Barclays, the largest bank in the UK, intends to patent a set of blockchain stablecoin and KYC solutions. They had filed three patent applications in July 2016, however, the United States Patent and Trademark Office (USPTO) has only recently published them.
While Barclays has filed three patent applications, it’s actually a comprehensive suite of solutions for crypto volatility and ‘Know Your Customer’ (KYC) complexity. Barclays envisage that the three patents will be used in an integrated manner, therefore they can offer maximum benefit to users.
Crypto market volatility is a common phenomenon. Blockchain-crypto technologies are still new, besides, the market is still relatively small. Even seemingly minor events in distant parts of the world influence the crypto market significantly. Crypto traders see this volatility very frequently, consequently, they have developed a bit on indifference up to a threshold.
Chad Arroyo, the ‘Chief Marketing Officer’ (CMO) at Ideanomics writes in a Hacker Noon article that crypto traders are not indifferent to 10-30% volatility swings. However, even they are perturbed when the downside figure increases to 40-80%, as Chad writes. Crypto volatility is a challenge, consequently, the larger crypto community is trying to overcome it. Stablecoins can solve this since they are typically pegged to a fiat currency like USD, or gold.
Barclay intends to develop a stablecoin-like solution in one of their patent applications. The proposed solution will peg a digital currency to a fiat currency like USD. It will provide special authorities to a set of users like central banks. One such special authority is a “currency issuer secret keys”, which will allow the user to add new digital currencies.
The other special authority is a “currency destroyer secret keys”, which will allow the user to remove some units of digital currencies. This will maintain a price stability, besides, there are more advantages.
When the authorized users remove some digital currencies they can encompass the old records in a new block. This enables them to remove old blocks hence, the amount of storage space required for a node reduces.
This will also allow them to tackle fraudulent transactions. Upon detecting fraudulent transactions the special user can destroy those currencies hence, the fraudster can’t benefit from the fraudulent transactions.
The second set of patents deal with the problem of KYC. While undoubtedly important, KYC processes are complex and costly. A Thomson Reuters October 2017 press release states that KYC costs are increasing.
The report shows that financial institutions with revenue of US $ 10 billion or greater have seen their average KYC cost increase from US $ 142 million in 2016 to US $ 150 million in 2017. The rise can be attributed to a high amount of data collection and record-keeping.
These financial institutions are also prime targets for hackers for the valuable identity data they must store for long durations. Consumers have to go through the KYC process multiple times while exposing themselves to data security risks by revealing sensitive identity information each time.
Barclays propose to store KYC proof on immutable blockchain databases. Let’s assume that someone had already undergone a KYC process with a bank. The KYC compliance evidence of this consumer will be stored as a cryptographic hash in a distributed ledger.
Another service provider can access this hash and conclude that this consumer already has valid KYC. This second service provider can then provide their service to this consumer, therefore, saving considerable effort.
The KYC evidence will be stored as a cryptographic hash hence, the actual identity records will not be visible to unauthorized parties. This reduces the data security risks for the consumer. Each service provider no longer needs to store sensitive identity information, therefore, their threat perception from hacking reduces.
Barclays also plans to make cryptocurrency wallets more easily available to crypto traders using this KYC evidence. Consumers have already proved their KYC compliance in this system hence, they can open crypto wallets citing this KYC evidence.
Barclays, the UK bank that’s operating for over three hundred years, isn’t new to the blockchain-crypto space. They have joined hands with the forex service provider CLS in their blockchain payment service.
The move by Barclays conforms with the growing trend of banks taking the patent route to protect their blockchain innovation, despite having reservations about crypto. Bank of Americ wants to patent a blockchain-powered data storage solution, besides, JP Morgan seeks to patent a blockchain P2P payment solution. Royal Bank of Canada isn’t far behind since they plan to improve credit score transparency with the blockchain technology.
SOPA Images/LightRocket via Getty Images