Mastercard has won a patent for fractional cryptocurrency banking, which suggests the global payments multinational has plans for a management system of fractional reserves of blockchain currency.
Mastercard Blockchain Patent Integrates Existing Traditional Payment Networks with Blockchain Currencies
The patent, filed on 29 June 2018, refers to “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”.
The inventor, Steven Charles Davis, senior consultant of research & development at Mastercard, explained the need for such a mechanism.
Blockchain-based transactions can be very time consuming due to the computer processing time and resources required to verify and update the blockchain. This creates a problem between consumers and merchants, particularly the payee who “must rely on the payer’s good faith that their transfer will be valid”.
“In such latter instances, 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,” the document noted
Moreover, it can be difficult for consumers to adopt, or even understand, blockchain currencies, it said, adding that its anonymous nature may leave consumers “unable to prove their identity and ownership of a wallet”, thus with “little recourse if their wallet and/or associated currency is stolen”.
The fractional reserve system for blockchain aims to improve the storage and processing of transactions by using existing traditional payment networks and payment systems technologies in combination with blockchain currencies.
The inventor argues the integration is able 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 method for managing fractional reserves of blockchain currency comprises of receiving a transaction message associated with a payment transaction; identifying a specific account profile stored in an account database that includes the specific address, a fiat currency amount and a blockchain currency amount; and updating the blockchain currency amount included in the identified specific account profile.
Ajay Banga, President and CEO of Mastercard, recently called cryptocurrencies “junk”. His speech also tackled the massive market volatility and the popularity among criminals. Banga also argued that digital assets don’t deserve to be considered as a medium of exchange. Meanwhile, in the company’s Ireland-based subsidiary, much R&D has been done in regard to blockchain to improve payments services.