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CellBlocks And Financial Challenges Facing Prisoner-Specific Cryptocurrency

By

Alison

Berreman

WriterETHNews.com

Wardens and inmates alike support a prisoner-specific Ethereum token. So why hasn't it taken off? The short answer is “money.”

In the state of Washington, if you want to go online and send $25 to a loved one in prison, it will cost you $7.95. By phone, it's $8.95.

JPay, the company offering payment services in Washington, operates in 33 state prison systems. Its parent company, Securus Technologies, services facilities in 47 states. Transaction fees vary widely, but a 2014 report stated that JPay's fees were as high as 45 percent in some states.

If you would prefer to avoid JPay's high transaction fees, you could always send a check in the mail, but this may take several weeks. Another option is to send funds via a money transfer company, such as MoneyGram. This requires you to go to a physical location, but transfers are fast and, depending on how much you want to send, relatively affordable: apparently, a $10 flat fee for MoneyGram transfers up to $5,000. You could also employ a wire transfer, though the average fee is $25. Though, of course, depending on the institution, you might not get a choice at all: Some institutions require all money to be sent through only one designated payment system, like JPay.

Sending money isn't the only flaw in the current arrangement. A cursory Google search reveals that correctional officers and other prison staff often steal money and other items from inmates. Additionally, there seems to be no way to facilitate inmate-to-inmate transactions, other than through bartering. Of course, the problems with this are the same as any barter system: difficulty in storing wealth, lack of standard values, lack of double coincidence of wants, etc.

One company, CellBlocks, thinks blockchain technology can offer a solution. CellBlocks offers an ERC20 Ethereum token (called CellBlocks, or CLBK) designed for use by persons who are incarcerated. The technology would allow people on the outside to cheaply and quickly transfer money to internees, allow inmate-to-inmate transactions, create a way for convicts to store wealth accumulated through inmate-to-inmate transactions, and eventually, allow inmates to purchase goods from the commissary.

"We are trying to change the prison system, bottom line. It's not a small feat," CellBlocks founder Jonas Brown told ETHNews.

CellBlocks is a utility token and is only for use by inmates; no one else can possess them. Brown explained, "If you wanted to buy the tokens, you could, but you would be sending them to an inmate."

He says the wallets would be tied to a static IP address, and the coins would only be accessible through kiosk machines inside each prison. However, the tokens would be accessible in any prison that had a CellBlocks kiosk, so inmates could keep their money as they transferred from prison to prison, or they could transfer funds to inmates in other prisons. Of course, for this to work, CellBlocks would need to be widely implemented.

It seems there is a good deal of support for the idea. Brown said that the assistant warden at San Quentin and the Nevada director of prisons were excited by the prospect of being able to see how money flows inside the prison, and that this might help improve security in the institutions. On its website, CellBlocks features a number of letters from wardens and prisoners alike who champion the project as a replacement of the current monetary system.

CellBlocks is in the process of trying to sell its services to state prisons. The primary appeal to prison authorities, however, is also the sticking point: money. Brown says the Ethereum-based token system could save states "hundreds of thousands of dollars a year once it is fully implemented." He explained to ETHNews that the state would charge about a half a percent fee on each transaction, which would be significantly lower than any existing payment options, but the profit would go to the state rather than to an external financial institution like JPay or MoneyGram. Additionally, CellBlocks would save the prisons money because it would minimize the need to process the thousands of checks that inmates receive each month through the mail.

In order for the plan to work, the token would need to hold a relatively stable value. The standard, most well-known way to raise capital for a blockchain project and determine the value of an ERC20 token is through an ICO, but there are a lot of flaws that come with this method. A huge majority of ICOs fail –too often, the issuer lacks proper economic planning, investors are ignorant, and, in some cases, issuers maliciously release misleading white papers and have no actual product or adequate business structures.

The original intent was for CellBlocks to conduct an ICO. The company launched its offering in April but, according to Brown, it called off the sale prematurely and is now seeking private funding. Brown explained:

"We stopped it because in talking to some of the legal [advisors] that we had, a lot of these people in the Department of Corrections [DOC] do not know what ICOs are [and how they work] … and the other reason was because we didn't want investors … to be dumping the tokens and drastically impacting the price of the token by the people who don't have the access to do that. So, we took all of that away."

Considering the utility of the token, it is difficult to see how the company ever considered an ICO a viable, practical, or ethical means to give value to CellBlocks. Inmates are one of the most economically vulnerable populations, and cannot afford to lose their extremely limited means if the tokens fail and lose their value.

For investors, purchasing coins in the CellBlocks ICO seems like it would have been a moral and financial trap. They would have essentially been staking bets in a high-risk investment with serious economic and social implications. Investors couldn't have used the tokens, and if the tokens did poorly, investors couldn't have sold them off without further damaging the economic well-being of an already vulnerable population. All of this before CellBlocks even has a deal with a state DOC to implement a pilot.

Brown told ETHNews that the company had been in conversations with the Nevada DOC, but was ultimately turned away until it could provide a financial safety net for prisoners. Now, CellBlocks is working on bringing in private funding to create a 12-month reserve to back the tokens for the duration of a pilot program. However, he says, Nevada is not the only state the company has been in communication with. Along with offering a reserve to back the tokens, Brown says CellBlocks will pay for the kiosks, effectively making the program risk-free, at least for the duration of the pilot. He hopes this strategy will be enough to "sweeten the deal," and get a state to sign on.

After the pilot, assuming it is successful and the program is implemented in other prisons across the state, CellBlocks would start selling the idea to other states. The privately funded reserve pool would be returned to the investors, participating prisons would pay for their own kiosks, and the system would be left to fly or die. Though, as Brown pointed out:

"This ain't like every other cryptocurrency out there … the prison is not going to allow for 3, 4, 5, 6 different tokens – they don't need it. One will do the job. They are not going to have 3 or 4 kiosks set up in their system for different tokens. The first one in there – the first one inmates recognize and adapt to – that's the one that will prevail."


Alison Berreman

Alison is an editor and occasional writer for ETHNews. She has a Master’s in English from the University of Wyoming. She lives in Reno with her spouse and growing animal family. Her favorite things to do include binge listening to podcasts, getting her chuckles via dog memes, and spending as much time outside as possible.

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