Blockchain: opportunity or hype?
The soaring value of crypto-currencies, like Bitcoin and Ethereum, has raised general awareness of the blockchain technology on which they are based.
Now there are hopes that blockchain can be applied in diverse domains, including: medical records, luxury goods sales (to weed out counterfeits), as well as travel distribution.
Blockchain networks have the advantage that they are decentralized and incorruptible, since transactions are managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks of data.
Once recorded, data blocks cannot be modified retroactively without the alteration of all subsequent blocks, which requires the approbation of the network participants.
But how realistic is it to believe that blockchain in its present state of development can be used for travel booking purposes?
In fact, some travel companies, including the giant tour operator TUI, Air New Zealand and Nordic Choice Hotels, have already signed on as partners of a new blockchain travel distribution startup called Winding Tree.
Winding Tree is a B2B platform
Zug, Switzerland-based Winding Tree is the first company to specifically target travel distribution using blockchain technology.
The company completed its ICO (initial coin offering) over a two-week period ending on 15 February, selling US$14'418'196 worth of Líf tokens which exceeded the company's initial goal of US$10'000'000 by about 44%.
Líf tokens provide the functionality required by travel companies to send information about transactions over the Winding Tree platform.
The token holder is thus able to send value, data, and/or execute a function on those transfers.
The number of Líf tokens sold via the ICO has been fixed forever.
Contrary to some initial anticipation, however, Winding Tree's goal, at least initially, is not to disintermediate the big B2C global travel distribution players like Expedia and Booking.com.
Rather company has been positioned as a B2B platform, which allows for mainstream adoption and incentivises suppliers to list their inventory.
As noted above, there are already suppliers and resellers committed to the platform.
Blockchain-savvy users are now able to book directly through the blockchain.
However, it is not expected that the average retail customer will do so, since most don't have sufficient understanding of the TCP/IP (Transmission Control Protocol/Internet Protocol, a suite of communication protocols used to interconnect network devices on the internet) used to book their travel.
TUI Air New Zealand explore uses of blockchain
TUI, for instance, is currently using blockchain in its tour operator business to implement its "bed swap application", which aims to more efficiently allocate its hotel supply among its source markets in the UK, Germany and Nordic countries, notes Natascha Kreye, senior manager of corporate communications at TUI Group, who adds that, "It's an internal process to optimise yield across the group as well as to better learn how to use the technology. The plan is to use blockchain to generate smart contracts with hoteliers and improve the company's hotel inventory".
It can, nevertheless, be noted that this is essentially an internal supply side use of blockchain - not a high-volume customer-facing one.
Meanwhile, according to Air New Zealand chief digital officer Avi Golan, the airline is looking at a number of potential blockchain uses such as cargo and baggage tracking, retail, distribution and loyalty programme opportunities.
Nordic Choice Hotels on board
In what is being heralded as a hotel industry first, Nordic Choice Hotels has stated that they will "explore new ways of distributing inventory" using an open-source blockchain distribution platform developed by Winding Tree.
Hobo, the chain's brand new hotel in the centre of Stockholm, is the first to take advantage of what Christian Lundén, director of future business for Nordic Choice Hotels, has termed "a totally new opportunity for our industry".
With 30'000 rooms across Scandinavia, Nordic Choice has allowed Winding Tree to test usability on various levels: from the individual property to regionally and even across the entire hotel chain.
The Scandinavian chain has been working with Winding Tree on a so-called 'testnet,' where teams gather qualitative data on transaction throughput and latency of the network.
Given some doubts about the future scalability of blockchain platforms, it is argued that this will be vital in shaping core parts of the smart-contract before migrating to the 'mainnet', where transactions will have economic value.
Hurdles still to be overcome
As can be seen from the discussion above, the use of blockchain in travel, for the time being, looks to be essentially limited to internal and B2B transactions.
In addition to integration challenges, the biggest problem facing blockchain currently is speed.
Requiring proof of work to participate intentionally slows down the process, but replicating blocks across many distributed systems means that the top speed is only about seven transactions per second, according to Robert Cole, founder of RockCheetah, whereas traditional reservation systems can handle 250'000 transactions per second.
There will be new forms of blockchain-related technologies emerging, according to him, which may challenge even current internet standards and cloud communication protocols.
In a discussion I had with Winding Tree's CEO, Maksim Izmaylov, at the recent HOTCO conference in Budapest, held on 29-30 January, he admitted that more widespread use of blockchain in a high-transaction environment awaits further development of the technology.
This article first appeared on the SSTH blog.
