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Exploring Cryptocurrency Remittance.
Citation preview
Exploring Cryptocurrency Remittance
June 2014
Doug Sharp, Dan Cocuzzo, Justin Maletsky, Alex Marlantes
2
Existing Landscape of Remittance Providers
Incumbents • Banks (existing payment rails), FIs • Western Union, Moneygram Benefits • Brick & mortar intake/distribution • Known, trusted Considerations • Need globally connected system • Cost: 8-10% of transfer value • Lag: can take 2-5 days to clear • Banks require accounts
Upstarts have entered market • WalMart • TransferWise, Xoom • Credit card networks – V, MA, AXP • Cryptocurrency-based
3
Remittance as a 2nd Generation Technology
4
Ronald’s Problem from Bitcoin in Uganda: Empowering People
5
Unfounded Hype or Legitimate Technology?
6
Technology Takes Time: BitPesa Launches 2 Weeks Ago
<- Existing ecosystem to
build from
<- Regulatory hurdles
<- Stability and mining
infrastructure
7
Future Outlook Uncertain, but Optimistic
8
Regulatory Case Study: Coincove
Know Your Customer • Uses a third party API to confirm identity • Collects passport/drivers license before fulfilling orders • Collects proof of mailing address via utility bill
Anti-Money Laundering Policies
• Confirms identity before confirming orders • Provides identity information to regulatory authorities • Can refuse any transaction • Monitors transactions for suspicious activity • Provides transaction data to authorities
9
Technical Challenge: Identity Management & Verification
• Blockchain technology allows users to utilize public key cryptography primitives to publish and manage their own identity information.
• No inherent certainty or central authority for dispute resolution; probabilistic notion of identity by cross-referencing.
• NamecoinID and OneName built atop NameCoin blockchain to manage identity information: email addresses, Bitcoin/Namecoin/*coin wallet addresses, GPG key, XMPP address, etc.
• Future outlook: regardless of the platform, once enough users add information to a block chain mechanism in a standardized format, services will let users sign in using their decentralized identity.
10
Appendix
11
Existing Landscape of Remittance Demand
Large TAM • $436bn of remittances to developing countries
• Growing ~8% p.a. • Larger market if developed countries are
included
Concentration
o 40% of value sent to India, China, Philippines and Mexico
o Creates opportunity for niche product launch into single, large market
12
Current Platforms, Tech, & Players
• Existing BTC protocol and network well-suited for remittance payments; higher-
level applications can be developed on top as needed
• A common trend in remittance startups is to focus on specific markets.
CoinCove (Mexico), CoinFling, BitPesa (Kenya), etc.
• Most platforms allow senders to link with existing bank accounts to purchase
bitcoins. Recipients may withdrawal to a bitcoin wallet or convert to local
currency
13
Technical Challenges
Identity Management
• Regulations (KYC, AML, etc.) require institutions to perform due diligence on customer identity and collect information
about customers that wish to participate in financial transactions
• Bitcoin provides pseudonymity through wallet addressing
• Is it a good idea to bake real identities into transactions?
Security & Trust
• Senders/recipients of remittance payments rely heavily on the trust and security of the system to avoid fraud, especially
true in areas with poor technological and financial literacy (prefer cash).
• Hacks / other incidents (Mt. Gox) are harmful to public perception of Bitcoin as legitimate, safe asset.
Technology adoption and education among target users
14
Distributed Identity Management…in the Cryptocurrency Ecosystem
• Use Public Key Infrastructure to allow users to publish and control their identity information
• No inherent certainty or central authority for dispute resolution; probabilistic notion of identity
o 3rd party services and channels may be used for cross-referencing (i.e. social networks)
• Namecoin: key-value store as a mechanism for registering, updating, and transferring information based
on Bitcoin
o Allows for creation of globally unified namespaces (domain system, personal identity)
o Does not define the format of an identity, only the consistency / consensus mechanism
15
Distributed Identity Management…in the Cryptocurrency Ecosystem
Namecoin ID (www.nameid.org)
• User identity can be composed of email addresses, bitcoin/namecoin/*coin addresses, gpg key (fingerprint), xmpp
address, and other things (uses Namecoin blockchain)
OneName (www.onename.io)
• Uses links to/from accounts on social networks, organizations, and other digital services to verify user identity (uses
Namecoin blockchain)
BISON by Jumio NetVerify, BlockScore
• Services that advertise user verification and vetting for digital transactions with compliance
• Unclear if they actually use blockchain technology or act as 3rd party central authority
Network Effect ~ regardless of the platform, once enough users add information to a block chain mechanism in a
standardized format, services will being letting users sign in using their decentralized identity
Identity verification mechanisms will be crucial to provide trust & compliance for Bitcoin remittance services