How SatoshiPay payments work
Explaining the technology and legal model behind the cryptocurrency-based digital content payments on the SatoshiPay network
We’re happy to announce that we made VAT compliance an essential feature of our digital content payment solution by switching to a coupon model. Thereby, we reduce the VAT payment overhead for our publishers that traditionally comes with selling digital content on a global scale. This is a significant milestone as it ensures regulatory compliance with the authorities.
How it works
In the world of payments, we can distinguish between “open-loop” and “closed-loop”. Open-loop refers to anything that accesses an ecosystem outside of a merchant’s direct purview and includes debit and credit transactions as well as bank transfers and wires. In this scenario, the parties facilitating transactions are regulated payment companies and consumers are subject to verification (KYC) procedures.
Alternatively, a “closed-loop” rail refers to the merchant’s own infrastructure and is usually faster, more efficient, and less expensive, because it doesn’t route across the interchange of many intermediaries and third parties. These types of payments include store credit cards, gift cards, merchandise credits, coupon cards, and reward cards, among others. Payment, in this case, comes from pre-funded accounts and hence they are treated differently from a regulatory point of view.
Our payment system falls in the closed-loop category, which means that we benefit from much lighter regulation. From a legal perspective, SatoshiPay sells coupons/vouchers in the form of Lumens (XLM) to consumers, which they can redeem against a piece of content on any of our publisher’s websites. When a consumer makes a purchase, SatoshiPay buys the content from the publisher in real-time and transfers them the Lumens.
This is possible because the Lumens that our consumers own are ecosystem locked. Every transaction needs to be co-signed by SatoshiPay and we ensure that they can only be spent on the websites of our publishers who we verify and have contractual relationships with.
Ownership transfer during a purchase
- Consumer initiates a purchase on publisher’s website
- Consumer sends coupon to SatoshiPay
- SatoshiPay buys the product from publisher with XLM (B2B — i.e. tax can be claimed back)
- SP delivers the product to consumer (although, in practical terms, the publisher will deliver the actual content) (this is the fulfilment of a B2C sale — i.e. VAT must be applied)
What this means for SatoshiPay
Selling digital content globally is complicated. With our solution, we have significantly reduced the complexity of operating on a global scale for publishers. Using Blockchain technology we now automatically withhold the VAT after each sale depending on the consumer’s location and transfer it to the respective tax authorities.
More importantly, we have laid the foundation to integrate stablecoins into our solution in a regulatory compliant way. This will make our solution truly global and differentiate us from traditional payment companies even more. Let’s assume a German user buys content from a Nigerian publisher using SatoshiPay. The consumer would pay in Euro, we would deduct VAT and pay it to German authorities and the Nigerian publisher could exchange the Euro stablecoin for local currency inside our Wallet using Stellar’s decentralized exchange. Inside Solar, the publisher could withdraw their local currency to their bank account at any given point.
