Blockchain and Payments Infrastructure: A Regulator’s Dilemma?
Epiphyte’s Gabrielle Patrick discusses the balancing act faced by #regulators in a fast-changing world and how #bitcoin‘s #blockchain could help.
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Blockchain to Optimize and Secure Client Data Information – Part 3
Blockchain-based Enigma system
Researchers from the Massachusetts Institute of #Technology, therefore, have developed a guaranteed privacy system based on #blockchain, in which #data can be stored, verified and shared without ever being revealed to any of the network’s parties. ‘Enigma’, which is powered by the blockchain, is essentially “different computers that are talking to each other, but they don’t do mining, they just provide resources to the network, bandwidth, some of their hard drives, some of their CPU power”, according to co-founder Oz Nathan, a technology entrepreneur with experience working with the Counter Terror Unit of the Israeli Defence Forces. This will purportedly allow #banks, for instance, to confidently sign up to private blockchains, knowing that sensitive #client data will remain private.
Enigma’s founders are also speaking to medical companies, particularly those who are unable to put huge swathes of client medical #information onto the blockchain. As a solution, Enigma breaks down data into smaller pieces, and rather than performing conventional encryption, a “secret sharing” method is used, according to co-founder Guy Zyskind where the system “guarantees mathematically that each of these pieces are completely masked, completely random and completely #secure&8221;.
Blockchain is to prevent industrial data breaches
Moreover, there does not appear to be a limitation to the magnitude of projects that can be put onto the blockchain. The UK government is now looking to blockchain technology to protect itself against data breaches within some of its biggest industries. Guardtime, which provides cyber-security services and uses blockchain to secure sensitive data, recently announced it will be in charge of protecting the UK’s nuclear power stations, flood defence systems and electricity grids from cyberattacks.
According to a recent report by think tank Chatham House, a ‘culture of denial’ currently exists in the UK’s nuclear power industry with regards to the risk of cyberattacks. Blockchain’s permitted ledger, however, can be used by Guardtime to boost the security of some of the largest systems of UK infrastructure. The system uses hash-function cryptography that is based on ‘signature’ authorization, known as Keyless Signature Infrastructure (KSI). Ultimately, the technology allows all data across the system to be securely authorized, while allowing for independent verification of the records, without the need for centralized authorities.
Although blockchain’s technology has been synonymous with the rise of #Bitcoin, Guardtime has been using similar technology for the purpose of security prior to Bitcoin’s emergence. The company employs cybersecurity experts who have experience in the US military, as well as state-level digital security experts from Estonia, who resolutely defended the country from a comprehensive cyberattack by Russia in 2007. Indeed, Estonian innovations in addressing confidentiality and data integrity have been deemed by the US as cutting-edge, which has in turn led to the formation of the #FinTech partnership.
Defence systems, telecommunications companies and financial-services firms are all looking at the technology, according to CTO Matt Johnson, who also believes that Guardtime&8217;s permitted blockchain can provide proof of time, identity and authenticity, while preserving confidentiality of the data, on an industrial scale.
The post Blockchain to Optimize and Secure Client Data Information &8211; Part 3 appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
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Blockchain to Optimize and Secure Client Data Information – Part 2
Blockchain application in financial data and compliance
Blockchain makes the top secured financial transactions controllable
The financial services industry is another major area in which #client #information must be securely protected to prevent market manipulation. At the same time, however, compliance divisions must be aware of the identity of trading counterparties in order to mitigate potential money-laundering activity. As such, a system which balances both compliance requirements and trading anonymity is required.
Indeed, regulators may find the anonymity of #blockchain a challenge to wholly approve, as it makes it difficult for them to conduct their ‘know your customer’ (KYC) checks to prevent money laundering. Blockchain’s close association with #Bitcoin, moreover, hasn’t helped matters, especially as the #cryptocurrency has been notoriously used in criminal activity, and even funding for terrorist activity.
Blockchain offers solutions to AML
In November, Israeli start-up Polycoin showcased its blockchain-based compliance service, which will provide a verification system for financial transactions. This will help compliance officers to handle their anti-money laundering (AML) and KYC requirements. Polycoin’s platform scrutinizes financial transactions to try and identify who they are from, and they are then placed into a ranking system. Those transactions deemed as being suspicious – such as an AML breach – will be identified by Polycoin’s platform, which will then send an alert to compliance for further investigation.
Polycoin CEO Alfred Shaffir thinks his firm can provide a complete solution for blockchain compliance, and considers Polycoin’s innovations could have as profound an impact as digital financial crime prevention tool ‘NICE Actimize’ had in the late 1990s. As such, Shaffir is of the opinion that for any bank working with blockchain, transformation of compliance systems and procedures will be their first priority.
Indeed, #banks have already responded positively to Polycoin’s proposals, with the start-up participating in the innovation accelerator project in Israel conducted by financial services giant Citi, while also being chosen as one of 10 participants out of 170 applicants for Finnish bank Nordea’s accelerator in Helsinki. Shaffir has stated that Polycoin has received much interest from those banks that are interested in integrating blockchain into their businesses in the future.
Blockchain compliance specialist Tradle is simplifying the KYC process even further. Last August saw London’s Startupbootcamp #FinTech accelerator take place, where Tradle CEO Gene Vayngrib explained how blockchain #technology could ease the costly pain of compliance for banks. The company is creating a user-friendly smartphone interface that will allow documentation to be sent electronically, thus eliminating the need for inefficient paper-based communication. Furthermore, within each bank currently, separate KYC checks are conducted across products, divisions, locations and subsidiaries &8211; this lack of sharing elevates KYC costs unnecessarily.
Vayngrib instead proposes a blockchain-based app called Trust in Motion which stores KYC #data on a permitted ledger and which all authorized parties can access when required. He calls it the Instagram for KYC, as clients can snap a picture of their ID documents (their passport, for example) and send it directly to the bank. Once the compliance officer verifies the pictures using authentication processes, the documents are digitally signed and put onto the blockchain which, assuming the appropriate authorizations have been granted, can be co-managed by the bank and the client for updates and reverifications.
Blockchain automates AML procedures
The technology could also be extended to include AML rules, whereby instead of having to prove to regulators that AML checks have been conducted by sending them mounds of data, automatic procedures can be established that perform AML duties such as the reporting of suspicious transactions. According to Vayngrib, the blockchain method wholly preserves the privacy of the data, while the regulator “could get information about suspicious transactions without banks sharing a lot of raw, private data with them”.
While regulators will like the fact that blockchain’s verification process involves a network of users providing authentication and security, bankers on the other hand will not like this lack of privacy, particularly when it comes to sensitive trading data. Furthermore, financial institutions (and other companies) have suffered numerous data breaches in recent years that have cost them dearly.
Even if several banks are operating on a shared private ledger (with only a limited number of network users), each bank will still want to keep data from every other user in the network. Banks are extremely secretive about the business they transact, as well as the clients with whom they conduct business, meaning that this information can’t be disclosed to competitors, even on a private blockchain.
The post Blockchain to Optimize and Secure Client Data Information &8211; Part 2 appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
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Blockchain Wallets: ‘Bigger Than the Internet’?
Jaxx plans to do for #blockchain what the #internet did for communications. Toronto-based #Bitcoin consultancy and software development company Decentral announced last week that it has integrated Jaxx, its unified platform for blockchain wallet services, with #cryptocurrency exchange platform ShapeShift. “You were able to buy and sell cryptocurrency, and alsoRead More
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Blockchain Wallets: ‘Bigger Than the Internet’?
Jaxx plans to do for #blockchain what the #internet did for communications. Toronto-based #Bitcoin consultancy and software development company Decentral announced last week that it has integrated Jaxx, its unified platform for blockchain wallet services, with #cryptocurrency exchange platform ShapeShift. “You were able to buy and sell cryptocurrency, and alsoRead More
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Blockchain technology: Redefining trust for a global, digital economy
This post is co-authored with Michael Casey, Senior Adviser, MIT Media Lab
It seems everyone is talking about #blockchain and distributed ledger #technology. Google Trends data show that searches for the word “blockchain” have exponentially increased. News articles tout the blockchain’s unique “digital ledger technology” as a solution for everything from bypassing Wall Street’s rent-seeking middlemen to reforming developing world democracy.
A good deal of this could be hype. But the blockchain is a major breakthrough. That’s because its decentralized approach to verifying changes in important information addresses the centuries-old problem of #trust, a social resource that is all too often in short supply, especially amid the current era’s rampant concerns over the security of our personal data, our finances and our transactions. It turns out that fixing that can be a boon for financial inclusion and other basic services delivery, helping to achieve the global objectives laid out in the Sustainable Development Goals (SDGs).
Sorting out hype from reality may depend on how well we identify where institutions that have until now played a role in mediating trust between people are falling short, especially in the key area of money. Deploying the blockchain in those settings to generate secure, decentralized trust could achieve great strides in inclusion and innovation.
What do we mean by decentralized trust? The concept is unfamiliar in part because its converse — centralized trust – is something that we often take for granted, at least while it’s working. But if we look at the history of transactions since the early barter systems to modern-day digital money exchanges, we can see how different trust protocols have evolved and how, in each case, centralizing trust within particular institutions has periodically caused problems.
As strategies for dealing with this challenge evolved, different trust bearers emerged. Charting that evolution, we can also see parallel changes in the tokens that encapsulate mediums of exchange and stores of value. Societies’ systems of trust, in other words, have always been intrinsically linked to their definitions of money.
Financial transactions: trust bearing and encapsulating of the value of money throughout history
Graphic design by Duina Reyes <[email protected]>
Tribal chiefs were the first trust bearers, acting as de facto guardians of the collective memory, which “recorded” tribe members’ exchanges of value. But one or several tribe members’ memory was not enough to track the multitude of transactions over time. People then introduced tallies and other early registers, such as the nick-sticks of the King of England, to help overcome the issues of tampering and to act as bookkeepers.
Later, governments issued money backed by diamonds and precious metals, especially gold, to encourage trust in the monetary system. These commodities were scarce, ensuring they retained their value, and also had the advantage of being easily transportable and divisible. This practice has since been supplanted by the issuance of fiat money without the backing of a physical commodity, a shift that has left adherents of the gold standard uncomfortable to this day In essence, they don’t trust the government guarantor to maintain the value of the currency.
The age-old debate over gold cannot be divorced from the outsized role that commercial #banks have increasingly assumed within our monetary system, a shift that altered the composition of money and gave them a key record-keeping function as delegated trust bearers. As banks recycled deposits by issuing claims against them in the form of checks and promissory notes, fiat government money was transformed into a wider circulation of credit/debt money. That left banks occupying quasi-independent nodes in a dispersed and fragmented network of ledger-keepers.
This created a difficult balancing act as the assets side of the banks’ ledgers were illiquid, since long-term loans could not easily be called, while their liabilities were very liquid, since depositors could call their funds into cash at any time. Public trust in banks’ management of that relationship became a vital social good whose frequent breakdown gave rise to banking crises. That led to the creation of central banks, which offered lender-of-last-resort services in return for regulatory scrutiny. A hub-and-spokes structure emerged, with a centralized ledger managed by the central bank acting as a trust backstop for the multitude of subordinate commercial bank ledgers, where most of society’s monetary balances remained.
This centralized trust model, with its siloed information pools, has since been digitized. But its structure hasn’t changed. And, even with central banks doing their darnedest to manage the core problem of mismatched assets and liabilities, the systemic relationships between banks’ independent and closed ledgers has become extremely hard to manage as the system has become more complex and interconnected. (The 2008 financial crisis is best viewed as a breakdown in public trust in the ledger-keepers). Meanwhile, hacking attacks against banks, such as those which recently allowed criminals to exploit the international exchange messaging service Swift show that these big repositories of data remain vulnerable.
This is where the blockchain and distributed public ledgers come in. We now have the prospect of supplanting those risk-laden trust bearers with a more robust, decentralized model. This kind of ledger, shared among a network of autonomous computers, which confirm and validate its content by following a unique algorithm that compels them to act in the common interest, is essentially tamper-proof. The cryptographic protections are such that, under current computing capability, to go back and change past data entries would require a prohibitively expensive amount computational power. That’s why it’s often described as the world’s first “immutable ledger.” This makes for safer monetary transmission and for a more or less permanent record of digital money transactions.
Money might be just the start of it. The topics discussed at this past week’s Blockchain Summit on Necker Island in the British Virgin Islands reveal a dizzying array of non-currency use cases for the technology: Some are working on real-time transfers of stocks and bonds, bypassing the financial intermediaries that currently engage in a convoluted chain of clearing and settlement procedures. Musicians and photographers are storing ownership data about their digital works on the blockchain to gain autonomy over their copyrighted material and build direct, creative relationships with fans and other artists. Retailers are using the blockchain to turn loyalty points into a de facto currency. Hospitals are trying out systems that give patients control over their personal records while opening encrypted versions of them in aggregate form so that research can be done on the data. The blockchain’s disintermediating potential is being tried out in trade finance, supply chain management, auditing, voting systems, notary and legal services, and the big one, digital identity.
Just as importantly, blockchain technology will facilitate the future that technologists, governments and businesses are already planning for. Many believe the Internet of Things (IoT), in which potentially hundreds of billions of devices will transact and share information across a complex array of communication lines, will be insecure and inefficient unless it’s built on a blockchain structure. It won’t be cost-effective for banks to manage these billions of tiny transactions, and while device makers, software providers and telecom companies may want to position themselves as intermediaries for these exchanges, it’s not clear how they would be able to interoperate with each other. As a group of IBM engineers noted in a paper launching a blockchain-based program for the IoT #economy, such a decentralized system is needed to “save the future of the Internet of Things.”
As an extension of this IoT issue, the blockchain may also be needed to secure the distributed, decentralized power grids that communities around the world are building in the interest of energy efficiency and security. The new grids will be based on complex IoT networks in which interlinked home-based solar energy cells; autonomous, auto-communicating smart meters; and locally based electrical devices are all exchanging information, electrons and money with each other. It’s the antithesis of the old centralized model, where a public utility is trusted to deliver the power, monitor and manage each home’s meter, keep track of how much they use and owe, and then invoice everyone. Public power utilities will have no economic stakes in those localized transactions, and so can’t be tasked with monitoring the data and sending out invoices. Instead, this future energy infrastructure needs a decentralized trust protocol and a digital currency that can seamlessly flow between devices at low cost. Blockchain technology is the prime candidate for providing both.
So, what of economic development and those SDGs? Well, as distributed ledgers overhaul the legacy banking processes, the hope is that developing-world financial systems can leapfrog to the next generation. This has parallels with the leapfrogging that billions of people did when they gained access to mobile phone services well before they had landline telephones.
Perhaps the biggest promise in this evolution of trust protocols and digital money is that it might advance financial inclusion. The blockchain has the potential to offer a less cumbersome, less expensive infrastructure for sending money, which could finally make it cost-effective for financial institutions to service the poor. If this technology can also be used to secure robust, self-sovereign digital identities around personal data, there’s a real possibility that people in places with poor documents, registries, and rule of law can finally establish trusted measures of their otherwise good reputations. This would allow them to assert who they are and show why a bank should give them a loan.
Meanwhile, the prospect of storing and updating property title and cadasters on the blockchain could for the first time allow the poor to assert reliable title claims to their homes and use them as collateral for borrowing. Similarly, if small and medium-sized enterprises could irrevocably prove ownership of business and commercial assets – e.g., equipment, livestock, inventory – they could gain access to working capital and, by extension, to a much wider, global marketplace.
Now for the caveat: the implementation of this technology will, like all new technologies, come with major costs and challenges. It could mean massive layoffs, this time in services sectors such as law and accounting. There’s also a “garbage-in” risk that the information that’s input into a blockchain isn’t accurate, creating a permanent ledger of faulty data. Finally, the immutability and irreversibility of transactions might make it harder for individuals and firms to arbitrate solutions whenever there’s a dispute.
Then there’s the question of which blockchain model to use.
The #bitcoin blockchain is the most established, valuable public blockchain that’s free from any trusted authority’s control. In theory – and in practice, so far – that makes it the most robustly tamper-proof. But it has its limitations: an open-source governance structure makes it hard to make contentious changes to the operating algorithm; the transaction-processing capability needs to be significantly increased if blockchain uses are to be expanded beyond pure bitcoin currency payments; its anonymity features, while strengthening decentralization, do not fit comfortably with society’s identity-focused legal system; and bitcoin’s massive, “permissionless” network of autonomous transaction validators (know as “miners”) uses an inordinate amount of energy.
Some are now looking at alternative models of private, or “permissioned,” blockchains, which distribute a shared ledger across many nominally independent computers according to the authorization of some trusted entity. That makes for a more efficient, easily governed system, but it inherently reintroduces some of the risks associated with centralized trust bearers and limits the amount of freewheeling innovation that can occur on such platforms. When it comes to the financial system in particular, there’s a strong case to be made for a decentralized model that’s not controlled solely by banks. That way we avoid entrenching the systemic risks of the current infrastructure. We don’t want a too-big-to-fail blockchain.
The good news is that amid the rapid pace of open-source “#fintech” innovation, multiple solutions to these challenges are being explored. It’s hard to imagine that distributed ledger technology isn’t coming, one way or another. When it arrives, the impact on society could be profound. It is therefore critical that governments engage their citizens and each other in serious discussion about the underlying trust infrastructure of 21st century digital society.
In some cases, we may discover that it’s best to stick with centralized trust bearers, especially if their existence is integral to the bonds on which our communities are formed. But in many other situations, we may find we’re better off investing trust in an algorithm that manages shared information across a decentralized network.
It’s too early to know the answers. That’s why it’s incumbent upon all of us to study and understand how to maximize the benefits of this technology. With serious research, we can discover the best ways to use it to lower costs and increase access to financial services while protecting the social capital that’s vital for economic development. Society must make swift changes that accommodate the demanding nature of these new models, keeping in mind the unprecedented competition and challenges facing incumbent financial institutions and regulators. If we get this transformation right, and do so in a collective, collaborative manner, it could provide a vital building block for achieving the international community’s SDGs.
[linkedinbadge URL=”https://www.linkedin.com/in/marianadahan” connections=”off” mode=”icon” liname=”Mariana Dahan”] is Senior Operations Officer at World Bank| United Nations 2030 Development Agenda| Coordinator| Economist| Technology and Innovation Advocate.
[linkedinbadge URL=”https://www.linkedin.com/in/michaeljohncasey” connections=”off” mode=”icon” liname=”Michael Casey“] is Senior Advisor, Blockchain Opportunities at MIT Media Lab / Consultant / Public Speaker / Author.
This article was originally published on linkedin.
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IMF Economist Examines Bitcoin Blockchain’s Role in Banking
The International Monetary Fund (IMF) has published an article in Finance and Development magazine that #examines the case for #bitcoin‘s #blockchain #technology and suggests that while the technology might have been built to “avoid #banks” it could have benefits for the #banking and trading sectors. Authored by Andreas Adriano, a senior communications officer in the IMF’s communications […]
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Nexussquared Announces Grand Finale for Blockchain Startup Program Inaugural Batch
Nexussquared&8217;s first edition of nexuslab, a virtual #blockchain #startup #program co-organized with Startupbootcamp #Fintech, is coming to its end. On July 07, 2016, the nexuslab Festival will mark the #grand #finale of nexuslab’s #inaugural #batch, a one-day event that will feature a series of short pitch talks of the startups it helped nurture, as well as a number of presentations on current blockchain innovations.
#Nexussquared, a Zurich-based company dedicated to “establish Switzerland as a nexus for blockchain #technology,” made headlines last year when it announced the world&8217;s very first virtual blockchain startup accelerator program.
Designed to facilitate tailored coaching and &8220;inspired by the blockchain paradigms of decentralization, trust and efficiency,&8221; the rather unconventional three-month program – dubbed Nexuslab &8211; aims at turning promising early-stage blockchain ideas and startups into &8220;winning business models.&8221;
Among the ten startups that joined nexuslab&8217;s first batch in April 2016, eight will be presenting in Zurich at the nexuslab Festival finale:
Agrello (ProofofYou)
Agrello (ProofofYou) provides an Ethereum-based platform for creating, signing, fulfilling and managing contracts and legal documents. Digital signatures are legally verifiable through a browser-based signature verification process and legal documents can communicate to each other and are capable of monitoring and notifying about changes in the process and the dynamics of the execution of contracts.The company, based in Estonia, seeks to simplify legally and administratively intensive business processes.
Doqum.io
Doqum.io
is a peer-to-peer communication system that allows providers to send digital documents securely and conveniently to their clients. Doqum.io, a Swiss startup, uses blockchain technology for document-tracking and user authentication.First Wallet
First Wallet, an Estonian startup, provides a payment method for content providers to sell articles without signup. First Wallet uses a blockchain-based micropayments system that allows to reduce transaction fees and enable 1 click opt-in and 0 click purchases backed by carrier billing.Paymeabit
Paymeabit
provides &8220;nanotransactions&8221; in #bitcoin aimed at changing how online content get rewarded by allowing users to tip very small amounts. Users can also sell their content. Paymeabit, an Italian startup, aims at facilitating the monetization of online content.Safe Bike
Safe Bike
is an application that lets users register their bicycles on the blockchain at the point of initial purchase to build a global, immutable register of ownership. Safe Bike, a service of German company Yope, allows bikes to be tagged via NFC tag and provides a universal way for accessing information using the Ethereum blockchain.Taqanu Bank
Taqanu Bank
provides basic blockchain-based banking services including debit cards and checking accounts aimed at people who don&8217;t have a fixed address such as migrants, refugees, expatriates and remote workers. This neo-bank, based in Norway, will solely operate online via apps on mobile platforms. KYC information will be stored on the blockchain.Wone
Wone, from Finland, provides an interoperable peer-to-peer mobile payment solution throughout Europe. Wone uses a standardized proxy lookup service that harmonizes mobile payments within the SEPA area, allowing for Pan-European interoperability in peer-to-peer payments.Zeptagram
Zeptagram, a startup from Sweden, is planning to establish a platform for traders and investors worldwide for the trading of music properties. The platform will act as a transparent Internet exchange with real-time trading and transparent order books supported by blockchain technology.Alongside the pitch talks, nexuslab Festival will also feature a number of renowned speakers who will be covering emerging trends in blockchain technology.
These include:
Bernd Lapp
Member of the Ethereum Foundation Advisory Board, who will speak about how blockchain technology is changing current business models.
Roel Steenbergen
Innovation Manager at Rabobank, who will tackle the future of banking and emerging fintech trends
Fabian Vogelsteller
Ethereum Lead Ðapp Developer & Curator of “The DAO,” who will give a keynote on The DAO
Nexuslab Festival will take place at Kaufleuten Festsaal in Zurich, starting from 12:45pm to 6:30pm.
You can get your free ticket here.
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Ether Hits Record Highs as Price Decouples From Bitcoin
The #price of #ether, the native digital asset on the Ethereum #blockchain, neared $ 20 for the first time ever on 14th June, approaching the milestone as it appeared to break out of its old trading patterns. In recent weeks, market observers asserted that ether had been displaying a negative correlation, with the older, more established […]
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Gambling industry – How Blockchain Can Make It More Transparent
Following #Bitcoin’s significant rise in popularity among the online #gambling community, eyes are now turning to its underlying #technology, #blockchain, which is expected to have a hugely disruptive impact on the #industry.
With the bulk of gambling globally having moved from the downtown ‘brick-and- mortar’ casino and onto the internet, and given the growth of blockchain-related applications over the last year or so including smart contracts and peer-to-peer Bitcoin exchanges, the widespread application of blockchain appears to be the next logical evolutionary step for the $ 41 billion gambling industry. The cost-saving implications of applying such technology on an industry-wide basis are also thought to be substantial.
Blockchain makes online gambling fairer by it own decentralized system
The US has already seen a healthy rise in Bitcoin casino and Bitcoin sports betting sites on the web, and now such gamblers are looking to improve issues of trust and transparency using blockchain’s technology. Indeed, trust has always been one of the biggest concerns for online gamblers, but now start-ups are emerging which entirely removes this concept as a source of uncertainty.
On blockchain’s decentralized system, which is built by a coordinated network of independent nodes, no particular individual or entity can have a centralized advantage at any stage of the gambling process. Gambling companies can use blockchain to assure users that they are completely incapable of knowing the result of an outcome – such as the dealing of a particular card – in advance. By removing the entire concept of centralization, and by putting the verification of bets in the hands of the network of nodes, the requirement for a third-party point of trust automatically becomes redundant.
Blockchain offers greater financial transparency on gambling
With each transaction or bet being visible for verification on the blockchain, the technology provides greater financial transparency for the gambling industry. Indeed, it seems that Bitcoin gamblers have a strong preference for fully #transparent systems that exist on blockchain, whereby every transaction is conducted on a person-to-person (P2P) basis and the operator is completely prevented from accessing money. As such, new “Bitcoin 2.0” solutions have arisen including BetXCP.com and Xbet.io, which are suited to gambling activities such as sports betting, but are somewhat less applicable to real-time casino games at present.
Gambling-platform Augur leads in applying Blockchain
At this stage, California-based Augur is among the start-ups leading the transformation of gambling platforms onto blockchain-based technology. Augur is described as a ‘prediction market’, one which provides a platform for people to bet on any future event that they desire; for example, the US presidential elections at the end of 2016. Augur is expected to launch on the Ethereum network imminently, having raised over $ 5m in crowdfunding in October and then releasing the beta version of its application in mid-March. Operating as a decentralized peer-to-peer marketplace, Augur will not be controlled by any one person or institution.
This will ostensibly allow everyone involved to be connected to a global forecasting network. It will also remove the need for a middleman, thus removing counterparty risk and implying that Augur will take a considerably lower cut than bookmakers from users’ betting activity. No individual will have access to fund transfers, while the custodial holding of money at every point will be secured using code on the blockchain. With all money in Augur’s system being in cryptocurrencies, moreover, no banking institutions or credit card companies will be involved.
Indeed, digital currency tokens lie at the heart of Augur’s model. Bitcoins can be transferred to the specific addresses of those users on the network who have placed a wager. In order to confirm that an actual event has occurred, the decentralized reporting system is subject to a thorough reputational assessment. Rather than using a centralized body, referees are randomly assigned to each prediction market on the blockchain network, and are required to report the outcome of each event in a reliable and transparent manner.
‘Reputation’ tokens are used to incentivize referees for this purpose, while a sophisticated ‘lie-detector’ is also implemented using a complex algorithm. Should the decisions made by a particular referee consistently stick out from the consensus, the lie-detector will redistribute their token value towards #more trustworthy referees, and thus their rating will decline. According to Augur’s director Jeremy Gardner, this method “ensures the integrity of the system”.
Playshares is also applying ensure fairness in gambling
Blockchain-based Chinese casino Play also emerged last year, and much like Augur, is developing a prediction market betting system. It is also placing the underlying logic of the games it offers onto the decentralized system, in order to ensure fairness for its gamers. Additionally, it has introduced tokens for the system that also function as chips that used in play by Play’s gamers, called Playshares (PLS). The tokens are designed to be both shares of the system and the units in which dividends are paid to network users and delegates of PLAY for their contributions to the system. Given that PLS tokens are used for system ownership purposes by individual players, as well as play games using PLS, ultimately if the house wins then such players also subsequently win.
The Isle of Man attracts blockchain entities to its shores
The Isle of Man appears to be among the biggest proponent countries of the adoption of blockchain in the gambling industry. Dubbed the ‘Bitcoin Isle’, the Isle of Man hopes to introduce new regulation and funding schemes to attract blockchain entities to its shores. Brian Donegan, head of digital business at the island’s Department of Economic Development, sees the e-gaming industry on the island especially benefiting from such a move, with due diligence, compliance checks, testing and certification all potentially being transferred to the decentralized ledger. Furthermore, Nick Williamson, CEO of start-up Credits, which helps the Isle of Man government to run its blockchain registry, has also expressed optimism that the Isle can capably adopt this technology in the future.
Blockchain agreedly benefits the gambling industry
Malta and Alderney are also heavily advocating the use of blockchain to boost the credibility of their respective gambling industries. EY Malta senior manager Chris Meilak recently stated that the Malta Gaming Authority is in discussion with other Malta regulators, although no firm position has been taken as of yet. Meanwhile, André Wilsenach, executive director of the Alderney Gambling Control Commission has asserted that “shared, digitalized, decentralized” information in a blockchain-based ledger system would provide regulators with significantly easier access to important data.
According to Calvin Ayre, the founder of Bodog – an online gambling operator – the application of blockchain to online gambling will fundamentally change the way the gambling industry is perceived. Once combined with virtual reality gaming products, Ayre believes that the gambling industry will “will finally get away” from having hundreds of the same games distributed over the internet. Meanwhile, the founder of SportingBet and celebrated investor in the online gambling industry, Mark Blandford, who recently entered the blockchain world by investing in Coinsilium, a blockchain technology incubator, advised that people should “think about how applications of blockchain would work in their particular branch of the online gaming industry”. Blandford specifically cited the technology’s benefits to the anti-money laundering process, whereby “everything is going to be auditable and traceable in a far more transparent way than has previously been the case”.
According to both Blandford and Ayre, therefore, the focus for the online gambling industry going forward should be on blockchain technology, rather than solely being on the cryptocurrencies which it underpins.
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