FEDERALLY SPONSORED RESEARCH

Not Applicable

SEQUENCE LISTING OR PROGRAM

Not Applicable

BACKGROUND—FIELD

This application relates to a monetary system, specifically to a blockchain based monetary system for providing a supply of asset-backed digital currency.

BACKGROUND—PRIOR ART

A monetary system is a set of systems and methods for providing a supply of money. Wherein, money is any item or verifiable record (e.g., electronic data) that is generally accepted as payment for goods and services and repayment of debts. A monetary system usually consists of a mint, central bank, and commercial banks.

A cryptocurrency (crypto currency) is currency (digital currency, virtual currency, money, electronic money, monetary unit) when in use as a medium of exchange, created and stored electronically in a blockchain, using cryptography to control the creation of additional monetary units (i.e., standard units of money such as the dollar in the United States) and to verify the transfer of funds. And a publicly distributed ledger implementation adds means for decentralizing blockchain operations.

A cryptocurrency uses strong cryptography to secure the creation of additional units. The validity of each unit of cryptocurrency is provided by a blockchain. A blockchain (blockchain ledger, digital ledger) is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a cryptographic signature (a hash or a digital signature produced by a mathematical algorithm that maps data of arbitrary size to a bit string of a fixed size and is designed to be a one-way function, e.g., SHA-256) of the previous block known as a hash pointer, a timestamp and a data record. By design, blockchains are inherently resistant to modification of the data.

In some embodiments of prior art, a blockchain is used to implement a publicly distributed ledger that can record transactions between two parties in a substantially verifiable way. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority. A distributed ledger is an example of a distributed computing system that solves the double spending problem without the need of a trusted authority or a central server.

The average time it takes for this network to add a new block to the blockchain is referred to as a block time. By the time of block completion, the included data becomes verifiable. This is practically when the money transaction takes place, so a shorter block time means faster transactions.

In the case of a Bitcoin implementation, to add a new entry to its distributed ledger (i.e., a blockchain) requires agreement of the majority of the network participants, with cryptography used as means for validating integrity of data in the blockchain (e.g., a proof of work). And even though it is considered difficult to temper with such a public blockchain, it is not impossible.

Blockchain security methods include the use of public-key cryptography. Two of the best-known uses of public key cryptography are public key encryption and cryptographic signatures (a cryptographic hash, a digital signature, or a digital fingerprint). In public key encryption, a message is encrypted with a recipient's public key. The message cannot be decrypted by anyone who does not possess the matching private key, who is thus presumed to be the owner of that key and the person associated with the public key. This is used in an attempt to ensure confidentiality. In cryptographic signatures, a message is signed with the sender's private key and can be verified by anyone who has access to the sender's public key. This verification proves that the sender had access to the private key, and therefore is likely to be the person associated with the public key. This also ensures that the message has not been tampered with, as a signature is mathematically bound to the message it originally was made with, and verification will fail for practically any other message, no matter how similar to the original message.

Cryptocurrencies like Bitcoin are properties that have no value other than their function as money. Much of their value is attributed to their limited quantity and resistance to counterfeiting. As such they have indeterminate value resulting in extreme volatility that is further compounded by swings in demand on their limited supply. This makes them unusable for business transactions, which is the primary function of money. Most cryptocurrencies also charge a transaction fee that has several negative effects including reduction of the intrinsic value and reduction of the velocity of money.

One of the main advantages of the existing cryptocurrencies being claimed is that they are decentralized. The proponents claim that because the currency is decentralized, you own it. No central authority has control, and so no one can take it away from you. However a decentralized model creates significant problems including low level of privacy, vulnerability to crime, legal uncertainties, and very slow and expensive transactions. But the main problem with the decentralized model is that there is no one to help when problems arise. This has become evident in light of enormous losses due to theft and fraud.

Cryptocurrencies have been compared to Ponzi schemes, pyramid schemes and economic bubbles, such as housing market bubbles. Howard Marks of Oaktree Capital Management stated in 2017 that digital currencies were “nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it”, and compared them to the tulip mania (1637), South Sea Bubble (1720), and dot-com bubble (1999).

Stablecoins are cryptocurrencies designed to minimize the volatility of the price of the stablecoin, relative to some “stable” asset or basket of assets. A stablecoin can be pegged to a cryptocurrency, fiat money, or to exchange-traded commodities (such as precious metals or industrial metals). Stablecoins redeemable in currency, commodities, or fiat money are said to be backed, whereas those tied to an algorithm are referred to as seigniorage-style (not backed).

Stablecoins can be prone to failure as well due to volatility and upkeep required in many cases. NuBits is one example of a stablecoin which has failed to maintain its peg. The stablecoin project Basis, which had received over $100 million in venture capital funding, shut down in December 2018, citing concerns about US regulation. Tether, the largest stablecoin by market capitalization, has faced accusations of being unable to provide audits for their reserves while continually printing millions.

BACKGROUND—ADVANTAGES

Several objects and advantages of the cryptographic monetary system (monetary system or system) address deficiencies found in prior art cryptocurrencies, including lack of identifiable intrinsic value, extreme volatility, and unsuitability for business operations. The preferred embodiments provide a cryptographic monetary system having the following objects and advantages including: (a) the system provides the available balance of the asset-backed digital currency (i.e., currency backed by assets) as monetary units, (b) the system provides the available balance of the asset-backed digital currency having value comprising total value of loans (denominated in the asset-backed digital currency) stored in the loan ledger, (c) the system provides the asset-backed digital currency having a substantially stable value, (d) the system enables to substantially verify that the available balance of the asset-backed digital currency is substantially equals the sum of the principal amount (i.e., the original sum of money borrowed in a loan) of each loan stored in the loan ledger minus sum of the loan principal payments of each loan payment stored in the loan ledger (i.e., outstanding value of loans stored in the loan ledger), wherein data stored in the loan ledger could be validated using the public key.

Since the system provides the available balance of the asset-backed digital currency having value comprising the total value of loans stored in the loan ledger, the supply of the monetary units will be able to expand and contract while maintaining the value of the monetary units. Additionally, the system enables to substantially verify, using the blockchain technology, that the available balance of the asset-backed digital currency is substantially equal to (i.e., backed by) the outstanding value of loans stored in the loan ledger. Whereby the cryptographic monetary system provides the asset-backed digital currency having a substantially stable value. Additionally, the cryptographic monetary system provides a substantially stable monetary system, i.e., a stable methods for providing a supply of money. Moreover, unlike other asset-backed currencies, like commodity based currencies, the supply of the asset-backed digital currency is mostly limited by demand for it, i.e., loans of the asset-backed digital currency.

Furthermore, because the asset-backed digital currency is backed by the intrinsic value of borrowers' efforts to pay off their loans. That is, the asset-backed digital currency would be directly backed by the intrinsic value of work that represents the real value, rather than a by-product of work, such as gold. Since borrowers' efforts to pay off their loans are a stable commodity, the intrinsic value of the asset-backed digital currency should be stable. And unlike commodity-backed cryptocurrencies that mostly have a fractional reserve value, the asset-backed digital currency would be fully backed by the full faith and credit of the borrowers.

To enable the use of the asset-backed digital currency as money, a currency exchange or an alternative trading system could be used to facilitate conversion of the asset-backed digital currency into fiat currencies such as the US dollar, yuan, yen, etc. This process may be further facilitated by the use of various payment methods (e.g., mobile payments, payment cards, electronic wallets, etc.) to enable the asset-backed digital currency to be used seamlessly, just like any other currency.

The asset-backed digital currency is a variation on a cryptocurrency. As such, it is a digital security designed to work as a medium of exchange that uses cryptography to control the creation of additional monetary units, and to secure the transfer of assets. In addition, the cryptographic monetary system may be able to provide to its users interest payments, privacy, transparency, secure ownership, free real-time transactions, international borderless transferability and convertibility, a variety of payment methods, free basic account services, and a legal framework. The asset-backed digital currency could be issued as a Registered Security under the SEC regulations with all the advantages that implies. Given its many advantages, the cryptographic monetary system may offer substantial protection from the problems associated with other cryptocurrencies and the legacy banking system.

The various aspects of the cryptographic monetary system may be more clearly understood and appreciated from a review of the following detailed description of the disclosed embodiments and by reference to the appended drawings and claims.

SUMMARY

In accordance with one embodiment a cryptographic monetary system employs blockchain technology to secure issuance and maintenance of loans denominated in asset-backed digital currency, whereby providing a verifiable outstanding loan balance of asset-backed digital currency for use as monetary units.

