In this article, we’ll go over why the “patent war” in the enterprise blockchain space is an important one to watch. And why most of the digital currency market is asleep at the wheel.
What is a patent?
A patent is a type of intellectual property (IP) protection. Governments grant patents to inventors or their assignees. These patents must be novel, useful, and non-obvious inventions.
The process of applying for and obtaining a patent is complex and can involve several years (avg. 22-30 months) and many rounds of negotiation. Patent systems provide inventors a limited-time monopoly on their inventions. After which, they are then encouraged to disclose their findings to the public.
What’s happening with patents in the enterprise blockchain space?
The enterprise blockchain space has been heating up for years with its “patent arms race.” Competitors wait for those who can file the most patents first—then wait and see who gets their submissions granted first.
In the West, IBM has applied for over 1,600 blockchain patents, while Microsoft has applied for over 500.
Companies such as Huawei, Xiaomi, Alibaba, Tencent, and DJI have been leading the race in the East. In 2019, President Xi Jinping claimed that technology would lead the next wave of China’s digital transformation. This gave the Chinese markets the extra firepower they needed.
These companies are all interested in protecting their intellectual property rights. Yet there’s one company still not talked about enough: nChain.
This new player, relative to its competitors, is hitting well above its weight. nChain and their Chief Scientist, Dr. Craig S. Wright, have been filing key patents in the field since early on.
For a complete list of nChain’s granted patents, see here.
What do most of these patents cover?
The range of inventions is broad, but some of the more common applications include:
- Protecting the security of blockchain network
- Managing the use of digital currencies
- Tracking the movement of goods and products
- Securing digital identities
And it’s not about the number of patents but also the quality.
As of 2019, there were around 10,000 blockchain-based patent filings in China. Only a handful got awarded. According to the Blockchain Global Patent Authorization, only 3,924 patents were granted globally by 2020. Alibaba held the largest number of granted patents, followed by IBM.
Some of nChain’s more recently granted patents cover the entire Bitcoin ecosystem from:
- NFTs → EP3420669B1: Cryptographic method and system for secure extraction of data from a blockchain
- Ethereum’s ERC721 → GB2561465B: A method and system for securing computer software using a distributed hash table and a blockchain
- “DeFi” exchanges → 11182782: Tokenisation method and system for implementing exchanges on a blockchain
So it will be interesting to see how the patent race develops in the coming years, especially with how enterprises choose to enforce them moving forward.
We are already seeing enforcement from larger companies like Nike. An online resale platform had allegedly used the Nike logo in a StockX NFT (or “Non-Fungible Token”). This was the company’s first trademark infringement in the NFT space.
Why aren’t startups in digital currency, DeFi, Web 3, etc., overlooking patents?
The simple answer is that most don’t know what they don’t know. Rules and regulations are still forming around the industry. Most startups have been “building” without much, if any, due diligence. But that is changing.
There is a lot of attention around popular chains such as BTC, ETH (Ethereum), and even SOL (Solana). Despite their popularity, many of these chains have struggled with scaling issues.
Out with the bathwater
Most digital currency/tech startups tend to see patents as obstructive, including Elon Musk. The irony is that smaller players who become big such as Coinbase (NASDAQ: COIN) realize that they need to protect their IP.
So if you’re a small player, patents seem like a nuisance or even “patent trolling.” But if you’re a bigger player, you know how valuable they can be. Patents protect you from other (larger) bad actors for certain industries—bad actors who would be more than happy to take advantage of your ignorance.
Battling “patent trolls”
In September 2020, Twitter’s Jack Dorsey formed the Crypto Open Patent Alliance (COPA). This was to guard against perceived threats from one individual: Dr. Craig Wright.
The COPA alliance includes Twitter’s Square (Block) , Coinbase, Kraken, and even Facebook (Meta). Amazing how one person can threaten so many corporations, right?
By “taking a stand,” COPA has virtue signaled that they are “protecting the community.” The irony is this coordinated commercial attack attempts to prevent Dr. Wright from claiming actual rights to his invention.
Dr. Wright’s been building various legal cases to prove the point that signing keys does not equal identity. He believes that signing alone should not be enough to prove ownership in Bitcoin since Bitcoin does not sit above the law.
If you use the analogy of a house and keys, we all know that if you steal someone’s keys, it does not mean you own the house. You may now have access to it, but it’s theft or breaking-and-entering. Your will to the house is what helps prove ownership and identity.
Now, we won’t go into full detail about all the other lawsuits taking place. But if you’re paying attention, follow the patents, court-case wins, and you will see Bitcoin as property.
Property rights, IP as property, and digital currency theft
Bitcoin is more than digital gold; it is also property (e.g., intellectual property). We all know that property has rights in almost all jurisdictions worldwide. IP is a form of property often applied in the digital world. So if a property has rights, and IP is property, then whoever created Bitcoin has the right to claim it.
Whether people want to believe this is another matter. This is why all the controversy around Dr. Wright is interesting.
Who has the most to gain, and who has the most to lose in all this? Coinbase, Kraken, Facebook, and more all have a vested interest in seeing Bitcoin ownerless.
Why? Because it leaves the narrative open to manipulation. It is like the way the Catholic Church took the teachings of Jesus, turned them into organized religion, and then used it to amass power.
A potential solution
There’s one way out of all this for companies looking to protect themselves. That’s by entering something known as the IPwe patent pool. This pool contains a lot of nChain’s blockchain patents.
Without protection, many startups may find themselves in legal battles as they grow. Blockchain is all about the future of money. So you can bet your bottom dollar that the patent race will continue to heat up.
Since it takes so many years to process patent applications, it is only now that we are starting to see its impact. Soon enough, we will see enforcement.
As we watch the digital currency shake-down of 2022, we are seeing the ripple effects of weak foundations (e.g., LUNA/TERRA).
Those that have been sticking to the fundamentals may have the last laugh. And the enterprise blockchain patent space is one to keep a close eye on amidst the turmoil because what happens there will determine what gets enforced—and by whom—over the next five years.
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