A Multi-protocol Payment System to Facilitate Financial Inclusion

Abstract

In 2017, there were already 250 million unbanked people with a smartphone and internet access out of a total 1,7 billion, while only in 2018, the volume of migrant remittance inflows for low-and middle-income countries was $529 billion. Due to financial crisis leading to devaluation and hyperinflation, 12 countries (other than the USA) with 40,5 million population already adopted the U.S. dollar as their native currency. Alternatively, Bitcoin usage soared among people in developing countries who are looking for dependable ways to store and transfer value. Bitcoin, with its estimated 25 million global users and ten thousand globally distributed nodes, is by far the most widely used, best understood and battle-tested cryptocurrency in the world to reach this financially excluded demographic. Our goal in this paper is to demonstrate a technical solution that utilizes Bitcoin by making it (a) instantly transferable in a user-friendly way, (b) with minimal (preferably zero) transaction fees and (c) without sacrificing users’ security (i.e. by not controlling their private keys). In our design, instant transactions are enabled by using 2-of-2 multisignature wallet addresses (split between the user and the custodial) and transaction fees are minimized by aggregating unspent transaction outputs (UTXOs). On top of these two pure Bitcoin-based improvements, a fast and low-cost Bitcoin sending mechanism is proposed by creating a “Bitcoin anchor” on Stellar platform, effectively using Stellar as a “Layer 2” solution. Lastly, mapping Bitcoin addresses to user-friendly identifiers (such as email addresses) has been evaluated to increase adoption. By combining these new techniques, we aim to overcome the limitations of Bitcoin and related solutions like off-chain (Lightning Networks) or federated side-chain (Blockstream Liquid) systems.