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PayPal patented its own bitcoin Lightning Network system in 2016

Posted: 5 March 2018 6:16 pm
News

PayPal filed a patent for a pre-funded off-chain cryptocurrency wallet system before it was cool.

PayPal has, unsurprisingly, been eyeing the digital currency space for a while and may have been anticipating some of the frictions to be overcome before bitcoin could be used as an effective payment system. This is revealed in a patent filed by PayPal in August 2016.

It lays out a system for expediting digital currency transfers in a way similar to bitcoin's Lightning Network, alongside a system for performing on-the-spot crypto-to-fiat exchanges.

The patent describes a "primary" wallet which is accompanied by a "plurality" of "secondary" wallets. These secondary wallets are temporary ones, created and pre-funded for transactions. Instead of making an on-chain transfer, users can simply transfer over the private key for the appropriate secondary wallet.

This is intended to essentially allow for instant off-chain payments, with the details later run along the main blockchain in a more leisurely way. This is similar to the plans for bitcoin's Lightning Network, which essentially involves a series of pre-funded multi-key wallets, shared but securely partitioned between users, allowing for near instant off-chain transactions and eventual settlement on the main bitcoin blockchain when required.

In this case, the system is envisioned as working mostly in the background without a user necessarily seeing how it all happens. It also mentions the possibility of financial institutions pre-funding the secondary user wallets where needed, secure in the knowledge that the user actually has the funds.

PayPal's system also includes a system for converting cryptocurrency to fiat currencies at the time of transfer, and a way for the one system to be used across multiple types of fiat currency.

The patent, filed in 2016, shows that PayPal has spent a fair amount of time looking very closely at the potential of cryptocurrency in payment systems and how to overcome its limitations.

"The electronic coin [the cryptocurrency] and virtual currency public ledger [the blockchain] discussed above provide a distributed virtual currency system in which payers and payees may participate in transactions with each other without the need for a centralized authority such as a bank. Each of those transactions is recorded in the virtual currency public ledger to ensure that the electronic coins may only be spent by a payer once," the patent reads.

"However, it has been discovered that the confirmation of those transactions via the proof-of-work system discussed above may unnecessarily delay the transaction, and that such transactions may be expedited by first allocating private keys to a payee, and then subsequently performing the transaction using those private keys and confirming the transaction."


Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, SALT, BTC and NANO.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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