The explanations in this section are based on the general introduction to the transaction model and the 4 party model . The following information will focus an, the peculiarities of crypto payments. 

IDENTIFICATION IN CRYPTO PAYMENTS

While all transactions on blockchain-based crypto systems are publicly viewable, they are still anonymous. Unlike other payment methods, no name or other personal data needs to be provided for identification purposes.

The identification refers to an address with the corresponding crypto values (e.g. a coin) and, if applicable, to the identification for using a wallet in which the crypto value is stored.

One of the first and most important insights from the crypto environment is: not your keys, not your coins.

Identification is primarily about proving ownership of crypto assets. Proof of ownership is provided exclusively through a private key. The private key is a type of password - a combination of letters and numbers - that allows you to access and handle the crypto assets.

In addition to the private key, there is also a public key that is required as an address for receiving crypto values. The public keys are referred to as so-called identities in the system. All public keys in the system can therefore also be viewed publicly (cf. https://www.blockchain.com/explorer).

With the aim of personally delivering a crypto value, wallets are at times designed to generate a QR code, which is scanned by the payer. The QR code contains the address of the payee. This address subsequently becomes part of the transaction. The identification for using the wallet is regulated in different ways; it basically occurs by registering on the device that houses the wallet.

 The token concept is crucial for crypto payments. The token is the means that is ultimately used for payment. Therefore, we will elaborate on the concept in the following section.

 CRYPTO TOKEN (IDENTIFICATION)

 The use of tokens in payment transactions is booming. There are few topics that are of such central importance, from card and account payment transactions to international payment transactions and crypto payment processes. Exactly this variety of fields of application as well as the combination with other technologies, e.g. B. the blockchain, the distributed ledger or smart contracting, but regularly lead to ambiguities and misunderstandings in the demarcation.

Originally, the token term was already used in the real world. Tokens serve locally as a substitute for real coins. Every child already knows these chips/tokens from the carousel ride, which save money changing before the ride and prevent theft by the staff. Tokens are also used again and again in unguarded machines. A token is therefore about a general means of value - e.g. money - to be replaced by a locally limited surrogate that is accepted for a particular use. 

A token is a cryptographically determined substitute value for an object worth protectiong.

Tokens are also used in the crypto economy, e.g. as a digital asset or means of payment. In addition to the distributed ledger and the blockchain, tokenization is the third core technology for cryptographic processes. If this kind of process is based on its own crypto currency, the tokens are often referred to as coins (e.g. a bitcoin). In contrast to the proprietary or central token services, in the case of crypto currencies, the object worth protecting is already cryptographically generated and secured when it is created / initiated. Thus, in the true sense of the word, an 'object worthy of protection' does not need to be protected anymore. Initially, crypto tokens became known as a surrogate means of payment. Over time, they turned into an object of speculation. Since there is a lack in differentiation between different types of tokens, we would like to apply the following distinction:

• Payment tokens – tokens that are exclusively based on the value of a unit (similar to a fiat currency such as the Euro) and serve as a medium of exchange
  
• Usage tokens – they include an additional value/service (e.g. in terms of a smart contract)
• Investment tokens -these include an additional characteristic (e.g. in the form of a company share)

Only over the last decade have crypto currencies and the technologies they are based on gained in importance.
The bitcoin (BTC) is the oldest and best-known crypto currency. This first digital crypto currency which was introduced in 2009 has caused a stir, especially in recent years, themain reason being the fact that this 'uncovered' token is neither regulated by regulatory authorities nor tied to a regulated fiat currency. Only regarding specific characteristics are certain 'regulations' being established.

 More about crypto-token.

AUTHENTICATION IN CRYPTO PAYMENTS

Since crypto payments are generally intended to be anonymous, proving a personal identity is not in need. Nevertheless, the payer will still have to authenticate himself as the person that is authorized to dispose of the corresponding crypto value (e.g. a crypto coin; technically a token). To that aim, the private key is used to create a certificate for the transaction. The handing over of the transaction certificate generated with the private key authenticates the payer as the person authorized to dispose of the token.

Since the crypto values (or more precisely, their private keys) can be managed both online and offline, the authentication procedure will largely depend on the type of storage chosen:

• Online storage in a crypto wallet: so-called hot storage solutions for storing private keys are usually available online. Most wallet providers offer a two-factor authentication solution (2FA) both for access to the wallet and for initiating a payment. Most providers nowadays rely on authentication apps such as Google Authenticator or Duo Security instead of a conventional email or SMS-based 2FA variant.
• Offline storage in a suitable location: so-called cold storage solutions for storage are not connected to the internet and are therefore only accessible via local storage. Access or security lie within the scope of responsibility of a local custody agent, e.g. in the form of a data carrier or a printout.

DISPOSITION/AUTHORIZATION OF CRYPTO PAYMENTS

The use of an account is not mandatory for DLT processes. When indicated, disposition and authorization take place at the level of a payer's wallet. The final annotation of the transfer of ownership on a blockchain can be qualified as a disposition/authorization. We will consider these aspects in the context of clearing/settlement.

In contrast to central systems such as card or account payments, there are not one, but several instances participating in the system that decide on the disposition or authorization of a payment. It is therefore not possible to draw a clear line between disposition/authorization and clearing/ settlement.

In crypto processes such as Bitcoin, the participants (the so-called miners) play an essential role in processing. In addition to creating new value, mining (in the future exclusively) serves to secure the system against invalid or fraudulent transactions.

An individual transaction is verified using a comprehensive set of criteria, including:

• An input: this is a record of the address that these crypto values were previously sent from (previous sender information).
• A quantity: this is the (partial) amount of bitcoins that the sender wants to send to the receiver.
• An output: this is the recipient's bitcoin address (recipient address).

The approval of a transaction can be equaled to establishing a decentralized, emergent consensus (consensus finding). This consensus between a large number of participants in the system, requires further test mechanisms and areas of responsibility (in contrast to conventional payment systems).

CLEARING/SETTLEMENT OF CRYPTO PAYMENTS

The final annotation of the transfer of ownership on a blockchain can be qualified as a disposition/authorization, which we view in the context of clearing/settlement. Once the note of a transaction on the blockchain and the associated transfer of ownership of the token is processed, the claim of the payee is fulfilled (settlement). There are no special mechanisms for balancing receivables due to the lack of payment service providers involved in the area of DLT.

In order to create an analogy to clearing and settlement in the crypto environment, the higher-level steps - which are carried out by a large number of participants in the system (in contrast to classic payment systems) - can be summarized as follows:

• Clearing pending: independent aggregation of the transaction(s) into blocks, storage and forwarding of these blocks to other participants.
• Settlement pending: construction of a new block, independent verification of this new block and expansion of the blockchain to include this block.

As opposed to regulated payment methods, the transaction data can be viewed by anyone (cf. Blockchain.com)

FEE BILLING FOR CRYPTO PAYMENTS

Since crypto-based transactions are a mixture of a payment transaction and/or the purchase of a digital asset, the fees must be differentiated.

Acquisition of crypto assets:

In order to own crypto assets, they will have to be purchased through a crypto exchange. The purchase, usually involves percentage trading fees, similar to what is familiar when purchasing an equity.

Use of crypto assets as a means of payment:

When used as a means of payment, variable transaction costs and fees for deposits and withdrawals from the crypto wallets might occur.

• Transaction fees will be transferred to the participants in the system (so-called miners) – special knots in the system that take on various processing tasks. This fee is usually also referred to as a reward.
• Foreign exchange rate fees: Exchange of crypto assets into fiat currencies or vice versa.

In addition to the evident fee items, due to the volatility of the traded assets, their rates on the exchange markets may also vary from provider to provider and therefore have an indirect impact on the extent of fees.

CLAIMS IN CRYPTO PAYMENT

In the case of DLT-based crypto payments, there is no central body that might establish rules for claims and processing these claims. This means that the settlement of claims is determined by the parties involved in the payments.

Completed transactions registered on the blockchain are irreversible.

In general, the principle "not your key, not your coins" applies, and it also applies if the private key is lost.