Although the patent was filed in May 2018, Mastercard recently gained approval from the USPTO office on July 17, 2018. Mastercard described the patent as “a method for managing fractional reserves of blockchain currency.”
In the document, Mastercard stated that they’ve seen an increase in the usage of blockchain-based currencies over fiat currencies for audiences that value security and anonymity. However, despite the preference for cryptocurrencies from this niche audience, there are still many problems with blockchain-based assets and cryptocurrencies. These problems include slow transaction times and lack of understanding from the mainstream public.
By linking cryptocurrencies to fiat currency accounts, Mastercard believes that they can provide the advantages of both systems. Consumers and merchants, therefore, under the new method can receive the benefits of having a decentralized blockchain with a fast and secure payment network.
Privacy Benefits From Cryptocurrencies Does not Outweigh Risk
Mastercard openly acknowledged that blockchain-based currencies like cryptocurrencies carry many benefits, the greatest being their decentralized and anonymous nature. These features are highly desirable for consumers who value privacy. Although the privacy debate has raised significant concerns for regulators, especially when it’s linked to crime, Mastercard, however, looked at anonymity as a significant advantage. The payment network giant highlighted how private transactions would help “reduce the likelihood of fraud.”
Although privacy is highly valued, Mastercard noted that security may be limited for payees. Unfortunately, the time it takes to process a blockchain-based transaction is fairly long, averaging at around 10 minutes per transaction in the case of Bitcoin. The proof-of-work protocol used to verify Bitcoin transactions can take even longer if there’s an influx of transactions. Scalability is currently a large issue with blockchain-based networks. Traditional fiat payment transactions, on the other hand, are processed very quickly, in nanoseconds.
According to the document, Mastercard argued that the long transaction times force the payee to be dependent on the payer’s good faith. Unfortunately, in a pseudonymous payment network, this can be extremely disadvantageous. The payee is unable to identify the payer which limits the payee’s ability to use existing fraud or risk detection methods.
Merchants, retailers, service providers, are therefore cautious and wary of accepting cryptocurrencies because there’s currently too much risk. Consumers may also be reluctant to use cryptocurrencies as well because they may not understand how blockchain-based currencies work. While blockchain has many benefits, the lack of education, long transaction times, and ease and accessibility of fiat currencies prevent the widescale adoption of cryptocurrencies.
The payment processing giant, therefore, sees a great need “to improve on the storage and processing of transactions that utilize blockchain currencies.”
Connecting Cryptocurrencies to Traditional Payment Systems
According to the patent, Mastercard saw an opportunity to combine the advantages of both the fast transactions times from traditional payment systems and privacy benefits from blockchain-based assets. The company proposed a new type of user account, one where users can choose to transact in cryptocurrencies. The transaction would, however, go through an existing traditional payment system used for fiat currencies. Each transaction would, therefore, represent a cryptocurrency
By processing transactions with cryptocurrencies “payment networks may be able to evaluate the likelihood of fraud and assess risk for blockchain transactions using existing fraud and risk algorithms and information that is available to payment network such as historical fiat and blockchain transaction data, credit bureau data, demographic information etc… that is unavailable for use in blockchain networks.”
Seth Eisen, Mastercard’s senior vice president for communications mentioned to CNBC that Mastercard is always looking at new innovations and approaches to bring to the market. “Patent applications are part of that process, taking steps to protect the company’s intellectual property, whether or not the idea ever comes to market.”
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