A rush to patent the blockchain is a sign of the technology’s promise

FOR fans of bitcoin, a digital currency, the year got off to a volatile start. On January 5th one bitcoin changed hands for nearly $1,150—almost as much as the record set three years ago. It has since dropped by 33%. Elsewhere in the land of monetary bits, things move more slowly but trouble is brewing: a potential patent war looms over the blockchain, a distributed ledger that authenticates and records every bitcoin transaction.

Heated fights over intellectual property are nothing new in promising technology markets. But given that the blockchain is expected to shake up everything from the way precious diamonds are safeguarded to the way shares are traded, the legal fights could be especially fierce.

On the face of it, the blockchain does not lend itself easily to staking out intellectual-property claims. Bitcoin’s creator, known only by his pseudonym, Satoshi Nakamoto, published a paper about his invention, coded the first implementation and then disappeared—meaning that the core of the technology is now part of the public domain and only important additions and variations could be patented. And the blockchain’s components are widely known. In America court decisions as well as a new law on the granting of patents make it difficult to claim ownership for such financial innovations.

This hasn’t stopped firms from trying to get patent protection on meaningful improvements to the blockchain, including security and encryption techniques, says Colette Reiner Mayer of Morrison & Foerster, a law firm. Applications are now becoming public, because America’s patent office must release them 18 months after they are filed. A search of Espacenet, a global database, yields 36 hits; hundreds more are said to be in the pipeline.

Financial firms are among the most assiduous filers: MasterCard, for instance, is seeking four payment-related patents; Goldman Sachs has put in for one outlining a distributed ledger that can process foreign-exchange transactions. Startups, including Coinbase, Chain and 21 Inc, have been busy, too. And then there is Craig Wright, an Australian who claims to be Mr Nakamoto but has failed to provide conclusive proof. He has filed, via an Antigua-registered entity called EITC Holdings, for 73 patents in Britain.

Only a very few patents have been issued so far. And known applicants all say that they intend to use patents only “defensively”, meaning to protect themselves against lawsuits. Still, legal battles look likely: incumbent banks may go after newcomers, and “non-practising entities” (also known as “patent trolls”) may attempt to shake down other firms. It could slow the pace of innovation, warns Brian Behlendorf of Hyperledger, an umbrella group for several blockchain-related projects.

To limit such fights, several startups are opening up their IP. Chain, Digital Asset Holdings and Hyperledger have made their software open-source, so that the underlying recipe is freely available, which also makes it more attractive to users and developers. Some programs even come with a licence that makes it impossible to enforce patents against those who use the organisation’s code. Blockstream, another startup, has signed a “patent pledge”, vowing not to sue others—as long as they don’t use their own patents offensively.

There are also discussions over forming a patent pool, much like the Open Invention Network, created in 2005 to protect member firms against suits for using Linux, the popular open-source operating system. The OIN acquires patents and then licenses them freely to members, which agree not to assert their own patents.

Whether this strategy of mutual disarmament is sufficient to avoid another patent war will be clear only when and if blockchains have become a multi-billion dollar business. This week DTCC, a provider of clearing and settlement services, announced that it will base the next generation of its trade-information system on a blockchain, and SWIFT, a payments network, said it was exploring the technology. That might prompt more applications.