The OMG Network for beginners
Many OMG enthusiasts have experienced difficulty explaining the concept to friends and family. This article is meant to be the go-to explanation you can send them!
Mobile payments dominate Asia
Payments is a big business. In 2019, Visa processed $8.8 trillion, Mastercard $6.5 trillion, PayPal over $711 billion, and Stripe around $200 billion. Every time these businesses process a payment, they charge a fee. Sometimes businesses pay this fee when you buy from them, sometimes you pay the fee such as when you send money over Paypal.
The largest payment processor in Southeast Asia (SEA) is a company called Omise. Operating in SEA, they ran into a regional problem: credit and debit cards are barely used. Traditionally, cash ruled (and still rules) commerce in SEA. With the emergence of cheap smartphones, a new cultural shift is occurring: mobile wallets. Companies would create apps that hold a cash balance, and encourage users to pay for things with that in-app cash balance as a way to buy their goods and services at a discount. With the cash locked in the app, users were more likely to not drift away to competitors. Users and businesses could even pay each other by transferring funds to each other in that app. This practice became so common that people would keep all their hard-earned cash in these apps, effectively using them as their bank account. In fact, most people in SEA do this — never in their life have they opened a traditional bank account.
You may have heard of AliPay or WeChat, both used in China. In most places you go there, you can pay using these apps; they’ve become so common it’s hard to imagine a world without them. Companies in Southeast Asia are looking to do similar, though in a less monopolistic way (and without the eye of an authoritarian government watching everything you do!). Mobile wallet payments in SEA are projected to balloon to $32 billion next year, in the fastest growing financial services and mobile commerce region in the world. Asia is leapfrogging credit and debit cards, and going straight from cash to mobile wallets.
Locked in
A big problem, as you can imagine, was that if all your money was on one app, you could not transfer it to another. Omise recognized this trend and created the OMG Network, a blockchain-based system that would allow for universal value transfer. If all these apps plugged into this network, funds could be seamlessly transferred across mobile wallets. They quickly recognized that a system like this not only would allow money to be transferred from one app to another, but could transfer other things: converting loyalty points from one app to another, or trade one cryptocurrency for another, or convert yen to dollars. The medium doesn’t matter; you’d be able to pay for Starbucks using Thai Airways loyalty points — as long as both of those companies were on the network, digital denominations of value could be instantaneously converted from the medium you owned, into the medium the receiver wanted, at the appropriate conversion rate, and could even happen seamlessly and instantly at the point of sale (no added step of converting).
Why hasn’t anyone done this before? Many have tried, but only in the way of making direct connections between parties. For example, converting your credit card points into airline miles. But every connection point would need its own unique setup — such a thing would take decades to scale. This need for 1:1 connections has often been offloaded onto multiple intermediaries, all of whom demand a cut. This is particularly painful when looking at the traditional banking system, even without converting the currency being passed between sender and receiver:
Blockchain technology (the underlying foundation that cryptocurrency is based upon) makes this logistical challenge a breeze, because rather than making 1:1 connections between every party, all these apps and companies can instead plug into a public, decentralized network to directly connect to each other. Much like the internet, no one “owns” the network. You simply connect to the network, and have open access to the world. You pay your internet service provider to rent the cables and physical infrastructure that connects you to the world, but you do not pay anyone to use the internet itself. The internet is free. However, the OMG Network is not exactly like the internet; rather, it is specifically purpose-built for the value-transfer and digitalized money conversion scenarios mentioned above, in a way the traditional internet cannot do without intermediaries.
The solution
Exciting, right? Imagine a world where intermediaries are not necessary; where barriers to cross-app mobile wallet commerce are lifted, where rather than using a single app as your “bank account” (a reality for many in SEA), all apps on the network function as your unified bank account! No single company or app holds your money — the money exists on the decentralized network, held and stewarded solely by you. You can send it directly where you want, use it wherever and however you want without the friction of currency conversion, and if the company that holds your money goes out of business you don’t lose your life savings.
Where does Omise and OMG fit into all this? In order to keep this decentralized network secure and honest — meaning that when you send money to your friend, you aren’t lying about the amounts involved — computers all around the world are constantly checking these amounts and balances as they are processed. The OMG Network requires that the computer hold OMG tokens as a sort of authorization; if the computer lies, it gets tokens taken away. Since computers all around the world, owned by many different people, are mostly being honest, it is easy to call out a dishonest computer and revoke their authorization. They all keep each other mutually accountable. To compensate computers working hard at keeping this network secure, every transaction on the OMG Network comes with a tiny fee (much smaller than Visa, Mastercard, Paypal, or Stripe) that gets paid to those computers. Thus, you can have a worldwide payment processing and currency conversion solution without paying for employee salaries, office space, and intermediary services. Everyone pays less, and any currency you own can instantly be converted into another at the point of sale at no added cost.
These computers’ participation in the system is called “staking” your tokens. The more OMG tokens a computer stakes, the more fees they get when processing transactions. There are only about 140 million OMG tokens in existence, and it is technologically impossible to create more thanks to the decentralized nature of the network (no one has authority to create more).
It doesn’t stop there
A system like the OMG Network, which allows low-cost instant value transfer and digitalized money conversion to anyone plugged into it, has many other applications besides mobile wallets:
- Online trading (OMG recently announced a partnership with Bitfinex, a major cryptocurrency exchange, that will significantly reduce trading fees and increase trading speed) and traditional asset “tokenization”
- In-game commerce — the ability to buy, sell, and trade in-game items across video games and publishers
- Remittances, where hundreds of billions of dollars are sent among families cross-border every year, oftentimes paying high fees to do so:
…and much more. We’re barely scratching the surface; so many modern economic systems today require middlemen to facilitate fair and smooth commerce — with decentralization, many of these middlemen will no longer need to exist.
What does this mean to me?
Great! So people like owning OMG tokens because they can use it on their computers to process value transfers on the system and get paid for that through staking — got it. But, most people aren’t software engineers; they just can’t set up their own computer to process payments on the OMG network.
Enter “staking pools”, a group of software engineers that run a super-powered computer to process payments on the OMG Network, and you can assign your OMG tokens to be used by them on your behalf. You never actually give your tokens to them; rather, you authorize your tokens to be used on their computer for staking, without ever lending it to them or giving up custody. As the staking pool earns fees, it pays out what you earned back to you, minus a small service fee.
I’m sold. What do I do now?
Hold up — the network is still under construction. It is live now and set to start processing payments soon, but OMG token holders can’t stake yet. We’re waiting on that software to be built out. If you don’t own any tokens yet, look to purchase them through Coinbase or some other reputable and regulated crypto exchange available in your region.
How much might an OMG token expect to earn processing transactions? We don’t know yet, but we created tools to speculate around it.
Want to learn more? Check out our guide, and plug yourself into Reddit and Telegram communities. Things change quickly in this space and it’s good to stay up to date. A lot of people believe in the OMG Network and it’s become a welcome and entertaining community — we’ll be glad to have you! We get particularly excited every time a new business announces they intend to hop on the network. Sign up with us for email updates leading up to the launch of OMG staking.
As mentioned, this article is great for explaining OMG to the uninitiated. If you’re already a die-hard enthusiast, look out later this week for a deep technical breakdown of the team’s progress they revealed in their AMAs and interviews last week.
OMGpool (omgpool.org) is building the first and largest community staking pool for the OMG Network.
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