Blockchain and cryptocurrencies are increasingly subject to registrations of exclusive rights, that is, the receipt of patents. According to the rules of patenting, in order to stake out the right to an invention, it is necessary to observe two conditions: world novelty and practical significance. Usually, the appearance of new patents in the cryptocurrency sector is perceived as a sign that the crypto coins and blockchain "are going into the masses," but is everything really that rosy?
Interestingly, China is very active in registering patents. Thus, the authorities of the country represented by the Cryptocurrency Research Center of the People's Bank of China (acting as the central bank) received exclusive rights to 41 inventions. In particular, these patents describe the process of implementing cryptocurrency transfers and payments, the launch of a state cryptocurrency, and the creation of a special digital wallet which will be used to pay for public services.
In the description of one of the patents, it is stated that "cryptocurrencies that are released in a non-governmental way have fundamental shortcomings in the form of volatility, lack of public trust, and limited use. All this suggests that the central bank must inevitably launch its own cryptocurrency in order to expand and strengthen the capabilities of fiat.” The thoughts of the Chinese authorities are clearly voiced in this description: non-state cryptocurrencies are evil. Proceeding from this, it is worthwhile to look at the process of obtaining patents for various methods of using blockchain and cryptocurrencies from a different angle: for Beijing, this is only a way to further restrict work in these areas for any players, as more and more possible moves in the crypto world turn out to be marked and demanding further payment of royalties to patent holders.
Then, the aspirations of large companies to patent some of the inventions related to the crypto market also seem different. A study by Reuters showed that 56 percent of all 406 blockchain patents registered in 2017 were in China. Nikkei Asian Review specifies that Chinese online retailer Alibaba registered 90 patents. China's Tencent and Baidu are also in the top three of the Celestial Empire. Comparing data for 2017, we observe that the People's Bank of China, which in 2017 patented four inventions, received 37 exclusive rights this year.
The U.S. is in second place with a share of 22 percent. In total, the number of registered patents increased sharply by more than threefold, from 134 in 2016. In the world ranking, the leaders in the number of registered patents are also IBM (89), MasterCard (80), and Bank of America (53). According to some reports, which do not coincide with information from Reuters, in 2017, only 1,045 blockchain patents were registered in the United States alone, 40 percent of which were issued by companies that have nothing to do with cryptocurrencies.
What Motivates Those Who Patent Cryptocurrency Solutions?
We can see that private companies, either alone or on the recommendation of the authorities, for example, in China and the United States, are actively registering exclusive rights to various aspects of the activities of the crypto market.
Normally, this would cause enthusiasm among crypto experts. Analyst Heigo Vannik is pleased to note the patenting by Ford, the American car manufacturer "As well, American car manufacturer Ford filed a patent for a system for vehicle-to-vehicle communication methods that involve the exchange of crypto tokens to facilitate traffic flow" and states that this means "more Bitcoin adoption." Meanwhile, just getting exclusive rights by someone means limiting the use of the object of the patent in the future.
Patents on key elements of the life of the crypto market can be bought up by the authorities of the U.S. and China, which, if desired, can make the functioning of cryptocurrencies difficult, and make the use of blockchain completely controlled. Here, the threat does not come from the traditional expectation of the negative regulatory attitude of the state but from the process of limiting the rights to use through the mechanism of patenting, a threat that is hardly noticed by the crypto community. Andreas Antonopoulos argues that "BTC innovation cannot be bought by the financial institutions," and he is not even noticing that this is exactly what is happening.
By themselves, blockchain and cryptocurrencies, having in their essence the principle of decentralization, can be well described using the standard theory of gifts (gift economics). Many prominent leaders of the cryptocurrency industry, for example, Brian Kelly, Tom Lee, Changpeng Zhao, Martin Muhleisen, and Charles Hoskinson believe that blockchain is a logical continuation of the Internet. It was the Internet that gave an additional impetus to the phenomenon called free gifts, to which most of the information relates. The meaning of a free gift is that it exists only when it is shared the same way as information that is recorded in a distributed registry. The same means that information about digital records that have received the status of a cryptocurrency fall under this definition, and together with the blockchain, they represent phenomena to which patenting is counter-indicative.
The fact that the U.S. authorities, like China, do not intend to promote the distribution of cryptocurrencies is obvious, given their recent actions. Even more subtle work is being done through international organizations loyal to the U.S. administration. As noted in the IMF report on the idea of the authorities of the Marshall Islands to launch their own store of value cryptocurrency, this step is possible only if it is guaranteed not to create a threat of reducing demand for the U.S. dollar, which is used by this island nation as a national currency. Thus, even state cryptocurrencies are considered as a threat since they are not a "disease" but only an "inoculation" containing "viruses" of a weakened cryptocurrency "disease." But no one knows how the patient will behave in the economy of a country after such preventive measures. Patents are tools that tame non-state cryptocurrencies under the popular crypto expert slogan "Integrating Cryptocurrency into the World of Global Finance."
Fictitious Problems Cryptocurrencies and Patented Ways to Solve Them
Meanwhile, confining cryptocurrencies to the Procrustean bed of U.S.-approved "cold storages" will make them dependent on the work of these crypto depositories, thus changing the course of development of the crypto market and diverting it from the concept in which "one Bitcoin is one Bitcoin." There will be a growing number of situations that have become textbook in the world of securities. For example, the owners of a stake in Dole Foods found that the total number of such securities is 33 percent larger than there are in reality. This was written by Karl Marx, who, in the third volume of his masterpiece Capital, foresaw that securities and money would increasingly tear themselves away from their real value and become something illusory. The appearance of Bitcoin was a return to the previous state of affairs in the monetary economy, to what was at the dawn of the evolution of money, that is, to the appearance of "digital gold."
Problems with "digital gold" look imposed from the outside. Thus, the head of One Alpha, Yaniv Feldman, on the one hand, says that the "ETF will not have a big impact on the actual holding in the market," and on the other hand, he recognizes that there is a similar problem with the reliability of storing assets, noting that "this is a problem that we know exists in traditional markets." Nevertheless, the head of eToro, Yoni Assia, like many others, says that it is necessary to provide centralized storage of cryptocurrencies for the development of the market. In addition to the fact that this approach contradicts the decentralized nature of the crypto world, this means that crypto experts are leading the crypto market into the domain of those decisions that will be patented, creating a web from which cryptocurrencies will simply not be able to break free. Discussions about the "necessity" of cryptocurrency holdings are reminiscent of conversations about the greater risks of the manifestation of crime with the use of cryptos, despite the fact that the scale of such phenomena is quite small if compared with crimes committed with the use of the U.S. dollar.
"Fire with Fire"
There is also an ethical aspect. China is starting to use blockchain to monitor financial transactions, that is, to further strengthen its tough political management. Launched by the People's Bank of China and a patented blockchain trading platform, it is aimed at ensuring that the authorities of the country see all transactions with securities in real time, including those related to cross-border financial transactions. This use of blockchain is what the head of the IMF Christine Lagarde called a "return fire," that is, the use of new financial technologies to strengthen the established centralized solutions in the financial system.
And this "return fire" in the form of ETFs on Bitcoins or the new Gemini stable coin can be promoted by private companies as a necessary line for the U.S. authorities in respect of cryptocurrencies in exchange for the right to legal existence and work with cryptocurrencies. Therefore, it is not surprising that Coinbase does not intend to jeopardize the authority of the U.S. dollar, and promotes the idea of the need for patented methods of storing cryptocurrencies. Such a policy provided it with a "green light" on the part of American regulators and allowed the head of the crypto exchange Bryan Armstrong to say that the regulation of the cryptocurrency industry in the United States "has already taken shape."
Patents Will Drive Cryptocurrencies into a Decentralized "Underground"
Meanwhile, the realities are quite different, despite Nouriel Roubini's assertion that "99 percent of cryptocurrencies have already lost 99 percent of their value," as a study conducted by the TABB Group showed that the over the counter market of Bitcoin trade is at least twice as large as the turnover of this cryptocurrency on centralized exchanges. This means that without the imposed solutions to eliminate the "bottlenecks" of Bitcoin, the demand for this cryptocurrency is successfully developing, and the problem of thefts of cryptocurrencies from users by hacker attacks concerns centralized crypto instruments more than decentralized trading platforms. From the point of view of the future development of cryptocurrencies, it is very important to obtain a legislative ban on patenting inventions that describe the key mechanisms for the functioning of cryptocurrencies and blockchain. The retreat of cryptocurrencies into a decentralized "underground" would be disadvantageous in terms of the state of the modern financial system that does not need to curb cryptocurrencies for its survival but is in need of adjustment to them. As J.P. Morgan rightfully fears, the next powerful downward correction in shares of American companies may not respond to treatment of the mere pouring in of dollar masses by analogy with the situation in 2008. Cryptocurrency solutions, without any patents limiting them, should become the essence of a new transformation of the world financial system towards decentralization.