BLOCKCHAIN TECHNOLOGIES IN PAYMENTS

Transcription

1 BLOCKCHAIN TECHNOLOGIES IN PAYMENTS OBSERVATIONS FROM INFORMATION SYSTEMS SCIENCE JUHO LINDMAN, UNIVERSITY OF GOTHENBURG, VIRPI KRISTIINA TUUNAINEN, AALTO UNIVERSITY, SFC WORKSHOP, GOTHENBURG MAY 17, 2017

2 BLOCKCHAIN NOT WELL UNDERSTOOD

3 Agenda 1. Changing landscape of payments 2. What is blockchain 3. Observations and remaining questions

4 Present picture Current financial system Heavy infrastructure Centralized database architecture Transferring money expensive

5 What is changing and why? Increasing number of mobile devices and cloud services About 2.5 billion people (globally) without access to banking services Increasing number of cross border payments Needs for anonymity Decreased trust in traditional payment systems Proliferation of digital (crypto) currencies Significant number of new payment services and service providers Technology for peer-to-peer payments maturing

6 Changes and new payment instruments Towards cashless society Payment cards (debit/credit) (magnetic stripe, chip, NFC) Internet payments (credit card, direct debit, internet payment services, e.g. Paypal, Alipay) Mobile payments 6

7 2008 Sept

8 2008 Oct

9 What is blockchain Blockchain technologies multiversion concurrency control mechanism entire transaction history is stored in a (block) chain in a public ledger Example: Bitcoin as both distributed transaction system and a coupled currency (as unit of account) wallets are pseudonymous (however see Meiklejohn, Pomarole et al. 2013) Community: users, miners, proponents businesses, intermediaries

10 Instant secure transfer of unique digital item 1. Centralised (databases) 2. Trusted third parties: (for example central banks, banks, government) 3. Closed ledger 1. Decentralised 2. Distributed trust technology, Sequential authorative history of transactions 3. Public ledger (pseudonymous)

11 4 key innovations: 1. A public transaction ledger 2. A decentralized peer-to-peer network ( bitcoin protocol ) 3. A decentralized currency issuance (distributed mining) 4. A decentralized transaction verification system

12 Digitalization of money Alternative currencies: Customer loyalty bonus systems (e.g. airlines, retail chains) Village currencies Digital currencies In-game currencies, e.g. Farmville cash, Minecraft diamonds Currencies of virtual worlds, e.g. Linden dollars Mobile currencies, e.g. M-pesa Crypto currencies, e.g. Bitcoin (and about 200 others) (ref: Robin Teigland 2015) 12

13 Cryptocurrencies Cryptocurrency system is a network that utilizes cryptography to secure transactions in a verifiable database that cannot be changed without being noticed. Cryptocurrency system assumes that transactions are transmitted in a peer-to-peer fashion. Increasing number of Bitcoin copies emerging Peer-to-peer mobile currencies coming and going + 10 % intra day volatility problematic Difficult to use as means of payment both for payer and payee Role of cryptocurrency exchanges important but difficult Solution: mobile currency guaranteed by a traditional bank or other trusted party? 13

14 Observations Theme 1: Organizational issues Theme 2: Competitive environment Theme 3: Technology design

15 Theme 1: Organizational issues The digital payment platforms so far mostly technology providers due to the nature of financial transactions the maturation of the technology and more wide spread use will raise new legal and institutional issues. Network effects are those positive or negative effects that one user s actions have on another user s valuation of the network. The value of membership to one user is positively affected by another user joining and enlarging the network. Success of platform-mediated networks (services) depends highly on the size of the user network. Both same-side effects and the cross-side network effects are highly relevant in the context of decentralized payments. Decentralization, blockchain technology and the underlying distributed database technologies offer possibilities also for new business models.

16 Theme 2: Competitive environment New digital payment systems are not introduced to fill a previously nonexistent need, but instead in the heavily contested banking service landscape. Consumers payment behavior. Users reluctant to change their payment behavior, but if the context is such that they find the new payment systems better and/or cheaper, the change can be rapid. The trust issues more complicated in payments than in most other new technologies.

17 Theme 3: Technology design When designing of new technology that changes long established patterns of user behavior in sensitive areas - such as, changing ownership of goods and monetary transactions - it is important to conduct trials in different kinds of settings and with different prototypes.

18 Blockchain examples: Gothenburg

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