The Patent That Wants to Fix Crypto’s Volatility 0 125

The number of blockchain-related jobs posted on LinkedIn more than tripled last year, according to CryptoCoin News. And blockchain patent filings more than doubled. Companies and individuals alike are innovating, exploring the blockchain’s well of possibilities. Major fintech companies, meanwhile, are gobbling up blockchain patents like they’re going out of style. But cryptocurrencies themselves still have yet to see a mainstream embrace.

The main problem with crypto right now is the same problem people have been talking about since Satoshi Nakamoto said Let there be Bitcoin: volatility. And ever since Bitcoin’s dramatic rise and fall around the turn of last year, cryptos have become virtually synonymous with wild fluctuations.

This reputation has given Bitcoin specifically, and cryptos in general, a mixed reputation. By now we’ve all heard the songs of praises from evangelists and the sour sneers of financial titans alike. Crypto is exciting because it’s unstable; crypto is unrealistic for the same reason.

The Primary Criticism of Cryptos

According to Eric Lamison-White, founder of the investor’s crypto intel platform Pareto Network, volatility is the “primary criticism of cryptocurrencies.”

But he doesn’t think it has to be that way. What if you could stabilize your crypto accounts? Lamison-White says the risks of owning cryptos are “easily mitigated by a variety of hedging techniques that are available in all other asset classes.”

He proposes treating crypto accounts like more traditional assets. “Hedging with options, futures and swaps allow for stable value or any risk profile that an owner or even a speculator would desire.”

That’s the idea behind his patent, filed in 2014, for a structure of interconnected accounts. The system “removes volatility from owning cryptocurrencies,” Lamison-White says, transferring its fluctuations into a hedge account. Here’s how it works.

Lamison-White’s System

The system requires at least two accounts: one for your cryptos and one you’ve funded with fiat currency, let’s say $400 US dollars. These accounts connect to a network of decentralized nodes, which measure the amount of cryptocurrency you have from moment to moment. If there’s any drop in the crypto’s value, the system automatically deducts from your $400 in the other account and transfers it to compensate. When the value of your crypto goes back up, the system re-deposits back into your fiat account.

This holds the value of your crypto assets steady, while transferring its volatility to your hedge account.

What makes it unique compared to other trading systems is that crypto assets can be divided into infinitely small portions. “A futures contract on oil costs $80,000 for example, although a trader only needs to put up maybe $4,000 as a minimum,” Lamison-White says. “This is because the contract represents the price of 1,000 barrels of oil or something crazy.” He notes that even hedging stocks are usually offered in units of 100 or 1,000.

Not so with crypto, where the “infinite divisibility of the asset itself” makes hedging much more finely tuned. Because cryptos are pure math instead of physical assets, “arbitrary sized contracts can be traded just as easily with larger contracts.” One future could represent one bitcoin, for example, but you can also trade in .01 increments. With fractional futures and options, people with very small amounts of cryptocurrency can be shielded from price fluctuations in a way that had only been available to the wealthiest and investment banks for most of the last millennia.

The System at Scale

The system gets even more interesting when you make it scalable. According to Lamison-White, you could have multiple people funding and connecting to the same hedge account, each using it to stabilize their own crypto accounts. Alternatively, you could connect multiple hedge accounts to a single crypto account. Suddenly the possibilities extrapolate, like tinkertoys, developing into an interconnected network of crypto- and fiat-funded accounts, with a variety of owners controlling their assets at a variety of access points, everything regulated with the intelligence and transparency of a decentralized ledger.

Patents Like This are Attracting Corporate Giants

There’s a feeding frenzy going on for patents like these. Visa filed a patent for a B2B blockchain payment system, Mastercard developed its own blockchain patent for anonymous transactions, and Wal-Mart has come out with a few as well. But it’s Bank of America that’s gobbling up the most. With claims to at least 43 live blockchain patents, the financial giant holds more than any other person or company.

Whether they’re just trying to get a leg up on the future of tech, or positioning themselves to harangue the little guy with barrages of lawsuits for intellectual property rights, we’ll just have to wait and see.

Whether or not Lamison-White anticipated the blockchain patent arms race, he was ahead of the curve, filing for his patent in 2014. It could be the thing to finally put skeptical minds to rest about the viability of crypto assets. And with big financial institutions like Bank of America placing a premium on innovative blockchain patents, he may have spun ether into gold.

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A tribal member of the Choctaw Nation, Brian grew up in the Silicon valley under the technological mentorship of Steve Wozniak. He's lived, worked and traveled all over the world, and now writes and makes films in the Pacific Northwest.

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After the Death of Net Neutrality, We Need a Decentralized Internet 0 176

Net neutrality died more quietly than expected. It’s been almost two months since the FCC’s ruling to make internet access vulnerable to corporate meddling, thanks to FCC chairman and Verizon advocate Ajit Pai. And not much seems to have changed on the web browsing citizen’s end. Major ISPs Comcast, Verizon and AT&T have all indicated that they have no plans to block or throttle traffic, or to prioritize paid content. So rest easy, dear ones. The sharks have promised not to bite.

Of course, that’s really no reason to celebrate. As of June 11th, “there is nothing legally preventing companies like Comcast, Verizon, and AT&T from arbitrarily censoring entire categories of apps, sites and online services, or charging Internet users expensive new fees to access them,” notes Evan Greer, deputy director of Fight for the Future, a nonprofit advocating for digital equality.

Fight for the Future is just one organization working for a free digital world. All around, and in part thanks to the FCC’s ruling, people are switching on to the notion that open connectivity should be a right and not a privilege. And some folks are getting a crazy idea: if we can’t have net neutrality, we may just have to build another internet.

Building Our Own Internet

That’s exactly what people have been doing in Detroit. To combat the emergence of a “digital class system,” and in response to the scarcity and prohibitive costs of ISP connection, residents and volunteer members of the Equitable Internet Initiative, or EII, are building their own internet infrastructure.

Over on the Pala Reservation in Southern California, meanwhile, indigenous communities are tired of waiting for a connection. So they’re taking matters into their own hands and repurposing unused analog TV channels to broadcast their own free and neutral internet across the rez. They call it Tribal Digital Village.

Efforts like the EII and Tribal Digital Village are proving that we can take control of our connectivity and decouple it from the stratification of economic privilege.

Reinventing the Internet Altogether

Radical community efforts to build DIY networks are inspiring and powerful. But perhaps we can go even farther. The internet still works on an old model that has plenty of room for improvement. Let’s say you’re sitting in a public library, messaging your zine collaborator across the table. There’s no direct internet connection between your phones, so your message has to go up into the nebulous cloud of internet before it bounces back down to their phone. Not entirely efficient, considering they’re sitting right there.

If you had a direct connection, the signal could just travel across the table. That would be possible using a mesh network, like the one proposed by RightMesh. In their mesh network model, every device becomes a hotspot in a decentralized connective network.

Why volunteer your device as a public hotspot? Because you get tokens, of course. This is blockchain! Like the EII and Tribal Digital Village, this is a cooperative and participatory system that relies on no centralized authority (like a corporate ISP). Everyone volunteers their device as a hotspot, gets rewarded with tokens, and just like that, we have a decentralized internet.

Without the need for ISPs, we would be free from Verizon, Comcast, and AT&T. We could run open-armed through the proverbial fields of digital wildflowers. The possibilities of this go well beyond urbanite convenience. A global mesh network could bring internet connection to any part of the globe where there are phones—even phones not connected to wifi. In this system, the phones create the wifi.

An Off-the-Grid Internet

RightMesh’s stated goal is to “connect the next billion people and lift 100 million out of poverty.” They claim to be the first P2P network that requires neither infrastructure nor network connectivity to operate.

That said, they’re not alone. Blockmesh is doing something similar. Moeco’s ‘global IoT connectivity platform’ uses mesh network principles for IoT gadgets. And Open Garden allows ISP customers to ‘sell’ your underutilized connection (extra bandwidth at home, or unused data from your mobile plan) to your neighbors for tokens.

All these ideas are packed with possibility. But the point is, with the grassroots efforts of groups like the EII and Tribal Digital Village, and with blockchain innovation pushing the definition of the internet forward, we’re looking at a future where the connection is universal, accessible, fast, cheap, self-generating, decentralized and off the grid. Someday soon we might be thanking the FCC for spurring these advances.

Blockchain and Cryptocurrency Are Bringing Transparency and Verifiability to Loyalty Programs 1 4662

New blockchain apps using cryptocurrency as rewards and cash back have the potential to improve the loyalty space. Read on to learn how.

Blockchain, Cryptocurrency, and Loyalty Programs

The International Council of Shopping Centers reports that the loyalty space grows by about 30% every year, with 85% of consumers belonging to at least one loyalty program, circulating $300 billion between them annually. With so many users and so much money circulating through loyalty programs, adding blockchain-related features and cryptocurrency mechanics would help companies offload complexity and interact with crucial partners and customers, taking stress off of core loyalty programs.

Blockchain technology would also allow companies with large balance sheet liabilities stemming from redemption bottlenecks to open up redemption options, widening these bottlenecks to increase revenues. Lastly, incorporating blockchain tech into loyalty programs would allow partners to integrate loyalty programs seamlessly regardless of their size, helping them craft trendy offers more easily and eliminate back-end redemption problems.

The largest problem loyalty programs face today is a dual one: they are being used at an all-time high rate, while the total number of unredeemed points (and the cost of managing them) is growing. The average US household today participates in an average of 29 different loyalty programs, according to the 2015 Colloquy Loyalty Census. New accounting standards, however, state that revenue attributed to loyalty points must be deferred until the redemption conditions are met.

With so many overlapping and often confusing rules and regulations for redeeming points, rewards, and cash back in so many places, companies operating loyalty programs are losing money from consumers’ analysis paralysis. People aren’t redeeming to their full potential due to the large and confusing web of guidelines associated with doing so; most people don’t have the bandwidth to understand all of them.

Blockchain, the distributed ledger technology behind cryptocurrencies like Bitcoin, could improve loyalty programs with enhanced features like instant rewards redemption and loyalty point currency exchanges, centralizing them and making them more accountable and transparent. Blockchains improve transaction verifiability, integrity, and transparency by grouping transactions into blocks confirmed by a wide public network, or chain, of participants (hence the term “blockchain”). Afterwards, every ledger in the blockchain is updated to reflect the new transaction(s).

This is an improvement upon centralized databases, where intermediaries with full control over databases and the data they contain create, read, update, and even delete data as single points of failure. In contrast, blockchains rely on a network of people to verify transactions by validating and writing new data. Past entries never change, and new entries are written to update the state of past entries. This secures and strengthens the record of each one through consensus.

In the end, blockchains allow for decentralized control while traditional databases use centralized control to manage data, which is more fallible since a database administrator constitutes a single point of failure for everyone’s data security, were the security infrastructure to fail. On a blockchain, there is no single point of failure, improving data security and integrity.

Loyalty programs that grouped point currencies, rewards redemption options, and rules into one digital wallet would encourage companies to cooperate with one another to create shared value, since siloing loyalty programs over multiple blockchains creates saturation and detracts from consumer value. Instead, companies could co-create loyalty programs in partnership with blockchain platform developers to centralize information people need in order to easily reconcile all of the point options, redemption systems and point exchanges. This would help people make quicker and smarter decisions on which loyalty programs are best for their shopping habits and preferences. This would also make points and rewards redemption easier and more consistent, allowing consumers to redeem more rewards and points.

For businesses, blockchain tech would enable greater revenues by alleviating the balance sheet bottleneck created by unredeemed points. It would also let businesses explore new loyalty program models incorporating large and small business partners, allowing them to integrate seamlessly with loyalty programs. This could help businesses craft popular offers more easily and make it easier on businesses to distribute points since the entire process would be outsourced to the blockchains their programs were on. Blockchains’ decentralized nature allows greater verifiability and transparency of points distribution and rewards redemption by a wide network, freeing up back-end costs for other needs.

Blockchains aren’t infallible. With so many out there today, creating new blockchains on which to operate loyalty programs could create program saturation, detracting from loyalty programs’ ability to deliver value to customers. In addition, the blockchain-based transaction layer between consumers and loyalty program operators would, on paper, generate a small per-transaction cost for transactions associated with these loyalty programs, which could grow over time. Customer data could become available to other participants in the loyalty network, or to competitors. And, rewards currency could devalue in what would be an open marketplace for trading points.

The most basic way for companies to eliminate these risks is to take a ground-floor role in structuring commercial agreements and partnerships to protect the core components—currency value, customer data and relationships, and transaction costs—of their loyalty programs when creating or choosing a blockchain platform to run their loyalty programs.

Blockchain apps using cryptocurrency to power rewards and cash back have great potential to deliver new value to consumers, such as passive income, savings, and compound interest to help them buy more with less. This is because cryptocurrencies—not only Bitcoin, but also Ether, Litecoin, Ripple and others—are just as much assets as digital money with which to buy and sell things. Since blockchains are at the heart of many cryptocurrencies, loyalty programs can use them to turn everyday shoppers into investors, giving them a single place to redeem all of their rewards and get cash back in the form of crypto, creating more convenience and more value. Several disruptive use cases, such as BitRewards, FluzFluz, and Rewards.com are already putting these ideas into action.

Use Cases

BitRewards is a rewards network that works with token holders to confirm liquidity contracts between itself and partner cryptocurrency exchanges, allowing the platform to deliver rewards in cryptocurrency. Operating on the Ethereum blockchain, the BitRewards network uses a distributed system of nodes, or cryptocurrency-holding professionals operating on the platform, to fund rewards through their cryptocurrency exchanges through smart contracts that allow rewards to flow through the system, creating a liquid system of cryptocurrency rewards.

FluzFluz operates a global co-op network between merchants and consumers on JP Morgan’s Quorum blockchain, letting consumers build their own shopper networks and make passive cash back-based cryptocurrency income, both when shopping and when members of their networks shop. Each co-op member group (up to a maximum of 65,535 people) shares cash back internally, with 50% going to the purchaser and the rest being split equally among the members of the co-op. The FLUZ token is tradable for cash back rewards and gift cards, and helps fund network transparency and lower transaction costs.

Maurice Harary, Founder of Fluz Fluz, says, “A good leader creates followers, whereas a great leader creates other leaders. The global cash back rewards co-op technology at FluzFluz lets average consumers empower others to become influencers, grow the rewards network, and increase each member’s buying power and cash back potential as a result.”

Rewards.com recently incorporated cryptocurrency into its online rewards platform as well. Since it has thousands of retail partners across the country, its new RWRD token is redeemable at any one of them. By incorporating it as the platform’s core store of value with its enormous network of partners, Rewards.com is helping to put cryptocurrency into the wallets of more mainstream consumers by powering everything from cash back rewards to discounts on its platform.

These are all examples of ways in which blockchain technology and cryptocurrency are already beginning to impact the loyalty industry. Their founders have so much confidence in their products that they’ve all opened themselves up to questions on platforms like Telegram and Slack to help refine their products.

Looking Ahead

Blockchains and cryptocurrency have the potential to reshape the loyalty industry, helping consumers use multiple rewards programs across stores, making rewards transactions securer and more transparent, and centralizing cryptocurrency rewards programs in one place. Verifiability is an important part of this equation as well. Blockchain’s decentralized and transparent nature can allow loyalty programs to be used in one place and be open source. That adds accountability to these programs, since everyone monitoring a loyalty program’s blockchain would be responsible for verifying points, rewards redemption, and cash back transactions.

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