Building a Bridge Between Cryptocurrencies and Traditional Payments.

Ever wonder why there’s no obvious way to pay at checkout from a cryptocurrency wallet? In-store purchases of day-to-day goods are an obvious use case for any currency, yet despite Bitcoin being in circulation for nearly a decade, there is still no widely used app or tool through which brick and mortar retailers can accept it from your personal wallet.

What’s causing this delay in adoption? There are many possible suspects, ranging from ambiguous policy to a lack of financial incentives or sustainable business models, but the most likely culprit seems to be a failure to find a common language between the old and new payment systems. There is a clear line between traditional payment platforms used by the vast majority of retailers and the cryptocurrency industry which has been (until now) a relatively self-sustained community.

To understand how a potential bridge between cryptocurrency and existing payment platforms could be built, let’s look at how they work and the kinds of things both platforms need to do their job.

When shopping in-store, speed of payment is paramount. As a shopper, anything beyond a 20 second transaction time would feel like an eternity. That’s why payment networks expect your bank account to start and finish this process in only 2 or 3 seconds.

Modern banks are good at generating speedy answers. The in-store checkout terminal only needs to ask one bank (i.e. yours) for enough money to cover the cost of the transaction, so completing a purchase takes only as long as a single back-and-forth event over the internet.

Blockchains, in contrast, are not so single-minded (or prompt). They still have accounts and account balances, like traditional banks. But unlike traditional banks, they take a more ‘democratic’ approach to recording your account information. The amount of money you have in your blockchain account is decided by agreement across hundreds or thousands of individual participants, not by one bank.

If you’re up for a deeper dive into how these systems arrive at an agreement, check out this article. The bottom line is, blockchains make decisions by committee, and this takes time. They range from a few minutes to over an hour before guaranteeing their response. By putting your money on a blockchain, you sacrifice the speed you rely on during in-store payments. In return, your transaction benefits from the autonomy, privacy and borderless capability of the blockchain.

For everyday decisions (say, where to go for lunch with your office mates), there will always be a tradeoff between speed and participation. The more people you have to consult before you make a decision, the longer it will take. In contrast, consulting one or two individuals (or institutions) on any given decision takes little time.

This is just as true in the digital world as it is in the real one, and it’s why finding a common language between blockchains and traditional payments is so hard. Blockchains answer any request by agreement across a large number of participants, but traditional payment networks rely on more timely responses. Blockchains like Bitcoin and Ethereum don’t (and can’t) respond fast enough for these payment networks to guarantee fast and secure transactions.

Some blockchain-based payments have made solid efforts to bridge this gap. But in an attempt to increase speed they can sometimes sacrifice privacy and autonomy, contradicting the reasons for using blockchain in the first place. Since the company with which you have your account ultimately holds the keys to your wallet, they are essentially replacing a large, centralized bank with a cryptocurrency version of the same thing.

STK bridges the gap by keeping the principles of autonomy, and at the same time meeting the real-world requirements of in-store payments.

The first step in using STK is similar to approving a representative to handle transactions between your private cryptocurrency wallet and the real-world payment network. STK creates a payment channel between your private cryptocurrency wallet and STACK. STACK is a digital wallet containing fiat (or local) currency that is connected to a global payment rail for traditional payments at any checkout terminal that accepts major credit cards. This payment channel serves as a guarantor for transactions between one wallet and another.

When the checkout terminal ‘asks’ your blockchain bank account to pay for your purchase, it will ‘speak’ to the payment channel. This removes the need to ask the entire blockchain and speeds up the process, cutting it down from several minutes to about a second.

This payment channel can be kept open for as long as is needed, initiated by the user and closed by STK. Put another way, a payment channel is like a ‘shadow’ wallet, controlled by you (since you hold the keys), which can send and receive money instantly. If you’re interested in learning more about how payment channels speed up transactions, there’s a great article on AltheaMesh.

An STK token functions as your personal key to open the payment channel and use the platform. Once the channel is open, you can use either STK tokens or ETH.

Once a payment channel is open, the rest is simple. When you arrive at the checkout terminal, you can tap your STK app or card, and this sends the cost of your purchase from your cryptocurrency wallet through STK’s payment channel, directly to STACK. Because STK uses a payment channel, it can instantly guarantee that you (the shopper) can and will pay for the purchase from your own cryptocurrency resources.

Once STACK gets this first payment, it makes a second payment to the retailer from its own cash reserves (or liquidity pool). It does this through the traditional payment network, and in the local currency. The store owner gets their money directly from STACK’s reserves and STACK gets the equivalent amount in cryptocurrency from your wallet.

STK has built a bridge between two different and seemingly incompatible financial systems, using the best of both. STK creates a payment channel, which instantly sends money from your private wallet to STACK; STACK completes the purchase at the cash register in the local currency.

We’re working towards a platform that lets you use your money anywhere, anytime and in any currency, right from your smartphone. You’ve earned it. Now make it count.