Mastercard, the global credit and payments processor, recently received a patent in the United States for a cryptocurrency and blockchain system that speeds up transactions by first running payments through fiat accounts.
The document filed with the United States Patent and Trademark Office (USPTO) is titled “Method and system for linkage of blockchain-based assets to fiat currency accounts” The patent filling recognized that cryptocurrencies have “seen increased usage over traditional fiat currencies by consumers who value anonymity and security”, but still lacks adoption because of long payment processing times.
“It often takes a significant amount of time, around ten minutes, for a blockchain-based transaction to be processed … Conversely, traditional fiat payment transactions that are processed using payment networks often have processing times that are measured in nanoseconds … 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 stated that there is a “need to improve on the storage and processing of transactions that utilize blockchain currencies”. Mastercard also wants to use this hybrid 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 document did not elude to any specific cryptocurrency that this system would utilize
Hybrid cryptocurrency-fiat involves centralized trust
The solution that Mastercard developed involves user accounts that links their “fiat currency amount, a blockchain currency amount, an account identifier and an address” in a “central database”. Then, to increase speed, the actual transaction would take place on the fiat system structure, with each transaction only later being confirmed on the blockchain and represented by that cryptocurrency. Mastercard also intends to use this system 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 networks.”
Mastercard’s hybrid system involves trusting that Mastercard and their centralized database will actually transact on the cryptocurrency network after processing users’ fiat transactions. It also relies on the fact that they will not withhold any monies from users when they request a withdraw, which could become an issue if they have false-positives when flagging accounts for fraud. The system has the same centralized faults as regular banks except each transaction in fiat will be emulated on a cryptocurrency network.
The one positive that can be seen with this system is that it could grant extra stability to cryptocurrency through two outlets. First, just the patent alone demonstrates a growing institutional interest in cryptocurrency and signals greater future adoption. Second, Mastercard’s system would essentially ‘back’ fiat purchases with cryptocurrency, which would not only increase the demand and reputation of cryptocurrency, but also increases its price discovery since more cryptocurrency would be bought to ‘back’ physical world purchases. Nevertheless, Mastercard’s system flies in the face of what cryptocurrencies stand for: affordable, secure, and decentralized peer-to-peer digital currencies.
Dash already offers inexpensive, decentralized, and on-chain instant confirmations
Dash already provides transactions that only cost fractions of pennies at 2.5 minute block intervals. Then, for only a few cents more, Dash further offers InstantSend to enable instant transaction confirmations in seconds for consumers and merchants that cannot wait nor trust each other. These features allow Dash to solve the problems that Mastercard mentioned as discouraging merchant and consumer adoption, while still conducting transactions in a decentralized method and keeping transaction fees low. It has also been shown, through research and testing, that Dash can sustain these features as it grows to handle more users.
Dash is already making significant strides by seeing global adoption by consumers using Dash in everyday purchases. There are 430 merchants that accept Dash in Venezuela and over 1600 merchants around the world with each of them offering goods and services to consumers in exchange for Dash. This demonstrates how consumers and merchants have trust in Dash because of its unique incentivized structure that allows them to trust a decentralized autonomous organization. As Mastercard mentions, consumers do need to have confidence in the operation of a service and product for mass adoption. Dash is already creating that confidence by providing solutions that allows Dash to have the speed advantages of traditional fiat, as well as the decentralized advantages of cryptocurrency.