Blockchain Revolution

Well, Luke, My Friend, What About Young Analie?
There are two main obstacles to creating a blockchain-based payment network for the
world’s poor. First, many of the people sending the money get paid in cash and those
on the receiving end live in a predominantly cash-based economy. Second, most
people in the developed and developing world alike don’t have the knowledge and
tools to use blockchain effectively. While cash may very well go the way of the dodo,
until employers start beaming value to smart wallets in the developed world, and tiny
streetside merchants in Manila, Port-au-Prince, and Lagos start accepting digital
payments, we will still need hard currency. Western Union understands that, and that’s
why it is still very relevant today, with more than 500,000 agents all over the world.
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If you’re looking to exchange your remittance for cash, your options are limited.
Western Union wouldn’t be effective if it had only one agent. Its network has allowed
it to maintain a monopoly position on the entire market for decades. There have been
few if any companies with a seamless, easy-to-use “killer app” technology. Until now.
Enter Abra, and other companies like it. With a name like Abra, one would expect
to see a little “cadabra,” and the company does not disappoint. Abra is building a
global digital asset management system on the bitcoin blockchain. Its stated mission
is to turn every smart phone into a teller that can dispense physical cash to any other
member of the network. We wanted to test whether this solution improved Analie’s
experience.
Analie and her mom both downloaded the app to their Android smart phones.
Analie’s balance to start was in Canadian dollars. At the click of a button, Analie
initiated the transfer to her mom. She got it, in pesos, almost instantly. At this point,
her mom had the choice of keeping pesos on her phone as a store of value and
choosing to spend them at a growing number of merchants that now accept Abra as a
payment system. By creating a payment mechanism and store of value, Abra
effectively displaces the conventional banking system’s two most essential roles:
payments and value storage. This alone is a revolutionary concept, but here’s where it
gets really interesting: Mom wants cash. She pays her rent, buys her food, and
manages virtually all other expenses in cash. She checks the app and notices there are
four other Abra users within a four-block radius of her. She messages them all to see
who will exchange her digital pesos for physical pesos and at what price. The four
come back to her with different “bids” for their services. One person will do it for 3
percent, another for 2 percent, and two more for 1.5 percent. Mom decides to go with

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the teller offering 2 percent—not because it’s the cheapest but because this teller has a
five-star rating and has agreed to meet her halfway. They meet and she swaps her
Abra pesos for physical pesos, the teller makes his commission, and they both walk
away happy. Abra takes a 25-basis-point fee on conversion.
The entire process, from money leaving Toronto to the Filipino recipient holding
cash, takes less than an hour and costs 25 basis points net, inclusive of foreign
exchange and all other transaction costs. Whereas every Western Union transaction
requires up to seven or eight intermediaries—corresponding banks, local banks,
Western Union, the individual agents, and others—the Abra transaction requires only
three: two peers and the Abra platform. “I get it now. That’s really cool!” said Analie,
ecstatically.
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For Abra to scale globally, it must address two core challenges. First, the network
requires a critical mass of tellers to make the service convenient. Analie’s mom won’t
use it if the nearest teller is twenty miles away. Abra understands this, and it is
presigning tellers—at last count many thousands in the Philippines alone—who are
ready to transact when things go live. Second, the model works on the assumption that
tellers and customers will abide by their commitment when they transfer digital for
physical currency. This is less of a concern. Businesses like Airbnb, Lending Club,
and Zipcar have debunked the myth that individuals will not trust one another. Indeed,
for Abra CEO Bill Barhydt, the staggering growth in the number of so-called sharing
economy companies convinced him this wasn’t an issue. “People are willing to trust
each other faster than they’re willing to trust an institution,” he said.
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The smart phone is key to all of this. In the same way the smart phone allows you
to rent your apartment to someone else or rent your car to someone else or provide
ride sharing to someone else, it can also be used as an ATM. Barhydt said, “It’s
amazing what people are willing to do in a shared economy model and they’re just not
doing it for money yet, maybe with the exception of peer-to-peer lending.” Moreover,
he said, “It’s more important to us that you trust each other rather than Abra. If you
trust each other, it’s highly likely that you’re going to get to know Abra, and that
you’re going to like it and you’re going to have a good experience,” and ultimately
trust the platform.
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Abra is not a remittance app but instead a new global platform for value exchange
that combines in equal measure the distributed, trustless blockchain network, the
power of smart phone technology, and the very human inclination to want to trust
peers in a network. By offering users the ability to store value in traditional
currencies, transmit value across the network, and also pay at a growing merchant
network, Abra takes on not only Western Union, but also the credit card networks,
like Visa. According to Barhydt:

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The settlement rails for a Western Union transaction, and the settlement rails
for a Visa transaction, are very different. But the settlement rails for an Abra
transaction that’s used for both person-to-person payment, as well as person-
to-merchant payments, are exactly the same. . . . We have come up with a
single solution that works domestically or cross-border, and that can be used
for both person-to-person payments and person-to-merchant payments for
the first time.
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Abra might eventually become a global juggernaut, rattling the walls of the
biggest financial institutions in the world. But for now, it’s an elegant and simple
solution to an important global problem. With remittances topping half a trillion
dollars next year, the market opportunity is nothing to sneeze at.