11 months ago
 

The what, why and how of blockchain in travel

Blockchain technology is in its infancy, but it’s clear that it will change many industries in radical ways. The most brilliant minds of our time are trying to understand all the implications, but it will take some time.

NB: This is a viewpoint by Maksim Izmaylov, founder and CEO of Roomstorm. He has also helped to start Travel Tech Con and Winding Tree (mentioned below).

As with many other technologies, startups will play the key role in this process by testing these ideas in the wild and trying different approaches. We’ll surely see some big wins and we’ve already seen disasters, such as The DAO.

I’ve already seen multiple “X + blockchain” ideas, where the “blockchain” part is not relevant to the idea, so let’s discuss some of the aspects of the blockchain that you can use in your business today.

Hopefully after reading this article you will be able to better understand what blockchain is, how it works and why it’s important.

What is blockchain?

Blockchain is simply a type of database which has several interesting features. First of all, it’s immutable, meaning that records can only be added to that database and never removed or changed.

Secondly, blockchain databases are distributed among multiple computers that store full or partial copies of that database.

For example the Bitcoin blockchain (yes, there are multiple blockchains out there!) is hosted by millions of machines. It’s important to distinguish private blockchains, where all the computers in the network are controlled by one organization and which you can’t freely access, and public blockchains, such as Bitcoin, Ethereum and Hyperledger.

Last, but not least, one can deploy a piece of computer code onto a blockchain and, because that database is immutable, that code will be stored and executed there forever.

Basically, a blockchain is a virtual machine that can execute computer code. You can write programs for the Bitcoin blockchain by using a computer language called Script.

But Script is too low level, it’s hard to use, that’s why other blockchains, such as Ethereum, were born. Ethereum developers created a new computer language called Solidity which is much more flexible than Script.

Just like in Conway’s Game of Life three simple features allow for immense complexity. Let’s discuss a few obvious implications of these “rules” and some high-level concept enabled by them.

Blockchain uptime: 100%

Because blockchain databases are distributed among millions of computers, the reliability of those networks, depending on their size, is, theoretically, 100%.

Again, it’s very important to understand that private blockchains can be shut down any time by the organization that controls its nodes, but public blockchains can’t be controlled (or shut down) even by their creators.

Blockchain can’t be hacked

The immutability aspect of blockchains and the fact that they are distributed among multiple computers means that it’s extremely hard for a hacker to tamper with. Each computer in the network is constantly checking other nodes for validity.

Nodes that don’t match certain validity requirements imposed by other nodes are automatically excluded from the network.

With public blockchains there is a risk of a “51% attack” where a party that could seize control of 51% of computers in the network can theoretically control the system. Such risk is, of course, extremely small, for a number of reasons, but that’s a topic for a separate article.

Blockchain enables trust

Over the course of the history we have invented multiple institutions that essentially are there to enable trust.

For example, I will only trust that your name is John Smith if you show me your driver’s license or passport. Those documents are very hard for authorities to produce and hard for individuals to tamper with.

They usually have multiple layers of security – such as watermarks, holographic images and, recently, biometric information about their owner.

Banks are another example of a type of institution that we are accustomed to trust. Your expectation is that if you put $1,000 into your bank account, you’ll be able to retrieve it later on.

Whenever you transfer $500 from your bank account to your business partner’s account, you can rely on your bank to confirm that the transaction has been sent, that the other party’s bank received it and that the amount of money left in your account is now $500.

But even banks get hacked and officials sometimes use their power to their personal advantage, undermining these institutions.

These days we already have an alternative to the banking system – Bitcoin (BTC). All the computers on the Bitcoin blockchain contain information about all the accounts in the network, so everyone knows that you have exactly 1BTC in your possession (where “you” is represented by a hash – a long string of numbers and characters called “address”).

When you spend 0.7BTC, everyone knows that you’ve done it and that your balance is now 0.3BTC.

The same applies to the aforementioned problem of identification. If you put a record onto a blockchain that would contain your name and, let’s say, your fingerprints, you will be able to easily prove that you are who you are in an automated way, without an organization in the middle.

Such information, if stored on a public blockchain, should be thoroughly encrypted, of course.

This brings us to another important implication.

Disintermediation

As with the example above, we no longer need middlemen to trust each other.

Whole organizations, for example escrow funds, can now be replaced with just a few lines of computer code. All interested parties in this case will be able to see that party A transacted a certain amount of money to an address on a blockchain that will send that money to party B, when certain conditions are met.

This is a very powerful concept that now allows us to create organisations that could govern whole industries, but that would lack all the downsides of monopolies.

Winding Tree is a decentralized autonomous marketplace for travel. It’s one single organisation, but no one can control it and raise transaction fees or cut someone off the network.

Decentralized business model

Blockchain also gave rise to a whole new type of business organisation, where a cryptocurrency issued by that organisation acts as its shares and at the same time as its internal currency, in which its contributors can be rewarded.

This new business model allows startups to raise money and at the same time pump value into their cryptocurrency by giving discounts to early buyers.

If it still sounds like science fiction to you, don’t worry, you are not alone.

This concept is worth a separate discussion, which, luckily, has been started here by Fred Ehrsam, CEO and founder of Coinbase.

There are already investors, such as Olaf Carlson-Wee, that only invest in cryptocurrencies, and there is a number of new challenges associated with this model.

Blockchain companies and projects

Here’s a list of notable blockchain companies:

Augur – decentralized prediction market

Steemit – blockchain-based social media platform

Storj – distributed cloud storage

OpenBazaar – decentralized marketplace

Uport – decentralized identity for all

Applications in travel

An obvious implementation of these ideas is identification and personalization solutions based on blockchain.

In the future, a blockchain company could potentially replace Airbnb and Uber as intermediaries.

In the recent news, an Australian company WebJet announced that it is building a hotel distribution solution on the Microsoft blockchain. This project, because it’s built on top of a private blockchain, has obvious disadvantages to Winding Tree, an open-source decentralized distribution platform for travel.

Conclusion

To me, payment solutions enabled by Bitcoin are the most obvious (read “predictable”) use cases for the travel industry.

But there are many other ideas and concepts that are now possible thanks to blockchain technology and our job is to try and test those ideas.

Further Reading

Blockchain and a different view of the sharing economy

Blockchain technology has payments promise for travel companies

Removing friction at the airport using mobile and blockchain

Is a blockchain token a security?

NB: This is a viewpoint by Maksim Izmaylov, founder and CEO of Roomstorm.

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Viewpoints

About the Writer :: Viewpoints

A founding principle of tnooz was a diversity of viewpoints from across the spectrum. Viewpoints are articles by guest contributors from around the travel and hospitality industries. The views expressed are the views and opinions of the author and do not reflect or represent the views of his employer, tnooz, its writers, or partners.

 

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  1. Glenn Wallace

    Great article! I would say the Webjet project is a proof of concept based on their description. For blockchain to succeed anywhere in the travel inventory space, you would need to end to end commitment in the distribution chain to use it.

     
    • Maksim Izmaylov

      Glenn, yes, it’s just a bit confusing when companies make announcements like this. All they said is “hotels + blockchain” without revealing any details, but those details are absolutely crucial here. How will that system work? Is it going to be on a public blockchain? If not, what exactly would it mean for hotels?

      Thank you for your comment!

       
  2. Olaf

    Maksim, thanks for your post.

    I am pleased to see the topic get some publicity in the travel distribution domain, I want to ensure that from the outset expectations are correctly set and in line with other streams of dialog on this topic in our industry.

    Blockchain cant be hacked: You rightly reference the DOA and Ethereum as examples of where actually the blockchain WAS hacked, but not in the sense that the broad public understands “hack” (gaining access to a system to conduct malicious activity) but it was indeed a hack in the sense of leveraging weaknesses of the smart contract framework and loopholes in security triggers which resulted in hemorrhaging (and ultimate loss) of funds for investors and a hard fork of the code. Applications that run on blockchains CAN be abused/manipulated/hacked, so lets not give the wrong sense of security here.

    Blockchain enables trust: As outlined above, the blockchain is purely a distributed ledger, so the transactions are visible. Blind trust in systems using blockchain should not be a given. Any new business applications using blockchain technology will need to be just as securely vetted as any other application running on other “legacy” technologies, and where established companies will have an advantage in delivering such solutions.

    Disintermediation: While I strongly agree that new applications / solutions that leverage blockchain technologies WILL disintermediate current models and market participants, I will point out that we must avoid the hype here. You claim that Winding Tree is a decentralized autonomous marketplace, I would argue that without very robust smart contracts (see Ethereum / DOA nightmare) in place you cannot have an “autonomous” marketplace, and that your idea to put inventory on the blockchain is somewhat flawed (your site states “We aim to start with inventory availability information from hotels, airlines and tour and activity providers in order to enable travel agents to book hotel rooms and airline tickets”). Unless you pair quantum computing with blockchain (again, its just a distributed ledger) it will not be able to cope with (since it is not designed for it) the reality of real time pricing / product generation volatility that the industry operates in today.

    Sure, if you make the assumption that we still revolve around pure ARI push messages once a day and blockchain is a cache of availability and pricing, I would agree. But with the real time dynamic pricing (literally a price exists at time of shopping the system for that request and possibly never ever again), connected complexities of seasonal, discounting, superior rate and stay based tax rules by country, blockchain is damned to be what it was designed to be – a transparent ledger of transactions. Unless, as said – you have a quantum computing farm in your basement. Not even Google (and the DO have a big basement) can keep up with the real time pricing of today’s travel distribution systems.

    Create on the other hand a connection between real time inventory systems, blockchain/smart contract purchasing process and IoT framwork in hotels/airlines to “consume” your purchased product – then you have a solution that will truly disintermediate and allow the creation of new decentralized business models. That is precisely what established technology companies are doing, not only in the banking and software verticals (Microsoft, IBM, SAP).

    BaaS (Blockchain as a Service) is “a thing”. Watch this space!

    Sincerely

    O.

     
    • Maksim Izmaylov

      Olaf, first of all congratulations on the deal with a16z! And, secondly, thank you for your thoughtful comment.

      For the sake of this article I’ve simplified a few things. Anything can be hacked, of course. For example, if someone gets access to your computer (passwords or private keys), the will be able to “hack” your account. Though in comparison with current centralized companies, blockchains are harder to hack and some types of attacks, like what Wells Fargo did to their customers, are hardly possible on the Bitcoin blockchain. Well, again, with 51% majority it might be possible, but it will destroy the network and the 51% majority will suffer the most. In any case, I think it’s a topic for a separate article, or rather multiple articles and white papers.

      Regarding disintermediation. I believe that the problems that we aim to solve are extremely important and we will have to deal with active resistance from GDSs. The only weapon that we have, because we don’t have billions of dollars like they do, is to predict how the whole travel ecosystem can operate in the future, 5-10 years from now. Our goal is to rally the troops and aling to solve a common goal and that goal can’t be phrased as “we may solve that problem or maybe we will not.” Instead, my message is this: we will solve these problems or we will die trying.

      I also don’t have an illusion that all travel companies will use WT at some point in the future, that’s very improbable. The network will be growing over time and capacities of blockchains will grow over time as well. It’s a long shot and right now we can only speculate whether Ethereum or Rootstock will support the required number of transactions per second for all the needs of the apps that will be built on top of those platforms.

      You are absolutely right about predicting the flow of connecting inventory system and IoT devices, like smart locks at hotels, etc. It will be a part of the platform, just not in the initial phase. One of our goals is to attract developers to the platform, so, for example, they can quickly build property management systems that would integrate with those locks, etc.

      Great discussion, cheers!

       
 
 

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