Streamlining Payments with Cryptocurrency Featuring Tom Howard of Mosendo — The DeFi Podcast Episode #2

Hey DeFi’ers, this week’s episode of The DeFi Podcast features Tom Howard, co-founder and Chief Strategy Officer at Mosendo. Mosendo makes it easy to send money to anyone, anywhere without the typical friction involved in obtaining and using cryptocurrency.

Tom explains what state channels are, describes how Mosendo uses state channels to facilitate payments using Ethereum, and shares his insight on the state of scalability solutions for the Ethereum network.

Kerman Kohli: 00:00

Hey everyone! Welcome to another episode of The DeFi Podcast. Today we have Tom Howard from Mosendo who is the co-founder and Chief Strategy Officer over there. So Tom, can you briefly explain what state channels are and why we need them?

Tom Howard: 00:18

Yeah, sure. And thanks for having me. State channels are a scalability solution for blockchains. The idea is that you can create and sign a blockchain transaction, which is a valid transaction, but you don’t actually have to submit it to the blockchain yet.

So if you and I are sending money between each other, we can sign transactions and continue signing transactions and hold onto these signed transactions and then submit them to the blockchain later when we want to finalize our balance sheet there. So this principle basically enables this concept of state channels, which is, “Hey, if we’re just going to sign transactions with each other and kind of keep track of it that way, then we can consider this to be a state channel and keep track of these states of our balance sheet with each other before submitting everything to the blockchain.

So this allows the users to have these transactions without having to wait for the blocks to confirm and so in the model that I’ve just talked about, that’s a trusted model, right? You and I trust each other. We’re both just saying, “Hey, we’re going to sign these transactions and we’ll submit them later because we know that we’re both not going to double spend.” Right?

So state channel networks, essentially what they do is they solve that double-spending problem through a collateralization process. Ethereum state channels are the ones I’m most familiar with. In that case, you’re essentially locking up the money that you’re sending or receiving as collateral in a smart contract and then the smart contract is designed to interact with this state channel, so this means you can trustlessly send money on a state channel.

Then, if there’s ever like a dispute, like if you say like, “Hey, you know, you spent $75” and I’m like, “Oh no, I sent you $10,” we can both submit our version of the truth and every time these transactions are assigned, we’re both signing it. So one of them has to be right. When you submit it to the blockchain, it all gets settled on the blockchain so everything happens trustlessly.

Kerman Kohli: 02:44

So just to summarize: I deposit money to this contract and that’s my insurance against in case I do something wrong. Then we send signed transactions between each other and when we decide that we want our money back, we submit those transactions to this smart contract, which acts as the gatekeeper and we get our money out in. The benefit of it is that we can transact very, very quickly because we’re not actually using blockchain to actually submit transactions, which is typically a slow, inexpensive process.

Tom Howard: 03:16

Right, so essentially what we’ve done there is that if everybody’s in agreement, then all the transactions just happen instantly. What if there’s like a disagreement, then we have to go back to the blockchain and wait for that to resolve on the blockchain?

Kerman Kohli: 03:31

Sure, and how does Mosendo utilize this mechanism to help people send money?

Tom Howard: 03:38

So one of the really cool things about the Etherium state channels is that the smart contracts are actually not even deployed when you start using them. Oh, there’s this new technique called a “create to”. Using this “create to,” which essentially allows you to use a smart contract before it’s actually been deployed on the Ethereum blockchain — our blockchain architect Nora Hardy actually discovered this when they first came out with it — what this means is we actually don’t need to wait for the Ethereum blockchain in order for our users to send and receive money.

So the first time that you actually use the Mosendo app, it’s basically a way to use decentralized money in the form of Dai, which is a U.S. dollar, and our users can send money around instantly using our app without having to wait for the block times.

Tom Howard: 04:37

Recently, there was this issue where a contract was utilizing a lot of the blockchain resources and transactions started getting really expensive and taking too long, like a bunch longer to go through using the state channels. Mosendo’s users would not have been affected by that because we don’t actually need to go to the blockchain until our user wants to exit the system or there’s a conflict that needs to be resolved. So that’s really cool! It basically allows us to make crypto very usable and fast and maybe free without having to worry about the status or state of the Ethereum blockchain.

Kerman Kohli: 05:25

Sure, and what are some other approaches to payments you’ve seen in the industry and how does using state channels benefit a user?

Tom Howard: 05:36

Sure, so different approaches of payments — I mean, a lot of crypto has focused on payments using these volatile assets like Bitcoin or Ethereum. Most people in the world don’t want to have to be a trader to buy a gallon of milk, right? So first of all, we just use a stable cryptocurrency called Dai and a Dai is worth a U.S. dollar. So that’s a big departure.

Then the other part is just like how long it takes to make a transaction, right? Like, if you’re sending Bitcoin and you’re trying to stop in at the convenience store and buy a Coke and it takes you 10 minutes for both of you to agree that the money has been sent, that’s just not gonna work for everyone.

So using the scalability solutions like state channels and a couple of other like scalability solutions makes things a lot easier. I would say the other scalability solutions that I’ve seen usually sacrifice either the decentralization or the trustlessness or they sacrifice the user experience in some way so state channels, based on all the ones we looked at that exist so far, were the best solution that we saw.

Kerman Kohli: 06:51

In terms of getting crypto to use it in the first place and enter the system, how can we actually make it easier for regular people who are, say, listening to this podcast to acquire it and use it beyond speculative purposes is actually use it for fast, international transactions?

Tom Howard: 07:09

Yeah. So that’s been a major focus for us at Mosendo. I know what we’re doing is that where we’ve set up a bunch of partnerships all over the world so that no matter who you are or where you’re from, when you use the Mosendo app you can connect your bank account, your credit card, your Ali pay, your Apple pay, whatever it is; you can connect that and get your funds right into the Mosendo app, which is crypto on the back end and this experience of being able to connect your money, your Fiat money to your crypto money anywhere in the world very easily, I think, is very critical for that.

Kerman Kohli: 07:50

Of course! It’s a really exciting time to witness this technology kind of really play out like this. Why did you choose to solve this problem in particular, especially in the area of payments where this load of traditional competition would also say crypto native competition?

Tom Howard: 08:09

I first discovered Bitcoin back in 2012 and the idea of magical internet money wasn’t quite appealing and then over the years kind of watching it grow and getting more involved in this space over time — it’s been 10 years since Bitcoin came out and we still can’t use Bitcoin for daily spending, right? Like, it might be a good investment on a three-year time horizon, but as far as electronic cash goes, it’s not very useful.

So this is something that I just really want to see existing in the world: a digital native currency that I can spend anywhere and use anywhere and I didn’t see anyone like approaching it in a way that I thought would be successful. So myself and my co founder were like, “alright, well if nobody’s going to do this, then I guess we got to do it cause we need to stay cool. I need to see it exist.”

Kerman Kohli 09: 11

Right! Of course, of course. “Be change the you want to see in the world.” I guess last of all I’d like it if you’d give us a quick rundown of what Mosendo is to the audience here and anything else that we should know about it.

Tom Howard: 09:30

We’ve spent a lot of time on like making Mosendo very, very usable for the regular folks that essentially shouldn’t have to have a technical degree in order to use their money, right? With most of the crypto apps that we’ve seen so far, the concept of a private key and a public key and a seed phrase and no gas and transaction fees and all of that — it’s a bit, you know, confusing for most people.

Most people don’t want to write down a 12-word seed phrase and store that somewhere. It’s kind of scary. What if the paper gets lost or something like that? So we’ve kind of solved all these problems and we made it just super easy that you just, you know, the money stays on your phone but we have a couple of different ways to recover it.

You can recover through email using what’s called “social recovery.” Like all your friends can help you to recover your funds, so we’re just making it, making it super, super easy for everyday people to use cryptocurrency as true money and not like the complicated thing that they’ve experienced about cryptocurrency in the past.

Kerman Kohli 10:42

Of course! No, that makes sense. Thanks a lot for your time today. It’s been really helpful and we look forward to seeing Mosendo live very soon.

Tom Howard 10:54

Thanks! Thanks for having me.