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The Role of Decentralized Payment Platforms in the Internet of Valueby@mkaufmann
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The Role of Decentralized Payment Platforms in the Internet of Value

by Matthew KaufmannMarch 21st, 2024
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Looking at the role of decentralized payment protocols in the internet of value.
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The idea behind the Internet of Value (IoV) is that money should be able to be sent as quickly as information, with the help of cryptocurrency and blockchain technology.


This change is similar to how the internet changed the way people share knowledge. The internet made it possible to instantly send and receive information around the world. Cryptocurrencies and blockchain aim to do the same for value, making transactions faster and more transparent without the need for middlemen.

Decentralized Payment Protocols in the Internet of Value

Decentralized payment protocols are an interesting shift in how we handle digital transactions. Instead of relying on centralized systems or sticking with the isolated nature of traditional blockchains, these protocols aim to streamline things by cutting out the middleman and allowing transactions to happen directly between peers.


The idea is pretty simple: decentralized payment protocols use a network of nodes to verify and validate transactions instead of a single authority overseeing transactions. This decentralized approach contrasts with traditional systems, where banks or other central entities usually handle transaction processing, often leading to delays and extra costs.


What's intriguing is how these protocols are designed to work across different blockchains, a big departure from how things typically operate. This interoperability means you can move your assets between various networks more seamlessly without relying on third-party exchanges or complex conversions.


Security is also a key consideration. While some systems heavily depend on smart contracts to enforce transaction terms, decentralized payment protocols take a different route, aiming for simplicity and robustness. They use advanced cryptographic techniques and consensus algorithms to ensure secure and reliable transactions.

How Decentralized Payment Protocols Work Within the IoV

Decentralized payment systems make it possible for money to be sent quickly and easily across the internet by leveraging blockchain technology. They are also pretty versatile, catering to different needs, including the integration of cryptocurrency payments for businesses.


Below are some examples of decentralized payment platforms and how they enable the transfer of value across different use cases.

How RippleNet Enables Cross-Border Payment Solutions

RippleNet is a platform that enhances cross-border payment efficiency through its messaging, settlement, and foreign exchange (FX) management features. One of the essential aspects of RippleNet is RippleNet Home, which streamlines management tasks across the network.


Users can initiate and monitor payments, troubleshoot issues, analyze payment execution, manage accounts and user profiles, and retrieve API credentials, among other functionalities. RippleNet Home is a centralized hub for overseeing various aspects of business operations within the RippleNet ecosystem.


On-Demand Liquidity (ODL) is a liquidity solution offered by RippleNet. It enables instant settlement without needing pre-funded capital in destination markets. ODL facilitates real-time settlement of payment funds, access to global payout rails, upfront visibility of fees, and automatic payout to beneficiaries' bank accounts, enhancing the efficiency and transparency of cross-border transactions.


RippleNet's flexibility, particularly with ODL integration, caters to diverse customer needs across multiple use cases. Payment service providers can leverage ODL for cross-border remittances, while fintech companies can facilitate business-to-business transactions for small-to-medium enterprises. Additionally, corporations can utilize ODL for internal treasury payments to accounts in foreign countries, optimizing liquidity management and reducing transaction costs.


Various transaction types are supported within the RippleNet ecosystem, each tailored to specific use cases. Individual payments involve settling individual customer or business payments using ODL, with XRP funding the sender wallet and recipients receiving fiat payouts in receive markets.


Bulk funding allows instant topping up of sender positions with receivers, facilitating efficient remittances and B2B payments. Internal treasury transactions enable intra-company transfers for customers with accounts in foreign countries, streamlining cross-border treasury operations.

How Kima Enables Asset Transfers without Smart Contracts

Kima facilitates asset transfers across various blockchain networks and traditional bank accounts, employing a specialized chain designed for direct transactions with the source and destination networks or banks.


Unlike relying on smart contracts, which can be susceptible to exploits, Kima ensures the security of sensitive funds in transit by utilizing proven technologies such as Threshold Signature Schemes (TSS) and Trusted Execution Environments (TEEs) like Intel SGX, which have demonstrated resilience in real-world scenarios.


In its approach to settlement security, Kima adopts a straightforward principle: if assets aren't present in a vulnerable environment, they can't be compromised. This philosophy drives Kima's avoidance of smart contracts, oracles, and external relayers, eliminating potential points of failure. Instead, Kima's technical framework comprises three key components: External Accounts (EOAs), TSS and TEEs, and Efficient Liquidity Management (LiMa).


EOAs serve as native blockchain wallets acting as pools, enhancing security by eliminating the need for smart contracts across every blockchain and mitigating vulnerabilities associated with cross-contract messaging. TSS and TEEs enable secure key sharing among parties without direct exposure, bolstering the system's resilience against critical compromises. Additionally, Kima employs a Liquidity Management algorithm to optimize the distribution of assets across pools, ensuring effective service delivery.


Additionally, Kima bridges the gap between traditional and decentralized finance systems by offering support for fiat integration through an opt-in compliance system. This protocol-level integration enables access to legacy systems like fiat payments while adhering to regulatory requirements, including KYC anti-money laundering verifications.


Recognizing the challenges inherent in achieving compatibility within the web3 ecosystem, Kima emphasizes a holistic approach. Rather than treating compatibility issues as isolated problems, Kima views them as interconnected symptoms of a broader issue. Kima keeps liquidity pools on each combined layer-1 blockchain by enabling smooth cross-chain exchange without token wrapping. This lets users move assets directly between chains without creating synthetic tokens.


At the core of Kima's functionality lies its blockchain, orchestrating asset synchronization across multiple layer-1 blockchains through committee-based consensus. This consensus mechanism relies on rotating sets of wardens responsible for ensuring asset pool synchronization and authorizing withdrawals on destination chains only upon confirmation of corresponding deposits on source chains.


Kima leverages TSS protocols within TEEs to enhance security and privacy in cross-chain transfers. By employing TSS, Kima enables participants to collaboratively generate and control signing keys securely, ensuring that a predetermined threshold of participants must engage in authorizing transactions. Through proactive secret sharing and the use of Intel SGX enclaves, Kima fortifies the security of its TSS implementation, minimizing the risk of key compromises and unauthorized access.

How Coinbase Commerce Integrates Cryptocurrencies into Retail Transactions

Coinbase Commerce facilitates the integration of cryptocurrency payments into merchants' operations via an API or user interface. This enables customers to pay directly from their devices using the blockchain for settlement.


Merchants and customers benefit from guaranteed settlement without exposure to cryptocurrency volatility. Payments are automatically settled into stablecoins, providing merchants with stability. Additionally, Coinbase Commerce supports various wallets and exchanges, allowing merchants to deposit funds into their preferred storage solutions.


The Commerce Onchain Payment Protocol simplifies the payment process, enabling merchants to accept various cryptocurrencies. Customers can utilize their verified Coinbase accounts to make seamless payments to any Commerce merchant. Transactions are confirmed instantly, leveraging cost-effective networks like Base and Polygon.


Coinbase Commerce operates on the Onchain Payment Protocol, an open-source standard to streamline cryptocurrency payments. Unlike traditional pull payments, where merchants initiate transactions, cryptocurrency payments rely on a push system initiated by customers.


Upon payment initiation, Coinbase Commerce creates a Charge representing the requested payment, generating a unique payment link and Universally Unique Identifier (UUID). Customer transactions are broadcast to the cryptocurrency network for validation, with Coinbase monitoring the blockchain for inbound payments and updating charge statuses accordingly.


For non-developers, Coinbase Commerce offers user-friendly solutions such as embedding payment buttons on websites or creating hosted checkout pages. These options require minimal coding and provide a straightforward experience for customers. Merchants can integrate Coinbase Commerce into existing e-commerce platforms to accept cryptocurrency payments without extensive technical expertise.


Final Thoughts

As blockchain technology improves and decentralized payment systems improve, the Internet of Value looks like it could have a bright future. Adding digital assets to financial systems and creating new decentralized financial services could lead to significant growth and broad use.


The IoV could affect e-commerce, banks, and money transfers, making things easier, cheaper, and safer. In general, I'm hopeful about the IoV's future.