Making daily payments with Bitcoin has edged towards reality, thanks to Mastercard’s recent patent filing on consumer protection and blockchain-based transactions.
The patent, filed at the U.S. Patent and Trademark Office, will enable Mastercard to drive the technology allowing crypto transactions to be done on a credit card.
The patent spells the sought technology as a method of management regarding blockchain-based currency reserves. This aspect breathes life into the potential for Bitcoin transactions to take place using credit cards.
This patent will essentially give prerogative to Mastercard to safeguard “fractional reserves of blockchain currency,” as described by the patent.
To this effect, the company will provide a new kind of user account that supports crypto transactions that are, however, pegged on fiat currencies.
This arrangement will enable fast exchange procedures between virtual currencies and legal tender.
Based on common knowledge, cryptocurrencies like Bitcoin are alternative forms of digital currencies when reflected on conventional forms of money like dollars and euros.
Cryptocurrencies are not tethered to central banks and subscribe to their own sets of guidelines.
Thus, crypto payments are usually processed securely by the application of complex sequential computer encryption procedures.
They depend on blockchain technology, which is a form of digital ledger supported by computer networks that can employ mutual action in the verification of transactions.
To single out, Bitcoin is exceedingly popular in tech circles since its launch in 2009. At this point, it has been joined by hundreds of new entrants, such as Monero and Ethereum, in the larger cryptocurrency space.
How Will This Work?
Put simply, Mastercard’s ambition will use digital technology to store fiat and blockchain-based currencies concurrently—fiat in one central account and crypto in a second one.
Account profiles will take a plurality perspective, that is, all profiles will underline the amounts of fiat and blockchain, and including account identifiers and addresses.
The planned application of fractional reserve banking described by Mastercard’s patent document is, by its own right, an age-old system that has been used by conventional banks to keep customers’ money.
In this system, fractions of deposits in users’ accounts are typically backed by cash on hand and become withdrawable.
This system is necessary for the expansion of economies, where freed up capital becomes loanable to other parties.
A U.S. patent document that was originally filed by Mastercard a few years ago acknowledges an increased adoption of cryptocurrencies by users who, as described, value anonymity and security.
The new patent spells that the application of traditional payment systems and frameworks in combination with blockchain currencies promises consumers the offerings of the decentralized blockchain.
In the same breath, security of account credentials becomes guaranteed by the technology while, at the same time, protecting users against fraud and theft.
Mastercard asserts that, by processing financial transactions, payment structures will be empowered with tools necessary for evaluating the propensity of fraud.
This also extends to aspects of enabling networks to assess the risks disposed to blockchain transactions through the application of algorithms and information.
In this context, information denotes all manner of data reflecting on historical, credit and demographic data sets.
The Mastercard patent also recognized some particular disadvantages expected when considering the application of digital currencies.
In addition, the need to expand the processing and storage capacities of such fiat-blockchain transactions is a factor that could not be overlooked.
Thus, the transaction of virtual coins is a time-consuming process, particularly when transacting Bitcoin. The patent document observed about 10 minutes of transaction times when compared to the quick process of traditional card payments.
In this light, the new development will mean that consumers and merchants will suffer significantly long waiting periods for the completion of payment procedures to be realized.
In fact, the patent notes, this new system may call for the payer’s good faith in ascertaining the validity of transactions.
Many outfits, including merchants, businesses, service centers and other dispensers of goods and services, may be reserved about total acceptance of blockchain monies for products—let alone participating in the whole process of moving the blockchain-based payment agenda in the first place.
The Mastercard-Blockchain Matrimony
Mastercard’s blockchain-centric patent applications tell a confusing story.
While the company has shown, through its business policies, its favor for blockchain technology, it has been vocal before on matters discrediting cryptocurrencies.
Of course, observers may not forget the fact that Mastercard’s CEO once referred to cryptocurrencies as “junk.”
Nonetheless, Mastercard’s recent developments, in the blockchain sense, have illuminated its placement at the table of the blockchain sector—the company’s pro-blockchain resolutions are nothing new.
Looking back, in November 2017 Mastercard joined the club of proponents of blockchain payments by filing a patent involving a “Method and System for Instantaneous Payment Using Recorded Guarantees.”
The application’s description spelt an existing need for technical intervention in the context of guaranteeing payment transactions through verification by a financial institution and/or merchant.
In this case, the guarantee would be supplied alongside several layers of payment tools and multiple payment forms, including e-commerce transactions.
Recently, in other spheres, Mastercard partnered with Strands, a Barcelona-based fintech firm, to serve issuing banks with an integrated surface for managing digital monies and payment frameworks prescribed to their small-to-medium enterprise (SME) customer base.
Today, crypto coins do not offer simple spending options and not many merchants or businesses are in their full favor.
Hitherto, there lacks a formal confirmation by Mastercard to swing the fiat-crypto payment option into action, but this possibility is clearly in the horizon.
Currently, Mastercard users are still operating within the precincts of fiat currencies and their government-backed regulators.