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Exploring Visa’s Digital Currency Patent Application: Toward a New Era of Finance?

The U.S. Patent and Trademark Office (USPTO) published the patent application in question, which is simply titled "DIGITAL FIAT CURRENCY."
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Visa is one of the most successful and consequential payments companies in the world. Where the powerhouse enterprise places its efforts is thus no small matter.

That’s why a newly published patent application for a blockchain-powered “digital fiat currency” system by the payments giant is not only legitimizing for blockchain tech in general but also indicates what may be coming to the mainstream payments arena amid increasing hyperdigitalization.

Indeed, Visa’s patent mentioned the reigning smart contract platform Ethereum and the Hyperledger Fabric blockchain nearly a dozen times each. Will the future of finance be built on top public blockchains, then?

That’s the grand question for now, and Visa’s new patent application is an interesting new wrinkle accordingly. To be sure, Visa may have simply kept its options open with a defensive application. Yet if the firm ever does proceed with a system like the one planned in the filing, the implications will be manifold and major. Let’s dive deeper to better understand the stakes.

Patent Comes to Light

On Thursday, May 14th, the U.S. Patent and Trademark Office (USPTO) published the patent application in question, which is simply titled “DIGITAL FIAT CURRENCY.”

The filing, which was first submitted to the USPTO in November 2018, outlines a stablecoin-like system in which blockchain-based digital currency issuances are linked to actual fiat currency reserves.

How the Digital Currency Would Work

Per the application, Visa’s envisioned digital currency entails a central operator, i.e. Visa or beyond, facilitating token issuances atop a blockchain. To this end, the document repeatedly identifies Ethereum as potential infrastructure of choice.

Of the system’s general design, the filing’s abstract simply explains:

“The central entity computer generates the digital currency … The generating includes recording the digital currency on a blockchain. The central entity computer transmits a notification of the generation of the digital currency. The central entity computer causes removal of the physical currency from circulation in a fiat currency system.

Such a model is not altogether dissimilar to centralized stablecoin operations already active in the cryptoeconomy, like the CENTRE-backed USDC project. The main difference is that Visa’s system would be unapologetically centralized, whereas USDC’s backers have taken a rather hands-off approach to their token to date.

To Libra, or Not to Libra

Facebook shocked the world last summer when it first unveiled plans for the Libra stablecoin. The news kicked up a firestorm among global regulators, who saw the move as Facebook trying to outmaneuver central banks.

One of the biggest initial targets of the Libra Association, the Libra’s governing body, was Visa. Yet it turned out that the payments powerhouse never formally joined the association, and in October 2019 the company confirmed it would not be directly backing the controversial stablecoin.

However, since Visa’s digital currency patent application was filed just one month after the company’s Libra withdrawal, some will now surely wonder whether Visa wanting to go its own way on blockchain was just as pivotal to its retreat as international regulatory headaches were.

Good News for Ethereum & Hyperledger

Regardless of what ends up happening with this patent application, the fact that Visa therein repeatedly mentioned Ethereum and Hyperledger Fabric as possible underlying infrastructure is a major PR victory for both projects.

For now, there’s certainly nowhere better to look: Ethereum remains the undisputed “king of the hill” when it comes to smart contract platforms, while the open-source Hyperledger Fabric project has major contributors like the Linux Foundation and IBM. Just the fact that Visa mentioned these two platforms at all will help their respective momentums going forward.

On the Decentralization Spectrum

Public blockchains like Ethereum can be used in many ways. They can give rise to totally decentralized projects like Augur and Uniswap, or they can help power centralized third-party enterprises like the Tether (USDT) stablecoin operation.

Obviously then, Visa’s digital currency system — at least as initially outlined — would be near the “completely centralized” end of the decentralization spectrum. With that said, though, what would be interesting to see is if and how Visa’s digital currency would permeate into more decentralized areas of the cryptoeconomy, e.g. like USDT trading on Uniswap.

Visa could employ a smart contract whitelisting system to mitigate its tokens running amok in DeFi, though the company wouldn’t necessarily have to.

A Boon for Public Blockchains

In recent years, debates have swirled around the prospects of public vs. private blockchains going forward.

As of now, though, public blockchains like Bitcoin and Ethereum certainly have seized the upper-hand when it comes to general viability as infrastructure. That Visa would even note Ethereum as one possible home for a Visa-backed digital currency shows that public blockchains are promising and can truly no longer be discounted in the traditional finance arena.

News Comes as Stablecoins Are Booming

There’s no indication just yet that Visa’s digital currency will actually come to fruition. But the mere prospect of its arrival comes at a time when both centralized and decentralized fiat-pegged stablecoins have been becoming increasingly popular.

For instance, this month the combined market capitalization of all active stablecoins reached $10 billion USD for the first time ever. The new milestone shows that demand for fiat-pegged or value-stable tokens is already strong and on the rise.

If a major firm like Visa jumped into the rising sector in a big way, then stablecoins in general will have officially hit the prime time. The possibility is closer than ever.

The CBDC Specter

As outlined, Visa’s envisioned digital currency system leaves the door open for central banking institutions to work with the payments company on actualizing central bank digital currency (CBDC) issuances.

What’s interesting here is that in Visa central banks would certainly find a reliable and promising partner. In many cases, these banks would naturally be more comfortable using an Ethereum-powered Visa system rather than building their own Ethereum solutions themselves.

As such, Visa would be ideal for central banks wanting to issue CBDCs for retail rather than wholesale use, as the company’s consumer base is vast.

Will Other Big Firms Follow Suit?

Because of its sheer size and success, Visa is a very influential firm. It’s a titan in the payments industry, and its operations are closely tracked by many stakeholders, including high-profile competitors.

It’s entirely possible, then, that this new Visa digital currency news causes other large companies to take a second look blockchain-based solutions. If Ethereum or Hyperledger Fabric are good enough for Visa, they will be good enough for many others too.

Blockchain on the Brain

This patent application isn’t Visa’s first blockchain industry rodeo. Last summer, the company unveiled Visa B2B Connect, a cross-border payments solution built on Hyperledger Fabric.

“Launching Visa B2B Connect marks an important industry milestone which will accelerate the evolution of how commercial payments move around the world,” Visa’s Global Business Solutions lead Kevin Phalen said at the time.

In the very least, the Visa B2B Connect roll out shows that Visa is not only adept at planning out blockchain-powered systems but also at developing them and putting them into production.

If Visa’s digital currency patent gets approved and the company does build out the system, the enterprise certainly has the know-how, the resources, and the reach to bring the solution right into the heart of the mainstream.

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William M. Peaster is a professional writer and editor who specializes in the Ethereum, Dai, and Bitcoin beats in the cryptoeconomy. He's appeared in Blockonomi, Binance Academy, Bitsonline, and more. He enjoys tracking smart contracts, DAOs, dApps, and the Lightning Network. He's learning Solidity, too! Contact him on Telegram at @wmpeaster

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