Cryptocurrency as fiat currency for credit card transactions will help blockchain move value

If a cryptocurrency is accepted as legal tender in the U.S., it has the advantage: it eliminates a stage called settlement in traditional payment schemes. You give me the money and I can see the money right away, but in reality, I won't get the money until the remittance bank sends the money in a payment phase called netting. Therefore, the withdrawal of cash always has to arrive at the same night or the next morning. What's more, all banks need to record transactions from other banks so they know how much to send. This kind of record keeping doesn’t come cheap, which is why the ability to send virtual currency in every transaction is so powerful. Now, every transaction can be directly traded.

Resolving bank-accepted cryptocurrencies as fiat for credit card transactions will help the blockchain move value, an important capability, but not only does it not eliminate the settlement stage, it also complicates it because It will install another record-keeping system on an already overwhelmed network. Like any large merchant, bank or business where they spend all their time, it settles all the paperwork and transactions to determine if the books are properly settled. That point above is not mentioned in many of Mastercard's covered patents, including Bank of America's article "Mastercard CA2986563A1 – Method and System for Connecting Blockchain-Based Assets to Fiat Currency Accounts."

Mastercard's latest blockchain patent, possibly its most ambitious yet, could theoretically help banks better protect themselves from fraudulent transactions that take place under traditional payment methods.

The bank card network was recently awarded a patent for “Blockchain Asset Fractional Reserve Management,” which combines traditional payment network and payment system technology with blockchain currency to provide better security for consumers and merchants.

Mastercard's announcement is somewhat similar to patent applications filed by Bank of America, Barclays and TD Bank over the past two years. The focus of these patents is on how funds and data can be moved securely with the benefit of blockchain technology.

"There is a need to improve the storage and processing of currency transactions using blockchain," Mastercard wrote in the patent application.

“Traditional payment network and payment system technology combined with blockchain currency may offer the benefits of decentralization for consumers and merchants, while still maintaining the security of account information and providing robust defenses against fraud and theft.”

In a statement provided to Banker of America, Mastercard announced that it would not go beyond its app or speak publicly about its own documents.

So the exact reason for Mastercard’s interest in blockchain technology is unclear, but it mentions in at least two patent filings that both consumers and merchants need to be better protected against fraud and theft.

In theory, such a system could help banks better track transactions, in addition to traditional methods such as understanding customer regulations.

Gabriel Wang, a capital markets and fintech analyst at Aite Group, said: “By linking blockchain transactions with fiat currency transactions, I think it will give banks a clearer view of who is doing the transactions and where the money is coming from.”

In the past two years, MasterCard has applied for a number of blockchain-related patents.

In October, the company was awarded a patent for a method of "partitioning a blockchain" that can store multiple transaction types and formats. Another patent this summer showed that Mastercard could speed up cryptocurrency payments. Bitcoin in particular is known for being relatively slow for transaction approvals, which can take up to 10 minutes.

If all blockchain transactions were tied to a single bank account, they could all be traced back to the account owner, which would indeed satisfy the BSA - and that's a good thing! But it's really just a Band-Aid unless the U.S. creates its own cryptocurrency or connects to a faster payments network that uses blockchain and similar technology identified in this patent to perform real-time settlements.

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