PERMISSIONLESS

ZERO KNOWLEDGE TECHNOLOGY
https://blog.zencash.io/releasing-the-zen-white-paper/
https://ethereumclassic.github.io/blog/2016-12-28-zero-knowledge/
https://decentralize.today/five-reasons-zcash-is-the-most-corporate-cryptocoin-youve-ever-seen-a77ac430b0e8
https://bittrex.com/Market/Index?MarketName=BTC-ZCL
https://zencash.io/assets/Zen%20White%20Paper.pdf
Zen White Paper
by Robert Viglione, Rolf Versluis, Joshua Yabut, and Jane Lippencott /  May 2017

CONTACT
rob[at]zencash.io, rolf[at]zencash.io, josh[at]zencash.io, & jane[at]zencash.io

ABSTRACT
Zen is an end to-end-encrypted system with zero-knowledge technology over which communications, data, or value can be securely transmitted and stored. It is an integration of revolutionary technologies that create a system over which innovation can accelerate by combining three functions that are traditionally done separately: 1) transactions 2) communication, and 3) competitive governance. This is done in a secure and anonymous manner, using a worldwide distributed blockchain and computing infrastructure. The system integrates multiple best-in-class technologies to form an open platform for permissionless innovation that can evolve with user preferences.

PURPOSE
We live in a hyper-regulated and surveilled world where billions of individuals are deprived of basic human rights, such as property ownership, privacy, free association, and access to information. The technology now exists to solve some of these problems, and Zen’s early implementation will do exactly that. Zen is a collection of products, services, and businesses built around an enabling technology stack employing zero-knowledge proofs and a core set of beliefs. As a distributed blockchain system leveraging the latest censorship-evading techniques, fully encrypted communications, and a social and governance model designed for long term viability, Zen will contribute to the human right to privacy and provide the necessary networking infrastructure for people to securely collaborate and build value within a borderless ecosystem. Our mission is to integrate the latest technologies available post-Satoshi with a decentralized, voluntary, and peaceful set of social structures to improve life for anyone who wants to participate. We believe that this is an idea whose time has come. Zen’s framework is a secure, privacy-oriented infrastructure with a governance system structured to enable participants to collaboratively extend functionality in many dimensions. Opportunities include hosting of individual identification data, selective proof of title for property, decentralized banking services, privacy-preserving p2p/b2b asset exchange, mutual aid societies, p2p insurance, decentralized humanitarian aid mechanisms, or use purely as an anonymous token of value. These functions can be utilized to serve disenfranchised populations currently excluded from vital services such as banking and healthcare due to lack of identification, capital, and secure channels. They can also be leveraged by individuals who desire to take ownership over and monetize their private data, or, for example, by enterprising communities that wish to develop a competitive bidding system on internally generated solar energy. The unique implementations are unbounded, the common link being the belief that decentralization is the engine of moral progress, and that voluntary solutions are the most creative and enduring.

HISTORY
Zen builds on the heritage of the best cryptocurrencies, network architecture, and distributed file sharing systems in existence by incorporating both existing as well as new features to yield a solid foundation designed for long term viability. Just as important as our technology stack, we’re building on the latest ideas in distributed consensus and competitive governance. Some of the foundations of our project come from Bitcoin, Dash, Decred, and Seasteading. Zcash extended Bitcoin with fully anonymous shielded transactions, so that users could choose between normal Bitcoin-like addresses (t-addresses) or shielded addresses resistant to traffic correlation analysis (z-addresses). Then we created Zclassic, a Zcash clone that changed some key parameters our community felt were important: we removed both the 20% Founders’ Reward and the slow start to the money supply. Since launching Zclassic, we’ve formed a vibrant open-source community eager to move the technology forward in a unique direction. Some early accomplishments include developing an open source mining pool application for both Zcash and Zclassic, as well as Windows and Mac wallets. Our team realized that Zclassic could be further extended as a fully encrypted network with an innovative economic and governance model that better aligns with Satoshi’s original vision for a decentralized global community. We view Zclassic as a fundamentally pure open-source, all-volunteer cryptocurrency project, while Zen extends into a platform with internal funding to facilitate a broader set of communications, file-sharing, and economic activities.

ZEN TALK
The Z transactions in ZenCash have the ability to incorporate text-based messages, which are encrypted and included in the blockchain. There is a 1024 character limit for these messages, and they enhance the ability for users to conduct secure commerce. Instead of discussing the transaction in other less-secure channels that may not have the same level of privacy enhancements as Zen, users can communicate via the ZenTalk messages with the other party or parties before and after the shielded transfer takes place with very small z transaction spends. These messages can be sent directly from one z address to another, and they can also be sent to a channel. By generating a z address from the hash of a channel name, users can subscribe to the channel and read anything published by anyone to the channel. For example, the channel #ZenCash announcements would hash to zXXXXXXXXXXXX, allowing any user to send an anonymous message to the channel. Each message would cost a finite amount of ZenCash to send, since it is contained in a z transactions, therefore reducing the amount of non-useful messages on common channels. Official announcements would be signed by private key and would only be displayed if deemed valid. Furthermore, essentially private group messages can be published using z transactions by first creating a complex channel name,and then encrypting the contents of the message with keys only the desired recipients have. ZenTalk messages would be encrypted with algorithms such as AES-256 with Perfect Forward Secrecy (PFS), matching current standards of encryption for secure communication.

ZEN PUB
Zen has the ability to publish documents to the IPFS or GNUnet. This is done by publishing a IPFS or GNUnet address in the text field of a z address. The preferred document publishing system at this time is GNUnet, because it provides the required infrastructure for anonymous publishing and maintains an active database of documents. The system is similarly extensible to IPFS or any other future distributing archival system. By creating an anonymous messaging layer in conjunction with an anonymous publishing layer, ZenPub allows for the creation of truly anonymous publications which can be rapidly distributed to interested readers.

ZEN HIDE
It is possible for regulators in countries hostile to crypto-commerce to block traditional crypto-currencies like Bitcoin and even Zcash. Zen uses Domain Fronting to extend the ability to complete transactions in adversarial network environments, as explained in Blocking-resistant communication through domain fronting abstract: “We describe “domain fronting,” a versatile censorship circumvention technique that hides the remote endpoint of a communication. Domain fronting works at the application layer, using HTTPS, to communicate with a forbidden host while appearing to communicate with some other host, permitted by the censor. The key idea is the use of different domain names at different layers of communication. One domain appears on the “outside” of an HTTPS request–in the DNS request and TLS Server Name Indication, while another domain appears on the “inside”–in the HTTP Host header, invisible to the censor under HTTPS encryption. A censor, unable to distinguish fronted and non-fronted traffic to a domain, must choose between allowing circumvention traffic and blocking the domain entirely, which results in expensive collateral damage. Domain fronting is easy to deploy and use and does not require special cooperation by network intermediaries. We identify a number of hard-to-block web services, such as content delivery networks, that support domain-fronted connections and are useful for censorship circumvention.” The specific implementation of Domain Fronting used by Zen at launch is with a Commercial Content Distribution Network, but as with every aspect of our architecture, flexibility is designed in from the start and the system can extend in many directions as the technology evolves.

APPLICATIONS
Zen is what we consider to be an optimally decentralized open source project, and so we expect applications to be built and contributed to the ecosystem by many parties. Many of these contributions will likely come in voluntary open source fashion, but we expect a robust business community to grow around the platform as well.

GOVERNANCE
Zen is designed with a decentralized governance model incorporating multi-stakeholder empowerment and the flexibility to evolve to optimally suit our community. Fundamentally, our philosophy on governance is that we do not know a priori the best approach, but we have some ideas for how to initialize the system and enable it to evolve with the needs of the community. We believe in governance as a service (GaaS) and aim to efficiently provide value to our direct stakeholders, the broader community, and the world. ”Any industry that delivers poor service for a high price deserves to be disrupted” (Quirk, 2017), governance being a consummate example. In solidarity with other projects and ideas taking root around the world, we reject forced centralization and embrace voluntaryism. Rather than entrusting a minority of the people with power, we believe that all people have the right to be trusted with freedom. The core philosophy of our governance model is that decentralization of power maximizes inclusion and creativity. Practical implementations must recognize that pooling resources and effort provides synergies that should be optimally balanced against full decentralization; optimal points being state and time-varying, best determined through voluntary participation and secession. Importantly, we are implementing a system where competing DAOs can emerge to share resources or even completely subsume less efficient or unpopular versions. There should be no one-size-fits-all structure invariant across environment, function, culture, or time; rather, structures should be fluid, suited to specific problems, and flexible to scale when working and fade when failing relative to alternatives. Such a system of systems would dynamically evolve in such a way that it is antifragile to competitive feedback. Our objective governance state will balance decentralization, implementation efficiency, separation of powers, broad stakeholder empowerment, and evolutionary flexibility. This initial state will be the result of at least a 12- to 18-month R&D effort into game theoretic, political science, and economics research into optimal voting mechanisms coupled with feedback from multiple testnet implementations. The project will be one of our first funded efforts with final deliverables including a comprehensive research report and operational code integrated into the Zen network. Within 6 months of governance implementation we expect to have leadership teams in operation from our first full and open election.

OPTIMAL DECENTRALIZATION
By decentralization we mean that everyone has an equal opportunity to participate, that we are fully inclusive, and that decision-making authority is maximally diffuse such that the system is resistant to capture. Theoretical maximum decentralization means that every individual retains authority to equally influence decision-making; this is difficult to implement in practice when pooling resources to collaborate on a common system. Even if implemented in such a pure fashion, individual decisions naturally pool for collaboration efficiency and resources accumulate to certain stakeholders at unequal rates. We cannot stop these natural forces, nor is there reason to categorically deem them harmful in every instance. What we can do is to design the system such that all participation is voluntary, that decision-making power over resource allocation is balanced across a broad cross-section of stakeholder types, and that a credible mechanism exists to evolve with feedback. A structure infused with flexibility is more important than initially designing the best system to suit all circumstances, especially since we are creating a movement so expansive that predicting all developments is essentially impossible. Implementation efficiency is also a big concern for decentralized organizations. Pure decentralization could suffer decision-making paralysis, voter apathy, or delusions of the herd at the extrema. This is why we initially shy away from a system of pure democracy for all decision-making, and are taking the time to research competing models and test them under varying conditions of stress. Our proposed system of free and open competition for DAOs is designed to encourage groups of high-performing functional area experts and professionals to propose their leadership in specialized domains so that our system-wide efficiency in converting resources to higher-value end products or services is continually evolving to suit user needs and demands.

CHECKS & BALANCES
A key lesson learned from human history is that powers are best separated and competing power clusters should provide some equilibrium state of checks and balances. The balancing should be resilient to unchecked growth in any single power cluster such that the entire system succumbs to capture. To initially prevent this condition, Zen is launching with a Core Team in control of 3.5% of block reward funding, and an initial DAO comprised of industry leaders controlling 5% of resources. In addition, our objective state to be implemented after the 12- to 18-month R&D and test phase will include a hybrid type of multi-stakeholder voting so that a wide cross-section of the community retains power to influence decisions and resource allocations. Every aspect of our governance structure will ultimately be subject to competitive feedback and change. We are taking an evolutionary approach that starts with a simple model that will grow with the community.

DAO : INFRASTRUCTURE, PROPOSALS, and VOTING
The Zen system will have at least one DAO funded by a portion of the mining rewards, and governed by a voting system that brings stakeholders together. This system of governance helps ensure that implementation of changes, improvements, and integrations minimizes contention and reduces the chance that a disagreement leads to a fork in the project. As we unroll our broader governance plan derived from rigorous R&D and testing, the goal is to open the governance landscape to full competition; this means that we could see multiple competing DAOs emerge with different teams working on different problems. Each DAO would emerge with its own proposed structure, processes, and goals, which ensures these attributes are evolving through competition and the wrong initial organizational decisions do not perpetuate. Our DAOs will be responsible for building, maintaining, and improving the infrastructure that keeps the system going. It is also responsible for implementing changes to the Zen software applications, and is flexible enough to accommodate other community priorities,such as community outreach, marketing, training, etc.

As the Zen system grows in popularity, the support structures for users, miners, Secure Node operators, and ecosystem partners will need to grow and scale as well. The DAO structures will have funds, allocated through projects and proposals, with which to assist in the growth and support. The community is encouraged to participate in contributing to Zen in all different ways. The DAOs are responsible for coordinating the community contributions, and have funds to assist in offsetting expenses incurred by the community. One of the purposes of proposals is to repay community members for their expenses in supporting the system. At launch, Zen will have one DAO staffed with respected professionals that span relevant industries. When the governance plan is ready for implementation, this DAO will be one proposed grouping subject to market competition for others who might wish to stand up their own governance structures; the broad community will make that decision.

COMPETITION
Our unique innovation to the cryptocurrency community is our fully competitive and evolutionary governance model to empower a broad cross-section of stakeholders in an environment of optimal decentralization. Bitcoin created the original breakthrough in distributed consensus, but other projects have since taken that further with various voting mechanisms. These projects range from Dash with its simple proposal submission and community voting model all the way to Decred with its embedded community governance; each has contributed positively to the evolution of decentralized consensus, but Zen takes this to the next level by relaxing additional constraints such that our system is set to evolve over time through perpetual competition between providers of governance services within the ecosystem. We are implementing an autonomous system that will change with feedback and trial-and-error innovations in how decentralized systems organize to solve specific problems. In this sense, we believe Zen is groundbreaking in social technology, pioneering a system that has never been attempted at scale. From a broader perspective, Zen competes with incumbent currencies and banking systems, as well as emergent FinTech startups with particular advantage in providing services to the disenfranchised. We choose to make our contribution to this innovative, social welfare oriented space by providing enhanced privacy and security. As a secure messaging and distributed data archival system, we compete with other services, such as Signal, Telegram, and the Tor Project. There are also an infinite number of potential projects that can be built on the Zen platform, increasing our competitiveness exponentially. We view competition as an enabler of healthy processes of growth and therefore welcome maximum competition. We’d rather live in a world with fierce competitors forcing us to accelerate our own innovations than a static world devoid of progress. We hope that Zen adds positively to human welfare by integrating great technologies and communities, morphing governance into a competitive service, and enabling anyone in the world to participate in our system of permissionless, collaborative, and decentralized innovation. We also view incumbents and future startups in this space as potential partners and allies instead of winner-takes-all competitors.

FUTURE
Forecasting is a challenging exercise, but we see a bright future for Zen and the peaceful and productive ecosystem we’re building. We believe that the decentralized, fully inclusive, voluntary, and flexible organization we’re creating will be seen as obviously superior in the future compared to the static, centralized, one-size-fits all versions perpetuated in the 20th century. The advent of cryptography, voluntaryist philosophy, and blockchain technology make such a thing possible, and we believe many people already do, and will, share our vision for a better world; especially when they see how we can accelerate innovation and improve human welfare by empowering everyone to express their values. The next one to two years will see this vision come to fruition in our early organization by executing our Roadmap. There will certainly be challenges along the way, but flexibility and peaceful cooperation consistently overcomes seemingly insurmountable issues.”

YOU’VE GOT MONEY

https://www.dwolla.com/home

PEER-TO-PEER PAYMENTS
http://blog.programmableweb.com/2011/12/06/new-payment-apis-a-survey-of-innovation-pride-and-suspicion/

“An innovator here is Dwolla, which I heard of months before finding FaceCash in our API index. Dwolla is a digital cash system that allows money to be sent to both individuals and businesses without using the credit card networks. This eliminates the credit card network fees, and that’s a big win for a lot of businesses. There is some big news coming out on the December 15th which Dwolla says will mark a pivot point for the company’s strategy, firmly setting them on a new direction. Clearly the business strategy is still evolving.

Dwolla enjoys wider developer engagement with API libraries in iOS objective C, PHP, and Ruby on github while FaceCash has none. Another nice point about the Dwolla API is the facilitator fee. This allows the developer to charge a transaction fee to users of the application, making the route to income quite clear. This built in payback mechanism is like developer bait. It’s an easy target that can motivate programmers to work with the API and this baiting concept is becoming more common.”

Dwolla_US_Map_Full.jpg

http://www.readwriteweb.com/archives/how_mobile_payments_will_evolve_in_the_next_severa.php
http://www.readwriteweb.com/archives/how_soccer_star_rio_ferdinands_app_shows_the_futur.php
http://www.readwriteweb.com/archives/the_mobile_payments_capital_of_the_us_des_moines_i.php
Permanent link to The Mobile Payments Capital of the U.S: Des Moines, Iowa?
by Dan Rowinski  / November 7, 2011

Where is the mobile payments capital of the United States? Salt Lake City has groundswell as a test city of a variety of platforms. The big cities and tech hubs like San Francisco, New York, Chicago, Boston and Portland, Ore. have a growing interest by brands and retailers. Yet, what if we told you that Des Moines, Iowa may be the U.S. leader in mobile payments? It may be true. Des Moines is the home of mobile payments platform Dwolla. It is an interesting case study – local startup creating buzz within the community and getting retailers and consumers to actually use the platform. Dwolla has created a mobile payments ecosystem from the bottom up. Could this be a model that the top-down brands like the financial institutions, tech giants and payments experts could follow to success?

Groundswell In Middle America
Within a 5-mile radius of Des Moines there are 500 to 700 business that are using mobile payments through Dwolla. The company works kind of like a payments version of Foursquare. You check at the register in the store using your phone and a pre-loaded Dwolla account. Currently, Dwolla only uses pre-loaded accounts for retail environments at this time but it is likely that the company will be able to partner with banks and financial institutions in the near future to go straight from a bank account to the retailer. The CEO of Dwolla, Ben Milne says that the company is looking at the, “cumbersome effects of having to pre-load” and will be trying to ease the pain points of consumers and merchants using the system. We talk a lot about these “pain points” when it comes to retail and payments, mobile or otherwise. Right now, in Dwolla’s infrastructure, the pain points are pre-loading and then making sure that merchants are set up on their end to handle the processing system. The latter is actually the easy part. With its FiSync, Spots and Proxi programs, the threshold for instituting Dwolla at the point of sale is actually not all that difficult. It also helps that Dwolla is a local company and can physically enter merchants’ stores to assist with the process. Dwolla sees itself more like Visa than PayPal. EBay may actually disagree with that considering that it is pushing very hard into the mobile wallets segment of the mobile payments industry and Dwolla operates in much the same way. Dwolla wants to position itself as a go-to resource for financial institutions to create a mobile payments infrastructure in communities such as Des Moines. Square, with its recent Card Case update, is also playing in this space.

des_moines_close_up_dwolla.jpg

Benefits To Consumers, Retailers
Dwolla is processing about $1 million in payments each day with about $150,000 of that coming specifically from Des Moines, according to Milne. “We think that it is a little ironic that it is in Des Moines and not Los Angeles,” Milne told ReadWriteWeb. Consumers benefit from Dwolla because of the location and social features of the platform. In June of this year, we called Dwolla’s Grid API the “Facebook Connect for mobile payments.” All sensitive personal information of the user is stored within Dwolla. An interesting quote from Milne in that article: “If Visa could blow up their current payment model and start over today, would they build a network that forces consumers to expose critical financial data in order to buy a bagel?” said Milne. The benefit of Dwolla is that it is basically electronic cash. This is one of the truest “mobile wallets” concepts. What do you do when you leave the house in the morning? Open your wallet and make sure there is some cash in there. What is stopping you from doing the same with your smartphone? Proxi was released by Dwolla in August. It allows users to open the app and see what merchants are accepting mobile payments via Dwolla in their vicinity. There has been no large marketing program tied to the Des Moines rollout of Dwolla. Milne stresses that the company is an active participant in the community, educating both merchants and consumers about where and how mobile payments can be used. The cash perspective of Dwolla is an interesting one. The company can position itself to be both the front end and back end of the payment process. As such, Google Wallet, Square, Intuit GoPayment (or any of the other dongle-based competitors) could theoretically tie into it as a backend. Dwolla is setting itself up not for competition, but for partnerships. As we have seen with Urban Airship in the mobile infrastructure space, that approach tends to work better than trying to crush potential enemies.

KILLER APP
http://www.businessinsider.com/this-28-year-old-is-making-sure-credit-cards-wont-exist-in-the-next-few-years-2011-11?op=1

There’s a tiny 12-person startup churning out of Des Moines, Iowa. Dwolla was founded by 28-year-old Ben Milne; it’s an innovative online payment system that sidesteps credit cards completely. Milne has no finance background, yet his little operation is moving between $30 and $50 million per month; it’s on track to move more than $350 million in the next year. Unlike PayPal, Dwolla doesn’t take a percentage of the transaction. It only asks for $0.25  whether it’s moving $1 or $1,000. We interviewed Milne about how he is building a credit card killer and Square rival from the middle of the nation where VCs and press are scarce.

BI: We hear you’re making credit card companies angry. How are you doing that?

Ben Milne: Ultimately we’re trying to build the next Visa, not the next PayPal.  We’re building a human network based on how we think the future of payments will work. The current model needs to be blown up. Dwolla started out of my old company.  I owned a speaker manufacturing company and we sold everything directly through a website.  I got really obsessed with interchange fees and how not to pay them.  Every time a merchant gets paid with a credit card they have to give up a percentage.  In my case, I was losing $55,000 a year to credit card companies.  I felt like they were stealing from me — I was getting paid and somebody was taking money out of my pocket. So I thought, how do I get paid through a website without paying credit card fees?  We pitched a bank, and amazingly enough they said, “We’ll give it a shot.” That was three years ago, so we’ve been working on the project for a really long time. In December of last year we figured out how to legally do what we do.

How many transactions are you doing?

The average transaction volume for Dwolla is right around $500 dollars. We move between $30 and $50 million per month.

What’s your story?

I’m 28.  I started my first company, Elemental Design, when I was 18.  I dropped out of University of Northern Iowa and built that. I started college because I thought that’s where I was supposed to go.  I applied to one college, I got in, went, and realized it wasn’t for me.  I had customers so I stopped going to class. We grew that company from a $1,200 investment to over one million in revenue in four years with three or four people and without outside investment.  The company was running itself and I wanted to work on another project.

You don’t have a finance background and yet you built Dwolla?

It’s been helpful in some strange ways.  I think the first financial institution we went into only listened to me for entertainment.  They let me get in to pitch the full executive team at the bank. I don’t look like a banker, they knew I didn’t have a banking background. They actually agreed to work with Dwolla after two hours of arguing with me and me scribbling on a whiteboard about how the whole thing could work. Had I been more typical, maybe they wouldn’t have listened to me.  In that respect, I think that not knowing how the mechanics worked was good — we just knew the way we wanted them to work.

What did you do for the first two years when Dwolla wasn’t technically legal?

Well it was legal, we just couldn’t operate outside of Iowa. For the first two years we built out the platform. We did a sh*tload of testing on a small scale because legally we couldn’t launch Dwolla nationwide.  We spent two years inside of Iowa fine-tuning Dwolla with the financial institutions, building out some of the initial models, and trying to figure out how to legally do what we do.

How’d you find a legal loophole?

Moving money is an exceptionally regulated business.  We’re in Iowa, which is sort of conservative — I don’t know if that helped us or hurt us, but in the long term I think it helped us.  We figured to do this legally, we had two options: we could take in a tremendous amount of money and go out and get licenses, which is how most people do it.  But we didn’t have access to that kind of capital here. The other option was to bring in really strategic investors, which is what we did. One of our investors is a financial institution; one is a financial services company. Our investors do credit and debit processing for banks.  So when you get a credit card from your bank, it’s being issued by companies like them.  Our investors are also distributing our product to financial institutions.  So we’ve been building a payment network, and we can do it legally because of who our investors are. We launched in December of last year and started moving $50,000 a week. Now we’re hovering around $1 million a day.  We hit that milestone in June or July. Now we’ve quieted things down. We had to tap the brakes because the way you handle money needs to be managed correctly.  We have some new partners on board and we’re going to hit it hard in December again.  We’ve got some stuff coming out in December that we think should be really big.

How does Dwolla work and how is it different from PayPal?

With Dwolla, payments are made directly from your bank account.  No credit or debit cards are allowed.  And because they don’t exist in the system, we don’t have to bring the fees into the system. You can spend any amount of money and when you do that, the person on the other end doesn’t have to pay 1, 2, 3 or 4%. They only pay $0.25 a transaction, which is especially helpful when it’s $1,000, $2,000 or $5,000 transactions.  Obviously PayPal becomes very cost prohibitive with those larger transactions. The biggest difference between ideas like this and a PayPal — and PayPal is a phenomenal idea, Square is too — is that those are built on top of networks like Visa and MasterCard. We’re building our own.

Can users only send money to Dwolla members?

No, you can send money to anyone.  Only the person sending it has to have a Dwolla account to initiate the transaction.  The person receiving it will have to sign up for an account, but we’ve been surprised at the conversion there.  It’s worked relatively well.  We leverage social networks really heavily as contact lists, which is one thing we do really different.  You can send money with an email address or with a phone number, but the most popular way to do it is to connect to Facebook and type in a friend’s name. We think, in the long term, sending money should be as easy and effortless as finding a friend on Facebook.  That’s really a behavior we try to mimic when it comes to peer-to-peer payments.  When someone does not have a Dwolla account, they get a wall post that says, “You’ve got money.”  If a friend sent that to you and it was their name and their face, you would have a different emotional connection to that than an arbitrary email from hellokitten32@aol.com.  It’s a totally different interaction and one that’s been really helpful for us in converting users into the system.

What kind of purchases and money transfers is Dwolla being used for?

We do pretty well in B2B; 11% of our business is person-to-person, and the large majority is business-to-business, consumer-to-business, and business-to-consumer.  The platform was originally built for taking in payments through websites, and we have APIs that allow you to do that.  We haven’t experienced the scale on those quite yet. Where we’ve seen a ton of transactions right now is with people paying monthly rent.  If I’m a landlord and I want to collect it, taking a credit card payment means missing out on 3% of an $1800 charge.  Dwolla is $0.25 cents. The average Dwolla transaction is right around $500. PayPal takes 2.9% plus $.30 a transaction.

Why hasn’t anyone side-stepped the credit card companies before? 

I think a lot of it is timing and luck.  And a little bit of getting your foot in the door.  One of our investors is a $1.8 billion financial institution. That’s atypical anywhere, let alone in Iowa.  Having them on board allowed us to get into a lot of rooms. We serve everyone from the landlord taking in one payment to the individual buying a coffee with their cellphone, to billion-dollar corporations.  Because we’re so atypical and look at mobile payments differently, we got in the room with the Federal Reserve and the U.S. Treasury who allowed us to have a conversation, not only from a corporate standpoint, but from a government monetary distribution standpoint. All banks are connected by one ACH system.  Credit card companies utilize that same system to pay off your credit card charges.  Banks internally set along that same system to move money in their own banks.  This system in its own right is riddled with flaws — tons of fraud issues and waste and delays.  If you’ve ever had a payment take a few days to clear, its because they’re waiting on that ACH system. We want to fix that system between the banks, take out the delays and make it instant.  If we can create this ubiquitous cash layer of distribution between consumers and merchants and developers and financial institutions, that actually fixes the problem.

No one has built a payment network in 30 years — since credit cards.  Everybody has concentrated on how we build a portal for credit cards, from digital wallets to Square. We don’t believe in credit cards.  We believe in authorization and in lower cost transfers.  Our generation actually understands that when you buy sh*t, it comes out of your bank account and you have to pay for that.

Since you’re hooked up to bank accounts, users don’t have to have money in a Dwolla account to make a transfer?

You can hold money inside of Dwolla but you don’t have to.  We’re finding a lot of consumers want to hold it there.  There is actually a positive average balance inside of Dwolla for each consumer.  We also have businesses that use Dwolla to do payroll, so they’ll keep a balance in there to cover the cost.

You could have an account of $0 in Dwolla and there would be no fee?

The only fee would be if someone paid you.  We take a quarter.  We really want that quarter. It’s all we want!

How do Dwolla’s mobile payments work?

We built out a mobile facing system; your mobile phone is just a different view of a website, so a mobile payment is just an authorization on your cell phone. We take the website, plop it into the cell phone, start adding proximity solutions so you can see which Dwolla merchants are close to you, and then make it easy to pay once you go into a store that accepts our system. Dwolla uses the GPS feature and allows you to make a payment in real-time.

So you’re saying if a Starbucks accepts Dwolla I’ll be able to see that on a Google Map, go there and charge the coffee to my phone?

Yes, you’ll just walk into the store and pay.  It’s like checking in on Foursquare, you’re just paying instead of checking in. We started in one coffee shop and now we’re working with 400 or 500 merchants.  Part of us scaling out is we  have to pick inflection points and then do some hiring to actively pursue those communities and integrate with them.  We’ll be beginning that in December.

Do banks have to pay to be integrated with Dwolla?

No, we just give them the service and then your bank account comes with Dwolla.  There are 16 banks across the country that come with Dwolla.  We’re talking to some huge financial institutions about doing the same thing. Banks are going to have trouble being relevant in mobile.  The fundamental issue with mobile payments is: how do you get to your cash regardless of where you bank?  No one has cracked that nut.  I truly feel like we’ve not only cracked that nut but we’re already selling it into financial institutions.

You don’t have to pay the banks anything to log in and access accounts?

Nope.  We built a web service that connects with the financial institutions and we do not have to pay them to work with them.  We’re a service provider to them and we work at the same time to make their customers happy.

Who are your investors?

We’ve raised $1.3 million. Veridian Credit Union is one of our primary investors. The other investor is a company called The Members Group which provides credit, debit, ACH and security solutions to banks and credit unions.

How big is the Dwolla team?

We’re about 12 people — that’s a beast of a startup in Iowa.  We were smaller last December, about 2 or 3 people, so we’ve had pretty good growth. Most everyone is in Des Moines. We’ve experienced strong early stage validation and have generated revenue that says “Hey, this thing can work well.”  We’ve got this little fire and now we’re trying to figure out how to pour a sh*tload of gas on it, and really make this scale out.  The beginning of that is in December and right now we’re trying to ensure we have the right partners to really kick that thing off really hard.

What happens in December?

Oh, it’s going to be good.

What is it?

We’ve got this product coming out in December that solves a whole bunch of really big problems inside of the ACH system, which all banks are connected to, and it does it in a way that’s never been done before.

Are you raising capital?

We have a lot of really positive conversations going on at the moment and we’re trying to figure out who the right partner to work with is.  We’re fortunate that our current investors are very supportive of what we’re doing.

How are you doing all this from Iowa?  It seems like this company should be on Wall Street.

Maybe.  Right now Des Moines is the right place for us to be.  In the future there’s going to have to be a lot of business development outside of Des Moines and there are some things we won’t be able to do from here. If we can convince people in Iowa, who are more conservative by nature, to use Dwolla then my personal feeling is we’ve really got something there.  Had we been outside of Iowa, maybe we would have tried to scale things up too quickly and maybe it would have blown up in our faces.  Maybe not. In my own naive way, I would never build a company anywhere but Iowa so maybe I just don’t know any better.  My personal feeling is, if you want to build it, where you are is just an excuse. Figure out what the area has to offer you and then leverage that.  Hustle your ass off and make it work.

NO FEES for TRANSACTIONS under $10
http://techcrunch.com/2011/12/01/dwolla-drops-fees-for-transactions-under-10-in-prelude-to-larger-announcement/
Dwolla Drops Fees For Transactions Under $10 In Prelude To Larger Announcement
by Devin Coldewey  /  December 1st, 2011

Online and mobile payment service Dwolla has announced that all transactions under $10 will have no fee from now on. This is of course great news for small businesses and merchants whose average transaction is below that. Anything above still carries the flat $0.25 fee. The company has a history of experimentation, and the payments space is certainly ripe for disruption from any number of angles, but it’s still not clear what has enabled this particular move. After all, operational overhead is a real thing, and while nobody doubts the company’s honest interest in changing payment processing, it’s not likely they just did this in the spirit of the season. In all likelihood it has something to do with the announcement they’re planning for two weeks from now, which will mark the company’s first birthday (or rather, the first anniversary of their national launch) and, according to CEO Ben Milne, represent a major and “necessary” platform pivot by the company.

PROXI
http://techcrunch.com/2011/08/24/dwolla-launches-proxi-for-proximity-based-mobile-payments/
Dwolla Launches “Proxi” For Proximity-Based Mobile Payments
by Sarah Perez  /  August 24th, 2011

Online and mobile payment platform Dwolla just launched a new feature called “Proxi” which allows users to send and receive cash-based mobile payments based on their current proximity to another connected device. The technology bypasses the need for special hardware, like Square’s plastic dongles or NFC chips built into a phone, in order to make mobile payments. Instead, the interface provides a simple way for Dwolla’s users to find nearby contacts and send them money using only the mobile app itself.

Dwolla, for those unaware, is a company with a unique take on digital payments. Its vision is that consumers, not third-parties, should dictate how their payments network operates. What this means for Dwolla and its users is a payments network that’s devoid of personal information. And most importantly, Dwolla’s inroad to this planned disruption is cash, an under-represented market in electronic payments.

Dwolla’s “Proxi” Beta
With the new “Proxi” (beta) feature, Dwolla founder Ben Milne explains that the company is looking to accomplish much of the same thing that NFC makes possible, but without the need for expensive hardware. With NFC, there’s added security, because you have to be physically present to pay. Proxi uses GPS for that same reason. When launching Proxi, the mobile app pulls up a list of those who are close to you and able to accept payments, including both nearby users and merchants. And like everything else Dwolla does, Proxi considers users’ security first. For example, you can control whether you want to be visible only to your contacts or to a wider range of Dwolla users, you can control how long you will be visible, and you can control the distance at which you are visible, with settings for 300 ft., 1 mile or 5 miles. The Proxi beta will initially be available on iOS, and will roll out to other mobile platforms (Android, Windows Phone) in the coming weeks. The beta is private for now, but TechCrunch readers canrequest immediate access here: https://www.dwolla.com/proxi/beta. There will be limited spots available, so access is on a first-come, first-serve basis.

Pros and Cons of the Dwolla System
Proxi is the sort of feature that could take Dwolla from “interesting idea” territory to becoming a more practical application. Secure, person-to-person (or person-to-business) mobile payments without the high fees associated with PayPal, or the need for special hardware? Sounds good here. The only drawback is that Dwolla doesn’t directly connect to your own bank account, in the same way that your debit card does, which could confuse first-time users who don’t understand why other financial institutions are involved. Instead, Dwolla has partnerships with The Veridian Group, a subsidiary of Veridian Credit Union, in Waterloo, Iowa, and The Members Group (TMG) another financial and credit union service organization owned by Iowa credit unions and their members. Through these organizations’, which hold the funds in Dwolla’s users’ accounts, people can send and receive money from their own bank accounts. And while Dwolla is easy to use, it’s hardly available for use everywhere, the way that your debit would be. Finally, although Dwolla’s fees aren’t outrageous, they are present. Dwolla has a flat 25-cents per transaction fee, regardless of the transaction amount. That’s lower than PayPal’s 30-cents per transaction fee. There’s also no additional percentage amount per transaction, even though PayPal currently charges an additional 2.9% for transactions under $3,000. Dwolla currently has 40,000 users, with user-to-user transactions representing the highest volume of transactions and B2B transactions representing the highest dollar value.

“RIDICULOUS MONEY”
http://www.businessinsider.com/dwolla-investors-funding-2011-12#ixzz1g3mGUHci

“Now we know a thing or two about investors. And when they see a startup with numbers like that, they start to drool.  There’s no way Dwolla can hide from them, even in Iowa. Milne says that the amount of investor interest they have is actually absurd, and the term sheets they’re seeing are “really ridiculous.” When we asked how much money investors have offered Dwolla for its next round Milne wouldn’t comment. When we asked if it was more than $50 million, he just smiled and repeated, “it’s ridiculous.” Milne says his inbox has been flooded by more than 700 investors who have reached out about funding Dwolla. It’s quite a change from the first $1 million Dwolla raised — that was a long, painful 12-month process. To help him keep track of the inquiries, Milne’s assistant started a spreadsheet that lists all 700 investors; investors Milne has heard of or who have been recommended to him are at the top. Investors are being aggressive to get their firms at the top of his stack. Milne told us about one firm that really impressed him. Two of the partners flew out to Iowa for a meeting. Soon after, Milne and the partners had a disagreement over the phone.   “They seemed to think Dwolla should go in one direction and we wanted to go in another. So I told them the deal wouldn’t work,” says Milne. The next day, one of the partners showed up on his doorstep in Iowa. In less than 24 hours he had booked a flight from Silicon Valley and flown out to Des Moine — again — to patch up the misunderstanding in person. “I was blown away,” Milne said. “That was really cool.” Dwolla will likely be raising a strategic round very soon. Despite investors waving gobs of money at him, Milne says he is looking to keep his future funding modest.”