Weekly SmartPills #20
VISA PAYMASTER
Blockchain technology has seen significant adoption in recent years, and although it has the potential to shape the future of money movement, blockchain transactions carry a high level of complexity not seen in traditional payment methods.
Although innovative, blockchain faces challenges that prevent its mass adoption. One of the biggest obstacles in the crypto world is the payment of transaction fees.
In fact, every operation (from a token transfer to more complex DeFi operations) involves a cost called a gas fee, which can in some ways be compared to the regular transaction fees of using a debit card.
This “tax” must be paid using the native token of the blockchain— in the case of Ethereum, it is ETH.
Despite the existence of stable-priced tokens like the stablecoins USDC and USDT, the user must maintain an active balance of ETH to cover transaction costs.
The user is therefore forced to rely on CEXs and ON/OFF ramp services to purchase the token, which must then be sent directly to their wallet. These require additional steps and significantly increase the difficulty of using the service, especially for those accustomed to the ease of use of traditional financial systems.
All of this is compounded by an additional problem caused by the volatility of cryptocurrency exchange rates.
The Visa Innovation Center and the Visa Research team have conducted in-depth studies and ongoing experiments to find a satisfactory solution to this and other issues affecting the world of cryptocurrencies.
Visa's Solution: Paymaster and ERC-4337
Along with account abstraction and the ERC-4337 standard, Visa has explored the potential for a process that could redefine blockchain-based transactions.
The solution lies in the ERC-4337 standard and a smart contract called Paymaster, which allows Visa holders to pay off-chain with fiat money.
This innovative and adaptable approach could help simplify the onboarding process for new cryptocurrency users and improve the experience for current users.
Let’s take a look at the process without getting too technical.
The process involves the user first initiating an Ethereum transaction through a wallet, which will be sent to the Paymaster.
A Paymaster is a particular smart contract that delegates all necessary checks and the retrieval of information to an off-chain component.
The web service calculates the gas fees and charges them to Visa using Cybersource.
Subsequently, a digital signature is generated, which will be verified by the Paymaster, who will cover the gas fees. According to reports, the first experiments were conducted on the Ethereum Goerli testnet.
The report also indicates that the hidden potential behind this technology does not stop here and that there are possible improvements. Just think of the possibility of automatic payments, made available through account abstraction (AA).
Visa has shown that the crypto world is not at all buried in the “Bear Market,” but is still alive and thriving.
We can only wait and watch