Digital DisruptorsTechnology

The Cryptocurrency Ecosystem and What it Means for the Payments Industry

In the previous introduction we describe the innovation ecosystem as the second main component part of a crypto strategy for Canada.

The basic concept is eloquently explained by Anthony Pompliano.

In this discussion, from 9m:50s, he describes a tiered financial system that builds upon gold as the foundation asset at level one, the issuing of cash money based on its value at level two, and then an increasing sophistication of electronic use of money at levels three and above.

He states that the cryptocurrency world is in the process of creating an equivalent system, where Bitcoin functions as the level one asset, aka “digital gold”, and we’ll see a comparable services ecosystem build upon it through layers two and above.

Vendor technologies like Hiro demonstrate a great example of this effect, providing the tools to build upon this layer with new applications, with major market innovations like Mastercard planning to build upon CBDCs, like launching like a crypto rewards card, a great example of a level three service.

In China they are already active and the competitive repercussions are becoming evident. As the Cointelegraph reports the banks are promoting the CBDC, the ‘digital yuan’, over the incumbent payment providers like Alipay and WeChat Pay. has started paying staff in the digital yuan.

Open Banking

As we consider the dynamics of building a Canadian ecosystem a key industry trend to factor in is Open Banking.

This intersects considerably with the crypto sector, particularly in areas like payments as highlighted above, and for Canada it is a domain needing urgent attention and impetus or they risk being left behind. Again the parallel development required includes regulatory legislation, so it presents an opportunity to kill two birds with one stone.

Matthew Enubuje provides a helpful overview of where the two sectors overlap, and the potential for their synergy.

He makes the key point that reflects the insights described by Anthony Pompliano, that where the Blockchain industry has excelled at the level one core digital asset infrastructure, they haven’t been as progressive in terms of developing the higher layer of interconnecting, value adding apps. Open Banking has.

The advantages of crypto over Open Banking are mainly those to do with circumventing the banking system and the technological features of the Blockchain – The decentralized control of assets by users themselves not banks, and the transparent integrity of the transactions.

He describes the opportunity for the crypto industry being to basically expand to the higher levels of the ecosystem introduced in this article, citing examples such as Nexo, a crypto lending platform with no credit checks and instant credit lines, and where their revenue comes from their 5.9% interest on loans.

This adds equity to their crypto as it can be used to get a loan and by users holding it for long periods, they receive 30% dividends and this offsets the demand to supply ratio.

Matthew suggests a few other examples of this ecosystem, such as Helium, a crypto company distributing hotspot devices and people earn their crypto when they use it, and the mobile app Emma — it lets you connect to your bank accounts and crypto exchanges.

The killer innovation central to both trends is interoperability. Open Banking is achieved through API-based data flow between banks and apps, and for crypto cross-chain integration is the holy grail of its next major phase of evolution. The CoinTelegraph explores this in detail here, with major innovations setting out to address the challenge including Cosmos.

The Future of Money – Programmable Money

A concept that brings all this together and paints a vision of the future of where it is headed is “Programmable Money”. This is not just about the straight digitization of money as we understand it, but an entire transformation of how money ‘works’.

As the term suggests it refers to creating an intrinsic intelligence for money. Reporting on IBM being awarded a patent for a “bespoke programmable crypto token,” Cointelegraph explores how specific functionality can be programmed into the behaviour of digital monies.

The LSE explores the idea, asking ‘Do we need programmable money?’, where they define it in terms of both Open Banking and crypto:

“In non-crypto fintech, ‘programmable money’ seems to refer to leveraging open banking APIs to build new, automated use-cases over legacy bank payment infrastructure but in our crypto world, the ‘programmable money’ refers to digital cash hosted on a blockchain, where cash can be placed under the control of a smart contract.”

Hence a key standard that could make it possible is ‘DAML’, a programming language for creating Blockchain smart contracts that run across multiple infrastructure options. DigitalAsset is the world’s expert on this and explore the trend in more detail in this series of blogs.

Not only does this provide the technology to digitally enable currencies as they behave now, but to make possible a future of Programmable Money, where a variety of behaviours and actions can be coded into the flow of money not possible with physical currency.

A Canadian visionary in this field is Alex Tapscott. Indeed he defines it as the wholesale reinvention of capital, a journey he foresees in his 2016 presentation ‘Blockchain is Eating Wall Street‘.

“Digital assets are smart and programmable. Let’s say you’re sending money to your kid studying in college. You can now program the money to only work at certain retailers like Walmart and Whole Foods, rather than the Ontario Cannabis Store or LCBO.

By rethinking capital, we can reimagine markets, money and finance. Entire swaths of the financial services industry currently worth trillions of dollars — banking, payments and even money itself — will be questioned, challenged and upended in the years to come.”

How Canada Could Transform the Payments Industry

In conclusion the potential for Canada is aptly presented by Alex’s father Don Tapscott, Canada’s uber digital guru.

Speaking at Payments Canada in 2017 Don envisions how the Blockchain Revolution could enable Canada to pioneer the reinvention of the payments industry. Blockchain is a technology that represents nothing less than the second era of the Internet and it can be at the heart of a new financial system.

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