By John Artman
Editor’s note: This post was contributed by Jx Tan, Countly Analytics’ Chief Growth Officer (China & APAC). Countly’s Open Source, scalable and self-hosting capability represents a new category of collaborative and secure technology.
Tibado is digital cash and denominated in fiat money (better known as real money to most readers). The Tibado solution is a highly secure and intuitive implementation of digital coins that is novel, ready for deployment now and protected by a series of patent applications. It is designed to stand alone, or be embedded in social media and messaging platforms.
I had the opportunity to interview Tim Jones, CEO of Tibado. He is regarded as a pioneer in this field, having created Mondex, digital cash in a smart card, in 1990, together with his NatWest colleague Graham Higgins and Dr. David Everett, a public key cryptography expert. Many banks got involved but the business was eventually sold to MasterCard in the late 1990s.
Tim Jones (l) and David Everett (r)
What are the differences between Tibado and Bitcoin?
Bitcoin is a cryptocurrency that builds on the blockchain, with two characteristics: (i) No collateral and (ii) transaction assurance by giving bitcoin incentives for miners to confirm transactions and to write them into a general distributed ledger (known as a work function).
Bitcoin’s creative business model involves creating a self-sustaining equilibrium. However, this equilibrium may be upset by cryptography advances over time or enhanced competition among miners that make the work function more difficult and less profitable.
Unlike Bitcoin, Tibado is a design for fiat or fiat-denominated digital cash which leverages collateral of existing currencies. To use an example: If PBOC took a Tibado license for digital RMB, that will be a fiat currency which is backed by assets owned by the PBOC. If Alipay took a Tibado license and issued RMB, that would be a fiat-denominated private currency.
Another difference is that Tibado’s transaction assurance is not crowd-sourced, unlike Bitcoin.
Tibado’s business model is to license its IP to parties, e.g. Central Banks or payment service providers, who will then bring their own implementations to market. The licenses are non-exclusive and allow the licensee to implement the IP as they see fit.
What are the security safeguards behind Tibado?
Dr. David Everett, Mondex’s technical and security architect, has designed Tibado’s security safeguards. Security is enhanced through:
- Digital coins are created, merged and split in Hardware Security Modules that are stored in secure data centers.
- Through a distributed ledger design, it is possible to create multiple copies of the same ledger to mitigate the risk posed by concentrating data in one single location.
Tibado’s technology is protected by patent applications covering the core security operations.
Why not build Tibado based on blockchain technology? Is Tibado less secure than blockchain technology?
Firstly, no system is inherently more or less secure. Tibado chose not to utilize blockchain as our core technology is better able to handle high volume transactions and thereby deliver a higher quality experience for users.
In the U.S, Visa and Mastercard handle up to 10-20K transactions per second (TPS) during peak periods. Blockchain takes a few seconds of latency for users which are a suboptimal design. Tibado’s technology can handle tens of thousands of TPS with very low latency. Till now, I have not seen blockchain technology that can handle 25K TPS with low latency.
Tibado uses a privately distributed ledger with an integral transaction log. Every transaction has to go through a cash box component and this transaction along with the source IP address is recorded. This log is not available to the users but can be provided to the regulator as legally required which will enable them to track all transactions. Therefore, the privacy of the users is preserved but the regulators can trace any coin transaction as required.
Can you describe a typical Tibado transaction? How Tibado delivers a superior experience or lower transaction costs?
Tibado is creating digital coins to sit alongside physical notes and coins. Our digital coins are a digital representation of an existing product – cash.
For day-to-day payments within a country, Tibado works in a manner that is similar to Alipay’s – a merchant can scan a PNG image on your mobile, and seek your authentication via a password. Tibado also offers an exciting way to revolutionalise cross-border transfers like international remittances and e-commerce. Digital coins denominated in different currencies can be bought and sold with very low transaction costs unlike the high mark-up, e.g. up to 2.7% of payment amount, that financial institutions may charge.
What does a merchant or bank need to do before accepting Tibado’s product as payment?
Bank and merchant on-boarding are relatively straightforward. For a bank, they need to set up a Tibado repository so that they can start facilitating digital coin transactions for their customers. A smaller, more ambitious bank may wish to offer digital coins to gain market share though fees per transaction will be lower.
For a merchant, they can choose to set up a microsite or wallet to facilitate digital coin transactions. Such wallets may also be created on merchants’ smartphones.
We believe that most banks and merchants will prefer to accept digital coins in their local fiat currency relative to cryptocurrencies when their central bank gives the go-ahead for fiat digital cash to be issued. We think fiat digital cash is the 99% market opportunity here, with cryptocurrencies being the 1% market opportunity.
What were some obstacles you faced while establishing Tibado? How did you overcome these obstacles?
Tibado is sometimes classified by regulators as an alternative currency (as defined by the Financial Action Task force – FATF). This means it can fall outside existing regulations, as there is today no market for fiat-denominated, collateralised alternative currency providers and therefore no market to regulate and therefore no regulations! Many Central Bankers have asked me why Tibado doesn’t leverage blockchain so I have explained the technological drawbacks described in Q3. But Central Bankers are becoming more informed and we see more open-minded attitudes recently.
Another issue is terrorism and compliance-related concerns. It is possible for Central banks to receive a live feed of a currency’s central database (showing related IP addresses and transaction amounts). When supported by legal documentation, pattern recognition software can be fixed on suspects.
Though adoption obstacles exist, I believe that people will look back and say that “The digital economy didn’t really arrive until digital currencies arrived”.
Financial institutions may view payments as a beachhead for cross-selling other financial services. Is there a way to do this while preserving anonymity?
Because the Tibado coins contain no tracking information, user privacy is assured. However, this doesn’t prohibit Tibado being used as a common currency platform.
Tibado can provide a common currency platform for cross-border remittances and can significantly reduce the liquidity requirements of the correspondent banks. This, for example, is the core focus of Ripple but Tibado can do the same thing at lower cost and risk because the currencies are collateralised. This means that there is no volatility risk, less liquidity risk and there only needs to be one forex transaction. For example, if you were paying from one bank to another say from USD to CNY then with Ripple you have to go from USD to XRP (Ripple’s native currency) and then XRP to CNY which involves two transactions. Tibado can go straight from USD to CNY using a real-time online forex exchange.
What are you plans to expand outside the UK?
As I shared earlier, banks and merchants tend to wait for their Central Banks to make the first move with regard to digital currencies. For banks that currently handle large volumes of payments, there is little or no incentive for them to switch to digital currencies.
Tibado is in the midst of four patent applications and our strategy is to license our IP for digital currencies to Central banks and payment service providers. This is similar to how ARM Systems (a British chip design company) designs industry-leading microchips but doesn’t actually build them.
What can Chinese businesses do now to get ready for digital currencies?
The best approach might be for Chinese businesses to imagine all the great services they will be able to provide – both at home and abroad – when digital currencies arrive. The core benefit that digital cash will bring is the COMPLETE abolition of transaction fees, so no more 2.2-3.0% payments to Alipay or WeChat for foreign currency transactions! Therefore, businesses could plan to serve segments that aren’t practical to serve now such as less developed international markets or tourists visiting China who do not have local credit cards.
Apart from friction-less payments, other opportunities include integration with the Internet of Things (IoT), and the ability to secure transactions using permission from multiple parties. Let’s start with IoT, businesses involved in the IoT and Smart Contracts can start to build solutions where the power of an embedded digital cash ‘pocket’ makes it easy for your car, house or office to make payments of digital cash.
Complex transactions can also be addressed with dependent smart contracts, including Foreign Exchange (FX) elements, being completed in seconds by the use of digital cash. This takes the benefits ‘abroad’, in that these smart contracts could be with supply chain members in a range of different countries, supplying raw materials or providing distribution services for finished goods.
Will a Chinese digital currency impact Bitcoin in China? If so, what impact will it have?
I believe the crypto-currency and fiat currency markets are quite distinct and so I don’t think the advent of a Chinese fiat digital currency would have much impact on Bitcoin in China. A Chinese digital currency would be part of Chinese commerce mainstream and would be issued and controlled by the Chinese monetary authorities. Bitcoin is a global currency that enables holders to keep value outside of the control of state authorities. With a Chinese digital currency, the value stays in China whereas with bitcoin the value becomes part of a separate global community outside of any single country. The two – Chinese digital currency and Bitcoin – are therefore quite different products with different features serving different market needs.
Tim Jones’ views on fiat digital currency being the 99% market opportunity are also shared by other influential bankers such as Jamie Dimon, Chairman, President and CEO of JPMorgan Chase.
There are a number of alternatives in addition to Tibado such as Ripple, a cryptocurrency mentioned in this interview, and Circle who opened an entity in China in 2016. These products compete based on security features, network effects, i.e. whether major Central Banks agree to work with them, and scalability with higher volumes. It is also possible that after these products may co-exist alongside one another (similar to Visa, MasterCard, and UnionPay) after the market reaches an equilibrium.
In terms of how banks may leverage digital currencies like Tibado for cross-selling complementary financial services, we can refer to how Alipay and banks leverage its data:
- In China, it is not unusual for a landlord to seek a potential tenant’s Alipay credit score to weed out bad tenants. Assuming a digital currency is used by Chinese for cross-border transfers like international remittances and e-commerce, a similar cross-border credit score can be compiled and released upon customer’s approval being granted.
- Banks may also wish to segment its customers based on a cross-border credit score and their recent in-app behavior to launch targeted marketing campaigns. It is recommended that banks self-host such data within its own secure data center.
Source:: Learning Points from Tibado: Digital coins denominated in real money