Exploring Visa’s Digital Currency Patent Application: Toward a New Era of Finance?
Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
In a care[...]
Visa’s digital dollar concept opens a door to central bank currencies
American Banker | John Adams | May 18, 2020
The coronavirus recovery is accelerating government involvement in payments, providing Visa a chance to turn a developing currency concept into a route for federal transactions.
The U.S. Patent office on Friday published a Visa patent application to create a technology gateway that could allow central bank currencies for any nation to be digitized. Visa filed the application in November, predating the coronavirus crisis that has generated more interest in digital money.
The application details a centralized computing system that receives information and denomination of a traditional currency, which is then converted to a digital form and recorded on a distributed ledger. This could work with any traditional currency, placing Visa in the middle of the process.
See: Visa’s Fast Track Program Propels Growth of the Fintech Industry Worldwide
The coronavirus recovery is accelerating government involvement in payments, providing Visa a chance to turn a developing currency concept into a route for federal transactions.
The U.S. Patent office on Friday published a Visa patent application to create a technology gateway that could allow central bank currencies for any nation to be digitized. Visa filed the application in November, predating the coronavirus crisis that has generated more interest in digital money.
The application details a centralized computing system that receives information and denomination of a traditional currency, which is then converted to a digital form and recorded on a distributed ledger. This could work with any traditional currency, placing Visa in the middle of the process.
It’s also a way for Visa to respond to changes in money movement that could potentially compete with the card network. Visa was initially part of Facebook’s Libra project, but left the initiative along with several other high-profile payment companies when regulators and politicians pressured Libra — mostly over Facebook’s role and the potential to circumvent government monetary policy.
“Widespread adoption of digital currencies would be bad for Visa’s traditional retail payments franchise,” said Eric Grover, a principal at Intrepid Ventures, adding this may be a case of Visa hedging against central bank or Libra-style digital currencies. “A digital currency supported by Visa and issued by banks could fit nicely with Visa’s business model of delivering payment products through license banks, albeit with thinner transaction economics.”
The European Union has considered a “digital euro” to spur coronavirus recovery, and dozens of other countries are working on similar projects, giving Visa plenty of opportunities to partner with governments.
See: Cryptocurrency Payments Processor CoinPayments Appoints Jason Butcher as New CEO
In this way Visa’s patent, which does not propose a cryptocurrency, is also a nod toward working with governments that may be anxious about how blockchain and cryptocurrency could impact traditional monetary policy, particularly in a time of quantitative easing and potential effects on currency values.
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Blockonomi | | May 18 ,2020
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."
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.
See:
Central Bank Digital Currency and Fintech in Asia
Bank of Canada Speech: Money and Payments in the Digital Age
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.
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.
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.
See: Could Bitcoin on DeFi displace banks? Yes
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.
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.
See: China’s digital currency app looks like Alipay and WeChat Pay
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.
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