Airtel. As a company founded in Kenya, we built on M-Pesa; as a pan-African enterprise, we have gone above and beyond M-Pesa.”
Sam Cassatt, chief strategy officer of ConsenSys says blockchain technology has many advantages over mobile-payment networks such as M-Pesa. While M-Pesa is siloed, public blockchain networks are inherently open, thus allowing additional entities to create value as opposed to proprietary systems such as Safaricom.
“If we take the open-platform, market-network concept to its logical conclusion, we could have an open backbone for a financially inclusive global economy,” Cassatt says. “If people in the developing world — and the developed world — were using an open financial platform that wasn’t ‘owned’ by a particular bank or group, additional value and financial services could emerge.”
BitPesa is also helping address another big problem for the region: low currency supply. Today, Nigeria, and Kenya have a shortage of US dollars. Because oil prices are low, these countries are not getting as much USD deposits in. Instead of having to use USD, these countries now have the opportunity to use bitcoin as payment and partner with the United States bitcoin exchange to cash out in US dollars.
This technology enables an entire economic region to have another way to access the global financial system, one that provides unique inherent benefits such as being open, low-cost, and instantaneous. Instead of traders having to carry large sums of money taped to their bodies because they had no way to send money to suppliers overseas, they can now use bitcoin to safely and cheaply complete these transactions. This technology could be fundamentally transformative for everyone from the consumer up through the largest institutions.
Bringing Blockchain and Bitcoin Technology to the Middle East
In the Middle East North Africa region (MENA), the percentage of adults who are unbanked is close to 80. MasterCard estimates that, as of December 2015, 85 to 90% of all retail transactions are still being made in physical currency despite the presence of payment cards and e-payment solutions. For online, digital sales, cash on delivery accounts for anywhere from 70 to 80% of transactions in the region. For customers who do have credit cards, many still prefer the perceived security of cash on delivery.
Just as Elizabeth identified an opportunity in Africa, Ola Doudin saw one in the Middle East. In early 2015 she founded BitOasis, a Dubai-based start-up that created the first digital-currency payment platform and digital consumer wallet in MENA.
The wallet has more than 22,000 users across MENA and Asia, and nearly half are women. BitOasis currently has active users in the UAE, Saudi Arabia, Egypt, Morocco, and Algeria. In the future, Doudin wants to focus on other emerging markets, including Turkey and Pakistan.
Through her past experience working in the private sector, in the non- profit world, and alongside businessman Fadi Ghandour, founder of Aramex and several entrepreneurship projects, Doudin gained what she describes as a 360-degree view of the challenges in the region for e-commerce, payments, and fintech.
‘Seamless’ Cross-Border Payments
Ola says BitOasis is an infrastructure platform that provides tools for con- sumers and businesses to transact using bitcoin. The exchange and the wallet enable users to transact by using digital currency, store it in their wallets and pay merchants, freelancers, and businesses internationally. Her product offers cheaper, more accessible financial services that do not rely on traditional banking infrastructure.
The newly formed Global Blockchain Council is leading initiatives around potential pilot projects, creating proofs of concept, and drawing up case studies on the value of the technology. It could thus help influence and develop future regulation and policy. Doudin says the creation of the Council highlights the value of technology in the region. “Two or three years ago, a person would sit in a meeting with a bank or regional investors who would have no idea what bitcoin or blockchain is,” she says.
The Council consists of 32 members, including Dubai government entities (Smart Dubai Office, Dubai Smart Government, and the Dubai Multi Commodities Centre, or DMCC), multinationals (including IBM, SAP, Microsoft), the Ethereum Foundation, ConsenSys and other blockchain start-ups (including Kraken and Doudin’s BitOasis). The entity is backed by the Dubai government’s Museum of the Future, a project that aims to foster the development of new technologies.
One of the Council’s first pilot programs involves Doudin’s BitOasis and the Dubai Multi Commodities Centre (DMCC). The pilot program seeks to solve a problem for companies licensing paperwork, and potentially stream- lining payments. BitOasis is working on other blockchain proofs of concept in payments and in different applications to highlight the potential of the technology and to shape regulations.
“Now, because of the Council and the momentum and interest it’s generating, I sit in meetings and people say they’ve heard about blockchain, bitcoin and the Council, and are eager to know more and be part of this emerging space. Even if they don’t yet have a full understanding of the technology, the launch and activities of the Council did shift the view within financial services and tech on bitcoin and blockchain.”
In the Middle East, banks operate from 9 a.m. to 5 p.m. from Sunday through Thursday, while international markets work on a Monday-to-Friday schedule. This means that entities in the Middle East doing business with international companies are disconnected from trading and transacting with international markets for a good part of the week. This causes delays and a loss of business, specifically if the business relies on commodities and stock trading. “If you’re a business relying on trading in international markets on a daily basis, it’s a huge problem because there’s no mechanism for seamless and efficient cross-border payments throughout the week to keep your business running smoothly,” says Doudin. “It’s also a problem that’s unique to the Middle East and other countries that adopt Friday and Saturday as their weekend. Since banks are off on Thursday afternoon and on Friday, even payments sent on Sunday don’t get processed until Monday. We need to be able to receive international payments seamlessly, and businesses need a way to be plugged into the market when the banks are off.”
BitOasis is developing a product that taps into the payment infrastructure. “Dubai is the world’s hub for emerging-markets trading and movement of goods, people and capital,” Doudin explains, “and we want to be right at the center of that, enabling seamless cross-border payments across those markets.”
Revolutionizing Identity through Blockchain
The radical transparency of blockchain’s distributed ledger means that in the future, it could be possible to create a database that reflects who’s who and who owns what in a manner that cannot be altered or changed. It makes it possible to provide specific, granular access to identity attributes that are relevant on a case-by-case basis. For example, a doctor would be able to see a patient’s medical records without being given access to their financial history. One company piloting this is BitNation, a start-up founded by Susanne Tarkowski Tempelhof. It offers blockchain IDs and bitcoin debit cards to refugees.
Another area of progress being pioneered by ConsenSys’s uPort platform is that of identity attestations. The idea is to enable people, companies, and governments to attest to various aspects of an individual’s identity, such as their social reputation, credit rating, or citizenship. The individual can decide what attestations to make public, and which to only reveal per request.
- An earlier version of this article stated that the Digital Currency Group is an investor in BitNation. That was incorrect, DCG has not invested in BitNation.
- Rahilla Zafar, Director of Strategic Research at ConsenSys, co-authored this piece with Meltem Demirors, Director at Digital Currency Group (DCG), a company that builds and supports bitcoin and blockchain companies. DCG has invested in BitPesa, and BitOasis, all highlighted in this piece. Ameen Soleimani and Martin Lundfall are co-authors,both Software Engineers at ConsenSys.