Kommerce — Poverty’s End

Published in

KommerceTF

17 min readSep 8, 2019

About a decade ago, I was a homeless teenager squatting a dilapidated home through the Montreal winter.

I remember wearing all the clothing I owned to bed because it was -20°C on a good night, and going to the same free coworking space every day with my decrepit laptop.

I remember spending hours on the side of the highway, hopeful hitchhiker’s thumb raised to each passing car. And crafting makeshift weapons in case I found myself in an altercation with one of the unbalanced people I’d occasionally meet.

What I don’t remember, however, is going hungry.

Yet in the time it took you to read this far, about two dozen people starved to death.

A third of the world is malnourished. We’re at about a death every three seconds.

While my (and probably your) supply exceeds demand for just about every basic necessity we can think of, there’s a devastatingly wide gap between supply & demand in much of the developing world.

The dumpsters I used to dive hold enough food, discarded & rotting, to keep everyone nourished.

Yet people starve. To death.

It’s a simple problem, though not an easy one.

It’s a problem of trust.

See, in most developing economies, banks don’t share their records, legal & law enforcement systems are unreliable, corruption is rampant.

Institutions that lend money have few reliable ways to verify that their loanees are trustworthy. Honest merchants have no way to stand out.

The result is as predictable as it is ironic: moneylending institutions lend money to almost no one.

For the average African (I’ll be primarily using Africa as an example since that’s where the problem is most pressing, and that’s where we’re starting), to even start a conversation with the bank requires you to be able to put up ~120% of the loan’s value in land or other assets. That cuts out the vast majority of people. By comparison, institutions in the developed world often don’t need collateral at all for smaller loans, if you’ve got a sufficient salary, credit history, or yearly profit.

And if you do get a loan, the interest rates go from as low as 14% in Kenya, up to >30% in some of West Africa. In the USA, the legal cap for interest on a small business loan is 10%, which you’re only likely to see if you have a terrible credit history, a new business, and a loan that you can wait 7+ years to repay.

And that’s all on top of frequent inflation and hyperinflation, which brought us the 1 trillion dollar Zimbabwe banknote, worth about $1 USD in 2009, when it was discontinued forever.

Lenders aren’t too thrilled about the situation either.

About 80% of the world’s trade relies on trade finance loans. Without it, commerce would slow to a point where we’d be facing starvation too.

And it’s one of the safest forms of loan there is. According to the International Chamber of Commerce, only 0.021% (!) of trade finance loans end up defaulting, with over half of that loss recovered through sale of the underlying assets. These are the kinds of loans that make up a bank’s bread and butter.

The World Trade Commission estimates that the unmet demand for trade finance in Africa was $120 billion in 2013 (the last year for which published numbers are available).

Now if all that doesn’t constitute an untapped market with voracious demand, I don’t know what does. One entrepreneur who heard that we were helping provide working capital to African businesses, flew 5213 kilometers from Senegal to Rwanda (greater than the widest coast to coast distance across USA) to ask for our help in financing his trading.

Those who solve this stand to improve billions of lives. And make billions of dollars.

That’s where we come in. And yes, if you’re wondering, there is a token sale planned.

Here’s how we plan to do it.

As anyone who groks blockchains knows, the entire technology boils down to a way of computerizing trust. And when developing economies do develop, they have a tendency to leapfrog the infrastructure of “first world” countries. Africa’s skipping landlines for cell phones, Singapore & Dubai’s architecture, & Estonia & Rwanda’s e-government services can attest to this.

The point I’m driving at has gotta be painfully obvious to you by now: we’re gonna buidl a trade & trade finance trust infrastructure & ecosystem for the developing world, and fix this mess.

Using a hybrid public/private blockchain architecture, a buttload of game theory, economics, UX, logistics, decades of collective experience doing business on the ground in Africa, and of course an all star crew of handpicked maestros (if I do say so myself), we’re forming a marketplace for trade & trade finance that operates without any need to trust third parties.

Quick little brag reel:

Our CEO, Harveen Narulla, has four other successful startups in the fields of payments, working capital, data, & logistics under his belt.
Our Blockchain Lead, Chun Hui, has been a research scientist at Visa & The IBM Center for Blockchain Innovation, an Adjunct Lecturer on blockchain & Hyperledger Fabric at the National University of Singapore, and has a PhD in Electrical Engineering with specialization in trusted systems and virtualization.
Our Legal Counsel, Chua Tju Liang, is also the General Counsel of the Ethereum Foundation.
Our VP of Africa, Nick Leong, has a decade’s experience working in Africa & is the founder of the Kenyan Riders, who aim to become the first black African cycling team to win the Tour de France.
Our CXO, Dustin Lau, has >16 years experience as a writer, producer, director, editor, camera operator, & broadcast engineer with companies like ESPN Star Sports, Fox International Channels, Sunset+Vine Asia, and Netflix.
Our CIO, Markus Kirchberg, was the chief scientist and head of Visa Innovation Labs in Asia Pacific, and holds a PhD in Distributed Systems.
Our CTO, Roman Gollent, has more than 2 decades of experience in Enterprise Infrastructure, managing multiple global portfolios in his time at UBS.
Our VP of Growth, yours truly, has helped orchestrate the ICOs of Golem & Bancor, both world record breakers.

And this awesome team was built by our COO, Karen Teoh, who hired the team with her executive search experience, alongside her decade of tech product management. With deep knowledge of crypto law, game theory, hardware and software product development, behavioural economics, graph theory, and of course meta-learning… she’s the glue that holds this all together.

As I write this, we’re halfway through our second profitable-for-everyone-involved shipment on the pilot ecosystem. It works, albeit with more complications to work out than the first time you watched Inception.

And if we pull this off, supply will be able to meet demand just about everywhere in the world.

I can not emphasize the impact of that enough.

People will stop living (or dying) day to day.

They’ll start being able to focus on their education, their health, their environment, their rights, their nations… all the levels of Maslow’s hierarchy above rock bottom.

Which, interestingly enough, would positively affect every single last one of the UN Sustainable Development Goals. Seven of them directly.

The 7 SDGs that Kommerce affects directly

Entrepreneurs and businesspeople who are already supplying the essentials in whatever amounts they can fund themselves could lift themselves into prosperity simply by scaling up what they bring in to meet the demand they face.

And when then that happens, clean water & water sanitation tools can be supplied alongside medicines & nutritious food in suitable amounts. Not to mention construction materials, textiles, computers… the building blocks of modern society.

And when THAT happens, and the previously impoverished find themselves healthy and with a disposable income, that’s when the tipping point comes.

With basic needs met, people begin demanding a better education for their children, better infrastructure for their cities, safer neighbourhoods, and accountable governments that represent their interests.

And that is how you develop developing nations.

Now that’s quite a claim. I get that. I’ve made them once or twice before.

So allow me to back it up.

For the next few minutes, if you’ll allow me, I’ll explain exactly how we at Kommerce plan to do this. And just maybe convince you that we can.

Building Biblically

We’re building this for Ibrahim.

A young merchant who sells goods from a little kiosk outside the offices of Pan African Logistics, the previous company founded by our CEO Harveen, Ibrahim has an absurd & absurdly common problem:

He always sells out of goods faster than he can resupply.

When he buys, for example, cooking oil, it’s all sold out in days. Yet he needs that money to purchase the next shipment, and has to wait weeks, with eager customers constantly checking in, for the next batch to arrive.

This is a dream scenario for a small business. Demand constantly outstrips supply, so all you have to do to grow your business fast is get more supply. Show your stats to just about any bank and you’ll get the loan you need.

Except the banks in Ibrahim’s world don’t lend to people like Ibrahim.

It’s a systemic problem across just about every developing economy you can think of. True to his name, Ibrahim is our “father of many” that kicked off the entire venture we’re building.

Because when Harveen ran the numbers with him, they found out that doubling Ibrahim’s profits would require a loan of just $1000 USD.

$1000 USD! Most banks won’t even consider a business loan 10x that size to be worth their time.

A few hundred thousand dollars, distributed to people like Ibrahim across a country like Rwanda, would have a noticeable positive impact on the nation’s economy.

But, of course, it’s not that easy.

Donations won’t do it. Even if someone donated $10 million dollars, helping 10,000 of Ibrahims, you’d still need recurring loops of finance available to new generations of business owners for the continent to lift itself out of poverty.

And like I mentioned earlier, the trade finance gap in Africa alone is well over $100 billion yearly (with growing economies demanding even more goods).

So it’s got to be profitable to loan to Africans.

In Harveen’s words:

“Developing credit history is a chicken-and-egg problem. It requires financing and actual business to be conducted, and reliable data capture on deals that are faithfully completed. Without trade, it is not possible to capture meaningful data. With financiers, it is not possible to do trade at scale. And without substantial trade and consistent trade history, financiers find themselves unable to assess lending risk and hence shy away.”

Someone needs to step up to take the risk and be the first to provide working capital to the entrepreneurs of Africa. But for that risk to be a manageable one, and one which opens the door for the big boys of the finance game to join up, a few things need to be built.

Well, actually, pretty much everything needs to be built.

Reliable Justice: There has to be a reason for bad actors not to run away with the money. With little/no enforcement and legal infrastructure, catching thieves like this isn’t worth the cost, and there’s no way for the next bank to know that they’re dealing with a borrower who ripped off the last lender. So prevention is the cure. This is where our deeply thought out & currently being field tested game theory and behavioural economics comes in.
Predictable Money: With exchange spreads between African countries going as high as 63.61%, and inflation being both common and unpredictable, domestic African currencies aren’t used in international trade. Which is why everyone doing trade there uses USD, CNY, and EUR. But the exchange rates & bank fees on USD eat up 8–10% of the revenue for the average local trader, with archaic, buggy, & glacially slow banking infrastructure thrown in just for giggles. Cryptocurrency like Ethereum won’t work either: while the fees & downtimes are nearly nonexistent, and the programability makes them electricity-fast, the price fluctuations are too chaotic & dependent on too many outside factors. You need something with a price that is relatively stable & predictable (thanks to Sparrow Exchange, though only applicable after ~6 months of live price data) & reflective of the Kommerce ecosystem, is able to be programmed, and has insignificant transaction fees.
Good Data: The data on faithfully completed and defaulted loans needs to be available & trustworthy. Right now you can bribe your way into a pristine bank record for $50, making it effectively worthless. This is where blockchain’s immutable ledger comes in, and why we’re building this all using our own application-specific cryptocurrency called KTF. Ironically this bleeding edge technology is probably the most simplest part of the ecosystem we’re putting together.
Shipping & Logistics: This is the most complicated of the elements that need to be assembled. Vehicles & roads, weather & disease, and of course human error makes this impossible to solve with tech alone. Good news is we’ve got an inside advantage: Our CEO has already founded Pan African Logistics, which covers most of East Africa & with whom we’re partnered along with TriStar who have operations in 38 African countries. For the rest of the ecosystem to work efficiently, especially in the beginning where we at Kommerce are managing things end to end, the shipping companies and warehouses and insurance companies and all need to be plugged into the network so that every shipment can be tracked end to end. That’s the hardest part, and we’ve got it covered.

Everyone involved, from importers & exporter to shipping & logistics to financiers & insurance, will have a publicly verifiable reputation they build up with every faithful or unfaithful action.

Gritty, Techy, Reality

Don’t care about how it’ll work day-to-day? Skip to the next headline.

Trade is a complicated process with a ton of moving parts.

Duh.

That’s why we’ve got to build so much infrastructure to unbreak it.

Hold onto your joystick, this is gonna get a little tech-heavy. No one expected solving millennia old problems for billions of people using cutting edge technology to be simple, right?

If we pull it off, here’s a look at how those pieces will work in a real trade on a fully fledged network.

Mojisola (Moji for short) owns a small neighbourhood grocery store in Nigeria. Like Ibrahim, she sells out of most goods faster than she can resupply. Or, she did, before Kommerce came around.

She’s on-boarded herself & her business onto the Kommerce ecosystem, by uploading her company’s registration documents, authorization documents, and personal KYC. All her commercial information is stored privately & permanently on our Hyperledger Fabric blockchain.

Quick aside for the non-techies: Hyperledger Fabric is an open-source permissioned blockchain originally created from Digital Asset Holdings, Blockstream’s libconsensus, and IBM’s Open Blockchain. It is, in essence, the ability to build a private and permissioned blockchain that can store a ton of data for almost free & with privacy for sensitive business & personal info. We can do things like grant permission to certain entities (like financiers) to view the trade history but not the personal identity of someone applying for a loan. We’re using Ethereum through our KTF tokens for its strengths (censorship resistance and transaction finality), and augmenting its weaknesses like privacy and high storage costs while also decreasing our load on it with Hyperledger Fabric.

Right now, a lot of goods coming into the continent aren’t of the quality or quantity that they’re supposed to be. For examples, in our first ever trade on the pilot ecosystem, we learned first-hand that rice coming through Pakistan has such a bad reputation for adulteration of quantity & quantity that importers expect it to be worse & less than was stated, and incorporate this into their business calculations before the rice ever arrives.

But not for Moji.

From her phone, she’s able to see the offers and reputations of each exporter based on the quality of all their past shipments. The entities that tend to rip off their customers are identified, and Moji knows who they are and exactly what kind of quality she can expect to see from them.

All the details that make up those reputations, like customs inspections & photographs, as well as all the offers for sale on the Kommerce marketplace, are stored on Hyperledger Fabric as well. You’ll notice that just about everything requiring privacy or a non-negligable storage space is.

With her easy access to verifiable information, Moji can choose a supplier that fits what she needs, knowing she won’t stumble into an unpleasant surprise, and submit an offer to them. Also tracked on Hyperledger Fabric.

Now she needs money to buy it. So she applies for financing.

When an importer initiates a trade, she gives financiers permission to view her trade history (yes, on the Hyperledger Fabric). Financiers can even set parameters to deploy capital to a pool of multiple Importers based on their risk, yield and term profiles, and have their capital deployed automatically & in conjunction with other financiers (thereby lessening the risk through sharing it).

In this case, with no trade history or reputation of her own, it’s unlikely that financiers will put their money directly in Moji’s control. In fact, financiers funds are never put in the importer’s control, no matter their reputation. The funds are managed by our partners at Nuevo Asia.

But with a commodity as common as rice, and the whole ecosystem with its many & various importers incorporated into one platform, there’s almost no risk in a financier taking her down payment and purchasing & shipping the rice to the nearest warehouse in Nigeria. So long as they only release it into her custody when she pays the balance.

All of which is done through the Kommerce smart contract on the Ethereum Network, using KTF as the currency. When Moji needs to make her down payment, she can exchange her fiat currency (most likely USD) through an exchange like Binance Uganda, or in person with a local trader. We’ll be building options for this into the ecosystem to make it as easy as possible.

She then sends it to the Kommerce smart contract, which lets the financier know the down payment has been made. The financier then sends the balance due to the exporter for their rice into the smart contract, which lets the importer know that the payment for the order is waiting for them.

A logistics company is then assigned to send the shipment, aided by on-the-ground data about problems like flooding and broken roads, which we incentivize with KTF bounties. I don’t have to tell you that this too is done with reputation-assurances and all that. Everything is. We’re already partnered with Pan African Logistics & Tristar, who together cover most of the continent, and we’ll be welcoming other logistics providers onto the platform as we mature.

Once the shipment has been confirmed as begun, the Kommerce smart contract sends the full payment to the exporter.

The financier, of course, will want an insurance company involved, as there’s more risks to measure than just the reputation of their counter-parties. Nature, for one.

In our second shipment on the pilot network, the ship carrying our cooking oil got clipped by a typhoon, damaging a bunch of our oil cans. Due to regulatory complications and normal insurance company caution, over a month was spent going back and forth before insurance covered our losses, and alongside lost profits & time, the oil leaking out onto the warehouse floor while we were legally unable to fix it caused a worker to slip and injure himself. The warehouse almost kicked us out for this.

Not good.

As a bunch of geeks, it’s hard not to dream of some code-esque way of dealing with human-centric issues like this. If only it was possible to formalise the contracts, laws, regulations, business process logic programmatically.

This is where L4, a domain-specific language for law, created by our partners at Legalese, comes in. Like what SQL did for databases and Postscript did for Adobe, L4 applies computer science and formal methods to law. All the issues about governmental regulation & whatnot that we spent a month going back and forth over could be formalised and allow these disparate parts of law to (finally) talk to each other.

Instead of humans having to run down the checklist & deal with all the outlying circumstances of our case, programs and test suites written in L4 would allow us to check the compliance, consistency, and correctness in a fraction of the time.

L4 and apps built upon it could also be used to generate, automate, and execute contracts for just about everything commonly done in the Kommerce ecosystem — for the price of a cup of tea and compiled under a minute.

I’m not going to get too deep on the technicals of L4 and Legalese here. That would take an entire blog post in itself. But if you’re intrigued, I highly recommend you check out Legalese.com. Even if just for the writing alone, which in my personal opinion is excellent.

ANYWAY.. back to Moji’s rice.

One way or another, hopefully through a problem-free shipment or else a successful insurance claim, with both the logistics & the insurance details and transactions tracked on our Hyperledger Fabric based smart contract, the rice will arrive at the Nigerian warehouse for Moji to pick up.

At this point, she must pay the Kommerce smart contract the balance & fees owed to the financier in order to take custody of the rice. Quite an improvement on timing versus the current system, where importers demand payment before the goods are even shipped.

If she doesn’t pay, Financiers can recover most or all of their losses simply by selling it to the next importer looking for rice.

But that’s the outlier case, as the choice not to pay would be forever recorded on Moji’s Hyperledger Fabric history, impeding her ability to obtain loans in the future, plus she’d lose her deposit. We do understand that unexpected problems happen, however, and are considering a program where we’d refund lost deposits like this over time with good behaviour in subsequent trades.

On the more likely and more positive side, what this means is that as soon as she’s gotten the profits from her last shipment, she can pick up the next one that’s waiting for her at the warehouse. And when she’s deciding what price to sell at, Kommerce will have live & multi-sourced data on the on-the-ground prices for each commodity, again incentivized by KTF bounties.

That weeks-long wait can now be days. Even hours.

And that’s just at the start, when she doesn’t have a reputation to show.

After a dozen faithful trades like this, financiers will be able to trust her more, and extend her more money at more favourable rates & more flexible rules. Soon enough, Moji’s shelves will be able to be fully and always stocked with the goods her community needs. Her customers will be fed and clothed and free of the dangers of scarcity. And Moji will have made a lot of money in the process.

Replicate that throughout a trust-starved economy, and you kickstart that virtuous cycle that develops a developing nation.

Copy, Paste, Review, Paste, Iterate, Paste

As we grow across nations and continents, we’ll continually be building out our tech stack & UX to address the new regulations, situations, obstacles, and needs of each new market. You wouldn’t believe how many new issues each new market brings.

We’ll continually be on-boarding new partners to improve access to financing, insurance, goods, KTF tokens, data collection, everything.

And, perhaps most importantly, our partners at SocialCops, a data gathering/analysis company that specializes in emerging and frontier markets, will be measuring the socioeconomic effects we have on the economies we enter. They’ll make sure we can measure how we’re improving these peoples’ lives, and we’ll get the added joy of actually being able to watch it happen.

There’s no reason, in an age of instantaneous global communication, sophisticated gene editing, virtual reality, and realistic plans to colonize other planets, for people to not have access to food.

Poverty’s days are numbered.