Just as China launches the digital Yuan, which will have huge economic effects, Visa International has filed for a cryptocurrency system patent that is meant to replace physical fiat currency. The system, which utilizes both central banks and commercial banks, leverages a private blockchain to improve the payment ecosystem.
Visa’s Cryptocurrency Patent Filing
The United States Patent and Trademark Office (USPTO) published on Thursday a patent application entitled “digital fiat currency,” filed by Visa International Service Association on Nov. 8, 2019.
The filing is for a fiat-linked cryptocurrency system using “a private permissioned distributed ledger platform.” It describes a central computer, its responsibilities, and key roles of the system: central entities, validating entities, redeeming entities, and users. “A central entity may be a central bank, which regulates a monetary supply,” the document details. Validating entities “are blockchain nodes, which may be peers such as banks.” Redeeming entities “may accept physical currency for exchange for digital fiat currency,” such as an ATM or a bank branch location.
The central entity computer generates the digital currency that is recorded on a blockchain and “may determine that a particular digital currency unit should be added to or removed from the blockchain.” According to the filing’s abstract:
The central entity computer causes removal of the physical currency from circulation in a fiat currency system.
The filing further explains that the payment ecosystem may become 100% digital and “cash may be removed from the markets in a frictionless manner” to improve the payment ecosystem. “Users may hold digital currency with the same denomination as the local physical currency.”
It also notes that once the digital fiat currency is issued, “A user or bank may transfer the digital currency from wallet to wallet or store the digital currency on a smart card and transfer the smart card to another entity.”
A consensus mechanism has not been chosen for the system’s blockchain. “The consensus mechanism may vary depending on the protocol implemented. Some example consensus mechanisms … are proof of stake, Byzantine fault-tolerant algorithms, and crash-fault tolerant algorithms,” the filing details. Other mechanisms explored include a copy of Ethereum, Hyperledger Fabric, and zero-knowledge proofs. The full filing can be found here.
A Visa spokesperson was quoted by Forbes on Thursday as saying: “Each year we seek patents for hundreds of new ideas … While not all patents will result in new products or features, Visa respects intellectual property and we are actively working to protect our ecosystem, our innovations and the Visa brand.” Commenting on Visa’s cryptocurrency patent filing, lawyer Jake Chervinsky tweeted:
You can’t patent something you didn’t invent or that isn’t new, so Visa’s patent application has to be so narrow that even if it issues, it won’t be much use even if it was enforceable. Finance incumbents won’t be able to use patent law to stop the crypto industry.
Other companies have tried to patent various cryptocurrency systems. For example, Microsoft was recently granted an international patent by the World Intellectual Property Organization for a cryptocurrency system using body activity data.