Blockchain is booming, but open source may bring big troubles to technological innovation

In the process of modern financial reform, blockchain enthusiasts have overlooked a potential problem that could cost them a lot: their applications are based on open source code and may end up in the hands of others.

Recently, industry giants such as Goldman Sachs, Bank of America (BoA), and Mastercard have begun to apply for blockchain patents privately. Reed Smith LLP revealed that the number of blockchain applications in mid-November at least doubled compared to the beginning of the year.

Blockchain, a shared, encrypted, and secure transaction ledger, began as a technological utopian dream. Projects such as Chain and Hyperledger chose to open source their source code, and the risk of patent applications is likely to turn their technology into a weapon in court, causing intellectual property disputes. If someone has bad intentions and hopes to make a fortune by launching patent lawsuits using the rapid development of blockchain technology, the situation will be even worse. More and more experts are beginning to warn that patent applications from large companies are likely to become a weapon to hit leaders in the blockchain industry.

Blockchain legal expert Patrick Murck said:

Open source code cannot prevent the application of innovative technology patents. If you are an investor in the blockchain ecosystem and if you are interested in this technology, you should pay attention to this issue.

Goldman Sachs spokeswoman Tiffany Galvin declined to comment on the details of its patent application, while Bank of America has not yet responded to our questions.

Justin Pinkham, head of payments innovation at Mastercard Labs, said that like other companies, they apply for patents to protect their blockchain inventions, an approach they have taken in other areas of technology. He said that Mastercard has currently applied for more than 30 blockchain and cryptocurrency patents.

We expanded the scope of our patent applications to protect our company's ideas, innovations and intellectual property.

Since the public can easily access open source code, the ownership of innovative products based on a certain code is difficult to clarify, so there are many legal disputes. Just like the open source software giant Linux, their patent war has lasted for at least a decade.

Patent application hot

The blockchain industry is in its early days, but its advantages are becoming increasingly apparent. The distributed ledger that records bitcoin transactions has attracted the attention of many industry leaders, including former JPMorgan executive Blythe Masters. The technology has the potential to reshape financial services, supply chains and healthcare.

Gil Luria, an analyst at Wedbush Securities, said that in the financial sector alone, blockchain is enough to increase the market value from tens of millions of dollars to billions of dollars in the next decade.

This is one of the reasons for the boom in blockchain patent applications. According to Marc Kaufman, a fintech intellectual property expert and database provider Questel, companies around the world applied for 356 blockchain and cryptocurrency patents in November, compared to just 180 in January.

Blockchain patent applications are growing exponentially. I believe the number of patents could reach thousands within five years. This is undoubtedly a potential risk.

Until now, most blockchain startups have ignored the importance of patents and placed a heavy bet on open source code. IBM's Hyperledger code is free to use and update; Chain also open sourced its code in October this year, and all companies can use its blockchain system to issue and trade assets; even the banking alliance R3 open sourced its blockchain platform Corda last month.

As such projects emerge frequently, some blockchain supporters believe that open source and patent applications are irrelevant. However, Ethereum founder Vitalik Buterin disagrees.

Some companies may be sued by their former partners. Large companies use patents as a weapon to eliminate promising startups. Patents are a tool they use to "exclude dissidents."

Buterin said:

Software giants will most likely eventually acquire blockchain software companies. At that point, blockchain patents will simply become part of the current patent war. This is the pattern for all software patents, and in my opinion, software patents will only slow down and jeopardize innovation.

Good intentions, wrong actions

When cryptocurrency exchange BitX recently open-sourced the code for its fiat-to-bitcoin exchange software, BitX CEO Marcus Swanepoel said they noticed that Bank of America had subsequently filed a patent for similar technology.

BitX was put in jail because of this. Once this patent is approved, Bank of America can theoretically ask BitX and its customers to pay a large sum of money. However, BitX's lawyers believed that this patent was difficult to pass, so they eventually gave up the lawsuit.

Swanepoel said:

The success of a blockchain protocol depends on market acceptance.

In addition, the recent withdrawal of Goldman Sachs and several financial institutions from R3 is also a worrying sign.

To resolve potential disputes, companies such as Blockstream have made commitments regarding their patents: anyone has the right to use their patents for free.

Some companies are also planning to form patent alliances, where members can freely use each other's patents. Murck cited the example of the Open Innovation Network (OIN). OIN was founded in 2005 and is mainly dedicated to Linux patent sharing. OIN CEO Keith Bergelt said they are considering purchasing blockchain patents.

We want to create a non-aggression environment.