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Visa Proposes Recurring Payments on Blockchain Using Ethereum Layer 2 System

Yes, the crypto industry seems to be in a state of flux (or turmoil if you prefer), yet the technology, partnerships and use-cases continue to evolve. According to a crypto thought leadership piece, the payment processor Visa (V) has suggested using a smart contract-based "account abstraction" mechanism to enable automatic programmable payments on Ethereum.

Read: What Does Google and Coinbase Partnership Mean for Cryptocurrency Payments

What is the Problem Visa is trying to Solve?

On the Ethereum network, there are currently two different kinds of accounts: Contract Accounts (CA), which are effectively smart contracts, and Externally Owned Accounts (EOA), which are controlled by a private key.

Transactions can be started by EOAs, but not by CAs. 

Read: Why Nasdaq will Start Offering Crypto Custody For Institutional Investors

What is Visa Proposing As a Solution?

On the Ethereum blockchain, Account Abstraction (AA) is a proposal that tries to unify user accounts and smart contracts into a single type of account. This is made possible by enabling the development of validity guidelines for specific transactions.

The development of "delegable accounts," which enables the automation of payments through the use of smart contracts, is one application for AA. 

In order to create a self-custodial wallet that can conduct automated recurring payments without requiring the users active participation, this Account Abstraction entails the construction of a smart contract that serves as an intermediary between a user account and a contract account. Recurring payments could then be carried out wholly on blockchain networks, which are currently unable to do so, according to Visa. Visa has suggested setting up the system on the StarkNet layer 2 Ethereum network.

How Does Visa foresee an Automated Transaction Happening?

According to Visa, a user can provide a pre-approved smart contract, known as a "auto payment contract," the authority to start payments using a delegable account.

Here's an example of how it might operate: The address of the auto payment contract is added to the users allow list if they visit a merchants website and consent to auto payments.

As a result, the users account could initiate a payment that would be valid because it was on the allow list by invoking the charge function of the auto payment contract, which the merchant could then use to activate a payment. 

Key Takeaways then?

In nascent spaces and in some cases even mature industries, bad things need to happen (like FTX), so that regulations can be put in place, for both consumers and firms to adhere to. It also holds true that many regulators do not necessary understand the crypto or blockchain technology, and it is taking time for regulators to catch up - especially in the US.

As regulations catch up, crypto and blockchain and all other associated decentralized use-cases, will also mature. Not in the distant future, both will converge and become mainstream. Worse case, consumer adoption outpaces regulators and black swan events will force regulations to take action.