Contingent Virtual Currency Payments with Multi-Signature Escrow
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Solution Overview
Problem
Conventional transactions of virtual currencies on a global transaction ledger are typically final and irreversible, creating challenges in exchanging them for reversible payments in fiat currency or financial instruments, as existing systems lack mechanisms for reversing transactions.
Innovation Solution
A contingent transfer of value system using multi-signature wallets with authorization schemes, such as 2-of-3, to enable reversible payments by ensuring that virtual currency transactions are only finalized upon compliance with predefined contingency events, allowing for the recovery of funds in case of non-compliance.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If virtual currency transactions are made final and irreversible on the global transaction ledger, then transaction security and certainty are improved, but the ability to reverse payments in case of fraud or error deteriorates
Solution Approach 1:
The patent introduces a contingent payment system that acts as an intermediary layer between the irreversible blockchain transaction and the reversible fiat currency payment. This system uses smart contracts to hold virtual currency in escrow and automatically reverse the transaction if the contingent fiat payment is not received, thus mediating between the conflicting requirements of finality and reversibility
Solution Approach 2:
The system performs preliminary actions by requiring the recipient to post a contingent fiat payment (such as a bank guarantee or letter of credit) before the virtual currency is released. This preliminary contingent payment mechanism ensures that if the virtual currency payment needs to be reversed, there is a corresponding reversible instrument in place
2Adaptability or versatility
If a contingent payment system with multi-signature wallets and authorization schemes is implemented, then payment reversibility and fraud protection are improved, but system complexity increases
Solution Approach 1:
The patent creates a universal contingent payment system that can handle multiple types of virtual currencies (Bitcoin, Ethereum, etc.) and multiple types of contingent payments (bank transfers, checks, letters of credit) through a single standardized platform using smart contracts, reducing the need for separate systems for each currency or payment type
Solution Approach 2:
The system employs automated smart contracts that self-execute based on predefined conditions. The multi-signature wallets automatically manage authorization requirements, and the system automatically reverses transactions or releases funds based on whether contingent payments are received, eliminating the need for manual intervention in routine operations
3Reliability
If multi-signature wallets with authorization schemes are used, then security and control over virtual funds are improved, but ease of operation deteriorates
Solution Approach 1:
The patent segments the authorization requirements into different levels based on the action being performed. Routine operations may require fewer signatures, while critical operations such as releasing contingent funds or reversing transactions require more signatures. This segmentation maintains security while improving ease of operation for routine tasks
Data Source
AI summary
Approaches are described for contingent transfers of value. A configuration record for an account associated with a virtual wallet is obtained. The configuration record is used to evaluate at least one virtual wallet of an owner account. Based on the configuration record, keys or other secret data and an authorization scheme can be determined and applied to virtual wallets that are part of a contingent contract. Thereafter, the virtual wallets can be utilized to exchange tangible and virtual digital currencies in various financial transactions, banking operations, and other asset exchanges and/or utilized for another purpose such as exchanging an irreversible transfer of value as in a virtual currency to a reversible transfer of value as in fiat currency or a financial instrument.