Exploring Cryptocurrency Remittance

June 2014

Doug Sharp, Dan Cocuzzo, Justin Maletsky, Alex Marlantes

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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

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Remittance as a 2nd Generation Technology

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Ronald’s Problem from Bitcoin in Uganda: Empowering People

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Unfounded Hype or Legitimate Technology?

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Technology Takes Time: BitPesa Launches 2 Weeks Ago

<- Existing ecosystem to

build from

<- Regulatory hurdles

<- Stability and mining

infrastructure

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Future Outlook Uncertain, but Optimistic

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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

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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.

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Appendix

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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

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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

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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

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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

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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