Most people have heard of Bitcoin by now – the mysterious electronic currency created by “Satoshi Nakamoto”, a nom de plume identifying the inventor, or inventors, of Bitcoin.
Dramatic surges and wild fluctuations on the stock market have brought the cryptocurrency into mainstream consciousness, with a frenzy of investors pouring money into “mining” operations like a modern-day gold rush.
Mining in the 21st century, however, is slightly different. In very simple terms, it works like this: every ten minutes, a puzzle is formed that specially programmed mining computers race to solve. The winner receives a block of Bitcoin (currently one Bitcoin is valued at $7,681) and the puzzle resets. Alternatively, Bitcoin can be purchased with fiat currency (legal tender that is backed by its government).
By creating Bitcoin, “Nakamoto” also invented the concept of the blockchain: a database that is immutable, secured by advanced cryptography (encryption and codes) and backed up with identical copies of information on a global network of computers – something that occurs during the mining.
By design, this network is not controlled by a single authority, and has so far proven impossible to hack. The technology is complicated, but the concept is simple: blockchain is essentially a ledger or database that is open and decentralised, and allows for the creation of censorship-proof, secure, borderless, paperless currency that can’t be tampered with or changed. Bitcoin was the first, but it’s been followed by many others, including Ethereum, Litecoin, Dash and Monero.
Security has always been a concern in the world of internet payment, but experts like Leonhard Weese, founder of the Bitcoin Association of Hong Kong, feel that it’s the conventional banking system that is insecure.
“Credit cards are a bit of a mess from a security perspective,” says Weese. “All the information you need to spend on a credit card is written on the card. Anyone who observes it can use it.”
The breakthrough of blockchain comes down to “trustless-ness”, according to Clifford Choi, technical advisor at Emurgo, a blockchain venture fund and incubator. “You don’t own the data you give to Facebook,” says Choi, “you just have to trust them with it if you want to use their services. It’s the same for the money in your bank account, though most people don’t read the fine print.”
With a currency on a decentralised blockchain, such as Bitcoin, there’s no need for trust in an institution – what the ledger shows is yours and you can store and spend it without the need for a bank.
NEW CURRENCY EXCHANGE
For travellers, one immediate advantage is currency exchange. Blockchain enables overseas transactions to be completed without paying bank fees or inflated exchange rates, as travellers can exchange cryptocurrency for local currency with fewer intermediaries.
At present, this can be done at cryptocurrency ATMs or by physically trading with someone on the ground. A number of FinTech solution providers are rapidly emerging to help facilitate this. Bitspark is one such company, which offers 100,000 physical locations around the world for people to send and receive cash via blockchain technology.
Digital currency exchange ventures can also be used by businesses trading in Bitcoin to seamlessly exchange the value into their home currency. Online travel agency Expedia has started to accept Bitcoin on this premise, using a company called Coinbase to exchange value from its Bitcoin transactions to fiat currency.
Rafael Hauxley, author of Bitcoin vs The 2018 Recession, who is currently shooting a Netflix documentary about the cryptocurrency’s impact on the world, says: “The most obvious inconvenience of using fiat currency is how much money I lose converting from my home currency to local currency. There’s a reason that currency converters often sit in expensive tourist locations – they’re making money, hand over fist. By using BTMs (Bitcoin ATMs) and local Bitcoin sellers and buyers, I’ve often saved enough on fees to enjoy a nice dinner or two.”
Moving and accessing money via blockchain can also eliminate the woes of losing a bankcard, having your account frozen while overseas, or having to travel with large bundles of cash.
Weese also points out that the benefits of blockchain could provide an outlet for rising pockets of middle class and entrepreneurs in countries without a functioning banking system.
Blockchain is also poised to revolutionise “peer-to-peer” systems with more transparency and trust.
“You can build apps like Airbnb and Uber (on the blockchain), but we call them ‘dapps’ because they’re decentralised applications – there’s no central entity,” says Stewart Mackenzie, co-founder of Fractalide, which creates tools for non-technical users to build dapps.
“Existing so-called ‘peer-to-peer’ services such as Uber and Airbnb are not actually peer-to-peer. They’re extremely centralised – you pay a central entity, you use their servers, they control all the data so you need to trust them with everything; you need to trust that they haven’t manipulated the data, that they’re able to protect your information from hackers, that they’re not selling your data, and so on.”
Mackenzie continues, “Centralised entities, like companies, are easy targets. You can lobby against them, as taxi unions and hotel groups have done. People who rely on Airbnb and Uber can suddenly find themselves without access to these services if they’re in a jurisdiction where the government decides to block them. This is also a huge problem for people who rely on the peer-to-peer economy for their income.” “You can think of a dapp like any other app, but instead of running on a company’s servers, it runs on a programmable layer of the blockchain. This gives it all the benefits of being trustless and decentralised. When you build things on a blockchain like this, making use of what’s called ‘smart contracts’, the code becomes incontrovertible law. What the code says will happen is what will happen.”
For example, if you were renting an apartment on a dapp, Mackenzie says, “the dapp might require that enough of your cryptocurrency be locked to pay for the booking and that the funds be released either back to you or to the accommodation provider at a specific date depending on whether or not certain criteria are met before that time. It could depend on anything – maybe you want to book ski accommodation but get a certain percentage of the money back if there’s no snow – with blockchains like Cardano combined with Fractalide, building things like this becomes very easy.
“We haven’t really seen mass adoption of dapps yet, but we are fast approaching a tipping point,” he concludes.
TRAVEL INDUSTRY APPLICATIONS
Roughly 260 airlines worldwide, plus hotels, online travel agents and other travel service providers, have already begun to accept Bitcoin and “altcoins” (crytpocurrencies other than Bitcoin).
As Hauxley experienced: “I could buy airline tickets with Surf Air, book a hotel via Expedia, pay directly for my burger and beer at brewpubs in Hong Kong, and withdraw my money in local currency around the world using BTMs or local Bitcoins.”
A major disrupter is the travel-focused dapp Winding Tree, which is targeting traditional middlemen OTAs such as Expedia by teaming up directly with providers like Lufthansa and Air New Zealand. With Winding Tree, a travel agent or individual traveller could, for example, have real-time access to seats on Air New Zealand flights without going through an intermediary, thereby cutting costs and lag time. Winding Tree is also connecting travellers to hotel and travel guide providers.
Other possibilities include keeping track of loyalty programmes for hotels and airlines, which can be an area fraught with issues and errors. If all airlines in a global alliance were to do ticketing and air miles on a shared blockchain, there would be no need to trust each other and the transactions would be much simpler and more efficient, says Choi.
One new entrant tackling this area is Sandblock, which aims to enable travel providers to create their own loyalty tokens, which could be traded for brand rewards or converted into fiat currency.
Meanwhile, other start-up ventures are tackling specific traveller woes such as queueing and more efficient processing of personal data to streamline security checks.
As an emerging technology, blockchain has colossal potential but is still limited in practice. Weese recalls a time in Amsterdam when a friend’s HSBC account was switched to the UnionPay system and he was unable to access his account. “I was able to lend him a few thousand dollars’ worth of Bitcoin, which he traded for Euros, but it was lucky for him that I was there and able to make the trade. Bitcoin is not quite ‘there’ yet, where it’s really useful in practice. It depends on who you are and where you are.”
Choi agrees the technology needs to mature, and points out this is already happening: “Bitcoin uses the first generation of blockchain. To this day, it’s still the most secure which makes it great as a store of value, but you can’t do much else with it. It’s like the underlying architecture of the internet and the first static HTML websites of the late 1990s.”
“Ethereum (another type of blockchain) came along later and allowed more functionality – and now we’re just starting to see third-generation blockchains, like Cardano, which can power the blockchain equivalent of Facebook, Google, and your favourite apps.”
Whether you like it or not, Hauxley says the blockchain way of life is coming. “I choose to live off my Bitcoin. But for people who aren’t choosing to be affected, even they’ll start noticing within the next five years. Travellers will certainly see the benefit in five years or less.”