The virtual currency market has been on a steady decline this year, and the prolonged bear market has started to lead many to doubt blockchain technology. But blockchain isn’t just cryptocurrencies. It has bigger potential, as data on blockchain patents from this year show.
Thanks to openly available information on patents approved in various countries, GXR was able to examine 5771 blockchain related patents that have been approved worldwide up to October of this year. And it has been a breakout year for blockchain, with Fortune magazine predicting a possible total of 1200 new patents for 2018 alone.
A Hard Sell at the Patent Office
Just mention blockchain, and many will think of Satoshi Nakamoto, the enigmatic person or group who, in 2008, published a paper on something they called “Bitcoin,” creating in the process both the cryptocurrency and the algorithm behind it. Nakamoto has not been heard from since, but bitcoin has become synonymous with blockchain, and the story of its creation seems to mesh well with the open source ethos: no one knows who Nakamoto really is, but they gave the public the fundamentals for the technology, meaning it now belongs to everyone.
But that’s also made applying for blockchain related patents more complicated. To get a patent approved on what is an open sourced technology takes something unusually novel and innovative. That’s also made the review process slower.
For instance, in 2014 Bank of America submitted patent applications for technology it had developed related to converting different virtual currencies but had to wait until 2017 for approval. But this hasn’t stopped developers from applying.
The number of patents has been growing as insistence over keeping things “open source” has lessened. A study from Deloitte and GitHub in 2017 showed that, in the year prior, there were 26,000 open source blockchain projects on GitHub, but by 2017 only 8% of them were still active.
Patents as Proof and Defense
So, who is the most innovative of them all in blockchain? In the data that GXR collected, the top three patent holders were all major industry players: Alibaba, IBM, and MasterCard. Among specifically blockchain focused startups, the five leading patent holders were Nchain, Fuzamei, Vechain, Rchaintech, and BUMO. Except for Nchain, these are all Chinese companies. And if we divide the patents between more technical and more applied types, then we can see that different companies are concentrating R&D in different directions.
For instance, Alibaba, IBM, and Tencent seem to be more focused on basic technical patents. These sorts of patents relate to consensus mechanisms, smart contracts, and cross-chain technology. BUMO, as an example, and which operates a commercial grade chain, created its FIREWORK consensus mechanism to provide a processing system for various applications. It also developed its cross-chain Canal technology to assist with trades and smart contract activations between chains of different structures.
From a lateral view of the data, among the top startup patent holders, BUMO’s patent distribution has the most depth.
Among the financial firms, MasterCard, and others have a relatively large share of applied technology patents, covering such things as payments and transaction clearing.
It’s clear from the data that large companies have taken a liking to blockchain technology itself, despite the fact they may keep away from virtual currencies and ICOs. But the distribution of their patents might lead you to think of Linux.
Open source developers once tried to unite against software giants in defense of Linux, forming the Open Innovative Network (OIN) in 2005 and seeking to use defensive patents to fend off lawsuits. Those efforts were costly, but this year Microsoft, long the greatest “suppressor” of open source, finally announced it was joining OIN, signaling a change of attitude.
Kevin Grimm, cofounder & CEO at The Daily Bit, said on his Medium post, “If you like it, you better scramble to throw a patent on it — or at least try. Sure, the original crypto movement was inspired by open-source code and communal discussion, but good luck pitching that to a Fortune 500 CEO. Patents build defensive moats and bring in cash flows — a no brainer.”
Tao Guzhong, a partner at Beijing law firm Junzejun, however, believes that China’s geek community has a “weak awareness” of patents, which could cause them headaches in the future.
Many open source blockchain projects are handled by teams of just a few people. These programmers tend to complete one project and then quickly carry on to the next, and don’t have either the energy or the resources to apply for patents. If someday a larger company attains a patent over a related technology, then any businesses using the open source project could be hit.
But the data suggests this might be changing, as it seems at least some Chinese founders are beginning to act preemptively with a “defensive” patent application strategy. Having a number of patents in hand serves as a safeguard against some of the legal challenges that open source projects have faced in the past, as well as testament to a team’s development skills.
BUMO, with its more than 40 patents, says that it does view patent applications as one basic form of IP protection. But it also believes that there are many innovations cropping up in the blockchain system that will have broader applications and spill over into other fields. And even as virtual currencies entering a bear market, blockchain patents are still growing in number, and developers are paying more attention to the technology itself. That may well turn out to be a good thing.