Onchain Payments: The Reluctant Low-Hanging Fruit

Transcript

ladies and gentlemen I'm going to introduce our first Speaker of the afternoon uh he's going to be talking about how to connect blockchain and payments please welcome to the stage Stefan George yeah thank you for the warm welcome uh I'm Stefan George co-founder of nosis and today I will talk about payments and that is not not my screen no it's not my screen it is not my computer okay great

awesome so why are we talking why do I want to talk about payments well payments actually was the original use case for blockchain now if you think about like when satosi Nakamoto wrote the Bitcoin white paper he described as a peer-to-peer electronic cash system and we all know that the kind of famous first actual like real transaction on bitcoin was a purchase transaction buying a pizza with Bitcoin it turned out to be a very expensive transaction but today actually if you think about like who's actually paying crypto for buying anything no one does so somehow even though the original idea was to actually build an alternative payment system this never actually happened and

today I want to reflect on like why and why I think it's about to change so if you want to actually tap into payments you're facing a lot of different challenges and for a long time uh I think the number one challenge was simply scalability yeah even today if you would like to run something like Visa uh or Mastercard on the blockchain you are facing insane scalability issues I mean we all know uh ethereum itself is running at capacity uh for the last couple of years um and it's not going to change there's no perspective on this actually increasing in terms of number of computational space so the idea is

okay we we kind of move it to layer twos um Bitcoin is trying to do kind of something in the same direction with lightning but even those face scalability issues so Bitcoin like if you ask Bitcoin people how do you use Bitcoin for payments they will always refer to the lightning Network work but in fact you can do like a very simple nepin calculation if you try to actually open a payment channel uh for for every person on this planet and just simp like once and close it uh after like 80 years it would not never be possible to actually do this for everyone on this planet so it's just like the capacity of Bitcoin would never be able to even onboard a tiny fraction of the humanity to Bitcoin in order to use bitco in

order to use lightning in ethereum we are propagating there twos um but in fact also layer twos are facing quite severe limitations um can look at like what are the transaction costs that we actually paying right now and well transaction cost for for Bitcoin and ethereum they're both very high so and this is important also for the layer two narrative because ultimately we looking at here like right now we see yeah the fees for on layer twos are significantly lower compared to ethereum for swapping tokens or sending ether but they're still tied to the layer one blockchain so any transaction that you do on the layer two in ethereum ultimately um data availability has to

be on chain on the layer one and on the layer one again we are coming back to the same scalability issue as described before where well you have to pay for transaction costs on the layer one and even if you are introducing changes like the upcoming EIP 4844 Protank charting we can kind of decrease those costs but still there are significant costs and if you think about payments and if you do like think think about buying like a coffee or like doing smaller transfers then any kind of fee that you add to the transactions are very significant it will make those networks not viable for the use case of simple payments can give another example just

to to show the limitations of our current systems yeah in ethereum we have this very popular application ens names and um well let's assume 10% of the world population would actually like to have an ens name so we would have about 800 million names then if you would run ethereum at full capacity it would take two years of the full capacity of ethereum to even process these transactions to have those names registered I'm not talking about kind of uh topping up like renewal fees and so on just simply registering those and so yeah we are facing still very significant issues another problem with payments is uh volatility of fees right now every blockchain is operating using a fee

market so if they basically have a constant demand of blockchain space um and there is a volatile demand hitting those this constant Supply sorry and that leads to volatility in the price of those fees now that's something that also doesn't really work for payments you don't want to pay more for your coffee if a lot of people at the same time want to buy a coffee just because uh the network runs at capacity so all of those constraints just don't really make sense in the context of payments another big issue is simply regulation for you in order to do payments obviously you need to use some tokens that you can easily relate to so the reason why US dollar and Euros are used for payments is because you can

easily associate what is the value of what you're actually paying for and um well we have a history of different stable coins being issued uh the one of the first was actually tether since 2014 it's even today the most dominant then we had D being uh started to to be issued in 2015 2018 usdc came into existence then binance USD followed and then we had a lot of experiments like us trying to innovate in the space and yeah it turned out that even the more conservative ones like usdc were not as stable as we expected and uh there generally still like some mistrust um by

consumers but also institutions and and other parties that are relevant for payments in order like if those are actually sufficient for us to be used in the context of payments obviously there's a lot of regulatory scrutiny and yeah we need to we need to innovate on this level also in order to actually make uh payments a thing other big issue self- custody well obviously like uh I think in order to onboard a lot of users to crypto um yeah the current way of onboarding users to wallets is not the way to go account abstraction is a big topic there some people from safe here you should talk to them you're working on solutions for account abstraction there are solutions

but the facto today most users are not using them and we don't we don't have any clear like path for wallets right now or like any wallet I would actually say is ready for Mark Mass market adoption the other issue is that if you look at payments they're kind of solved obviously we all do payments and if you kind of compare like how many blockchain transactions do you actually do on a daily basis versus how many times do you swipe your car to pay for something it's very obvious like we all do a lot more payment transactions than blockchain transactions that's also simply because um ux of payments is actually very good like it's very convenient to pay and it's really hard for us to create

something that can be on par or potentially even better the other issue is obviously for payments this is kind of a two-sided Marketplace you have on the one hand on the one hand you have clients that want to pay on the other hand you have Merchants that have to accept payments and well right now the amount of merchant that actually willing to accept crypto is very small um and we have to find a way to kind of tackle this problem to not have to grow the merchant base at the same time as as a customer base in order to make it successful so why do we still think we should talk about this and try to solve

it because there's also a massive opportunity because payment s are done today also face many issues if you look at payments today then we can see two things one is the front end for payments has been constantly innovated so we started with the dinos Club cards then the Bank of America card and then well today we have like apple card and um yeah like we see it constant Innovation on the front end level and it becomes more and more convenient for users to actually interact with payments on the other side if you're looking at the backend side like what's actually happening in the background whenever you

do a transaction then we see that this became increasingly complex with an increasing amount of middleman trying to benefit from every transaction that you're doing so obviously ideally there would be a peer-to-peer transfer or like there would be a transfer between the two parties actually want to do the transaction the customer and the merchant but in fact because there's so many parties involved in issuing and processing and acquiring that these transactions become increasingly complex and every of those parties will try to get their share of the transaction so if you do a transaction today probably about 5 to 10 uh parties are participating in benefiting from what

you're doing and the fees that are being charged on those networks meaning we're talking always about removing the middleman this is the prime use case like there's literally so many middleman every transaction that should eventually be eliminated so now I talked a lot about problems how can we actually solve this so fortunately there are Technologies being developed uh by us and Clos parties that can help us step by step to tackle each of those problems one very important problem is kind of related to also the stable coin part is the way for users to actually enter blockchain and exit from

blockchain and have value represented on blockchain that they can actually relate to and we're working together with a very cool company on this called monium which offers the best in class uh on and off ramping the way it works is that every user that has an account with monium gets actually an iban issued and if they want to onramp what they can do they can simply do a bank transfer to their newly issued iban and monium will issue Euro tokens on chain for this user at no cost so it's an OM ramp where the user has zero cost where with Seer instant you can do this onramp

within half a minute in the best case scenario and you have a vanilla esc20 token on chain that has no restrictions whatsoever for defi so that's a great user experience important also to understand monium has something called e-money license so what is actually being issued on chain is can be considered like cash so it's actually regulated but in a way that still allows us all the flexibility to use this money on chain in defi the cool thing is you can also do it vice versa you can actually also offboard very easily uh by doing an onchain transaction you're doing an onchain transaction that will effectively burn the EUR e that you have

in your account and do a sap transaction to any account you would like to send money to also at no cost so in summary like if you are in Europe and you want to cash out go over monium because you save money and time compared to any centralized exchange to make it really straightforward we actually built a very simple UI that allows to combine this exchange experience so you can go from any network from any token directly to your bank account and you don't have to go over any centralized exchange you don't pay any exchange fee and it can be done within a minute as soon as the blockchain

transaction is is is um is sent and Min the bank transfers is triggered this is something is currently under developing development but hopefully we can launch it around ECC so this is kind of the onof Run Part for just getting tokens on chain obviously what I actually talk about is payments so how do we solve payments self custodial payments and why it's actually a thing so we saw like kind of last year as a prerequisite for this was a year of self custodia wallets yeah we saw a lot of centralized institutions and exchanges

failing which actually led to a massive increase in self- custodia wallets being used yeah we saw like when FDX happened we saw within 24 hours billions of dollars leaving other centralized exchanges such as binance uh to self custodial wallets and the save hand like alltime adoption right now we see there's a clear Trend clear awareness you should not trust those institutions you trust should not trust centralized exchanges you're taking an unnecessary risk compared to actually having funds in your own control so obviously this is kind of a very important trend for us to do the next step to allow self- custodial payments and this is exactly what we're

working on uh at nosis right now uh we call it nosis pay and no pay is the first decentralized payment Network that tries to completely remove the barrier and the gap between real world payments and blockchain as it is today nosis pay itself operates as a layer two on top of nosis chain which allows us to have the scalability and the feeless experience that is needed for everyone to Simply do transactions as they're used to and to make it really obvious we're creating the first product which is the nosis card which is the first non-custodial Visa debit card you can use this card with funds that you have directly on

chain but you can use it anywhere where Visa is accepted so from day one you have 80 million Merchants where you can use your crypto anywhere with the same user experience as you had it before and also works with Apple pay and everything else that you had before we Tred to make it a very open network so obviously we at the very beginning and the launch is still to uh to to be done in a in like about two weeks time but we want every one of you to join this effort to build the experience about payments non custodial payments and um what we take care of to make sure that all the other parties from the Fiat world are are fine with

like operating under these assumptions meaning we make sure that all the funds which which are on the decentralized payment Network can actually be used in both worlds like they fulfill the criteria to be used in Fiat and they of course fulfill criteria to be used anywhere in crypto as well and yeah I would like to invite you to join uh the wait list you can go to nosis pay.com right now and you can sign up um to be one of the first to receive this non-goal payment card and uh then hopefully all of us will actually do a lot more on chain trans ctions uh and I think we can do a lot of great Innovations because I feel we have been innovating a lot in our space we have

been creating a lot of amazing defi tooling especially but so far it is only really accessible to very few people that are directly in our space I think with these kind of Innovations on the I would say almost user experience side we can then make it much more accessible to everyone and uh yeah so we're going to launch in Europe but we also prepare everything already to be also available in the United States and in many other countries on this globe so yeah it's an exciting Journey um we will have more information at ECC in about I think 10 14 days um so I hope to see you there as well and now I'm happy to take any [Applause]

questions has someone okay I think you can just ask your question that's right so sa transfers are insanely cheap it's a fraction actually of a scent and it's kind of bizarre if you think about how much you actually have to pay as a customer or as a merchant ultimately as a customer for every transaction right like transaction cost that the customer pays about maybe in in Europe is maybe 20 basis points in us it's it's much more than this but the actual like transfer within the bank is

very very cheap so the way Monaro makes money right now is thanks to the increasing interest rates the Euro that you are sending to them they are allowed within the e-money license to invest into short-term bonds and that allows them to subsidize all the services they are offering like the sa transfers and everything else because sa transfers are insanely cheap iins are also relatively cheap to maintain so these costs are pretty low and it's just a very good example of like how much value extraction happens on top that actually is not really Justified where just very few parties are really exploiting their

Monopoly correct right right right yeah very good question so I I rev the question the question is like I mentioned the nosis pay Layer Two on top of nosis chain is Fess so in contrary to every other network the user is not paying a fee to actually like do transactions um how do we prevent spamming that was the question so right now we're using basically like common techniques from the web two world to prevent spamming and of course we also uh like users that are operating on the network we can rate limit um and so far we have not been

facing significant issues with this I think it's an evolution but uh we see the potential to actually keep it feess and um the question is also generally how do we scale I mentioned at the beginning layer twos are also very very limited actually in how they can scale um the way how we how we see this progressing is that we have kind of horizontal scaling where we have multiple layer tools for different regions operating in parallel because usually like um payments are happening in like more Regional like you as a customer you mostly interact with merchants in your area so it's easier to kind of Shard users across those different regions and have multiple

layer tools operating parallel right I mean right now it's fully subsidized by us and uh well the I would say the the great thing is it talked about payments there's a lot of fees involved so there's actually a very big pie of money that is currently made by someone else and now we can start kind of redistributing this I would also not foresee that nosis pay will will drastically decrease like cost for the end user at the beginning um or also for the merchant but will allow us to grow the ecosystem first of all and reinvest this money in order to grow the ecosystem around the actual

decentralized payment Network so again oh oh of course absolutely so I actually forgot one very important Point uh which is every user operating on nosis pay is operating via a safe account so on nosis pay also account exraction is built in through save accounts so save is actually very important for this in the future um I mentioned right now we basically accept stable coins for payments but in the future of course

users will probably want to use any kind of token which will require the processor to rebalance eventually I think that's that would be the time to probably bring cow swop into into this equation as well so I I think all of this will grow into effectively one ecosystem in the future and what's the size of the opportunity if you can share because you said it's huge right didn't good question uh next to you sit someone who actually works with us who's from payments but I mean just uh the the the revenue that uh visa and MasterCard are making is for me the opportunity size and that's obviously in the I don't know 100 billions so it's like a massive

Market just in terms of Revenue that they're making of course the profits are way lower uh but they're massive companies and each of those has a much higher market cap than ethereum has today so that's basically the opportunity very good question assume yes correct very good question so question is like um what are the security assumptions of the layer two on top and how do we make sure we staying compliant so of course we we work quite

conservatively especially at the beginning so what we did is uh we took optimism we are operating the sequencer which allows us to have control over transaction ordering while still having a non-custodial environment uh how do we make sure we are compliant any funds that are entering the layer 2 go through a kyt process so you can think of the layer 2 as a trusted space where all the funds that you can have in this layer two are compliant to be used in the regular Fiat world as well okay I think I have to stop thank you thank

[Applause] you