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IBM Makes Another Blockchain Identity Play With Health Data App

IBM’s blockchain division is widening its work in the nascent field of “self-sovereign identity” – technology designed to give individuals greater control over their personal data.

Announced today, the tech giant is working with Hu-manity.co, whose #My31 app just became available on iOS and Android mobile devices. The app’s name alludes to the idea that legal ownership of one’s data should by a “31st human right” in addition to the 30 already ratified by the United Nations.

It’s the latest in a series of similar projects IBM has been involved in. Others include SecureKey, a bank consortium building a digital ID system in Canada, and Sovrin, contributor of the Indy toolkit for Hyperledger-based blockchains.

As such, the partnership with Hu-manity is a strong signal that Big Blue sees long-term business value in this use case for distributed ledgers. Marie Wieck, the general manager of IBM Blockchain, told CoinDesk:

“Getting people’s permissioned rights on a blockchain will create a marketplace and entirely new economic business models as a result.”

Indeed, while Hu-manity’s app is consumer-facing, an enterprise version will be generally available to corporations starting in the healthcare industry in the first quarter of 2019, Wieck said.

“We tend to agree that data is the next natural resource and like a natural resource has to be mined responsibly in the same way,” she added. “Blockchain combined with the notion of rights to individual data, facilitates the distributed sharing of that information securely and at scale.”

Richie Etwaru, founder and CEO of Hu-manity, has a similarly expansive vision. Starting with the well-established market for health record data, he said he expects location data, search history and e-commerce habits will also be “owned” by users.

Upon claiming their data property rights, Hu-manity users receive a title of ownership, akin to a property deed. Thereafter their personal details, signature and photograph can be added in the form of a hash on the blockchain, along with things like the individual’s data-sharing preferences.

While the Hu-manity.co global consent ledger, which records the granting and revocation of permission to use someone’s data, is built on the IBM Blockchain Platform using Hyperledger Fabric, the two companies will also collaborate with Sovrin.

Data: The new oil?

Comparing the personal data humans produce to crude oil, Etwaru told CoinDesk, “The partnership with IBM enables private blockchain to create a direct relationship between the crude data provider – the human being – and the buyer of the refined data at the end of the supply chain.”

And in its refined form, personal data such as a patient’s health record changes hands for an average of around $400, Ewaru pointed out.

Yet regulations in the U.S. and beyond are very unspecific when it comes to personal data and can be interpreted in different ways, noted Etwaru.

Provided data has been masked, an organization may sell it for specific uses, which might often be for research as opposed to overtly commercial purposes. However, there could equally be an interpretation whereby an individual has the right to notify a corporation requesting them not sell data in the de-authorized format.

But wide adoption of an empowering data-sharing app, he said, would constitute a “call to action, and pool consensus around how laws should actually work,” Etwaru said.

And it’s not only the individual who stands to gain. Rather than walking on eggshells concerning people’s growing awareness of their privacy (or lack thereof), Etwaru said, corporations could have clarity and transparency by virtue of what describes as a “movement.”

“The end buyer could have better compliance posture if they use our data and we can figure out the economics between the individual and the buyer. The pharmaceutical industry has never really been offered an explicit consenting relationship with individuals before,” he said.

IBM’s Wieck added that large anonymous datasets can be noisy and inaccurate, but could be better relied upon to be clean using the blockchain app.   

“In clinical trials, there would be a way of tracking data and ensuring these are all real human beings and doing it at scale. Trust and transparency have been a challenge up until now,” she said.  

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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R3 Rejected in Attempted Takeover of Settlement Coin Blockchain Project

Enterprise blockchain is a tough old game.

R3, one of the most prominent startups in the sector, tried unsuccessfully this summer to muscle in on another blockchain consortium, the Utility Settlement Coin (USC) project, which is managed by U.K. technology vendor Clearmatics, CoinDesk has learned.

In early June, R3 proposed to the USC’s bank members that the project be built on the startup’s Corda platform, instead of Clearmatics, which has been building the platform since the project’s inception in 2015, according to four people familiar with the situation.

To entice the banks to make this switch so late in the game, R3 offered to fund the technical development itself and to pay a share of legal fees, the sources said.

However, the idea was unanimously rejected by the now 17 consortium members when put to a vote later that month. This happened close to a pivotal time for USC, as the project moved into “Phase IIIb” at the beginning of August.

Charley Cooper, a managing director at R3, said the company could not discuss individual discussions with prospective partners for confidentiality reasons. But as a general matter, he said, “We believe in open standards for critical parts of blockchain market infrastructure, such as cash and value on ledger, because such standards will benefit the whole industry. Part of our role is to identify opportunities for discussion with potential partners.”

R3’s overture to USC was an attempt to leverage work already done on cash settlement on its Corda platform. In order to execute this goal, R3 asked the USC banks to combine efforts and to bring all previously developed legal and regulatory intellectual property (IP) related to USC to a new proposed project. To this, R3 would contribute its sharable IP from projects done in collaboration with over 50 central banks, regulators, and commercial banks – over 20,000 lines of code and dozens of reports on implementation models.

The startup appears undeterred by the rejection. In late June, it came back with a revised proposal that would keep Clearmatics in the picture as a partner. 

At the same time, R3 argued to the USC members that they and Clearmatics were at risk of forgoing an important opportunity to pool resources and create standards in a critical area of future market infrastructure, according to one source familiar with R3’s position. It proposed going forward by way of a collaboration with Clearmatics to demonstrate that the two vendors’ technologies were interoperable. 

Bad timing

The USC project began life back in 2015 as an initiative of Swiss banking giant UBS and Clearmatics. It has the audacious goal of applying distributed ledger technology (DLT) to the way central banks move funds around and manage liquidity, and so addresses fundamental questions related to credit risk in the financial industry.

Over the past three years, the project has seen a brace of banks join and it was last publicly reported to comprise 11 financial institutions: Barclays, CIBC, Credit Suisse, HSBC, MUFG, State Street, UBS, BNY Mellon, Deutsche Bank, Santander and NEX.

Since then the consortium membership has grown to 17 banks, according to a banker involved in the project, who characterized R3’s bid to bring USC on to Corda as an “aggressive” move.

“This is a tough business environment and R3 is a business like any other and it probably didn’t cross the line of sharp business practice,” said this source, adding that it highlights the importance of the USC project.

Provided the USC project gets the full go-ahead from central banks and regulators, it could become comparable with SWIFT was 50 years ago or CLS was 20 years ago, said the banker.

As such, it’s understandable that other technology vendors might want to pitch to the project’s members, added the source, and going forward, it would not be surprising to see vendor selections being conducted in a manner that’s common in the financial industry.

However, because the USC project is at such a pivotal stage, this ensured a unanimous vote from the members declining R3’s approach.

“I think the reason for the unanimity was less about the technology and more about the timeline of the process,” said the source, concluding:

“The vote came like literally a week or two before the closing of the legal documents for Phase IIIb and I think pretty much the attitude was, ‘Let’s not allow this approach by R3 to derail going into that phase or delay the project.'”

R3 founder and CEO David Rutter image via CoinDesk archives

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Not Just Tron: Neo's Failed $170 Million Bid to Buy BitTorrent Revealed

When Tron founder Justin Sun bought BitTorrent in one of the most talked-about tech acquisitions of the year, it turns out he wasn’t even the highest bidder.

What’s more, Tron wasn’t even the only crypto startup that wanted a piece of the pioneering peer-to-peer file sharing software company, CoinDesk has learned. Based on internal documents and multiple interviews with people close to the deal, CoinDesk is able to reveal Sun’s rival in his quest to acquire the influential Silicon Valley startup was one of Tron’s top competitors, the $1.5 billion blockchain project Neo.

Through its related venture capital firm, Neo Global Capital (NGC), the project made a much higher offer than Sun, a fact confirmed both by NGC and multiple sources familiar with the deal.

According to Neo Blockchain’s head of investment, Weiyu “Wayne” Zhu, and internal BitTorrent documents obtained by CoinDesk, NGC’s bid was for $170 million, amounting to $50 million dollars more than Tron founder Justin Sun’s $120 million bid for the shares. Nevertheless, Sun’s offer eventually succeeded.

Tron did not reply to a request for comment. BitTorrent declined to answer requests as well.

Although first reported in June, Sun announced in July that he had acquired BitTorrent on behalf of Tron, the controversial blockchain project he founded in 2017 after leaving San Francisco startup Ripple. The acquisition marked one of the first times a crypto company had successfully acquired an established web company, leaving Tron investors thrilled (though the project’s skeptics were more suspicious).

At the time, observers speculated that Sun bought the company for its user base.

Tron and Neo have also faced off in other ways. Though their explicit goals are different, both projects seek to stake a claim in the already competitive market of creating faster, more scalable blockchains. Likewise, both claim a common competitor – the world’s second-largest blockchain ethereum.

Tron, which launched its network in July, aims to “decentralize the internet,” and has chiefly positioned itself as an alternative to ethereum, with Sun sparking controversy in April after tweeting that his project was “better.”

Likewise, Neo, previously called Antshares, has positioned itself and has been referred to as “the ethereum of China.” The project focuses on smart contracts, digital identity and digital assets, and has a $1.5 billion market capitalization to Tron’s $1.6 billion.

For all their similarities, though, the two projects did not offer BitTorrent the same deal. Despite bidding $50 million more than Justin Sun, BitTorrent’s board nonetheless said in the documents that NGC’s offer was “not more favorable to the company and its shareholders” and accepted Sun’s offer.

One further commonality perhaps sheds light on these peculiar circumstances. Both projects are based in China, and therefore must also face the obstacle of its capital controls.

“Only specific business purposes will be approved by Chinese government,” Minhui Chen, a partner at Global Blockchain Innovative Capital (GBIC), which helps entrepreneurs navigate the complexities of international deals, told CoinDesk. “The process takes months.”

But it turns out the Chinese government was not NGC’s primary concern.

Two bids, one deal

Sun made the first move to open the bidding process.

According to documents detailing the acquisition, Sun approached investor David Chao at DCM, a venture capital firm which controlled most of BitTorrent’s equity, in late December 2017. However, Sun did not initially try to acquire BitTorrent as a whole.

Instead, he sought to purchase a controlling stake in the company by purchasing DCM’s preferred stock, which amounted to 99 percent of the total preferred stock. According to public documents submitted to the California secretary of state in June, each of these shares were valued at about $1.85 in the final deal.

Sun offered approximately $90 million to $100 million for DCM’s stake.

However, the documents describe how Chao later insisted that Sun purchase BitTorrent’s common stock in addition to its preferred stock, for fear that common stockholders would be left empty-handed.

NGC entered the picture approximately one month after these discussions, and conducted meetings with DCM and BitTorrent. Unlike Sun, NGC sought to become BitTorrent’s sole owner from the start, offering $115 million for all preferred stock and $55 million for all common stock.

Zhu said NGC was interested because it hoped BitTorrent could build a decentralized file storage system that would be generally useful for any decentralized web project or blockchain.

Washington’s shadow

At this point, the accounts diverge on one point: who backed away when.

In mid-February, NGC revised its offer to exclude a provision that would nullify the acquisition if it was not completed within six months, a change that appears to have been considered a drawback by BitTorrent and DCM.

Just one day after NGC submitted their revised letter of intent, BitTorrent and DCM determined that the despite the higher price tag, NGC’s offer was not as “favorable” as Sun’s offer. The documents specifically cited, “the risk of the transaction not being consummated due to the projected closing of such proposed transaction being late in 2018 and [NGC’s] primary assets being cryptocurrency holdings, which required an additional foreign currency conversion prior to the closing of the proposed transaction.”

Zhu offers a different interpretation of events.

At this point, he says NGC had become concerned about the Committee on Foreign Investment in the United States (CFIUS). At that time, attempts by companies such Huawei and ZTE to invest in U.S. telecoms was stirring up significant political controversy about Chinese access to American intellectual property.

In addition, the fact that BitTorrent’s primary architect, Bram Cohen, was committed to his new venture, Chia, and therefore unwilling to return to the company proved to be an impediment.

“We were not so sure that BitTorrent is technically advanced enough to become the decentralized file project we had hoped it would be,” Zhu said. Cohen has declined a request for comment.

From Zhu’s perspective, by expressing serious concerns about CFIUS and never revisiting the point, NGC was letting BitTorrent know it was walking away.

On Valentine’s Day, BitTorrent and DCM accepted Sun’s final offer of $90 million for all preferred stock and $30 million for all common stock the following day.

The documents acknowledge that there were subsequently adjustments to the price to account for “net working capital, outstanding debt and unpaid transaction expenses,” amounting to approximately $20 million more.

What Tron wanted

BitTorrent has yet to unveil a major new Tron specific project, other than becoming in August another Tron controlled super representative on the network.

Observers speculated at the time of Tron’s announcement that Sun had acquired the company for its user base or to lend legitimacy to his project, which has been plagued by allegations of plagiarism and failing to properly attribute code in its repository. Several employees have since left BitTorrent under its new owner, citing concerns about its new management and direction.

Like NGC, Sun also tried to compel several former BitTorrent employees and major holders of common stock, including Cohen, to rejoin the company. Sun later dropped this condition before submitting his final offer.

Founded in 2004 by Cohen and Ashwin Navin, BitTorrent is a protocol for filesharing in which users would download one file from multiple peers at once, which improves speed. At times, peer-to-peer filesharing represented a large amount of all internet traffic.

While challenges with its business model ultimately led it to shopping itself for sale, its architecture anticipated the decentralized web at the heart of today’s token boom. The inventor of most of its technology, Cohen, left the company in late 2017. Shortly before the sale finalized, BitTorrent acquired a small stake in his new company, the eco-friendly blockchain protocol Chia, as CoinDesk previously reported.

That stake transferred to Sun, who has since moved BitTorrent into Tron’s Silicon Valley office, establishing a beachhead in the U.S. for the Chinese company.

So far, Sun does not seem to have run afoul of CFIUS, as NGC feared. And the Chinese state is happy for domestic companies to acquire Western companies if there’s a good reason.

As GBIC’s Chen put it:

“Then the Chinese government will support you, but the process is still tedious and long.”

Chinese checkers image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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There's a Problem With Crypto Funding – And Vitalik Just Might Have a Solution

There are free-riders in the cryptocurrency ecosystem.

At least, that’s the contention of a new paper, shared with CoinDesk on Monday, written by ethereum founder Vitalik Buterin, Microsoft researcher Glen Weyl and Ph.D. of economics at Harvard, Zoë Hitzig.

And free-riders pose a problem.

Described in the paper, free-riders are people or businesses that profit from the under-provision of public goods. And, on top of that, “the more people [these public goods] benefit the more they will be under-provided.” It’s an issue that plagues development even outside the cryptocurrency space, but the authors are – at least – initially focused on how the idea creates harmful incentives for the funding of blockchain projects.

Whereas currently, crypto development teams rely largely on donations, the altruistic whims of their creators, and ICOs — the paper details a new financing method to support a “self-organizing ecosystem of public goods.”

Titled “Liberal Radicalism: Formal Rules for a Society Neutral among Communities,” the method described – a system written in code – seeks to allow groups to allocate funds for the maintenance of public goods and services without becoming vulnerable to the “free-rider” problem.

The mechanism is similar in principle to Quadratic Voting, a form of stake-based voting championed by Weyl in a recent booked, “Radical Markets.”

While Quadratic Voting allows participants to vote with crypto tokens according to how much they care about an issue, Liberal Radicalism (LR) expands the same concept to how communities contribute to public goods, such as software development, cryptocurrencies and journalism.

And it works by increasing the funding of projects incrementally depending on the number of participants and the degree to which they care about the issue at hand.

“Individuals make public goods’ contributions to projects of value to them. The amount received by the project is (proportional to) the square of the sum of the square roots of contributions received,” the paper states.

And while the authors have ambitions for the technology that are far-reaching (including applying the code to municipal projects and campaign financing) cryptocurrency communities, with their open-minded attitudes towards experimentation, are a “particularly appropriate” testing ground for the technology.

Speaking to CoinDesk, co-author of the paper Hitzig said that interest is already building between many different groups. That currently includes about “a half dozen” cryptocurrency communities looking to potentially implement the technology, as well as “other innovators and philanthropists.”

As such, Hitzig told CoinDesk:

“Once we circulate the paper we expect that experimentation will begin in earnest shortly thereafter.”

The crisis of liberalism

The new paper is part of an ongoing collaboration between Buterin and Weyl since the publication of the latter’s “Radical Markets” book.

As detailed by CoinDesk, the duo co-authored a blog post in May, in which the authors discussed their shared interest to “harness markets and technology to radically decentralize power of all sorts and shift our reliance from authority and to formal rules.”

For this collaboration, Hitzig told CoinDesk, the key focus is on using technological insights to solve growing political tensions.

“This set of ideas goes from the ground up — we offer solutions to localized, real-world problems, and then demonstrate how these proposals fit into a coherent political philosophy that solves important aspects of the crisis of modern liberalism,” Hitzig said.

Defining liberalism as the guiding principle underlying The Enlightenment era, the authors summarize the trend as “an anti-authoritarian commitment to neutrality across ways of living and valuing.”

Expanding upon that idea, Hitzig said, “the crisis of modern liberalism” stems from an “unhappy marriage” of capitalism and democracy that “produces frictions that make it highly inflexible, inefficient and actually fundamentally illiberal.”

Hitzig, who is a poet and an economist that was drawn to the idea of Quadratic Voting, continued:

“These tensions are increasingly manifesting in discontent with existing liberal democratic systems and the rise of authoritarian populist alternatives on both the left and right.”

Indeed, the paper looks to solve those issues and create a more cooperative society.

Aligning the ethos

In addition to the incremental funding mechanism LR proposes, there are some additional characteristics that the authors believe will significantly benefit the cryptocurrency ecosystem.

For example, small contributions are heavily subsidized, while large contributions are not.

As such, according to the authors, “Under the standard selfish, independent, private values, quasi-linear utility framework, our mechanism leads to the utilitarian optimal provision of a self-organizing ecosystem of public goods.”

The paper notes that this could have an immediate impact on projects like ethereum, zcash and other projects that rely on non-profits to distribute funding to the development of the network.

This process of grant-making is “reasonably centralized,” according to the paper, relying on the curatorial judgment of a select group of individuals, and is therefore “both poorly attuned to the needs of the communities and, perhaps more importantly, antithetical to the principles of decentralized authority on which they were founded.”

LR, on the other hand, hopes to create a form of financing that better leverages the wisdom of the crowds, and align financing better with the ethos of cryptocurrency enthusiasts.

Not just math

While it might seem strange to have such a highly interdisciplinary science — combining technology, economics and politics — Hitzig said that it’s a very important combination.

“To us, it’s strange that collaborations across the social sciences, philosophy and technology aren’t more commonplace,” she said. “Technology is changing society at breakneck speed – economists, political scientists and philosophers have the conceptual tools to understand the potential economic and political consequences of that change and to guide it into its most socially valued uses.”

Still, LR isn’t a mechanism that can be deployed and widely adopted right away.

For one, it hasn’t been fully tested in the wild and may be vulnerable to unanticipated attacks or economic quirks. Secondly, the mechanism relies heavily on identity systems, meaning that for now, it can’t coexist with anonymity, which is highly important to many people in the space. Plus, certain kinds of known vote attacks could mean that LR might need people to use trusted hardware — which isn’t ideal as it relates to ease of use.

As such, Hitzig said there’s further work to be done to make the technology usable to a wide number of people — potentially working with artists and designers who can describe the method in different ways.

“We are aware that the mechanism may seem esoteric at first, and thus worry about a situation in which LR becomes a nice abstraction that never gets put to work and that only a select few understand,” Hitzig told CoinDesk.

But above all else, Hitzig hopes that by publishing the paper – even though it is imperfect — it will encourage others to think about these problems and either build on top of LR or experiment with their own solutions.

She told CoinDesk:

“Nothing would thrill us more than to see other collaborations that pose original, alternative visions for solving what we see as the crisis of liberal order.”

Stacked coins image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Microsoft Is Slowly (But Surely) Connecting Blockchain to Main Products

Three years ago, Microsoft Azure was the first to bring blockchain to the cloud. Now it’s connecting the technology to just about everything else.

The software giant has quietly been building bridges between its blockchain services and other, widely used infrastructure and platforms, such as Office 365 Outlook, SharePoint Online, Salesforce, Dynamics 365 CRM Online, SAP, and even Twitter, according to Matt Kerner, the general manager of Microsoft Azure. The idea is to allow Microsoft customers to port their data from these platforms into the cloud, and from there onto a blockchain.

Why? In addition to the usually touted blockchain efficiencies, one of the less-discussed benefits of distributed ledger technology (DLT) in a cloud environment like Azure, according to Microsoft, is that it amasses data from multiple companies in a standardized format at scale. The potential to mine data for all sorts of insights then becomes limitless, the company reckons.

Hence, the company is integrating tools such as Microsoft Flow and Logic Apps – which offer hundreds of connectors to thousands of applications – into Azure Blockchain Workbench, a service it launched in May to make the creation of blockchain apps easier (Workbench currently has ethereum Proof of Authority configured as the consensus protocol).

It’s all a part of the evolution of Big Data, Kerner explained. Prior to blockchain, he pointed out, cloud computing enabled departments within the same company to break out of their data silos and collaborate on heterogeneous data sets, increasing smarts through machine learning (ML) and artificial intelligence (AI).  

“Blockchain empowers the next step – enabling a single, authentic data set shared across counterparties. This is already improving the way transactions happen,” Kerner told CoinDesk, adding, “We believe the same will be true with data analytics.”

Stepping back, many would argue that data is now the most valuable naturally occurring resource on the planet. As the race to prove the best data analytics intensifies, firms are springing up whose sole purpose is to structure and format data to run AI algorithms on.  

But with enterprise blockchain, you get the structured and formatted data part thrown in for free, as Kerner said many Azure customers were discovering.

“What blockchain is doing is creating a multi-party business process that is moving out of email, phone calls, spreadsheets and into a single system with a single view on the data that all of the participants can rely upon and trust,” he said.

Looking ahead, Kerner said bringing vast amounts of unstructured and siloed data into a context where it could be leveraged and even shared would drive exponential change. He said:

“Even the fiercest of competitors can onboard and mutually derive benefit from that system and find new revenue streams.”

Taking on IBM

A good example of Azure connecting and balancing components in a large and complex production environment is Insurwave, which simplifies maritime insurance for shipping hauls carried by Maersk.

The platform was built using R3’s Corda platform with help from EY and Guardtime and is now in commercial production with insurers such as Willis Towers Watson, XL Catlin, and MS Amlin.

Insurwave, which tracks cargos and adjusts insurance premiums in real time, collates all sorts of data, everything from internet of things (IoT) sensors monitoring temperature, to whether the ship is going to hit a storm, or enter a war zone or an area heavily populated with pirates. Once this data is shared on the blockchain, Power BI, a Microsoft business analytics tool, can be used to gain insights about shipping hauls, Kerner said.

Further, Ricardo Correia, a managing director and head of partner management at R3, said its relationship with Microsoft is a good deal more than Azure being Corda’s default preferred cloud.

In addition to a one-click Corda capability, Correia pointed to integrating Corda into modules within the Azure marketplace.

“This enables Corda to plug into a number of different capabilities including Azure SQL, active directory for identity access management and key vault for key management,” he said.

Some of this is already in place because of Insurwave, with deeper integration also happening in a number of use cases. Notable ones include the webJet blockchain, which aims to reconcile hotels and other travel arrangements on a single ledger, and was cited by R3’s CTO Richard Brown as an example of Corda extending beyond mainstream finance.

Widening the lens, the ability to track items in real time and share things like IoT data using a blockchain has made global trade and supply chain a leading light in terms of domains to chase. From a strategic point of view, Insurwave challenges IBM’s bid for global trade dominance, which also has Maersk in the position of flagship, so to speak.

IBM has openly stated that this was its No. 1 target. However, Correia said Microsoft is also making its mark in supply chain – perhaps with a little less fanfare. “It’s in their interest given they too have very large supply chains with a number of their product offerings,” he said.

In terms of offering blockchain as a service, IBM has championed Hyperledger Composer for the past couple of years. However, there may be some question marks over the design of Composer, at least from an IBM perspective.  

Azure’s Kerner was tactfully equivocal about Microsoft’s enterprise blockchain rivals, adding that everything is built with an eye towards enabling a consortium that’s not exclusively on Azure.

“It’s got to be open. Any meaningful consortium is going to have members who have different choices that they have made around their cloud provider and who they choose to work with,” he said.

Microsoft image via Shutterstock.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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The Fight Over Masternodes: The WTF New Way to Earn Money With Crypto

There’s a fight going down on crypto Twitter right now.

But while that fact alone should come as no surprise, this time the bout is a bit more notable given it’s between a number of cryptocurrencies using so-called masternodes. While the term is flexible, generally speaking, masternodes are defined as computers on a network – staked with tokens – that perform additional work besides just helping run the software that governs a given cryptocurrency.

The mechanism, while an older idea, is starting to gain some traction with significant projects such as ZenCash (now Horizen), Gold Poker and Zcoin using the masternodes. Plus, other projects – EOS and Tezos, for instance – could likely refer to the participants that verify transactions as masternodes (though they don’t).

The Twitter battle, though, is all in good fun (mostly).

At its heart, the months-long contest pits pairs of tokens that use masternodes up against each other to test sentiment and name recognition, all using fairly simple, straightforward SurveyMonkey dialogues. Its instigator is Brian Colwell, a blogger and consultant to crypto startups, and he’s amping up the drama around it.

“We’re running it like a martial arts tournament, but it has devolved into eye gouging, brass knuckles,” he messaged CoinDesk over Twitter.

Colwell’s metaphorical “eye gouging” and “brass knuckles” mostly take the form of supporter exhortations over email lists and social media, with the odd fun gif. But it’s true that many of these projects are in it to win it.

Called “#MasternodeMeBro18,” the tournament, which tests which projects can best rally their community, started July 3 and will run through October 28.

Down from an original list of 64 coins that use masternodes, the tournament just finished its third round where 16 tokens paired off against each other. The round brought in a total of 11,416 votes across all the matchups. And looking at the hashtag on Twitter shows that a lot of the projects are working to turn out their followers to support their tokens.

In fact, the fight got so fierce that some of the matchups in this round showed evidence of vote tampering. Colwell’s partner, OmniAnalytics, detected multiple votes from some IP addresses, so they re-ran the impacted battles in a one-day “sudden death” rematch that closed Tuesday.

The fourth round of the contest started on August 28.

So, what’s with all the interest in masternodes all of the sudden?

According to industry observers, including Colwell, the masternodes approach allows participants in the network to earn income that’s above and beyond token appreciation. This passive income is what led Colwell to not only become interested in masternode projects but to organize the tournament.

He told CoinDesk:

“I have always been interested in communities with an interest in yield. You’ve got to find a way to make money all the time.”

Like bitcoin’s old days

This idea originated with Dash (formerly “Darkcoin”), which needed masternodes in order to help run its privacy enhancing features. By staking some tokens and making a computer available to the network, users with a long view of Dash earn an income on their stake, in the form of fresh tokens.

To participate as a masternode then, a user will need to make an upfront investment in coins and in equipment.

“Running a masternode incentivizes people to buy up the supply and lock them up for longer periods of time, thus reducing the coin velocity,” Sid Kalla of the blockchain consultancy Turing Advisory Group told CoinDesk.

Yet, the funds required aren’t insurmountable. In this way, running a masternode is like hobbyist bitcoin mining back in the day, when individuals could mine bitcoin and still turn a profit.

Colwell told CoinDesk that he runs 20 masternodes himself.

He said:

“I feel like it gives me more control on a daily basis to decide what I want to do with my coins.”

By earning tokens from his tokens, he has something to sell when the price swells and a way to stay ahead when the market is down.

Most token-based startups that have a masternode feature rank in the small- to mid-market capitalization ranges (Dash being an obvious outlier, with a $1.3 billion market cap), and in a way they bring back the days when a regular person could participate in running a protocol without much upfront investment.

Pricing what node to master

But it’s not just that easy; there are metrics to keep in mind.

In looking at participating in a given project, Kalla said that buyers should make sure they will earn more than it will cost them to run the computations required. “The rewards should also exceed the inflation rate,” he said.

But the most important variable is how valuable the token itself is.

“There is no point in holding something for 10 percent gains a year in its native token if it is going to fall by 90 percent against bitcoin,” Kalla continued.

Returns on masternodes vary wildly.

Masternodes.Online is a site that makes it easy to see what the upfront costs and returns are for different masternode projects. Usually, masternodes have very high rewards (100 percent per year is not unusual) in their native token, in order to make up for their market volatility.

For example, if a masternode offers 10 percent rewards on a stake of 100 tokens, a user should get 10 new tokens annually.

Here are some examples of basic stats of some different masternode tokens:

Colwell estimated that a reasonable starting price to buy a stake of tokens to run a masternode ranges from $2,500 to $5,000 in tokens.

But “price” might not really be the right word, because the necessary tokens to stake aren’t lost. A masternode just needs to lock them up for as long as the operator wants to receive rewards.

Other kinds of income

On top of the rewards for maintaining the network, Kalla also pointed to token projects that can earn more than one kind of reward. And while many masternode-using projects are a bit more underground, the idea is starting to gain more traction.

For instance, Swarm Fund, the Techstars alum which raised $5.5 million in an ICO, launched a masternode program in August. Already, 9 percent of the token supply has been staked by interested masternodes, according to a recent update from the company. The idea behind the project was to allow people to invest in projects for which the upfront cost is typically too high.

So, in addition to validating transactions, Swarm’s masternodes will decide where to invest part of Swarm’s token reserve (later sharing the returns on those investments). The theory here is that returns on managing consensus will be higher early on and the investments will pay off later, giving participants an incentive to get in early and stick around.

“In contrast to other rewards systems, our masternode system actually increases rewards over a long period of time,” Philip Pieper, Swarm’s CEO, told CoinDesk.

Another startup, Eximchain, an FBG and Kinetic Capital-backed blockchain-based supply chain management push, is expected to launch its own masternodes soon.

For that network, it won’t be enough just to stake to become a masternode. Instead, after completing know-your-customer (KYC) requirements, potential masternodes will have to be voted onto the network by other members of the chain – marking an unusually high bar for the process.

But deciding who else gets to be a masternode on the Eximchain network is one of the most important pieces of work its masternodes will do. Those who participate in voting have to put up funds proportional to their conviction in the vote. Then all those funds get shared among the nodes that voted, creating another form of revenue.

These kinds of extra earnings for participating in a blockchain network are something Kalla said those interested in being masternodes should look for.

Signals and incentives

And just as money makes masternodes an enticing idea, for masternode projects themselves, Colwell’s contest is starting to look more attractive, too.

At first, the prize for coming out ahead in the contest was at most PR and bragging rights, but that’s changed. Real stakes have started to accrue for projects that perform well. Not from Colwell himself, but from a new startup called Kalkulus.

The startup was created to give users a way to run masternodes without actually needing to manage the computing themselves. So if a user holds stake in a particular token, Kalkulus will run the computations.

Yet Kalkulus only provides this service for so many projects. Not only does integration bandwidth get in the way but also they likely want to be choosy with their integrations so they’re seen as only offering the best projects.

As such, the company promised to provide the service to the four projects with the most votes in the third round – which were Solaris, Deviant, Phore and Rupaya.

As a masternode-as-a-service-type offering, many projects will likely want to be listed on the platform since it lowers the barrier to entry for participants in the network.

Like investors looking to buy tokens in a presale, companies like Kalkulus need signals to help them decide which tokens to provide the service for, and that’s what Colwell’s contest has become.

Colwell acknowledged that, saying:

“The ones that have strong social sentiment are likely to be the ones that have the most masternodes.”

Roman coins image by Nikita Andreev on Unsplash (public domain)

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