DLT Essentials

Let’s imagine you’re selling luxury watches online.  

You accept cryptocurrency payments through an integration with your payment partner.
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In this case, that’s us!  BVNK. We process the cryptocurrency for you and settle you in your preferred currency – euros.

So let’s get started.

Your customer adds a watch to their basket  they select to pay in cryptocurrency and they're taken to a special payment flow that is managed by BVNK

So far, so good. In the background, your business requests a payment link from BVNK via an API. They choose the currency they want to pay in – let’s say USDC. We return the link, and you display it to your customer.

This is what they see:

- A quote for conversion rate, which BVNK holds for up to one hour
- how much crypto they need to send and
- the wallet address they need to send it to.

Now your customer will need to open their wallet and send the payment. Payment providers like BVNK have integrations with popular wallets which makes this part of the journey easier.

Your customer has now connected to their wallet from checkout and clicked to pay. 

Next, let’s flick over to the Ethereum blockchain to see what’s happening there.

Imagine the blockchain as a large digital ledger recording all payments. 

When you initiate a payment, a 'node' which is a computer, processes your request much like a mailman handles your post.

In Ethereum, validators - similar to accountants - verify payment details and document them on a block, similar to a page in our ledger.

Other nodes review this block for accuracy before adding it to the blockchain.

Once enough nodes (about 12) have confirmed the block within approximately 5 minutes, BVNK receives the payment.

At this point, we screen the payment to make sure it’s not coming from an address connected to financial crime (more on that in chapter 3). 

Then we credit your account in euros, minus processing fees.

You show your customer that the payment has been successful. 

And hooray – they’ve paid for their watch in crypto, and you’ve received the money in euros. 

That’s it! We hope you found this video useful.

Don’t forget to check out the other videos in our DLT Essentials series 

to learn more about use cases, benefits and how you can test out this technology safely.

Stablecoins such as USDC (or USD Coin) are digital currency much like bitcoin or ethereum, but they're different because their worth is tied to the US dollar. 

That means their value doesn't swing wildly, making them a great option when you want to make payments using a digital currency.

Now, let’s imagine you’re an import/export business with suppliers in India or a remittance company with payment partners in Asia.  

Your supplier has chosen to receive USDC, a well-known type of stablecoin, because of its speed and low-cost 

To help you do this, you have a multi-currency account set up with your fintech partner.

That’s us! BVNK.

To make the payment, you log into your BVNK account and click “Send”, enter the wallet address of your supplier, the currency and amount you want to send. 

You’ll be shown the conversion rate - which is valid for up to 1 hour – and any fees charged by your fintech partner. Click send. 

Your safety is our top priority. That's why we require you to use two-factor authentication to approve any transactions. 

We also offer other ways to keep your account secure, such as setting limits and having approved lists of safe contacts.

Alright that’s it  – your payment has been successfully submitted to the blockchain. 

Now let’s flick over to the Ethereum blockchain to see what’s happening there.

Imagine the blockchain as a large digital ledger recording all payments.

When you initiate a payment, a 'node' which is a computer, processes your request much like a mailman handles your post.

In Ethereum, validators - similar to accountants - verify payment details and document them on a block, much like a page in our ledger.

Other nodes review this block for accuracy before adding it to the blockchain.

Once enough nodes (about 12) have confirmed the block, within approximately 5 minutes, your supplier receives the payment.

Back in your account, the payment status is updated to ‘Paid’ and your wallet balance adjusted.

So that’s how you pay a supplier in stablecoins.

Note that you can also automate this process using an API. Feel free to explore them on docs.bvnk.com. 

We hope you found this video useful. Don’t forget to check out the other videos in our DLT Essentials series to learn more about use cases, benefits and how you can test out this technology safely.

Let’s imagine you run a freelance marketplace, and you need to move money from your head office in Germany to pay 30 freelancers in the Philippines. 

Getting your euros from Germany all the way to those freelancers’ bank accounts in the Philippines, as Philippine pesos, isn’t easy… 

Luckily you have a global payments partner to help move the funds using DLT.
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That’s us! BVNK. 

So let’s get started.

First up, you log into your BVNK account and fund your euro wallet. Enter the starting currency – Euros, the transaction amount,  and the currency you want to convert it to – Philippine Pesos. 

BVNK gives you a quote and you accept it right away, locking in the rate.

And that’s all done. We settle you in Philippine Pesos to your BVNK account, and adjust the balance of your Euro wallet.

Note that you can also automate this process using an API. Feel free to explore them on docs.bvnk.com. 

Now let’s take a look at what’s happening behind the scenes.

If this payment had been made using a banking network, like Swift, it would have taken 3 or 4 days, moving from bank to bank to bank. Instead, BVNK converted the euros into USDT stablecoins. And sent those stablecoins to the Philippines

We then converted USDT into Philippine Pesos using our global settlement network. 

All of that took just a few hours. 

And since we settled you in Philippine Pesos, you don’t need to worry about holding crypto assets on your balance sheet. 

So that’s how you move money globally using DLT.Don’t forget to check out the other videos in our DLT Essentials series to learn more about use cases, benefits, and how you can test out this technology safely.

Thanks Juliana.

Is it legal?  A big question! 

The first question in any analysis here is: are crypto and digital assets property?
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This is fundamental to whether a market can develop and operate – uncertainty about legal recognition of assets means there just won’t be a market.

In the UK we have good news – the Law Commission’s report not only says they are but also says why they are in most jurisdictions, we’re getting to the same place then, why use DLT in practice?

For money there is an easy answer

A blockchain is in effect an information security system – it verifies messages, and senders, and receivers – money sent digitally is just a kind of secure messaging – so a better system of secure messaging is a clear improvement – and from this we can see why blockchains help with compliance with obligations to manage and monitor transactions

And, digital is now mainstream in money – a majority of central banks are now running digital currency projects and stablecoin projects - governments are joining the movement 

Why? digital = personal = better customer-service

‍Next question: is it safe?

‍This is in 2 parts –1. do criminals use it?  2. Is it too volatile to use?

1. criminals don’t like crypto because law enforcement does – they can trace it
2. It is volatile but you don’t have to have exposure, few businesses that accept crypto actually hold on to it
   

And - it is composable – that means it’s like lego – you can build with it – so, firms with low risk tolerance can manage their risk by being compliance-first

That brings us to compliance…

The first rule of crypto is: don’t facilitate financial crime

How do we think about that?  The best way to look at is through the lens of the Financial Action Task Force recommendations – they apply to everything, not just crypto – they set a global standard and then countries set local standards

The top 3 points:

• International cooperation
• Prevention focused
• Sharing of intelligence
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Let’s look at that again through crypto:

- international cooperation – that is a perfect match – crypto is borderless

- prevent issues before they happen – again, spot on – customers have visible transaction histories in crypto

- sharing information – another hit – blockchains are sharable digital databases

So – what do we know?

- these are real assets

- governments are using them

- a compliance-first strategy is a well-trod path

But more than that – customers want them – life is online and crypto and digital assets are part of the currencies there – you don’t have to be first but you don’t want to be last – that time is now.

So, let’s get into it…

If you’re using DLT for payments, you’ll likely need a partner, which means: third party risk.

As with other types of payments, it’s important to choose your partners carefully

But, what should you look for in a DLT payments partner? 

Firstly, the right regulatory licences in the markets where you want to use crypto. 

But regulators are tackling crypto at different times, different speeds and in different ways 

(it’s sometimes called the sunrise issue). 

So where your partner is authorised is important. Opt for a business that’s authorised in a place known for strong regulatory oversight. If they’ve made the grade there, it’s likely they’ll have risk and compliance controls you can trust in.

So, what does that look like?

When it comes to preventing financial crime, the risks of using digital assets are similar to other types of payments. 

That means your payment partner should apply similar controls, like:

• a detailed governance and oversight framework
• a risk-based approach
• enhanced due diligence on customers
• and of course regular, independent reviews to ensure their systems and controls are effective
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But DLT also gives us new ways to tackle financial crime. 

Blockchains are more transparent, so they can actually be more effective in helping you detect financial crime risks. 

You’ll want to make sure your provider is using blockchain analytics tools to screen payments and detect unusual behaviour. 

Some providers like BVNK also apply machine learning models for added protection 

You can find out more about this in the next video.

So, DLT can be as safe or even more safe than traditional payments,if you work with the right partners and combine it with the right technology and risk management practices.

Okay, that’s it from me.  Be sure to check out other videos in this series, to learn more about use cases, benefits, and how DLT payments work.

The financial sector has to adapt and look more closely at transactional behaviour.

This is sometimes called Know Your Transaction or KYT. And it’s here that blockchain technology can give us incredible insights. 

I’ve invited along a friend of BVNK, Amila from blockchain data firm Chainalysis, to tell us more.

So, Amila: what is blockchain analytics and how can it help fight financial crime?

Thanks Heather. Blockchain analytics is the practice of combining publicly available transactional data stored on the blockchain with analytical techniques. 

By doing this, we are able to determine which addresses are controlled by the same entities, and identify those entities too. So, rather than looking at transactions between pseudonymous cryptocurrency addresses, we can look at interactions between identified entities. 

As Heather said, the insight this gives us is incredible. It means we can follow funds across the blockchain, through intermediary wallets until they reach an identified entity so we are not restricted to only seeing direct counterparties. 

We can aggregate that information to give high level views of sending and receiving activity for an entity or group of addresses controlled by the same wallet. Overall you have a lot more information to work with when trying to spot financial crime than you do when transactions are conducted in a fiat currency.

Putting this into a payments context, we can use this view of the blockchain to conduct enhanced due diligence, payment screening and transaction monitoring. Blockchain analytics tools can show interactions that constitute predicate offences, such as terror financing or ransomware, in addition to traditional indicators of money laundering, such as crypto kiosks.

This is why blockchain analytics tools are often mentioned by regulators when describing an effective anti-financial crime framework.

Thanks Amila. Now if you’re working with a DLT payments provider, they should be using these sorts of tools to screen blockchain transactions for you.

Some providers, like BVNK, also provide additional support by applying machine learning models. They allow us to be even smarter in preventing financial crime. 

So, instead of putting blanket limits on transactions, which could affect legitimate customers, we can take a more targeted approach…. 

For example, by using blockchain transaction history, to discover hidden networks of users that 'layer' transactions, and to block addresses that have been used to move the proceeds of crime.

So, distributed ledger technology can be really effective as a tool to fight financial crime – if you work with the right partners and combine it with the right technology
and AML practices.

That’s it from us. Don’t forget to check out the other videos in our DLT Essentials series to learn about the use cases, benefits of this technology, and how DLT payments work.