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The Patent Landscape of Cryptocurrency and Blockchain

With Bitcoin and alternative coins, such as Ethereum, Ripple, and Cardano, experiencing volatile price swings, cryptocurrencies have rapidly become mainstream and widely discussed, with many seeking to find ways to profit from the new technologies propelling their creation and adoption. As the price of Bitcoin skyrocketed 32,500 percent from under four hundred dollars at the beginning of 2016 to over thirteen thousand dollars by the end of 2017, the number of cryptocurrency and blockchain patent applications filed at the United States Patents and Trademark Office (USPTO) nearly doubled.[1] Further, a keyword search for “blockchain” or “cryptocurrency” shows that there are over 700 pending published applications containing at least one of these terms. Indeed, that number may be even greater considering some applicants choose not to publish their pending applications. The same search also shows that companies, universities, and individual inventors alike are racing to obtain patent protection in this area.

In general, a cryptocurrency is a decentralized, encrypted digital currency that is transferrable between peers. Transactions completed using the cryptocurrency are typically maintained in some form of distributed public ledger via a “mining” process. Starting with the initial creation of a cryptocurrency coin (e.g., a Bitcoin), each and every transaction is confirmed and stored in the public ledger (e.g., a blockchain), which involves identical copies distributed among peers maintaining the public ledger. The public ledger does not include information regarding the real-world identities of owners of the cryptocurrency coin. Rather, it maintains an address, similar to an account number, and a balance (i.e., the amount of cryptocurrency coins associated with that address) for each account. Using cryptographic techniques, the distributed public ledger offers an unmodifiable history of cryptocurrency transactions between the various addresses, which enables digital wallets of coin owners to calculate accurate balances and ensure that each transaction uses only coins currently owned by the spender, preventing the possibility of double spending.

To facilitate a transaction using cryptocurrency, digital wallets use encrypted, electronic signatures that serve as cryptographic proof that the transaction originates from the owner of the wallet. In order to record the transaction in the public ledger, “miners” (e.g., decentralized computing systems participating to support the public ledger) approve the transaction by working to solve an increasingly-complex computational problem with the first “miner” that solves the puzzle adding a “block” representing the transaction to the public ledger. By representing confirmed transactions as blocks in the distributed public ledger, an individual cannot modify the transaction history of the coin without modifying a majority of the copies of the public ledger maintained by the various peers. Therefore, once a block is mined and added to the ledger, all conforming transactions are essentially permanent and the miner is rewarded with a relatively small transaction fee. This way, mining can serve as a proof-of-work system that gives value to cryptocurrency.

Accordingly, cryptocurrencies and their underlying technologies can offer numerous benefits over current payment methods, although some benefits remain hypothetical. The peer-to-peer network aspect has the potential to eliminate the need for third-party financial services, such as Visa and American Express, and their accompanying fees. Rather, transactions are immediately settled upon confirmation by the decentralized network of miners. Cryptocurrencies can also bring financial services and stability to underdeveloped areas in the world while maintaining anonymity to prevent the potential for identity theft.

Rise In Patent-Related Interest

With speculation in cryptocurrencies at all-time highs, patent applications for blockchain and other crypto-related technologies have been filed by a variety of applicants led by major companies like Microsoft, International Business Machine (IBM), Mastercard, Security First Corp. (a data security company), Medici Inc. (a distributed ledger developer), and Bank of America.[2] Along with major companies, cryptocurrency exchanges like Coinbase are attempting to carve out their niche with patents.[3] But these entities are not the only ones seeking patent protection. Universities, small entities, and individual inventors are also pursuing patent protection. Craig Wright – who at one time claimed to be Satoshi Nakamoto, the alleged founding father of Bitcoin – and his associates have filed over 70 patent applications related to cryptocurrency.[4]

Although many such patent applications still await examination, patents that have been granted thus far cover a wide range of cryptocurrency-related technologies. For instance, Coinbase has received a handful of patents in recent years directed towards implementing cryptocurrency transactions at a point-of-sale using a mobile device, security systems for cryptographic transactions, blockchain identity management systems, a tip button for bitcoin transactions, and techniques for analyzing transactions in a distributed ledger.[5] Other examples of granted patents include a patent for a system that settles securities using a custom cryptocurrency, which was awarded to the financial giant, Goldman Sachs, and a patent for “a platform to manage exchange rates between various currencies, transfer requests, and customer accounts” awarded to Bank of America, a company that has filed over 20 crypto-related patent applications in 2017.[6] The patented platform secured by Bank of America aims to mitigate illicit actions with cryptocurrency exchanges and uses three accounts: a customer account, a “float” account that contains the cryptocurrency that the customer is selling, and another float account that contains the cryptocurrency that the customer is purchasing.[7] Bank of America has also filed applications covering transaction validation, risk detection, real-time conversion, online/offline storage, and other aspects of the technology.[8]

Apple, the global smartphone maker, has also joined the hunt for crypto-related patents by filing numerous patent applications, including one directed toward a process for verifying the reporting, maintenance, and validation of timestamps using blockchain and distributed ledger technology.[9] Various entities have strived to obtain patent protection in these and other areas of cryptocurrency as well.

Effects From Increased Interest

The continued pursuit of cryptocurrency and blockchain-related patents has helped legitimize the underlying technologies that make cryptocurrencies possible. In addition, the recent increase in patent filings (and allowances) in this field has increased public awareness and interest in the industry.

There are some potential drawbacks that come with increased patent application filings. Some companies file patent applications to legally reserve spots within the technology before developing useful applications of the technology. This strategy is often used by larger companies having expendable resources to prevent others from participating in and advancing the technology. A larger company can also threaten litigation to eliminate potential competition from smaller companies. This form of legal bullying is not unique to this type of technology, but it can ultimately end up hurting the general public.

To date, however, no cryptocurrency-related patent has been litigated. And given today’s patent-eligibility climate, enforcing a blockchain or cryptocurrency patent may be difficult. Any issued patents may meet a fate similar to recent financial-based patents that have struggled to pass review, though only time will tell. To gauge the eligibility climate, some companies may be filing patents to test whether or not the USPTO will find the technology patentable. As a result, the USPTO may have to develop consistent guidelines that examiners can follow to ensure that each application in this field is viewed under the same light.

Enforceability is not the only obstacle to litigation. For example, the Blockchain Intellectual Property Council (BIPC), which includes prominent players such as IBM, CoinDesk, Microsoft, Deloitte, Digital Currency Group, and Ernst & Young, aims to “develop a global, industry-led defensive patent strategy” for avoiding patent trolls.[10] The BIPC also seeks to facilitate the coexistence of patent protection and industry growth, and has discussed non-aggression agreements and cross-licensing opportunities between its members, among other strategies.[11] Another obstacle is the open-source software guidelines that most coins (e.g., Bitcoin, Ethereum, Ripple) utilize. Because there are many open-sourced cryptocurrencies, the disclosures related to these currencies may prevent other companies from getting patents. Further, smaller less-known cryptocurrencies may make their technology public, without having a large adoption rate. These public disclosures may be used to reject patent applications and/or to invalidate patents during litigation. In addition, companies such as Intel, Cisco, IBM, J.P. Morgan, and Wells Fargo have worked together to create an open-source standard for distributed ledgers.[12]

Conclusion

As with many new technologies, the future of cryptocurrencies is speculative. Still, blockchain and other underlying technologies that make cryptocurrencies possible appear to have the potential to change industries and everyday life. The race for patent protection in this industry remains an interesting ongoing story, and serves as evidence that many in the industry have faith in its growth and longevity.



[1] Bitcoin price index from January 2016 to December 2017 (in U.S. dollars), Statista (Dec. 2017), available at https://www.statista.com/statistics/326707/bitcoin-price-index/; Chuan Tian, The Rate of Blockchain Patent Applications Has Nearly Doubled in 2017, Coindesk (Jul. 27, 2017), available at https://www.coindesk.com/rate-blockchain-patent-applications-nearly-doubled-2017.

[2] See Henry Chiu, An Overview of the Blockchain Patent Landscape, Clarivate Analytics (Nov. 8, 2017), available at https://clarivate.com/blog/overview-blockchain-patent-landscape/.

[3] See Stan Higgins, Coinbase Awarded Patent for Bitcoin Security Concept, Coindesk (Aug. 17, 2017), available at https://www.coindesk.com/coinbase-awarded-patent-for-bitcoin-security-concept/.

[4] See Bryon Kaye and Jeremy Wagstaff, Bitcoin’s “creator” races to patent technology with gambling tycoon, Reuters (Mar. 2, 2017), available at https://www.reuters.com/investigates/special-report/bitcoin-wright-patents/.

[5] E.g., U.S. Patent Nos. 9,882,715; 9,818,092; 9,735,958; 9,635,000; and 9,436,935.

[6] Chuan Tian, Goldman Sachs Granted ‘SETLcoin’ Cryptocurrency Patent, Coindesk (Jul. 13, 2017), available at https://www.coindesk.com/goldman-sachs-granted-setlcoin-cryptocurrency-patent/.

[7] See Priyeshu Garg, Bank of America Applies for Crypto Exchange Patent While Central Banks Continue to Shun Bitcoin, BTCManager (Dec. 9, 2017), available at https://btcmanager.com/bank-america-applies-crypto-exchange-patent-central-banks-continue-shun-bitcoin/.

[8] Lisa Froelings, Bank of America Files Patent for Blockchain-based Processing System, CoinTelegraph (Oct. 21, 2017), available at https://cointelegraph.com/news/bank-of-america-files-patent-for-blockchain-based-processing-system.

[9] See U.S. Patent Publication. No. 2017/0353320.

[10] Shai Jalfin, Protecting IP in the Blockchain Sector, IPWatchdog (June 30, 2017), available at http://www.ipwatchdog.com/2017/06/30/protecting-ip-blockchain-sector/id=84581/.

[11] Id.

[12] Id.

 

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