Can tokenization be the engine for crypto payments?
If cryptocurrency is ever going to become a viable payment option, it has to have bank-grade security — and bank support.
Rambus Inc. equates that to something it can provide in the form of tokenization of crypto assets on a blockchain. It also can give banks access to cryptocurrency exchanges through their mobile banking apps.
The Sunnyvale, Calif.-based security firm has launched Vaultify Trade to protect virtual assets on the blockchain by offering tokenized security, multi-signature authorization, support of white-label apps or a software development kit, and segregated wallets that combine offline and online security methods and storage.
Vaultify Trade initially focuses on enabling banks and investment portals to secure the purchase, storage, exchange and sale of cryptocurrencies with tokenization and encryption. But Rambus also views Vaultify Trade as setting the stage — with other features within the platform — for what could ultimately lead to a safer approach to mainstream crypto payments.
The company has long been a token service provider and a token gateway providing access to multiple services. It has also offered the Vaultify Shop payments platform that helps merchants put different currencies in a single wallet, and converts coupons and loyalty points to cash.
Vaultify Trade takes parts of all of that, and makes it relevant for blockchain protection. It views this step as vital for the advancement of crypto assets.
"There are phases of functionality to Vaultify Trade for when the crypto market is ready to start doing payments," said Kendra De Berti, vice president of solutions marketing at Rambus. "Our intent is to be ready when that use case becomes a more mainstream option."
While use of cyrptocurrency in payments is definitely in its early stages, an aspect of it could pick up steam through a model that Starbucks has said it is contemplating with Intercontinental Exchange — accepting payments for coffee and latte from cryptocurrencies that have been converted to cash.
Rambus, itself evolving from a token service provider to being more heavily involved in protecting mobile payments over the past few years, will keep an eye on what develops as Starbucks dabbles with crypto conversion.
Even though Starbucks is not directly accepting bitcoin or other virtual currencies for payments, the company does serve as an example of what Vaultify Trade could do for it in the future with a service called the Lightning Network, De Berti said.
The Lightning Network essentially allows the creation of a preloaded cryptocurrency gift card in which the user can spend the value on the card, or even return some of that value back onto the blockchain, she added.
"With Starbucks actually doing a trial of cryptocurrency, though not a universal acceptance thing, we are not as far off from this as we think," De Berti said. "The world might just be waiting for a little more stabilization on the value (of cryptocurrency)."
Another function with Vaultify Trade that can aid banks and their customers is called the Atomic Swap, a feature that allows transferring of currency from one crypto exchange to another without going through the exchange process. That sort of transfer would result in a reduction of transaction fees.
Though Vaultify Trade represents a significant move forward in securing crypto assets for banks, those banks may have other concerns on their minds regarding virtual currencies, said Julie Conroy, research director and fraud expert with Boston-based Aite Group.
"I think it's less security fears and more regulatory fears that have banks treading carefully with cryptocurrency," Conroy said. "In jurisdictions where the AML policy is clear and regulators are comfortable with crypto, I think the added level of security that tokenization brings will be welcomed."
However, there are still a large number of countries where the "regulatory picture is still very murky," so banks will continue to be cautious about cryptocurrency and also what converting to blockchain will mean for those processes, Conroy added.
From the consumer confidence angle, the tokenization process can allow banks to bring cryptocurrency and blockchain into a new light.
“While cryptocurrencies represent significant opportunities, a major risk factor is that they are prone to theft, in large part due to the lack of strong security solutions for the blockchain," said Jordan McKee, senior payments analyst at 451 Research.
"This undermines consumer confidence and limits the ability for financial services companies to offer products that help comply with regulations and best practices," McKee added. "With additional trust and transparency, the potential for cryptocurrencies to transform financial services can be realized.”
In seeking to build that confidence during buying and selling of crypto assets, Vaultify Trade encrypts tokens that are stored on end-user devices, while private keys are stored in an online vault. The recovery keys are kept offline, or in "cold" storage so they remain safe even if an exchange is hacked.
A transaction moves through the exchange, while tokenization at the blockchain mitigates fraud risk to the crypto assets as it moves back to the bank and eventually back onto the consumer device initiating the trade.
Vaultify Trade came about through Rambus' research into what challenges were facing people who wanted to embrace cryptocurrency, De Berti added. "But there absolutely is an aspect of developing this through conversations we have had with customers (banks) exploring crypto and blockchain."
Financial institutions are "trying to figure out what assets they can put securely on a blockchain, while also trying to determine what they can do with cryptocurrency," De Berti said. "Those conversations made us feel this is a safe place to go in terms of customer traction."