Enabling Transparency in Crypto Payments

Implementing a first in first out queue across chains to enable transparency

Trying to understand crypto technology often leads you to experience an unsettling state most often described as cognitive dissonance. This feeling you have is driven by the fact that crypto payment systems are simultaneously the most transparent and most opaque in existence.

Crypto payments generally involve transferring payments from one wallet to another wallet and it is a relatively easy task to track that data.

 

If the payment is made on a public blockchain, like Bitcoin or Ethereum for example, anyone with a browser can view the transactions.

 

If the wallet address is known, it’s possible to go to a blockchain explorer, such as etherscan.io, and see which addresses the owner of the wallet transferred the money to or received the money from.

 

However, it’s not possible to tell who owns those wallets as wallet addresses are pseudonymous.

 

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The secrecy around the ownership of the endpoints gives blockchain its opaqueness.

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The ability to openly query transactions gives blockchain its transparency.

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There is no public directory of crypto wallets. The ownership of the wallets is about as opaque as things can get.

 

The ability to openly query transactions is what gives the world of blockchain its transparency, the secrecy around the ownership of the endpoints, however, is what gives it its opaqueness.

 

It gets even more tricky if you try to track conversion across multiple cryptos with the involvement of a centralized crypto exchange, i.e., converting from Bitcoin to Ethereum to USDC, a USD pegged stablecoin, through a centralized crypto exchange is very difficult to track.

In one of our recent crypto projects, we were enabling transparency in a solution that accepted crypto payments from donors on one end of the process and transferred those payments to multiple individuals at the other end. The last mile involved cashing out in local currencies in different parts of the world. This project involved multiple crypto and non-crypto vendors working together and one of the key requirements was to reduce the volatility associated with holding large amounts of crypto. The solution design included the following:

  • 1.

    Front end to accept payments and with the backend performing KYT (know your transaction) checks on the incoming payments

  • 2.

    Ability to convert crypto to a target stablecoin (e.g., USDC, USDT)

  • 3.

    Ability to assign payments and make payments to different wallets

  • 4.

    Ability for the wallet users to cash out the target stablecoin in different jurisdictions

  • 5.

    Ability for the initial payers to track the payment status across the entire process, through a dashboard

    High-level solution process

    The dashboard solution required us to think through various scenarios. The solution we decided on involved setting up a single wallet used for holding the target stablecoin which is converted from different received cryptos or fiat. To keep it transparent for donors we’re using a First In, First Out mechanism to track when and how each donation was disbursed. Since the dashboard was designed to be publicly available, we had to encrypt and mask the recipient’s wallet addresses as that was considered PII, personally identifiable information, in some countries.

    Illustration of First In, First Out mapping logic

    The next major challenge in this solution was to get the cash out at the other end. The recipients had to be able to get local fiat currencies by exchanging the stablecoin into any local fiat currency. The key challenge here was to ensure there was enough liquidity for the local partners to accept the target stablecoin and exchange it with the local fiat currency with a mechanism for clearing such transactions. Accepting stablecoins and other crypto payments indeed continues to be a major challenge for banks, involving other partners like one of the major card providers would significantly reduce the barriers to crypto payments.

    One last word on initiating such projects: involving legal and compliance early on is crucial, as crypto payments regulations are tied to various local jurisdictions and need an early alignment when considering the feasibility of the overall solution.

     

    With such a solution we were able to support the daily allocation and cash out of donations to recipients with complete transparency and low cost.

     

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    About the Authors

    Kaj Burchardi

    Managing Director
    Amsterdam, Netherlands

    Kaj Burchardi is a Managing Director with BCG Platinion with more than 20 years of experience in IT consulting. He focuses on IT architecture, Digital and Agile transformations with Financial Services clients in Europe, Americas, and Middle East. Kaj is leading the Emerging Technology practice of BCG/Platinion globally and supported clients in the strategy definition, use case development, and Proof of Concept execution of various Blockchain / DLT projects based on different platforms. The used approach puts the customer and the business challenge in the center – and the technology second.

    Syed Husain

    Principal IT Architect
    London, UK

    Syed Husain is a Principal Architect with BCG Platinion with more than 15 years of experience in IT consulting. He focuses on Solution Architecture, AI and Data Strategy with Financial Services, Public Sector, and TMT clients in Europe and the Middle East. When not solving critical technology and business problems for clients, Syed can be found perfecting his DOTA 2 and Star Craft 2 skills.

    Bihao Song

    Principal IT Architect
    Amsterdam, Netherlands

    Bihao is a Principal IT Architect with BCG Platinion with 15+ years of experience in IT consulting and solution design. He focuses on IT architecture, Digital and cloud transformations with Financial Services clients in Europe and APAC. Bihao is part of the core team of the Emerging Technology practice of BCG/Platinion globally and supported clients in the IT strategy definition, use case development, IT architecture design, and Proof of Concept execution of various Blockchain / DLT projects based on different platforms.

    Nikolai Pomortsev

    Senior IT Consultant
    Amsterdam, Netherlands

    Nikolai Pomortsev is a Senior IT Consultant with BCG Platinion with more than 10 years of experience in IT. He focuses on IT architecture, Product development, Digital and Agile transformations with Financial Services clients in Europe and the Middle East.