Love blockchain?
Thank a spammer.

blockchain-3019120_1280These days blockchain technology shows up in the news with regularity. Deservedly so. It promises a new level of security for a host of online transactions,[1] and not just for cryptocurrency. Blockchain has proved useful for ensuring the security of stock trades, currency exchanges, retail sales, contracts, diamond and gold exchanges, health care data, and more.

Blockchain presents a rather daunting challenge to would-be hackers. It is, essentially, an online ledger with identical copies distributed around the world. Hacking one copy would instantly betray it as out of sync with its myriad copies; and hacking all copies at once is, as of this writing, beyond the technological reach of even the most adept hackers.

In an interview published by Harvard Business Review, Harvard Business School professor and co-founder of the HBS Digital Initiative Karim Lakhani explained blockchain technology this way:

When a transaction is posted on the network between two parties, other nodes on the network compete to solve a mathematical proof that locks that transaction into everybody else’s ledger as well. So if you wanted to go back and hack the Blockchain ledger, you would have to undo every single other prior transaction. And that proof of work and the chain aspect of the block—a block is a transaction—is chained to all prior blocks, is what makes this the interesting technological innovation that the Blockchain is.

Looking for someone to thank for blockchain? Try spammers.

In popular lore, breakthrough technologies are born overnight thanks to a lone visionary. It makes for inspiring storytelling, but it’s almost never true.

Take, for instance, iPhone. IBM explored touchscreen technology for phones 47 years before iPhone’s debut. And the idea for developing touch-screen tablets didn’t come from Jobs. A skunkworks at Apple pursued it in secret until they dared show it to their capricious and unpredictable boss—who at first dismissed it out of hand.[2]

Likewise, contrary to what many believe, blockchain technology didn’t pop into existence overnight, nor did bitcoin’s pseudonymous creator Satoshi Nakamoto invent it. On the contrary, the series of events that led to blockchain as we know it today were set in motion by none other than spam. But then, perhaps email deserves the credit, since spam was set in motion by email’s rapid popularity gains in the early 1990s. (Email was no overnight creation or sensation, either, its having been under development since 1965.)

In 1992, the growing spam problem promoted computer scientists Cynthia Dwork and Moni Naor to produce a paper entitled, “Pricing via Processing or Combatting Junk Mail.” In it, they proposed filtering out cyber attacks by posing problems human minds could readily solve but computers couldn’t. The idea proved useful. Soon dubbed a proof-work-system, or POW for short, it found its way into a number of applications we now all encounter every day. When you must prove you’re not a robot—say, by correctly typing in CAPTCHA characters or identifying related photos on a grid—you’re dealing with a derivative of Dwork’s and Naor’s proposal.

In 1997, British cryptographer and crypto-hacker Adam Back proposed a proof-of-work-based spam filter he called Hashcash. It proved significant, for Microsoft improved on Hashcash’s technology to create proof-of-work-based spam filters for Exchange, Outlook, and Hotmail. And it was Hashcash’s technology that Satoshi Nakamoto adapted when he (she?) used blockchain as the underlying technology for an electronic P2P based cash system, namely, bitcoin.

Today, one industry after another has glommed on to blockchain. As Chief Technology Officer Marc West and I blogged last year for our employer, Fiserv:

Pick a service that involves moving assets, and it’s likely blockchain has the potential to play a role. It could transform person-to-person payments, data sharing, person-to-business money transfers, securities exchanges or even movement of frequent-flyer miles, to name a few …

… The security features work toward enhancing confidence in the network and driving cost benefits in areas such as exchanges. The real-time functionality may lead to shorter, and less costly, settlement cycles on trade day.

… blockchain has transformative potential for those who dig in and understand it. Top organizations are testing its use cases. Now is the time to take a long-term, purposeful approach to finding the most valuable areas and smart ways to leverage the value that blockchains create.

I couldn’t have said it better myself.

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Never say never

silhouette-3129148_1280Never trust an absolute. (Irony intended.)

The historical floor is littered with axioms once immune to challenge because, according to circular reasoning at the time, everyone knew they were true. Take, for instance: Running a mile in under four minutes is physiologically impossible, we’ll never put a human on the moon, only people use tools, guitar bands are on their way out, and there is no reason anyone would want a computer in their home.

Thanks to the ingenuity of the criminal mind, we now have a more recent absolute to discard: Blockchain technology is secure.

Blockchain technology’s roots stretch back to a 1992 idea for combatting junk email, later dubbed a Proof-of-Work system (POW). The original idea was to present challenges daunting to computer but not human processing. Everyone’s favorite annoyance, CAPTCHA, is an example. This in time led to Hashcash, a spam-stopper notably used by Microsoft in various applications. Full-fledged blockchain technology emerged when “Satoshi Nakamoto,” whose true identity remains a mystery, used Hashcash’s proof-of-work function as the mining core for Bitcoin. Medium’s Aleksandr Bulkin wrote:

… the way Satoshi combined [Hashtag’s POW] and other existing concepts — cryptographic signatures, merkle chains, and P2P networks — into a viable distributed consensus system, of which cryptocurrency is the first and basic application, was quite innovative.

Blockchain is “similar to an enormous ledger,” reports Fraedom, that “… stores transaction data across vast networks of computers that constantly check and verify information with each other.” To hack innumerable, identical copies of a transaction spread around the globe is a near impossibility at this time. That is the essence of the technology’s imperviousness to mischief.

It wasn’t long before industries with no interest in Bitcoin nonetheless showed an interest in blockchain. Since its essential features—distribution, transparency, and permission—made online counterfeiting and fraud pretty much impossible, blockchain seemed to promise an ideal way to conduct secure transactions online.

The problem with “pretty much impossible” are those words “pretty much.” Blockchain has not turned out to be invulnerable.

Enter ComboJack

ComboJack may sound like a cholesterol-laden breakfast offering on the menu at Denny’s, but in fact it’s a malware application designed to steal online currency—including Bitcoin, Ethereum, Litecoin and Monero. Self-described next-generation security company Palo Alto Networks discovered the app and named it ComboJack “… because of how it attempts to hijack a combination of digital currencies.”

According to Palo Alto, ComboJack targets cryptocurrencies and online wallets …

… by replacing clipboard addresses with an attacker-controlled address which sends funds into the attacker’s wallet. This technique relies on victims not checking the destination wallet prior to finalizing a transaction … ComboJack targets both a range of cryptocurrencies as well as digital currencies such as WebMoney and Yandex Money.

ComboJack finds its ways into computers via an innocent-looking email and is unleashed by clicking on an attached PDF. The malware relies on the fact that humans aren’t fond of typing and retyping digital wallet addresses, preferring to copy and paste them. I wouldn’t call the preference laziness, but pragmatism. Just yesterday, as I moved some cryptocurrency from my coinbase account to a hardware wallet, I saw for myself how cumbersome those strands of code are for anyone self-punishing enough not to use copy-and-paste.

On the reassuring side, according to SC Magazine, CrytoJack’s “… early results don’t appear impressive.” Still, there is prudence in looking at malware the likes of ComboJack as an initial foray. Nastier iterations are likely coming. For that matter, ComboJack is itself something of an iteration of CyptoShuffler, a trojan that, as also reported by SC Magazine last October, had by then absconded with $145,000 worth of Bitcoin.

As I have noted before, cyber security is an arms race. The moment the good guys come up with new levels of security, the bad guys rise to the challenge and look for ways to beat them. If I had to come up with something positive out of that, I suppose I could say that the perpetual nature of the arms race provides job insurance for both sides.

All of which spells an opportunity in the wallet software space. I’m betting that operating system manufacturers the likes of Microsoft, Apple, Google, and others will not be long in offering support for labeling, or at least simplifying, wallet address management.

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Putting digital payments where your mouth is

Computer DiningHere’s how my grandparents dined out:

They sat, ordered, ate, and, when the check arrived, gave the server cash. The server returned with change, hoping some or all of it would remain behind, thanks to America’s curious practice of underpaying servers and expecting diners to make up the difference.

By the time my parents were dining out, paying with cash had declined to the point of being almost quaint. It was more common to slap down a credit card. The server would return with a slip of paper sporting a blank for writing in a tip amount.

Now we have portable mag strip readers brought to your table by a server; tabletop tablets from which you can order, pay, and tip; and direct payment via the portable device of your choice.

McDonald’s even lets you use your portable device to order and pay before you leave home. Only upon your arrival at the store is your food prepared and your account charged. This gives you the convenience of waiting in a designated parking space instead of waiting a roughly equal amount of time at the drive-up window.

Of course, fast food vendors have long mounted card readers outside the drive-up window. Surely someone has used one sometime, but I’ve never witnessed it.

And now MasterCard has issued a press release boasting that in the U.K.,

Diners at Pizza Hut restaurants across the country will be able to pay through their mobile without having to ask a waiter for the bill, saving them 12 minutes on average.

The news packs a double surprise.

The lesser surprise is that it takes about 12 minutes to pay your Pizza Hut server the new old-fashioned way.

And the greater surprise? That there are still parts of the world with sit-down Pizza Hut restaurants. Such are all but a relic in the U.S.

Server-less payment comes to U.K. Pizza Huts via the MasterCard app Qkr with Masterpass. It is designed to make a cinch of “…splitting the bill at a restaurant, ordering food to your seat at the cinema, or pre-ordering your child’s lunch.”

Besides offering a customer convenience, tableside POS systems promise a profitability boost for the restaurant industry as a whole. It has to do with table turns, that is, how fast restaurateurs cycle diners. Hospitality Technology places the average time saved per table by tableside POS systems at about 10 minutes, suggesting that …

… Cutting down that wait time by bringing the payment device to the table not only leads to more table turns and increased face-time, but also higher customer satisfaction. The result is better tips for servers. We witnessed this firsthand in Canada, where Pay-at-the-Table became the standard shortly after that country’s EMV migration in 2010.

In The Benefits of Tableside POS for Restaurant Owners and Servers, FSR reports:

Deployment of tableside POS can help streamline the dining experience and even increase tip percentages for servers. Casual-dining chain Olive Garden has already adopted tableside payment systems and is pleased with the results. According to The Los Angeles Times, a spokesman for Olive Garden said wait staff using the payment tablets see a 15 percent increase in tips and turn over their tables seven to 10 minutes faster. A spokesperson told the newspaper, “Guests can set the pace of their meals by ordering drinks, appetizers, and desserts as they want them and pay their checks with ease whenever they are ready.”

It will be interesting to watch how speeding up table turns plays out in the U.K. Americans tend to associate good service with swiftness, such as the whisking away of plates no longer needed or wanted, the prompt sweeping away of breadcrumbs, frequent check-ins (“How is everything?”), dessert suggested mid-meal, and having the check arrive before you ask for it. Sometimes visitors from the U.K. find the swiftness and attention rude, as if they’re being hurried along. Which, in fact, they are.

Besides speedier table turns, the restaurant industry agrees that tableside POS systems reduce human error and chargebacks. Plus they benefit servers in the U.S. by providing suggested, percentage-based tip amounts (including zero as an option). The result has been what The New York Times referred to as “tip creep” in its 2015 article, “$3 Tip on a $4 Cup of Coffee? Gratuities Grow, Automatically.”

Digital payment has sped and improved restaurant pick-up and delivery services as well. Websites like Eat 24 let you order, pay, and tip online, so you needn’t wrestle with tipping at your front door while your food cools. Pick-up restaurants like Papa Murphy’s let you order and pay online so you can duck in, grab your take-and-bake pizza, and duck back out while others stand at the counter deciding whether they want extra cheese.

Unlike many industries where technology eliminates jobs, it seems the high-end restaurant business will always need servers. The burgeoning supply of hospitality apps makes the job more efficient but doesn’t obviate it. Smartphones can take orders and receive payment, but it will be a while before they can drape a napkin over their arm and, with a flourish, deliver a hot meal to the table.

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How Elon Musk may revolutionize Internet access

Tesla in space

The fellow who gave this dummy his car hopes to turn broadband on its head.

Remember the guy who, about a month ago, let a literal dummy take his car on a prolonged spin through outer space? Now, he may be making the folks at Comcast, AT&T, and other broadband service providers nervous.

But those of us who are into digital banking should cheer him on.

Said guy is jillionaire Elon Musk, CEO of Google-owned SpaceX and CEO of Tesla, Inc. It’s only fitting, then, that the car tooling around in space with a dummy at the wheel would be a red Tesla Roadster, Musk’s favorite sports car.

Musk, you may recall, made his fortunes selling Zip2 to Compaq and founding an online payment company that morphed into PayPal, which eBay picked up for a mere $1.5 billion. Since then, he has turned the automobile industry on its head, which he now hopes to do for broadband Internet.

Just two weeks ago, SpaceX sent two test satellites into orbit, literally and metaphorically launching its Starlink satellite network.

The purpose of Starlink? According to CNBC:

Starlink will offer broadband speeds comparable to fiber optic networks, according to FCC documents, by essentially creating a blanket connection across the electromagnetic spectrum. The satellites would offer new direct to consumer wireless connections, rather the present system’s redistribution of signals.

Assuming the test satellites work as hoped, SpaceX plans to have a total of 800 of them in orbit by the end of 2019. And assuming they work as hoped, CNBC reports, SpaceX plans to launch “… an additional constellation of 7,518 V band satellites, situated in a ‘very low’ Earth orbit at just over 200 miles.”

The Starlink system could bring three important changes to the digital landscape.

First, Starlink promises to make broadband Internet available in geographic pockets where laying cable has to date not been economically feasible. This is no small thing. About a year ago, the FCC reported:

10 percent of all Americans (34 million people) lack access to 25 Mbps/3 Mbps service …  39 percent of rural Americans (23 million people) lack access to 25 Mbps/3 Mbps … [and] … only 4 percent of urban Americans lack access to 25 Mbps/3 Mbps broadband.

Second, it will offer an alternative in markets now dominated by a single major broadband provider.

Third and perhaps most threatening to existing broadband providers, Starlink won’t just be an alternative. It will be a blazingly faster alternative. Its speed and quality are predicted to rival those of a fiber optic network.

I might predict one of two fourth changes

Somehow I don’t expect the likes of Comcast et al to take the new competitive threat lying down.

If they respond the way Adam Smith would have preferred, they will move fast to improve their own delivery and pricing. I hope that happens.

Unfortunately, another option exists. They may seek legislation tying SpaceX’s hands. Musk is no stranger to this method. When the Tesla automobile was ready for market, established automakers and dealer associations went straight to work keeping Tesla out of their states. The battle is ongoing.

Why I’m cheering Musk on

On the philosophical side, competition is the foundation of our economy. That alone is plenty of reason to cheer him on.

Moreover, making broadband access available worldwide should strengthen economies, improve communications, and raise education levels for all.

Musk’s success would be great news for digital banking.

It would allow us to deliver digital banking services to once inaccessible markets. Moreover, Starlink’s fiber-optic quality and speed will mean better service, less waiting time, and, therefore, less frustration for digital banking clients.

Let’s hope the likes of Comcast et al respond by improving their product and service rather than through legislative tampering. Then, everyone wins.

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Smartphone sales slowing
My two cents as to why

PhonebrakesThe data on smartphone sales for Q4 2017 are in, and it looks like two Chinese companies have reason to celebrate.

In a recent press release, research company Gartner, Inc. reports that …

Huawei and Xiaomi were the only smartphone vendors to achieve year-on-year unit growth (7.6 and 79 percent, respectively) and grew market share in the quarter.

Having thus opened on a positive note, I shall now proceed on less positive one.

While Huawei and Xiaomi did well, 2017 marked a drop in Chinese smartphone shipments overall. That’s according to global technology market analyst firm Canalys. In a recent press release, Canalys reports:

The growth story of the world’s largest smartphone market, China, came to an end as it suffered its first-ever annual decline, with shipments down by 4% from 2016 to 459 million units in 2017. This drop was partly due to China having one of its worst year-on-year performances in Q4 2017, with shipments plummeting by over 14% to just under 113 million units.

Yeah, you might say, but that’s just in China. Worldwide, sales climbed from 1.496 billion units in 2016 to 1.537 billion units in 2017. That is true, and that’s great. Unless, that is, we zero in on Q4 2017, the time of year when things are supposed to be picking up as a sign of hope for the year to come. Reports Gartner:

Global sales of smartphones to end users totaled nearly 408 million units in the fourth quarter of 2017, a 5.6 percent decline over the fourth quarter of 2016 … This is the first year-on-year decline since Gartner started tracking the global smartphone market in 2004.


There is no shortage of proffered explanations for the slowdown.

Gartner’s research director, Anshul Gupta, offers this one:

First, upgrades from feature phones to smartphones have slowed down due to a lack of quality “ultra-low-cost” smartphones and users preferring to buy quality feature phones. Second, replacement smartphone users are choosing quality models and keeping them longer, lengthening the replacement cycle of smartphones. Moreover, while demand for high quality, 4G connectivity and better camera features remained strong, high expectations and few incremental benefits during replacement weakened smartphone sales.

International Data Corporation (IDC) mobile phone research manager Anthony Scarsella suggests:

The latest flock of posh flagships may have had consumers hitting the pause button in the holiday quarter. With ultra-high-end flagships all the rage in 2017, many of these new bezel-less wonders proved to be more of a luxury than a necessity among upgraders. Even though we have seen new full-screen displays, advanced biometrics, and improved artificial intelligence, the new and higher price points could be outweighing the benefits of having the latest and greatest device in hand.

If wading through the last two excerpts tested your patience as a reader—you’re not a marketing professional unless your sentences are complex, right?—you’ll appreciate ZDNet’s senior reporter Danny Palmer’s refreshingly plain English:

… it’s because consumers increasingly don’t see good enough reason to spend money on upgrading to a new handset.

Short and clear. No wonder Palmer is a senior reporter.

If the decline has taken people by surprise, it shouldn’t have.

Notwithstanding the recency of the other above-cited comments, Palmer penned his warning back in June. And two months before that, under the headline “The smartphone market declined for the first time EVER,” Arjun Kharpal, reporting for CNBC, wrote:

Global smartphone shipments fell 3 percent year-on-year in the first quarter of 2016 to hit 335 million units, according to a Strategy Analytics report on Wednesday.

I have my own thoughts about the decline. A new product can take the world by storm only until it reaches a saturation point, which the smartphone may be approaching. And, to echo Scarsella, non-essential, incremental improvements may not be worth the price of an upgrade.

But here’s a possible reason I haven’t seen addressed.

Superfluous technological changes in smartphones aren’t new. If that failed to slow sales before, why would it slow them now? Maybe it’s because phones have ceased looking like new models.

Portable phone marketers took a page from the auto industry’s playbook in making phones not just tools but fashion items. In much the same way you can tell with a glance if your neighbor drives a later model car than yours, it used to be easy to tell a current from a prior year’s phone. Features aside, there was motivation to upgrade just to avoid pulling out a phone that was “so last year.”

But in the last few years, not so much. Recent variations in size and dimensions have been insignificant—there is, after all, only so much you can do with a rectangle—and just about every color option is out there. It takes a keen eye to pick out the vintage of a smartphone purchased within the last four years, to the point that these days most people have to ask what model you’re using. The result is that, for the first time in years, you can hold your head high while hanging on to your older phone.

Still, it’s important not to confuse sales of smartphone units, which is slowing, with smartphone usage, which is accelerating. Only a few weeks ago, Pew Research Center reported:

The vast majority of Americans – 95% – now own a cellphone of some kind. The share of Americans that own smartphones is now 77%, up from just 35% in Pew Research Center’s first survey of smartphone ownership conducted in 2011.

Or, as a very smart guy wrote—well, okay, actually, it was me—not long ago for The Financial Brand:

The day is nearer than anyone thought when children wonder aloud what on earth their forebears did with those folded, leather things — “What’s a checkbook? What did you use wallets for?”

Saturation may be bad new for phone marketers. For those of us in the digital banking arena, it’s good news. There’s nothing we’d like better than a market saturated with smartphones.

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