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PayPal has filed a patent to speed up cryptocurrency transaction times by eliminating the verification time of payments. Bitcoin expert argues that this is already made possible through existing technologies in the cryptocurrency industry.
On March 5, 2018, Cointelegraph reported that PayPal filed a patent with the US Patent and Trademark Office (USPTO) for a technology that is supposed to speed up cryptocurrency payments through the utilization of secondary wallets.
Essentially, PayPal seeks to optimize the process of settling cryptocurrency payments between merchants and buyers, on retail or e-commerce platforms. The secondary wallets of users, as described in the official patent, would allow the unique private keys of buyers and sellers to be transferred behind the scenes, to prevent every transaction from being included in blocks and broadcasted to the public Blockchain.
The patent heavily emphasized that the system of verifying transactions by including payments in blocks have limited the potential of cryptocurrencies like Bitcoin.
“In order to be sure that the Bitcoin transaction will ultimately result in a transfer of Bitcoins to the payee, the payee must wait until the mining process confirms the transaction before transferring goods and/or services to the payer. In many transaction situations, a 10 minute wait time will be too long for payers and/or payees, and those payers and/or payees will instead choose to perform the transaction using traditional payment methods rather than virtual currency. Issues like this have slowed the adoption of virtual currencies despite their advantages,” the patent read.
Bitcoin Developer Peter Todd responds
Peter Todd, a Bitcoin developer and applied cryptography consultant, stated that PayPal is trying to patent a technology that already exists in the cryptocurrency industry, developed by Opendime.
— Peter Todd (@peterktodd) March 5, 2018
Created in 2016 by a former Bitcoin marketplace Coinkite, Opendime is a hardware Bitcoin wallet with multi-signature bank-grade security. It allows users to transfer Bitcoin with internal private keys, with the vision of enabling users to utilize Bitcoin like fiat money, such as the US dollar.
Opendime is structurally different to other hardware wallets like Trezor and Ledger, which can be reused. Opendime is a USB stick that can only be used once, like a piggy-bank. The USB stick must be destroyed to use the funds stored inside, allowing it to be used as cash.
The patented technology of PayPal and Opedime is similar in that private keys are swapped behind the scenes off-chain, in an instantaneous manner. As the Opendime team explains, “since we are putting private keys into a physical form you can trust, you can simply hand around Opendime units to move amounts around. There are no pre-defined Bitcoin amounts with Opendime either. Store as much or as little as needed.”
The process of transferring bitcoin payments with Opendime is similar to PayPal. The technology of PayPal encourages each user to transfer an entire wallet or private key associated with a predefined amount of a cryptocurrency, as the patent explains:
“The systems and methods of the present disclosure practically eliminate the amount of time the payee must wait to be sure they will receive a virtual currency payment in a virtual currency transaction by transferring to the payee private keys that are included in virtual currency wallets that are associated with predefined amounts of virtual currency that equal a payment amount identified in the virtual currency transaction.”
Can PayPal’s technology optimize cryptocurrency payments?
If PayPal’s technology can be implemented at a large commercial scale, it could allow cryptocurrency payments to be processed between merchants and buyers instantly and off-chain, eliminating large transaction fees and most importantly, long verification periods.
Recently, South Korea’s major hotel booking platform Yeogieottae has partnered with Bithumb, the country’s largest cryptocurrency exchange, to accept cryptocurrency payments. In Japan, the country’s biggest retailers such as hotel chain operator Capsule, airline Peach, and electronics retailer Bic Camera have been accepting Bitcoin payments for a while.
PayPal’s low fee and instant cryptocurrency payment processing system could allow retailers to process payments for users without having to deal with hours-long verification periods.
But, an issue could occur in the process of transferring private keys, if this settlement occurs off-chain, in a centralized manner. The patent of PayPal explicitly explained that it could rely on a payment service provider device to carry out the process of settling payments, which could lead to a centralized system overseeing the transfer of private keys.
“In a specific example, a payment service provider such as, for example, PayPal, Inc. of San Jose, Calif., may utilize a payment service provider device to perform the method 100 [PayPal’s method of transferring private keys – Cointelegraph], and in some embodiments may operate in cooperation with one or more other system providers (via their system provider devices) and/or users (via their user devices) to perform the method 100 discussed below.”
Last week, tech-focused podcast host Owen Williams revealed the findings of GDPR, which disclosed that PayPal shared sensitive financial data of its customers with more than 600 entities.
— ⚡️ Owen (@ow) March 4, 2018
The centralization of cryptocurrency payments and private keys could lead to vulnerabilities and data selling unless PayPal’s technology can utilize non-custodial wallets and allow merchants and users to remain in full control of their private keys during the entire process.
This article was originally published on: CoinTelegraph on