Swiss startup Liquineq has come up with a bank funds transfer platform that uses blockchain for security and scales to millions of transactions per second for both commercial and consumer purposes. That could bring the technological advantages of blockchain into the traditional banking system.
Cryptocurrencies such as Bitcoin and Ethereum are secure because they use the decentralized blockchain public ledger, but they take a long time to settle transactions, making them less than ideal for banks to use. But Zug, Switzerland-based Liquineq started from the outset to be a payment platform, and it has been recognized as such by Swiss regulator Swiss Financial Market Supervisory Authority.
Liquineq believes it can disrupt banking by safely and securely processing transactions within a matter of seconds, eliminating long delays in verifying money transfers. Specifically, Liquineq is a permissioned, multi-tier blockchain-based financial platform optimized to address the inefficiencies in the existing banking system. It uses different techniques and layers to address speed and security issues.
But rather than replace banks, Liquineq will use local banking partners to manage solutions with local currency and funds held by the partner bank. It can do near-instant settlement of wallet-to-wallet funds transfer — locally and globally.
“Liquineq allows financial institutions to transition, virtually without risk and capital investment, from a mainframe-based high capital and operational expense business model to an ultra-low cost, pay-as-you-go operating model which is the end goal of Liquineq’s blockchain architecture,” said Moti Birger, CEO of Liquineq, in a statement.
Liquineq said it can manage multiple currencies contained in the same wallet, comply with anti-money-laundering (AML) and “know your customer” (KYC) regulations, supply a mobile-centric application with applications programming interfaces (APIs) and desktop support, and provide advanced security.
“We are doing regulation compliant end-to-end banking on multi-tier blockchain without disrupting anything as it is today,” said Ari Birger, chief of alliances at Liquineq, in an interview with VentureBeat. “We grow revenue for banks and transition to automated compliance without need for capital expenditures.”
The problem with modern banking
Ever wonder why banks charge a lot of fees? It’s expensive to open a bank account today, on the order of $200 or $300, and it costs $20 to $30 per account each month to maintain the accounts. The reason is that it is very expensive to fight fraud, wait for money in transit, and deal with things like cyberattacks. Lots of customer approvals are needed by different officials in the banking chain of command.
Liquineq enables real-time, peer-to-peer payment services and value exchange between local fiat currencies and other asset classes, within and across borders, with integral compliance and anti-money-laundering safeguards.
Liquineq deals with slow blockchain performance, revocation of stolen or lost tokens without blockchain forking, and the use of its own Liquideum tokens as a global means of payment in a way that solves the severe compliance problems faced by most cryptocurrencies and many blockchain solutions. For instance, the volatile pricing of Bitcoin and Ethereum, and the slow transaction processing, makes them lousy currencies for commerce.
Customers can set up and fund an account with a bank using Liquineq in minutes by downloading the Liquineq mobile wallet and answering a few easy questions. Debit cards can also be linked to the wallet, allowing instant access to funds deposited with a bank.
Liquineq’s global and local tokenization infrastructure has been designed from the ground up for performance, security, and compliance. More than 25 independent patent claims have been filed, and the company’s unique, proven blockchain architecture scales to millions of transactions per second.
This is significantly faster than current Bitcoin and Ethereum, which currently support less than 10 transactions per second. Liquineq also fully complies with the new General Data Protection Regulation (GDPR) European privacy law, unlike the current SWIFT standard and other platforms.
“I expect Liquineq AG, with support from their advisors who have vast experience at Visa, PayPal and the Federal Reserve, to drive dramatic changes in the way payments and banking work around the world,” said Liquineq advisor Gordon Werkema, former chief operating officer and director of payment strategy at the Federal Reserve of Chicago, in a statement.
Liquineq’s team and advisory board are composed of familiar figures in the commercial and central banking systems (U.S. Federal Reserve Bank, Visa, PayPal), as well as seasoned executives with fintech and secure systems backgrounds.
“The real breakthroughs won’t come from the current blockchain solutions, they will come from companies like Liquineq who provide global payment and banking solutions. Liquineq is building the new money superhighway,” said Daniela Mielke, former vice president at PayPal and head of global strategy at Visa, in a statement.
Liquineq is targeting as its customers central banks, banks, and other financial institutions that have a legal license to hold money within a country.
Liquineq differs from rival currency Ripple because it has been set up as a banking platform as a service, an end-to-end banking solution that allows banks to transition from capital-intensive banking to pay-as-you-go banking. it hopes to make banking practical for the 3.5 billion people who don’t have bank accounts today.
If you lose a wallet, then Liquineq can revoke the tokens in it, since it is a fully permissioned blockchain solution, with proof of trust rather than proof of work (which is very slow). The blockchain will be supervised by independent authorities such as independent auditors, bank supervising authorities, and others. Individual wallets are backed up on the blockchain.
If your wallet is lost or stolen, you can ask for the wallet content to be frozen on the blockchain. There is a legal process by which the content of the wallet can be returned to the rightful owner.
As far as speed, the company can handle 10,000 transactions per second before it implements sharding, or subdividing into different computer clusters. The sharding will speed it up to 50,000 transactions per second. With deployment in 200 countries, that will boost the transactions per second to a few million, Berger said.
Liquineq is currently demoing an open source wallet, but the company prefers to be integrated with existing wallets. Later on this year, Liquineq plans to do an initial coin offering (ICO), targeting high-net-worth individual investors.
Getting more technical
I asked how Liquineq is similar to or different from the newly announced Hedera Hashgraph. Both use permissioned models, rather than public blockchain models like Ethereum or Bitcoin, which use proprietary technology. They don’t rely on sideband messaging to increase performance, and both rely on the core data structure and design for speed. Both support multiple networks to scale to larger numbers of transactions per second.
But Liquineq has Swiss government approval as a “payment token,” not a utility or security token. That is, it’s a means of making payments, not an investment. Liquineq sits on top of the open source ERC-20 code base, with AML and KYC built into it. But Liquineq demarcates the blockchain and locally archives dormant blockchain data, requiring only the current active blockchain to be sent between nodes to operate, which increases both speed and node recovery.
Hashgraph nodes receive the entire Hashgraph data structure and run verification procedures on it to determine whether their transaction has been committed. With Hashgraph, as the number of nodes increases, the bandwidth required to participate increases proportionately, Liquineq said.
Demarcating the blockchain lets Liquineq bring a new node online in seconds, as it just needs the currently active blockchain in order to page in the entire historical blockchain data over time. It also means the amount of data sent between nodes does not grow over time and slow down the system.
A limited number of nodes work on the next block, and an algorithm decides ahead of time who “wins” the next block, with fallbacks. This algorithm is fast and requires very little resources. Liquineq uses a multi-tier blockchain model with a unified address structure from day one. This allows currency and financial operating zones that are independent.
Liquineq creates shards within each local blockchain network. The more sharding nodes added, the better performance. Global performance can reach millions of transactions per second. A new node joining the network can sync and take the full transactional load in seconds, and can be located anywhere.