Last month I spent a couple of days in Naples to meet a client. To keep the Italian-living-abroad-stereotype alive, every time I go back to the "BelPaese" I try to get as much good food as I can. I've been in Naples several times before, but I've never been able to eat at Gino Sorbillo's Pizzeria.
Now, unless you are from Naples or a true pizza enthusiast, the name will probably not ring any bell, but Sorbillo's is one of the oldest pizza-making families in Naples. The queue to eat there is always incredibly long, but my client happens to be friend with the Sorbillo's and booked me a table. To be honest, the place per se is nothing fancy, but the moment I put the first slice in my mouth I had an epiphany. I felt like Anton Ego after eating the cooked-by-rodents-Ratatouille in the Pixar's movie by the same name: childhood memories of my grandmother's cooking came back to me vividly. It was, without a doubt, the best pizza of my life.
The Big John's 50-million-pizza
Now, what is a fair price for a culinary experience like this? $1o? $15? What about $100 million? Believe it or not, this is exactly how much Laszlo Hanyecz paid for two Big John's pizzas in 2010: 10,000 bitcoins. As I write this article, a bitcoin is worth more than over $10,000, making that pizza the most expensive in the history of Mankind.
Even though this is usually referred as the first bitcoin transaction in the "real" world, the story is a little different from the myth and it involves two geeks, an online message board, unhealthy food and a standard credit card.
A bit (no pun intended!) of history
Bitcoin, also known as BTC or XBT, is a digital ("bit") currency ("coin") or "cryptocurrency" invented by a mysterious character named Satoshi Nakamoto almost a decade ago. A lot of speculation was made around the real identity of Nakamoto: an Irish cryptography student, a sociologist, a collaborative group and even an over-60-year-old-Californian-engineer by the same name.
Released as an open-source software, bitcoins are not issued by governments, but by "miners". In the cryptocurrency world, miners are the people and the companies participating in the bitcoin network: they keep records of new transactions, verify them and collect them into groups known as "blocks".
On average every ten minutes, a new block is added and it becomes part of a shared database know as "blockchain".
A blockchain is, to put it simply, just a database that is distributed among multiple networks: each one stores an identical and immutable copy of the chain, making hacking attacks and alterations virtually impossible. Miners are also responsible for the issuing of new bitcoins: by solving complex math puzzles, in fact, miners discover new blocks and get a reward in BTC. To keep it challenging, whenever a coin is created, the complexity of the math equations increases so, if the computing power needed to solve the first puzzles was relatively affordable (even a decent desktop computer could do it), the creation of a single coin today requires as much energy as your apartment in a week.
Bitcoins and regulation
Because of its intrinsic decentralized nature, the legal status of bitcoins is not the same worldwide. Some Countries like Brazil, Indonesia, China, Vietnam, Israel, Morocco, Bolivia, Algeria, Ecuador, Kyrgyz Republic, Bangladesh and Nepal already banned bitcoins (at least to some extent). Governments are not enthusiast with bitcoins for several reasons: first of all, bitcoin transactions are (similarly to cash transactions) quasi-anonymous.
BTC are stored in digital wallets (in the cloud or on a hard drive) and, even though each transaction is recorded on a public log, only the wallet ID is recorded during the transaction, not the names of the people involved in it. This property of bitcoins made it the perfect currency for illegal activities like drug dealing or black market transactions. One of the first dark markets on the web, Silk Road, accepted exclusively bitcoin payments with the sole purpose of ensuring customers’ identities to remain anonymous.
Cryptobubble and physical inconsistency
From its creation up until 2010, the value of one bitcoin was basically zero. During the first half of 2011, one bitcoin was worth $1, then spiked to $31.00 in July to drop again to $2 in December. By the end of 2012, its value was $13.
It wasn't until 2013 that bitcoin value started to grow dramatically and by the beginning of '14 one coin was worth between $750,00 and $1,000. The next couple of years never reached the same level of 2014, but in 2017 bitcoins exploded, starting in January at around $800 - $1,000 and closing in December at almost $14,000.
Over the span of seven years, bitcoin value increased by 1,400%. As I am writing this article, one bitcoin is worth $6,200, but by the time you are reading this, things will have probably changed again.
Robert Shiller, Professor of Economics at Yale states:
"The Bitcoin phenomenon seems to fit the basic definition of a speculative bubble, publicized and amplified by the news".
There is another intrinsic risk in bitcoins: their physical inconsistency. Discussions about physical cryptocurrency issuing have been going on since 2010 and startups such as Casascius, Alitin Mint, Titan, Cryptmint and Antana are experimenting with the concept, but when we refer to bitcoins, we usually have lines of codes in mind instead of banknotes.
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Big Bang Theory - The Bitcoin Entanglement[/caption]
On a recent Big Bang Theory episode, a USB key filled with coins got lost, showing how mainstream the phenomenon has become. You may remember the infamous Mt. Gox case: back in '14, the Japanese company handled more than two-out-of-three of all bitcoin transactions, but got bankrupted after more than 800,000 coins were stolen. Or, more recently, the hacker attack on Coincheck, when around 58 billion yen ($532 million) worth of NEM (a cryptocurrency similar to Bitcoin) were stolen.
Today's value would have been over $80 billion. So, if bitcoin fits the basic definition of a speculative bubble, the whole idea of a post-government world economy fits the definition of a Fight-Club-ish utopia as well and, even though bitcoins could help create a cheaper, faster and frictionless money transaction system, the value of the cryptocurrency has fluctuated so wildly over the years, that it is hard to make any prediction. Ironically, bitcoins were conceived as a limited currency (only 21 million of them can be discovered) in order to prevent inflation. If anything, Nakamoto made a huge miscalculation here.
Blockchain and Bitcoin
The word blockchain is often mistakenly used as synonymous with bitcoins or with cryptocurrencies in general, but it is -de facto- the technology behind it, not the currency itself. And, even though when reading about blockchain we immediately think about bitcoins, it is very likely that the real disruptor of our industry (if any) will not be the cryptocurrency, but the technology that fuels it.
Blockchain is, at its core, just a way of exchanging and storing data by bypassing centralized intermediaries and relying on multiple cryptographed nodes across a network. It is a big, fast, cheap, secure and decentralized database where information can move without the need for middlemen. So, which came first, the chicken or the egg? In this case probably the egg, but we should be more interested in the chicken.
Blockchain in hospitality
Hotels dependence on intermediaries is no big news and that is why there is all this buzz around blockchain in the accommodation industry. From advanced loyalty programs to disintermediation strategies, regaining control over room inventory and guest data is one of the main priorities of hotels, both branded and independent. The same need is shared by travel tech startups struggling to enter a rigid market such as the hospitality distribution one.
Blockchain technology could theoretically guarantee an open door to travel distribution, solving the problem of inventory access at its root: no more minimum volumes required by big players in order to open their APIs and no more exorbitant integration costs. This means faster integration and a fairer marketplace. It also means close-to-zero cost per guest acquisition for hotels: a P2P market is the holy grail for hotels and blockchain could create a less OTA-dependent landscape.
As blocks cannot be altered, the blockchain-based technology could even end the problem of wholesalers selling B2B2C rates once and for all. An unalterable rate distribution system could create a less chaotic landscape, where prices cannot be modified by resellers. Blockchain technology could help creating more advanced revenue management software, or trustworthy review travel sites with immutable verified traveler database or more scalable loyalty programs. Hotels could prefer bitcoin payments over credit cards because of lower transactions fees and to prevent fake credit-card fraudulent reservations or last minute cancellations. Think about any problem to solve when it comes to data exchange in travel and, very likely, there is a possible solution just a "block" away.
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Many travel startups are emerging around blockchain[/caption]
Early adopters
Today, the main problem with technology is that it moves faster than our ability to predict its ramifications, so it is illogical to state that blockchain will surely disrupt our industry. The wild value swings of bitcoins should be a memento not to get our hopes too high and look at blockchain with prudence. Analysts are divided and I personally still see too many parallelisms with the 2000-2002 dot-com bubble to have full confidence in blockchain, especially when it comes to cryptocurrencies.
Some say that blockchain will revolutionize the way we do business today and that companies that did not see it coming will be out of the market. Some others say that companies should integrate some kind of blockchain technology solely to maintain their market relevance. Others take a step back and try to look at the bigger picture like you do in front of a Seurat painting. Of course, nobody wants to lose the momentum, even though the technology is, at its best, at its infancy stage.
Expedia, for example, was the first major travel company to accept payments in bitcoin back in '14 and TUI is currently migrating part of its infrastructure to a private blockchain. SITA Lab is experimenting with blockchains to find a frictionless way to identify flight passengers by storing their biometric and personal information, IATA has its own cryptocurrency and so on.
Dozens of travel tech startups made the news recently because of their visionary applications (some may call it foresight, only time will tell) of blockchain technology in travel. I may be getting old, but this reminds me of the '97-01 speculations as well, when tech firms simply added the .com suffix to their names and enjoyed their shares going up. Far fetched? Not really. On-line Plc is a tech investment company and it's been around since '96. Last October it changed its name to On-line Blockchain Plc and its shares increased by 400% in a matter of days. Riot Blockchain (former Bioptix Inc) used a similar strategy: +17% share value increase. This does not mean that companies investing in blockchain are doing it to boost their share value, of course. In fact, there are several exciting ideas out there worth keeping an eye on. Here are some of them.
Accommodation is in a bad need of transparency: Lockchain
Lockchain presents itself as "The first hotel booking & vacation rental marketplace with 0% commissions". I had a chat with its founder, Nikola Alexandrov, and his words touched the Achilles heel of current hotel distribution:
"Booking.com and Airbnb charge on average 20% from each booking and most travelers are not really aware of that."
Lockchain plan is clear and uncompromising: utilizing advanced blockchain technology to cut out any form of commission.
"It is the right of the hosts to receive the full amount of the money for the investments that they make, and it is certainly the right of the travelers to be able to pay directly to hosts for their travel experience."
Listening to Alexandrov, my mind came back to the early days of Napster, when the music industry status quo was shaken by P2P file-sharing software. Exactly like record companies, established travel distributors "do not add any value to the actual experience". When asked about a possible blockchain bubble, he says:
"What will likely happen is that only actual value-driven projects will survive and will outgrow the current levels".
And with a marketplace already live with 100,000 hotels going live next month, I am pretty confident that Lockchain will be one of those projects.
"And here's your middleman again": Flyus.com
Mathias Friess is the CEO at
Flyus.com, a specialist in international air travel. When I asked him about blockchain technology he agreed with Alexandrov.
"We need to provide our customers with payment options that suit their needs and distributed blockchain systems offer consumers yet another payment option".
Referring to Expedia, I asked if he thought that accepting bitcoins could have given the American travel company an early-adopter market advantage and he said that, in theory, cryptocurrency could
"eliminate bank and credit card as middlemen and help OTAs in fraud prevention", even though "OTAs still need to pay the airlines settling through ARC and that involves real money. The new currency still needs to get converted to USD so Airlines get paid and there is your middleman again… So unless airlines settle in crypto, OTAs will carry the cost of crypto conversion".
No bubbles, but corrections: Trippki
So what could be the main applications of blockchain in travel? I discussed it with Edward Cunningham, CEO at
Trippki, that gave me some illuminating point of views.
"There are many. For us, it is about creating a fairer booking system for both the hotel and the guest: a cooperative booking platform, where consumers and suppliers trade at the least possible costs".
I then asked his opinion about TUI decision to migrate part of its database into blockchain:
"Further down the line hospitality businesses could place their inventory onto the blockchain and allow AI and data to all sync together providing the ultimate booking experience, but it may be too early to completely transition the whole hospitality ecosystem".
We concluded our talk discussing the possible risks of a new dot-com bubble and he pointed out that back when the dot.com bubble exploded "there was only one technology as such: the Internet", while "today we have several technologies growing at the same pace: data, AI, robotics and blockchain".
A whole ecosystem of technologies moving in the same direction. He then highlighted the fact that for the past years the cryptocurrency space has been carved and invested by individuals, while "only now institutions and funds are beginning to take notice so, rather than bubbles, we will have corrections, where the prices grow through hype then dips and grows again".
Security and Speed: CellPoint Mobile
Jonatan Evald Buus and Kristian Gjerding are, respectively, CTO and CEO at
CellPoint Mobile, provider of solutions for both the sell side and the pay side of travel transactions and founders of
the "Travel Innovation Hub": a space for travel operators and merchants to collaborate and develop practical, blockchain-driven products that can make travel easier, seamless, more secure, and less vulnerable to fraud. They say:
"Blockchain technology could have a major impact on how hotel inventory is distributed to consumers", posing a "direct challenge to the GDS companies and the entire model of one distributor controlling inventory."
According to Buus and Gjerding, anyway, even though "blockchain technology is recognized as potentially as important an invention as the Internet", it is still "a work in progress" and there are still "numerous challenges such as how to make a blockchain fast enough (and still secure) for billions of travel transactions every day".
"Blockchain technology has tremendous potential for airport security and eliminating the need for passengers to carry around sensitive travel documents. But one security breach would be a major incident".
They seemed very cautious about cryptocurrencies as well:
"They still aren't mainstream. Before mainstream adoption there are still a number of unanswered questions. Which legislation governs the use of cryptocurrencies? How is tax for income in cryptocurrencies reported?".
I tend to share the same reservations about bitcoins but, like Buus and Gjerding say:
"Cryptocurrencies are only one application of blockchain technology, and their success or failure does not reflect on the underlying blockchain technology itself. Cryptocurrencies have been great business cases that will help us understand blockchain technology and how to improve it."
Conclusions:
It looks like every day there is a new company dealing with blockchain technology in travel: Pocketinns describes itself as "Airbnb on crypto-steroids" and, with around 50 thousand vacation rentals already listed, it may not be an overstatement.
Winding Tree is a no-commission marketplace (only miners fees are due),
Loyyal a reward platform with user-friendly-blockchain-based-model loyalty schemes. There there's OwlNest, BedSwap, HotelP2P, etc. The list can go on and on, but the bottom line is that the technology is getting more mainstream every day.
We may not be able to visualize all of its possible applications, but that never stopped technology to move forward. Blockchain technology could completely change the way we think about distribution. Or not. But it surely has the potential to do it.
And, back to the Sorbillo's pizza, that was only 7,50 €, but it was definitely worth 10,000 bitcoins!
Related reading:
Blockchain the enabler of a new non-air standards project
Photo by Spencer Kaff on Unsplash