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Mastercard could allow Bitcoin transactions on credit cards

Mastercard wants to create a “fractional reserve of blockchain currency” to speed up Bitcoin transactions
Mastercard wants to create a “fractional reserve of blockchain currency” to speed up Bitcoin transactions

Paying for everyday purchases using Bitcoin has moved a step closer to reality, after Mastercard won a patent for technology allowing cryptocurrency transactions to be carried out on a credit card.

In the first patent of its kind, Mastercard secured the right to protect a method that would manage something known as "fractional reserves of blockchain currency".

Essentially, this would mean Mastercard could offer a new type of user account that can transact in cryptocurrencies but pegged to a fiat currency  - or legal tender - allowing for a quick exchange between the two.

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Cryptocurrencies like Bitcoin are alternative digital currency systems to conventional money like pounds, euros and dollars. They are not backed by a central bank. Instead, payments are processed securely using a series of sophisticated computer encryption techniques.

They rely on so-called "blockchain" technology - a type of digital ledger hosted across a network of computers that can mutually verify transactions. 

Bitcoin, the most popular cryptocurrency, was launched in 2009 but has since been joined by hundreds of others such as Monero and Ethereum.

The document that was originally filed in 2015 by Mastercard says that there has been "increased usage" in cryptocurrencies by consumers who "value anonymity and security."

The card could mean cryptocurrency miners would be able to pay using their digital currency of choice
The card could mean cryptocurrency miners would be able to pay using their digital currency of choice

But the Mastercard patent also acknowledged there were significant disadvantages to using digital currencies and there is a need to improve the storage and processing capability of such transactions.

Digital coin transactions take longer using blockchain, the document noted, at around 10 minutes compared to a few seconds for traditional card payments using regular currencies.

This would mean both customers and merchants will have to wait a "significant amount of time" for these transactions to be completed, and it may even require shops to "rely on the payer's good faith" that they are valid, said the patent.

"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," the document concluded.

The system would use fractional reserve banking, which is the conventional way banks store people's money.

 It is where only a fraction of deposits in your account are backed by actual cash on hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties.

While Mastercard's new patent reflects its growing confidence that people may one day be comfortable using Bitcoins to make normal everyday purchases, the company does admit that cryptocurrencies “can be difficult for consumers to adopt, or even understand”.

Today, they are not easy to spend and are only accepted by a relatively small number of retailers and specialist brokers.

To date there has been no formal announcement made by the payment business to release such a card, but it has the potential to do so in the future now this patent has been published with the U.S. Patent and Trademark Office.

Currently, Mastercard holders can only pay for things using currencies that national governments have declared as legal tender or fiat currencies.        

Bitcoin billionaires | Wealthiest cryptocurrency owners
Bitcoin billionaires | Wealthiest cryptocurrency owners

Separately, Mastercard is also in talks with British banks to introduce a biometric payment card.

Currently the US company is testing the biometric card, which has an inbuilt fingerprint sensor, in South Africa, but hopes it can be brought to Britain in the following months.

When the card is performing a payment, a shopper places the end of their finger on the sensor to confirm their identity, allowing the transaction to take place.

The fingerprint information on the card will allow customers to bypass rules brought in with a new directive, which was created by the European Commission, that mean customers will have to confirm their identity every five times they make a contactless payment.