Transcription:
John Adams: (
Okay. Our next panel with crypto digital currencies. What's in the way of widespread digital currency adoption? Our panelists are Eric Gieseke, he's the CEO and co-founder of Pago and Jane Lee, trust and safety architect from SIFT. I thought if you could explain your roles and what you do and your company's business model.
Jane Lee: (
Oh, hi everyone. My name's Jane. As mentioned, I am a trust and safety architect at SIFT. We're a fraud prevention, software powered by machine learning. And so we partner with a lot of FinTech marketplaces, eCommerce, content platforms to help them effectively fight fraud. My role in particular, you can think of it as an in-house consultant. And so I interface with a lot of our internal teams, product and tech sales, and then as well as consult with our external customers, prospects, to make sure that we have an effective solution that we bring to them.
Eric Gieseke: (
Hello, my name's Eric Gieseke. I'm CEO and co-founder of Pago, which is basically a blockchain enabler for payments. We have a transaction gateway that provides a bridge from traditional payment systems, like payment processors and online and physical point of sale to the blockchain and very excited to be here today to participate in this panel.
John Adams: (
Well, thank you. Thank you, both. In your experience, what have you noticed about how crypto and digital currencies are being used for payments?
Eric Gieseke: (
Well, so far, it hasn't been a huge use of crypto for payments just because the ecosystem hasn't developed to a point where it's good for payments like Bitcoin, has a lot of volatility issues. You have to convert it to the local currency. So, the current systems available for blockchain based payment systems have not been great up to this point, but all that's about to change.
Jane Lee: (
Can you hear me if I'm this far back? Okay. For me, I think, as I mentioned I work in the fraud space and I have been for almost 10 years now. And so what I see is the misuse of cryptocurrencies and kind of the dark side of it. And so, while I might not be a blockchain expert, like Eric is, I am very familiar with how people that use the blockchain or leverage crypto are exploited
John Adams: (
Eric, you said that, that's about the change. What is going to change and how is that going to help?
Eric Gieseke: (
Well, the technology is much more advanced now, for example, before with Bitcoin and Ethereum, those are proof of work blockchains that are slow, expensive, energy and efficient. Today there's much more energy efficient and fast blockchains available that can support much higher rates of transactions. For example, our brand can support 1000 transactions per second. It's very efficient. And because of that efficiency, it's using a proof of stake consensus protocol versus proof of work. That efficiency translates to low transaction cost. So imagine paying like 10th of a penny for a transaction, that's basically the transaction fee on the Algorand blockchain.
John Adams: (
And how open are merchants to accepting cryptocurrency and under what conditions have they so far. And I've written a bit about specialty wine shops accepting crypto and for very kind of one off like high end art purchases. What are some types of merchants that actually have shown themselves to be kind of amenable to that type of transaction?
Eric Gieseke: (
Well, early adopters seem to be people that are having problems with initial or the current payment systems, for example, cannabis merchants are one example of early adopters because they're currently, basically not able to participate in the existing payment system with credit cards and banks because of their business. And then also international payments, like people that sell gold for example online and ship it around the world. Those international payments are friction point for those businesses. It's expensive and difficult. And so they're looking for better opportunities. So these are early adopters.
John Adams: (
Jane, but what are some of the improvements that are being made in terms of fraud, in terms of security that might help push this adoption along in the future?
Jane Lee: (
Yeah, I think what merchants and I guess consumers or the crypto holders are concerned with is their security. And so the way that we see it at SIFT is similar to payments. You have several points of entry when it comes to fraud, you have at the account level. So you have potential fake accounts that are using stolen data or stolen PII to create new accounts that are back, so to pass whatever KYC checks that might be in place. I think a phrase that one of my teammates likes to use is are you verifying the identity or an identity? And so that's becoming a challenge with crypto, just FinTech in general. And then of course you have at the login, we have the risks of account takeovers. I've heard this mentioned already earlier today, where I think you can assume that everyone's credentials are out there, right?
Jane Lee: (
And somewhat, we have all been a part of a data breach at one point or the other. I think I was recently notified a few months ago and that wasn't the first time. And so you have the risk of your logins being compromised and then of course, money in money out. And so the way that we approach it at SIFT is to make, in the event that someone's credentials have been stolen, used illegitimately to give users the confidence in our merchants, the confidence that, Hey we have signals elsewhere in our global data network that show that, because these bad actors act at scale, right? They're not just attacking on a one off basis, they're doing it in large numbers, they're using automation. And so the idea is that we have caught it somewhere upstream or somewhere else in our data network so that we can help other folks in our data network be a little more proactive about it.
John Adams: (
Are there still learning curve issues? In other words, things that let's say consumers or merchants might not understand about crypto or how it works and what are some of the things that the industry can do to create more awareness of specifically how it works?
Jane Lee: (
I can again take this from the broad perspective. Absolutely. I think, like financial literacy, not just with crypto, but finances in general is not where it should be. Another part of what my role is to investigate and just stay up to date with emerging scams. And so a scam that we recently uncovered was with what we call pig butchering scam. If anyone in the audience has heard, it's basically romance scams, but elevated. And so they follow the traditional MO of romance scammers. You find someone on social network or social media, develop this online relationship. There's an added twist now though, because these bad actors are becoming so much more technologically sophisticated. And so I actually went undercover to kind of uncover, step by step what they were doing.
Jane Lee: (
And so what we found was they were creating these fake crypto exchanges, these fake platforms, these trading platforms that they're using some API to reflect the actual costs of cryptocurrencies. So that from a user perspective, when you're putting money into your account, it looks real, you can Google search the price of Bitcoin, whatever and it's reflected on your account. It's reflected on the site. Of course the site is completely controlled by the scammer. Initially, you make $10 in four minutes and you feel like you're doing really well and they'll keep trying to get you to up the amount you're sending over to a thousand. I've heard people losing hundreds of thousands of dollars. And so I think that just goes to show that the literacy of, Hey, what is a valid type of transaction? Hey, you should not be sending your funds to this wallet. You can also check to see what type of activity is happening on this particular address that you're sending funds to. So the consumer education, I think it could be better. And I think a lot of that falls on merchants too, to educate their users.
Eric Gieseke: (
Yeah, I'll follow on to that. I think so far there's been a lot of focus on the speculation around Bitcoin and Ethereum and Doge coin and others. But as a industry, we need to think more about the utility of blockchain, how it can help merchants and consumers and even our own businesses operate more efficiently and faster and lower cost and basically improve customer satisfaction all around and basically learn more, understand better how blockchain can help the payments industry and then help promote it like our strategy to market adoption is, basically work with existing payment processing systems, Merchants have them help us educate their merchants and consumers to promote the use of blockchain for payments. So it's really about like educating ourselves as well as the partners that we work with and eventually the end consumers and so that they learn to see the value and also trust the system.
John Adams: (
Now we've been talking really kind of strictly about using cryptocurrencies for payments. And in terms of the underlying, you mentioned the underlying blockchain technology. What are some of the uses for merchants or for issuers that may even go beyond supporting payments that can be helpful. And they may perhaps down the road, encourage broader use.
Eric Gieseke: (
Well, with blockchain, there were earlier today, there were some discussions about loyalty and loyalty rewards and things like that. So that's something that can be very easily incorporated with blockchain based payments, using smart contracts. Generally, what we see is when there's a payment from the consumer to the merchant, that's not the end of the story. Generally, there's a payment that goes out to the payment processor, maybe the ISO and then also potentially cash back to the consumer, as well as reward tokens back to the consumer, maybe even reward tokens to the merchant for being part of the ecosystem. So all of that can be packaged up in a, what we refer to as a group transaction, and managed using a smart contract. So there's a lot of possibilities that go way beyond just doing a payment transaction. It's actually pretty exciting what's possible.
John Adams: (
And Jane in terms of what you focus on, or are there ways that blockchain can contribute to combating fraud? What are some of the uses there?
Jane Lee: (
Yeah, I think so. So Eric and I have been talking about this, so the blockchain is designed to be fraud proof or fraud resistant. Right? But again, it's the people that use it. I think the technology's still getting there in terms of being able to disseminate what's going on into the blockchain and kind of go backwards and tell, Hey, if Jane Lee tries to send money to this particular wallet or address that has been flagged for fraud, or someone's filed with their exchange that, Hey, this was a scam. How do we get that information out to others? And so that is a little bit of what we do try to do at SIFT. We do have the power of our data network. And so, again they're not acting in silos, they're not acting only against, I'm just throwing a name out. They're not only against Binance, they're acting against all of them. And so the idea is that power and numbers having that shared knowledge I think is the only way to be able to effectively combat the type of fraud.
Eric Gieseke: (
Yeah. And I'll just add to that, an advantage of the public public blockchains is that all the transaction data is publicly accessible. So it's easy to go through the ledger or the transactions and look for patterns that would indicate fraud and identify them. So it's actually better for detecting fraud than closed systems.
John Adams: (
And if you found that the different blockchains, I attended a panel a couple of years ago on the subject of blockchains and crypto and the subject was interoperability, blockchains being able to work together, different systems of being able to work together. Is that improved over the past couple of years in terms of transaction that involves different blockchains?
Eric Gieseke: (
Yeah. I think that's a major goal of all the blockchain vendors right now is to improve interoperability so that you don't have these silos of blockchains. And there are systems like Wormhole, for example, that allow you to transfer value from one blockchain to another, those systems will continue to nurture and advance. And so that'll be easy as a consumer to move value from your Bitcoin wallet to your Ethereum wallet or your Solana wallet, or your Al grand wallet. So I think one thing that we have to realize is that it's still fairly new and there's been a lot of advancements in the last five years, but the story's not over and it's going to continue to evolve and get better. And so I think we have a lot to look forward to.
John Adams: (
And when there's a period, like we've had the past couple of weeks where there's usually volatility in cryptocurrency in general, but when it is particularly noteworthy, what are some of the ways that people who are in this industry can communicate with their clients, with their customers that this is a regular part of that market and perhaps lay concerns about the volatility. What are some of the things that can be done there?
Eric Gieseke: (
Well, I think the advent of stable coins is an important thing that helps with the volatility. So with stable coins, like the USDC is a stable coin that's issued by the center consortium, which is a collective between circle and Coinbase. They basically, it's a reserve stable coin. So in theory, every USDC stable coin is backed by US dollar. It's audited and transparent. And so now if you're a merchant and you want to conduct business using blockchain, you can do it using USDC and all that volatility is kind of like off the table for doing e-commerce and point of sale payments.
John Adams: (
Yeah. I was just kinda asking about the stable coins, like is stable coins the best chance or the most obvious route for payments for cryptocurrencies? I've usually listed stable points. It's separate but at least in terms of why I define it, but we've written a bit about Master Card supporting cryptocurrency payments and the language they use suggested that they were thinking of stable coins. Is stable coins in terms of widespread mainstream with adoption, is that the best chance, at least in the near term?
Eric Gieseke: (
In the near term I think stable coins are the best form of currency for payments, because there's not only USDC, but there's also a stable coin for the Canadian dollar and the Brazilian real and then also euros. And so those stable coins will continue to flourish. I think CBDC central bank digital currency has a potential to overtake stable points, but they're taking longer to develop by their nature.
John Adams: (
The sense I get is with central bank, digital currencies is the whole sales central bank, digital currencies have more of a chance to gain traction sooner than retail. Right? Do you agree with that?
Eric Gieseke: (
Maybe.
John Adams: (
Or is it not at the difference?
Eric Gieseke: (
Yeah, I don't think it's been shown yet. So we have to kind of wait and see, but I think be open and the nice thing about blockchain is there's lots of different assets available on the blockchain. We've all heard about NFTs and stable coins and other things. And soon there'll be these CBDCs that are available. So it's really up to consumers and the marketplace, which ones are accepted.
John Adams: (
Jane is the picture of fraud risk and fraud prevention change as you move say from cryptocurrencies like Bitcoin into stable coins or central bank, digital currencies and the degree that it does change. How does combating fraud change?
Jane Lee: (
So from our current perspective, it doesn't really change much, right? Because you have the account creation money and money out. And again, it could be a legitimate account that's compromised, that's being used to purchase a stable coin. We're very focused on at the user level versus like what is going on in the blockchain, what's going on with the stability, with the actual currencies. So for us, it doesn't really manifest differently. We're trying to catch it at the transaction level.
John Adams: (
Now in terms of central bank digital currencies, we've written a bit about the role for private sector financial institutions whether the currencies are distributed directly to consumers or if there's a level for commercial banks in the middle. What would a role be for a bank in helping to distribute or to manage central bank digital currencies?
Eric Gieseke: (
Well, one thing that I look forward to is, banks having their own accounts on the blockchain. And I understand that there's some regulatory issues in the way here, but once banks are connected to the blockchain, then they'll be able to move assets using the blockchain with the efficiency of the blockchain without the need for these on off ramps, which is kind of a friction point. Basically a challenge for cryptocurrency today is how do you move money from a traditional financial institution, like your bank account, or a credit card into the blockchain? And there are systems like wire which provides an exchange for that, but that comes out of a cost because whenever you're moving money between blockchain and like a bank account, you basically pay for that and a transaction fee. So what I look forward to is when banks actually have their own accounts on the blockchain and can accept payments and basically credits and debits through the blockchain. Then that'll make things very efficient and easy for consumers as well as businesses conducting business on the blockchain.
John Adams: (
Now at the regulatory level, what sorts of things need to happen in order to move development along faster?
Eric Gieseke: (
Well, probably more regulatory clarity for the banks so that they feel comfortable doing things like having accounts on the blockchain. But that will come. And Jane and I were talking about this earlier today that the lack of regulations right now is kind of a double edged sword because yes, it makes things kind of gray and confusing, but also it's good in a way because it allows for innovation and for early adopters to try things out, if that are willing to take a chance, basically.
John Adams: (
And what do you think, just looking ahead, what kinds of changes compared to now, did you expect to see? Let's say in the long term two to three years out, will there be more of an advancement in terms of having mainstream crypto acceptance and what sorts of things do you hope or believe will happen to achieve that?
Eric Gieseke: (
Well, one thing that I'm excited about is I think that blockchain is going to help level the playing field for payments or basically for access to financial systems around the world. Believe it or not, like between 30 to 40% of the world's adult population are unbanked currently and that lack of access to financial services like savings and lending, that's a leading cause of poverty around the world. So I see blockchain making a very positive impact on the world in terms of helping provide access to the financial services that this group here provides not only to citizens of the US and Europe and developed countries, but also all around the world.
John Adams: (
How can it help protect? Well, let's say if cash declines and access to cash declines. How can either blockchain or stable coins, how can they help fill the gap in terms of just protecting access to the financial system itself?
Eric Gieseke: (
Yeah. Say that one more time please.
John Adams: (
Well, in terms of talking about access, the underserved communities, a large part of that, that's the decline of cash. What are some of the things that this technology can do, stablecoin can do to help offset that. Basically where there's mostly ATM deserts or areas where there may not be a banking infrastructure at all?
Eric Gieseke: (
Yeah. With the product that we've developed at Pago, to participate in the blockchain ecosystem, all you really need is a smartphone with an internet connection. So you don't actually need banks to facilitate commerce or financial transactions using blockchain. All you really need is a cell phone. And that cell phones are pretty widely distributed around the world today.
John Adams: (
We have a few minutes left. Did we have questions? We have a question here.
Audience1: (
Specifically for you Jane, when you're looking at the risks around transactions for your clients, what kind of tools are available today for a true on chain transaction? So not the on ramp or the off ramp, but wallet to wallet transaction. What kind of tools do you guys build out?
Jane Lee: (
Yeah, so typically what we do is, it was historically our payment product. I'm gonna just throw out a comment, like a Venmo, right? You could see account receiving, account being sent to and then again, like when you look outwardly at our tool, we have a really nice UI that shows not a sales person, but our tool shows the network connection. So if you wanna see where a particular account has received and sent funds from and to, you could see that and then you can fan out enough and you can see the connected behaviors when it looks bad. We have the indicators that show that something looks fraudulent and so the same applies for our crypto, merchants we partner with wallets and exchanges as one. So we are able to look at it in that sense.
Audience 2: (
So are you looking at things like sanction lists and trying to identify who's prohibited from transacting with you in the US, or are you looking at risk from a fraud perspective? And you mentioned you'd see like all the wallet have transacted with, but these are all public addresses of the blockchain. Where does a layer of risk get indicated where these are all pseudonym or anonymous wallets ?
Jane Lee: (
Yeah. So I'll tackle the first question. So wait, sorry, can you repeat the first question?
Audience 2: (
Are you looking at things like sanctioned list?
Jane Lee: (
Yeah, so we're not a compliance tool and we're very clear about that's a separate. There are a whole bunch of other regulations for that, but our tool, first things like sanctioned list. If you wanna have a block list, a hard list of particular countries that you just don't want to do business with, we do have just simple rules that our customers can set up to to maintain and then your second question?
Audience 2: (
Second question is, you said you can zoom out and see what the risk looks like, but if they're all public addresses that are identified as transacting with each other, how would you identify the risk associated with that? Is it based on layering identity into some of those pseudonym wall?
Jane Lee: (
Yeah, so it's identity plus other things. So we're not evaluating a particular address or a particular user, an email address, it's the behavior. And so when you look at the behaviors as a whole, and I think that's the best way to avoid any legal trouble as well. Right? So you're assessing the behavior and not the particular user behind it and if you see that pattern happening a million times that starts looking like coordinated activity.
John Adams: (
And in terms of compliance, and it's anxious when you look at what's happening with Russia, how does that complicate? I mean, how does that complicate the compliance situation, particularly if you're looking with an entry that may try to use crypto to get around sanctions.
Speaker 2: (
Yeah. So I'm not a compliance person either. So our merchants largely are the ones that are prohibiting transactions from the sanctioned countries or implementing or enforcing on any new sort of regulations that may come out. From our perspective though, we see IP geo hopping types of behavior, right? So you have someone using a VPN, a bad actor using a VPN, looks like they're coming out of Russia, looks like they're coming out of China. Is that necessarily where they're coming out from? No, but again, if you go back and look at the behavioral, Hey, we don't actually think this person is based in Russia. So that we're not super concerned about, but are there other behavioral attributes to it that we can then confidently say, look fraudulent.
Jane Lee: (
And so we can block it from that sense. I did wanna add though, when we were talking about the facilitating cross-border payments and such, I personally was trying to donate to a fundraiser supporting the Ukrainian troops, was blocked by my traditional bank. There's some SCA type of thing that wouldn't let me send the payment, but crypto was an option there. So to kind of give you an idea on how it facilitates payments in that way. It's really amazing what it can do.
John Adams: (
Yeah. Do we have any other questions? Okay. Well, oh, we have one.
Audience 3: (
In terms of, so are you working that, is there a place where you ask them today?
Eric Gieseke: (
Well, I think it's more and more merchants are using blockchain to facilitate payments. They'll be the first thing that the merchant will ask when you propose using blockchain is okay, well, how do I get my money out of my blockchain account into my bank account? So by connecting to the blockchains, by the banks connecting to the blockchains and making that connection, making it easy to transfer from one account to another and directly into their bank account that would definitely help merchants. And I think it's opportunity for banks as well, early adopters banks will draw merchants because they won't have to do a hop between some sort of exchange service and lose a percent of the payment that way.
Audience 4: (
So is it big in the crossborder payments and how banks are adopting that in that area?
Eric Gieseke: (
Well, definitely cross border payments are very painful at the moment and expensive. So I think that there's a huge opportunity for blockchain to help streamline international payments for remittances as well as B2B payments and so huge potential there.
Audience 4: (
Thank you.
John Adams: (
Okay. Do we have any other questions? Oh, we have one more?
Audience 5: (
I should probably just talk to you both individually afterwards, but this might be helpful for everyone. Jane, you said you're seeing how people are using crypto nefariously. Do you see crypto because of the finality, the final nature of the payment and the elimination of chargeback risk for recipients as a benefit that could help offset risk of fraud for the recipient?
Jane Lee: (
Interesting. You say that. So I was doing a webinar where someone commented, it was a merchant that said, crypto is the safest thing we can accept because there's no chargebacks. True, but I would say that's not the most responsible way to look at. I think it's everyone's duty to make sure that they're keeping the fraud out. Also, I think a lot of accepting crypto payments right now relies on a processor, right? And so if you continue, it's currently the processors, this goes for a buy now pay later, so the after pays and such, they absorb whatever risk currently. But if they find that a lot of fraud is getting in through your platform or coming from your side specifically I can imagine that, you know, down the road, you could lose your processing power with them as well, get in the current situation. So that's how I approach that.
Eric Gieseke: (
Yeah, but there definitely are like savings for the merchants. For example, for the settlement, time on some of the faster blockchains is 4.5 seconds. So that means from at the point of sale, 4.5 seconds later after the consumers made their purchase, it's in the account of the merchant. So versus maybe a two day float and using other methods. So that that's a big deal to the merchant that can help save the merchant money and maybe offset fraud, if there is fraud. But generally what I've seen is, blockchain is actually more secure because you're not giving away your credentials to make a payment. You're not giving when you're making a payment online, you're not divulging your credit card information or something like that. So it's actually yet to be seen, but potentially more secure.
John Adams: (
Okay. Well, great. Thank you very much. Thank you, Jane. Thank you Eric. Great panel. Thank you. And, and thank you everybody for attending.