Saturday, September 23, 2017

PSD2 Open Banking Initiative and Blockchain Economics

Compulsory upcoming implementations of the European Union’s Revised Directive on Payment Services (PSD2) supporting the Single Euro Payments Area (SEPA) could spur blockchain adoption for two reasons. First, the shared ledger technology provided by blockchain is a crucial underlying functionality for real-time payments. Second, blockchains offer not only real-time payment capability, but also identity confirmation, so that risk management and fraud prevention may be improved for banks.

The objectives of PSD2 dovetail nicely with the capabilities of blockchain. One of the most obvious kinds of functionality to facilitate real-time payments is having a shared ledger of account balances. User identity and balances are confirmed and known in banking blockchains, and reside in a secure and immutable ledger waiting for upcoming transactions. Blockchains render the preliminary validating phase already complete, and therefore qualifying transfers can be executed automatically. Blockchain is the perfect infrastructure for real-time payments.

Regarding blockchain innovation and the development of new payment processes and systems, one implication of the PSD2 requirement for banks to open up their APIs to third parties is that the payments business could become more like a utility. On one hand, this could have banks scrambling to focus on higher margin customers and services. On the other hand, the technically-savvy might see PSD2 as a means of reaching new markets with technology-based solutions. The economic structure is different with blockchain in that the cost of offering services is reduced, while security is improved at the same time through blockchain-based identity confirmation. Banks could use low-cost eWallet solutions to offer light banking services on-demand to customer tiers that were previously unattractive from a credit and margin perspective. Lightweight banking services delivered by eWallet could be the analog to prepay phone services. A surprise benefit of PSD2 could be supporting financial inclusion as a policy result.

One effect of PSD2 is inviting agile fintech companies into the market. These vendors are well-versed in contemporary fintech solutions using Ripple and blockchain-based digital ledgers. This is important because it is not clear that more established payments systems such as SWIFT have the infrastructure to support real-time payments initiatives, despite their efforts to consider blockchain technology as a front-end overlay.

Digital ledger technology like blockchain facilitates payment and also compliance. Future payments regulation such as PSD3 could almost require the technical capabilities afforded by digital ledgers. For endusers, payment services could be more seamless than cash. A further effect of rethinking payments with blockchain could be rethinking other monolithic financial models such as how debt, loans, and capital are structured.

Status of Blockchain Adoption
PSD2 underlines that the industry is becoming more of an institutional investor and enterprise software market. The big source of investment in the sector is existing financial and governmental institutions who are developing private blockchains (where user identity is known and approved with KYC/AML practices; like a VPN).

Private enterprise blockchains could serve as a counterweight to worries about money laundering and other illegal uses of public blockchains. It is not that public blockchains should be banned or heavily regulated. Digital ledgers should be recognized as a new and complex digital venue where illegal activities may be taking place alongside bonafide activities, such that regulatory agencies are called upon to become savvy about the risks presented by the new technology and operate within this domain (anonymity does not mean lack of forensics). This is a small detail against enterprise blockchains as the bigger trend in the digital ledger space at present.

Sunday, January 01, 2017

Cognitive Easing: Human Identity Crisis in a World of Technology

Cognitive Easing is the aim of much of our endeavor, whether explicit or implicit. We have never wavered from trying to create a life of ease, enjoyment, and fulfillment. The definition of Cognitive Easing is spending less mental effort to achieve a result.

A contemporary problem seems to be technology’s controlling presence in the world. Jobs are disappearing due to technological unemployment. News is fed to us that does not correspond to reality. Mysterious big data algorithms direct from the background. We no longer seem able to think for ourselves with “the cloud” automatically piloting our lives. What happened to caprice and serendipity, to our very humanness?

However, I argue the opposite. It is not the infantilization of humans by technology that is happening, but rather the opportunity for cognitive easing. We are not always accustomed to using our brains in the most creative and productive ways. Therefore we feel dumbed-down by technology when cognitive easing is actually freeing us from mental drudgery. Consider the amount of effort spent on “last-mile cognition problems” such as planning and coordination. Instead, cognitive load could be increasingly outsourced to algorithms. This has been the promise of technology from the beginning, easier lives.

A pushback is that lower-level cognitive tasks might seem like part of the definition of what it is to be human. However, while we have had to occupy our time this way, it does not have to be who we are. We need to challenge the false and nostalgic notion of defining our humanness by the tasks we do, and this might not be easy. Even scarier than how we will spend our time after technological automation is the question of who we are – our very identity.

Technology is forcing us to question what it is to be human. We have defined ourselves by physical labor and lower-level mental tasks, and it is abrupt to have to change this, especially because we do not know who we are. Worse, there is a timing lag with technology replacing what we think our humanness consists of before we have had a chance to redefine what it could be. We feel out of step with technology, and that we are regressing instead of greatly progressing. We think paradoxically that technology robs us of our humanity when in fact it is doing what we wanted all along, providing physical and cognitive easing.

Technology, automation, and cognitive easing are requiring us to redefine what it is to be human based on the higher-level capacities we have. These higher-level faculties include creative problem solving, artistic expression, storytelling, and quirky ingenuity. Only humans have the ability to perceive the world and react with unique and inventive solutions. We can now contemplate a new class of problems that we did not have the luxury of addressing before, deploying our creative problem-solving capability to a greater extent. The vision for the future is engaging with more of our unique humanness, increasingly freed from both physical and mental drudgery, to be more of who we really are, creative, serendipitous, problem-solving beings exploring and enacting our world in new and ingenious ways.