Business 30 October 2018

Dennis Wafula

Mastercard patent merges traditional banking with cryptocurrencies

Financial services giant Mastercard has snapped up yet another patent, this time for fractional cryptocurrency banking.

According to the document published by the U.S. Patent and Trademark Office (USPTO), Mastercard wants to apply principles of fractional reserve banking to cryptocurrencies. The filing explains how the payments processor will use laws of the fiat banking system to help solve safety problems associated with cryptocurrency transaction. By applying the centralized fiat banking system, Mastercard claims it can create a system that safely stores and protects both consumers and merchants.

Inventor Steven Charles Davis, senior consultant of research and development at Mastercard, claimed the nature of blockchain transactions creates a disadvantage for the consumers, who has to wait for their transaction to be approved by an unknown person. The customer has to “rely on the payer’s good faith that their transfer will be valid,” according to the patent filing, and in some cases, payees have lost their currencies after individuals failed to confirm their transactions.

The filing noted, “…the anonymity of the blockchain may leave the payee at a disadvantage, because the inability for the payee to identify the payer may prohibit the payee from utilizing various risk or fraud detection methods. Therefore, many entities, particularly merchants, retailers, service providers, and other purveyors of goods and services, may be wary of accepting blockchain currency for products and participating in blockchain transactions.”

Mastercard said its new application seeks to solve this problem by managing fractional reserves of blockchain currencies, “specifically the use of centralized accounts to manage fractional reserves of fiat and blockchain currency updated via transaction messages corresponding to fiat- and blockchain-based payment transactions.”

By integrating traditional payment networks with blockchain currencies, Mastercard hopes to “provide consumers and merchants the benefits of the decentralized blockchain while still maintaining security of account information and provide a strong defense against fraud and theft.”

The financial giant has also sought patents for other blockchain-based applications. In July, Mastercard was awarded a patent for a system that reduces the time it takes to complete a cryptocurrency transaction.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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