Tuesday 19 May 2020 9:01 am

Blockchain Patents are Pointless

Many technology companies – both enterprises and startups – are rushing to file new blockchain patents. Many patents are only “a little bit blockchain”. Others are not blockchain at all. And most illustrate a failure to grasp the core principles of blockchain: openness and collaboration.

There have been hundreds of patents filed in the blockchain space. Most of them are pointless as they go against the ethos of blockchain, which is about openness and collaboration. Most of the established blockchain protocols are open source – and for good reason. 

Many enterprises still haven’t gotten their head around where the value lies in blockchain. It’s not in the technology. The value in a blockchain network exists in data and in new ways of doing business that were not previously possible.

So why are the companies filing all of these patents?

The short answer: It is the way they have always done business. 

Before progressing, it is essential to understand how people use the word blockchain. Over time, the term has become the go-to word to describe any number of things ranging from distributed ledger technology to cryptocurrencies. And this misuse of the word blockchain leads to more confusion.

Blockchain can refer to the data which is stored in blocks and shared amongst several computers. The Ethereum blockchain, for example, includes both data and programs (smart contracts) and is accessible to all participants. But equally, the Ethereum blockchain can refer to the network of computers which manage and maintain the blockchain and execute the smart contracts. Or, the Ethereum blockchain can refer to the protocol that describes how the computers interact, how smart contracts are run and how new entries to the blockchain are verified and validated. It is plain to see the importance of the context.

Are technology companies misleading us when they claim a new blockchain patent?

Thus, when someone refers to a new blockchain patent, it is essential to understand if they mean something related to the data, the network or the protocol – or possibly something entirely different.

There are a few types of blockchain patents:

  1. those that are related to products or services which connect to a blockchain
  2. those that relate to new blockchain protocols
  3. those that don’t have anything to do with blockchain – but make for a good PR story

A patent which describes a new method of payment between counterparties is a good example. The patent itself relates to an original business method. The method may rely upon an underlying dataset, network and protocol – but it isn’t a blockchain patent.

A patent related to new technology could be called a blockchain patent. However, if the technology does not conform to the concepts of distributed, decentralised and immutable, it is more likely a patent for a distributed ledger technology (DLT), not blockchain. Some would even argue that if the patent does not apply to a public and permissionless network, it is not blockchain. And in almost all cases, the most widely adopted blockchain protocols are open-source and free to license in the same way as the Linux operating system. 

A key aspect of blockchain is transparency. For members of a blockchain network to trust the system, the underlying code for the protocol is publicly available for review. In many cases, the participants collectively contribute updates to the system following well established open-source principles.

As I have written previously, there will only ever be a small number of blockchains. Inherently this means there will be a small number of consortia or industry associations building these networks. 

If a technology company tries to insert itself to take a fraction of every transaction or to extract a license fee from every participant, the technology company is acting in the role of a middleman/intermediary. Part of the core ethos of blockchain projects is removing middlemen and intermediaries.

What should these companies be doing? Growing the ecosystem and giving the tech away.

So what should a for-profit technology company be doing?

Today the answer is clear: Support the development and adoption of blockchain networks with the best possible underlying technology to address challenges of scalability, performance and efficiency. They should do this work and make it openly available for license as their contribution to building the infrastructure of the future. Yes. They should give it away. 

Why? Because the real opportunity is not in short term revenue from licensing tech. The real revenue opportunities are coming from new business models, products and services made possible by robust, reliable networks with broad participation. The opportunity will come from disrupting enterprises, ecosystems and entire industries through removing intermediaries, adding transparency and shifting the mindset from competition to strategic collaboration.

When ascribing value to a blockchain patent ask three (3) questions:

  1. Does the patent describe technology for the data, the network or the protocol? Or is there no blockchain in this at all making it just an attempt at good PR?
  2. Does the enterprise expect to extract value by being a middleman or intermediary and taking a slice of every transaction?
  3. Does the patent describe something that is not distributed, decentralised and immutable? If not, it is just a patent for another specialised enterprise database.

The majority of blockchain patents are either pointless, ill-advised or simplistic attempts to ride the blockchain hype cycle. 

Troy Norcross, Co-Founder Blockchain Rookies