IV. Competing systems to address issues with the current monetary system.

We will outline here three attempts to address issues with the legacy financial system – all of which are competitors to Tectum’s revolutionary SoftNote solution. They are SWIFT, Ripple and the Lightning Network.

SWIFT

SWIFT – The Society for Worldwide Interbank Financial Telecommunications is a member-owned cooperative headquartered in Belgium and connects approximately 11,000 banking and securities organizations in more than 200 countries and territories. They maintain an active presence in all major financial centres however, are only a messaging network who don't hold funds or manage member accounts. They are controlled by central banks from the G10 countries who impose political/economic sanctions on their own member banks in countries like Iran and Russia and push the “need for regulatory attention to prevent a new form of intermediation and potentially monopolistic behaviour” narrative, this is a centralized messaging database that requires a high degree of trust compared to immutable blockchain data.

Ripple - There have been various attempts using cryptocurrencies to disrupt Swift’s monopoly on cross border payment facilitation, fast settlement of financial transactions and currency pair swaps have been made with varying degrees of success. The Swift system was developed in the 1970s and is widely considered to be slow, expensive, and antiquated in its application and is ripe for disruption. The most notable application of cryptocurrency technologies to disrupt this space has been by Ripple Labs, who have developed a suite of technologies designed to replace Swift at a protocol level and modernise international financial settlements.

Ripple Labs has several products that can be utilised together or independently including ‘xCurrent’ and ‘xRapid’ in addition to its native token XRP. xRapid allows for real-time settlement of cross border transactions in a fraction of the time of the traditional Swift system by facilitating an swaps with real time exchange rates and guaranteed liquidity and utilises xCurrent as part of this process. xCurrent when used in isolation from xRapid helps to speed up fiat/fiat swaps by streamlining the messaging protocol process between both parties by connecting to legacy nostro and vostro accounts.

Whilst Ripple’s technology is impressive there are many flaws in its design and execution which makes remittances and cross border payments utilising Tectum’s SoftNote system and Bitcoin superior. Firstly, from an investor’s perspective XRP itself could be argued to be not needed, or at least, is token value agnostic. The liquidity of the XRP token is what allows the Ripple technology to facilitate payments, not the value of the token itself, and for this reason, the XRP token struggles to accrue value. As a result of XRP having little utility in and of itself, the price is highly volatile and therefore institutions are not incentivised to hold the token other than for the duration of the liquidity provision process, they may opt to not hold the token at all and leave the provision of liquidity to exchange service providers. Bitcoin offers a better store of value. Bitcoin is widely regarded as the premier crypto asset, and therefore has the most intrinsic value and liquidity. With the option to utilise Bitcoin locked up within SoftNotes to facilitate instant remittance payments and exists, there is no reason to choose XRP.

CBDCs undercut XRP’s use case, however it is likely Bitcoin will strengthen because of the introduction of CBDCs as individuals and institutions seek autonomy and privacy. In addition, XRP is highly centralised. Ripple Labs has complete control over the XRP ledger protocol as well as their other products and therefore exposes users to counterparty risk. Bitcoin has no such risk, and SoftNotes are also decentralised in application shielding users from regulatory risk and manipulation. XRP has many fees that may not be apparent to users in the first instance. Bitcoin once moved into the SoftNote system can be moved for free, and the creation of a SoftNote has a one-time minting fee clearly visible to users. Ripple issues XRP and can create more. Bitcoin on the other hand has a hard cap of 21 million, and Tectum’s native token TET, (used to mint new SoftNotes) is hard capped at 10 million tokens. Furthermore, TET is only used to mint new SoftNotes and is not required after this point.

The Lightning Network – Lightning Network, (LN) is a layer-2 solution built on top of Bitcoin. LN was created in response to scalability issues - the speed and cost of Bitcoin transactions. LN works by setting up a payment channel between two parties, where only the first and last transaction are put on the Bitcoin blockchain. Any number of transactions between the first and last will happen off chain, which means those transactions are not limited by the Bitcoin protocol. To start a payment channel, both parties must commit an amount of Bitcoin. That Bitcoin is held and cannot be released as long as the payment channel remains open. The total amount of Bitcoin that can be transferred through this channel is limited by the total amount of Bitcoin committed. The initial BTC commitment requires time and expense. Subsequent transactions can only take place between those channels. Since LN is mostly targeted at micro-transactions through LN-enabled wallets, which are not very user friendly. This aspect has been confirmed to us by several LN wallet holders in El Salvador. LN has been faced with several vulnerabilities. These include: Griefing attacks: Funds aren’t lost, but it causes the victim's Lightning funds to be frozen so that the payment channel cannot process any transactions; Flood and loot: Attackers force many victims to claim their funds from the blockchain at the same time, (flood). The attacker uses this congestion to steal funds that were unable to be claimed before the deadline, (loot); Time-dilation attacks: An attacker lengthens the time a victim becomes aware of new blocks by delaying block delivery; Pinning attacks: An attacker tricks a victim into closing their LN channel improperly and steals individual transactions.

In comparison to Lightning Network, SoftNotes do not have the issues of:

● Payment channels BTC Commitment requirements

● LN vulnerabilities/attacks

● Off chain channel transactions that aren’t written to the BTC blockchain