Patents in crypto – not a way to go

Cryptocurrencies are usually open-source and it’s by design. They would be less trustworthy if they were not. It is essential for the nodes to be open-source, for multiple implementations to be viable. These implementations can independently verify the validity of rules. There is one “backdoor” to open-source and that is (software) patents. Some countries do not allow to patent algorithms, while others do.

So what is the problem with patents? There are many…

Recently, nChain CSO Dr. Craig S. Wright was talking about the innovation they were doing. The problem is that innovation is not code, it is patents, not even open-source whitepapers. And this is a problem and a huge one. While he claims that people can freely use these patents on Bitcoin Cash chain, this creates a fatal issue – imagine it would happen before the fork and Bitcoin Core software was using algorithms that were patented. There would be no fork possible, there would be no Bitcoin Cash. So this is even against his own philosophy.

I believe forks are essential, because they allow open innovation and dissent. Let’s say down the road, the Bitcoin Cash community splits and someone would want to create a fork. While I don’t think that there is a market for many forks and I personally am very skeptical about all the forks that are happening, it is a way to implement different set of consensus rules when consensus is hard to reach and it uses market mechanisms (price) to decide which forks are viable and useful.

Enforcing intellectual property through state mechanisms is not something I would support ever. Innovation is not whitepapers or patents, it is working code that users can use. Feel free to monetize that, Dr. Wright. Transaction fees, hosted service, I am not against earning money.

Patent is simply using the coercive monopoly aggression of the state to enforce “intellectual property”. It is not welcome in open-source and it is not welcome in cryptocurrencies, where it is essential for people to be able to use the innovations, fork when they disagree (Bitcoin->Bitcoin Cash for example). And it is definitely not welcome in libertarian world, at least in most part. There is much dispute if patents and intellectual property should be part of working market mechanism, but with patents, the case is simple – could you enforce it without the state? No, you couldn’t. That means it is a domain of pure statism.

Patents are not innovation, it is actually stopping innovation and patents could actually put a full-stop to cryptocurrency development.

So what to do about it? No one needs to run to a patent office with their innovation, because you cannot patent something that has a “prior use”. You can just prove you invented it first. Publishing a whitepaper online is usually enough to prove you invented something before someone else. And thanks to blockchains, we can reliably timestamp it too (actually with Opentimestamps, you can do it for free with one command).

The reason that Dr. Wright gave is that there should be only one crypto-monetary system. I think that the crypto space will converge to one cryptocurrency, but imagine that the patents would cover only btc chain without hard forks and you could not use it on bch. I am not saying we should fork anything, but one central entity holding key patents and controlling forks is very dangerous. Very non-open-source and very anti-business at the same time.

The other problem is patent trolls. They patent some algorithms, like simple compression, signing, etc. They are domiciled in some rural area of a big state, like on a farm-village in Texas, with cowboys that don’t even use Facebook.

The company sues the company. The jury comes from the farm and the company’s attorney says something like: “East European/Asian company stole our innovation!”. The defendant tries to say that the algorithm is public knowledge, describes how it works. The cowboys cannot relate to that, they have never seen a compression algorithm during their farming practice.

The story is – this is expensive (lawyers, travel to rural Texas, …) and wasteful. You cannot effectively protect yourself, you need to go there. For most companies, it is actually cheaper to settle and pay the troll some money than to go through and win.

So what is the solution?

First of all – don’t accept patents as innovation. If someone is claiming that they are innovating because they patented something, the right reaction is the same as if someone farted loudly in front of you: “Duh, what are you talking about? What innovation? That smells!”.

Second – if you actually do innovation, timestamp all whitepapers and code. Make sure you can prove that you invented it first. Show your ideas early and often. No one will steal your idea, the implementation is what matters. How many users use it is what matters.

And third – have a culture of encouragement even if people use the ideas and technologies on different blockchains. Because you could be the one that needs an idea that was first developed for some other blockchain. It does not matter if an innovation happened on BTC, Ethereum or any other chain. Encourage cooperation and “idea stealing”, because next time, you might be the one who needs to use the idea from other blockchain. That is how innovation happens – out there, in the open. One day, someone steals an idea from you, the other day, you implement someone else’s idea.

And it does not affect what will be used as “money” at all. User-experience, transaction costs (including fees), acceptance and network effect is what matters. So don’t worry, there will soon be less and less crypto with enough “money-ness”. This is just what happens.