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Mastercard’s New Blockchain Is Interesting Because of What It Leaves Out

October 24, 2017

The credit card giant has given blockchain technology a big push toward the mainstream. Mastercard says its newly released API can immediately help banks and other businesses make payments across international borders faster at less cost. The move follows a similar one by IBM, which just launched its own cross-border payment system for nations in the South Pacific.

One big difference, though: Mastercard’s system won’t involve any cryptocurrency. It will handle the “clearing” of financial transactions—the process by which account balances are updated to reflect new transactions—and will register these updates on a distributed ledger. (See “Why Bitcoin Could Be Much More Than a Currency.”) The actual transfer of money, known as the settlement, will use Mastercard’s conventional system, based on local fiat currencies.

IBM’s system will settle transactions by having its proprietary blockchain work in tandem with a second one, built by a nonprofit called Stellar. Stellar’s cryptocurrency, Lumens, will serve as the unit of value transferred between parties.

What does it all mean? Mostly, it means it’s still early. IBM’s new payment system may use Stellar’s currency only temporarily; the company is eyeing an eventual transition to government-backed cryptocurrencies. It’s not clear when that will happen, though as I’ve recently reported, a number of central banks are testing this idea.

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