The “bankization” of cryptocurrencies seems inevitable, as a slew of traditional players enters the crypto-finance market. In the latest development, U.S. payments processor Mastercard filed a patent applying the concept of fractional reserve banking to cryptocurrency payments.
Mastercard Looks Towards Crypto-Finance
Published on Oct. 25 by the U.S. Patent and Trademark Office (USPTO), the application details a novel payment processing method to allow fiat- and crypto-payments for both merchants and retailers, alongside simultaneous storage facilities for both currency types.
Mastercard refers to “blockchain currencies” throughout the document, specifically to manage their “fractional reserves.” The term refers to an age-old banking practice – which allocates only a small portion of stored as “actual cash on hand” while maintaining a more substantial portion for other purposes, such as lending money to other parties and investments.
The company wishes to introduce a “specifically designed” system to protect merchant and consumer information and credentials while providing the benefits of a “decentralized blockchain” and protecting against fraud and theft.
As per details, Mastercard intends to link each blockchain transaction to a corresponding digital framework where the identities of each sender and receiver are stored. Furthermore, the “risk” of each transaction is assessed before completion, presumably to check the creditworthiness of two parties.
The patent goes on to describe how a blockchain-based system may work, which mostly parrots the operational mechanism of cryptocurrencies. However, the patent highlights the use of the same computing mechanism for both fiat- and crypto-transactions, meaning merchants would not require separate devices to accept digital currencies.
Against Cryptocurrency Ethos
Quite humorously, the firm explicitly calls out the possession of private keys by individuals, instead, putting forth the concept of centralized institutions holding one’s keys:
“This may reduce the risk of theft of the consumer’s blockchain currency by trusting the data to financial institutions and payment networks that already specialize in the storage of sensitive financial information.”
The payments giant also refers to Bitcoin’s infamous “ten minute wait time” for processing transactions, and notes the process could be made faster if the risk of each transaction is assessed before the transaction is attempted – by checking for sufficient funds.
Meanwhile, the patent filing may take members of the cryptocurrency community by surprise. Avoiding the concept of fractional reserve banking is one of the primary reasons that Bitcoin was created, and Mastercard intends to apply the method to the growing crypto-finance sector.
Moving away from centralized bodies to process transactions forms another ethos of cryptocurrencies, which Mastercard views as a fundamental problem and hopes to launch its crypto-security solutions.
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