Mastercard has chosen to fully embrace blockchain technology by filing a patent for what seems to be a centralized cryptocurrency. The corporation, worth over $200 Billion, officially filed their patent in October, however, discussions were happening as early as June 2018. Details of the patent can be found here. The patent focuses on merging the power of cryptocurrency with the age-old method of fractional reserve banking— this is where only a partial number of bank deposits are backed by cash. The system is used all over the world by traditional fiat banks. However, this does not make it foolproof. Fractional reserve banking was a major contributing factor to the Great Depression.
How would a centralized cryptocurrency work?
Mastercard wants to create a system which will “protect consumer and merchant information and credentials” while simultaneously “storing a plurality of account profiles.” They also want “centralized accounts to manage fractional reserves of fiat and blockchain currency updated via transaction messages corresponding to fiat- and blockchain-based payment transactions.” Essentially, this teaches us that Mastercard plans to build a cryptocurrency which has all the benefits of blockchain technology, minus the highly sought-after feature of decentralization. Mastercard wants a cryptocurrency which they can be entirely in charge of. The argument for this is that it will protect “account information and provide a strong defense against fraud and theft,” but of course this is unproven as the project does not exist yet.
Perhaps the most significant part of this plan is where Mastercard specifically denounce the financial autonomy that cryptocurrencies like Bitcoin and Monero have allowed for their fans by saying that “the storage of private keys in financial institutions and/or payment networks may enable consumers to engage in blockchain transactions without being in constant possession of a computing device that stores their private keys. This may reduce the risk of theft of the consumer’s blockchain currency by trusting the data to financial institutions and payment networks that already specialize in the storage of sensitive financial information.”
In case it is not clear, this is a blatant strawman argument. In this one statement, Mastercard suggests that the holding of private keys is somehow a burden for the user, as if directly holding onto the details of your possessions is something that people no longer wish to do. It is equivalent to saying that it is somehow a burden for each person to hold onto their car keys or house keys, which is ludicrous. It entirely undermines the fact that cryptocurrency’s most appealing feature is the level of independence which it offers specifically through the use of holding private keys. Anybody who is interested in cryptocurrency knows that it is safer to hold onto private keys rather than hand them over to other institutions— it is easier to trust yourself than a corporation, simply because you have a salient knowledge of yourself. This is why crypto veterans avoid leaving their finances on exchanges; you can’t know who exactly runs them and how safe their systems are.
Traditional organizations are getting into crypto
Mastercard is not the only traditional financial institution that is jumping into cryptocurrency. Its long-term rival, Visa is doing the same. So is Goldman Sachs and Santander. There are many other global organizations jumping onboard too. Should this worry fans? It depends on their stance. Mastercard’s centralized cryptocurrency certainly sounds dangerous to the community, but other companies such as Signet (one of the largest jewelers in the world) and IBM appear to be using crypto in a fair and beneficial way. These are both two huge companies, yet their actions do not seem harmful. The point here is that the inclusion of traditional businesses into cryptocurrency is not an inherently bad thing, but that does not mean we should ignore it when it happens. We need to scrutinize it. Mastercard will likely be speaking highly of their centralized cryptocurrency in months to come, and it is almost a certainty that they will be attempting to simultaneously discredit all other cryptocurrencies in the process, considering how all other cryptocurrencies will be their rivals.
Kai is a cryptocurrency copywriter and professional trader. He can often be found investigating various cryptocurrencies, whitepapers, and blockchain technologies. Kai has been a professional writer for 5+ years, and has invested in 50+ different coins and tokens. He also currently studies Law and Philosophy at university.