Can Blockchain Technology Save the Credit Scoring System?

I’ve said it before: when it comes to credit rating agencies like Equifax or TransUnion: you are not their customer. You are their product. Your data and loan history are for sale to the big lenders. But what if this could be flipped upside down? What if you could own your own credit history and control who gets to see it? Well, our guest today says that can be made possible with the power of blockchain technology.

Derek Silva is the head of community relations at Bloom Protocol. Bloom is an end-to-end protocol for identity verification, risk assessment, and credit scoring and it runs entirely on the blockchain.

What is blockchain?

Derek explains:

Basically, a block chain is a triple-entry accounting, distributed ledger where any computer that’s part of the network can actually participate. They would each hold a copy of the ledger and any additional records added to the ledger are also linked to the previous entries. So each group of entries is a block and every additional block you add is linked to the previous one and therefore the chain.

For any piece of data to be updated on the blockchain, it requires verification from multiple sources.

That’s what makes blockchain technology so much more secure when it comes to storing information because it’s decentralized management of data. Bloom leverages this to create a more secure process for users to retrieve their credit score, as well as, to share their credit history with lenders.

Unlike how our data is currently stored at credit bureaus, on a centralized database that has been breached, Bloom uses blockchain to prevent hackers from gaining easy access to information:

Removing and abstracting that [data] from a traditional database means putting it on the blockchain instead and also using a fully encrypted, secure file system that actually puts you in full control of when that data is accessed, who accesses it, how much information they get access to and how long they’re allowed to look at it.

How does the Bloom protocol differ from our current credit score system?

The Bloom protocol offers three things:

  1. A BloomID, where each user has a secure and verified identity;
  2. A BloomIQ, which is a user’s current and past borrowing history,
  3. And a BloomScore, which is the equivalent of a credit score.

Unlike a traditional credit profile that includes all of your personal information and can be accessed by any lender, your BloomID profile only belongs to you. What’s more, once your name, address, employment, and other personal details have been verified, their identity verification system erases all copies of the documents you provided to verify your ID in the first place.

All that remains is the fact that that information has been verified and this is all conducted on the blockchain. As Derek explains:

We’re not storing the data. We’re not storing your driver’s licence, we’re not storing your SIN number, we’re not storing any sort of personally identifiable information, you know, that somebody would actually need to steal your identity…we’re storing the fact that it’s been verified and attested, not the data itself.

In addition, users have to provide authorization to lenders to access certain information on their profile. Derek elaborates:

You will have a request to authorize sharing data with the company you’re trying to do business with. So it’s not an automatic, like I’ve shown up at BMO and I’m applying for a mortgage and they just start accessing the data I have stored with Bloom or the attestations I stored with Bloom. They actually have to ask for that.

Depending on how long you’ve had a relationship with a particular lender, you can control their access duration as well:

You know, if you’re already banking at RBC and they only need a little bit of extra data, yeah, they’d probably only need it for a couple of days. If you’re creating a whole new relationship with Scotiabank or Meridian Credit Union or what have you, you know, they might want access to it for a week. But, regardless, yes, you’re actually authorizing sharing that data.

In addition to the extra security and control users have over the information they’re sharing, your BloomID, BloomIQ, and BloomScore can be used across borders. Unlike with Equifax Canada or TransUnion, your credit history is only relevant in Canada. According to Derek:

That’s a big part of what we’re trying to do, is provide a global, federated identity that you can use just about anywhere and your BloomScore comes with you as a result.

Can Canadians create a BloomID today?

According to Derek, the Bloom protocol is currently targeting those who are, as he calls it, “crypto aware,” but he says they will eventually look for mass adoption of their application:

I think it will definitely start out as a niche product. You know, if you haven’t been paying attention to the blockchain space for the last six months, you probably have not heard of Bloom and that’s fine. We know that. Our co-founding team is built of two incredibly bright engineers and two incredibly bright marketers so between the four of them, we really have what it takes to get the product right and to get the marketing, the engagement, you know, right, you know, out of the gate.

For a much deeper look at how the Bloom protocol works and understanding blockchain technology, listen to our podcast, or read the complete transcript below.

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FULL TRANSCRIPT SHOW 189 Can Blockchain Technology Save the Credit Scoring System?

Can blockchain technology save the credit score system?

Doug Hoyes:  As listeners to this podcast know, I am not a fan of credit scores.

In my book, Straight Talk on Your Money, on page 48, I have a section titled The Credit Score Scam, where I describe why credit scores were created for the benefit of the banks, not for you.

There are a lot of problems with credit scores.

I already told you the biggest problem: they were designed so that the banks could decide how much to lend you, so they can maximize their profit. They were not designed to help you decide what would be a reasonable amount for you to borrow. I advise people not to live their life as though their most important objective is to get a high credit score. There are better financial objectives, like saving money, but of course your savings don’t appear on your credit report, so that’s not what people focus on if all they want is a better credit score.

But there are other problems.

First, you never really know what credit score your bank is using when you apply for a loan. It’s a secret. You can pay money to Equifax to get your Equifax credit score, but your bank might use the score calculated by TransUnion, or more likely they have their own calculation that may be different than what you get from the credit bureaus.

Second, it is very common for there to be errors on your credit report, and those errors may affect the calculation of your credit score. Your credit score is based on many factors, like how much debt you owe, but the calculation also includes items like how long you have worked at the same employer, or how long you have lived at your current address. If those facts are wrong, your credit score may also not truly reflect your actual credit-worthiness.

And what about people who are new to Canada? If you move from one country to another, your credit score information is lost. Equifax Canada only has Canadian information, so if you are a recent immigrant, any information from your old country is lost.

Of course credit scores are based on the past, so if you are a young person, or new to credit, you won’t have a credit history, even if you have a good job and would otherwise be a good credit risk.
Another problem with our current credit scoring system is that there is a high risk of identity theft. To apply for a loan you must disclose a lot of personal information, and if an attacker can get that information, they can also apply for a loan in your name.

We all remember the great Equifax data hack of 2017. Equifax was hackable because all of your data is maintained by one company, so there is only one point of failure.
The final problem is that all of our credit data is centralized. All of your data in Canada is either at Equifax or TransUnion, so with only two big companies it’s not a very competitive market.

So what’s the solution?
You could pay off all of your loans, pull all your money out of the bank, and live like a hermit, but that’s not a realistic solution. In today’s society, you credit profile impacts a lot of things that don’t involve borrowing money, like renting an apartment, or getting a cellphone.
We need a way to verify that our personal information is correct, but protect it from hacking.

My guest today works for a company that believes they have a solution to those problems.

As always here on Debt Free in 30, my job is not to endorse any of the companies I have on this show. I don’t pay my guests to appear here, and they can’t pay to be a guest; this is not a paid commercial for any of my guests.

My job is to present the information, and let you, the listener, make your own decisions.

So, with that background, let’s get started and meet today’s guest.

Who are you, and what do you do?

Derek Silva:      My name is Derek Silva and I’m the head of community relations at Bloom Protocol.

Doug Hoyes:    Great. Well, thanks for being here today, Derek. So, tell me, where is Bloom located and where are you located?

Derek Silva:      [Laughs] It’s slightly complicated. The larger entity that holds Bloom or, you know, the corporate structure, is actually based in Gibraltar. We’re actually operating an American sub-corporation, I guess, would be the best way to put that, or entity, underneath that Gibraltar corporation, mostly out of San Francisco but I’m actually in Komoka, Ontario, which is just outside of London.

Doug Hoyes:    And I’ve never heard of Komoka, Ontario before [Derek laughs] but I have heard of London, Ontario, so that’s good. So we’re talking to a local guy here, so that’s great. Now, I don’t want this to be a technical show, I want to talk about how you think Bloom is better than our current credit scoring system but since Bloom is based on block chain technology and even though it’s not, I don’t think, fully necessary to understand block chain to understand Bloom, perhaps you can could start us off by giving a very simple explanation of what is block chain?

Derek Silva:      I’ll try to keep it under a minute.

Doug Hoyes:    That would be great.

Derek Silva:      Basically, a block chain is a triple-entry accounting, distributed ledger where any computer that’s part of the network can actually participate. They would each hold a copy of the ledger and any additional records added to the ledger are also linked to the previous entries. So each group of entries is a block and every additional block you add is linked to the previous one and therefore the chain. So block chain sounds really fancy. In a lot of ways, at its core, it’s not but it’s what you can do with the block chain that’s really a big departure away from a traditional database like Microsoft SQL or Oracle or MySQL databases, you know, the stuff we use and interact with everyday online and on our computers.

Doug Hoyes:    Yeah, and I want to go through, sort of, all the different elements of what’s wrong with our credit scoring system today and see how both block chain technology and your specific technology can help address that. I mean, in my head, I remember back, you know, 30, 40 years ago when I was taking bookkeeping in high school, we had this green ledger paper and we’d write our entries on it and obviously it wasn’t very secure and obviously there was only one copy of it. I, kind of, think of a block chain as, well, we’ve got a series of ledger paper and, like you say, all the transactions are put on it and then each piece of paper is linked to the next one, that’s the chain, but, of course, it’s not paper, it’s computerized.

And the other big difference, of course, is that I don’t just have my copy of it, when another block gets added to the chain, when another piece of paper gets added to the book, everybody who has a copy of it, now has a copy of it on their computer as well. So that’s what you mean by distributed, right, it’s all out there?

Derek Silva:      Yeah. So there could be 100 computers, you know, there are nodes and [chuckles] it gets really technical which, you know, we said we weren’t going to do. But, yeah, so, you know, if you assume you have a computer running a full node on the Ethereum block chain or the Bitcoin block chain or Litecoin block chain, etc. — you know, there’s probably about a dozen right now — yes, you are helping verify each transaction and that’s how that chain gets formed.

And, of course, we’ve heard all about mining. In return for verifying those transactions, you get a piece of the pie in terms of the new Ether or Bitcoin or Litecoin that come out of each block, and a small fee for verifying each transaction. You get a portion of that depending on how much effort you put into it. That’s the whole proof-of-work part of it.

Doug Hoyes:    And that’s what makes it secure and that’s you know, what makes it different than a piece of paper, obviously, there’s many different people active in it. And you’ve, kind of, raised that issue. Blockchain is not the same as Bitcoin. Bitcoin is based on block chain. I mean, our paper money is based on paper and paper isn’t money. You know, the money is printed on the paper. It’s kind of like Bitcoin is printed on the block chain. Of course, it’s not printed, it’s computer technology but the block chain is the base for Bitcoin. It’s also the base for Bloom which is what we’re going to talk about today.

So I want to go through each individual thing but can you give us, kind of, the overview of, okay, what is Bloom? How does the system work? Give us the big picture and then we can dive into the details.

Derek Silva:      Sure. So, the elevator pitch is that Bloom is an end-to-end protocol for identity attestation or verification, if you prefer, risk assessment and credit scoring and it runs entirely on the block chain. So it lets traditional lenders like Libro Credit Union, Bank of Montreal, etc., and digital currency lenders, so whether it’s a Self Lender, some of these newer companies like ETHLend, Fundary, Everex, that’s traditional and digital currency lenders, serve as many people as they want to. You know, there are billions right now who don’t have a bank account of any kind, who can’t access a credit score of any kind, it lets those lenders serve billions of people who do and don’t have a bank account or a credit score right now.

Doug Hoyes:    Okay. So let’s think of this from the point of view of the consumer then, because I don’t really care about the banks, [Derek laughs] I care about actual, real people. So I’m a guy who wants to get a loan and the way it works now, I go to, I mean, in your example, Libro Credit Union, Bank of Montreal, whatever, and they would run a credit check on me on Equifax or TransUnion. If my score is high enough and if everything checks out then I would get the loan. With your system then, is it as simple as the Bank of Montreal, or some other lender, would run a check on me through Bloom, where all the information is stored on the Bloom block chain? Is it as simple as that or am I missing the point?

Derek Silva:      No, you’re not missing the point. Certainly, that’s obviously the goal. We want to make it incredibly easy for people to access credit based on a lot more data than the bank will typically take into account right now. So there’s a bunch of things. You’ve got a lot of your data being stored by Equifax or TransUnion right now and, as we saw recently, [chuckles] apparently that data is not stored really securely.

Doug Hoyes:    Yeah, we’ve done some shows on that. Not a pretty sight there.

Derek Silva:      Right, so removing and abstracting that from a traditional database means putting it on the blockchain instead and also using a fully encrypted, secure file system that actually puts you in full control of when that data is accessed, who accesses it, how much information they get access to and how long they’re allowed to look at it. So, basically, you are in full control of your ID now. So we call that BloomID. So you’ve got –

Doug Hoyes:    BloomID.

Derek Silva:      Yeah.

Doug Hoyes:    Okay, so one of the elements to my credit score is where do I live? Okay, I mean, I realize there’s many elements to it, what debt do I have and what where do I work and everything, but let’s take one little, tiny piece and that’s where I live. So, I assume on Equifax or TransUnion, I, you know, fill out an application form for a credit card and I put my address on it and that gets fed into their system. How does Bloom or BloomID verify where I live?

Derek Silva:      So we’re going to let you do that in a few different ways. You will be able to validate or verify your ID by using an automated system; a data attester or a data verifier, if you prefer that term. So you’ll be able to feed in your driver’s licence or your passport, a utility bill, cell phone bill, anything like that that has your name and your address on it — I guess, your passport doesn’t have the address on it but your driver’s licence certainly does — and that data will be verified. However, we don’t keep the data. We keep the fact that it’s been verified. That is stored on that fully encrypted file system.

And so when you go to share your information with a bank or, you know, just a plain loan company like Fairstone or somebody like that, they will get verification that you do live where you say you do or that you do have a valid driver’s licence or you do have a valid passport and it matches your name, you’ve verified your phone number, etc., and so on. They’re going to get the fact that that data is verified, not all the data itself.

Doug Hoyes:    So they don’t get a copy of my driver’s licence?

Derek Silva:      No.

Doug Hoyes:    They get a tick box that says, yeah, we’ve verified that his driver’s licence exists and it’s real. So how does that actually happen then? So, I mean, I understand the concept of, well, okay, I can scan my driver’s licence and upload it, so is there a human being looking at it?

Derek Silva:      We’ve got a data testing partner who does that all automated. They’ve already been doing this for a bunch of different companies, they’ve been in business for several years, they’re really, really good at it and so they’ve got a proven solution that can do this in an automated manner and eliminate the data from their system once it’s been verified. There would be a very temporary copy of your driver’s licence, you know, on somebody’s cloud, but once the process is complete, that data is scrubbed from their system, we get a verification that it’s real and that it exists and it’s valid and everybody moves on. The data is scrubbed from the system and it’s no longer at risk of being stolen by anyone.

Doug Hoyes:    So it’s like optical character recognition or something.

Derek Silva:      That, sort of, thing, yeah.

Doug Hoyes:    That it can read my name off the driver’s licence.

Derek Silva:      It could read your name, it can find the hologram, you know, from the Ontario driver’s licence, you know, they’ve got partnerships set up to validate that this driver’s licence does exist and, you know, it’s still valid up until, you know, 2019 or what have you, and can be used successfully to validate that Derek does in fact live at this address in Komoka, Ontario.

Doug Hoyes:    Gotcha. And then it would be a similar process for things like verifying my employment information then?

Derek Silva:      Correct, yeah. We’ve got a partner already set up for the US. I don’t think they operate in Canada but hopefully we’ll find somebody that can do that and, yeah, similarly, you know, do I work for Bloom Protocol LLC, yes or no? You know, that data can be verified. No, it doesn’t have to be verified by a data tester. I’ll say very briefly, you know, we’re letting people take the initiative to actually do this themselves.

If you want to, you know, spend a little bit of money to have your driver’s licence verified, your utility bill verified, your phone, etc., not everything will cost money but, you know, if you do want to spend a couple of bucks and get that all done yourself, you’re more than welcome to do that and you don’t have to worry about somebody else doing it. You know, some of our lending partners will actually take the initiative. They have Bloom tokens — which I’m sure we’ll talk about later — to spend on the protocol and get that done for you, in anticipation that they’ll make that money back because, you know, you’re taking out a loan and, of course, there’s going to be an interest rate of 5%, 6%, 7% or maybe 2% if you’re an amazing risk and, you know, they’re willing to put up that money. And, like I said, it’s not going to be very expensive but we’ve got partners who will do that for you if you go to them. And they will want you to set up a BloomID because that’s their preferred method now, instead of checking with Equifax or TransUnion.

Doug Hoyes:    Now you said that – And so I understand what you’re describing, you know, it may be that I go into the bank and they take a look at my driver’s licence and it gets scanned through the system the way you describe and then gets deleted or it may be that I decide no, no, I don’t want the bank to have my driver’s licence, I’m going to go onto the system myself and, like you say, maybe it cost me a couple of bucks or something to scan it and have it verified and whatnot.

Derek Silva:      Yeah.

Doug Hoyes:    So how do I keep – ? You made the comment that I’m in control so I get to decide who sees my information. So right now, if my data is at Equifax, anybody who has access to Equifax can get the data, okay?

Derek Silva:      Yeah.

Doug Hoyes:    I mean, anyone who has the right to do a credit check and do a credit check, but what you’re saying is, well, no, I’m the one who controls the switch whether someone sees it or not. So, I guess, if I’m going to bank ABC to apply for a loan, I would say, yeah, they can see it but no one else can see it. How does that work?

Derek Silva:      So, we’ve got a web app already where you can create your BloomID and in a week or two you’ll be able to start verifying all this additional data and we’ve got a mobile app in development as well which, frankly, in Canada, we’re fortunate enough to be in a position where the majority of people have smartphones, whether they’re Android or IOS based. And so regardless of which way you access the app, you will have a request to authorize sharing data with the company you’re trying to do business with. So it’s not an automatic, like I’ve shown up at BMO and I’m applying for a mortgage and they just start accessing the data I have stored with Bloom or the attestations I stored with Bloom. They actually have to ask for that, anything beyond your score which, I imagine, we’ll talk about later.

Doug Hoyes:    We’ll talk about that, yeah. So I go to the bank to apply for a loan and I’m going to get some kind of alert on my phone or my computer saying this bank wants to see these pieces of information, do you agree?

Derek Silva:      Yeah.

Doug Hoyes:    And I say, yep, I agree, but they can only see it for the next three days.

Derek Silva:      Yeah, three days, a week, it could be a month. You know, it all depends on your existing relationship. You know, if you’re already banking at RBC and they only need a little bit of extra data, yeah, they’d probably only need it for a couple of days. If you’re creating a whole new relationship with Scotiabank or Meridian Credit Union or what have you, you know, they might want access to it for a week. But, regardless, yes, you’re actually authorizing sharing that data. You could do it right there on your phone, you know, while you’re in the meeting or, you know, go home and log into the Bloom app and then hit authorize.

And, yes, they get that data for a specific period of time after which their access to it is revoked. We’re using one-time keys. This will actually be done using a block chain. The Ethereum block chain has a really cool technology to it called Whisper that we’ll be using for this, and that Whisper protocol uses a one-time, secure key, it’s never reused again, and that’s how that data is shared directly to that organization, only with that organization and then is revoked after a period of time.

Doug Hoyes:    Now I want to get into the specifics but the obvious question here is, so what’s this going to cost me?

Derek Silva:      [Laughs] Well, we haven’t revealed everything yet but, you know, at this point I would say to get a full-blown BloomID with every possible, you know, piece of information, you know, validated, upfront, at this point it’s probably going to cost you less than $20.

Doug Hoyes:    Less than $20. And, I mean, I guess, on the other hand, Equifax is free. I don’t have pay anything for the bank to go into my Equifax report and look at stuff.

Derek Silva:      Right.

Doug Hoyes:    Of course it’s out there floating in the world so that’s the downside to everything.

Derek Silva:      Yeah, the downside is that you have really very little control over what information is still there. Actually, I was just looking at mine through a service called Borrowell, yesterday, and it’s out of date. [Chuckles] Like, I know it’s out of date because it says I’ve got loans, paid off, but open, that I know for a fact are closed but, you know, the organization that that loan is with, like a car loan, reported that I paid it off but hasn’t reported that it’s closed, so even though I’ve got the discharge papers and everything else from that loan. So, you know, and I have no recourse.

I could call Scotiabank and say, hey, this loan, you know, for this vehicle, it’s paid off and I know this is closed. I’ve got the discharge papers. Why have you not reported that to Equifax? Scotiabank doesn’t care and certainly, you know, I could maybe yell and scream my way to a manager of some kind, I could do that, but it’s not really worth it. And unless you set up, you know, some sort of system to actually go, start digging through that data, it’s onerous to even bother looking at it, let alone to try and get something done about it. The power is really in the organization’s hands, not in yours, and we find that incredibly problematic.

Doug Hoyes:    Yeah, well, like I said in the introduction, credit scores aren’t for your benefit, they’re for the benefit of the lender and for the credit bureau.

Derek Silva:      Yeah. We’re really trying to flip this on its head.

Doug Hoyes:    Yeah, which is good. I mean, the problem with an entity like Borrowell or one of these others that give you free access to your credit report and credit score is that nothing is free. I mean, you’ve now given someone else the ability to look at everything in your credit report and now you’re on the mailing list to get all the different loan offers and this, that and the other thing.

Derek Silva:      Oh, yeah, I’ve got a high probability to get accepted for about 30 different credit cards, apparently.

Doug Hoyes:    Yeah, sweet. Sweet. So, well, if you get all 30, you know my name and number. You’ve got my card.

Derek Silva:      I’ll let you know.

Doug Hoyes:    Because we know what the inevitable result will be.

Derek Silva:      Yeah.

Doug Hoyes:    Yeah, so what you’re saying is, well, okay, with the Bloom system it may not cost you anything because the lender may pick up the cost to verifying your driver’s licence and everything else but if I want to be proactive and put the information in there myself, then there may be a cost to it. Nothing in life is free. Obviously the free credit report I’m getting puts me on this mailing list and reveals my data so you’ve got to pay for something.

Okay, so let’s get into the nitty-gritty here. I’d like you to explain why the Bloom system is better than what we have now? So I’m going to fire off some points to you and you tell me why you think your system is better than what we have with Equifax and TransUnion now. So I said in the introduction that you never really know your credit score. There’s the Equifax score, there’s the TransUnion score and then the bank you’re dealing with may have some other calculation that they use to determine their own kind of score. So, with your system, is there a score and can I figure out what it is?

Derek Silva:      Yes and yes. You will always have access to your Bloom score. You can have it updated at any time. Again, it’s fully within your control.

Doug Hoyes:    So I just login and there it is?

Derek Silva:      You login, there it is. It might not be real time up-to-date but if you’ve got a couple of Bloom tokens you want to spend to get it updated, you can do that.

Doug Hoyes:    And we’re going to talk about Bloom tokens in a bit.

Derek Silva:      Yeah.

Doug Hoyes:    So, literally any time I want, I can go in, you know, and see where it’s at, if it can be updated or whatever.

Derek Silva:      Absolutely.

Doug Hoyes:    Okay, so problem number two, with our current system, and you already raised it, you just gave the perfect example about errors on your credit report, I’ve already paid off that loan, it’s completely discharged, why is it still showing up? Or, you know, my father has the exact same name as me, I’m junior, but we have the exact same name. Now, he’s got a different birth date than me, obviously, and a different address, but it’s not that uncommon for errors to creep in when you’ve got a similar name to somebody else and then obviously, you know, loans are paid off or whatever. So how is your system going to reduce or eliminate errors on credit reports?

Derek Silva:      So, as we already alluded to earlier, anytime you’re applying for some sort of credit using your BloomID, everything is tied directly back to your Bloom ID, it’s not just somebody’s name. So, you know, Doug Hoyes is one name, David Smith, boy. [Laughs] Go to 411.ca and look for David Smith or John Smith, there are, you know, thousands of both, maybe more.

Doug Hoyes:    A lot of them.

Derek Silva:      So, you know, we’re not just tying it to some random, not random but, you know, somebody’s name and address they may or may not still have at this time. Everything’s been verified and validated and it’s kept up-to-date and therefore it’s actually tied to your BloomID, which is a mixture of your name, your email address, your phone number. You know, that’s all tied to you and your identity and so it’s very much a one to one relationship from the get-go. And all of our partners that we’ve already signed up and are ready to go as soon as we get phase two launched here in the next couple of weeks, they’ve agreed to feed that data back into the system on an ongoing basis and because of the way smart contracts work, inherently, when it’s done it’s done.

I’ll give a really quick example. If you go to one of our partners called ETHLend, E-T-H-L-E-N-D dot io and you take out a loan which somebody on the other end funds, there’s actually a smart contract on the block chain that is open until such time that the requirement have been fulfilled. So let’s assume you’ve borrowed $500, you make a couple of payments back, you know, the terms of the smart contract have been fulfilled, the $500 plus interest have been paid back, the lender gets their interest and their capital, you’ve benefited, you know, from that loan hopefully and did what you needed to do with it, and the smart contract is actually closed, it completes. And the fact that it’s closed and is actually completed now, gets reported back instantly back to our risk assessment system which is called BloomIQ, and so it’s updated immediately. You know, as soon as that has been reflected on the block chain, which would be instant, it gets back to our risk assessment system. And so you don’t end up with nebulous numbers of loans that are still open after, you know, how many years because TD, Scotiabank, RBC, etc., just didn’t bother reporting back that the loan has been discharged.

Doug Hoyes:    So there’s two different reasons, then, why you think there’d be a lot less errors. Number one, it’s tied to me, so not my name because, like you say, David Smith, there’s thousands of them but there’s only one person that has my BloomID and I’m the one, obviously, in control of taking a look to see if there’s any issues with that. And then, obviously, the instant reporting which wouldn’t apply, I guess, on my Visa card because that’s not on the block chain [Derek laughs] but for a new type of loan it would.

Okay, so what happens then if I’m new to Canada because we all know that Equifax Canada only has Canadian information on it, so if I was living in the United States or some other country for the last few years and now I’ve moved here, none of that information gets transferred over? I’m assuming the Bloom system is a worldwide system therefore the whole world is on it. Is it as simple as that?

Derek Silva:      It actually is pretty much as simple as that. So, you know, if you’re from Sudan you might not have the capital to build up your own BloomID but you could be doing business with a local partner in that part of Africa who does, you know, work with Bloom and is reporting that data back and spent the $5, $10 or, you know, what have you, to get a BloomID started for you, and you’re already building up your credit score because you’ve borrowed a little bit of money to improve your life or something like that or, at the very least, you know, there could be a non-profit in the area who just wants to help out, you know, individuals get a BloomID so that they have some sort of system they can use elsewhere, regardless of where they live. You know, I can see lots of different potential, you know, ways that that gets started.

But, yeah, you know, if you start your BloomID anywhere and you do build up a Bloom score somehow, that comes with you. That’s a big part of what we’re trying to do, is provide a global, federated identity that you can use just about anywhere and your Bloom score comes with you as a result. I find it incredibly odd that Equifax operates in, I think it’s 24 or 25 different countries and yet [laughs] that data is not – maybe it’s good because, you know, we just saw a big breach but that data, or at least your score, doesn’t come with you. Like, I find that baffling. You know, why bother letting me build up a credit score in the UK and yet not bring it to Canada and vice versa, or the US to Canada. Lord knows how much, you know, migration there is back and forth and dual citizens there are, and that sort of thing. There are dual citizens in the US and Canada who have two different Equifax scores because, you know, despite it being, you know, the same corporate umbrella, that data doesn’t intermingle in any way.

So, you know, it’s maybe not an issue for – well, I could see it being an issue for some baby boomers who maybe want to move abroad and buy a little vacation home somewhere in the south of France or something like that, but definitely, you know, for people in their 20s and 30s who want to do the digital nomad lifestyle, work remotely, you know, live in other places for a little while before settling down somewhere, this is going to be a bigger and bigger problem for a lot of people.

Doug Hoyes:    What about the risk of identity theft then and I think you’ve, kind of, touched on that but we know about the whole Equifax breach from 2017, how will the Bloom system prevent my identity from being waved around the world?

Derek Silva:      Yeah, so in a few ways. One, we’re not storing the data. [Laughs] We’re not storing your driver’s licence, we’re not storing your SIN number, we’re not storing any sort of personally identifiable information, you know, that somebody would actually need to steal your identity. We’re not storing any of that. We’re having it verified and attested, one time or, you know, if your driver’s licence expires you might need to do it again at that time but, again, it’s verified and attested then and then we’re storing the fact that it’s been verified and attested, not the data itself. So that’s one big way.

The other way is that everything is fully encrypted on that encrypted file system I mentioned. It’s called IPFS. If anybody wants to look it up, well, I don’t think we’re going to get into it, but we’re using that to actually store those attestations and then, again, as I mentioned, to share anything beyond your Bloom score, somebody would actually need to ask for permission to view that data and that happens on the block chain and so you’d get a request and you authorize it or you can reject it.

I mean, there’s nothing stopping you from going to Meridian Credit Union, saying I want a loan and they’ll say, okay, well, you know, what’s your BloomID? Great, okay, there’s your Bloom score. We need some more data. You know, they ask for it, you go home and you can think to yourself, you know what? I don’t really want to share that data. You know, I think the Bloom score should have been enough. So you can actually reject it and then they get nothing. So those three things put together is miles and away better and far more secure than Equifax or TransUnion, at this point.

Doug Hoyes:    Yeah, it’s all fully encrypted, it’s not stored but you did say the Bloom’s score, it is available?

Derek Silva:      So, yeah, Bloom scores, themselves, are public. So you could potentially go through our protocol, you know, if you’re a partner or you’re hooked into it, and see, oh, there’s 500 people with a Bloom score of, I don’t know, 500, a couple of thousand with a Bloom score of 450, etc., but there’s no identity data tied to that, not your name, not your address, your phone number, your email address. Nothing is tied to that. In order for somebody to actually figure out who’s Bloom score is what, they’d actually have to talk to you directly and you would show them, you know, in the mobile app instead, if you were talking face-to-face.

Doug Hoyes:    So if someone knows my BloomID, it’s easy for them to get my Bloom score, is that correct?

Derek Silva:      If somebody knows your BloomID because you’ve given it to them?

Doug Hoyes:    Yeah.

Derek Silva:      Yes, they could see your Bloom score and that’s it.

Doug Hoyes:    But if you don’t know my BloomID, there’s no way to get my Bloom score then because one has to be tied to the other. I mean, if you know my name, you can do a search on Equifax for my name.

Derek Silva:      Right.

Doug Hoyes:    And if my name is Doug Hoyes, there’s not too many of those so it’s easy to find. If my name is David Smith, well, then obviously you’ve got more information, birth dates and addresses and so on. So that’s what makes the whole system very secure then, is it’s all encrypted, the data itself is not stored, there is no centralized store of information. That’s the whole problem with Equifax and TransUnion.

Derek Silva:      Exactly.

Doug Hoyes:    It’s all in one place. Well, it isn’t in one place. Really, all that’s in one place is the fact that this piece of information has been verified and that piece of information has been verified.

Derek Silva:      Right.

Doug Hoyes:    The information itself isn’t there. So, ultimately, you know, would Bloom work as a credit bureau? Is that the intention or is it just trying to modernize part of the credit lending process? Is it really more about identity verification or could it ultimately be a replacement for Equifax and TransUnion?

Derek Silva:      I think we could see a future where, you know, you could potentially treat Bloom as a credit bureau. You know, we’re not forcing people to become official partners in order to use the Bloom protocol. You know, we’ll provide them high-touch support, of course, and, you know, promote them and things like that, there’s benefits to doing so, but, you know, if BMO wanted to build a separate system on the Bloom protocol and interact with people using a BloomID and their Bloom score and feed data back into BloomIQ so that we can get good risk assessment, yeah, there’s nothing stopping them from doing that. But, again, you are still going to need to know [chuckles] somebody’s BloomID, you’re actually going to have to hook into the protocol, so we’ve got smart contracts to do that, so it’s not like they can just start trawling through the data using a web interface.

Doug Hoyes:    Do you worry about the fact that block chain, in certain applications, I mean, it’s slow, you’ve got, in some cases, expensive transaction fees, you know, it’s not entirely scalable? I mean, you look at something like Bitcoin, well — and I’m just going to make up numbers here because, you know, [Derek chuckles] facts don’t matter — but, I mean, with Bitcoin, there can be, I don’t know, 100 transactions a second or whatever it is, whereas with the Visa network, well, there can be, you know, 60,000 a second, or an hour or whatever it is. Like, the scale is much more developed. Now, I realize we’re not talking about Bitcoin here, we’re talking about Bloom which is built on, you know, block chain and has some elements of Ethereum to it. Is it scalable enough that this can be a thing someday?

Derek Silva:      We’re confident that it is. You know, there’s no hiding the fact that the Ethereum block chain has had some scaling issues, but there are incredibly bright and determined developers who are working on that, there are some proposed solutions already. There’s at least three or four different ways that are going to add additional scalability. They know that they need to approach Visa-type levels, which is, you know, like a billion transactions a day, but, you know, we’re not there yet.

But, right now, we’re actually on only 52% capacity of the Ethereum block chain and that’s at, oh, 675,000 transactions in the last 24 hours. But Bitcoin has a much slower block chain, you’re right. The block times are longer, so the number of transactions that are waiting in a queue in order to get processed in a block and, you know, have somebody mine, or have computers mine that block and verify everything, it’s quite slow. I just experienced it last week and, you know, to get 12 computers to verify that my transaction was real, in addition to a few other ones in that block, was painfully slow. Ethereum is much quicker. I’ve seen transactions get verified in 30 seconds.

So, you know, when you’re sitting in an office with, you know, a mortgage broker, or what have you — well, not a broker but, you know, the mortgage person at your bank — 30 seconds is an instant. I’ve seen, you know, in-system verifications take longer than that. So Ethereum is much, much quicker. Right now it would probably cost you a couple of cents to get a transaction across, depending on what you’re doing. So it depends on the day, it depends on what’s going on, but I’m very, very confident that the scalability issues can be solved and, literally, probably later this year. It will be significantly faster later this year. Give it another year or two and we’ll be hitting Visa levels fairly soon.

Doug Hoyes:    Cool. And for anyone who’s listening, we’re recording this at the end of March 2018, [Derek laughs] It will be released in April 2018, so if you’re listening to this in the future –

Derek Silva:      Call me on it.

Doug Hoyes:    Exactly. A lot of people do listen to past episodes of the podcasts, so that’s good. So, what do you see then as the future for Bloom, and specifically in Canada? Do you see it, you know, being widely adopted or do you see it as a niche product? What do you see the future as?

Derek Silva:      I think it will definitely start out as a niche product. You know, if you haven’t been paying attention to the block chain space for the last six months, you probably have not heard of Bloom and that’s fine. We know that. Our co-founding team is built of two incredibly bright engineers and two incredibly bright marketers so between the four of them, we really have what it takes to get the product right and to get the marketing, the engagement, you know, right, you know, out of the gate.

We’re definitely starting with people who are — what are we calling it — crypto aware? You know, they know about Bitcoin, Ethereum, Litecoin, etc., they know about projects being built on the Ethereum block chain and what smart contracts are, at least to a small extent, and the fact that we’re using them. And we will expand out towards, you know, those individuals, friends and family, because that’s obviously the next logical place to go, and eventually, you know, looking for mass adoption.

We’ve already got, oh, I think it’s about eight or nine different lending partners, both traditional and digital currency, you know, peer-to-peer type lenders, ready to go, and we’ll continue to look for additional, you know, organizations to do the same thing with. So it could be your credit Union in a year or two, or it could be, you know, one of the big-five banks that we get through to first. You know, we’re not worried about that, we know it will come and when we’re ready for that level of scale, we’ll be doing the work we need to do to make sure everybody knows what BloomID is. It will certainly start out as a niche, but we’ll get there in terms of mass adoption.

Doug Hoyes:    So, what is a Bloom token?

Derek Silva:      A Bloom token is – [Laughs] Okay, so the Ethereum block chain has this standard called an ERC20 token and that allows you to build your own token on top of the same block chain and use it, typically, within your app, your protocol that you’re building. People can buy it and sell it elsewhere on token exchanges, but the idea is that it’s available. You’re not mining these so, you know, they’re available right out of the gate and it’s like an internal currency.

Doug Hoyes:    So, it’s like a Looney.

Derek Silva:      It’s like a Looney. You can use it within Canada. You can’t use it anywhere else, right, or it’s like going to an arcade. You can buy tokens at the arcade. You can use them at the arcade. You can’t really use them anywhere else. You could potentially sell those to somebody at a premium or a discount depending on the day and then those individuals could use them at the arcade as well. It’s that sort of thing. And we’ve done that for a few reasons. A, it gives us far less volatility to deal with than pricing everything in Ether or in, you know, Bitcoin or anything else, and it removes the need for an individual to hold a specific international THEAC currency. So, you don’t have to hold US dollars or Canadian dollars or Euros or Russian Rubles or Chinese Yuan or anything like that, in order to use the protocol. And you can get Bloom tokens from a bunch of different places right now.

Doug Hoyes:    So if I wanted to, you know, verify my driver’s licence and I go on the system and it says, okay, you can do it but you’ve got to pay two Bloom tokens to do it — and I’m just making that up. I have no idea what the cost is — then I would have to buy the Bloom tokens.

Derek Silva:      Yes.

Doug Hoyes:    And can I buy those with Canadian Dollars or do I have to buy them with Ether or Bitcoin or some cryptocurrency?

Derek Silva:      Right now you can buy them with either Ether or Bitcoin, depending on the cryptocurrency exchange you’re using.

Doug Hoyes:    So that’s, I guess, one barrier to mass adoption, that the average person hasn’t figured out how to actually get either Ether or Bitcoin.

Derek Silva:      Right.

Doug Hoyes:    And even longer term, that’s still going to be the way it works. If I want to be part of the system, if I want to – It’s, kind of, like, like you say. I mean, at the arcade or if I want to have a token for the subway system in Toronto, well, that’s the token, that’s what you’ve got to get. So do you envision a time where I will be able to buy a Bloom token for Canadian Dollars or is it, no, you’re going to have to go onto an exchange, buy some Ether, buy some Bitcoin and then use that to buy the Bloom tokens?

Derek Silva:      I haven’t asked [chuckles] the co-founder this question but I can foresee a time where that is possible, where you will just come and buy a couple of Bloom tokens, whatever ones you need or however many you need, rather, and then spend those within the protocol, and that will help eliminate waste, will obviously help, you know, induce mass adoption and that sort of thing.

Doug Hoyes:    Yeah, and obviously I understand you don’t want everyone going out speculating in Bloom tokens.

Derek Silva:      No, we don’t.

Doug Hoyes:    Just like the TTC doesn’t want people speculating in subway tokens. They want them to be in circulation and be used.

Derek Silva:      Yeah.

Doug Hoyes:    Okay, so, I mean, I guess my summary of this is there’s some pretty cool technology here and there’s some pretty cool advantages over what we have now but we’re not there yet. I mean, we’ve got limitations to block chain, obviously not every lender is on the system, there’s issues with the tokens and whatnot but, you know, it’s certainly something to keep an eye on. So if I am either a consumer or a business and I’m interested in Bloom, where can I find more information?

Derek Silva:      You can visit our website. That’s Bloom.co. No weird spelling. If you are an individual who wants to get their BloomID up and running, even if you haven’t bought any Ether or Bitcoin or anything like that so far, I would encourage you to go to Bloom.co/identity and we’ll actually give you one free Bloom token to get started. That’s relatively new.

Doug Hoyes:    Okay, so Bloom, B-L-O-O-M dot C O.

Derek Silva:      Yeah.

Doug Hoyes:    And then Bloom.co/identity if you want to poke around and check it out. And I guess at this point, if there’s, you know, no lender or nobody at the other end that’s using it, it’s pretty mature but it’s something that may become a thing. I mean, it sounds to me like there will be a network where I can go on – I mean, you gave the example of the $500 loan, you know, and I’m not going to go onto a payday loan rant here because that’s not the purpose of this show but I guess it would be, kind of, cool if I want to borrow $500, I go onto a lending system and there is, you know, peer-to-peer lending, some guy at the other end who wants to lend $500 and with Bloom they don’t have to be going to Equifax and doing credit checks and all the rest of it. It could be done through their system, you know, basically on the block chain, as you described it. That may be one of the biggest uses for Bloom in the future. Is that possible?

Derek Silva:      Yeah. For this year, I think that’ll be one of our big starting points. So, like I mentioned, we’ve got, already, a bunch of digital currency lenders who are either operating right now or will be operating really soon. ETHLend is actually up and running. They’ve been going for several months now. They’ve facilitated 3,000 or 4,000 Ether-worth of loans. So that literally equates to a couple of million dollars US or Canadian, worth of loans.

And the issue you would have right now is that you need to have collateral for the loan. So if you want to borrow $500, you need to put up some sort of ERC20 token as collateral. So whether that’s Bloom tokens, whether it’s – I think they’re willing to take 140, 150 different tokens right now, as collateral. You’ve got to put up some collateral. So you, kind of, have the money already but you don’t want to sell those tokens in order to facilitate this thing, right? You want to borrow somebody else’s instead.

One of the nice things is that you actually get to decide the terms of your loan so if you need to borrow it for – You know, let’s say you want to borrow $5,000 for six months and you’re going to make six payments, you know, one-monthly and you’re willing to borrow at 6%, you actually get to put in all that information.

You know, right now ETHLend is not putting any specific terms on the loans that are being generated on the platform. And so, of course, if you, you know, if you can’t find the lender that’s willing to agree to your terms, [chuckles] that’s a separate issue but you actually get to put in there, like, I’m willing to pay 5% over the next six months on a $5,000 loan. I will make one payment a month, two payments a month, whatever, you know, you think you could commit to. And hopefully, within a day or two, you’ll find somebody to put up the money for that loan.

Once they’ve built in BloomID and Bloom score, then we’ll move onto that system where, you know, you’ve got a Bloom score, you’ve got a validated ID and people can go on that instead, instead of having to put up that collateral.

Doug Hoyes:    Cool. So there’s going to be many developments as we go forward on this so certainly something to keep an eye on.

Derek Silva:      Yeah. That’s ETHLend, specifically. You know, we’ve got Everex, we’ve got Fundary that will have similar but different systems, and then we’ve got a company out of the US called Self Lender which is actually more of a traditional lending platform but they see an opportunity to reach more people by using the Bloom protocol. And so, despite the fact that they’re more of a traditional lender, you know, we’ve got them on board. They’ll be building into the Bloom – or hooking into the Bloom protocol later this year and really utilizing it the way a bank would or the way a Fairstone or, you know, that type of company would.

Doug Hoyes:    Excellent. Well, I think that is a lot of information. That’s a great way to end it. My guest today was Derek Silva, the head of community relations at Bloom Protocol. Derek, thanks for being here today.

Derek Silva:      Thanks for having me, Doug. It was a treat.

Doug Hoyes:    Excellent. Thanks very much. That’s our show for today. You can find links to Bloom and everything else we talked about and a full transcript of today’s show over at Hoyes.com. That’s H-O-Y-E-S dot com. My guess is that it will take a while for Bloom, or something like it, to achieve widespread adoptions so I expect we’ll be using Equifax and TransUnion for some time to come but I also think, as consumers, we should be aware of what’s out there so you can be ready for whatever changes happen because technology moves fast. Thanks for listening. Until next week, I’m Doug Hoyes. That was Debt Free in 30.

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