​Visa files patent application titled "Digital Legal Currency" for Central Bank Digital Currency

On May 14, 2020, the United States Patent and Trademark Office (USPTO) information showed that Visa has submitted a patent application for creating a digital currency on the blockchain, called "Digital Legal Currency", which aims to use blockchain technology Create digital currency on a central computer. The patent application applies to digital dollars as well as other central bank digital currencies such as the British pound, Japanese yen and euro, whereby physical central bank currency anywhere in the world can be digitized.

The patent application was filed with the USPTO on November 8, 2019 and published on May 14, 2020. The applicant for this patent application is "Visa International Service Association" of San Francisco, California, USA, and the inventors are Simon J. Hurry and Alexander Pierre.  

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Patent application filed by Visa with USPTO / Source: USPTO

The patent application is for a fiat-linked cryptocurrency system using a "private permissioned distributed ledger platform." It describes a central entity computer that generates digital currency that is recorded on a blockchain and that "can determine that particular digital currency units should be added to or removed from the blockchain." The system's Some key roles include central entities, blockchains, validating entities, redemption entities, and users, among others. The document details that “a central entity may be a central bank that regulates the money supply”; a validating entity “is a blockchain node, which may be a peer node such as a bank”; and an exchange entity “may accept actual currency in exchange for exchange for digital fiat currency,” such as at an ATM or bank branch.

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Ecosystem Diagram in Patent Application / Source: USPTO

According to the records in the application, at the operational level, the operation process of this technology is as follows.

The central entity computer receives a request for digital currency, which includes the serial number and denomination of the physical currency;

Digital currency corresponding to the denomination and linked to a serial number generated by a central entity computer;

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record digital currency on the blockchain;

Notification of digital currency generation sent by the central entity computer;

The corresponding physical currency is removed from circulation in the fiat currency system by the central entity computer.

The application further explains that the payments ecosystem could become 100% digital and that "cash can be removed from the market in a frictionless manner" to improve the payments ecosystem. “Users can hold digital currency that has the same denomination as local physical currency.” In addition, the application states that once digital legal tender is issued, “users or banks can transfer digital currency from wallet to wallet, or transfer digital The currency is stored on the smart card and the smart card is transferred to another entity."

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The system's blockchain has not yet chosen a consensus mechanism to use. “Consensus mechanisms may vary depending on the protocol being implemented. Some exemplary consensus mechanisms… are Proof of Stake (Proof of Stake), Byzantine fault-tolerant (BFT) algorithms, and crash-fault tolerant (CFT) algorithms.”

Through the application, Visa stated that the cryptocurrency system has advantages over the fiat currency system. For example, cryptocurrency transfers can be faster than regular fiat currency transfers. In addition, since some cryptocurrencies are issued on the blockchain, and the blockchain is immutable, users will have more trust in such cryptocurrencies.

At the same time, Visa also pointed out that despite the above advantages of the cryptocurrency system, cryptocurrencies are generally not regulated like legal tender. Since cryptocurrencies require electronic devices, and there are still parts of the population without electronic devices, it is impractical to completely convert a country's fiat currency to cryptocurrency.

J. Christopher Giancarlo, former chairman of the U.S. Commodity Futures Trading Commission (CFTC), commented on Visa’s patent application to the USPTO: “This patent application proves that the private sector is also working on the future shape of money.”

In addition to patent applications, Visa head of cryptocurrency Cuy Sheffield recently expressed his views on central bank digital currency (CBDC). On May 18, Cuy Sheffield tweeted that he does not think consumer-facing CBDC solutions will be taken seriously by central banks. He noted that if central banks decide to offer digital wallets directly to consumers, CBDCs and central banks will have to become household names by default, but it seems unlikely that most major central banks will take this seriously due to operational challenges. this method.

Sheffield mentioned that there are two approaches to implementing a central bank digital currency, the first being a cash-like consumer-facing solution, and the second being a new real-time payment infrastructure for banks.

For the first digital cash solution, he questioned the ability of central banks to explain to consumers the difference between central bank digital currencies and commercial bank digital deposits. For consumers to understand the difference, central bank digital currencies need to have features that digital deposits do not, such as anonymity and offline payments, he said. Otherwise, consumers will not be able to understand the difference between the original payment system and the central bank digital currency.

In the second approach, a central bank digital currency acts as a payment infrastructure. The currency ecosystem will serve as the foundation upon which businesses build their wallets and services, Sheffield said. In this case, consumers would tie the functionality not to the central bank itself, but to the companies with which they use the wallet and payment services. “Consumers will connect with a fintech wallet and adopt it based on the brand and characteristics of the wallet rather than the characteristics and liability structure of its underlying currency.”

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