Patenting Digital-Asset Innovations; the Ethereum "Merge"; Technology "Layers"; What Makes an NFT Look Like a Security; and the ~$400M Pizzas.
?Jesse Camacho
IP Practice-Area Chair | Patent Litigator and Legal Strategist Helping Clients Achieve Their IP goals.
(04/17/22) Happy Easter and welcome to this week's newsletter. A main goal of this newsletter is to help simplify potentially confusing aspects of digital-asset technologies. Don't forget to subscribe if you find it helpful. (As always, no legal or financial advice here.)
04/11/2022
Probably so: digital-asset-related inventions can be eligible for patent protection if they satisfy the statutory requirements for patent eligibility.
There are many types of possible digital-asset-related inventions, such as inventions that leverage blockchain technology, utility inventions, linking off-chain info to on-chain info, cross-chain data transfer, inventions that solve transactions-related problems, functionality enhancements to blockchains, mining equipment, specialized dApps, etc. The list is long.
For example, as of today, the word "blockchain" appears, in some way, in approximately 7123 issued patents. See?https://lnkd.in/e6mbmx8i.
Word to the savvy on that note: if you are innovating in the crypto, NFT, metaverse, DeFi, or other digital-asset space, and are not at least pursuing patent protection, your competitors might be. (And patent holders can always decide later what they want to do, or not do, with their patents--but those with no patents lack that choice.)
There is merit to not regarding digital-asset inventions as a separate category of inventions. They probably are not. They are likely just another form of technological innovation.
35 U.S.C 101 defines patent-eligible subject matter. See?https://lnkd.in/ggrTef2G. The Code lists four categories of eligible inventions: (1) a process, (2) a machine, (3) a manufacture, or (4) a composition of matter. All patented inventions must fit into one of those buckets.
A mining rig focused on SHA-256 encoding or decoding might be an eligible type of machine, for example.
But the odds are relatively high that a digital-asset invention will take the form of a process. However, "abstract ideas"--like laws of nature and natural occurring plants--are not even eligible for patent protection.
There is an entire body of law related to determining what an abstract idea is, with the leading case being the Supreme Court's "Alice v. CLS Bank" case. Here's a write-up from the PatentlyO blog about its status on its 5Y anniversary in 2019:?https://lnkd.in/ervwVdTR.
Note, there is a difference between patentable and patent-eligible. Patent eligibility is necessary, but not sufficient. As a coarse analogy, consider the U.S. Presidency. One might be eligible to be president (e.g., 35 years old and a natural-born citizen), but not presidential.
In the patent context, many other statutory hurdles must be met beyond Section 101 (e.g., novelty under Section 102, non-obviousness under Section 103, a sufficient written description under Section 112, etc.).
To Clarify the Cryptic: digital-asset inventions need to satisfy the same requirements as any other invention--no more, and no less. Consult a registered patent attorney for case-specific advice.
04/12/2022
The "merge" refers to the merging of (1) the current Ethereum "Mainnet"--the chain in use today and secured by a "proof of work" framework with (2) the Beacon Chain, currently running in parallel and secured by "proof of stake."
"Proof of work" ("PoW") is mechanism to ensure that legitimate blocks are properly added to a blockchain. It requires solving a difficult cryptographic puzzle, and thus requires electricity to power energy-intensive computing devices.
PoW is criticized when it results in processes that are considered harmful to the environment. (But there are methods, such as remote hydroelectric, natural-gas, or solar mining facilities that do not receive as much criticism inasmuch as they facilitate remotely located communities to benefit from energy deployment when, in the past, it would not have been as economically feasible to service only a relatively few people.)
"Proof of Stake" ("PoS") is an alternative to PoW. PoS is estimated to use about 99% less energy than PoW. PoS secures a network in an entirely different way. In a PoS system, participants "stake" their coins for the chance to validate blocks. The more they stake, the greater the likelihood that they will be allowed to append blocks to a blockchain, and be rewarded for doing so. If they try to do something nefarious, they risk losing their staked coins.
Ethereum is currently secured via PoW but is transitioning to PoS. A separate chain, known as the "Beacon Chain" does not change anything about the Ethereum currently in use today. It has been deployed since December 1, 2020. It will coordinate the network and serve as the consensus layer.
The Beacon Chain currently exists separately from the Ethereum Mainnet (what we think of as Ethereum today). The plan is to "merge" Mainnet into the proof-of-stake system that's controlled and coordinated by the Beacon Chain. See?https://lnkd.in/g73yirUU.
The merge will not create a new Ethereum token. There is no date certain for when the merge will occur. In the past, milestones have been postponed.
Incidentally, yesterday (04/11/22), developers began?a test?for the merge in what some call a "dress rehearsal." See?https://lnkd.in/gBrrMBTH. Yesterday's test was said to demonstrate that a merge is possible and is regarded by some as an "historical event." Id.
To Clarify the Cryptic: The "merge" refers to a merging of an Ethereum test chain with Ethereum's main chain that, among other things, will convert Ethereum from being secured by a proof-of-work mechanism to a proof-of-stake.
04/13/22
"Layers" refer to different levels or types of blockchain-related technologies.
领英推荐
Let's set aside blockchain technology for a moment. The OSI (open system interconnection) model relates to traditional networking technology. It is generally regarded as including seven layers. The lowest layer is the physical layer, such as wires and fiber-optic cables. Layer 2 is the data-link layer, then (3) network, (4) transport, (5) session, (6) presentation, and (7) the application layer. Humans generally interact with the highest layer, the application layer.
Blockchain-related technologies follow a similar topology. The naming conventions are not universal. But the lowest layer is Layer-1.
The layers do not have crisp boundaries. And others might categorize things a little differently, but hopefully you get the overall concept and can track the terminology a little better when you hear it used.
Sometimes people are confused in thinking that, for example, all Bitcoin-related transactions must occur on the Bitcoin blockchain itself. That is not the case. Some might desire their transactions to be recorded on-chain, but advancements like the Lightening Network are providing other options.
To Clarify the Cryptic: Layers of blockchain-related infrastructure resemble those of traditional network topologies. The lower the layer, the more core the technology. The higher the layer, the more direct human interaction there is.
04/14/22
Promising buyers a share of future profits in exchange for purchasing an NFT stands to make the NFT look more like a Security.
Reuters reports that Sand Vegas Casino Club is based in Cyprus (https://lnkd.in/erdxdSX4). They offered 11,111 NFTs to raise funds to build virtual casinos in the metaverse.
They are said to have promised buyers of its Gambler and Golden Gambler NFTs that they would share in virtual casino profits, forecasting proceeds of as much as $81,000 each year. That caught the attention of Securities regulators in Texas and Alabama.
Yesterday (04/13/22), the regulators ordered the online casino developer to stop selling its NFTs, alleging that the firm was illegally offering unregistered securities and defrauding the public. (Recall that the "Howey" test is used to determine if something is a Security,?https://lnkd.in/gk2ngYwp).
The cease-and-desist order is said to be the first of its kind tied to internet-based virtual environment platforms (e.g., the metaverse). It is a second recent example of U.S. authorities seeking to clamp down on NFTs. (I wrote about the other one here?https://lnkd.in/gEd3uYC8).
To Clarify the Cryptic: Promising a share of future profits in an endeavor in exchange for purchasing an NFT stands to increase the likelihood that U.S. authorities may consider the NFT to be a Security.
04/15/22
Fun-fact Friday. You may have heard high-level summaries of someone offering 10,000 bitcoins for a couple of pizzas, but let's dig into this story and see the original messages and transactions.
The day was May 18, 2010, likely a mild day in Florida. The time was 12:35 AM, and programmer Laszlo Hanyecz was hungry.
He published a message on the?bitcointalk.com?forum offering to "pay 10,000 bitcoins for a couple of pizzas." See the actual message here:?https://lnkd.in/g9FrQcRn.
Here is the transaction on the blockchain:?https://lnkd.in/gji9dTBC.
And here are pictures of the pizzas:?https://lnkd.in/gqwEKdcE.
Apparently there is some dispute as to whether they were from Dominos or Papa Johns. But the pics seem to show Papa Johns.
At the time, bitcoins were estimated to be worth about 4/10 of a cent--and they were not a tangible thing at all, just figment of code.
Back then, they might be likened to something akin to points in game. Imagine if you had 10,000 such points, could trade those for two pizzas--with no firm way to know that they would increase in value so dramatically. Plus, it looks like Laszlo was able to "generate thousands of coins a day" (leading him to keep the offer open multiple times).?https://lnkd.in/g7cGRCP8.
On November 29, 2010, someone mused whether "this eventually become the world's first million-dollar pizza?" Oh yes, indeed, as of today (04/15/2022), those bitcoins would be worth about $403M.
[The End]