Mastercard announced it had plans to help cryptocurrencies directly in its community. If this really happens, it will serve as an additional legitimation of cryptocurrencies and dramatically increase the market for their use.
Being decentralized and controlled — not an easy task
Mastercard states that it is designed solely to help cryptocurrencies that meet a wide variety of needs, as well as ensure stability, confidentiality, and compliance with legal regulations regarding money laundering. The problem is that few cryptocurrencies meet Mastercard’s standards. Practically none.
Bitcoin, the main cryptocurrency, was designed to undermine the control capabilities of governments and traditional monetary institutions. The Bitcoin community has a decentralized structure, which makes it inaccessible to any authorities. Yes, Bitcoin’s decentralization has its risks. Holders have no way to recover funds lost due to hacking or fraud. The crypto community does not adapt to the legal anti-money laundering guidelines that conventional money networks must comply with, although some crypto intermediaries do.
For purists, Bitcoin is a factor in favor of a crypto asset. They believe that the open structure of the Cue Ball and the lack of control make it a fertile platform for innovation, devoid of control by governments. However, these amazing features make the community a nightmare for money institutions that really want to protect customers and adapt to the legal norms of money laundering.
This actual stress hampered the grand enterprise of FB Libra, which has since been renamed Diem. In the first months of Libra’s existence, developers tried to use all the methods. On the one hand, they stated that the Libra community could be open and decentralized like Bitcoin (although they acknowledged that full decentralization would take some time). On the other hand, they stated that the Libra community would fully adapt to the laws governing typical money networks.
However, Libra Affiliate was never able to explain how this would work. For example, if Libra is an open community that everyone can participate in, then who will implement the “know your customer” principles that require potential users to identify themselves before using the community? If no one is responsible for the community, who will block transactions that the authorities identify as belonging to terrorists or drug dealers?
The Libra project has struggled to answer these questions, and it is not clear how often it has found the answers itself. Creating a decentralized blockchain community that meets these guidelines may even be unattainable.
Mastercard pulled out of the Libra Association in 2019 as Libra struggled to answer similar regulatory questions. Shortly after, Mastercard released its personal list of blockchain partnership principles.
Mastercard said it was solely interested in working with cryptocurrencies that “function in full compliance with all relevant legal norms and laws, as well as those relevant to the fight against money laundering.” With a bit of bureaucratic understatement, the company stated that “many of the 2,600 cryptocurrencies, at the moment, do not.”
Now Mastercard reports that it plans to start supporting some crypto assets again. Many companies already use cards that allow potential customers to earn funds through the Mastercard community using their Bitcoin holdings. However, at the moment, these bitcoin funds are converted to dollars, or to forex, before they are transferred to the Mastercard community. If the recipient needs to receive a fee in crypto, then they need to convert dollars into crypto assets again, paying an additional fee for the service.
Mastercard says that by early December, potential customers will be able to do this with some cryptocurrencies. The recipient will receive the same digital asset as the sender, without the need to convert to fiat.