The Blockchain Identity

M2M WorldCampbell R. HarveyDuke University and NBER

FUQINTRD 697: Innovation and Cryptoventures

Campbell R. Harvey 2020


Machine to Machine PaymentsThree stages of the Internet• Initially, a way to gather information (via search or just visiting a website).• Next, social media where new communities were enabled by the Internet.• Over the next few years, the third wave will be machine to machine

payments enabled by the Internet.


Machine to Machine PaymentsCurrent payments on the Internet• Today, it is possible to pay for things on the Internet. However, the

technology is clunky. APIs allow you to enter credit card or bank information.

• Current payments are only feasible if they are of sufficient size.• Merchants face a 3% credit card fee.• You need to have a credit card or bank account to play in this space.


Machine to Machine PaymentsWith today’s technology, there are severe constraints• Consumers pay for things but they cannot be paid (exception Amazon Turk).• It is infeasible to think about forcing customers to pay, say 5 cents to visit

your webpage and it is equally infeasible to think about paying someone to visit your website or advertisement.


Machine to Machine PaymentsIt is generally not known that machine to machine payments are already possible.• Look up HTTP 402 code (you all know the frequent 404 error – website

not found).

Campbell R. Harvey 2020https://en.wikipedia.org/wiki/List_of_HTTP_status_codes

402 Payment RequiredReserved for future use. The original intention was that this code

might be used as part of some form of digital cash or micropayment scheme, but that has not happened, and this code is not usually used.

http://online-blockchain.com/2017/11/28/how-21-micropayments-work/

https://en.wikipedia.org/wiki/List_of_HTTP_status_codes

https://en.wikipedia.org/wiki/Digital_cash

https://en.wikipedia.org/wiki/Micropayment

http://online-blockchain.com/2017/11/28/how-21-micropayments-work/

Machine to Machine PaymentsTasks and demographic information• Using HTTP combined with a cryptocurrency wallet, the payments are

instant. Further, you do not need a traditional bank account.• Think of getting into an Uber and completing a few surveys during your

ride. For each survey, you get $2.50. Enough to pay for the Uber.• Some of these tasks are explicitly learning about your preferences. That

is, you are offering up your demographic profile.


Machine to Machine PaymentsA new way to think about email• At the top of your inbox are emails from your work, friends and family.• However, companies pay you to accept email from them.• The highest paying company will have the highest placement in your

inbox.• If you open the email, you are also paid. If you click on a link in the email,

you may be paid more.


Machine to Machine PaymentsEmail is no longer free• Everybody pays to send an email. • If I am sending to a friend, the fee is very low, say 1/10th of a cent.• Companies will pay far more if my demographic profile is attractive to the

company.• As a side benefit, spam is eliminated. Over half of all Internet email traffic

is spam today.• In terms of the economics, it is never efficient to price something at zero.


Machine to Machine PaymentsThe web is no longer free• In this world, almost every site you visit you pay a small fee.• The fee is so small that it does not deter even the poorest user in Africa.• While small, this fee puts the entities that engage in DDoS attacks out of

business – freeing up about one third of the current bandwidth.


M2M will disrupt …

Google and Facebook account for 85% of online advertising Models like Google AdWords are not sustainable in the M2M world

• Google has $90b in advertising revenue in 2016.

Micropayments will disrupt:• Cellular service, audio/video/ pay-for-view,

computing, storage, share economy, etc.

Campbell R. Harvey 2020https://searchenginewatch.com/2016/05/31/the-most-expensive-100-google-adwords-keywords-in-the-us/

https://searchenginewatch.com/2016/05/31/the-most-expensive-100-google-adwords-keywords-in-the-us/

M2M will disrupt …

Implications of micropayments – a world of near zero transactions costsDisruption also leads to new assets:

• Cellular service • Audio/video/ pay-for-view • Travel, rentals• Computing • Storage • Share economy, etc.


Machine to Machine PaymentsGDPR• May 25, 2018. EU passes General Data Protection Regulation

• Gives EU citizens more control over their data• Organizations that gather data held to higher standard and legal implications for

data breaches are much more serious• Other initiatives: ePR (ePrivacy Directive) focuses on encrypted communications

Campbell R. Harvey 2020https://eugdpr.org/

https://eugdpr.org/

M2M already happening






Blockchain landscape



Blockchain business categories*

Transactions & Payment Services:• Startups whose primary use cases involve buying, selling, or storing

cryptocurrencies without a financial intermediary. The term cryptocurrency refers to a digital asset which functions as a medium of exchange on a distributed ledger. Smart contracts are programmable, transparent transaction contracts which self-execute upon the fulfillment of its terms of agreement. Wallets are software programs which interact with various blockchains to let users store, send, and receive crypto-assets and monitor their holdings. Some wallets extend services internationally and specialize in low-fee cross-border remittances. Merchant services enable vendors or organizations to participate in crypto-transactions. Finally, micropayment startups offer payments for metered content in small denominations. Campbell R. Harvey 2020

*Source: PitchBook


Cryptocurrency Exchanges & Trading:• Crypto-exchanges are platforms for exchanging cryptocurrencies into other

cryptocurrencies, fiat currencies, or vice versa. Peer-to-peer marketplaces enable two parties to directly exchange goods and services without an intermediary, while peer-to-peer lending platforms enable peers to extend and receive credit/loans through a blockchain. This segment includes crypto-investment companies who invest in cryptocurrencies with the intent to generate a return via value appreciation, as well as tools used to manage crypto-investments. Accordingly, startups providing clearing and settlement blockchain platforms for crypto-trading, forex and crypto-derivative markets are also included. Prediction markets involve speculation trading based on forecasts of economic and political events. Finally, fundraising platforms allow startups to complete blockchain-based fundraising and help prospective investors find such startups.

Campbell R. Harvey 2020*Source: PitchBook


Identity, Authentication, & Security:• An inherent characteristic of a blockchain is the immutability of transaction

records. Startups here use digital ledger software to verify the authenticity of data, as well as assets or documents, using blockchain identifiers to represent and/or authenticate tangible assets. Additionally, these startups leverage identity verification methods to track the cryptographic identity of an individual, entity, device, item, etc. Although blockchains themselves are secure by nature, blockchain-based applications are still vulnerable to cyber-attack. Startups in the security category create secure foundations for transactions, data storage, and network communication.



Enterprise Blockchain Solutions:• Startups in this category provide enterprise-level blockchain

solutions to entities operating in sectors such as financial services, healthcare, insurance, and supply chain. This includes the development of industry-specific software as well as subscription leasing of proprietary blockchain platforms.



Social, Games, & Gambling:• In this category, startups leverage decentralized networks to enable

social and networking platforms used for recruiting, classifieds, dating, and loyalty programs, among other use cases. One of the primary benefits such companies provide is the ability to share data and content without allowing a centralized third-party to assume any level of ownership of such content. Blockchain games include applications and tournament gaming platforms where users can compete for prize pools. Gambling startups allow users to place bets from anywhere around the world via blockchain peer-to-peer networks. Campbell R. Harvey 2020

*Source: PitchBook


Ecosystem:• This category includes startups furthering blockchain technology via

underlying infrastructure improvements and software development tools. The issues such companies address include those related to scalability, interoperability and governance, among others. While some of these companies could also be listed under “Enterprise Blockchain Solutions,” they are included here for the contribution of their open-source technology to the ecosystem. Mining companies provide products and services which assist in the computational process of solving cryptographic problems to earn cryptocurrency units. Data storage and hardware companies cater to the operational necessities of blockchain services.


Documents

The Blockchain Identity