What’s Real and What’s Not in the Blockchain Payment Space



The Blockchain Payment solutions space has recently become a very hot topic, with both legitimate developments and a multitude of questionable claims. This article attempts to separate facts from fiction by outlining the lay of the land and Graft’s competitive positioning based on our view of the space.

With that in mind, let’s start with some definitions of key components of the electronic payment chain:

Payment processor — a service provider that processes a payment authorization, settles the transaction, and deposits a merchant payout.

Payment network — a network (or protocol) that provides an infrastructure for processing payments by coordinating the activity among multiple participating parties.

Payment gateway — a service that provides access to a payment network. These categories are important when deciphering what various providers are trying to do.

Centralized Payment Processors

The first class of payment solutions that are operating today are the centralized payment processors such as Coinbase and Bitpay. To enable crypto payments, these players simultaneously act as a payment gateway, a payment processor, and a clearing house. There’s nothing significantly wrong with this approach other than the fact that 1) it goes against the principles of decentralization; 2) it’s not a network, but rather a single entity; 3) it doesn’t scale very well because a payment processor needs to be able to handle an unlimited volume of the transactions and provide cross-border support; and 4) they represent a single point of failure and, more importantly, a single point of attack making themselves extremely attractive to hackers.

Solution Integrators

Integrators usually take existing blockchains and make them work for a specific use case. In the case of payments, they would be the “last mile” solution for making Dash, for example, work at the point of sale. Integrated solutions usually work okay but they only support specific point-of-sale systems, specific merchants, and have limited flexibility. They also decide who gets to participate in the ecosystem and they essentially act as a bank by fulfilling a lot of the clearinghouse functions themselves.

Payment Blockchains

This category includes legitimate blockchain projects that attempt to facilitate cryptocurrency payments. Dash and Ripple are good examples of payment blockchains, as they have made significant advances in facilitating the use of blockchains for payments. Dash implemented on-demand privacy and on-demand speed, whereas Ripple implemented inter-blockchain swaps.

Payment Networks

Payment network implies that there are multiple participants that are being connected together to form a network. In the case of traditional credit/debit card processing networks, they are bridging the issuing banks, acquiring banks, and payment processors into something that works in the context of a single transaction.


Source: PYMNTS.com

Processing a payment at the point of sale is a complex chain of events that includes obtaining pre-authorization or authorization from the issuing bank through the acquiring bank, putting funds on hold, releasing the payment for settlement, and, finally, clearing the payment by transferring the funds from the user’s issuing bank to the merchant’s bank account.

In the case of cryptocurrencies, use of such a network implies pre-authorization by verifying and placing funds on hold in real-time, transferring the payment from the payer’s wallet in the currency of their choice, converting that currency into the currency of choice for the merchant, and distributing the fees — all this is accomplished by accepting and coordinating services from service providers. This is exactly what a network like GRAFT is doing (while providing integration points for the point-of-sale applications, and in a decentralized manner to boot!).

There’s only one other network-like solution (other than GRAFT) that’s looking to resemble some fragment of a payment network: the Lightning Network. However, the Lightning Network concerns itself with instant currency swaps, without much regard for fees or compatibility with the merchant point-of-sale systems and processes. It also relies on pre-existing payment channels, making it suitable for repeat transactions as opposed to what you would see in the point-of-sale environment.

Suspects

Unfortunately, the blockchain space is rife with projects looking to capitalize on general lack of knowledge to pass themselves off as a legitimate payment solution in order to raise funds. They call themselves payment networks without building anything resembling a network, or a blockchain payment solution without having anything close to a viable solution. Their white papers are usually vague and full of buzzwords with little substance of the specifics of implementation. It’s often painful to watch millions, if not billions, of dollars being flushed into projects that show no signs of real technology or other innovation.

Here are some “giveaways” that can help identify suspicious projects:

  • They are based on ERC20, EOS, or other smart contract tokens rather than dedicated blockchains.
    It’s very easy to create these tokens, but unless the project will act as a bank and take on the brunt of arbitrage in releasing the funds before they themselves collect those funds, there’s no way for them to overcome the speed issue. They are also subject to the underlying network fees that the token is built on.
  • They advertise a “crypto credit card” that can be processed by a traditional credit card network.
    The impossibility here is that none of the traditional payment networks will license anyone but an issuing bank to accept network-backed payments. Unless the crypto credit card is backed by their own issuing bank which gets licensed by a traditional payment network (an unlikely scenario), this claim is quite dubious. Those that manage to pull off this feat will become a single-bank-backed, centralized solution, at the complete mercy of the local regulatory environment and traditional network continuous licensing.
  • They are creating their own point-of-sale devices.
    It’s easy to private label a payment terminal found on Alibaba or similar manufacturer marketplaces. The problem with this is a merchant will not place a new terminal into the store without PCI and other rigorous certifications, not to mention that it would have to integrate with their point-of-sale software. Adding new terminal to a store, or especially a chain of stores, is an extremely difficult and expensive process which implies significant integration, certification, testing, and employee training costs that must be thoroughly justified.

Summary

There are distinct and important differences in payment solutions, with true payment networks providing the most open and flexible option for payment processing, while centralized and integrated processors can provide “point” solutions.

There is quite a bit of disinformation in the cryptocurrency payment processing space, so it’s important to understand how payment ecosystems work in order to tell fact from fiction as you proceed to navigate this treacherous market space.

GRAFT vs. Others

How GRAFT is Going to Conquer the Crypto Payments World. Part 1: Blockchain and CryptoNote

Slava Gomzin, GRAFT Co-Founder

Although we have created a lot of materials explaining GRAFT (both existing features and future developments), including countless technical or semi-technical pages, marketing brochures, blog posts, and educational videos, it’s often difficult to see the whole picture while going through all of the specifics. A focus on the multiple features and their design details can obscure the view of the entire system, creating a so-called “you can’t see the forest through the trees” effect. We are getting many questions from supporting community members as well as potential customers and partners about “the big plan”: what is the ultimate goal, and how exactly are we going to achieve it? Whereas the answer to the first part of this question is quite simple and short, the answer to the second part requires some time and efforts. In this series of blog posts we will iterate through the various GRAFT features and try to explain why they are there, and how they help achieve our ultimate goal: Conquest of the crypto payments world.

Part 1: Blockchain and CryptoNote

Let’s start from the very beginning with the blockchain, or layer one of GRAFT. The blockchain is maintained by a peer-to-peer network of computers, or network nodes. We refer to these network nodes as “cryptonodes” to distinguish them from our “supernodes” (a.k.a. “masternodes” in other networks), which constitute the second layer of the GRAFT network (to be explained in a future blog post). The GRAFT blockchain is based on the CryptoNote protocol, which is the most private blockchain protocol in use as of today. In order to save time and resources, we used the luxury of the open source principle and forked the initial code of the GRAFT cryptonode from Monero — the best implementation of the CryptoNote protocol. In addition to acquiring fundamental privacy features “out of the box”, forking Monero provided a high degree of confidence in our blockchain from day one of the mainnet existence. It’s important to note that the code of GRAFT supernodes, which we create from scratch, is also open source, so essentially everything that we add on top of the previously existing features is also available for others to reuse.

Now let’s go back to the initial question and apply it to the blockchain layer: Why a brand new blockchain and why CryptoNote?

We’ll start with the new, dedicated blockchain: Yes, it would have been easy-peasy to run the GRAFT ICO on ERC20 or a similar token, as most people do these days to avoid blockchain maintenance, mainnet, mining, emission, seed nodes, etc. However, creation of the GRAFT payment network requires our own blockchain because we have to modify the cryptonodes as we develop the supernodes so they will support each other and work together. Without the ability to modify the code, we wouldn’t be able to create the network of supernodes and implement features like real time authorization or exchange brokers on top of any existing blockchain or token platform. In addition, there are features such as payout tokens, loyalty points, store credits, gift certificates, and discount coupons that are required for merchants — all of these are based on the merchant tokens platform, which cannot be built without a dedicated blockchain.

Now for CryptoNote: it’s not just “nice to have”, it is absolutely required in order to be competitive with traditional payment systems such as Visa network or PayPal. Ironically, Visa and PayPal provide much better privacy to their customers than most existing cryptocurrencies such as Bitcoin and Ethereum. Let me explain. When you swipe/insert your payment card at the point of sale terminal, or click the PayPal’s pay button online, there are two entities in the world that are aware of your transaction: the payment network (Visa or PayPal in our case) and the merchant. In reality, of course, there are more organisations that “know” about your transaction because the payment network is more complex. This network includes, at the very least, the issuing bank (the one that gave you the payment card), the acquiring bank (the one that approves the payment), the payment gateway (the one that routes your transaction to the right payment processor/acquiring bank) and the payment processor (which processes the payment and merchant’s payout). However, in any case, this list of organizations is limited because they are under security and privacy regulations, and they have typically implemented some decent security controls that protect your transaction records from prying eyes. Of course, everyone in this list can be hacked or give away your info to a law enforcement agency, but this is a different story (which is, by the way, another good reason to switch to cryptocurrency payments and throw away your plastic cards!). For the sake of simplicity though, let’s assume that random people cannot gain access to your data in most situations.

Finally, let’s see what happens with blockchains. The key innovation of Bitcoin (the first blockchain and cryptocurrency) was the open ledger that is accessible to every node participating in the network because your transaction must be verified to make sure you are not trying to spend your money twice. But this also means that anyone in the world can see your transactions and how much money you have in your wallet! Now, unlike plastic cards, Bitcoin wallets are, in principle, anonymous because transaction records are not directly linked to your identity. At first glance, this feature appears to compensate for the fact that your transaction records are laying there in plain sight on the blockchain for anyone to see. Well, the problem is that there are ways to link addresses to identities. Once this happens, all of your transactions magically become visible forever because the blockchain is always there and it cannot be erased!

Fortunately, there is a solution: the CryptoNote protocol, which hides the sender’s address, the recipient’s address, and the transaction amount , while still preserving the ability to validate each transaction and prevent double spending — and it’s all thanks to advanced cryptography! One day I am going to explain how it works in layman’s terms to unveil the beauty of CryptoNote and its cryptography (the same as I have done to explain RSA and Elliptic Curves cryptography in my book about Bitcoin payments). But for now, let’s just take it on faith that CryptoNote ensures a high degree of privacy for all participants. Moreover, on top of existing CryptoNote features, GRAFT adds even more privacy and hides transaction fees!

Summary of Part 1:

Why a brand new blockchain and why CryptoNote?

The dedicated blockchain allows GRAFT to create a merchant token platform. This is required for features like payout tokens and loyalty programs, and the second layer supernode network, which enables special retail features such as real time authorizations and exchange brokers.

The Cryptonote blockchain protocol provides an absolute privacy to all participants of the transaction, which is required in order to compete with existing payment platforms such as Visa or PayPal that are more private than most exciting (non-Cryptonote) cryptocurrencies.

To Be Continued — Part 2: Supernodes and RTA

Anyone can be an Exchange Broker

Pay-in, pay-out and interchange brokers (aka exchange brokers) are a critical part of the system, and will likely be quite lucrative!

True to decentralization principles we’re also working on making it super-easy to launch an exchange broker – straight from the wallet!

** Exchange brokers are subject to laws and regulations of their jurisdictions

GRAFT files a patent on a Decentralized Payment Network

FOR IMMEDIATE RELEASE

About the Patent

The non-provisional patent application covers various facets of the network, but perhaps most importantly the multi-purpose Supernode layer which acts as the “pre-frontal cortex” of the network, handling super-fast sale and interchange transactions.

Why did we file this patent?

With the recent patent activity in the field of blockchain-enabled payments we felt compelled to protect GRAFT project and its eco-system participants from potential IP related encumbrances. Since it has been close to a year since we published the original white paper, it was the right time to get this done.

We hope the patent will help secure “freedom to operate” protection from patent claims in the future. While decentralization is at odds with patent systems in general, the system participants such as merchants, service, technology, and distribution providers might be interested in getting extra protection in the jurisdictions where they operate.

* Additionally the patent opens up potential licensing opportunities for private (non-competing) uses of the code, providing the project with additional revenue streams to help sustain operations and ongoing research and development.

Pay-in/Payout Exchange Brokers: Design and Economics

As mentioned in the original white paper, the network relies on pay-in and payout brokers to facilitate near instant payments with any fiat or cryptocurrency, and near-instant merchant payouts into any fiat or cryptocurrency. What follows is a more detailed description of how the system operates along with the fees that are present.

Pay-in broker takes a certain amount or risk accepting the cryptocurrency of payment while quickly releasing GRFT in exchange (without waiting for the cryptocurrency of choice confirmations). This risk for broker is mitigated by relatively small(er) retail transaction amounts and is subject to the authorization sample validating the transaction across originating currency network. The risk for the merchant is mitigated by a GRFT bond transaction equal to the amount of pay-in, which is generated by the broker at the beginning of transaction. The bond is put on hold by the authorization sample until the broker approves the altcoin payment to the merchant. As soon as the altcoin transaction (from buyer to the broker) is received and validated, the authorization sample approves the payment to the merchant and releases the GRFT payout (from the broker to the merchant). The broker is able to set different limits for different amounts / history and risk levels.

In exchange for this service, the pay-in broker substructs 0.25% exchange fee from the GRFT payment to the merchant, while the supernodes participating in the authorization sample charge their standard GRFT transaction fee (0.5%).

The following flow (sequence) diagram shows how bitcoin acceptance pay-in broker performs the exchange transaction and accepts bitcoin payment on behalf of merchant point of sale. The buyer can use any wallet supporting bitcoin. The merchant receives payout in GRFT.

Payout broker exchanges GRFT into the payout currency of choice as requested by the merchant. The transaction is asymmetrical – meaning that the second leg of the payment is usually longer (sometimes much longer) to settle on the receiver side. To make sure that the payout broker delivers the payment with no double-spending, the broker stakes a bond with amount equal to the amount of the transaction. The staking is done by putting on hold the GRFT payment from the merchant by authorization sample. If authorization sample detects (after the grace time) that the payout funds weren’t received by the merchant, it cancels the transaction and payout broker does not receive the GRTF payment from the merchant.

In exchange for this service, the pay-out broker receives 0.25% exchange fee. In addition, the authorization sample supernodes charge their regular transaction fee (0.5%).

Same exchange brokers can (and most likely will) alternate as a pay-in and payout brokers. For example, let’s review Bitcoin Exchange Broker (EB) which wants to perform both pay-in and payout exchange operations.

The broker has a Bitcoin wallet with 0.01 BTC in it. The broker receives a payout request from a merchant to exchange 100 GRFT to 0.01 BTC (assuming the current exchange rate is 0.01 BTC = 100 GRFT). The flow of such payout transaction between the broker and the merchant is shown in the diagram below.

The broker accepts the request and sends 0.01 BTC (minus bitcoin network fee) to the merchant, while the merchant generates the 100.75 GRFT payment (100 GRFT amount + 0.25 GRFT broker fee + 0.5 GRFT authorization sample fee) to the broker and transmits it to Authorization Sample. The sample puts 100.75 GRFT transaction on hold and notifies the broker who then sends 0.01 BTC to the merchant. Upon BTC transaction settlement (10-60 mins for the sake of argument and depending on the bitcoin network fees), the 100 GRFT transaction is released and the exchange broker now has the 100 GRFT payment plus 0.25 GRFT profit.

The broker can now switch into the pay-in broker mode. As pay-in broker, the EB receives a request to exchange 0.01 bitcoin into 100 GRFT. The broker accepts this request and transfers 100 GRFT (minus fees). As soon as 0.01 BTC is received, the broker is able to become a payout broker again and now has 0.01 BTC and 0.25 GRFT profit.

Assuming (conservatively) that a single pay-in/pay-out cycle takes 1 hour, the broker can make around 12% in a single 24 hour period (without compounding), making for a lucrative business model for the Exchange Broker* (*estimation only).

Beyond Merchant Payments: DEX

The system described above can function beyond the GRAFT intended payment ecosystem and extend into a real-time decentralized exchange (DEX). Due to the fact that the untrusted exchange operations (atomic swaps) are close to real-time to the outside entity leveraging the GRAFT authorization/validation layer (the network of GRAFT supernodes), the same atomic swaps can be extended to provide real-time exchanges, such as BTC<->ETH.

GRAFT to Release the First Supernode that Provides Real-time Authorizations for Cryptocurrency Payments

PRESS RELEASE – for immediate distribution

July 26, 2018

With RTA Supernodes release, GRAFT makes first step into the era of blockchain being a viable option at the point of sale, providing level of service comparable to that of the credit/debit card networks.

Supernodes (aka Masternodes) are gaining traction in the blockchain space as a mean of expediting transactions. They work by constructing a second layer network around the nodes that maintain the blockchain itself, and are able to provide additional functionality on top of the blockchain such as “off-chain” transaction processing or governance. Supernodes/ Masternodes usually run on a Proof-of-Stake model requiring staking for collateralization, and provide passive income to their owners, which explains their popularity.

GRAFT is building an eco-system of Supernodes – some are used to perform quick (credit-card speed) transaction authorizations, others to provide external system connectivity, yet others to act as service brokers performing currency exchanges and hosting various applications for merchants.

Enabling cryptocurrency to pay for goods and services has been a hot topic recently, with integrated payment providers like BitPay and Coinbase, enabling e-commerce payments via a gateway solution of their own. These services act as fully integrated service providers performing settlement and payout functions. Multiple (predominantly online) merchants have rolled out alternative payment options based on these integrated services, with most notable example of Expedia, however rolled them back citing high unpredictable fees, high risks, and lack of universal coverage. Stripe’s short-lived experiment to offer cryptocurrency payments is another example of the centralized approach failure.

GRAFT is working to give the space an equivalent of a payment network (such as the ones provided by Visa, Discover, and Mastercard) by offering a network fabric that connects gateways and services together, crossing locales and making sure the network works with existing point-of-sale solutions and payment terminals. In fact, GRAFT utilizes the recently added ability of the leading payment terminal networks to run 3rd party applications on their platforms. Most notable is GRAFT’s integration with Verifone’s Enagage line of terminals.

“GRAFT’s solution makes a lot of sense both technically and economically, staying true to decentralized model of cryptocurrency, and enabling regular people to service various parts of the network. We look at it as people ARE the network.” – said Dan I, one of the GRAFT Blockchain project leads. “At the end of the day the network functions – hosting blockchain nodes, doing authorizations / validations, providing exchange services, ensuring compliance, taking care of distribution and support, and even offering credit is best done by lots of individuals or small businesses and that’s the promise of ultimate decentralization”

GRAFT Network was originally conceived by Slava Gomzin, author of “Hacking Point of Sale” and “Bitcoin for Nonmathematicians” – some of the seminal work in the point of sale and cryptocurrency spaces. The network is designed to address all issues that cryptocurrency faced at the point of sale – speed, fee, and privacy, while taking advantage of the “smart” nature of digital money backed by the smart contract capabilities. The project is an open platform / open source and the network is free to use with the low 0.5% network fee paying the Supernodes for their service.

The RTA Supernode alpha release is scheduled tentatively for August 1st and will be released on a TestNet with the RTA test volunteer team. To sign up for Supernode testing, follow the link

More information about GRAFT Blockchain can be found on WWW.GRAFT.NETWORK

GRAFT SN RTA Alpha Testing

Dear GRAFT supporters, the first Full Supernode with RTA is quickly approaching and we’re super-excited about nearing this huge and ever-so-important milestone! Since many of you have expressed interest, we’d like to solicit your participation in the alpha testing. We’re looking forward to this exciting time!

Participation rules

  • Alpha is limited to 50 active geographically distributed participants
  • Participants are chosen on first-come-first-serve basis once basic requirements are met
  • If a participant become inactive over 48 hours, they can be replaced by alternates from the backup list

Qualifications

  • Have power user working knowledge of Linux
  • Know how to compile software
  • Are available for testing for the next 30-60 days

Process and Expectations

  • Run tests as directed by the team (e.g. carry out sales transactions, connect/disconnect nodes, run various kinds of error simulations)
  • Report results back in clear English
  • Document and submit bugs in GitHub
  • Test stake will be distributed according to test plan

Minimum Hardware / System Requirements

  • Physical or Virtual server with the following specs:
  • OS: Linux Ubuntu 18.04
  • CPU: 4 cores
  • RAM: 8 GB Hard Drive Space: 10 GB
  • Fast Internet connection (no dedicated public IP required)

To apply

please fill out the application form. If you’re selected, we will contact you with instructions in the weeks leading up to the RTA alpha launch.

Cryptopia Announcement

As you may have heard, GRAFT is getting listed on Cryptopia. The trading is schedule to start in a few hours, around 4am UTC on the 18th of July 2018 with the following trade pairs will be available – GRFT/BTC, GRFT/LTC and GRFT/DOGE.

Here’s the original announcement.

Cryptopia is a very reputable exchange located in New Zealand and a solid potential partner for parts of GRAFT network – we’re VERY excited about working with them!

One thing to note is that currently Cryptopia has a deposit wallet set up as a non-integrated address, with payment ID as a separate field from the wallet address. This is an older way to do it and is incompatible with the mobile wallets which expect an integrated ID.

We’re working through this issue with Cryptopia, but for now, the deposits are only available from CLI wallets. (warning: Cryptopia uses paymentID for user identification, so if you try to do a deposit without specifying PaymentID, it will be lost)

Verifone Certification Status Update

After working closely with the Verifone team over the last six months on developing and certifying GRAFT Network integration using Verifone’s brand new Connect application platform, we’re proud to announce passing of the main phase of the rigorous certification process as of the end of last week, making GRAFT one of the first applications on the platform and first one to enable cryptocurrency payments using Verifone’s interactive series payment terminals.

The integration app is running on the RTA Testnet, so not yet compatible with the Mainnet (pending Full Supernode release), and some of the configuration options are pending Verifone platform updates. However, merchants and other eco-system participants can start testing things out in preparation for the launch on Mainnet.

Overall, we’re very happy to be partnering with Verifone, excited about the push into enabling alternative methods of payment and other interactive applications on their formidable new terminal platforms.

The payment terminal space is quickly emerging and going through a transformation of its own, both on the device level with a “Single Unit” (POS/Terminal) conversion and on the software level with application platforms, opening up greater possibilities for innovation!