CryptocurrencyNews Analysis

PayPal’s Ridiculously Simple Crypto Patent

By March 15, 2018 No Comments
Blockchain’s greatest strength is also its Achilles heel. The mining process that performs seemingly magical sleight-of-hand using only cryptographic math and a massive network of computing power to create a kind of self-rgulating economy - an impenetrable, internally verifiable, irrefutable chain of digital ownership, has a problem - it’s slow.

Paypal filed a simple patent for an expedited system that would allow merchants and consumers to transact cryptocurrency instantaneously - the online payments behemoth already has the massive global commercial network in place to scale it.

Self-Regulating Economy

Blockchain’s greatest strength is also its Achilles heel.  The mining process that performs seemingly magical sleight-of-hand using only cryptographic math and a massive network of computing power to create a kind of self-regulating economy - an impenetrable, internally verifiable, irrefutable chain of digital ownership, has a problem - it's slow.

What is needed is an electronic payment system based on cryptographic proof instead of trust

- Satoshi Nakamoto

There’s no workaround for the fact that cryptographic mining takes time.  There are, of course, cryptographic protocols that take less time, and difficulty parameters can be adjusted for faster block times, but every gain in minutes is a loss in blockchain security - and blockchains are extremely secure.  

Impossible To Corrupt

To alter one you’d have to literally create an entire chain of transactions going back to the origin of each coin.  To create new fraudulent transactions at the end of the chain you’d have to race the entire network to verify your bogus entries before the legit blockchain verified the real ones. 

Even If you could harness half the computing power of the entire network, you’d still only have a coin flip’s chance of verifying a single bogus transaction.  Despite what the mainstream media would have you believe, blockchains don’t get hacked - exchanges and wallets do.  But that security comes at a cost - time.

Combine the asymmetry of cryptographic math with the aggregate processing power of the entire network and you have a blockchain - no bank required.

Once a block of transactions is cryptographically sealed and locked into a fixed order in the blockchain, it is virtually impossible to replace, alter or corrupt it.

Eternal Debate

There is an eternal debate within the crypto community on the best way to speed up the mining process and still preserve cryptographic security, and the issue is far from settled.

Off The Chain

Bitcoin is now using the Segwit protocol, which stores digital signatures on a separate chain.  This effectively frees up space on the main chain without affecting the hard limit of 1Mb block size established by Satoshi to ensure decentralization.  Since transactions are still verified by the SHA-256 hashing function, the blockchain’s security is preserved and the signatures are cryptographically sync’d to the transaction chain.

Bigger Blocks

Bigger blocks work great, as demonstrated by Dash and Bitcoin Cash, but the ghost of Satoshi haunts this solution since block size increases at full scale eventually allow only big players to run full nodes  - which is anathema to the original vision of decentralization - arguably the raison d’ etre of cryptocurrency.

A Behind-The-Scenes Workaround

Now PayPal has filed a patent for a ridiculously simple workaround that preserves the bulletproof security of the hashed blockchain while making confirmations essentially instantaneous.

Cryptocurrency is apportioned into secondary wallets and private keys corresponding to the precise amount of crypto to be transferred are exchanged instantaneously, avoiding the long delay of block mining and confirmation times.

Cryptocurrency is apportioned into secondary wallets and private keys corresponding to the precise amount of crypto to be transferred are exchanged instantaneously, avoiding the long delay of block mining and confirmation times.

Transactions are still hashed (bundled, sealed, and locked into a fixed order in the blockchain) in the usual way.  But while the transacting parties are waiting for confirmations, they’ve already completed a behind-the-scenes transaction by exchanging private keys to wallets corresponding to the exact amount being exchanged.

Secondary Wallets

This is accomplished by creating secondary wallets with their own unique private keys for buyers and sellers.  In the words of the PayPal patent filing, “An Expedited Virtual Currency Transaction System": 

Perform virtual currency transaction to transfer predefined amounts from 1st user primary wallet to 1st user secondary wallets.

Allocate subset of 1st user secondary wallet private keys to 2nd user.

The private keys to multiple secondary wallets are exchanged behind the scenes instantly to guarantee the transaction while it awaits confirmation in the blockchain.

The private keys to multiple secondary wallets are exchanged behind the scenes instantly to guarantee the transaction while it awaits confirmation in the blockchain.

The Spectre Of Centralization

Paypal already has the global commercial network in place to implement such a system at scale - allowing for all of its merchants and users to transact in multiple cryptocurrencies instantaneously.

At issue, of course, is the spectre of centralization - who exactly will be safeguarding the private key transfers and how will they be secured and verified?

Key Control

Unless users and merchants are continuously in control of all of their private keys, there is always the possibility of security breaches, collection of meta-data, and the theft or selling of data.

PayPal has already been busted for sharing customer data with more than 600 entities.


Images via Shutterstock

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