What you need to know
As Nasdaq cheers Taipei-based OwlTing, Taiwan is on the cusp of allowing its dynamic blockchain innovators to make significant global impact.
As Bitcoin hovers around US$10,000, and the the Nasdaq Stock Exchange gears up to run futures contracts in the cryptocurrency next year, remarkable things are occurring in Taiwan’s cryptocurrency and blockchain community.
On Monday, Nov. 27, Nasdaq ran a digital banner congratulating Taipei-based OwlTing on launching "OwlNest" the world’s first hotel management service based on blockchain.
Over the weekend, more than 200 people attended Taiwan Blockchain Summit in Taipei, primarily Taiwanese investors in their forties with a smattering of International visitors thrown in for good measure. The event was organized by Blockcamp, which has become a rallying point for blockchain-related business through its Taiwan Blockchain Alliance events series, and was co-hosted by "Mr. Block", who runs Taiwan's largest blockchain community comprising about 8,000 members. Speakers included Kuomintang congressman Jason Hsu (許毓仁), the man behind Taiwan’s “sandbox” fintech experimentation bill, as well as presenters from various companies touting initial coin offerings (ICOs).
And on Tuesday, Vitalik Buterin, legendary founder of the cryptocurrency Ethereum, gave the last of several talks in Taipei, in this instance on developing a fair and transparent means of governing ICOs. Hsu was present again, along with L.A. Boyz rapper, Jeff Huang (黃立成) to give proceedings some pizzazz.
Buterin was talking at the Taipei offices of MaiCoin, a Taiwan-based exchange where it is possible to buy and sell the cryptocurrencies Bitcoin, Ethereum and Litecoin. MaiCoin General Manager Nick Chang estimates Taiwan’s crypto community (those invested or otherwise involved in blockchain and crypto related activities_ to be about 25,000 people – small. but enough to create momentum.
Of MaiCoin’s users, Chang reckons about 90 percent are Taiwanese, three-quarters are male and the majority are 25 to 34, but there is a significant proportion of savvy older folks as well – as evinced by the turnout at Taiwan Blockchain Summit. “One of the main purposes of Blockcamp and of the summit, is to create a stronger and more developed blockchain ecosystem in Taiwan,” says Blockcamp co-founder Jeremy Firster.
That community has been gathering strength in the absence of a regulatory framework that might contain or curtail it. When The News Lens first reported that Financial Supervisory Commission (FSC) chairman Wellington Koo (顧立雄) had told a joint session of parliament and cabinet that Taiwan would not regulate against crypto and blockchain-based business, I must admit I was skeptical. Word around the community suggested that working with the FSC “was like pulling teeth” – would Taiwan’s financial regulator really stand back and let the space develop unfettered?
The answer appears to be yes: The Legislative Yuan recently passed committee review for the Financial Tech Experimentation Act, and the bill is expected to pass its third reading in January 2018. This potentially revolutionary legislation, drafted by congressman Hsu, could open the door to a flurry of blockchain activity in Taiwan. "The test period is one year with four extensions: each extension is six months, so the total length is three years. That would make Taiwan’s sandbox the world’s longest in terms of testing period," Hsu says via email, adding that this week he led a group of fintech startups to meet FSC chair Koo and exchange views on crypto, ICOs and blockchain.
Such a move would thrust Taiwan into a global competition to create centers of excellence for blockchain business, according to Ian McKee, Founder and CEO of Vuulr, a Singapore-based blockchain platform that intends to revolutionize the broadcast content industry. McKee: "There are some trading blocks that feel they are big enough to throw their weight around and take a position – say China for example. There are others that are using regulatory stance as a geo-political economic position – Singapore is one, Switzerland is another one, Gibraltar is coming – where their financial regulatory body is providing just the right touch in order that those businesses come to their territories."
McKee adds that Singapore has seen "plane loads of Russians, Lithuanians, and especially Americans in response to the Securities Exchange Commission regulation" who have jumped on a plane to Singapore with a team of half a dozen, jumped into a shared workspace, picked up a lawyer, and incorporated a company.
The sandbox bill has the potential to do much the same for Taiwan. “Taiwan could become a hub for Chinese, Korean and other companies around Asia to release their ICO,” Firster says.
Some key elements of the bill, which may be revised, include that a blockchain company can freely operate and if they encounter a legal issue, including one related to anti-money laundering, then it will be waived. “Regulators will see what happens, allowing the company to operate for a three-year period. It’s a ‘try and experiment approach’,” says Firster.
Congressman Hsu wrote in a recent Medium post that he is aiming even higher: “When it comes to fintech, blockchain, crypto and ICO, higher level regulatory reform is needed. It’s not about de-regulating but re-framing. Reg tech needs to happen in order to pave the foundation for all existing infrastructures to be transformed digitally.”
Those transformations are happening anyway, though not without significant frustration at the kind of regulatory hurdles the sandbox will attempt to clear.
MaiCoin boss Alex Liu (檔案) is also the CEO of AMIS (帳聯網路科技), so named after Taiwan’s largest indigenous tribe, a blockchain platform developer and consultancy that advises businesses on how they can leverage blockchain to share data and exchange value safely and efficiently.
AMIS is a founding member of the Enterprise Ethereum Alliance, which connects Fortune 500 enterprises and other interested parties with Ethereum experts to develop blockchain contract applications. Blockchain contracts are self-executing, with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements exist across a blockchain network, allowing the exchange of anything from money to property deeds in a transparent, efficient and conflict-free way that elides the need for middlemen.
JPMorgan Chase this summer adopted a consensus algorithm developed by AMIS for use on Quorum, the bank’s own private blockchain aimed at processing interbank and cross-border transactions. AMIS is also doing pioneering work closer to home with big lenders in Taiwan, notably Fubon International Bank and Taishin International Bank.
"There is an untold story that there are a lot of Fortune 500 companies trialing blockchain in different aspects of their business,” adds Philipp Pieper, co-founder of Swarm Fund, a U.S.-based platform focused on attracting alternative funding for high-risk assets such as distressed real estate. “In Germany, 60 of the top 100 Fortune 500 companies have serious blockchain projects going on across the board from identity to supply chain that have nothing to do with cryptocurrency.”
Taiwan is no exception. OwlTing, which launched the aforementioned Nasdaq darling OwlNest, also operates one of the world’s only working blockchain-based supply chain verification systems. The company is attracting a growing thrum of media attention, with VICE News recently visiting Taiwan to profile its CEO, Darren Wang (王俊凱). The system, known as OwlChain, allows consumers to check the provenance of pork products simply by scanning a QR code.
“No one expected a Taiwanese company to make this happen first,” says Wang. OwlTing’s blockchain is based on AMIS’ technology. Wang is also an investor in AMIS, and plans to help Liu further commercialize the platform.
“We put all the data on AMIS and they helped us to build different nodes and different procedures for the pork farms,” Wang explains. “This is transaction and block hash showing info from the birth of the pig to what kind of food they eat,” he says, showing me images of how the system works, including everything from the piglet’s date of birth to its vaccination schedule and feeding regimes. “It’s more for an educational purpose for the consumer market — people don’t know anything about the pork they eat.”
Food safety is close to Wang’s heart because his newborn son was caught up in a series of food scandals in Taiwan that began in 2011 with the revelation that tens of thousands of food and beverage products had been contaminated with the plasticizer DEHP, which had been used to replace palm oil as a clouding agent.
“I wanted to create a marketplace where it was safe for my children to buy milk,” he says. That wish set him off on visits to dairies and food suppliers all over Taiwan, building a network of 1,500 verified suppliers that can deliver safe, organic food and milk through his OwlChain marketplace.
The OwlChain marketplace also includes fruit, jam and soy sauce vendors, among others, though these are not yet part of the blockchain system. “We are working together with a large global wholesaler to put them all on the blockchain.” Wang also plans to bring logistics companies and internet-of-things operators on board to deepen the data available, with cold chain logistics conditions, under which frozen products are transported from producer to consumer, a prime target. Asked whether a human actor can still falsify the claims being made on the blockchain, Wang is forthright: “Of course, but we can see every transaction, every revision that anyone makes. It’s totally transparent. You would have to be extremely sophisticated.”
Taiwan’s first unicorn?
Born in Keelung (基隆市) to teacher parents, Wang was educated first at National Taiwan University before becoming the only person to win a full scholarship to Boston University, where he studied cryptography under Lev Levitin, an expert in quantum cryptography who defected to the U.S. from the Soviet Union during the Cold War.
Turning up in Boston with only US$900 to his name, Wang set about working odd jobs to make ends meet, including serving as a “Mac Genius.” His parlous state did not last long. By the time he was 26 he had already made and lost a fortune, selling his first company to YouTube before being swindled by a Taiwanese friend and business partner. “He took the money, said he was divorcing and would pay me back. It’s 12 years later and I haven’t seen a cent,” Wang says jokingly.
He overcame the setback, taking up a job with Google, which had bought YouTube in 2006 for US$1.65 billion, in the process becoming familiar with the company Wang had lost money on. He started another company focused on selling music streaming technology, invested some of the revenue in the stock market — picking Citibank for a couple of million dollars right at the bottom of the financial crisis fallout— and didn’t look back. OwlTing remains primarily self-funded.
“Last year we closed about US$3 million Series A funding,” Wang says. “We have a lot of investment inquiries, but we only take strategic investment. We go low-profile in Taiwan, but soon we will launch on the Nasdaq — we are going to file next November.”
The company aims to raise between US$500 million and US$1 billion. If it hits the higher end of the range, it could become Taiwan’s first public unicorn. Either way, they will become the first ever Taiwan-based internet company to list in the U.S.
OwlNest hatches expansion plans
Part of OwlTing’s appeal to investors is that food supply chain verification is just the start. In his office near Guting in Taipei, Wang sketches a map of how OwlTing intends to take over the global travel industry through OwlNest, “an integrated lodging management platform to help hotels worldwide improve brand awareness and customer satisfaction,” according to its press release.
Wang’s map includes all the big online travel agency (OTAs) players, booking.com, Ctrip in China, Expedia, you name it, they are in OwlNest’s sights. Wang explains that inefficiencies in the way hotels handle bookings with these OTAs means than many large hotels keep about 10 percent of their rooms held back in case there is a double-booking problem.
Blockchain forbids transactions occurring twice and allows massive scale transactions to occur seamlessly in near real-time, making it a perfect model to disrupt the strangle hold the OTAs have on the online travel booking business.
Hotels currently use expensive Property Management System (PMS) software and a channel manager to manage their relationships with the 300 or so OTAs all over the world. They also input bookings through their own websites and other booking channels. “The three are not synchronized,” Wang says. “We combine all three into one private blockchain. We check if the inventory — the number of rooms the hotel has — is available, if so we sell it to the OTA, if it’s gone we can sell it on a smart contract and dispatch another room to the customer. It can solve problems and reduce costs for the hotel industry.”
The system appears the perfect real world validation of blockchain-based efficiency. Wang is targeting two million hotels. He expects to bulldoze the status quo because his solution is not only substantially cheaper for the hotels, it allows them to share inventory on a regional distributed ledger, allowing prices to shift in line with citywide or other local measures of demand.
“It’s similar to booking.com but we charge half the commission. Usually they charge 15-20 percent. Our prediction is that the hotels will put the inventory on our side. In the future the customer will come to us because we can control regional pricing and offer the best last-minute deals.”
Wang also plans to match hotels with experiences, like hiking a mountain or scubadiving, which will be rated and reviewed on a content platform – think a blockchain-based version of TripAdvisor. “This will allow the hotels to drive more revenue as commission from the experiences.”
Taiwan in an Asia-wide blockchain alliance?
In October, when Hong Kong and Singapore signed a fintech deal agreeing a project based on blockchain to facilitate cross-border trade finance, Taiwan looked on like a wallflower at the disco.
Now, the prospect of a sandbox for an already enterprising and dynamic community to thrive entices. As the bill hits parliament over the winter and Taiwan gets its regulatory act together, there is a real chance it can become a major player in an Asia-wide initiative to promote blockchain and the benefits to businesses and their customers the technology can provide.
The community is already well on its way, it can only be hoped legislators refrain from putting the breaks on its blockchain innovation train.
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TNL Editor: Morley J Weston