Bitcoin and patents have never been natural allies. However, long-held controversy in the industry may finally be at an end with the introduction of the Blockchain Defensive Patent License.
Bitcoin is considered by many to be the culmination of the decades-old cypherpunk movement, rallied around predominantly anarchist and libertarian ideals regarding freedom of information. The original Bitcoin software, therefore, was released as free and open-source software (FOSS), and operates today under the MIT License known for its permissive nature. Many would agree that its open, permissionless ethos has helped make Bitcoin the success it is today.
Much of this ethos is in stark contrast with international patent law. Where FOSS is fundamentally about free distribution, patents grant individuals or companies exclusive property rights or ownership of an invention. Through the Patent Cooperation Treaty (PCT), the patent holder holds those same rights over a patented invention in up to 152 countries (with non-signatories to the treaty being countries with low global economic standing or those with a history of systemic intellectual piracy).
The very notion of patents, however, does not sit well with many of the cypherpunks and libertarians who initially embraced Bitcoin. They tend to consider patents to be unethical, state-granted monopolies at worst — or barriers to innovation at best.
“Core to the Bitcoin ethos is permissionless innovation,” James Murdock, VP of corporate development and general counsel at Blockstream, argued in a company blog post on the topic. “We firmly believe that in order for Bitcoin and related technologies’ potential to be fully realized they must be underpinned by a global platform that is free for any innovator to use without hesitation.”
Types of Bitcoin Patents and Their Controversies
While all the major Bitcoin software implementations are completely open-source and licensed under the MIT License, this democratized sense of intellectual property protection is not true for all applications and companies built on top of and around Bitcoin. Patexia Research found that the number of Bitcoin– and blockchain-related patents has grown significantly over the past years, from several dozen in 2015 to several hundred in 2017. Top patent-holding companies include big names like IBM, Bank of America (BofA) and Mastercard.
The controversy surrounding patents has also dogged several major startups in the space: companies including Coinbase, BitGo and Blockstream have been subject to social media outrage for their patent applications.
But regardless of ideology, there is a good reason to file for patents: failing to pursue patent protection opens up inventors to becoming victims to patent trolls.
As Coinbase CEO Brian Armstrong explained in a blog post:
I’d personally prefer to see a world where software patents don’t exist (I think they hurt innovation, and waste a lot of time/money), but since they do exist, we have to take them seriously. […] Our ultimate goal in obtaining Bitcoin related patents is to keep them out of the hands of bad people, use them defensively to protect Coinbase from patent trolls, and help ensure the Bitcoin ecosystem continues to grow.
The Problem With Patents for Miners
Where typical concerns with patents are often ideological, patents can pose a more practical risk in the mining industry. Here, patents may threaten Bitcoin’s decentralization properties and therefore its security assumptions.
Bitcoin mining is sometimes described as a lottery, albeit a fair lottery, with no organizer to take a share of the prize money. Importantly, the process of mining is completely random: finding a new block is a matter of trial and error. Since miners are competing with each other on small margins, those that mine with the most energy efficiency will outcompete those that expend more resources. The latter category will have to improve to remain competitive — or eventually drop out of the race.
This sort of disparity among miners is why patents can be such a risk. Should one miner have a systematic advantage over others, which is exactly what a patent can offer, all the other miners might eventually have to drop out of the race. In the long term, this could well lead to a mining ecosystem where only one miner dominates, which would, in turn, allow that lone miner to cheat the Bitcoin system by reversing or double-spending transactions and launching other types of 51% attacks. It would represent a fundamental threat to Bitcoin’s security guarantees.
As explained by the research arm of cryptocurrency exchange BitMEX:
A patent on a cryptocurrency mining technology […] could undermine the whole point of mining, which requires a degree of competition in order to be useful. If a miner or mining coalition achieves a significant proportion of the hashrate, they could censor some or all of the transactions, or even attempt to reverse transactions, potentially rendering…