Bitcoin prices created a frenzy in 2017 given the unprecedented highs they hit, but by the end of the year, it seemed that the cryptocurrency fever was going to disappear. However, that has not been the case. More and more companies are still looking for ways to use the virtual currencies for various purposes.
The decentralized environment of the underlying blockchain ecosystem makes cryptocurrencies attractive for many users. However, a key problem of the ecosystem – especially with Bitcoin, the most popular cryptocurrency – has been the large amounts of time taken for transactions to be completed because of clogged blockchain systems. Many individual Bitcoin transactions can take up to 10 minutes to go through, which is just too long; however, leading digital payments platform PayPal may have a solution.
In a patent filing published by the US Patents and Trademarks Office (USPTO) on March 1, PayPal has applied for a patent for an “Expedited Virtual Currency Transaction System” that it says will virtually eliminate transaction delays in using virtual cryptocurrencies for payments. According to the filing, instead of conducting the transactions on the blockchain itself, the system will use private keys stored in secondary virtual wallets. The keys will be associated with predefined amounts of virtual currency; when users make a transaction, the system will transfer private keys equalling the transaction amount from the payer’s wallet to the payee’s wallet.
Since this transaction will be conducted off the blockchain, delays should be almost entirely eliminated, giving Bitcoin transactions the same speed as those of fiat credit card payments, the filing claims.
In the filing, PayPal writes, “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. Thus, there is a need for an expedited virtual currency transaction system.” The company is not the first to raise this issue; popular digital payments competitor Stripe stopped support for Bitcoin earlier this year, saying that the transaction delays on the Bitcoin blockchain meant that the cryptocurrency had “evolved to become better-suited to being an asset than being a means of exchange.”
This is far from PayPal’s first tryst with Bitcoin. The company first announced partnerships with Bitcoin payment processors back in 2014, setting the stage for merchants to accept the cryptocurrency as payment through the platform’s Payments Hub. The company also filed another patent in mid-2016 for a modular payment module that accepted Bitcoin, Litecoin, and Dogecoin. PayPal Co-founder Peter Thiel also reportedly has sizeable investments related to Bitcoin through Founders Fund, the VC firm that he co-founded in July 2005.
Off-chain solutions such as the one detailed in PayPal’s patent filing have recently been touted as the solution to the heavy amounts of transaction traffic clogging up cryptocurrency blockchains. Microsoft announced plans to use a similar solution for a blockchain-based decentralized identification system last month, and the “Lightning Network” that saw a preview release in December 2017 is another off-chain Bitcoin transfer solution that developers say has the potential to offer “billions” of Bitcoin transactions per second.