IEEE Consumer Electronics Magazine - March/April 2020 - 30

Consumer Electronics Security

Note that this procedure is similar to existing
products such as Bitpay. The major difference is
that the payer can enforce a fine-grained control
of the transactions that the bank can launch.
MP protocol for case 1 We assume that
everyone has been properly initialized and the
communication between different parties is
secured using TLS/SSL. The MP protocol works
as follows.
1) Delegation setup. Using the delegation protocol described in the section "Fine-Grained
Payment Schemes," the payer authorizes the
bank as the delegator to sell a certain amount
of cryptocurrency on behalf of himself/
herself.
2) Payment request initialization. The merchant
sends the payment request to the payer,
which includes identity of the merchant, the
value of the payment, and the merchant's
digital signature that protects the authenticity/integrity of the request.
3) Payment preparation. The sender first checks
the payment request for value and merchant
identity, then generates a request to ask the
bank to sell a certain amount of cryptocurrency and pay the merchant fiat currency.
4) Payment submission. As the payer designates the bank as the delegatee, the bank can
issue a transaction on the blockchain-based
cryptocurrency system to sell cryptocurrency for fiat currency, which is then deposited to the merchant account. If the payment
is not consistent with the conditions
included in the delegation, the blockchain
will not accept the bank issued transaction
and the payment fails.
5) Payment confirmation. The merchant checks
his/her bank account. If he/she receives the
correct amount of fiat currency, the payment
is finished.
The above protocol can address blockchain
storage and payment processing latency.
1) Storage and communication. The smart
device relies on the bank for all blockchain
related operations. Because the bank usually
has strong enough servers to work as a full
node who keeps a local copy of the complete

transaction history and reliable network connecting to other participants of the blockchain system, it has the capability to verify
the validity of transactions by itself.
2) Latency. Since the bank works as a delegatee
of the payer, it can guarantee the success of
the selling operation as there will not be a
double-spending. Therefore, the bank can
deposit the correct amount of fiat currency
to the merchant account before the selling
transaction is confirmed in the blockchainbased cryptocurrency system.
One potential risk that the proposed protocol
cannot address in this scenario is liquidity. Since
the merchant only accepts fiat currency, there
must be a liquidity provider who is willing to
help the payer to convert the cryptocurrency to
fiat currency. If there is not enough liquidity, the
payment will fail.
Regulatory compliance When a financial
institution is involved in the MP, even if it is cryptocurrency, the system needs to consider regulatory requirements such as KYC and AML.2
Although blockchain can be used as the storage
infrastructure to store KYC related information,7,8
in a purely decentralized and open system, it is
very difficult or even impossible to obtain accurate information of each participant to fulfill all
requirements at the first place.3 Therefore, we propose to add another layer on top of the existing
blockchain-based cryptocurrency system for KYC
and AML compliance. Figure 2 demonstrates the
overall framework for KYC/AML compliance layer.
According to the requirements, the payer
with smart device needs to contact external
information provider to obtain credential information of himself/herself. External information
providers also help the payer to bind the credentials with his/her identity used in the cryptocurrency system by maintaining a database that
stores the relationship between the identity and
credentials. When the payer registers with the
bank using the new identity with bound credential, the bank can check with external information providers to learn whether the new identity
has correct credentials attached. With the
new identity, the bank can help the payer and
merchant to finish transactions. The compliance

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