Coinbase now supports buying and selling Ethereum Classic

Coinbase has added a new buying option for its customers after the crypto exchange introduced Ethereum Classic to its collection.

The addition was first announced in July but Coinbase took its time to implement its newest addition following criticism over the way it added Bitcoin Cash last year. Allegations of insider trading led the company to investigate the incident which saw service outages and wild price fluctuations for Bitcoin Cash right after its addition to the exchange. It later introduced a framework for adding new tokens.

Nonetheless, Ethereum Classic’s value spiked 20 percent on last month’s news. Today, though, it is down two percent over the last 24 hours, according to Coinmarketcap.com.

Coinbase has taken a conservative approach to adding more crypto. Today’s addition takes it to five tokens — Bitcoin, Ethereum, Litecoin and Bitcoin Cash are the others — but that’s likely to change this year. Last month, it announced it is “exploring” the addition of another five tokens while CTO Balaji Srinivasan hinted that the selection would grow further when I interviewed him at the recent TechCrunch blockchain event in Zug.

“We hear your requests, and are working hard to make more assets available to more customers around the world,” Dan Romero, who heads Coinbase’s consumer business, said in a blog post published today.

A note on Ethereum Classic — it was created in June 2016 following a major hack on The DAO, a fundraising vehicle for the project. In short: the Ethereum Foundation created a new version of Ethereum — known today as Ethereum — that rescued the lost funds, while those who opposed continued on with the original chain which was known as Ethereum Classic.

Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

Ethereum’s falling price splits the crypto community

Hello And Welcome Back To The Latest Edition Of All The Cryptos Are Getting Rekt Right Now.

Crypto bloodbaths have become fairly common in 2018 — mainly because of the insane growth in 2017 — but we’ve not covered them all because they are so numerous and often include so-called ‘flash crashes’ or small drops, but the fall happening today is worth noting for several wider reasons.

Primarily that’s because this is a major test for Ether — the token associated with the Ethereum Foundation that is the second largest cryptocurrency by volume — has been on a downward spiral with little sign of change.

Ether, which is the preferred platform of choice for most developers building on the blockchain, is down nearly 17 percent over the past day. That’s erased billions of dollars in paper (crypto) value as the bear market for cryptocurrencies continues to pull markets south.

The drop also marks the first time ever that the price of an Ether has fallen below its valuation over one year: one Ether is worth $266 right now at the time of writing, versus $304 on August 14 2017. The token has been steadily falling since early May, when its peak value was $808, and as the lynchpin for many ICO project tokens, its demise has sent the value of most other tokens down, too.

Just looking at Coinmarketcap.com this morning, all but two of the top 100 tokens are down over the last 24 hours with many losing 10-25 percent of their value over the past day. Bitcoin, too, has dropped below $6,000, having topped $8,000 for a time last month.

Ether’s plummet below $300 has sparked a mixed debate among those in the crypto community. The token had been held as visionary, an improvement on Bitcoin that gives developers a platform to build on — whether it be decentralized apps, decentralized systems or more — but that hasn’t been reflected in in this months-long price retreat.

Certainly, two founders who spoke TechCrunch and have held ICOs expressed a belief that Ether “needs to find some price stability” to allow the focus to become about product and not just ‘get rich’ speculation. Of course, it helps that the two founders and many of those who held token sales have long since sold the Ether or Bitcoin they raised in exchange for fiat currency. Indeed, if their token sale was last year, the chances are they got a lot more real-world cash than they initially bargained for or would get now.

But still, the idea of consistency is shared by others who are in crypto professionally. That includes investors like Kenrick Drijkoningen, who is in the midst of raising a $10 million fund for LuneX, a spinout of Singapore-based VC firm Golden Gate Ventures.

In an interview last week, Drijkoningen told TechCrunch that raising a fund and doing deals in a ‘low tide’ market like now beats attempting to do the same amid a frothy period with hype and peak valuations — one Ether was worth nearly $1,400 in January, for example. A number of others VCs have long said that, ultimately, stability is good for the ecosystem.

Vitalik Buterin is the creator of Ethereum

But, on the other side, there are more pessimistic voices.

Among some investors canvassed by TechCrunch, the sense is that with the downturn of the ICO funding boom that fueled much of Ethereum’s rise, there may be less incentive to hold as the broader market’s interest in the cryptocurrency wanes.

For one Bitcoin bull, the intrinsic value of Bitcoin as an immutable, decentralized ledger acts as a more powerful draw than the perceived mutability and centralization that the Ethereum platform offers.

“People are also beginning to understand the unique value of an immutable, decentralized ledger, and recognize that Ethereum is not that,” the investor wrote in an email.

Another long-term problem that Ethereum faces, according to this investor, is that the promise of decentralized apps backed by the token is yet to be released. Crypto Kitties, a smash hit earlier this year, has faded and now there’s competition as Bitcoin’s Lightning Network is adding nodes and apps — referred to as LApps — which can operate in a similar but leverage the Bitcoin ledger.

It’s still early days, of course, and markets will always rise and fall, but this is the first big test for Ether and Ethereum. Beyond the sport of price speculation, it’ll be worth watching to see where this heads next.

Note: One of the authors of this post — Jon Russell — owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

Sagewise pitches a service to verify claims and arbitrate disputes over blockchain transactions

Sometimes smart contracts can be pretty dumb.

All of the benefits of a cryptographically secured, publicly verified, anonymized transaction system can be erased by errant code, malicious actors, or poorly defined parameters of an executable agreement.

Hoping to beat back the tide of bad contracts, bad code and bad actors, Sagewise, a new Los Angeles-based startup has raised $1.25 million to bring to market a service that basically hits pause on the execution of a contract so it can be arbitrated in the event that something goes wrong.

Co-founded by a longtime lawyer, Amy Wan, whose experience runs the gamut from the U.S. Department of Commerce to serving as counsel for a peer-to-peer real estate investment platform in Los Angeles, and Dan Rice, a longtime entrepreneur working with blockchain, Sagewise works with both Ethereum and the Hedera Hashgraph (a newer distributed ledger technology, which purports to solve some of the issues around transaction processing speed and security which have bedeviled platforms like Ethereum and Bitcoin).

The company’s technology works as a middleware including an SDK and a contract notification and monitoring service. “The SDK is analogous to an arbitration clause in code form — when the smart contract executes a function, that execution is delayed for a pre-set amount of time (i.e., 24 hrs) and users receive a text/email notification regarding the execution,” Wan wrote to me an email. “If the execution is not the intent of the parties, they can freeze execution of the smart contract, giving them the luxury of time to fix whatever is wrong.”

Sagewise approaches the contract resolution process as a marketplace where priority is given to larger deals. “Once frozen, parties can fix coding bugs, patch up security vulnerabilities, or amend/terminate the smart contract, or self-resolve a dispute. If a dispute cannot be self-resolved, parties then graduate to a dispute resolution marketplace of third party vendors,” Wan writes. “After all, a $5 bar bet would be resolved differently from a $5M enterprise dispute. Thus, we are dispute process agnostic.”

Wavemaker Genesis led the round, which also included and strategic investments from affiliates of Ari Paul (Blocktower Capital), Miko Matsumura (Gumi Cryptos), Youbi Capital, Maja Vujinovic (Cipher Principles), Jordan Clifford (Scalar Capital), Terrence Yang (Yang Ventures) and James Sowers.

“Smart contracts are coded by developers and audited by security auditing firms, but the quality of smart contract coding and auditing varies drastically among service providers,” said Wan, the chief executive of Sagewise, in a statement. “Inevitably, this discrepancy becomes the basis for smart contract disputes, which is where Sagewise steps in to provide the infrastructure that allows the blockchain and smart contract industry to achieve transactional confidence.”

In an email, Wan elaboraged on the thesis to me writing that, “smart contracts may have coding errors, security vulnerabilities, or parties may need to amend or terminate their smart contracts due to changing situations.”

Contracts could also be disputed if their execution was triggered accidentally or due to the actions of attackers trying to hack a platform.

“Sagewise seeks to bring transactional confidence into the blockchain industry by building a smart contract safety net where smart contracts do not fulfill the original transactional intent,” Wan wrote.

Blockchain media project Civil turns to Asia with fund to kickstart 100 new media ventures

Civil, the blockchain-based journalism organization, is casting its eye to Asia after it set up a $1 million fund that’s aimed at seeding 100 new media projects across the continent over the next three years. The organization has teamed up with Splice, a Singapore-based media startup which will manage the fund, according to an announcement.

There’s been a lot of attention lavished on Civil for its promise to make media work more efficiently using blockchain technology and its upcoming crypto token, CVL. The organization has raised $5 million in financing from ConsenSys, the blockchain corporation led by Ethereum co-creator Joe Lubin, and its ICO takes place next month with the goal of raising around $32 million to launch its network and actively onboard new media companies worldwide.

But the company is waiting around. Civil has already actively jumped into the media space — providing financial backing to the newly-formed The Colorado Sun — but the scope of the project in Asia is different in trying to kickstart a wave of new media organizations by giving them money to get off the ground.

Alan Soon, co-founder and CEO of Splice, told TechCrunch that it hasn’t been decided whether the financing will be in the form of grants or equity-based investments. Despite that, he said deals will be “pre-seed, micro-investments to help entrepreneurs take their ideas to prototype stage.”

Soon said that all kinds of media are in play, ranging from the more obvious suspects such as publishers, reporting websites and podcasts to behind-the-scenes tech like automation, bots and adtech.

Notably, though, he clarified that the beneficiaries of the fund will be under no obligation to adopt Civil’s protocol, the technology that will be funded by the upcoming ICO. Splice itself, however, has committed to doing so which will mean it gains access to the network’s content, licensing opportunities and more.

“I’m with Civil because I really believe in their values,” Soon added. “They want to do the right thing for this space.”

The quantum meltdown of encryption

The world stands at the cusp of one of the greatest breakthroughs in information technology. Huge leaps forward in all fields of computer science, from data analysis to machine learning, will result from this breakthrough. But like all of man’s technological achievements, from the combustion engine to nuclear power, harnessing quantum comes with potential dangers as well. Quantum computers have created a slew of unforeseen vulnerabilities in the very infrastructure that keeps the digital sphere safe.

The underlying assumption behind nearly all encryption ciphers used today is that their complexity precludes any attempt by hackers to break them, as it would take years for even our most advanced conventional computers to do so. But quantum computing will change all of that.

Quantum computers promise to bring computational power leaps and bounds ahead of our most advanced machines. Recently, scientists at Google began testing their cutting edge 72 qubit quantum computer. The researchers expect to demonstrate with this machine quantum supremacy, or the ability to perform a calculation impossible with traditional computers.

Chink in the Armor

Today’s standard encryption techniques are based on what’s called Public Key Infrastructure or PKI, a set of protocols brought to the world of information technology in the 1970’s. PKI works by generating a complex cipher through random numbers that only the intended recipient of a given message, the one in possession of the private key, can decode.

As a system of encoding data, PKI was sound and reliable. But in order to implement it as a method to be used in the real world, there was still one question that needed to be answered: how could individuals confirm the identity of a party reaching out and making a request to communicate? This vulnerability left the door open for cybercriminals to impersonate legitimate servers, or worse, insert themselves into a conversation between users and intercept communications between them, in what’s known as a Man-in-the-Middle (MITM) attack.

The industry produced a solution to this authentication problem in the form of digital certificates, electronic documents the contents of which can prove senders are actually who they claim to be. The submission of certificates at the initiation of a session allows the parties to know who it is they are about to communicate with. Today, trusted third party companies called Certificate Authorities, or CAs, create and provide these documents that are relied upon by everyone from private users to the biggest names in tech.

The problem is that certificates themselves rely on public-key cryptographic functions for their reliability, which, in the not too distant future, will be vulnerable to attack by quantum machines. Altered certificates could then be used by cyber criminals to fake their identities, completely undermining certificates as a method of authentication.

Intel’s 17-qubit superconducting test chip for quantum computing has unique features for improved connectivity and better electrical and thermo-mechanical performance. (Credit: Intel Corporation)

 

Decentralizing the Threat

This isn’t the first time we’ve had to get creative when it comes to encryption.

When Bitcoin creator Satoshi Nakamoto, whose true identity is still unknown, revealed his revolutionary idea in a 2008 white paper, he also introduced the beginnings of a unique peer-to-peer authentication system that today we call blockchain. The brilliantly innovative blockchain system at its core is an open ledger that records transactions between two parties in a permanent way without needing third-party authentication. Blockchain provided the global record-keeping network that has kept Nakamoto’s digital currency safe from fraudsters. Blockchain is based on the concept of decentralization, spreading the authentication process across a large body of users. No single piece of data can be altered without the alteration of all other blocks, which would require the collusion of the majority of the entire network.

For years, blockchain and Bitcoin remained one and the same. About five years ago, innovators in the industry began to realize that blockchain could be used for more than just securing cryptocurrency. Altering the original system designed for Bitcoin could produce programs to be applied in a wide range of industries, from healthcare, to insurance, to political elections. Gradually, new decentralized systems began to emerge such as those of Ripple and Litecoin. In 2015, one of the original contributors to the Bitcoin codebase Vitalik Buterin released his Ethereum project also based on blockchain. What these new platforms added to the picture was the ability to record new types of data in addition to currency exchanges, such as loans and contractual agreements.

The advantages of the blockchain concept quickly became apparent. By 2017, nearly fifteen percent of all financial institutions in the world were using blockchain to secure aspects of their operations. The number of industries incorporating decentralized systems continues to grow.

Digital security key concept background with binary data code

Saving PKI

The best solution for protecting encryption from our ever-growing processing power is integrating decentralization into Public Key Infrastructure.

What this means essentially, is that instead of keeping digital certificates in one centralized location, which makes them vulnerable to being hacked and tampered with, they would be spread out in a world-wide ledger, one fundamentally impervious to alteration. A hacker attempting to modify certificates would be unable to pull off such a fraud, as it would mean changing data stored on enumerable diversified blocks spread out across the cyber sphere.

Decentralization has already been proven as a highly effective way of protecting recorded data from tampering. Similarly, using a blockchain-type system to replace the single entity Certificate Authority, can keep our digital certificates much safer. It is in fact one of the only foreseeable solutions to keep the quantum revolution from undermining the foundation of PKI.

 

Everledger’s Kemp and Omise’s Hasegawa join TC Blockchain

Blockchain technology and the decentralizing effects of distributed ledgers have enormous amounts of potential and may mean the Internet will never be the same again. The fact that one could eventually run vast applications without any servers is equally transformational. But it’s still very much a wild west out there in terms of ascertaining who is working on ‘the real deal’.

The blockchain world is currently weighed down with the expectations of dubious crypto-currency speculators and sky-high ICOs and hacks that are interfering with a frank conversation about the future.

Which is why TechCrunch has decided to throw its hat into the ring and try to bring together the leading players in the space for a frank discussion and inquiry into this next phase in Zug, Switzerland, this July.

At TC Sessions: Blockchain 2018, TechCrunch’s editors will bring together top figures in the blockchain technology world to discuss how and where blockchain technology is going to disrupt the status quo.

We’re delighted to announce that Jun Hasegawa, CEO / Founder of Omise, a multinational payments company currently present in Thailand (HQ), Japan, Singapore and Indonesia that has raised over $50M in funding.

In 2015, his desire to push the boundaries led Omise to become the very first financial services company to join the Ethereum community. In 2017, after over a year of research and development, this culminated in the launch of OmiseGO, the crowd-funded blockchain division tasked with creating the OMG network. This is an Ethereum-based public blockchain with the ambitious vision of enabling financial service equity by radically decentralizing value transfer and exchange.

Prior to founding payments Omise, Jun was involved in founding a series of tech companies in Japan mainly in the fields of e-commerce, lifelog and mobile payments and is currently based in Bangkok.

We’ll also be joined by one of the leading proponents of blockchain tech to track the provenance of real-world objects.

Leanne Kemp, is Founder & CEO of Everledger – a digital, global ledger that tracks and protects items of value.

Using her knowledge of emerging technologies, business, jewelry and insurance, Everledger is aiming at a new kind of global transparency for luxury, constructing a digital verification system that assists in the reduction of fraud, black markets, and trafficking.

Everledger was recently named Best Blockchain Company at the Financial Tech Awards 2016, Best Newcomer at the Asia Insurance Technology Awards 2016, Innovator of the Year at the Penrose Awards, and Best B2B Start-up at the Digital Top 50 Awards.

TC Sessions: Blockchain 2018 is being built on the hugely successful Disrupt San Francisco 2017 event, which included discussions on blockchain startups, cryptocurrency and ICOs with guests such as Ethereum creator Vitalik Buterin .

But why is it in Zug, Switzerland?

Well, Zug has become known as “Crypto Valley” because of the numerous blockchain companies that have moved there to capitalize on the canton’s forward-thinking approach to regulation and favorable tax approach for cutting-edge projects.

As well as the above speakers we’ll also be joined by Brian Behlendorf, the executive director of the Hyperledger project, an open source, collaborative effort advancing blockchain technologies in areas like marketplaces, data-sharing networks, micro-currencies and decentralized digital communities.

At the event we’ll be covering how decentralization will impact the internet and web services today; how big businesses and enterprises are moving forward to tap the potential of the blockchain; what the future of financing through crypto and ICOs might look like; and the important technological breakthroughs and challenges facing blockchain.

More speakers are due to be announced in the coming weeks and months, but you can already buy a ticket here.

If you’re interested in sponsoring or exhibiting at this event, contact us here.

The Third Age of credit

Society is beginning to wake up to a tremendous shift in one of the most fundamental underpinnings to how we live our lives: the credit system. Even though it’s not commonly known, credit infrastructure has existed about as long as civilization itself. In one way or another, credit systems have always formalized the one essential basis for relationships between people: trust.

Over millennia, the way credit looks, feels and is used has changed dramatically. Today, buoyed by a plethora of technologies and a golden age for abundant data, credit is undergoing its most radical change yet. But it is being pulled in many directions by competing forces, each with their own vision for the future.

In the beginning, credit was highly personal and subjective — this persisted for thousands of years. Over the last century, a miracle happened: Driven mostly by statistical modeling, credit became for the first time “objective.” Yet today, the cracks in that system are beginning to show, and we now stand on the brink of another revolution — the “Third Age” of credit.

We are on the verge of an exponential leap. The last year has witnessed a Cambrian explosion in credit innovation, unveiling hundreds of possibilities for the future of credit. Unlike the last two ages, credit of the future will be personal, predictive, self-correcting and universal.

The First Age: credit as trust

Modern anthropologists paint a picture of early agricultural society as a community of unsophisticated barterers, trading goods and services directly. In this picture, there is no room for a credit system: I trade you what I have and you want for what you have and I want. But, as historian David Graeber points out in his excellent etymology of credit, Debt: The First 5,000 Years, this account of early civilization is a myth.

The barter system has one major fault, known as the double coincidence of wants. If I am a chicken farmer, and I want to buy shoes from a cobbler, then my only hope is to find a cobbler who wants some of my chickens. If no cobbler in my town wants chickens, then I have to find out what the cobbler wants and begin bringing third parties into the transaction until all wants are fulfilled.

Today, we have a simple solution to this problem — money. Though it’s not conventionally viewed this way, money is actually a form of credit. The radical innovation of money was to introduce one third-party into every transaction: the government. When the farmer doesn’t have anything that the cobbler wants, he pays the cobbler in dollars; the dollars provide a deferred opportunity for the cobbler to then buy what she wants. All of this is possible because people trust that the value of a dollar will remain the same, and that trust comes from the fact that the government vouches for each dollar’s value. When you accept money as payment, you are giving the government credit for their claim that the money you accept can be redeemed for (about) the same value at a later date.

For the first 10,000 years or so, credit was useful… but imperfect.

People take this feature of money for granted, but even today, it’s not ubiquitous — take the example of the three-tier pricing phenomenon in Zimbabwe: The government released bond notes pegged 1:1 to the U.S. dollar, but shops accepted actual U.S. dollars at a premium to the notes (meaning a purchase would be less expensive in U.S. dollars than bond notes). This is the literal embodiment of Zimbabwe’s citizens not giving its government any credit. (Which also led to weird discrepancies in bitcoin prices in the country.)

Money is an amazing financial instrument for so many reasons. It is a medium of exchange. It is a store of value. It is highly divisible. It is fungible across many uses. It is universally coveted. It is liquid. But early societies didn’t have anything resembling modern money, so instead, they used credit. (See a timeline of payments over the course of civilization here.)

Credit has existed as long as human economies have. Some of the earliest writings discovered by archaeologists are debt records. (Historian John Lanchester profiles the history of credit excellently in When Bitcoin Grows Up.) But credit had a lot of issues: How do you give credit to a stranger or foreigner you don’t trust? Even for those you do trust, how do you guarantee they will pay you back? What is the right amount to charge on a loan?

Early debt systems often answered by formalizing rules such as debtors going into slavery or forfeiting their daughters. These conditions artificially constrained debt, meaning that, for most of human history, economies didn’t grow much, their size being capped by a lack of credit.

So, for the first 10,000 years or so, credit was useful… but imperfect.

The Second Age: credit as algorithm

This all changed in 1956. That year, an engineer and a statistician launched a small tech company from their San Francisco apartment. That company, named Fair, Isaac and Co. after its founders, came to be known as FICO.

As Mara Hvistendahl writes, “Before FICO, credit bureaus relied in part on gossip culled from people’s landlords, neighbors, and local grocers. Applicants’ race could be counted against them, as could messiness, poor morals, and ‘effeminate gestures.’ ” Lenders would employ rules such as, “prudence in large transactions with all Jews should be used,” according to Time. “Algorithmic scoring, Fair and Isaac argued, was a more equitable, scientific alternative to this unfair reality.”

It’s hard to overstate how revolutionary FICO really was. Before multivariate credit scoring, a banker couldn’t tell two neighbors apart when pricing a mortgage. The move to statistical underwriting — a movement that had roots as early as the 1800s in the U.S. — had a snowball effect, inspiring lookalike algorithmic credit systems around the world. Credit is all about risk, but until these systems developed in the mid-century, risk-based pricing was almost entirely absent.

Famously, Capital One founder Richard Fairbank launched IBS, his “information-based strategy.” As he noted, “First, the fact that everyone had the same price for credit cards in a risk-based business was strange. […] Secondly, credit cards were a profoundly rich information business because, with the information revolution, there was a huge amount of information that could be acquired about the customers externally.”

Today, algorithmic credit is ubiquitous. Between 90 percent and 95 percent of all financial institutions in the U.S. use FICO. In the last year alone, FICO released new credit scores in Russia, China and India using novel sources of data like utility bills and mobile phone payment records. Banks around the world now implement risk-based pricing for every kind of credit.

What does a new world of credit look like?

Thousands of startups are all finding new ways to apply this same concept of statistical modeling. WeLab in Hong Kong and Kreditech in Germany, for example, use up to 20,000 points of alternative data to process loans (WeLab has provided $28 billion in credit in four years). mPesa and Branch in Kenya provide developing-world credit using mobile data, Lendable does so using psychographic data and Kora does this on blockchain. Young peer-to-peer lending startups like Funding Circle, Lending Club and Lufax have originated more than $100 billion in loans using algorithmic underwriting.

Yet this global credit infrastructure is not without its significant drawbacks, as Americans found out on September 7, 2017, when the credit bureau Equifax announced a hack that exposed the data of 146 million U.S. consumers.

The fallout from the massive breach sparked conversations on credit, forced us to re-evaluate our current credit system and finally inspired the companies to look beyond the Second Age. White House cybersecurity czar Rob Joyce opined that the time has come to get rid of Social Security numbers, so intimately tied to credit scores, which can’t be changed even after identity theft.

Today, we are held hostage by our data. We become vulnerable by being forced to rely on insecure SSNs and PINs that can be stolen. We have no choice how that information is used (more than 100 billion FICO scores have been sold.)

FICO also doesn’t take into account relevant factors such as income or bills, and in some cases only reflects poor payment history and not on-time payments. And on top of that, 50 percent of a person’s score is dependent on their credit history — inherently biasing the system against the younger borrowers who should be leveraging credit the most.

Lastly, as Frank Pasquale writes in The Black Box Society, credit scoring is opaque. This creates disparate impacts on different groups. Algorithms accidentally incorporate human biases, making loans more expensive for minorities. Building credit often requires adherence to unknown rules, such as rewarding “piggybacking” off of others’ credit — a structure that perpetuates economic inequality.

Maybe the Equifax hack was a good thing. It was a jarring reminder that a credit system reliant on historical statistical modeling, opaque algorithms and insecure identifiers is still far from perfect. Were the hackers really Robin Hood in disguise, freeing us from our hostage-like dependence on an outdated scoring system?

The time has come to move beyond the weaknesses of the modern credit regime, and technology is today taking the first step.

The Third Age: credit as liberation

What does a new world of credit look like?

In the last year there has been a Cambrian explosion of new ideas to drive modern credit forward. It is too early to tell which system(s) will win out, but the early indications are truly mind-blowing. Credit is on the precipice of an exponential leap in innovation, which will reshape the world of financial inclusion. It will become more personal, predictive instead of reactive and instantaneous.

One of the most revolutionary aspects of the future of credit is that it will increasingly come to look like cash (and cash, conversely, like credit). Consumers won’t have to request credit; rather it will be automatically allocated to them in advance based off many factors, such as behavior, age, assets and needs. It will be liquid, rather than dispersed in fixed tranches. And as it becomes increasingly commoditized, in many cases it will be close to free.

Customers will have one form of payment for all purchases that automatically decides on the back-end what the best type of funding is, cash or credit, optimizing for efficiency and low fees. Imagine Venmo, credit cards, checks, PayPal and cash, all rolled into one payment method.

People will no longer have multiple credit lines, such as separate credit cards, student loans and mortgages. People will have a guaranteed “credit plan” available to them, all linked into one master identity or profile.

Physical instruments like dollar bills and plastic cards will be phased out and live only in museums. Biometric identifiers like fingerprints will be all you need to make a purchase. Prices will become infinitesimally divisible, optimized in some cases for fractional cent values. Denominations and different currencies will become background features.

In the future, people will be paid in real time (Walmart is experimenting with this now), instead of waiting for work credit every two weeks. Payday loans as an industry will evaporate. WISH Finance is building an Ethereum-based blockchain for cash flow-based underwriting. It’s easy to see this applied to consumers: get real-time credit based on your regular pay and expenses.

Naturally, talking about the future of credit, we have to talk about blockchains.

In the next phase, credit will revolve around the individual. Right now we live in a world of gatekeepers: Centralized data aggregators, such as credit bureaus, act as intermediaries to credit. This advantage will increasingly be eroded by individually permissioned data (a concept known as self-sovereign identity). This is consistent with trends in cross-border work and globalization: In an atomized world, the individual is the core unit and will need to take her information with her, without reliance on third parties. It could reduce some $15 billion in annual fees paid to access data and make information more secure, eliminating single points of failure.

One-size fits all scores like FICO will become disaggregated. Credit is a relational system: Our credit indicates our standing relative to a wide network. But people shouldn’t be represented by averages. Credit will become more multivariate, using machine learning and breaking apart the contributing factors and weights that make up FICO (the company where I work, Petal, is doing this to democratize credit cards).

It makes little sense to set single credit benchmarks — such as the 350 to 850 score range — irrespective of age, so consumers will be compared to their cohort. Per Experian, youngest people have the lowest credit scores. However, youth is when people should be borrowing the most, both to build credit and because they should be saving cash for their spending later in life.

Credit will become contextual. Your maximum available credit will fluctuate based on ever-changing factors such as payroll and bills. It also will be specific to purchases: You will receive different levels and costs of credit based on the value and type of the asset you’re buying. For instance, credit to buy a crib for your newborn may be cheaper than credit to buy a trip to Vegas. Illiquid assets will be automatically usable to secure credit, as Sweetbridge is doing. (The founders of Kora point out that the problem is not that the poor don’t have wealth, it’s that their capital is locked up.)

Credit will be psychographic and predictive. It won’t be enough to look backwards at your past behavior — your creditworthiness will change dynamically as you move around, make purchases and stay active. It will be dynamically assigned to specific needs (like ink if you buy a printer) before you realize you have them.

Naturally, talking about the future of credit, we have to talk about blockchains. They will have three early uses:

  • Funds dispersal: It will become much cheaper to disperse credit and accept payments using services like Stellar. There will be no latency from banks having to verify transactions against their own accounts.

  • Underwriting: Data will be aggregated into universal profiles (like those being built at uPort and Bloom) from a wide variety of sources, such as credit bureaus, phone bills, academic transcripts and Facebook. As mentioned, these will be self-sovereign, and make it much easier for credit providers to underwrite borrowers.

  • Contract enforcement: Smart contracts will be self-enforcing, automatically collecting debt payments, re-adjusting themselves if someone is credit crunched in the short term and refinancing if customers can consolidate or lower their APRs. The universal ID and contract will keep people from “running to Mexico” with their credit funds.

In the future, credit (and capital) will be automatically allocated to people based off predictive AI. Better risk pricing will continue to drop rates at which consumers can borrow, toward 0 percent. The federal funds rate has been around 1 percent for the last couple of years — in 1980 it was 18 percent! A combination of machine learning and what Bain calls “A world awash in money,” with larger investors hunting for lower returns, will continue to drive these rates down.

At a higher level, blockchain protocols like Dharma will set up smart contracts for the credit economy that allocate capital in the most efficient way. Credit will not rely on active investment managers to lend or borrow: Any capital not currently tied into a contract will be programmed to continuously search for the highest risk-adjusted return — including provision of credit.

Credit providers, at scale, will experience massive network effects. “Network effects” describe the condition in which networks become more valuable to users as more users participate. This doesn’t traditionally apply to credit: Just because other people have the same credit card as you, you don’t accrue any benefits. But in the future it will: More data points within credit networks will provide better underwriting, which will create fairer pricing, creating a virtuous cycle of data. User experiences and pricing will benefit tremendously as a result. Initiatives like the U.K.’s Open Banking will accelerate this trend.

Tom Noyes calls this The Democratization of Data. In a world of smaller, local data sets that collaborate (80-90 percent of all our current behavior is local), bridging disparate data gaps will increase credit participation to 100 percent (currently, only about 71 percent of Americans have credit cards).

And these are just some of the more probable, routine ideas. Futurists like Daniel Jeffries envision currencies with built-in features to incentivize different behaviors — like saving versus spending — and universal basic income tokens, to decentralize financial inclusion. Platforms like Bloom, which now has 100 applications being built on it, are reimagining credit at the protocol level. These systems are tackling first-principles questions, such as can the future be entirely meritocratic, or can people inherently create trust with no data.

We are living in the prologue to the Third Age. It’s hard to tell exactly how the future of credit will play out, but from where we stand, we can see that it will represent the biggest departure from the past in credit’s history, and we’re just today taking the first steps.