A new patent application published on October 25, 2018, has revealed that Mastercard, the American financial services firm, has filed its application to apply the principles of fractional reserve banking to digital currency. The document which was released by the US Patent and Trademark Office stated that the leading global payments company is planning to allow the merchants’ interaction with cryptocurrencies through the process of storing fiat and crypto simultaneously. The reference is specifically made for the management of fractional reserves of cryptocurrencies.
In the past few years, the American multinational firm’s views on cryptocurrencies have been mixed. While Mastercard won a Blockchain-related patent earlier this month, in another news it was also revealed that it may designate ICOs and cryptocurrencies as ‘high risk’, along with its partner, the California-based Visa.
The new filing by Mastercard reveals that the company is aiming to apply fiat banking’s principles to cryptocurrencies. As per Mastercard, these methods are configured so as to secure the merchant and consumer credentials as well as the information in a safe manner.
The patent filing further elaborates, “The use of traditional payment networks and payment systems technologies in combination with blockchain currencies may 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.”
It is interesting to note that the concept of fractional reserve banking, that entails that there is no proof of lender having the funds that correspond to the promised holdings of the customer, also finds its solution in the world’s first cryptocurrency of Blockchain. Hence, many people might be surprised by Mastercard’s move.
The former primary reserve bank for the stablecoin Tether (which is pegged to the US Dollar), the Noble Bank has confirmed that fractional reserve was not utilized. The Bank also went on to add that it had proof for having a USD 1 for every Tether token. Interestingly, Tether has avoided being audited publicly.