Category: Finance

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Blockchain Finance Financial Services

How to tokenize assets: Real estate ICO

In the crypto space, tokenization is the buzzword of 2018. Here in Crypto Valley, one can run into an entrepreneur tokenizing a real asset nearly on a daily basis. What’s more, many of the projects are already at an advanced stage. Therefore, it’s not unreasonable to expect that by the end of Q4 many startups from Crypto Valley will be issuing tokenized assets such as gold & silver, art, real estate, and agricultural property. Tokenization of an asset, however, is a complex process, mainly because of the tokenomics it involves. Let’s focus on a real estate ICO.

Tokenization – real estate token

The complexity of token economics can be illustrated through the example of a stable real estate token. By ‘stable’ I mean there are no large price fluctuations on the value of the token. This is a common tokenization use case in the blockchain space at the moment, as real estate is generally an illiquid asset. By tokenizing it,  it’s possible to bring liquidity to the markets. So let’s try to build a real estate ICO!

For a real estate token, we would like the value to represent the actual value of the underlying asset. But how can we guarantee this? Just for the sake of example, let’s imagine that we have 100 million worth of real estate as the backing asset. We can also imagine that the ICO is capped at 100 million. Each token represents a proportion of the actual apartment, being a security token.  Let’s enter the time after the ICO has been successfully hard capped and the token listed on an exchange. We need to analyze two different things: when demand is higher than supply, and vice versa.

When demand surpasses supply

As the demand grows larger than the supply, we’ll see a price increase of the real estate token. This would be an ideal situation for a utility token or a security token of a more speculative nature. However, for our purposes that would not be ideal. The value of the token wouldn’t be backed by the real estate anymore and would start to grow. Just like in the many economic bubbles in the past.

The solution for stabilizing the price would be to allow an unlimited supply of tokens to be released to the market so that the real estate token issuers would be able to issue real estate to the markets per demand. Roughly speaking, this would mean that the token issuer would have to offer an unlimited supply of tokens to the markets.

Meeting the increasing demand brings a different problem to the table – how will the newly created tokens be backed. Will there be a pool of real estate larger than what was offered in the real estate ICO, or will the issued funds be held in escrow and used to purchase more real estate? Depending on the model chosen, and on legislation, it may be possible that issuing new tokens will require financial licensing.

When supply surpasses demand

Another problem arises when there’s a bigger supply of the token than there is demand. This would happen, for example, in a situation where a major token holder decides to liquidate their position all at once. Surely, one might argue that market forces wouldn’t lead to the price of the token going below the value of the underlying asset. However, this might not be the case – what if the market actors simply would decide to wait for a lower price and join the dumping party with the expectation to buy even lower?

We can solve this problem in a couple of ways. First, if we use an ERC-20 token, we can have the liquidity mechanism using Bancor. The tradeoff is that it will tie a large amount of the ICO capital to the Bancor smart contract. Another approach would be to directly build market makers into the exchanges that are used to trade with the tokens. However, as the number of exchanges grows, it could mean spreading the liquidity reserve in multiple locations simultaneously.

Exchanging the tokens

Another question comes to mind: where is the business model in all of this? The company could focus on growing the amount of real estate and deriving a cash flow from rental contracts. It could also consider other ways of getting income. For example, it would be possible to charge a transaction fee. Depending on the technicalities, this can be done directly on a smart contract. If a smart contract solution isn’t ideal, it can be directly implemented on a customized blockchain protocol.

This leads to the next question. Would it be ideal to use an ERC-20 token and integrate it into an existing exchange platform, or would it be better to use a customized blockchain protocol? An ERC-20 token is easy to integrate into different exchanges. However, it will have the limitations of Ethereum protocol.

Real estate ICO: What about regulatory compliance?

The final big question is how to deal with KYC/AML compliance. After all, if the token is to represent actual real estate, the investors may have legal rights to dividends and to the real estate itself. Therefore, we need to have a way to vet ICO investors. Also, the ability to invest and transfer the tokens needs to be limited to identified parties. The easiest way to solve the compliance aspects of security tokens is to whitelist the identified real estate ICO investors and use exchanges that only allow identified investors to trade. If you’re considering a dedicated blockchain, these control mechanisms need to be implemented at the protocol level.

I’d be happy to talk to you about tokenization, and your real estate ICO (or any other plans to tokenize something valuable!), if you’re planning one. Write to me using the form below!

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Finance Software Technology

Mobile App Cost Estimation: What you need to know before you start talking with your development partner

Mobile App Cost Estimation: What you need to know before you start talking with your development partner

Developing an app can be a big investment, and the development process itself is usually very complex. This is why it’s important to be well prepared when you commission an app, so that you are able to get the best results, both in terms of price and quality. In this article, we’re going to take a look at the preliminary considerations that have to be taken into account when estimating a mobile app cost.

Understanding what goes into the cost of developing an app

App pricing can vary based on several factors. When contacting an app development agency for the first time, it’s important to be aware of these factors and how they may affect the pricing. These factors are: the complexity of the app, the platform, and the location of the development resources.

The complexity of the app

When it comes to complexity, we can divide apps into four categories: simple apps, complex apps, enterprise apps, and gaming apps. Complexity is the first factor that gets considered during the estimation of a price.

To begin, you have simple apps, which have a small number of different screens, and which sometimes use APIs in order to work with data. These apps do not generally support user profiles, and they generate a very small amount of analytic data. The development process for one of these apps can take anywhere from 35 hours to 400 hours depending on the amount of features that go into the final app. This type of project can be handled either by a single developer or a small team, and the app should be ready within 3 months.

Then there are complex apps, which have up to 10 different screens, and which connect to one or more APIs to retrieve data. They also make use of location data and user profiles. They may also feature in-app purchases or, in the case of e-commerce apps, a shopping cart. On top of that, complex apps are generally able to collect a wide range of analytic data and they may feature a central administrative console that allows you to monitor and moderate content. Depending on the number of features, one of these apps can take anywhere from 70 to usually 500 hours to complete and they are developed by medium sized teams.

Enterprise apps come with over 10 screens, connections to multiple APIs, and, in some cases, custom APIs. They have a robust user management system, and they are very complex in scope. The purpose of an enterprise app is to streamline internal business processes, sometimes in multiple departments of a single company. For example, an enterprise app developed for a logistics company may cover invoicing, HR, sales, warehousing, vehicle tracking, and various aspects of management. Development for an enterprise app can take anywhere from 140 hours. Here, you will need a large, experienced development team and, in some cases, more than one of those.

Finally, you have gaming apps, which are characterized by the use of 3D acceleration, multiple APIs, the gathering of user data and other metrics, in-app purchases, and the use of user profiles. Gaming apps can take anywhere from 350 hours upwards to develop. Gaming apps will require a varied team of experienced designers, media creators, and developers.

cost estimation for a mobile app

The platform

The platform the app is being developed for must also be considered. However, if you are building a native application for a single platform, the cost does not vary noticeably between different platforms. In the past, you had something called the “Android tax”, which referred to the extra cost of developing for Android platforms, but this is no longer the case.

The cost difference becomes clear when you are planning to launch on multiple platforms. Here you have a choice between developing several native applications or developing a single hybrid application. The latter option is less expensive, but it is not able to offer the full experience of a native app. This can be detrimental if you have a particular set of functionalities in mind. However, if your app is not aiming for specific native features, there’s no reason to develop multiple native apps for each platform.

The location of the development resources

It’s no secret that offshoring can help you cut costs – as much as 50% in some cases. However, it does come with its own problems. There may be cultural barriers, time differences, and a variety of other factors to take into account. That said, there are numerous offshore companies that have an established reputation for delivering high quality products, so if you shop around, you will be able to find the perfect balance.

request-for-proposal

Documentation

In order to get an accurate estimate and get the development team on board, you have to provide them with as much information and documentation as possible. Here are some of the documents that you should present to your development team, before requesting a quote.

RFP

A request-for-proposal will help you evaluate the responses from various developers more easily. To start, the RFP should define the project and its scope. This can include an executive summary of the project, a definition of the components and architecture of the app, and a series of questions you have for each vendor.
The executive summary should give a very brief explanation as to the focus of the app, and clearly define the various components and methods that will go into the app. Any technical detail will help the developer better understand your project. Finally, you want to have a list of questions for your developer, regarding issues such as previous projects and their ROI, the model of delivery, the quality testing tools and methodology, and other relevant factors regarding core capabilities such as development, design and quality control.

You can find a list of free RFP templates here, and there are many more to be found on the web.

Business plan

Your business plan contains a lot of information that can help the development team. While the RFP offers a detailed look at the specific product you are looking to purchase, the business plan offers a general view of your company and its vision. A business plan will help the developer see how the app fits in the bigger picture.

A business plan is usually comprised of an executive summary, a description of the company, a description of the target market, the marketing strategy, and the financial plan. The executive summary will help the developer understand the problem that your company is trying to solve, the solutions it is deploying, your unique value proposition, and your objectives. Your business plan will also likely cover your competitors, your customer acquisition strategy, and your monetization strategy, all of which are important factors that affect the final scope of your app.

Pitch Deck

A pitch deck is usually a PowerPoint presentation that is meant to provide a brief introduction to your business plan. It is best used in online or face-to-face meetings with potential investors, customers or partners. The pitch deck is meant to open the conversation and to give the prospective developer a quick understanding of what your company is about.

It should contain all the key information outlined in your business plan, but without being excessively long, including a description of your team, the problem you are addressing with your app/services, the solution you offer, the target market, the competition and your general business model.


Business model canvas.

The business model canvas is an alternative to the business plan. It was developed by Alexander Osterwalder, and it is meant to be a more agile and modern version, suitable for today’s highly dynamic business environment, especially within the tech field. It is less costly, less time consuming and much shorter than a business plan, and it covers 9 important business areas: key partners, key activities, key resources, cost structure, value proposition, customer relationships, channels, revenue streams, and customer segments.

Odds are that you either have a business plan, or you work with a business model canvas. When presenting a business model canvas to your development agency, you are helping them gain a clear understanding of how various components of your business connect and impact each other, and how you intend to maneuver your business in the market. The BMC also has your value proposition at its core, making it a key consideration in the development process.

Mobile App Cost: Key Takeaways

The cost estimation process relies on two factors: your understanding of the various cost structures and the developer’s understanding of your business, and your goals and the means of achieving them. However, the best way to get a good price and a great final product is to have as clear an image as possible of the app you want to develop and how you want to develop it.

Check out some of our best app design ideas: simple, plain and effective

If you understand the APIs, development methodology, programming languages, and project management methods that will be used in your project, you are able to better estimate pricing and timelines.

Conversely, if the developer understands your business and preferences correctly, they will be able to give the most accurate quote and deliver a quality final product that helps you meet your objectives. Avoid upfront quotes, and make sure that you include a list of the features you’d like for your app, the services you need, the platform you want to develop for, and the ideal timeline for your business.

See also:

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Blockchain Finance Financial Services Software

Ethereum gas: how to pay it on behalf of your users

On Ethereum, every transaction that changes the state of a smart contract costs a small fee: this is called gas. Most commonly, end users pay gas while interacting with a smart contract. However, when you’re making a profit on your product by charging some transaction fee or just want to gain many users quickly, you may think about covering the Ethereum gas costs yourself. Well, good news — it’s achievable! In this article, I’ll describe how to do this from both the business side and technical side.

To calculate the precice amount of gas you need to know two factors: Ethereum gas price and the complexity of the operation you want to execute. The current average gas price of Ethereum depends on the current demand on the Ethereum network. Now, let’s see how you can offload the gas costs from the transaction creator to the platform itself.

Blockchain use case: P2P options exchange

The need for offloading the transaction fee in order to achieve cheaper prices is real! We’ve recently faced the problem of moving as much Ethereum gas cost as we can from the end user to the contract creator. The project in question was a blockchain peer-to-peer options exchange, which got a percentage of profit from every successful option settlement. The goal was to encourage people to use the product by waiving any additional cost, just like in non-blockchain solutions.

One of the functions that needed to be free for the users was a standard ERC20 functionality – approve(). User A can allow user B to transfer a certain amount of tokens from user A’s wallet. This method, like any other, normally costs Ethereum gas to execute, but we want to achieve this with no cost to the user. Let’s call the target solution zero-fee allowance. The following requirements must be met for a trusted and secure solution:

  1. The transaction has to be executed by the contract owner, not the end user.
  2. It has to be clear which action is performed by the contract owner on behalf of which end user.
  3. The transaction can be invoked only once.
  4. Two transactions containing two intents by the same end user have to be executed in the order of creation.

Dealing with the Ethereum gas cost challenge

We began by searching through Ethereum Improvement Proposals for problems similar to ours and maybe some solutions. Jackpot! Issue 662 addressed our problem.
After a detailed analysis we were ready to develop our own solution based on what we learned.
We divided the process into 3 parts:

  1. Arbitrary data (the intent) is signed offline using the end user’s private key. The data contains the approve method signature, all parameters and contract address on which the request should be executed. The resulting data signature is sent along with rest of data to the server. Within this step, the user doesn’t make any state changing transactions, so there’s no transaction fee.
  2. The server gets the data from the end user and pushes it to the network using the smart contract owner’s key. The smart contract owner pays the transaction fee.
  3. The contract verifies if the sent data is really the end user’s intent by validating the signature. Then it checks for replay attacks and user intent’s execution order. Lastly, it executes the actual approve function.

Implementation

This part describes the technical solution. So, if you’re not interested in the guts of implementation details, then just skip to the next section, where I’ll discuss the financial aspect of the zero-fee allowance approach.

We based our solution on StandardToken from OpenZeppelin framework. It gave us base methods like the aforementioned approve(). Next, we moved to validating the end user’s intent in the getSigner() function. Firstly, the end user address is recovered from the data signature. Then, the signature is checked against the signature calculated for the arbitrary data passed by the end user. In this step, the intents order is checked by incrementing the nonce value. Lastly, the intent is checked for any previous executions.
After all these checks pass, the flow continues like the standard approve method with the spender address being replaced with the one belonging to the user who signed the message. For readability, the code is split into three methods – checkProvableApprove and provable_approve. The first one is constant and can be used for checking intent correctness, while the second changes the state.

Business calculation of the Ethereum ETH price

Let’s take a look on price per unit that user has to spend per transaction with zero-fee allowance in comparison with the traditional approach.

The gas price and ETH/USD ratio given at the time of writing:

Gas price (Gwei) ETH/USD
49 995.5
Method Gas used Wei cost Ether cost USD cost
Zero-fee allowance 98213 4.81244E+15 0.004812437 $4.79
Traditional allowance 45324 2.22088E+15 0.002220876 $2.21

The conclusion is quite clear. The zero-fee allowance approach costs over 2 times more than when the approve() function is executed directly by the user. In our use-case, that move was worth it, but it should be an individual decision. After all, as the popular song goes, “it’s all about the money”.

If you liked this article, then give it a share. We’ve got more great stuff on our blog (e.g. a guide on how to start an ICO), so make sure you subscribe to our newsletter to be up to date!

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Entrepreneurship Finance Financial Services Software

Micropayments: How your Business Can Benefit From Them

Micropayments: How your Business Can Benefit From Them

To understand ‘Micropayment’ is to understand the technology connected to it. Technology is constantly improving, affecting every aspect of our lives. One of the biggest challenges in life is simplifying our finances and the best way to do this is via Fintech (financial technology)- a developing area that brings together the best financial products worldwide at the lowest possible price. A crucial part of this is the processing of very small fees that cannot be handled by traditional credit card companies.

This has energized micropayment systems and the whole infrastructure connected with it. While earlier sending small amounts of money was seen as costly, because you still had to pay transaction fees, there were some indicators that micropayments could work:

The popularity of mobile devices

Access to financial services was limited by a lack of technology and the appropriate devices. As a result many transactions were completed on a cash only basis when they occurred outside of the normal banking system. However, the huge popularity of mobile services created an opportunity to provide financial services over its wireless network. Research showed a significant and growing market demand that was particularly important for all GSM (Eng. Global System for Mobile Communications) players. This demand intimated that it was technically feasible and profitable to deploy financial services over mobile networks. The big picture showed that mCommerce might fill a major service gap in developing countries that is critical to their social and economic evolution. Practice shows that the range of features accessible in particular environments can be applied elsewhere if the target markets are similar. With only minor variations from the main stream, the features of all systems need to include:

  • Over-the-air prepaid top-ups using the cash already in the account (like ‘blik).
  • The ability to transfer any amount of money between users’ accounts.
  • Provision for cash deposits and withdrawals.
  • The ability for a third party to make deposits into a customer account (employer, family member or a microfinance organization).
  • The ability to charge for bill payments.
  • The ability to make retail purchases at selected economic outlets.
  • The ability to transfer airtime credits between users.

Since all the above points are now achievable, micropayment has recently been reconsidered as a viable technology, largely due to the development of cellular networks. The main reason for this is not technological but more down to simple economics. Independent online service providers receive much revenue from mobile users. Mobile networks often charge users for admission to low-cost services on a fixed network. Alongside this many applications require a solution for the commissions placed on small transactions containing mass data storage and message exchange.

Insomuch as micropayment systems are designed to purchase exceptionally low-cost items, it is crucial that the value of each individual process remains very small.

online micropayments

Ad blockers plague

As ad blockers have gained popularity there has been renewed interest in micropayments. Originally the main focus in design was on content but emerging technologies using block chain have created amazing opportunities for artists, journalists, etc., as the content no longer has to be ad-friendly. Micropayment has allowed the author to be in absolute control of content distribution and its economic worth. Simply put micropayments drive browsers, empowering creators and the audience that follows them.

Closer examination reveals that when ads are kept out of the way, micropayments allow the author to more easily control their own income. They help reveal the true value of content which assists in ascertaining the authors’ economic sustainability. It is expected that micropayments will continue to evolve just as it did from paid for ads into its current form.

Technicalities – the protocol

As was previously established, the main issue with low-value transactions has been that processing and transaction fees diminish the final settlement amount. Payment processors place additional costs for a multiplicity of reasons including infrastructure costs, administrative costs, and paid mechanisms for fraud prevention and dispute resolution. In the past two decades much research has been undertaken on using digital communications and cryptography to reduce or erase these costs. For banking facilities these fees ideally need to be down to the fraction-of-a-cent range.

It can be expected that content servers for the global information infrastructure will soon operate billions of these low value transactions that are computationally complex. Whilst costly cryptographic protocols are now impractical and obsolete the micro-payment process can be bootstrapped with already well-known payment protocols for larger amounts, but does not depend on them for each micro-transaction. Special attention is given to its integration into IBM’s Internet Keyed Payment Systems (iKP) at its most basic level.
The product itself allows for the possibility of a payment protocol in wireless networks. The protocol usually assumes two techniques of transaction execution:

  • In on-line mode with the participation of a trusted website – for macropayments,
  • In off-line mode using electronic money, mainly for small value transactions – for micropayments.

The main purpose is to predict scenarios of various events and transactions in the protocol – and to be able to analyze any part of it. Paramount within this are the aspects of payment security such as asymmetric cryptography techniques, public key infrastructures and many more. Needless to say that for the evaluation of any protocol, performance must perfectly blend with the criteria specific to the wireless environment.

micropayments platforms

In summary

In summary micropayment platform schemes that are dedicated for processing small transactions work in two main ways.One is that a seller or service provider establishes an account with a third-party micropayment provider who accumulates, stores and distributes the monies accrued. Both seller and user/buyer are required to establish an account with the same micropayment provider for easier and safer implementation. The provider manages a digital wallet where all the payments are stored until they get to to a larger amount and can then be sent to the recipient.As an example let’s say a site called ‘The Freelance’ is a market workplace for freelancers to connect with companies to develop small projects. A company hires a developer from ‘The Freelance’ to make few changes on their website for $1/hr. If the developer works on it for 8 hours, the task giver – the company – pays ‘The Freelance’. In this case ‘The Freelance’ collects all the fees. It also stores the remainder in a developers’ digital wallet. If a developer is good and garners many fees, ‘The Freelance’ accumulates IOUs to the point where the wallet contains a significant sum, say $500, which is then sufficient to be withdrawn. ‘The Freelance’ then pays the developer directly into his account.

The second is that micropayment systems can operate as a system for prepaid transactions. A user/buyer makes use of a micropayment processor account by depositing in advance a certain amount of money in it. As long as the seller (the other side of the primary transaction) uses the same account provider everything works smoothly as the user’s account with the provider is easily debited for the amount of the purchase. Simply put the payment is made by using a micropayment processing account. Let’s illustrate this with the most common example: PayPal. PayPal is a very popular micropayment provider who has its own requirements for micropayments regarding the maximum amount of the transaction. According to PayPal a micropayment transaction is less than $10. So let’s imagine that a PayPal user decides to deposit $200 in their account. From that point user can become a buyer by purchasing an item for $5 from a webstore. The purchase price is debited from the PayPal account and used to cover the payment. On completion the balance in the buyers’ PayPal account will be $195 minus PayPal’s fees for micropayment transactions, the webstore’s balance account is plus $5, and PayPal gains the provision fee.

In all these scenarios, commercial organizations have much more to gain by addressing the problem of fiscal cash transactions by micropayments. Cash is not only more difficult to use, but you waste a lot of time moving it outside the banking sector.

In the 21st century no country exists beyond the scope of the banking sector and so for their own economic progress they should be encouraged to move away from cash. The extra motivation here is that the resulting low cost solutions and mechanisms that work in these environments can then be efficiently applied in all types of developed economies.

Want to know more about Online Payment Solutions and our recommendations?! Read this post:

How to Choose Online Payment Solution!

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