Bloom Protocol ICO Review
This week I’m reviewing the ICO of a project hoping to stir up the credit rating industry.
But first a mandatory disclaimer.
Investing in crypto-assets is highly speculative and carries risk. The following review is presented for information purposes only and is not intended as financial advice.
The Project
The Bloom Protocol popped up as an ad on my Facebook newsfeed. I am interested in the areas of identity and reputation, so was excited to see a project tackling this large, global issue with such talented team and a proven track record behind it.
I read and annotated the white paper, as well as some of the key references, and now have a few opinions I’d like to share.
First, here’s a quick overview of the project.
The Bloom Protocol is a decentralised credit scoring system on Ethereum and IPFS. The protocol includes the Bloom ID, an identity attestation system, BloomIQ, a registry for loans, and the Bloom Score, a credit score. An ICO for the Bloom Token is set to launch on November 30, 2017.
What Is Peer-to-Peer Staking?
Peer-to-peer staking works like this. I bet that my friend Aoife is creditworthy. If she is, I win credit score points. If she takes out a loan and misses payments, I lose credit score points. This system assumes that my friend is also on the network — which is a huge assumption to make.
This concept strikes me as anti-social, even sociopathic. I wouldn’t want to make these sorts of assessments about my friends and family. What if I don’t know much about their finances? Maybe they’re a very close friend who would be offended by my negative assessment. I might even find it emotionally upsetting to dissect my loved ones in such clinical financial terms.
Bootstrapping a Credible Network of Identities
This white paper suggests that organisations that keep identity data will help onboard users into the BloomID system by attesting to the authenticity of user-submitted data.
However, the interests of organisations that run existing identity infrastructure and the interests of the Bloom network are not aligned. There is tension. Taken to its logical conclusion, the BloomID system would replace the organisations that provided the data that bootstrapped it. Accordingly, I’m not convinced that these organisations would make the strategic decision to cooperate with the Bloom network.
Relationships reveal Creditworthiness
To me, the most controversial idea presented in the white paper was this: the financial history of my peers can be used as an indicator of my own creditworthiness.
Now, I may have misunderstood this. It’s possible they meant that having verified peers suggests I’ll be a good debtor. Instead, I took it to mean that my friends creditworthiness was a marker of my creditworthiness.
Let’s think about what that means in practice. Should I cull friends who are bad debtors? How exactly can I bring up the subject? Should I ask them, “Are you a good debtor?” Why should I trust their answer?
This notion is absurd. I should be free to associate with whoever I want, regardless of their credit history.
I dug deeper into the paper, and discovered that the idea was drawn from another paper titled, “Judging Borrowers By The Company They Keep: Social Networks and Adverse Selection in Online Peer-to-Peer Lending.” This paper found that the company a person keeps does matter, but to some unknown degree. On a gut level, I am still sceptical.
As this was presented as a key concept in the white paper, it was a huge red flag for me. The idea seems to indicate a level of recklessness for the ethical considerations of the system this team intends to build.
Will Anyone Care?
Let’s imagine, hypothetically as I don’t own a credit card, that I don’t pay my credit card bill. I get a black mark against my name. If I try to borrow money to purchase a speed boat, that black mark could prevent me from buying my speed boat. The credit score works due to its ubiquity, that it is lingua franca.
If the Bloom Network only captures a fraction of the lending market, a bad Bloom Score wouldn’t carry any significant weight. In that case, are there any real consequences for delinquency?
Summing Up
A huge opportunity exists here, and there is a great team behind the Bloom Protocol trying to tackle the problem. Unfortunately, I am not convinced by their approach.
I think they’re trying to do too many things at once. Plus, many of their ideas are untested. I think the pitch would be more compelling if they had done some testing and presented the results.
Having said that, this is still one of the stronger ICOs I’ve looked at so far. Honestly, that isn’t saying very much.
Could the Bloom Protocol actually work? Let me know what you think in the comments below. And, if you want me to look at a particular ICO, leave your suggestions there, too.
