Digital and alternative currencies are often cast as libertarian-friendly payment vehicles whose very mission engenders government antagonism. But in Canada, things are a bit friendlier.
NanoPay, a Toronto-based technology company, is making a bet on a 'regulated' virtual currency by acquiring all assets of MintChip, a Royal Canadian Mint-produced virtual currency.
"This is designed with regulation in mind from the start," said Laurence Cooke, CEO and founder nanoPay. "Any transaction can be looked at or considered by a regulator." In a deal announced Tuesday, MintChip's assets will transfer to Loyalty Pays Holdings, a subsidiary of the three-year old nanoPay.
MintChip is not exactly the same as bitcoin, which is a 'cryptocurrency,' or a decentralized digital currency that uses cryptography. MintChip is a protocol for transferring digital value, which is stored in a cloud-based account that can be denominated in government-recognized currencies at a later time.
"We're not anti-bank or anti-central bank; we're not replacing anyone's ecosystem," Cooke said, adding MintChip's model is able to support anti-money laundering and know your customer rules. The actual parties in the transaction are private, similar to bitcoin, and an investigation would require a court order.
MintChip's model also enables transactions to pass between parties without going through a centralized intermediary, reducing costs and allowing real time settlement. Merchant fees are generally low and fixed at a few cents, instead of the card networks' model of charging a percentage of the transaction size.
Since MintChip transactions are eventually denominated in a local currency, such as Canadian or U.S. dollars, MintChip is less prone to the fluctuations in value that have afflicted bitcoin.
"There's no currency risk," Cooke said. "We are doing this with the knowledge and direct support of the central banks."
MintChip is already known in Canadian technology circles. The Royal Mint of Canada was open and embraced external development for MintChip, encouraging public-private sector collaboration, said Ben Knieff, a senior analyst at Aite Group. A private enterprise can probably do more with marketing and distribution than the Mint can do, thus driving up adoption, Knieff said.
"It is possible that a private enterprise can more easily scale a new form of payment that is already well accepted by regulators, which is one of the big challenges and risks for other types of alternative payments such as bitcoin," Knieff said. "A digital currency that is acceptable to government and regulators can certainly provide a lot of benefits and help reduce money laundering risk as well as the costs to government and businesses associated with cash. It's a myth that cash is free."
The Canadian Mint, which has planned to sell MintChip as part of its strategy for the technology, has conducted a six-month pilot of its virtual currency, which will be available commercially in the next few weeks, nanoPay said.
NanoPay's core products include loyalty and payment technology for retail and e-commerce merchants. The company envisions MintChip as being more attractive to retailers, merchants, telcos, acquirers, point of sale providers and banks, many of which have been reluctant to support cryptocurrencies because of the perceived risk.
Venezuela has also developed a government-run digital currency, called Sucre. Generally, the concept of government-backed virtual currencies have been criticized as limiting options.
The costs and efficiencies of MintChip should prove attractive to merchants and consumers, Cooke said.
"We're giving retailers and merchants a cheaper path to get paid," Cooke said. "We're focused on fiat currencies and are not interested in a different currency such as bitcoin."
MintChip is a digital option that works similar to cash, but is amenable to a future in which paper money is in decline, Cooke said. "We're replacing cash, but with one differentiator with cash: MintChip is more secure."