Modular Currency Infrastructures

Posted on March 18, 2015


[TL;DR: The new crypto-economic paradigm is gaining momentum, and efforts are large enough for specialised services to start appearing, and to compete with each other. The blockchain movement needs these services in place to succeed – and more. What services are essential though? And which ones have developed, and which are yet to emerge?]

What’s the relationship between identity, authentication, and reputation? How easy is it to ship something to a customer if they’ve paid anonymously? How much do you trust a blockchain compared to the client software running a copy of it?

All of these are deliberately hard questions to answer. More importantly, they’re not questions that merchants or users of cryptocurrencies need to build solutions to in order to get on with their life. Sure, some people are happy building free software from scratch to fulfill a philosophical urge, but philosophies generally fall by the wayside when we actually want to just get on with something.

In fact, like ethical products, philosophies are often something we outsource, or buy in, precisely so we can get the best of both worlds. People are happy to pay a little extra to work in a way that fits their ethics. Why? Because doing things in an ethically ‘right’ way (relatively) is hard. About as hard as I want those eggs. And probably about as hard as building something that works.

Whether you call it outsourcing or ‘basing your solution on some platform’, we’re in a world where we depend on a multitude of other people’s building blocks to get stuff done. From electricity companies to Google, we are simultaneously empowered and at the mercy of such parties.

And, at last, I think the innovation spurred on by cryptocurrencies – Bitcoin in particular – is emerging into such a world, one of a network of specialised, interchangeable services that more everyday functions can sit on top of.

I don’t think we’re there quite yet – the experiment is still only a few years young, still raw. The challenges are technical (understanding existing tech + continuing progress of innovation), social (what are people ready for?) and economic (what’s the business model for each service?) – but I believe we’ve reached a tipping point where faith in algorithmic, automated digital transactions now has a hold that is not yet mainstream, but is mainstream enough.

Some services are easier to define, implement and integrate than others – BitPay has done wonders with payment and check-out services for instance (although is by no means a safe monopoly). But a lot of related work essential to “an economy” is still being done haphazardly, or repeatedly, by people who just want to offer a higher-level service.

Two announcements in particular caught my eye recently: adopting Coinbase, and Gliph rolling out a reputation system. (Gliph already use Coinbase too.) Not that there’s a shortage of such PR. There’s been some chat of btcjam in the Gliph Bitcoin channel as well, a p2p loans service which integrated eBay and Bitcoin OTC Web of Trust reputation ratings as well as others.

The challenge now for Gliph is to build a reputation ecosystem – from scratch. But they already let me link my profile to others on the net. And plenty of places let me login with my Google/Facebook/Twitter ID. Why build one network service yourself when it could be outsourced – especially when network externalities and social momentum are involved?

A full list of ‘building block’ economy services for anything blockchain related needs to include (at least):

  • blockchain handling
  • hold (in-use) wallets
  • currency exchange rates
  • payment
  • escrow
  • cold (offline) wallets
  • identification (merchants and customers)
  • reputation (social input to transactions)
  • sharing (social output for transactions)
  • storage & delivery (physical/digital)

That’s a fairly long and probably incomplete list. There are also threads which run across them, such as integration with different devices and altcoins, user-friendly interfaces and all that. But it’s a way to think about the landscape of components that needs to be built up for the paradigm as a whole to work, or to be workable.

Once a good supply of ‘decent’ services is in place (however that’s defined), there’s still the challenge of addressing volatility. I’m intrigued to see if a solution to that can be packaged up as a service as well – a kind of volatility-hedging service beyond simply choosing what percentage of payment to auto-convert to your own currency. Like in the mainstream financial service, taking on risk is a business model in itself.

Some of the list are easier or more essential than others. I’ve sneakily listed them almost in “progress” order, i.e. we have a lot of decent hot wallet services, some good payment services, but few decent reputation or delivery services. What else have I missed?

So where next? Well, by working out what services are useful, and which are developed, we can identify “strong/weak points” in the cryptocurrency movement – and, importantly, points that are most pivotal for adoption. Where points are strong, we need guidance on what the choices are and how to use them. Where points are weak, we need support in either doing-it-yourself, or suggestions for workarounds.

In the short term (ie. 2015), I see the lust for innovation as strong as ever. There’s a lot of hype and attention around what’s beyond Bitcoin, but without addressing these major infrastructure hurdles, no new paradigm is going to really make waves. It’s going to be fun.

Posted in: Opinion