TheKey is an identity solution that has been getting crazy attention since it posted over 2,000 lines of code on its Github in December. Why? Could be because it’s built on the NEO and right now there is an investor feeding frenzy for anything NEO-centric. We decided to examine it on behalf of western investors who don’t know China.
1. How will TheKey stand up to the might of Alibaba and Tencent?
Several years ago, China announced intentions to create a “social credit” score for its citizens. This is a reputational score based on a number of factors, among them credit history, verified identity, social profile, and social responsibility.
The credit history part of this social credit score will be compiled by Alibaba, a Chinese fintech player and the world’s biggest e-commerce company.
The reputational part is based on the type of materials you post online and your conduct on social platforms. Your score even takes into account what your friends are posting. So, your score can be impacted by the behavior of your friends should the Chinese authorities take a dim view of their posts.
The social reputation part of the social credit score will come from Baidu (China’s Google, so to speak) and Tencent (China’s Facebook).
The online space in China is now dominated by these three players - Baidu, Alibaba, and Tencent (BAT). These guys can outspend you and outbuild you on pretty much anything.
Alibaba began preparing to supply the credit part of the government’s social credit score in 2015 through its financial arm (Ant Financial). Alibaba launched Sesame Credit to issue Sesame Scores.
These were China’s first credit scores based on payment history using Alibaba’s wallet - Alipay. Alipay dominates in China, holding 70% of the payment market. Most of the country uses Alibaba to pay utility and other bills.
Not to be outdone, Tencent introduced its own reputation score in 2017. It is this data that will feed into the social part of the government’s social credit scoring system.
To understand the sheer force of Tencent for reputational scoring, consider this: more than 800 million Chinese people use its messaging app (WeChat) a minimum of 30x per day. The Chinese use it to send messages, share content, book taxis, order food, pay for dry cleaning, book dentist appointments, and other activities.
On Chinese New Year, most of the country uses the WeChat Wallet to send the traditional red envelopes, which contain billions in cash.
So, when you think about TheKey’s healthcare pilot and its ambition to power identity for businesses in China, consider this as well: WeChat onboards more than 1,000 new third-party local businesses every week.
How is TheKey going to compete against this?
In the next two years, Alibaba and Tencent will be joining forces under the umbrella of the China Social Credit Score. Where does this leave TheKey strategically?
Right now, TheKey’s main USP is the fact that it’s on the blockchain as opposed to a raft of local identity disrupters who aren’t. But Alibaba has already built its own blockchain, and Tencent will follow suit.
So, before investing, ask yourself where TheKey can go strategically in China.
2. How is it going to enforce patent protection in a country famous for ignoring it?
TheKey states in its white paper that it holds 23 copyrights and 15 patents. Even with a SIPO registration, how will it enforce this? China is the master of reverse engineering. It’s how it managed to clone Crypto Kitties a million times within days of the game coming out. Even with patents, cloning will happen.
Then picture that Alibaba or Tencent are ignoring these patents. Does TheKey have the financial muscle to legally outspend these two giants?
3. How big can the pension market be when China has no state-sponsored pensions?
TheKey outlined a Chinese pilot for mobile social pension payments, and it did seem impressive in the white paper. However, China has no national healthcare system or a state-wide pension scheme.
Private healthcare and private pensions are very new services in the country and should both become lucrative markets over time. But the reason China previously had no need for pensions and now a massive gender imbalance is that sons are traditionally expected to provide financially for their parents in old age. Sons have always been China’s pensions.
TheKey states it is running the pilot in two cities with a combined population of 130 million. It’s easy to get blinded by such a big number. But let’s be clear: there aren’t 130 million people collecting private pensions using TheKey’s pilot scheme. We are sure the actual number is very small given that they don’t mention an exact figure in the white paper.
In fact, it would be physically impossible to get anywhere close to 130 million users considering that private pensions were unheard of in China until about four years ago.
4. Do we smell use cases devised for westerners unfamiliar with China?
TheKey states it will biometrically verify users in its app. Great. Then it goes on say it will cross-check the biometric results against other major biometric databases in China. The examples it gives are telecoms, credit card, and bank databases.
Last time we checked, you could open a mobile post-pay account in China with a passport. We don’t recall them ever requesting biometric information.
Three years ago, when credit cards entered the Chinese market for the first time, issuers were giving cards away like candy outside tube stations, barely able to capture a name and an address. So, there is no biometric data from that source.
More clarity is needed in this regard.
5. DMI. Does that stand for ‘deeply mentally insane’?
TheKey states its DMI program will go across China, opening ‘info centers’ to gather all the records on citizens from municipal and local databases.
Let’s take a closer look at how that breaks down. China administers:
- 33 provincial level regions
- 334 prefecture level divisions
- 2,862 county level divisions
- 41,034 township level administrations
- 704,382 village level subdivisions.
So, how long will it take TheKey to identify, load up, and standardize all these data?
6. How long can TheKey access government data when its ethos clashes with the government?
TheKey says individual users will have full control over their personally identifiable information (PII). This contradicts the fundamental approach China’s central party wants to take with the social credit system. So, how long will TheKey be allowed to continue gathering data from over 42,000 government outposts when its proposition could be viewed as disruptive to the Chinese authorities?
7. Why does a white paper bursting with product info end with such a blank product roadmap?
8. As Chinese, shouldn’t TheKey know the playground it wants to join is already full?
Early in this review, we noted that China already has reputational Sesame Scores.
In its white paper, TheKey outlined a use case of a hotel calling its API for an identity check. But for the last two years, Chinese consumers have been using their Sesame Scores to book hotel rooms across the country.
Sesame Score is so widely deployed that you cannot obtain a travel visa to leave China, as a citizen, without proving a reliable score.
So again we ask the question: is TheKey capable of stealing market share from Alibaba?
9. Will insurers give you a better price just because they can verify your thumb?
Look at how insurers work in the west. They base their rate decision on your credit score, typically your FICO score, and don’t care none for your thumbprint.
10. Why can’t a world-class engineering team keep an ICO site from falling over?
Pause and have a long, hard think about that. Yes, the site and the white paper look very impressive on the surface. But all that glitters is not gold. Especially in China.