Cryptocurrency Patents: New Innovations Revolutionizing the Fintech Industry

The emergence of cryptocurrencies is disrupting almost every industry.

Bitcoin started the crypto revolution in 2009 when an anonymous developer under the pseudonym Satoshi Nakamoto first introduced the idea to the world. By the mid-2010s, Bitcoin started gaining traction. Its value continued to rise higher and other types of cryptocurrencies soon sprung.

Today, decentralized digital currencies are disrupting how various industries operate, creating new opportunities for both individuals and businesses. Cryptocurrencies provide an efficient alternative to international transactions. Cryptocurrency payments are also anonymous and more secure. However, this also means that crypto has become an attractive payment method in the black market.

As the cryptocurrency landscape continues to evolve, the public is now becoming more aware of the potential benefits digital currencies can still bring. This is why developers are constantly introducing crypto-related innovations. Most of these are focused on making existing processes simpler and more efficient.

This has led to the rise of patent applications related to cryptocurrencies. This surge was first seen in 2017 when the value of one Bitcoin skyrocketed to $13,000 — a 32,500% increase.

During that year, the number of patent applications related to cryptocurrencies grew by 16%, while patent filings related to blockchain, the digital database for cryptocurrency transactions, grew by 300%.

The Rise of Cryptocurrency Patents in Fintech

One of the major questions first posed related to cryptocurrencies is whether they are patent-eligible. The US Patent and Trademark Office (USPTO) states that abstract ideas, as well as groupings of abstract ideas related to activities, cannot be patented. This means that cryptocurrencies, when categorized as a form of commercial transaction, are not eligible.

However, cryptocurrencies are still technological innovations. Under USPTO guidelines, new processes that help solve specific problems or make certain processes more efficient can be patented. This means that a cryptocurrency is patent-eligible as an algorithm-based invention to better facilitate a specific aspect of a commercial transaction.

As a result, more patents have continued to be filed throughout the years. Major banking and fintech companies have now also joined the race to file patents related to cryptocurrencies.

Here are two notable patents recently granted to the big names in the fintech industry:

Square Inc. Doubles Down on Crypto Trading

Square Inc. was first known in 2009 for introducing a mobile credit card reader that could be installed via an audio jack. Today, it provides one of the largest digital wallets and is known for its peer-to-peer payment services.

The company started buying and trading Bitcoin as early as 2017. Last year, Square bought over $50 million worth of Bitcoin and bought $170 million more in February 2021. The company also reports that more than 50% of its revenue comes from cryptocurrency trading.

Its goal is to be a “bank of cryptocurrency” and provide commercial cryptocurrency transactions. In 2020, Square was granted a patent that enables seamless transactions between different types of financial assets including cryptocurrency.

The patent details a payment network system that allows users with different asset types to directly transact with each other in real-time. This eliminates the need to exchange certain assets for other types of currencies before trading. This also allows users to keep their identities anonymous throughout the transaction.

Square aims to extend the use of this payment network to other types of asset classes. In the future, the company is also looking to enable seamless transactions between cryptocurrencies and assets such as securities, derivatives, and even loans.

PayPal Enables Users to Buy and Sell Bitcoin

PayPal launched crypto on Venmo in 2020, which allows its customers to buy, hold, and sell Bitcoin using their PayPal accounts. By March 2021, the company also started letting its US customers buy products using Bitcoin.

At least two dozen patent applications were filed by PayPal from 2017 to 2020. Currently, two patents have been granted to help PayPal improve crypto transactions through better dispute resolution and risk assessment.

Dispute resolution is a key cryptocurrency innovation, as, unlike credit card payments, there’s no way to reverse a crypto transaction whenever an order gets canceled. PayPal filed for a patent that uses a secondary blockchain network to send an equivalent amount to the customer and suspend the primary transaction in case of a dispute.

The patent claim was initially rejected by the USPTO as “dispute resolution” was considered an abstract idea. However, PayPal included additional elements to its patent filing, which included details on generating a smart contract, a sidechain address, and methods for better communication making the claim allowable.

PayPal also focused on providing better risk assessment, as cryptocurrency transactions pose many dangers due to anonymity. Since there’s no third party that serves as an intermediary to mitigate possible risks, users often have to blindly transact with others.

This is what PayPal’s other patent application has apparently solved. Titled “Risk Determination Enabled Crypto Currency Transaction System,” it provides users with a risk determination assessment by allowing an algorithm to access an external risk information ledger and database. Transactions may only proceed if the other user’s risk information satisfies the algorithm’s criteria.

Similar to the patent related to dispute resolution, PayPal’s patent claim for risk determination also first failed to meet eligibility requirements. The company then provided additional elements that focused on detailing how the process generates a new record using two cryptocurrency transactions, as well as how this record is written and broadcast to the public cryptocurrency ledger.

The Future of Fintech

As the public continues to embrace the rise of cryptocurrencies, many industries are now also incorporating new solutions to provide seamless cryptocurrency transactions. It’s no surprise that fintech companies are leading many of these changes.

Two US companies at the forefront of cryptocurrency innovations are Square Inc. and PayPal Holdings, Inc. Square has been granted patents that allow the company to provide more efficient transactions across various asset types. PayPal has introduced innovations related to mitigating risks involved in cryptocurrency transactions.

The road towards a successful patent grant isn’t always smooth, however. This is mainly due to the danger of cryptocurrency innovations being categorized as abstract ideas. The key is to always include technical information that provides details on how the new processes help commercial transactions become more secure and efficient.

When it comes to successful patent applications related to cryptocurrencies, the devil is always in the details.