Remember when e-commerce was not really a thing and buying and selling online was basically the Wild West? I have had my share of risky purchases and buyer’s remorse during those tumultuous times. But when eBay basically married PayPal, things got a lot better, namely in regards to secure, encrypted P2P financial transactions. Indeed, PayPal simplified online financial transactions, and over the past fifteen some odd years and after a seemingly amicable divorce (recently turned sour), PayPal has paved the way for secure transactions all across the internets. It comes as no surprise, then, that PayPal is looking to influence online transactions once again, this time for cryptocurrencies.
The PayPal patent application, which published earlier this month and titled “Expedited Virtual Currency Transaction System”, aims to…well…expedite virtual currency transactions. But in order to better understand or appreciate the significance of this venture, it would be helpful to briefly recap blockchain technology:
A Ledger Problem
Many traditional ledgers, digital or otherwise, are often kept private and managed by an accountant (probably an Andy Dufresne or Itzhak Stern or Guillermo Pallomari) or an “unbiased” third party entity (usually a bank) to record and process monetary transactions. As you can imagine, a lot of trust is placed on those who manage the ledgers and often times, the accountability, security, and trustworthiness of ledgers for recording transactions are questioned. Blockchains actually help solve this problem in many ways.
What is a Blockchain?
Blockchain tech is basically a digital, decentralized ledger and comprises blocks which store all transactional information. The transactional information is viewable by every user and any user can contribute to the blockchain, but once information is recorded, the block is sealed off by encryption and cannot be edited further. So, each time someone makes a change, for instance, with a new transaction, that change is recorded as a new block, and this new block is attached to the previous block, creating a chain, and each block information is distributed to all users. Literally, blocks on a chain…but without going into the super technical aspects, a blockchain system is, in essence, a decentralized, virtually incorruptible (pun intended) ledger that is constantly updated, verified, and secured by users so long as the implemented methods remain uncracked.
PayPal and the Cryptocurrency Application
In regards to cryptocurrencies such as Bitcoin, blockchains provide verified and secured transactions, but these transactions often take time (about 10 minutes on average). In very simplified terms, these delays are due to network delays due to high demand and a limited number of cryptocurrency miners to process and confirm transactions on the blockchain to make the transactions possible. PayPal believes that these delays deter users from using cryptocurrencies and “will instead choose to perform the transaction using traditional payment methods rather than virtual currency.”
PayPal’s application discloses a potential remedy in a system that allows for cryptocurrency transactions off the blockchain by assigning private keys to “virtual currency wallets that are associated with predefined amounts of virtual currency that equal a payment amount identified in the virtual currency transaction.” Essentially, the private keys allow for a “pre-authentication” and are transferred along virtual wallets to ensure that the transferee has control of the virtual currency associated with said wallets, which practically eliminates transaction wait times due to network delays in the blockchain verification process.
In today’s society, “instant” and “with a quickness” are often expected, so a system that facilitates transactions with a quickness is certainly desirable. The only problem is that PayPal’s described application may be incompatible with one of the key principles of blockchains: decentralization. In other words, who is going to distribute, manage, and keep track of all of these private keys? Who watches the watchers? The application discloses both a centralized system (in which a company like PayPal may implement this system) and a decentralized system (in which one or more users may implement this system). Of course, only time will tell which of these embodiments will be at the forefront, but it is evident that crypto transactions will probably become more efficient with advances or modifications in blockchain tech.