The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.
Decrypted: Cryptocurrencies and blockchain technology are disruptive technologies. As with other new disruptive technologies in the past, a patent arms race is taking place.
The number of patent applications filed for blockchain technology has been on the rise in countries like the United States, the United Kingdom, and Canada. The U.S. Patent and Trademark Office has seen a tidal wave of blockchain patent filings, specifically from large banks and financial institutions, like Bank of America and Mastercard.
According to an analysis recently released by Thomson Reuters, 225 out of the 406 blockchain patents (55.4%) filed in 2017 came from China. The U.S. came in second with 91 (22.4%) and Australia came in third with 13 (3.2%).
Our take: In the race to develop blockchain technology, companies are increasingly devoting capital to creating proprietary blockchain solutions and the number of patent applications being filed for blockchain tech is on the rise.
Looking at the trends in the chronology of countries, patent assignments, and rights of priority, it’s clear that every country has a growing number of patents in blockchain technologies. China has been the most active filer, as the country’s technology and financial services groups rushed to claim exclusivity on the distributed ledger, that could revolutionize finance and other supply chains.
A search of the U.S. Patent & Trademark Office, reveals 343 patent applications that contain either “blockchain” or “distributed ledger”. The overall number of patents and applications for 2018 is expected to rise to 1,245, up from 313 two years ago.
Bank of America is currently the largest holder of blockchain-related patents among all companies. It has even beat out IBM. According to research from Marc Kaufman, an attorney co-chairing the Blockchain Intellectual Property Council at the U.S. Chamber of Digital Commerce, BOFA has 45 live patents in hand. I think its kind of funny, since BOFA considers crypto a business risk. Don’t you?
At the same time, big tech has been moving slower. Older giants, such as IBM and Microsoft have been pretty active, while the big four, Google, Amazon, Facebook and Apple, have been dragging their feet when it comes to blockchain.
Google has been the most active, investing in startups like Ripple and Storj. In March, Bloomberg revealed that Google is working on a distributed ledger solution to differentiate its cloud offering. But Sergey Brin, Google’s co-founder, while speaking at a blockchain conference in Morocco, said the Internet giant missed its chance to be at the forefront of blockchain technology.
Rumors have emerged that Facebook plans to launch its own cryptocurrency, and its deadly serious about what blockchain can do for its future. In December last year, Apple filed a patent that incorporated blockchain innovation. In April, Amazon won a patent for a blockchain-based streaming data marketplace and announced the launch of Blockchain Templates, a service designed to make it easier to launch Ethereum- and Hyperledger-based networks. Last year, Amazon also registered three cryptocurrency-related domain names.
The top five holders of blockchain patents are Bank of America, Mastercard, Fidelity Management and Research, IBM and Coinbase, according to Patexia’s data. The top five holders of Bitcoin patents are Game Play Network, Bank of America, IBM, Elwha (an affiliate of Intellectual Ventures) and United Parcel Service.
While, banks and other organizations have been granted patents on their own versions of blockchain technology, hopefully moving forward it will get harder. Blockchain technology is an open-source, thus, a patent based purely on a blockchain system will be difficult attain. Companies will need to show in their blockchain patent applications, an actual innovation or indicate that their platforms, built on top of blockchain technology, are novel ideas that solve a real problem.
In the history of the technology we’ve seen patents acquired by trolls. Patent trolls follow the money, so it’s not surprising that the growth of blockchain and cryptocurrencies has caused them to come out of the woodwork. Blockchain patents being filed are related to a wide variety of industries and applications, but without a doubt they represent a double-edged sword and companies have acquired patents for things they did not invent.
On one hand, the continued pursuit of blockchain-related patents can help legitimize the blockchain industry and increase public awareness. But on the other hand, issuing patents primarily to large banks and financial institutions, that have the deep pockets to file and legally reserve these patents, may hinder the industry’s growth and hamper innovation.
Patent trolls are a tax on innovation. The biggest problem for the real innovators, the guys who are actually innovating all this stuff, is having to pay off patent trolls who have not invented anything.
Decrypted: Financial regulators from countries around the world have collaborated to form Global Financial Innovation Network (GFIN), a new network to help further the development of financial technologies like blockchain.
The UK’s FCA announced that its collaborating with 11 regulatory bodies from Europe, the Far East and the United States, to create a cross-jurisidctional fintech sandbox, that will let businesses test fintech innovations in multiple jurisdictions at the same time.
Our take: When the term “sandbox” is used in the area of software development, it refers to an isolated but fully functional testing environment where applications can be tested before going live.
In the same suit, a crypto regulatory sandbox is a live-like testing environment used to ensure regulatory compliance for cryptocurrencies and blockchain platforms. The idea of a crypto regulatory sandbox, addresses the friction between innovation and regulation and benefits the end consumer.
While the UK Financial Conduct Authority is one of the first regulators in the world to establish a regulatory sandbox, the U.S. has been trailing in providing a launching ground for new fintech startups.
Recently in the US. the Consumer Financial Protection Bureau (CFPB) launched a fintech regulatory sandbox, according to report from the Wall Street Journal. Individual states are also employing the concept. Arizona became the first state to adopt a regulatory sandbox in March, and Illinois lawmakers have been considering legislation to establish a similar framework.
As the fintech sector is thriving with new, innovative products, the ability for service providers to conduct cross-border trials, is be a huge step in bringing new solutions to the global market.
Because financial services involve monetary transactions like lending, payments, insurance and trading, regulatory compliance is a must, and fintech businesses need to confirm to regulations and ensure consumer protection. Sandboxes like the FCA’s initiative, allow businesses to test products, services, business models and delivery mechanisms, in a controlled environment, before actually deploying. Moreover, a crypto regulatory sandbox bridges the gap between regulators and financial service providers, helping create a more open and active dialogue.
Decrypted: The Bitfi cryptocurrency wallet, touted as an “unhackable” system, appears to have been hacked a week after launch.
In July, cryptocurrency hardware wallet manufacturer Bitfi’s executive chairman, John McAfee, claimed that Bitfi was the world’s first unhackable device, urging security experts to breach its security for a $250,000 bounty.
Well, McAfee’s unhackable wallet was hacked by a 15 year old to play a game of Doom.
Our take: For as long as cryptocurrencies have been around, storing your Bitcoin and crypto assets has been a top priority. And if you have been in the industry for any length of time, there are a couple of known hardware wallets to consider, Trezor and Ledger Wallet.
Bitfi is a new challenger. Its hardware wallet that that costs $120 and supports an unlimited number of cryptocurrencies. Unlike the majority of other hardware wallets, Bitfi doesn’t put such a strong emphasis on private keys.
Its security system revolves around a user-generated secret phrase, that can supposedly be memorized, instead of a conventional 24-word mnemonic seed that has to be written down, which allegedly contributes to the safety of the stored assets. It’s an authentication device that uses a powerful processor to translate something your brain can store, like a sentence, into the private key used to verify address ownership. Since the key is never stored, written down, or seen, it cannot be stolen. As long as the user can memorize the seed key, he will have access to the wallet.
The project first surfaced in July, when investor John McAfee, presented the crypto wallet on Twitter, calling it the “Colt 45 of the crypto world” and “the world’s first unhackable device.”
To prove his point, McAfee announced a bounty hunt for $100,000, later raised to $250,000, that would go to the first person to hack the new device.
John McAfee has been known in the crypto world as both a promoter of cryptocurrencies and someone who is deeply interested in providing security services for the technology. While McAfee has been known to provide promotions at a cost (he accepts tokens for promotions), sometimes it is not always in bad terms.
In August, BitFi announced two bounty programs. Their first bounty program launched on August 1st and offered a $250,000 bounty to anyone that proves a hack of the BitFi hardware wallet. A second bounty program provides $10,000 to anyone that shows a hack on the firmware of the BitFi device.
Within the cryptocurrency scene, bounties have become a important part of any campaign, including campaigns for tokens and ICOs. Many start-ups usually incorporate a bounty program as part of their campaign. The bounty program provides compensation for a number of tasks spread across marketing, bug reporting or even improving aspects of the product. However, bounty programs for ICOs have come under scrutiny from some financial regulators like the United States SEC. The reason for this is that bounty programs essentially encourage people to participate in a commodity that has a financial risk.
Up until this past June, John McAfee was paid by ICOs to promote their tokens, tweeted that he would stop recommending ICOs because of unspecified threats from the U.S. Securities and Exchange Commission.
The crypto-market is fueled by speculation and promises. The lesson that BitFi teaches us is not to disregard John McAfee, but rather to truly examine the products, tokens and ideas that are constantly being shilled to crypto-enthusiasts by paid-actors or crypto-celebrities. Bug bounties, publicity and promoters like John McAfee can fuel the hype around a product or token to great heights in the short-term, but it takes a lot more than just little a hype to create something that has value over time.
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