A Conversation With….Nanopay CEO Laurence Cooke

Blockchain, FinTech | February 23, 2018 By:

Nanopay specializes in reducing the cost and friction in cross-border and B2B payments. CEO Laurence Cooke talked with Block Tribune about the company and the state of cryptocurrency, cross-border payments, ICOs and fiat currency’s future.

BLOCK TRIBUNE:  So I understand that you were at a recent Goldman-Sachs panel and had some interesting things to say about crypto ICOs and more.  

LAURENCE COOKE: Sure. So you know, it was a panel that was led by Jim Schneider ,who’s in Goldman-Sachs Global Investment Research and focuses on this space, in particular cryptocurrencies and ICOs. There were two other people on the panel. One was Adam Ludwin and the other Sean Neville from Chain and Circle respectively.

BLOCK TRIBUNE: And what was the gist of what you said?

LAURENCE COOKE: The format was Jim asked us a couple of questions and then we responded. So, for example, the first thing that he asked us about was whether we thought that we were long or short bitcoin, in terms of bitcoin being a payment system. And so from a payment system perspective, both the others thought that it was interesting and had legs and I said that I was bearish. And the reason I was bearish was for a number of reasons. The first thing is that bitcoin and blockchain in general, have shown that its difficult to scale and when it comes to speed, you’ve obviously got a big issue, and if you look at the sort of throughput and the cost as well … so if you combine speed, which is, I think, on the near side 25 minutes, and on the long side more than an hour to do a transaction, and then you only have throughput of seven to, I dunno, depending on this is a later question, depending on other alternatives, maybe as much as 15 transactions per second. So, our transactions take one to three milliseconds and we can do 30 000 transactions per second, per AWS server.

So, if you compare 30 000 with seven, that’s obviously a much better economic and if you compare one to three milliseconds with 25 to 60 minutes, it’s obviously [inaudible 00:02:30] different. Then when it comes to the overall cost, I think, if you look at the cost of doing a transaction on bitcoin, it is extremely expensive and this is not looking at the amount that is charged. This is just looking at the amount of infrastructure that you need to actually deliver a bitcoin transaction. So if you just took the electricity alone and you ignored all of the rigs around the world, and you divided that by the actual costs of doing it, it becomes an extraordinary number and so it’s very, very expensive if there’s no margin.

On the other hand, the marginal cost of a transaction on our platform or other platforms is near zero. So, I would argue that bitcoin is actually poor for doing transactions. The last thing about the payment system is bitcoin is super, super clever technology and the whole blockchain idea is fabulous. It’s purpose built to allow to parties who do not trust each other to be able to transact, which is fantastic because you don’t have to know or trust each other. The only thing is, just about every payment, it is illegal to do a transaction where you don’t know and trust the other party. In fact, when you do most transactions you have to disclose all of the information of the other party to ensure that all of the transactions are legitimate from an AML and KYC perspective. And the only example where you do a transaction where you haven’t indicated your relationship with the other party, is when you do a retail cash transaction. And when you do a retail cash transaction, at least you are physically present and it’s really obvious what you’re buying.

BLOCK TRIBUNE: Your business is focused mostly on retail and merchants, or is it on remittances, or is it a mix of both?

LAURENCE COOKE:  Our business is actually a payments platform that can be used in many different areas. We absolutely can be used in retail and obviously in retail, it’s an advantage if you can do a transaction in seconds rather than minutes, and you know, as everyone says, you are not going to wait 25 minutes to pay for a cup of coffee. But our real focus is in creating central bank, digital cash. So, digitizes the dollar in the US, Sterling in the UK, the Canadian dollar in Canada et cetera, et cetera. By digitizing the fiat currency we genuinely create a frictionless transaction platform and that has many use cases, including retail but for now we focus on business to business, cross border and settlement and capital markets. There are lots of other opportunities that our platform can and will be used for, but we’re focused on those to start.

BLOCK TRIBUNE: Are you ethereum-based, or is this proprietary technology or something else?

LAURENCE COOKE: It’s a proprietary technology and the main reason that we have created our own technology is we’ve built our platform from the start to be able to scale, and to be regulator friendly. So, maybe if we start off with the scalability, when we were starting this company, we said, “If we look at every payment system out there, they’re all slow. They’re all big and cumbersome.” And a great example of that is, even the new platforms are big, expensive and cumbersome, including the UK’s Faster Payments. So the UKs Faster Payments was a billion pound investment, Australia’s by the way, MPP, which went live last week, was a billion Aussie dollars …. The UK one, does a transaction in 10 to 15 seconds settled and that platform can only do two and a half thousand transactions per second. So we’re already 10x that on a single server and we pay $4000 a month for that server, compared to a billion pounds.

BLOCK TRIBUNE: Sure. As you mentioned, there are a number of companies out there, doing that. How fast will the shake out happen?

LAURENCE COOKE: Well, I think ultimately if we can deliver transactions at a level and make money, at a level where it is well below everyone else’s cost, it becomes a no-brainer. If we can also deliver those transactions more securely and faster and in a flexible way, so that you can use either our APRs or our portal to deliver the payments, it just makes sense that everyone will eventually gravitate to the best platform. And in terms of performance, transaction speed or throughput, in terms of cost, in terms of security, we definitely have the best solution. When it comes to scale, I think everything that is blockchain based, is going to struggle to scale and that’s just because it just doesn’t make economic sense to have so many copies of it.

Which then means that the blockchain companies, including many of the ones that we’ve often spoken about, actually compromise and they don’t have a pure blockchain solution. So they have a side chain or they have limited consensus. They eliminate the mining, which are all good things for performance, but then you also undermine the legitimacy of the platform. So, if you are going to trust five parties, why wouldn’t you just trust one?

BLOCK TRIBUNE: Regulators seem to have woken up over the last six months. How does that affect you?

LAURENCE COOKE: I think on the regulator side, our platform was originally created by the Royal Canadian Mint, and the Royal Canadian Mint is owned by the federal government in Canada. And Mintchip was designed to replace physical cash with digital cash in Canada. And it was designed to be regulated for [inaudible 00:08:20] Central Bank and [inaudible 00:08:21] bank friendly. So, from a regulatory point of view, everything we do, we seek to not only apply the regulations as we see them today, but also the regulations as we see them in the future.

We’re actively involved with working with regulators in regulating what the future will look like and we hold ourselves to the highest possible standards. So, when we go away and do things like, AML and KYC, we say, “What is the standard that would be required of a bank?” And that’s what we go at? And when we talk about transparency and those sorts of things, we say, “What would the transparency of a public company need to look like?” And that’s what we go for. So, we think regulations is a necessity, and it will happen everywhere in the world eventually. And we’re just going to hopefully lead these regulations in a direction where they are pro-innovation, like they have been in the UK. and not stifling to innovation, but at the same time, they give consumers and participants some protection, very limited protection, including you’re technically doing illegal transactions, if you are not doing the appropriate KYC and AML and it’s up to the platforms as well as the end users to make sure that they are doing legal transactions.

BLOCK TRIBUNE: Do you do any business in China?

LAURENCE COOKE: So, one of the things we announced a few months ago, which has not launched yet, is that we have done a deal with Interac, which is the debit here in Canada. That gives us access to every single bank account in Canada, so people will be able to transfer value directly from within their bank account using an app that already works, and all we’re doing is we’re adding an international capability to it. So, Interac has a feature, where you can go … anyone in Canada can go into their bank account, and last year over a 160 million times, people sent money domestically, and we’ve added international for India and China and in the third route is going to be the United States, because those are the biggest remittance corridors from a Canadian perspective. So, absolutely China’s right up there. And you know, I think China’s a very, very attractive market for what we do.

BLOCK TRIBUNE: What do you think the future of fiat currency is as far as physical cash goes? Will that be going away sometime within the next 10 to 20 years?

LAURENCE COOKE: I assume that there are going to be some people who are going to hold onto fiat for a long period of time, but I think the amount of fiat, physical cash will diminish greatly over time. If you have a electronic, risk-free claim against the bank in the form of digital fiat, there’s no real reason for most normal people to be using fiat. And all of the consumer protection that you have today, including privacy, can be built into our platform and is already built into our platform, so it’s not like you’re saying, “Well I can do a private transaction today, and you couldn’t in the future.”

In fact, you can do a more private transaction today than you could with cash. With cash, at least, you have to be physically present, in our platform, it can be as private as you like. Now I say, private, rather than anonymous, because you know, if the law enforcement or regulator wanted to look into a transaction and find out what actually happened, it is possible. But you are naturally protected as much or as little as you want from those that you’re purchasing from. Which I think is highly desirable.

BLOCK TRIBUNE: There’s the argument to be made that the un-banked and the homeless people would be marginalized further by the diminishment of physical cash. What say you to that?

LAURENCE COOKE: Yeah, so I think that is a very good argument. And our platform is, again, unique in this area, in that we do have an offline capability. So, our offline capability allows you to do a transaction where neither of the parties are connected to the internet. So it can be card based, it can be phone based. And you could have one person on a smart phone and the other person on a card and you could even do an online transaction where only one is online and the other just has something as simple as a [inaudible 00:12:40] card. So, it’s pretty easy to deliver. And it is in the form of digital cash, and we can do it offline allowing you to actually deliver financial services to the un-banked and under-banked. So, I actually think it’s a huge opportunity.

Linking into this, you could also do government disbursements and aid through the same platform. At the moment, a lot of government disbursements are duplicative. There are many people that claiming benefits that really shouldn’t. And this will eliminate all of those and at the same time, when a country gives aid to another country, the vast majority of the money disappears into the dead spots, rather than being handed out to the individuals who are most in need. And like handing out food, you can actually give it directly to the individuals if you are in digital cash format. So I think in terms of aid, in terms of benefits, in terms of payments and in terms of taking the marginalized and being able to afford to offer them far more financial services … those are all achievable through our platform.

And indeed we have made commitments to other third parties including the Bill and Melinda Gates foundation to make our platform available for free, for anyone that is poor.

BLOCK TRIBUNE: Speaking of money disappearing, what’s your take on the initial coin market for 2018? It seems like more and more companies are cleaning up and using it as a funding platform, with not really having any technology behind them. What’s you take on those?

LAURENCE COOKE: I think if you go and do an ICO and you don’t have any technology behind it, I think you’re going to be in trouble in the future, because if you don’t have any technology behind it, then it genuinely just a security. And if it is a security, then all the securities laws apply. And if you don’t apply the securities law and you indeed have sold a security, I think what’s going to happen is the Department of Justice is going to come after you with a big stick. So I’m absolutely certain there will be some people that will go to jail and I would urge those that are considering doing an ICO, doing it for the right reasons, rather than the wrong reasons.

I do think it’s been really exciting times in the ICO space, and its driven a lot of innovation. And if you think you have a unique innovation that you can fund through that mechanism, I think you deserve a very reasonable way of doing it, but you do have to add value using those funds for what you commit to using them for. 

The only other thing I was going to say, is that in the overall ICO space, because there was so much value raised, over the last quarter in particular, it’s actually given some of the VC’s a run for their money and I don’t think that’s necessarily a bad thing. Now VC’s have to step up and a) have to compete as a funding source for the first time, and also they’re going to have to give more value beyond giving just dumb money because if you want dumb money, it must be easier to go and do an ICO.

BLOCK TRIBUNE: When will people start going to jail? Will that be this year or will it be three years in the future?

LAURENCE COOKE: I think that entirely depends on what happens on the consumer side. Like we saw in the early days of bitcoin, those that ran exchanges did things that the Department of Justice thought were inappropriate, went to jail pretty quickly. The guys from Silk Road, for example, and others and I think the Department of Justice normally starts by making an example of someone. So, I would say the worst perpetrator will go to jail and they’ll go to jail pretty quickly. And it’ll be a signal that times have changed and things are going to have to get quite different in the future. I do think that anyone that is operating in a gray area, should be very, very cautious, because it’s only a matter of time.

BLOCK TRIBUNE: Are you talking about those SAFT agreements that people are buying into and launching their companies on? Is that the gray area?

LAURENCE COOKE: Well, I think the gray area is, if you don’t actually have a technology, that is unique that you are raising funds to develop and you’re just running off to get oodles of money to spend on whatever you so choose, then you’ve created a security and that security … all the securities laws apply. So, unless you’ve applied for exemption from the security laws, you’ll be on the wrong side of the law. If you’ve got a high degree of comfort, that what you’re doing is not a security, and therefore is an asset, then different rules apply. So, you know, you need to be careful what you’re selling. And you can’t misrepresent what you’re doing, because if you do, someone will be looking after you.

I think the other thing is, a lot of the consumers themselves have not paid any capital gains or any capital taxes on their crypto-investments and I think it’s only a matter of time before buyer risk gets after those people, which will in turn, impact all of the platform providers.

BLOCK TRIBUNE: Anything you want to bring up that I didn’t ask you about?

LAURENCE COOKE: The only other thing that came up on the panel, was the overall view of what is happening on the ethereum side. And you know, I think ethereum as a platform, is super smart and its very, very exciting what they’re doing. I’m not that bullish on the smart contract component of it though. And the reason for that is because the contracts are neither smart nor contracts. And I say they’re not smart because a smart thing could interpret something multiple different ways depending on what is going on, much like AI could. These are hard coated features that are built into the platform. And the second thing is not a contract, well, you know, I think the key elements of a contract is that they have an intent, which is not represented anywhere in a smart contract. And then they have the written version, which can be debated open to debate and negotiation and ultimately arbitrated by a court, none of which can be done in a smart contract. So I think the biggest part of ethereum that gives me concern are everyone’s excitement about smart contracts, which are neither smart nor contracts.

BLOCK TRIBUNE: So what platform can scale then, if not ethereum?

LAURENCE COOKE: I’m sure there will be platforms that can scale. Ours can definitely scale. There will be other platforms out there that can scale. But the central bank here in Canada did Jasper One and Two. And Jasper One and Two were seeing can we use it to work with 11 to 15 different nodes to settle out large value system and is it … The first question was, “Is it better than what we currently have?” And the answer for both Jasper One and Two came back, “No.”

BLOCK TRIBUNE:: Hm. Yeah, I remember that.

LAURENCE COOKE: The second component of that was they said that they didn’t think that the technology would be ready for 20 years. So, between Payments Canada and the Bank of Canada at the moment, they’re rolling out a new platform and they expect that they will at least buy one more platform after that before they’ll re-look at using a distributed ledger technology or ethereum to do something like that. So they think it’s more than 20 years and two generations.