Smart Contract Patent Update

A quick update on the growing smart contract patent landscape. I’ve written before about the number of patents mentioning smart contracts here, here, and here. The number of filings continue to grow at a rapid pace.

As of May 30, 2018, we know of 267 patent filings in the USA that mention “smart contracts.” These filings include issued patents, and published patent applications. There are surely more we do not know about. The chart below shows a breakdown of filings by the year they were filed.

 

Five Implications of Blockchain Technology

Lawyers are a natural fit to understand the implications of blockchain technology on society. Why? Lawyers can understand the implications of blockchain technology, because blockchain technology deals with concepts that lawyers have been wrestling with for millennia, namely: trust, exchange, agreement, consensus, and value.

Trust

Arguably the most central concept for organizing human society is trust. The degree to which people trust each other, and how they manage those trusted relationships is often intermediated by lawyers. Lawyers craft agreements for clients based on the level of trust between the parties to the agreement. Lawyers are not necessary for trust to exist, but they often bridge a “trust gap” between parties that do not know each other well. In this sense, lawyers function as trusted third parties.

With the advent of Bitcoin the trust equation changed. Now it is possible to “trust” information sent over a network you don’t trust among a group of participants you also don’t trust. To be sure, there is an element of trust that still exists. Namely, the participants in the network must trust the way the network is run, and the technology that underpins the network. The point is that lawyers have a natural affinity for managing trust relationships, and they should not be turned off by this new technological approach.

Exchange

What does it mean when parties exchange something between each other? The concept of exchange, giving something to someone else and receiving something in return, is the foundation of all trade and many of our interactions as people. Exchange has many issues associated with it, such as:

  • What are the terms of the exchange?
  • Are the terms of the exchange clear?
  • When has the exchange started?
  • When is the exchange complete?
  • When would it be unfair for it to not finish?

Many more issues can arise, but these sorts of questions are common place in the legal world.

For networks that use a blockchain, distributed ledger, shared ledger, or other decentralized exchange network, the answers to these questions are often found in the network protocol. The protocol determines how exchanges work and what types of exchanges are possible. Similarly, the protocol will also determine the involvement of other parties in said exchange. Knowing the rules of exchange is something that lawyers already advise their clients on, and answering those same questions with respect to blockchain applications is something they can and should do.

Agreement

In many cases agreements are often contracts, and contracts involve at least two parties coming to a meeting of the minds as to the terms of their agreement. That’s a wordy way of saying “I’ll do X, if you do Y.” Historically, agreements have been memorialized in a contract. Problems arise when one of the parties claims that the terms of the contract weren’t met, or that the contract was invalid.

Blockchain technology creates the opportunity to create binding agreements on a blockchain network. A potentially huge shift in the practice of law is likely to come in the form of smart contracts. A smart contract is a way for at least one party to memorialize the terms of an agreement in computer code that is distributed across a blockchain network.

The lawyer’s traditional role of helping clients come to an agreement on a contract will not change as a result of smart contracts. What may change is how that agreement is memorialized. Here lawyers would do well to learn about smart contracts and how to code them. With each passing year more and more clients will want that option.

Consensus

Traditionally, consensus on the veracity of information in a network (be they financial networks, groups of experts, etc.) has involved reconciliation processes and other mechanisms to determine what information and records are correct.

Perhaps the biggest change brought on by Bitcoin and other blockchain networks is a new way of achieving consensus on information transacted on a network. As transactions occur on a blockchain they are packaged into blocks of transactions. If certain conditions are met that block becomes part of the official record and the chain of blocks grows. If enough participants in the network agree, that block becomes part of the official record and consensus is achieved.

Determining when and how consensus is achieved is well within a lawyer’s toolkit. Being able to assess whether information is part of the official record is something lawyers already do, and something lawyers will have to do more of when their clients wish to use blockchain technology.

Value

A concept more abstract than trust may be value. What is valuable to one may be valueless to another. How and why we value something may be intrinsic to the thing in question, or extrinsic to that thing. Regardless of why something has value, lawyers often help their clients determine the value of things. They also help clients secure valuables, as well as ensure their client receives fair value in an exchange.

In disputes, lawyers often have to advocate why something should be valued a certain way on their client’s behalf. The fact that magic internet money is valuable to some, and not valuable to others, is largely irrelevant to the job of an attorney. Thinking abstractly about why something is or isn’t valuable is already a large part of the job.

Conclusion

Lawyers should not be worried about blockchain technology. In fact, they should embrace this new paradigm shift towards decentralized interactions. The legal issues lawyers deal with day to day will not be disrupted by this new technology space. They will merely be presented in a new format.

Smart Contract Patents

It’s about that time again to check in and see how many patent filings mention smart contracts. The first time I wrote about this was in June ’16 here, and then again in March of this year here. Smart contracts are very much a part of the current zeitgeist (sidebar, if you ever want to feel like an idiot read Hegel), and all the rage in the B2B world.

The first time this search was run there were seven hits. The second time the search was run there were fifty-six hits. This time? One hundred and thirty six filings mention smart contracts. This is less than seven months since I last ran the search when the number was fifty-six. Of those filings, eight are issued patents and 128 are published patent applications.

The first chart below shows the growth in filings by publication year. The second chart below shows the number of filings by the year they were filed.

 

Each year there are more and more patent filings that we know about that are related to smart contracts. What the second chart shows us is the growth in the number of filings. Those numbers are not final, as there are undoubtedly still more filings that are not yet public. Based on the trend shown by these numbers its not unrealistic to assume that twice as many patent applications have been filed in 2017 that mention smart contracts than were filed in 2016. That would be around 150 patent applications filed in 2017 making use of smart contracts.

More broadly speaking, the growth in the number of filings that mention smart contracts is in line with what we would expect from the maturing blockchain industry. I wrote about this emerging blockchain patent landscapein March of this year. Companies, large and small, are moving to protect their innovation in this space. Bigger numbers are on the horizon.

Previewing Consensus 2017

Consensus, the blockchain conference of the year, starts May 22nd, and I am excited to be attending for the first time. According to Coindesk, there will be over 2000+ attendees, 100+ speakers, and over 20+ countries represented.  Everything going on in the blockchain world will be covered, however, there are a few talks I’m most looking forward to.

Top Three Talks I’m Excited to See

Legality & Structure of ICOs

Speakers: Chris Burniske – Ark Invest – Moderator; Preston Bryne – Monax; Thomas Linder – MME; Matthew Tan – Etherscan; Peter Van Valkenburg – Coin Center

Initial Coin Offerings (ICOs), where crypto-tokens are offered for sale to fund a project, are a wild west of crowd funding these days for new blockchain projects. This talk should be lively as some people are convinced that these tokens are securities, and other people are convinced that these tokens are something new entirely.

Falling Behind? Is the United States Fostering Blockchain Innovation or Sending it Overseas?

Speakers: Perianne Boring – President – Chamber of Digital Commerce – Moderator; Jeff Bandman – FinTech Advisor – US Commodity Futures Trading Commission; Valerie Szczepanik – Head, Distributed Ledger Technology Working Group – US Securities and Exchange Commission

Blockchain based innovation really is worldwide, and it is inherently focused on value exchange, whether that’s currency or assets. What is interesting to watch is how blockchain solutions are being adopted in various countries. This talk should shed some light on where the US stands in all this.

Technical Challenges in Blockchain: Consensus Mechanisms & Smart Contract Verification

Speakers: Stefan Thomas – CTO, Ripple; Mark Staples Blockchain Group Leader, Data61

Smart contracts are a huge part of why people are excited about blockchain. The ability to distribute trust, computation, business relationships, and more is on the horizon. These two speakers are in the trenches hammering out that future.


Ultimately, I have no doubt the conference will be illuminating in many ways I can’t anticipate. I’m sure I’ll have more to write about what I saw and heard when I return.

Blockchain Businesses and Users

The blockchain business space is convex. By convex I mean that the businesses developing in the space are either large organizations, or small startups. The space looks a little like the graph below.

This isn’t necessarily good or bad, it just is. On the right of the graph you have very large organizations, like Accenture, Microsoft, and IBM. On the left you have companies like Monax, Ripple, and Coinbase.

Given the relative newness of blockchain technology the distribution of companies into two peaks, one of small companies and one of large companies, makes sense. Large organizations have the resources to test out new ideas without too much disruption to their business. On the other side, small companies have the agility, and often exclusive competencies, to try and build businesses around new ideas.

On the flip-side, the blockchain user space looks similar to the blockchain business space. The early adopters are largely very small users (e.g. individual holders of bitcoin), and large enterprise institutions. The chart is effectively the same as that for the business space.

Until a “killer app” for blockchain is developed the chart above will not change, and widespread adoption will not exist. For widespread adoption to actually exist the blockchain user space will have to look something like the chart below.

When midsize and small organizations are using blockchain, say a trucking company in southern Illinois or a local grocer in Argentina, then blockchain can be considered to have made it, but that is a long way off.

Smart Contracts Patent Filings on the Rise

I previously wrote about smart contracts showing up in patent filings over at Medium. I wanted to do an update to that post to see how many more filings have shown up.

In the previous post on July 21, 2016, there were seven published patent applications that mention smart contracts. Rerunning the search on March 19, 2017, shows that there are now fifty-six published patent applications that mention smart contracts.  This growth in filings is consistent with the rise in the number of patent filings that mention bitcoin, blockchain, and distributed ledgers. Patent filings show maturity in a new technology space, an issue I’ve discussed before, and smart contracts are proving to be no different. The chart below shows the growth on the horizon.

The number of patent filings that mention smart contracts published in 2015 jumps dramatically in 2016. Considering that the Ethereum project went live in late 2015, it is not surprising that we don’t see many filings in 2015. Now that Ethereum has proved itself, and use cases for smart contracts are being tested, there will likely be many more filings that mention smart contracts. Three months in to 2017 we are on track to surpass 2016, and probably see around 80 patent filings that mention smart contracts.