Below is a guest post, by Stephanie Hurder — a Harvard Economics Ph.D. (who I've blogged about
before, here,
and here)
and a founder of blockchain economics startup Prysm Group (that
I’ve blogged about here). She discusses
how blockchain may impact repugnant markets.
As Al has written about for years, repugnance -- the distaste
for certain kinds of transactions -- can be a serious constraint on markets. Repugnance can stem from numerous sources,
such as a fear of coercion or of a slippery slope. And while the constraints created by
repugnance sometimes end up incorporated in to law, they do
not need to be legal to have significant impact. Businesses may voluntarily choose not to
provide services that some set of consumers might find repugnant, in order to
maintain their brand reputation and prevent a loss of those customers.
Firms that engage in legal, adult activities
-- such as pornography and the sale of sex toys -- have significant issues
accessing financial services due to the constraints imposed by repugnance. Most commercial banks include “morality clauses”
forbidding service of businesses engaging in adult activities, for reputational
reasons. Newer
payment services that would like to serve “repugnant” industries are
constrained by these more conservative organizations, with whom they must do
business in order to effectively process payments and offer services.
Stripe, the payments processor, has publicly discussed this phenomenon
on their blog. Stripe was approached by OMGYes, a website that provides actionable,
research-backed information on sex. They
write:
The business
approached us and we were eager to work with them, but after a month of
deliberations, our financial partners did not agree. Instead, because the
website has explicit tutorials, it still falls under the umbrella of
unsupportable businesses. While we were not able to persuade our financial
partners this time around, we will continue to holistically look at and
advocate for businesses that sell adult products and services.
- - -
By now, almost all industries are exploring
how to leverage the economic benefits of blockchain, especially those arising
from blockchain’s ease of verification and decentralization. One type of use case with significant
potential is using blockchain to provide services to markets constrained by
repugnance.
Cryptocurrencies such as Bitcoin are a
potential payments solution for industries not served by traditional financial
service providers. However, a payment
system by itself is not enough -- the anonymity of some cryptocurrencies can
increase the probability that genuinely coercive or even illegal activities
will take place. Effective platforms
serving repugnance markets will need to combine the decentralized benefits of
blockchain and cryptocurrencies with more traditional levers of market design,
such as reputation.
An example of a company doing exactly this is intimate.io. intimate.io is an Ethereum-based platform for
individuals engaged in the adult industry.
It provides secure, decentralized transfer of payments for adult
services. It also includes pseudonymous
reputation and user information (such as age verification and relevant health
information) to help service providers vet customers and vice versa. Two-party escrow provides financial
incentives for users to behave cooperatively.
intimate.io CEO, Leah
Callon-Butler, writes:
Blockchain
is a technology crying out for a use-case and intimate.io brings together
several different blockchain-based technologies, to demonstrate unprecedented
real-world utility through application to an industry that is sorely in need of
emancipation from centralised bodies who have assumed the role of moral arbiter
for too long.
While platforms like intimate.io open the
possibility for market participants to work around roadblocks imposed by repugnance,
they face many of the same market design
and data management challenges as other industries. How will sensitive information (such as
health data) be verified and provided to the market, while preserving
privacy? How will the platform ensure
that users banned for poor behavior do not create new identities? Innovative solutions to these issues can
inform market design more broadly.
It will also be interesting to see how the
“traditional” financial system reacts to blockchain platforms like intimate.io. Luke Coffman at Harvard has shown
that introducing an intermediary in a business transaction can lessen the
punishments for “immoral” behavior that consumers give to companies. How many steps of separation -- and of what
kind -- will be required between traditional banks and platforms like
intimate.io so that markets constrained by repugnance can finally be served?
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