Category: Financial Services

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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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Blockchain Financial Services Other

Smart contract use cases: commodity trading (tiqpit)

Smart contract use cases: commodity trading (tiqpit)

Tiqpit’s idea to move commodity trading to the blockchain is one of our most recent smart contract use cases. As co-founder Mike Ziemkendorf said, tiqpit was born out of the move to Malta: the confrontation with the situation on the small island, paired with the founders’ insider knowledge of how commodity trading works. See how tiqpit aims to solve trading problems and how Espeo is helping them to achieve that with blockchain.

How did you get the idea for tiqpit?

The final idea came from a necessity, I guess. Bitcoin and the blockchain idea went mainstream in 2011. Malta, our company location, is a very small island. Seeing the everyday struggles people have there to buy goods made us wonder. We’re 90 kilometers from Sicily and still, everything is so expensive. As traders in different markets and financial instruments, we know what that reality looks like as well. The highest price makes the profit, wetting and speculating… adding to the everyday costs of the end-consumers and leaving the producers with very small margins. Everything is overcomplicated. The confrontation with the local situation, paired with our knowledge about how the end price is set, was the final push for the tiqpit idea to take form.

Since “we cannot solve our problems with the same thinking we used when we created them” (Albert Einstein) blockchain gives us an opportunity to employ a different kind of thinking to solve the problems we created in the past.

So what exactly needed fixing in commodity trading?

TIQPIT - TRADING PLATFORM OVER BLOCKCHAIN FOR COMMODITY MARKETS

Commodity trading is very speculative, centralized, and in the hands of very few market players. It’s a very unfair system. This is exactly what we’re trying to change. We created a vulnerable trading environment, with proprietary matching engines and multiple proprietary protocols. Orders aren’t handled equally and fairly between market participants. This can lead to price manipulation. The system is inefficient and serves only a chosen few. Opportunistic information sharing and intermediary fees add costs and complexity. Of course, the end-consumer suffers.

How is your solution different?

eXAMPLES OF PROJECTS WORKING WITH BLOCKCHAIN SOLUTION IN THE ENERGY AND COMMODITY SECTOR

I know there are other projects and trading-related smart contract use cases. However, almost all of them are mostly based on private blockchain solutions. They’re led by major energy traders, in cooperation with exchanges and banks. Therefore, the projects are kept in-house and for their own use. Everything happens without the involvement of current and future end-customers, producers, suppliers and consumers. br>Tiqpit Solutions applies blockchain technology to create an easy-to-use and inter-operable b>trading, insurance, finance, reporting and risk management platform for all kinds of tradable commodity and energy products. But this time, we created it on an open-source blockchain solution. In one platform, we combine modules for each kind of participant involved in a commodity trade. That’s unique. Our tiqpit platform has no potential conflict of interest against any network participant. It’s tailored to the participants’ needs, with the aim to open the commodity and energy market for everyone.

So, blockchain was the best option?

commodity trading

At this moment, we see blockchain technology as the best solution to decentralize commodity trading. In short, commodity and energy supply contracts can be carried out automatically. They can be performed directly between producers and consumers (peer-to-peer). All other solutions, like cloud based services, will always have the ‘centralized touch’ with some control over trade matching, information flow or settlement.

Blockchain technology is the best way to connect all market participants (small and large producers, suppliers, consumers, authorities and auditors) in a direct and efficient way. Also, it allows participants to take control, by providing instant, real time information flow. At the same time, it offers significant cost reductions – by more than 30% per contract.

In your opinion, what are the challenges for blockchain adoption? Will we be seeing more smart contract use cases?

The technology is still emerging – it’s relatively new, and people tend to be skeptical about new things. Compare it with the evolving Internet in the early 90’s. New technology always has its faults, but, at the same time, it’s very exciting and offers lots of opportunities.  

  • We currently lack a common set of standards for blockchain transactions. We hope that this will be addressed in the near future.
  • I hope we’ll be able to standardize the wide variety of uses for blockchain and form some guidelines. This would help new products, smart contract use cases and services based on the blockchain evolve.
  • Although auditability and transparency are the benefits of blockchain, highly regulated industries may need to develop new rules. Blockchain’s distributed ledger transactions are likely to necessitate changes to industry regulations governing financial reporting, auditing processes or information-sharing regulations.
  • Also, laws will need to be made to govern blockchain’s smart contracts.
  • Of course, let’s not forget the security, vulnerability and validation of the transactions.

But all this will be addressed in the near future, in line with the current developments in the technology and as blockchain business ideas mature in the industry.

How did you come across Espeo, and what have we done for you?

We were searching for someone who would understand our needs from a technical perspective. Espeo provided just that, with your expertise in web design and smart contract development for our upcoming Token Generation Event (TGE). 
Espeo coded the smart contract (Solidity, Truffle, web3.js), including KYC mechanisms (AWS S3, Lambda) and implemented the Ethereum and Bitcoin payment module for the ICO. We also designed and developed the landing page (React.js). Tiqpit could start an ICO and proceed with their plan to revolutionize the commodities market.

blockchain-based product

Where do you see tiqpit in 5 years? What are your plans for the future?

In 5 years, with a 3.0 platform! But we would like to concentrate on the here and now, and create a great commodity trading platform based on the blockchain. See what we’re up to at www.tiqpit.com!
 
 

Categories
Blockchain Financial Services Software

What are DApps about? Decentralized applications explained

In a world where the terms “blockchain” and “start an ICO” are a staple of news in online press, it’s not surprising when something new emerges in that field. Enter a new model for building successful and massively scalable applications. Thanks to blockchain technology (and the massive interest surrounding it), we now have a new type of application called a “Decentralized Application” (DApps). These are sometimes referred to as blockchain applications. So, what are DApps exactly?

What are DApps about?

There are many different explanations as to what DApps are. The term “decentralized applications” isn’t strictly related to blockchain, however, DApps started to be recognized in recent years precisely because of blockchain. Generally, DApps are applications that run on some kind of a P2P network – multiple computers rather than a single one. Think of BitTorrent or TOR as a decentralized applications.
For an application to be considered a blockchain DApp that uses tokens, it must meet the following criteria:

  1. The application must be completely open-source. It must operate autonomously, and with no entity controlling the majority of its tokens. The application may adapt its protocol in response to proposed improvements and market feedback. However, all changes must be decided by consensus of its users.
  2. The application’s data and records of operation must be cryptographically stored in a public, decentralized blockchain in order to avoid any central points of failure.
  3. The application must use a cryptographic token (Bitcoin or a token native to its system) which is necessary to access the application. Any contribution of value from (miners / farmers) should be rewarded in the application’s tokens.
  4. The application must generate tokens and have an inbuilt consensus mechanism (Bitcoin uses the Proof of Work Algorithm).

So, to be clear: in this article, whenever I’m mentioning “DApp/DApps”, I’m only referring to the ones running on the blockchain (so, blockchain applications) and the ones that use tokens.

Blockchain applications? Three types of DApps

The Ethereum white paper distinguishes between 3 types of DApps.

  • The first category is financial applications that run on the blockchain.

These provide users with a way of managing their own money. Bitcoin is a DApp in the first category. Bitcoin provides the monetary system that is completely decentralized and distributed. There is no central authority that controls the money and all the power of managing money resides on the users and the protocol. Users are the owners of their money and they can do whatever they want with that money. Other examples of the DApp from the first category are the various “alt-coins”.

  • The second category are semi-financial applications which mix money with information outside the blockchain.

For example, insurance apps that refund money for a plane ticket if the plane is delayed (Fizzy). The ICO itself also belongs to the second category of DApps. It mixes a token sale with all the crowdsale functionalities for the idea for which the ICO is held.

  • Finally, applications that fall within the third category. These DApps utilize all the features that decentralized and distributed systems have to offer.

These don’t have to be financial at all. Good examples are online voting or decentralized governance (e.g. DAO, decentralized organization). These types of blockchain applications are the most popular ones. Dubai is thinking of using blockchain and building the first blockchain-run government. Another possibility of using blockchain in this category is energy distribution apps. So, the basic idea is that if I have solar panels on my home, and these solar panel produce more energy than I use, then I can sell the excess of power directly to my neighbor.
The classification of the three types of DApps is based on the Ethereum white paper. There’s another classification of DApps out there. You can find it here under “Classification of Dapps“.

The difference between DApps and smart contracts

Now that you know what DApps are, you may ask yourself another question. How do these smart contracts you’ve heard about fit into all that?
Smart contracts are programs that are executed and run on the blockchain. A smart contract defines the conditions to which all parties using the contract agree. So if the required conditions are met, certain actions are executed. When I buy tokens on the new ICO, a smart contract has rules written into itself. For example, if the ICO doesn’t raise enough money, all of the money I have invested will be returned to me, or that I cannot transfer new tokens until the ICO is successfully concluded.
DApps (Ethereum based) are blockchain applications where the smart contract is what allows it to connect to the blockchain. The easiest way to understand this is to compare a DApp with a Web App.

Frontend and backend

Traditional web applications have a frontend and a backend. The frontend is all that the users sees when entering a webpage. All of the HTML, CSS and JS are used to display the frontend and are used to connect to the backend.
The backend is where all the mechanics are implemented for the website, for example a database connection and serving the client information about their profile. Java, Python or Node.js are used on the back-end, combined with a SQL database.
DApps are similar to web apps, they may have the frontend (GUI in general) but what differentiates them from Web Apps is the backend. Instead of the Java API and a traditional database, we have a smart contract that connects to the blockchain and contains all of the logic for the application.
As opposed to traditional, centralized applications, where the backend code runs on centralized servers, DApps have their backend code running on a blockchain network. Each operation needs to meet the consensus of the network and is computed on every node of the network. So, decentralized applications consist of the whole package, from backend to frontend. The smart contract is only the backend part of the DApp.

What are DApps – best examples

In this section, I will present some interesting projects and blockchain applications that are built on the Ethereum platform just to show how varied DApps can be.

EtherTweet

From the EtherTweet website: the service provides a basic Twitter-like functionality. As it’s deployed on Ethereum blockchain, it means no central authority has control of what people publish or what they post. As a result, the user has all the control of their EtherTweets.

Etheria

Etheria is a game build on the Ethereum platform. It’s similar to Minecraft but what differentiates it from the rest is that you can purchase all the land tiles for ether. The user interacts with the game by sending commands. Those commands later go to the smart contract which controls the game behaviour. It’s completely decentralized and everyone can interact with it.

Gnosis

Gnosis is a prediction market platform which allows its user to participate in voting for different predictions. The platform offers users a place where they vote on predictions regarding various topics, from the weather to election results.

FirstBlood

A platform which lets users/players challange each other in DOTA2 and win rewards based on the bet or the tournament. FirstBlood offers different tournaments which are listed on the website, where players can participate and win rewards. The platform awards every winner with tokens. As it’s based on the blockchain, every match history is written and stored on the blockchain.

The future of DApps

Blockchain is really a young technology. The Bitcoin whitepaper was released in 2008, and Satoshi Nakamoto mined the first Bitcoin block in 2009. People knew that bitcoin was revolutionary but it took a few years for developers to truly figure out why. They later understood that Bitcoin was built upon a really revolutionary technology – blockchain.
We’re still in the process of understanding blockchain and what we can do with it – and understanding its real potential. Every now and then, more interesting uses of blockchain emerge from the community in the form of a really interesting ICO for a new DApp. I’d never have thought of using blockchain as a mean of distributing energy or for autonomous government projects.

What are DApps compared to the tech of the 90s?

I often compare the current state of blockchain and DApps to the early life of the Web. How we used the WWW back in the 90s and 00s is way different from how we use the web now. Something similar will happen to the blockchain and DApps. Seems like we’re still trying to find the real potential of this technology. In my opinion, many more interesting blockchain applications are on their way. I’m sure we’ll encounter uses that we’ve never thought about. I can’t wait to see what the future brings. And if you’re interested in building your own distributed application or blockchain product, click here – we can help.

Categories
Blockchain Financial Services

Adapting blockchain for business

The intricacies of blockchain technology can still perplex some people. So, how does a business adapt blockchain to its needs? That’s the question I’d like to answer in this article. I’ll start off with a few typical purposes, go through a popular funding strategy (ICO) and finish with some interesting blockchain-based projects.

The interest in blockchain seems to be constantly on the rise. Startups rise and fall on its hype. Corporations spend huge amounts on blockchain-related R&D. Some projects can potentially be disruptive for current businesses and economies.

What can I do with it?

As you might have heard, blockchain is the technology powering Bitcoin. But it’s so much more than just cryptocurrencies! I’m not going to dive into the minute details of how blockchain works. Instead, I’ll tell you about some of its core strengths.

Blockchains leverage modern cryptography, especially private and public keys. You can think of the public key as your username and the private key as your password. Just like a password, a private key should never be shared. This means it strictly represents a particular digital identity and allows each transaction to be signed off. This makes blockchain perfect for representing asset ownership by private key ownership. Assets can be either digital (e.g. Bitcoins) or physical (represented by digital tokens).

What are its strengths?

Think of blockchain as a distributed database. Instead of having a trusted party which controls a single server (as is the case with a traditional database), all the data is present on all nodes and each change is agreed upon by achieving consensus. Strong cryptography ensures that data can’t be tampered with after consensus has been achieved. This accounts for auditability, immutability and verifiability which is required in many applications, e.g. storing healthcare records.

Usually blockchain (e.g. Bitcoin) is a digital ledger, storing account balances and transactions. The possibilities, however, don’t end there, because with the arrival of smart contracts blockchains became platforms for virtually any distributed application. Such a smart contract can model a DAO (decentralized anonymous organization), a crowdfunding campaign or a very specific set of rules for a particular transaction. This way, blockchain becomes a global platform for computation, while maintaining all the strengths I’ve mentioned.

Initial coin offerings

So, you have an idea on how to incorporate a new cryptocurrency into your project. However, you still lack the funds. This is where an ICO (initial coin offering) comes in.

Initial public offerings serve the purpose of raising capital in exchange for ownership in a company. ICOs are similar in purpose but instead of selling ownership a newly launched coin is being offered. What the coin represents is solely up to your business idea, e.g. just the coin itself bought for internal use on the platform (see Humaniq ICO) or a share in organization profits (see vDice ICO).

However, successfully gathering funds through an ICO is not an easy task. You need to invest time and money into a campaign, generate hype and excitement around your product, as well as provide a clear and informative whitepaper describing both the product and the coin. Because of many scams and failed ICOs in the past you need to convince the potential buyers of your coin to trust you with their money. Last but not least, you allocate funds for some development. You need the actual ICO implementation and your position would be stronger with at least PoC implementation of your product.

There’s a lot more to a success of an ICO, make sure you’ve got everything right because you might only get one shot at it. Your business idea is important, but you need to put a lot of effort in if you want to make your new cryptocurrency truly revolutionary. That includes getting the technical part right.

Interesting projects

According to tokenmarket.net, there are 27 open ICOs at the time of writing this article. This shows how many new projects utilizing blockchain are launched on the current market. Some of them are solving really interesting challenges. I’ll describe a few blockchain projects that caught my eye. I’m not going to dig too deep into details, I just want to show you the wide spectrum of ideas where blockchain is applicable.

Ethereum

Ethereum is one of the most successful blockchain platforms for running smart contracts. It has its own internal currency called “ether”. Each transaction, be it transfer of ether or interaction with a smart contract, costs a certain amount of “gas”, which is paid in ether. The initial crowdsale of ether tokens gained around $18m. Ethereum has a vibrant community and many blockchain projects are introduced with Ethereum as their base.

Bancor

The idea behind Bancor is introduction of “smart tokens” which are coins implemented as smart contracts (currently ethereum-based) backed by reserves of other tokens. This allows an instant exchange of tokens with no spread – and at a continuously calculated priced, based on the token supply and demand.

Humaniq

Ethereum and Bancor leverage blockchain for its further development along with the cryptocurrencies world. However, Humaniq’s target is to disrupt the current financial status quo. The project aims at building a mobile bank that requires only a smartphone. It should give access to financial services to people in developing countries, potentially bringing them out of poverty and encouraging entrepreneurship. The ICO was closed at much more modest $5m but the humanitarian aspect of the project can’t be ignored.

Steem

Posting valuable and high quality content to social networks generates revenue for these networks itself. That’s where Steem surfaces – with the idea of rewarding users for generating content, as well as voting for pieces they especially like. This inspires users to contribute superior content. There are 3 cryptocurrencies linked with the project: Steem, Steem Power and Steem Dollars, each of them with its own purpose. The idea is explained in detail in the whitepaper.

ICO

Basic Attention Token

Current online advertising is profitable for the publishers and advertisers. Users are bombarded with an abundance of ads. So, they usually lean towards solutions such as AdBlock. The introduction of BAT ethereum-based cryptocurrency combined with a new browser called “Brave” tries to change this by rewarding users for the attention they pay to the ads, while allowing publishers to buy and advertisers to sell ads. This should result in better targeted ads and less fraud. It’s designed to be beneficial for all parties of the Internet ad business. The idea seemed so attractive for investors that the ICO sold out $35m worth of tokens in 30 seconds!

Your move

Now you know basic blockchain strengths and how to leverage them. As you can see, it has many applications across all kinds of businesses, even though it’s not applicable everywhere. If your innovative business idea includes launching a new cryptocurrency, you can consider an ICO as a source of funding.

Be wary that although the ICO success stories are spectacular, it’s not exactly a breeze. You can always shoot us a message or email if you’re still confused about how to use blockchain for your business. And if you’d like to see how an ICO can be built on the Ethereum platform, head on here.