Math-Based Currency Exchange Using a Privacy-Preserving Overlay Ledger

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Solution Overview

Problem

Existing financial systems lack efficient methods for securely managing and facilitating transactions involving math-based currencies (MBC) without relying on traditional financial institutions, and there is a need for secure storage, transfer, and management of MBC deposits and withdrawals.

Innovation Solution

A banking system that includes a financial institution with a pooled MBC account and an overlay ledger to securely manage MBC transactions, allowing for deposit, withdrawal, interest accrual, and credit services, while maintaining the privacy of customer identities and ensuring secure transactions through the use of private and public key pairs.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Reliability

If traditional financial institutions are used to facilitate MBC transfers, then transaction security and reliability are improved, but loss of time and operational efficiency worsen due to intermediary dependencies

Engineering Contradiction:

Improvetransaction securityVSAvoidtransaction processing time

Core Design Contradiction:

ReliabilityVSLoss of time

Solution Approach 1:

The patent introduces a hybrid system where traditional financial institutions act as intermediaries for MBC transactions. The institution's computing system receives trade orders, determines optimal exchange rates, and facilitates transfers between MBC and fiat currencies, providing reliability while reducing time loss compared to purely decentralized systems.

Inventive Principle:

Principle #24Intermediary (Mediator)

Solution Approach 2:

The system segments the transaction process into distinct phases: order reception, exchange rate determination, trade sequence optimization, and execution. This segmentation allows each phase to be handled efficiently by appropriate system components, improving overall transaction speed while maintaining security through structured processing.

Inventive Principle:

Principle #1Segmentation

2Reliability

If customer identities are revealed in MBC transactions, then transaction traceability and accountability are improved, but customer privacy is worsened

Engineering Contradiction:

Improvetransaction accountabilityVSAvoidcustomer privacy

Core Design Contradiction:

ReliabilityVSLoss of information

Solution Approach 1:

The system segments identity information from transaction data. The overlay ledger maintains separate account balance information without exposing customer identities, while the trading partner computing systems handle identity verification independently. This allows accountability through verified trades while preserving privacy in the public ledger.

Inventive Principle:

Principle #1Segmentation

Solution Approach 2:

Traditional financial institutions act as intermediaries that verify customer identities and maintain accountability records, while the MBC network itself operates with pseudonymous addresses. The institution's computing system bridges the gap between anonymous MBC transactions and identified customer accounts, ensuring accountability without exposing identities on the blockchain.

Inventive Principle:

Principle #24Intermediary (Mediator)

3Adaptability or versatility

If multiple trading partners are involved in currency exchange, then adaptability and currency options are improved, but device complexity and system coordination worsen

Engineering Contradiction:

Improvecurrency exchange optionsVSAvoidtrade sequence coordination

Core Design Contradiction:

Adaptability or versatilityVSDevice complexity

Solution Approach 1:

The system dynamically determines optimal trade sequences based on current exchange rates from multiple trading partners. The processor evaluates real-time rate data and automatically adjusts the trade execution order to maximize efficiency, adapting to changing market conditions while managing complexity through automated decision-making.

Inventive Principle:

Principle #15Dynamics

Solution Approach 2:

The system implements feedback loops where exchange rates from multiple trading partners are continuously monitored and fed back into the trade sequence optimization algorithm. This feedback mechanism allows the system to adapt to market changes and coordinate complex multi-partner trades efficiently, with each trading partner's rate information influencing the overall execution strategy.

Inventive Principle:

Principle #23Feedback

4Reliability

If overlay ledger stores detailed account balance information, then transaction transparency and auditability are improved, but data security and customer privacy worsen

Engineering Contradiction:

Improvetransaction auditabilityVSAvoiddata exposure risk

Core Design Contradiction:

ReliabilityVSObject-affected harmful factors

Solution Approach 1:

The overlay ledger maintains a copy of account balance information that mirrors the state of MBC accounts without storing sensitive customer identity data. This copy enables auditability and transparency for transaction verification while the original customer identity information remains protected in separate, secure systems at traditional financial institutions.

Inventive Principle:

Principle #26Copying

Data Source

PatentUS12380498B2Systems and methods for operating a math-based currency exchange

Publication Date: 2025.08.05 WELLS FARGO BANK NA

AI summary

Systems and methods utilized to protect data. One method includes receiving an exchange request and determining a current exchange rate for at least one different currency transaction. The method further includes determining an exchange sequence generating a first public and private key pair and a second public and private key pair. The method further includes receiving an exchange confirmation updating an account balance entry on an overlay ledger. The method further includes broadcasting the exchange request updating a blockchain associated with the exchange request.