Skift Take

Blockchain technology has the potential to disrupt nearly every aspect of every industry imaginable. But can it overcome its predecessor's (Bitcoin) stumbles and, if so, how would it potentially work in the travel space?

Did you ever wish you could instantly receive your American Airlines AAdvantage miles as soon as you settled into your cramped middle seat?

Or that you didn’t have to worry about carrying around your passport with you everywhere you go when you’re traveling abroad? Or what if, the next time you book a listing on Airbnb, your reputation score and that of your host can be confirmed instantly?

A single technology disruptor, born of Bitcoin, is emerging as a possible solution for those travel-related situations. It’s blockchain, the underlying system by which a cryptocurrency like Bitcoin operates. Bitcoin is just another name for digital currency and it runs off of blockchain.

“Bitcoin is like Skype for money,” said Melanie Swan, a blockchain theorist at the New School for Social Research in New York. “It digitizes it, and put money on the Internet. Blockchain is the software protocol upon which Bitcoin runs.” Swan gave the analogy of email to better describe how blockchain operates: just as you’d send an email over an email SMTP protocol, you can send money (Bitcoin) over blockchain’s protocol.

Understood in its most basic form in relation to currency, blockchain is similar to a peer-to-peer platform like PayPal or Venmo, but without having to wait for your bank and the other person’s bank to verify that transaction, or having to pay a fee to transfer that money. For blockchain to work, however, you don’t necessarily need Bitcoin; it can work with any currency or cryptocurrency, or basically any type of information.

Blockchain is a shared, public ledger that’s theoretically made secure because information is always added to it, but can never be removed. All transactions are chained together so there can’t be any duplicates or changes to who owns the currency, or information. An algorithm using cryptography verifies each transaction for authenticity and each transaction has to be agreed upon across the entire network for it to work. Whatever transactions that take place on blockchain become record, and that’s how the system builds “trust.”

Banks’ Interest

In a December investors note prepared by Goldman Sachs, the analysts had this to say about blockchain: “This decentralized, cryptography-based solution cuts out the middle man. It has the potential to redefine transactions and the back office of a multitude of different industries. From banking and payments to notaries to voting systems to vehicle registrations to wire fees to gun checks to academic records to trade settlement to cataloguing ownership of works of art, a distributed shared ledger has the potential to make interactions quicker, less-expensive and safer.”

In recent months, blockchain has garnered quite a bit of attention from financial institutions. Recently, banking giants J.P. Morgan Chase and Citigroup completed a successful test run of blockchain using credit-default swaps, The Wall Street Journal reported.

A new startup, Digital Asset Holdings, from Blythe Masters, the former global head of commodities for JP Morgan Chase, is attempting to develop mainstream applications for blockchain. It has raised more than $50 million from investors that include J.P. Morgan Chase, Citigroup, and BNP Paribas.

IBM is another company that is taking the technology seriously. As a member of the Linux Foundation’s open source Hyperledger Project, IBM is working with other like-minded companies to try to find solutions for applying blockchain technology across various industries.

In fact, on April 29, IBM announced the debut of a new permission-based blockchain code that allows for more secure operation of blockchain networks, as well as new IBM Cloud services that enable blockchain networks to comply with existing regulatory and security requirements.

IBM Vice President of Blockchain, Jerry Cuomo, told Skift that the new code IBM debuted will help other developers work to further evolve blockchain technology and that the new cloud-based service makes it that much easier for organizations and business to adopt blockchain software for their businesses by removing concerns about security.

“Clients kept telling us that one of the inhibitors of the adoption of blockchain is the concern about security,” said Cuomo. “It was important for us to achieve data and identity protection and data consistency that’s required by businesses both large and small. This gives businesses more assurance that the blockchain has integrity and it’s something customers have really been asking about.”

Succeeding Where Bitcoin Has Stumbled

Bitcoin, quite famously, has had quite a few challenges in the past few years. One of its largest exchanges, Mt. Gox, completely collapsed in 2014, and the cryptocurrency hasn’t always had the most stellar reputation. Earlier this year, one of Bitcoin’s most prominent leaders, developer Mike Hearn, abandoned the project altogether, writing in a blog post that “the network is on the brink of technical collapse.”

Jeff Klee, CEO of Amtrav, the parent company of CheapAir, knows a lot about Bitcoin and its applications in travel. In November 2013, CheapAir became the first U.S-based online travel agency to accept Bitcoin. Seven months later, the company was reporting more than $1.5 million in sales for flights and hotels in Bitcoin. Since then, however, Klee says his Bitcoin business has more or less reached a plateau.

“The Bitcoin transactions haven’t fallen, but they just haven’t really grown,” he said. “We have our core base of Bitcoin customers, but it’s not a growing customer base.”

Klee says that while Bitcoin has had its fair of challenges, he wouldn’t say it’s been a failure. “I wouldn’t completely call Bitcoin dead. It’s just not as promising as two or three years ago.” He added, “Bitcoin hasn’t reached the potential that a lot of people thought it would, or could. I do think, and I said this from the beginning, the biggest opportunity was the technology [blockchain] more so than the actual currency [Bitcoin]. To become a mass market way of paying, Bitcoin need to appeal to the average, mass market consumer.”

Right now, however, Klee sees challenges for travel companies that want to use blockchain technology “to create their whole financial ecosystem around it” and he believes the technology requires more mainstream acceptance to be able to gain more traction. At the moment, he said, the most travel companies can do with the technology is to accept Bitcoin or other cryptocurrency payments.

“I think [blockchain] is a promising technology that could have a major impact on the financial system some day,” Klee said. “It definitely makes sense for companies to be monitoring it and looking at it to see if and when there’s an opportunity to do something with it.”

IBM’s Cuomo says it’s important to note the distinction between Bitcoin and blockchain. One is a cryptocurrecy and the other is the underlying framework by which that cryptocurrency works.

“What makes us interested in blockchain has nothing to do with Bitcoin, other than heritage,” he said. Cuomo described blockchain as more of a “design pattern to get something done” and that while “there is a blueprint for blockchain, there’s no single way to do it.”

One big difference between the two, however, is that Bitcoin’s blockchain is “anonymous” whereas blockchain itself doesn’t have to be. “Bitcoin uses blockchain to make certain assumptions, and anonymity is an important assumption that it makes,” Cuomo said. “They want anonymous participants in Bitcoin and you can use blockchain to construct something like that. But we didn’t feel like that was constructive for what we were trying to build with blockchain. We’re trying to give businesses the benefits of blockchain but forgo the anonymity part.”

Even though blockchain applications are still fairly new, that hasn’t stopped some startups or companies from trying to utilize it, or trying to think of the technology in ways that could apply to the travel sector. Here are a few examples:

Loyalty Programs

IBM’s Cuomo said he could envision the creation of rewards points and marketplaces built on blockchain technology, and one such blockchain-enabled loyalty program in existence is Loyyal’s Network.

Theoretically, with this universal platform, you might be able to pay for your hotel room upgrade with airline points, or purchase your daily cup of coffee with some extra points from your car rental loyalty program. Earning points would be instantaneous — the minute you step onto your plane you could instantly earn your loyalty points and have them stored in your digital wallet, and the airline could even incentivize travelers to spend on in-flight purchases with a slight boost in in-flight points, for example.

Sean Dennis, chief operating officer and co-founder of Loyyal (formerly known as Ribbit.me), said the company’s current platform can be applied to existing redemption networks and that brands can also choose which other brands they want to include in their own reward app on the blockchain, whether it’s members of the same airline alliance or hotel and car rental partners. And by using smart contracts (contracts that operate on a principle of “if this, then that”), the platform can use customer data to send targeted incentives or promotions directly to certain travelers.

Swan noted the emergence of one blockchain startup, called La ‘Zooz, that operates like a “decentralized, Bitcoin-based Uber.” Instead of being a centralized platform like Uber or Lyft, La ‘Zooz basically enables anyone with its smartphone app to earn “zooz” tokens as they drive, and those tokens can be applied to future rides from someone else in the La ‘Zooz community. It’s a completely decentralized system and the “trust” between users is established via the public data that’s being exchanged on the system.

Identification Purposes

In addition to working for government-issued identification cards, driver’s licenses, or passports, the blockchain could also be used to store immunization records, or electronic medical records, too, for example.

“Anyone could confirm, with a real-time look up, to the blockchain to see if it’s a valid passport,” said Swan. “All of these forms could be a part of your digital wallet — and you could access it securely and privately and get your records.”

Airbnb co-founder Nathan Blecharczyk recently said in an interview with City A.M. that Airbnb is looking into blockchain technology as a possible way of establishing hosts and users’ reputations and identification information.

He said, “I think that, within the context of Airbnb, your reputation is everything, and I can see it being even more so in the future, whereby you might need a certain reputation order to have access to certain types of homes. But then the question is whether there’s a way to export that and allow access elsewhere to help other sharing economy models really flourish. We’re looking for all different kinds of signals to tell us whether someone is reputable, and I could certainly see some of these more novel types of signals being plugged into our engine.”

In April, Airbnb acquihired the majority of employees working at ChangeCoin, a Bitcoin-based micropayments service, although the company was quick to note, “We are not acquiring the assets of the company, nor do we have any plans to incorporate Bitcoin into the Airbnb ecosystem.”

E-Residency

Estonia, the Eastern European country that gave us Skype, is also pioneering the way we do business on the blockchain with its e-residency program. It allows non-residents to have a secure digital identity issued by that country, sort of like a permanent residency card or an ID card, and it also includes access to a certain set of services provided by that country. But to be clear, it’s not the same thing as actual, legal residency.

With Estonia’s current e-residency platform, e-residents can start up a business in Estonia within the legal framework of the European Union in as little as 18 minutes. Today, the program is being used by the country to encourage entrepreneurship from folks around the world, but Swan, who recently gained e-residency in Estonia, thinks this kind of program has potential applications for promoting tourism or travel to a particular destination.

“If you think about how destinations try to attract tourists, you see how Estonia is attracting people to have e-residency and come to their country to do different kinds of services, too,” she said. “You see countries like Estonia taking the lead on crypto currencies and having a way to extend programs and services beyond their core domestic citizens.”

At the moment, there are only a few thousand Estonian e-residents but the program continues to grow, as do its applications for blockchain technology. In February, Nasdaq and Estonia announced they are teaming up to offer a blockchain-based e-voting system on the country’s e-residency platform. This way, shareholders of companies listed on Nasdaq’s Tallinn Stock Exchange, can easily vote in shareholder meetings.

Powering Travel Businesses and Operations

Cuomo also thinks it isn’t too far fetched to imagine blockchain technology powering the back-end reservations systems for hotels, or airlines. “Everything that has to come together to make a flight take off or make a hotel operate — all of that can be managed through a blockchain network. Anything where there are multiple parties involved — a blockchain could really speed that up because you’re working on the same ledger.”

In many instances, blockchain technology is still in its infancy, and while it’ll probably take a few more years for this technology to become more mainstream, enterprising organizations and companies are looking into it.

“Do you remember cell phones and the Internet?” said Swan. “We knew what they were back in the ’80s, but it took about 20 years for everyone to access to them. I think it might be the same for blockchain, but it may take five to 10 to 20 years for it to be really mainstream.”

Below is a short video from the World Economic Forum that explains what blockchain is and what its potential implications could be:

smartphone

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Tags: blockchain

Photo credit: A man arrives for the Inside Bitcoins conference and trade show in New York. The technology underlying Bitcoin is more interesting to travel brands than the e-currency itself. Mark Lennihan / Associated Press

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