The Doge Card - Day 2: A 21st Century Payment Processor

tldr; Doge has something that not many of the other crypto's have and that's liquidity (a lot of coins). Because of that and the low fees (compared to say ETH), it has the opportunity become a mainstream 21st century blockchain payment system.

I've organized this into sections, so if you don't care about a specific section, you can skip to the next:

1. Section 1: Context
2. Section 2: Background (aka Story Time)
3. Section 3: The role Doge can play in the financial system
4. Section 4: Community Input Questions

Section 1: Context

In a previous post, I discussed the Doge Card concept allowing people to use Doge on a debit card to transact with the existing infrastructure and be reloadable adding more Doge as needed. After more research, this post discusses next steps and things for the community to consider, #butfirst let's take a look at how the financial system came to be where it is today.

**Section 2: Background (aka Story Time)**

A long time ago in a nation not far away...

**************SCROLLING CREDITS*********************

Turmoil has engulfed the new Republic. It has only been 36 years since the US declared independence and now war with Great Britain and her allies threatens the stability of the young nation.

With a blockade of deadly Royal Navy battleships blocking trade with Europe, Americans are left to trade among themselves.

While the banking system was full of politicization and corruption, foundations would soon be laid that defined the US financial system for generations to come...

*****************END CREDITS************************

To summarize the history of banking in the US across the years, the ability to issue credit and remain solvent when debtors default is the core theme of regulatory and systemic changes. To facilitate solvency challenges, the federal government took it upon themselves to insure the American people and reassure that their money is safe - it is backed by the full faith and credit of the United States in response to the great depression in the 1930s establishing the FDIC. This and more recent regulation in 2010 with the Dodd-Frank Act, has worked to prevent banks from failing and increase their ability to offer businesses and consumers credit to buy houses, cars, go on vacations, and start businesses that create jobs. This backing though comes with a price, oversight and intense procedures with a snail pace of innovation.

Section 3: The role Doge can play in the financial system

This is where cryptocurrency has made a huge impact. The ability to transact internationally quickly (within 10 minutes and 1 minute for Doge), to not have a central entity inflate and deflate it at will, and to have privacy in a time where companies are collecting tons of information about you, sounds like a silver bullet solution, but there are trade-offs which will be discussed in section 4.

Where Doge fits in to the puzzle, is that unlike many other crypto coins, it has liquidity and is not deflationary; although, it will inflate less and less over time. The early American financial system (as well as many before it) proved that by having a store of value as a means of transactional currency limits the ability for transactions to take place.

1. Circulation problem - there is a small amount of it
2. Adoption problem - only the wealthy have it and it's difficult to price things against it
3. Hoarding problem - owners want to hodl instead of release into the economy (Banks were the first true hodl'rs - we will lock our doors before we give you our bullion!)

This is why Bitcoin, the trailblazer, has failed to gain mass adoption in terms of transactional use - because it was not designed to be used but literally designed to be hodl'd. See why Stripe ended their adoption in 2018 - https://stripe.com/blog/ending-bitcoin-support#:~:text=Therefore%2C%20starting%20today%2C%20we%20are,transactions%20on%20April%2023%2C%202018.

Doge on the other hand has the solution to each of those problems:

1. Circulation problem - there is plenty of it, over 129B coins (compared to USD circulation of 2.2 trillion it's not quite as liquid b/c the USD circulation has been inflated over the years)
2. Adoption problem - it's affordable and attainable, even if it reaches $10 becoming top valued crypto in the world, it's still affordable and things can be priced against it
3. Hoarding problem - in it's current volatile state, there will be this but as adoption of a functional use increase, think this will turn more into a savings account like perspective where you get 10% interest growth rather than current banks of 0.01% - 0.6% annual rate, but you aren't afraid to spend it to go Disney World or ticket for Virgin Galactic space tourism ride.

This sets Doge up to be a primary candidate for a payment system (and yes there are 3 other cyrpto with more liquidity than Doge but I'm excluding them b/c don't know much about them other than BTT which is meant really as an internal reward system).

Let's talk about the components of the existing electronic payment system with debit cards/credit cards:

1. Payment Gateway -> acts an entry way to talk to a merchant bank, think Authorize.NET, you still have to get a merchant bank account which will offer Authorize.NET as the payment gateway solution.
2. Acquiring Bank (aka Merchant Bank, aka Processing Bank) -> the merchant bank, if you go with Authorize.NET you will have to get a Merchant Account through your bank and go through a lengthy KYC process, sometimes a credit check, etc. Newer platforms like Stripe, provide a merchant account and payment gateway for you all in one and take on some of the risks (e.g. merchant being fraudulent taking customers money and disappearing - Stripe has to pay this back to the customer) and most compliance tasks handling the relationship with acquiring bank behind the scenes. Note: The merchant bank account is not the same as a business checking account, but separate. If you just accept checks and cash, you don't need a merchant account.
3. Payment Processor -> the entity that coordinates payment flows on behalf of acquiring banks, think First Data or Global Payments. They primarily act as as a routing mechanism that connect gateways to acquiring banks through credit card/debit card networks to issuing banks.
4. Issuing Bank -> the bank that issued the debit/credit card
5. Credit Card Network (sometimes Credit Card Association)/ATM Network -> the network through which VISA/MasterCard determine which issuing bank to send transaction requests to or for debit-pin transactions, the inter-bank network of determining authorization (Discover/American Express are their own issuing bank).
6. Clearing House (facilitated by Credit Card Networks or ACH) -> how transactions are settled between the Issuing Bank and the Acquiring bank (upon authorization/capture, the acquiring bank will generally release funds right away to the merchant although it still takes 1 day or more to actually be deposited into a business account for use and will settle later with the issuing bank)

The next two components towards the Doge Card are:

1. A payment gateway
2. A payment processor to route transaction requests to legacy networks or the blockchain network in which the blockchain would act as the issuing bank

Section 4: Community Input Questions

If you've made it this far, I'm quite impressed. There are some challenges with this hybrid evolution with both perspectives clashing. The crypto world (it seems) has the following values:

1. Security - it's a common occurrence for credit cards and personal information to get hacked, with so many parties involved it's not surprising that data can be comprised
2. Privacy - it's not uncommon for personal information to be sold or made accessible to businesses within a supply chain - how many have gotten letters in the mail for pre-qualified credit offers that you didn't apply for
3. De-centralization - consumers have put their trust in entities (corporate and government) and a few bad apples ruin it for everyone where decisions are based more on profit-based outcomes (best for bottom line) which doesn't always align with consumers or is a regulation worthy event (e.g. political agendas).

Still, there's no perfect system. In the pursuit of those things, it comes with a cost which outrages the traditional banking system:

1. Invites Security Treats - Crypto is not invulnerable to security issues and in some ways invites more hacking opportunity by being open source and a public ledger revealing nodes and large wallets. The counter to this though is that crypto is more transparent about security issues which are quickly addressed.
2. More privacy supports illegal financial activities - when you know the currency you are accepting can be used for other things without being watched and having oversight, it becomes easier for criminals to finance human trafficking, drugs, weapons, etc.
3. De-centralization supports fraud opportunities - when you don't have a central counter-party that holds issuers to acquirers and vice versa, then one party can renege in which the merchant either doesn't get paid or more likely the consumer doesn't get the promised product/service combined with increased privacy, the consumer doesn't even know who the merchant is.

No one really talks about the fraud that happened in the early days because most people weren't directly affected by it, but if you ever seen Catch Me if You Can, it shows just how easy (not really) it was to commit all kinds of fraud. Having a bank refund a transaction for a merchant not fulfilling their product/service is something that is easy to take for granted until you get screwed over.

To increase adoption and implement a payment gateway and payment process, these 2 problems need to be solved.

The Questions Finally 😌

As early adopters of Doge believing in it's long-term value:

1. Would you be willing to give up on some privacy for more accountability and to what extent (e.g. in some cases, regulation requires SSN/EIN like receiving business payments)?A thought I have is connecting wallets to phone numbers and addresses, encrypted and hidden in public network but accessible given node agreement of the validity of the inquiry (e.g. court order) and only to that requester (e.g. government authority clients would be given special permissions to make these authorized requests and created through a community facilitated process - see #2). The phone number/phone identifier could also be used to send push notifications/text messages if and only if the consumer opts-in related to wallet activity (think a development platform like Shopify but the blockchain becomes the source of the customers privacy rights). While companies like CoinBase provide wallet apps, this reduces the effect of de-centralization. If CoinBase fell off the face of the earth, how would you access your wallet? What happens if their bottom line starts to fall and they want to start charging you for it? Privacy controls should be the responsibility of the network.
2. Would you be willing to rethink de-centralization to some degree to reduce fraud and protect consumers via Community Driven De-centralization?Again, there is no perfect system, but the community here in this subreddit and when the coins were stolen early on is pretty impressive. StackOverflow and the like give strong credibility to the self-organizing capability of individuals. I think a fraud prevention system within the network could be implemented algorithmically pretty decently allowing you to approve transactions on your phone via FaceId/Pin (reducing theft of wallet/issuing card) and by requiring more identify verification from merchants such as a node verified merchant. You could still send direct payments to non-verified merchants but at your own risk. This merchant verification would largely be automated but to merchants whose transactions seem to be flaky require additional community verification. In return for volunteering, the system would reward these community fraud preventers in Doge (e.g. in addition to mining). It would also provide a similar mechanism for flagging transactions as fraud in cases where human validation may be required. How many of you have been scammed before? It sucks. Community fraudster preventers would help reduce that giving consumer confidence. The question becomes, who is qualified to do that and what would stop the wallet holder and his/her/them allies to join the fraudster preventer program to allow their transactions but stop competitors. I think the answer to this is that the protocol
   1. Would never allow you to review your own transactions or transactions of those you have a direct transaction relationship with
   2. Require you to hold a wallet for a given amount of time (e.g. 30 days) before becoming eligible to apply to join reviewed by existing members
   3. All manual decisions would be peer-reviewed by 3 or so people with majority vote
   4. Merchants/consumers could appeal decisions which would require 5 votes by people with more experience
   5. The protocol would implement a training based program that would you would go through to participate and unlock that feature
   6. You as a fraudster preventer would be able to review other fraudsters preventers and be reviewed by others of your feedback/decisions for community accountability.
   7. With respect to the government authority special accounts, this verified merchant process would apply to verify government authority process.

Whatever the implementation, if we are going to ever see Doge gain payment system adoption, there will need to be controls in place to limit illegal activity and offer protection to consumers.

Thanks in advance for your feedback, you've made it to the end. The fate of the galaxy now rests in your hands!

As a side note, one might wonder how is this profitable for an organization/business to invest in? The answer is it's profitable for the community and doge holders overall. Transaction fees would be given to node operators facilitating the infrastructure for the network in hosting a payment gateway node or a payment processing node. They would then be able to convert it to USD to cover operational costs and earn profit or pay directly in Doge. The key aspect here is not that node operators don't make profit, but rather one node operator doesn't have more than 50% influence/control, aka de-centralization.