Navigating the Uncharted Waters of the Blockchain

Understanding the Hype Surrounding Blockchain and Cryptocurrencies

 

Akin to the excitement that enveloped the nascent days of the Internet in the 1990s, blockchain technologies and their associated cryptocurrencies have recently taken center stage in financial headlines. Cryptocurrencies represent a dynamic form of digital currency that utilizes cryptography to facilitate financial transactions directly between two parties, thereby eliminating the need for a middleman. Propelled by the promise of transforming transaction methodologies, cryptocurrencies have experienced explosive growth, piquing the interest of investors searching for “the next big thing.” The surge in demand for cryptocurrencies has led to burgeoning trading platforms struggling to accommodate the influx of new accounts and services. Inspired by media coverage of extraordinary returns for investors in cryptocurrencies like Bitcoin, Ethereum, and Ripple—some of which have exhibited astronomical growth rates—this burgeoning market has garnered immense attention, especially for an industry still in its infancy. The powerful reach of the Internet and social media have played significant roles in this growth, yet such rapid expansion early in a technology's lifecycle can have unintended consequences, potentially hindering development despite waves of new adopters diving into the fray.

 

Blockchain and Cryptocurrency: A Symbiotic Relationship

 

Blockchain and cryptocurrency represent a fusion of technological innovation that operates on a digital platform. Blockchain, at its core, is a decentralized database or distributed ledger that methodically records transactions between entities while detailing how these operations are executed and logged. These transactions span not only cryptocurrencies but also other types such as title recordings, voting tallies, mortgages, and debts. Numerous blockchains exist, with many more continuously being developed. Meanwhile, cryptocurrencies act as digital currencies—a medium of exchange—employing encryption and unique protocols to facilitate payments across the blockchain without the necessity of a certifying authority.

 

The Future of Blockchain Technology

 

The potential of blockchain technology, while varied across industries, undeniably signals an upward trend in adoption. Much like the Internet a few decades ago, blockchain’s potential remains vast, with many of its functionalities still unexplored. Industry experts predict a continual surge of investment, both in research and development of new technologies atop the blockchain. Financial institutions, including banks and payment processors, are already embracing varying levels of blockchain technology adoption. For instance, banks are collaborating to create a cross-border trade finance network anchored in blockchain technology. A prime example is IBM, which collaborated with international banks like BBVA, Bank Danamon, and National Australia Bank to launch a new blockchain-based payment platform designed to accelerate cross-border transactions.

 

As more companies enter the blockchain space, there is an evident drive among both early adopters and newcomers to safeguard their investments in blockchain-related innovations. Companies such as Visa, Walmart, IBM, and Coinbase have already filed numerous patent applications regarding distinct aspects of this technology. These corporations are also integrating blockchain into their daily operations, heralding a new era of transactional confidentiality and efficiency.

 

Challenges Facing Blockchain’s Longevity and Adoption

 

The early architects of blockchain technology and the accompanying white papers behind popular cryptocurrencies like Bitcoin and Ethereum envisioned this technology as an open-source platform. This vision encourages software developers to collaborate, thereby enhancing the platform’s collaborative functionality. Many early adopters advocate for an open-source strategy, where companies working towards technological advancements operate collectively to develop blockchain infrastructure.

 

However, the trend of filing patent applications, as seen with major corporations, could threaten this open-source ethos. The patenting of blockchain-related technologies risks precipitating a patent war reminiscent of the software boom in the 1990s. Due to the early developmental stage of blockchain, the influx of major players could potentially erect barriers that hinder and stall technological progress.

 

The volume of blockchain-related patent filings has surged in recent years, presenting a complicated landscape due to the 18-month delay between filing and publication of an application. Despite limited data, the growth in filings is exponential, increasing from approximately 25 applications in 2015 to about 350 applications in 2017. Similarly, Bitcoin-related patents spiked from six in 2012 to roughly 475 in 2017. With activity in blockchain technologies escalating, the number of patent filings is likely to enter the thousands in the foreseeable future.

 

The repercussions of this patent filing surge merit close scrutiny. Given the scarcity of prior art in this domain, these initial patents could potentially lay claim to vast functionalities within the cryptocurrency and blockchain technology spectrum. Should these patents be properly drafted, they may encompass multiple cryptocurrencies and blockchain aspects, thereby impeding other entities and innovators from further enhancing these technologies.

 

Furthermore, the nascent nature of blockchain technology paired with limited expertise at the U.S. Patent and Trademark Office (USPTO) might result in the approval of excessively broad patents, inadvertently undermining patent quality and granting individuals rights beyond rightful parameters. Additionally, parties may pursue overreaching patents covering foundational blockchain functionalities, which could result in considerable financial gain but may simultaneously stifle industry-wide growth and advancement throughout the patent's lifecycle.

 

Lastly, given the technology’s infancy and availability of open-source information, the industry may be vulnerable to non-practicing entities, or patent trolls. These entities, often accused of neither advancing the technology nor fostering innovation, serve as deterrents to prospective innovators looking to enter and contribute to this evolving space.