To push crypto payments, Factom's PegNet creates tokens for many currencies
Factom Protocol executives were on Capitol Hill three years ago with other providers explaining the benefits of the blockchain and cryptocurrency technology for security and payments to the nation's lawmakers.
Now, the Austin-based open-source blockchain provider is launching PegNet tokens to address questions about converting cryptocurrency into more common usable assets.
The use of PegNet tokens provides users a way to pay with one of any 32 currency assets, without relying on intermediaries to make that conversion. A PegNet token would be attached to bitcoin, gold, the U.S. dollar or euros as a way to transfer the value from a purchased crypto token to other forms of currency.
Essentially, Factom was seeking a way to avoid traditional payment and exchange processes, said Greg Forst, marketing chairman of Factom Protocol.
"The network of pegged tokens provides a mechanism for managing payments across jurisdictions that bypasses the slow and expensive processes associated with external third parties," Forst said.
There is much similar activity in cryptocurrency circles, particularly among providers seeking ways to convert tokens into currency that consumers can use to make purchases.
It's an idea that companies like Rambus have contemplated through its Vaultify Trade service, which essentially enables banks and investment portals to secure the purchase, storage, exchange and sale of cryptocurrencies with tokenization and encryption.
After several months of work, Factom Protocol felt it had a host of stablecoins in place with PegNet because it would lack the extreme volatility of other crypto coins, Forst said.
Factom uses "oracles" who aid the network by hooking into trusted application interfaces from currency exchanges through their laptops, rather than larger computer setups, to stay abreast of the various values of currencies. The oracles also set the price for PegNet tokens based on what the exchanges are showing.
If a person bought $10,000 in bitcoins, they could obtain a PegBitcoin token at that price and then immediately swap that to a PegUSD token for U.S. dollars, Forst explained. Because that type of exchange costs 1/10th of a cent per Peg token, it allows users to convert crypto into dollars even for low-value transactions as needed, he added.
For now, the PegNet system is "a platform to build on," Forst said. "In theory, someone could come in and create a payments solution to add to it."
One example could be a solution for a situation in which a consumer wants to pay in bitcoin, but the merchant wants to get paid in U.S. dollars. "I pay in bitcoin and the merchant processing system converts it to a PegBitcoin and then to U.S. dollars," Forst said.
The idea would be to create a system in which the merchant wouldn't really care what the consumer was paying with, because they would have it converted to what they want at a much lower processing fee, Forst added.
Even though payments is only one piece of the Factom blockchain, the company feels PegNet does illustrate to users that any fear of converting to blockchain should be tempered.
"Some people think of blockchain as a sweeping change that has occurred and you have to come up with a whole new currency," Forst said. "But you can use simple integrations in your current legacy systems to leverage blockchain technology."
The U.S. Department of Homeland Security and the Bill and Melinda Gates Foundation already use Factom Protocol blockchain because of its ability to integrate into legacy systems without users needing to handle cryptocurrency.
In the future, Factom sees its blockchain-as-a-service offering as one that will help companies with compliance issues with Europe's General Data Protection Regulation, as well as for security for power grids and various facets of the medical industry.