Blockchain – The Inventive Foundation of Bitcoin

Bitcoin Update – 

We last covered the subject of bitcoin in early 2016.  There have been plenty of further developments in cryptocurrencies, and in their underlying technology known as blockchain, since we last wrote on the subject1. Back in November 2015, bitcoin was trading at about 400USD/฿.  The price trajectory was unremarkable until 2017, when it opened the year at 986USD/฿, and reached a peak of 17,900USD/฿ on December 15th.  By early February of this year, the price had dropped to about half of that, and it has spent the year bouncing around 6000USD-8000USD/฿.  While there may still be money to be made trading in bitcoin, we find it a bit too volatile to hold in our retirement accounts.

Another big change in bitcoin is in who “mines” it.  When a bitcoin transaction occurs between two parties, bitcoin miners’ computers compete to solve a mathematical algorithm associated with the transaction in a process known as “bitcoin mining.”  When the algorithm is solved, the transaction is verified as legitimate, and is entered into the blockchain, and the miner whose computer “won” the mining of that transaction is awarded additional bitcoins.  In the early days, bitcoin miners were mostly individuals, typically extreme computer geeks.  To get into mining, the entry level investment was the price of a few super-fast personal computers and network connection gear.

Those days are long gone.  Solo mining has become unaffordable, as companies have been formed for the sole purpose of bitcoin mining.  ASICs have been developed specifically for mining, and rooms full of these processors have been set up in mining farms.  A quick snapshot – at press time, a used “mobile mining farm” of 40 processors in a 10 foot shipping container was listed for sale on eBay for $195,000.  (According to the sale specs, if you’ve got 240V three phase wired to a Hubbell plug in your garage, you could be mining in no time.)

The energy consumption of bitcoin mining has also become the subject of debate.  At the high end, one researcher asserts3 that bitcoin mining worldwide consumes energy comparable to that needed by countries such as Ireland or Australia.  Others dispute that claim, but even at fractions of that amount, bitcoin and blockchain energy use is still significant and growing.

On the patent side of things, pursuing patents on bitcoin has all but ceased over the past two years.  A quick search of published U.S. applications in Class 705, “Data processing: financial, business practice, management, or cost/price determination,” and containing the word “bitcoin,”  shows that a peak was reached at 139 applications, dropping to eight in 2017 and six so far this year.  Moreover, out of 322 published applications since 2012, only five bitcoin-related patents have been issued by the USPTO.  This may be due in part to the 2014 ruling by the Supreme Court in Alice Corp. v. CLS Bank International4, but also because there may simply not be that much inventive opportunity with bitcoin related technologies.

Blockchain – a New Opportunity

The dearth of bitcoin patents notwithstanding, the inventions and developments in blockchain have been explosive in the past few years.  The invention of the blockchain was a key part of Satoshi Nakamoto’s disclosure of bitcoin, published in an online paper5 entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” in 2008.  A detailed description of how the blockchain is structured is beyond the scope of this column; it is well covered in Nakomoto’s paper, and a concise summary is available on Wikipedia6 and our previous column7.  In bitcoin transactions, all users of bitcoin software are connected to a network, and all bitcoin transactions are recorded in a public ledger known as the blockchain.  As summarized by Iansiti et al.8, “The technology at the heart of bitcoin and other virtual currencies, blockchain is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.”

“Pursuing patents on bitcoin has all but ceased over the past two years.  But blockchain patenting has exploded.”

By publishing his paper, Nakomoto put the invention of blockchain out in the public domain.  It did not take long for bright people to see all sorts of applications for blockchain that stretch well beyond its original use as the foundation of bitcoin.  As of this writing, the growth in U.S. published patent applications containing the words “block chain” or “blockchain” has been exponential.  It can be seen from the graph that blockchain patent applications were relatively flat through 2015, and have since gone from about 200 to nearly 1200 in just the past three years.

Emerging Uses

The blockchain is being implemented in a broad range of uses where data must be reliable and secure.  The fifty most recent U.S. published patent applications are in diverse fields such as identity verification, digital content licensing, supply chain management, digital imaging, cybersecurity, pharmaceuticals, cryptography, machine learning, and health care.

Small and nimble tech companies are pursuing their share, but big players have moved in as well.  IBM has over 100 published applications to date in 2018, covering all of the above fields.  Other large companies that have already obtained issued patents include Nasdaq, MasterCard International, AT&T, Amazon, Cisco, and Capital One.

The tenth anniversary of the publication of Satoshi Nakamoto’s paper has just passed.  In the ensuing ten years, bitcoin has waxed and waned as a highly volatile investment or currency.  Meanwhile, blockchain has quietly grown in the background to become a major innovation in our digital world.  If you have made a call, a text message, or a purchase today, chances are blockchain was involved in some way.

  1. See The Limited Monopoly®, February 8, 2016.
  2. See
  3. De Vries, Alex, Joule, Volume 2, Issue 5, 16 May 2018, pp. 801-805
  4. Alice Corp. v. CLS Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014).
  5. Available at
  6. See
  7. See The Limited Monopoly®, November 30, 2015.
  8. Iansiti, Marco; Lakhani, Karim R. (January 2017). “The Truth About Blockchain”. Harvard Business Review.

PHOTO CREDIT: “Chain, Chain, Chai-i-i-n.” © 2018 Robert Gunderman.

Authors John M. Hammond P.E. (Patent Innovations, LLC and Robert D. Gunderman P.E. (Patent Technologies, LLC are both registered patent agents and licensed professional engineers.  Copyright 2018 John Hammond and Robert Gunderman, Jr.

Note:  This short article is intended only to provide cursory background information, and is not intended to be legal advice.  No client relationship with the authors is in any way established by this article.