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Cryptocurrency and Blockchain Bring a New Era of Choices to Hospitality

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June 18, 2018
Marion Roger

Bell Telco, Bitcoin & Blockchain
Before we get into the demise of the OTAs, let’s discuss changes coming in the industry.

For more 180 years we’ve seen a variety of sophisticated technologies change the way we send, receive and record messages. Whether it was a human messenger (errand boy) or carrier pigeons, messages were sent in a tangible paper form for millenia. Even though the way we exchange messages has changed dramatically, from paper to digital, and while it seems to have just recently become the norm ... the actual process has spanned almost 200 years.

Also changing: How we pay for things. Instead of using wampum or silver (or dollars), we now pay via Venmo or even by our faces. Face++ is already part of several popular apps. It’s now possible to transfer money through Alipay, a mobile payment app used by more than 120 million people in China, using only your face as credentials.

My point? The time it takes for a new technology to become ubiquitous is no reason to put our heads in the sand. What seems like a simple concept or a farfetched fantasy – migrating from paper to digital – is now a part of our reality.

Understanding innovative or disruptive systems and technologies and exploring how we can use them in ways yet imagined is easier to grasp when you realize we already do it all the time. Looking at the history behind the transformation from paper to digital is a good way to think about digital money and the blockchain system.

Hospitality Upgrade knows this is top of mind. Readers are engaging in discussions about cryptocurrencies and blockchain and how they will impact hospitality operations and strategy.
“Bitcoin is to cash what email is to paper mail.”
In 1836, Samuel F. B. Morse, along with Joseph Henry and Alfred Vail, invented the electrical telegraph system. It could transmit messages over long distances by sending pulses of electricity to a machine which made marks on a moving paper tape.
Simultaneously, Scottish inventor Alexander Bain used a chemical-mechanical device to reproduce graphic signs in laboratory experiments and obtained a British patent in 1843 for his "Electric Printing Telegraph.”

In 1865 (some 11 years before the invention of the telephone) the Pantelegraph (invented by Italian physicist Giovanni Caselli) was the first commercial fax service between Paris and Lyon. Who knew? Fax machines predated the phone, which didn’t come about until the 1870s. The Telex, which began as a research program in Germany, became an operational teleprinter service in 1933. That’s about 100 years of the history of paper to digital.
Fast forward to FaceTime, which is now 54 years old!
Visitors to the 1964 New York World’s Fair waited in long lines at the Bell Telephone Company’s exhibit for the experience of a lifetime. They could hold a 10-minute visual telephone conversation with a complete stranger sitting in front of a similar Picturephone exhibit at Disneyland in California. Bell’s “Mod 1” (Model 1 a.k.a. the Picturephone) was the hit of the fair.

Let that sink in. Today Skyping/Facetiming and Facebook video chats are commonplace. Yet it took more than 50 years for the technology to be fully developed and accepted.

In 1984, 30 years after the World’s Fair exhibit, I had completed two summer internships for the top brass at AT&T’s world headquarters. Interestingly, I had also experienced the Picturephone many times in AT&T’s lobby. I was also an avid and experienced email user between 1983 and 1986, using a French Minitel terminal in my parent’s basement in New Jersey. (There are some pretty cool benefits to being an AT&T executive’s daughter!)
Cliff Notes on Cryptocurrencies
“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among
others, and confused the heck out of the rest of us.” – Thomas Carper, U.S. Senator
Cryptocurrency and the encryption security terminology around it are now a prevalent part of industry banter. Experts in payment systems, loyalty points, reservations, HR, finance, operations and procurement frequently weigh in.

When it comes to new technologies, our debate and investigation are driven by our need to know what it all means so we can steer our companies into unknown waters. There's also a sense of confusion and even fear. We worry about missing out or making the wrong choices when it comes to what to focus on, or invest in next.

Many readers know the meanings and understand the implications. But more than a couple recent conversations have led me to believe a minitutorial would help.
What’s the difference between bitcoin and blockchain? One is a cryptocurrency. The other is a system to record transactions, no matter which cryptocurrency (or item) is being exchanged or stored.

What is cryptocurrency? It’s money entirely created by and held electronically on a computer. It’s produced by people and businesses all over the world using advanced computer software that solves mathematical problems. You might also hear it called alternative currency or virtual currency.

Cryptocurrency is a digital asset designed to work as a medium of exchange (like wampum, gold or plain ol’ money). Transactions are secured by cryptography technology. Cryptography also controls the creation of additional asset units. And it verifies transfer of the asset from buyer to seller.

Cryptography is the process of converting ordinary plain text into unintelligible text and vice-versa. It is a method of storing and transmitting data in a particular form so that only those for whom it’s intended can read and process it. Not only does cryptography protect data from theft or alteration, it can also provide user authentication.

Cryptocurrency isn’t legally recognized or controlled by any government. It’s independent of governmental authorities like central banks that traditionally control the money supply. You can’t pay taxes with it. You can’t settle debts with it. It’s purely a computer-based means of exchange. This also makes it harder to steal. (See the section further down on blockchain).

Exchanges buy and sell cryptocurrencies each day. A new one can be created at any time. The number available over the internet as of May 2018 is more than 1,565 – and growing.
As of May 2018, bitcoin is currently the largest form of crytopcurrency, followed by Ethereum, Ripple, Bitcoin Cash, Litecoin, and EOS. Interestingly ETH (Ethereum), or XRP, which is from Ripple Labs, are being used in blockchain projects involving existing banks.

Blockchain is to value what the internet is to information.
Similar to the rise of the internet, blockchain has the potential to disrupt multiple industries and make processes more secure, transparent and efficient. While blockchain is mostly known as the backbone technology behind bitcoin, it’s actually one of the hottest, most intriguing technology concepts in the world. And it isn’t limited to currency.

Although blockchain was spawned alongside bitcoin, it isn’t limited to cryptocurrency transactions. It’s a system or technology that’s easy to grasp. It’s known as distributed ledger technology (DLT, which is nothing more than a public transaction database. Ledgers are a permanent summary of all amounts entered in supporting journals that list individual transactions by date.

Since the blockchain system is a digital technology, it serves as a sort of decentralized database, allowing users to enter information and store it across an entire distributed network. It’s a recording system, not a brand. It isn’t proprietary to any one company.

Blockchain’s relation to cryptocurrency is simple: The safety, integrity and balance of a financial transaction ledger is being entirely maintained by a community of mutually distrustful parties referred to as miners (members of the general public using their own computers) who help by validating and timestamping each financial transaction, adding them to the ledger in accordance with a particular timestamping scheme.

According to Harvard Business Review, a blockchain is "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way." A blockchain works pretty well as a single source of truth. Once a transaction has occurred between two parties, it's on the ledger forever. Every block is linked by code to the blocks immediately preceding and following it. You can’t change one without changing them all.

A blockchain is an ever-growing list of records, called blocks. What's being recorded are transactions. One block, for example, might contain the record of Person A transferring $500 to Person B. Based on the fact that it involves multiple touchpoints/validators and timestamps, blockchain records are inherently resistant to modification after the fact. The most important thing to know about blockchains is that they’re based on decentralized consensus. Transactions are recorded across multiple computers, so there’s no way to alter records retroactively without the collusion of the entire network.

While you can easily understand the blockchain system as a digital ledger or just another database, doing so would frankly be restrictive and doesn’t do it justice. The blockchain is much MORE than that! The blockchain system is actually what I like to refer to as a form of digital trust. Looking at it in that context provides a better idea of its true potential.

In the final analysis, trust between partners is at the heart of a successful business. More trust makes business easier, streamlines many processes and creates transparency. That means the blockchain system can serve as the backbone for trust of yet undiscovered types of cooperation between machines (M2M) and between humans (H2H) that were, until now, limited by the cost of building trust or the lack thereof.

Even if applications of blockchain technology are still mostly at an experimental stage, some companies are looking at the various possibilities it represents.

What about US?
For the hospitality industry, this offers enormous potential in terms of reducing third-party involvement, enhancing security, improving the speed and ease of transactions, and allowing us to access important information from anywhere, at any time. Hospitality Upgrade has previously touched on the loyalty program use of blockchain as well as payment tech possibilities. (Leveraging Blockchain for Loyalty, Summer 2017) We work hard to show various applications outside of those areas and will take a deep dive into HR, procurement and reservations this issue.
Good ol’ HR
To see the potential of new blockchain solutions for HR processes, it helps to look at use cases outside of HR. We’ll choose ones that disrupt an existing value chain such as music contracts in comparison to employee contracts, automated validation of resume credentials to avoid manual validation, or cryptocurrency transfers to international payroll. It's arguable that these solutions have the greatest potential for growth as their associated benefits are likely to dramatically outweigh their costs.

Deloitte has done an outstanding job sharing how innovators and entrepreneurs are using blockchain technologies to improve the exchange of information which forms the framework for the employer-employee relationship. In particular the writers shared four examples of how blockchain can change the way we perform core HR processes including payroll, recruitment, competency management and learning.
1 HR blockchain in certification
Employers face a major hiring hurdle when they need to verify information on a candidate's resume. Veracity is a common problem. The effort to verify credentials impacts the hiring process and costs employers time and money. A firm that specializes in global background checks, drug testing and employment verification services shows that screening uncovered misrepresentations on resumes for 86 percent of employers. Start-ups and more established HR vendors are using blockchain technology to solve industry certification issues, increase transparency and address fraud in employee credentials.
Entrepreneurs are working with blockchain to offer fraud proof solutions for certification. According to Deloitte, this is a leading use-case for blockchain-based technologies as the education industry moves to protect the value of official accreditation in the face of its own disruption through Mass Online Open Courses (MOOCs).
2 HR blockchain extends beyond certification
Some initiatives go beyond certification. A few forward-thinking HR tech vendors have explored the idea that this technology will relieve HR of the need to validate position history, job experience and transactional data like a medical certificate, address changes and tax filings. As seen in another industry use case – music – once the record is created and stored in a block, an HR system could link to it and digitally accept its authenticity.
3 HR blockchain in payroll
Sending payroll overseas is consistently expensive.  It can take a long time to process due to multiple intermediary banks and third parties. The long-term inefficiencies of international payroll payments add up. Currency volatility impacts both the employer and employee. Intermediaries routinely take advantage of hourly changes in exchange rates. Time is money. An international payroll blockchain solution moves faster than existing models.
Bitwage offers an interesting solution. It combines the blockchain with mobile and cloud technology to facilitate cross-border payments using bitcoin as a payments rail. Employees ultimately get paid out in their local currency. Bitwage handles the conversion of bitcoin to local funds.
4 HR blockchain in digital process management
It’s easy to see the potential. Smart contracting capabilities (policies, benefits, reward) are already a topic of interest in the digital music industry which has seen significant potential for automation using blockchain.

Smart contracts are code – rules written into a digital program that determine what happens when money comes in or when certain conditions are met. Entire virtual marketplaces have been created based on policies that set forth the terms under which artists allow their music to be used. Commercial and non-commercial contracts can be provided directly to the market. Artists can agree on royalties and rights in the transaction without intermediaries.

Smart contracting handles these options in an open and transparent way – everybody knows when they’re getting paid, under which circumstances and what amount. It requires little imagination to see how this can shake up the hospitality business when it comes to the future of managing a growing population of global or remote employees that service many different clients in an open talent economy.

Blockchain and Room Reservations
Another reason the hospitality industry should care about blockchain: An open-access distributed ledger of hotel inventory would greatly boost options for online distribution. Innovative start-ups are currently frozen out of the industry due to high costs of entry. In theory, they would be able to go toe-to-toe with the biggest OTAs in competition for a hotel's business. Some believe Expedia and Priceline would lose their 95 percent duopoly. In theory, both the hotelier and the customer would win.

Over the past three months, Lufthansa and Nordic Choice hotels have experimented with blockchain distribution, prompting much discussion of whether blockchain will be “the savior of online travel.” The platform they've chosen to experiment with is Winding Tree.
Self-described as a blockchain-based decentralized open-source travel distribution platform, Winding Tree has been at the forefront of many blockchain travel discussions. Co-founder Maksim Izmaylov said, “Data held by global distribution systems (GDSs) can be expensive and inaccessible, while blockchain technology is inherently easy to access and low-cost making it an undeniably attractive alternative at first glance.”

If hotel booking transactions were removed from siloed systems like CRS and GDS and placed in a decentralized blockchain then, theoretically, transactions would get easier and cheaper. Savings, ideally, would be passed on to the ultimate end user, the guest, Izmaylov said.

"We want to create a protocol for the travel industry – similar to the HTTP protocol which forms the basis of the internet. This industry should be able to share travel distribution data in a permissionless manner without crazy transaction fees," a representative for Winding Tree said at a recent event earlier this year.

This company has zoned in on a problem many people in the supply chain landscape care about. A vision for a new industry protocol is inspiring. If enough companies build upon it, the online reservation space could truly open up. This would provide both hoteliers and consumers with improved choice around how and where they spend their money when booking.
Food & Beverage Procurement
Restaurateurs have a direct relationship with consumers who seek more information about the food they eat (local? organic? free-range?). Ordering and restaurant-specific smart-phone apps further magnify the public's demand for food origin data. Consumers are willing to pay significant premiums for food they know is good for them. Smart menus could connect in real-time with the blockchain of food to provide the history of specific produce being used on a particular day in the kitchen. This could lead to a potential holy grail for foodies – real meal personalization.

High-end restaurants are going the farm-to-fork route, but they’re probably too small, and don’t have enough influence to cause large-scale adoption of blockchain sourcing systems. National restaurant brands and chains are eagerly charging patrons a premium for quality, sustainable food. Sooner or later, they’ll be challenged to authenticate claims that their food is better. This is what happened to Whole Foods. Hotel food outlets are sure to join the fray.

The food supply chain is complex. The numerous producers, harvesters, processors, consultants, agents, temporary workers and retailers who participate in food production often impact a tiny portion of its journey. This decentralized process calls for a decentralized solution. The blockchain of food simplifies the challenging task of aggregating information from a multitude of actors by providing a one-to-many data integration and process orchestration among participants.

Any organization can run a blockchain node and become a guardian of the information exchanged on the blockchain of food. Indeed, multiple blockchains related to food can interact with one another. The food supply chain is already working on ways to organize into more local pods that represent real time food generation, distribution and efficiency. Their willingness to integrate with the blockchain of food comes from their clients’ need for proof of the quality of the food purchased/served.

For example: A local farmer and hotel restaurant are connected with one another on the blockchain of food. However, the trucking company doesn’t belong to the blockchain of food. At harvest time, the farmer makes some assertions about the food (cultivar, practices, harvest date, etc.), and the trucking company picks up the crates. The next visibility point on the blockchain occurs when the restaurant receives the produce. The restaurant's smart contract, seeing that the shipment was accepted, sends an assertion to the farmer that the delivery is complete. The lack of visibility during transport is a blind spot, but it doesn’t prevent the supply-chain as a whole from benefiting from the system. Adding intermediaries into the chain offers untapped value in sharing this information all the way to the producer or buyer/foodie.

Opportunities associated with blockchain technologies are huge and could be fully put into practice within the next few years. Of course, a convincing idea doesn’t mean any project or company in the field will be a success. Blockchain-oriented companies aren’t any more likely to succeed than any other start-up. Yet the speculation for growth is so high that investments are pouring in.
You should be able to see how the blockchain will change the business model for almost every firm in a sustained way. The system enables a faster and cheaper exchange of assets and financial products between individuals without an intermediary. This reduces the asymmetry of information between the individuals.

According to Deutche Bank and other financial institutions, while blockchain technology is promising, cryptocurrencies are less so. Digital currencies are categorized as highly speculative, given their lack of intrinsic value or backing from a central bank. Naturally those disrupted (banks et al) will make some of the same kinds of claims others made when concepts like the OTAs or AirBnB entered stage left.

Nonetheless digital currencies in general could evolve in a number of ways. Some of the main factors affecting their growth include government intervention and competition between different currencies.

The blockchain technology is still new, as is cryptocurrency. Just as migrating messages from paper to digital didn’t happen overnight it will take time for these platforms to develop the standards required to make a meaningful impact on the industry.

The online travel distribution space is – and has always been – a moving target. Existing players recognize the various friction points and are working to build sustainable businesses. Taking the concepts to other areas are points no one has yet to touch on at any of our industry events. As we attend HITEC 2018, keep your eyes and ears open for out-of-the-box ways the blockchain system could upgrade your life.

If you’re interested in a future where the world moves beyond fossil fuels, you should pay attention to how bitcoin impacts the environment. This trendy cryptocurrency we’ve all pretended to understand at some point in the past year is poised to change the world in more ways than one.

Not all of them will be good.
A recent report from The New Republic documents the environmental resources bitcoin could use up if it continues to grow at current rates. The numbers are shocking. The article estimates the annual energy usage to operate the current bitcoin market equals the needs of 28 million U.S. households.
In a perfect world, we’d mine our encrypted and secure currency on powerful microprocessors run by renewable power harvested from the sun, wind, and the process of converting our excrement into pure energy. Alas, we’re still working toward this utopian vision.
Instead, the majority of bitcoin mining operations are located in places where electricity is cheap, or government subsidized. Venezuela, for example, is in the throngs of a bitcoin boom. More often than not, this electricity is created by burning fossil fuels.

Bitcoin creators didn’t account for how much of an energy suck the computer network behind bitcoin would one day become. As usage grows, the math problems computers must solve to make more bitcoin become more difficult. Today, each bitcoin transaction requires the same amount of energy used to power 9 homes in the U.S. for one day. By July 2019, the bitcoin network will use more electricity than the entire United States does now. By February 2020, it could use as much
electricity as the entire world does today.
An index from cryptocurrency analyst Alex de Vries estimates that with prices the way they are now, it would be profitable for bitcoin miners to burn through over 24 terawatt-hours of electricity annually as they compete to solve increasingly difficult cryptographic puzzles to mine more bitcoins. That's about as much as Nigeria, a country of 186 million people, uses in a year. This is an unsustainable trajectory. It simply can’t continue.
This isn’t to say there’s no chance for bitcoin to improve its environmental friendliness. Scaling technologies show some promise to dramatically increase bitcoin’s transactions capacity for, thus boosting the economic and social value humanity gets in exchange for all of that energy use. Perhaps another, more efficient cryptocurrency could dethrone bitcoin. Ethereum is planning on moving to a less resource-intensive “proof of stake” mining approach, which could drastically reduce energy consumption.

Marion Roger, Sr. VP operations at Upflex, is a specialist in the global hotel supply chain landscape with more than two decades of technology roles.

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