Patent Trolling or Hedging Risks?

Earlier this week, Financial institution of America (BofA), one the US’ largest monetary establishments, made a large splash within the crypto sphere as the main points of its not too long ago registered patent, entitled “Actual-Time Internet Settlement by Distributed Ledger System” and citing the Ripple blockchain, emerged within the press. Though the extent and precise character of the proposed system’s reliance on Ripple is unattainable to find out from the submitting, the group of XRP holders and supporters rejoiced.

A piquant nuance is that the XRP token itself was by no means talked about in documentation, suggesting a curious “Ripple with out XRP” scheme that the patent’s authors elected to make use of. This, in flip, led to speculations that patenting such an structure would routinely urge all different banks to make use of “Ripple with XRP” — which, in fact, is just legitimate in a world the place Ripple has turn out to be a dominant infrastructure for interbank funds. So as to make sense of what the information means for the crypto trade because it presently is, revisiting an extended report of BofA’s use of blockchain patents is a obligatory first step. 

The BofA company communications group refused to offer additional touch upon the state of affairs upon a request from Cointelegraph.

Financial institution of America and blockchain: a sophisticated relationship

What provides much more spice to the current growth is BofA’s controversial strategy to blockchain-related patents, which Cointelegraph already scrutinized final fall. Briefly, Financial institution of America has lengthy been the worldwide chief by way of the uncooked variety of registered, unexpired patents that made use of distributed ledger expertise (DLT), amassing as many as 82 of them as of March 2019. Nevertheless, a June 2019 report by LexisNexis PatentSight suggests that a few of them could have expired, as BofA stood second behind IBM, which has 52 stay blockchain patents.

Regardless of this formal indicator of appreciation, BofA’s high executives have been persistently making statements on the worth of DLT-based options that have been little wanting dismissive. Cathy Bessant, the corporate’s tech and operations chief, has been the financial institution’s key spokesperson on blockchain issues. Talking on the CB Insights Way forward for Fintech occasion in June 2018, she stated that Financial institution of America’s primary cause to be lively on the patent entrance is just hedging potential future dangers, slightly than the abundance of current use circumstances, saying, “Whereas we’ve not discovered large-scale alternatives, we need to be forward of it, we need to be ready.”

Michael Wuehler, an ex-BofA worker of 11 years who’s had a hand within the firm’s blockchain analysis, went even additional by tweeting in August 2018 that the financial institution’s blockchain patents have been “meaningless apart from making for press releases and public notion of innovation.” Come 2019, not a lot appears to have modified. In an interview with CNBC in March, Bessant expressed grave reservations about blockchain’s short-term relevance: 

“I haven’t seen one [use case] that even scales past a person or a small set of transactions. All the huge tech firms will come and say ‘blockchain, blockchain, blockchain.’ I say, ‘Present me the use case. You carry me the use case and I’ll attempt it.’”

Even thought BofA’s tech boss added that she wished distributed ledgers to “make us higher, sooner, cheaper, extra clear, extra, you already know, all of these issues,” she was in the end bearish on the expertise. Nonetheless, Bessant restated that the financial institution wished to be prepared for a hypothetical situation through which blockchain lives as much as the massive promise. Bessant added that, whereas personal blockchains may certainly enhance some features of banks’ operations in some unspecified time in the future sooner or later, she remained deeply skeptical of open-access, permissionless programs, the place consumer anonymity allegedly poses unsurmountable hurdles for monetary establishments to ever implement any options constructed on public blockchain networks.

This gaping discrepancy between the BofA’s staunch declared skepticism of DLT and simultaneous patent accumulation (“simply in case”) couldn’t go unnoticed and unquestioned by the crypto group. Some decentralization purists and conventional banking system’s naysayers have come to suspect that Financial institution of America’s strategy may have extra malevolent motivations than said. For one, as analysts on the nonprofit Gini Basis have it, the financial institution is bracing for the upcoming “blockchain patent warfare,” through which patents will serve to sabotage different blockchain platforms and stall the general trade’s growth by the technique of limitless litigation over rising options.

The trade professionals surveyed by Cointelegraph didn’t fairly share this alarmist sentiment, although. Will Cai, companion on the funding administration agency Wilshire Phoenix, opined that the motive force behind Financial institution of America’s blockchain technique is kind of what it claims it’s:

“Financial institution of America just isn’t a patent troll. They run a monetary companies enterprise with various ranges of complexity throughout divisions and merchandise and like lots of the legacy finance establishments, they’re consistently monitoring rising areas. The flexibility to determine new applied sciences the place patents can probably serve to guard and create worth is the pure development of any enterprise degree enterprise when coping with a nascent expertise. We see this as additional mainstream adoption and a optimistic growth for the blockchain area as an entire. That being mentioned, institutional adoption of blockchain expertise will inevitably improve competitors and for some it will likely be ‘watch out of what you want for.'”

Iain Wilson, an advisor to NEM Ventures, the enterprise capital and investments arm of the New Financial Motion (NEM) blockchain ecosystem, thinks that there are structural causes behind banks’ battle to seek out rapid use circumstances for blockchain tech, which was one of many main points that BofA’s Bessant took with DLT options. It’s doable that the massive banks’ present organizational fashions are merely not the very best match to include open-source infrastructure. Wilson noticed:

“Nearly all of massive banks have been experimenting with blockchain/DLT Expertise for plenty of years, as evidenced by each consumer surveys and IT funding budgets. Many have discovered that inner tasks have didn’t display main advantages primarily as a result of the expertise works higher in a extra open and mutual atmosphere. Should you study the BoA patent utility, you instantly see areas which depend on messaging between events, counterparty verification and monitoring of actual time internet balances between events. These are core valuation propositions of Blockchain/DLT expertise, a lot of which has been open sourced. It appears unlikely that banks will have the ability to block innovation with patents on this sector primarily as a result of a lot is within the public area.”

Lars Seier Christensen, chairman of the decentralized computing platform Concordium, added that it’s unlikely that huge banks will resort to freezing out the rising blockchain-powered competitors via litigation over mental property, partly as a result of this may not be significantly environment friendly of a weapon in opposition to a largely open-source ecosystem:

“I think that many of the patents taken out by banks presently are defensive in nature, in different phrases to make sure that the banks themselves can’t be attacked for his or her blockchain actions. I count on that the banks will permit the trade to develop a hit-or-miss strategy in a comparatively unhindered atmosphere, the place by each successes and failures, the actual workable use circumstances and options shall be recognized over time. In any case, a extremely restrictive strategy won’t work in a distributed and decentralised ecosystem, and open-source tasks usually tend to succeed than tasks aggressively protected by patents.”

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Even when BofA and different main monetary establishments usually are not attempting to intentionally stall the event of the blockchain sector, it’s nonetheless sitting on a large pile of patents with obscure prospects of precise implementation. This, nevertheless, just isn’t a ubiquitous sample globally: Some nations do take full benefit of the rising banking tech. One evident instance is South Korea, the place the main bank card agency, Shinhan Card, has not too long ago patented a blockchain-powered transaction system with enhanced user-facing performance past funds. The nation’s largest foriegn alternate financial institution, KEB Hana Financial institution, has been prolific with functions for blockchain-related patents, reporting 46 filings earlier this yr.

South Korea additionally enjoys world management by way of patent grant fee. In response to a contemporary report by the media platform IAM, 54% of blockchain patents get registered there are granted, in comparison with Japan’s 17% and the US’ 16%, with China trailing even additional behind with simply over 1%. On the identical time, South Korea accounts for simply four% of world blockchain innovation, whereas the composite share of China and the U.S. approaches 84%. In the end, the inertia inherent to large established monetary markets precludes the sort of brisk patenting to implementation cycle that characterizes a tiny and extra agile Korean market. Nevertheless, the majority of blockchain-fueled innovation happens in these unwieldy environments, so the trade ought to no less than attempt to push them extra towards the Korean mould.

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