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Blockchain software patents. A new look at the future of the financial and public sectors.

 Blockchain software patents. Blockchain attorney in Bulgaria.


Introduction. The liberalisation of the banking sector to crypto currencies and, above all, the blockchain technology behind them, shows that the financial market slowly breaks the shell of misunderstanding into the new online legal mechanisms that lead to software verifying each link in a legal deal. In my opinion, the crypto currencies themselves (as a speculative tool) in the near future are doomed to a total collapse of a single dollar denomination for a specific crypto (for example, "bitcoin"), but blockchain technology as an innovative business model and legal tool for doing business online, will soon develop technologically and enter various spheres of public life - finance, law, health, education, creative industries, public sector. A proof of this statement is that at present, perhaps the largest bank in the world - the US Bank of America - has a total of 50 patents in the field of blockchain technology serving the banking and financial sector. Оn the second position by applications for this kind of patents in US it is the giant in the computer industry IBM, which logically declare interest in this industry, as it has been for years the main hardware supplier (of various types of computer equipment) for thousands of banks around the world. 

The European Union has also focused its efforts on blockchain technology over the past two years as a real software phenomenon and an alternative of security, transparency and efficiency in tackling many public sector problems in the 21st century. This opinion corresponds to the point of view of the European parliamentarian from Greece, Eva Kaili, who, in her report of 16 May 2018, in front of the European Parliament's "Industry Committee" called for "a progressive and innovation-friendly regulation". In her speech, Kaili said that "Blockchain and Shared Record technologies generally have the potential to change many public sectors. The financial services sector is just one of them. In blockchain resolution, we investigate the effect of removing mediation in other spheres." The debate on the subject in the European Commission and the European Parliament points to the ambition of the EU to become a global leader in the blockchain technology in the near future. Given the increased entrepreneurial interest, the European Parliament is working dynamically on building an institutional and legal framework. It is expected that a new Regulation in the field of Crowd funding investments will be based on the already existing Italian legislation [1], as well as a Regulation regulating the blockchain industry. These conclusions stem from the changes proposed by a European Parliament resolution in Regulation (EU) 2015/1017 on the European Strategic Investment Fund. 

Therefore, negotiating and concluding transactions in virtual environments today is judged to be a qualitatively new phenomenon that has no analogue in our history so far [2]. The implementation of the so-called "smart contracts" in the online business and the many options they offer for global real-time monitoring of every single statement of intent, as well as being marked as such in the "blockchain software" on the very low-level inside the code of the technology at first, leads to banks' incredible focus on business opportunities offered by this software and technology phenomenon. Secondly - evidence for this is also the fact that the European Commission started in February 2018 the so-called "Observatory and Blockchain Forum", having invested more than € 80 million in related projects. A further € 300 million is provided as a blockchain innovation fund by 2020 (through the Horizon 2020 program).

1.Blockchain Patents of "Barclays". Recent patent applications from Barclays Bank, the second largest bank in the UK, confirm what has been said and point to the fact that it is not far to use blockchain technology to streamline funds transfer procedures through cryptocurrencies and the "KYC” business model, which serves as a means of identifying customers (including online), in order to avoid malicious actions on bank accounts - for example, "phishing" as an online bank fraud. The US Patent and Trademark Office(USPTO) recently published two US patent applications, which were originally registered as software patents in England [3], and then transformed into European [4] patents and international patent applications, with patent-specific treaty (PCT) countries, focusing on the above mentioned technical blockchain issues. 

1.1. Barclays' first patent application focuses on a blockchain platform that could encourage the transfer of cryptocurrencies as a payment instrument. Said blockchain software patent proposed by Barclays Bank leads to the creation of a software platform for transferring "digital currency from payer to payee". Unlike other known patent applications filed by individuals or legal entities that do not guarantee the use of this technology in the financial sphere, Barclays' commented application demonstrates serious business and research interest by the bank to develop blockchain technology as a future of the banking sector. 

What happens at a technological level and what is the legal outcome? Negotiation is defined in the theory as "an interaction between two entities, which aims to conclude a contract, but it itself does not have the characteristics of a proposal" [5]. This definition is criticized in terms of the word "entities". It is more correct to use the term "parties" because, once the treaty is concluded between parties, it is also logical for the negotiations to take place between them [6]. The commented method and system for transferring a digital currency [7] from payer to payee (subject of the patent) includes obtaining a data identifier describing the first legal entity (party) willing to enter into the transaction. This results in a block entry of the block software based on the received identifier. The process continues with verification of entering into the transaction through a public (software) key of a second party. It acquaints itself with the data describing the first object of the executed entry in the code of the software. Verification of the authenticity of the block entry entries also applies to entering a third party transaction using its public key (as a software key). If the verification of the entries in the blockchain described by the three parties to the transaction (as part of the block software) is successful, the transfer of the digital currency from the payer to the payee begins, with the first person in the transaction being a payer or a payer and pays and / encrypted by subject two or three on the transaction, respectively payers or recipients of the payment. This process is verified by receiving transfer data from the public key of the online wallet (as part of the blockchain software) associated with the recipient. The next generation of information in the code is to use the public key wallet data as well as the public key of the digital currency for the amount to be transferred to the payee. The latter as process generated information includes transfer data consisting of currency public key data and value of the amount of the digital currency transferred to a third party. What is clear from all this is the fact that each statement of intent is marked in the blockchain code, by repeatedly confirming the various legal actions performed by each participant in the transaction through information obtained from its public key software. 

The described transaction mechanism in the online environment fully corresponds to the basic doctrinal and rulemaking concepts in national and international civil law. Under the Bulgarian ZZD(Law on Obligations and Contracts), the contract is deemed to have been concluded at the place where the proposal is based [8]. In the cases mentioned, however, this is an international electronic trade exchange under the rules set out in Directive 2000/31 / EC (Directive on electronic commerce) and its transposition into national law (in the Bulgarian case this is the Law on Electronic trade). In the context of what has been said, our national legal doctrine correctly analyses the fact that contracting in e-commerce terms reveals a number of peculiarities in terms of proof of intends, identification of parties and content of the contract [9] which, with the commented two modern blockchain patents, it is rational decision. In the specific case, from the theoretical point of view, it can be assumed to be correct that the instant messaging software is concerned (by mentioning specific information in the said "public keys"), and there is a kind of communication channel (blockchain software) between two or more parties in the virtual environment. The wishes that parties exchange in the process of signing and verifying a transaction through the blockchain platform overlap with the definition of "electronic statement" [10]. Here it is done with written characters (depending on the programming language used) and is marked directly in the blockchain software code for transparency in checking its occurrence by other parties in the ledger. 

1.2. The second mentioned patent [11] of the English Barclays Bank focuses on improving the so-called "KYC" process by storing identifying information in the form of personal data in the blockchain software, in order to identify the user and verify the legal transactions he performs, which are marked as a legal result directly in the low-level code. In detail, the commented patent offers the following technical solutions. The invention is a method and system for recording personal data identifying an individual, as well as those data confirmed by a second person, by means of a data validator (identifier) ​​describing the first party. The identifier has verified the data that the device in question generates through the public key of the first person. The cryptographically signed data corresponds to the data describing the first party using the second person's private key to verify this process. Publishing the transaction into a block, includes cryptographically signed data. The method and the data acquisition system thus described individualise the first party of personal data verified by a second person. Thus, obtaining technically identifiable data describing the first person is achieved. After that, the process continues by extracting a block chain entry based on the identification obtained. The entry and participation of the second person in this process is certified by its public key. The process ends by retrieving the data describing the first person through the blockchain entry of the block software.

What we have said leads us to the conclusion that the use of blockchain technology in software patents offers several advantages from a technical point of view. Firstly, it allows the publicity of the information by allowing any third person or organisation to review (verify) the data stored in the code by cryptographic verification of the activated digital signatures, based on the interactions between the so-called "public and private keys" in the code. Apart from all this, the technical information about the transaction itself as a process of exchange of wills between individual legal entities can be added as a database directly into the blockchain code software, providing for different mathematical logic games describing the different interactions of individual legal entities. For example, if three parties are involved in the deal and one opts out, this is noted in the code and the deal is concluded between the other two parties. Due to this transparency of the so-called "smart contracts" processes implemented in the blockchain technology, from the legal point of view, additional (duplicate) checks on the effectiveness of the blockchain programs and the exchanges through them wishes that will improve the efficiency and security of computer networks in the financial sector.

In this sense, Barclays' patent claims are intended to provide a more reliable form of verification of transactions in financial instruments at the technological level, reducing administrative costs and improving security as well as the technical functioning of the computer environment and telecommunication networks. The company also offers a "super user" option that will allow the customer to transfer the old financial information to its new blockchain databases, thus practically addressing the problem of the size of the code (such as character length) and this with the storage of a huge amount of technical information.




2.The Blockchain patent "Blinking". Therefore, it may be logical to note that, in relation to the recently adopted General Data Protection Regulation (GDPR), commented blockchain patents and business models behind them, should be consistent with the legal rules that concern the regulation and protection of personal data - especially in connection with KYC (know-your-consumer) technical function. Betting these legal mechanisms as part of a blockchain product code makes it quite up to date on the market, given that many businesses in the financial and public sectors require data processing and protection. 

The European blockchain patent [12] of the Serbian software company "Blinking" was declared as such on July 30, 2018. in the European Patent Office, Munich, Germany. The invention provides an innovative method for recognizing the customer through the use of distributed ledgers for the introduction of biometric data in an identifying procedure performed by scattered computer networks. The biometric data [13] that identifies the software are fingerprints, iris and face shapes. Obviously, the data are personal pursuant to Article 4 (1) of the GDPR. These include also the so-called "special personal data" which enjoy the highest level of protection under the General Data Protection Regulation (GDPR) [14]. Therefore, their processing requires the explicit consent of the data subject under Article 9 (2) (a) of the Regulation as well as an extremely high level of protection that should provide the software operating with them.

Standardized, familiar identification programs are related to identifying a client based on entering a password and username. In this context, in most cases, the identification is performed by a specific (on-site) client detection and individualisation on a specific local server, typically owned by an organization that the customer has trusted, that is, already available on a contractual basis with personal (biometric) data - these are usually state institutions, hospitals or banks. By the Blinking blockchain client identification program, the problem of identifying an individual is solved through a communications network that provides a technical opportunity for independent, one-to-one affirmations. This is achieved by communicating on a stand-alone server connection (peers). The method also includes storing encrypted and recorded personal data for client authentication. The latter content as information is accessed through privileged access, and at the same time the storage of a decryption instruction for the encrypted and recorded confidential personal data in a client database as part of the blockchain software. Based on the technical process described above, a particular server receives encrypted client information. Subsequently, a customer-related server is generated by a smart contract decryption key including the decryption instruction stored in the client part of a blockchain that has been commented a little above. The commented blockchain software patent further results in the network receiving the encrypted and recorded authentication data of a particular person from the location in the block of storage where it is stored. In turn, the same is decrypted from the same network by using said decryption key to obtain decrypted personal data that is recorded to authenticate a particular individual. The final stage of the described technical process, object of the invention, is related to comparing in the network the distributed "ice sheets" of the decrypted, recorded authentication data with the individualised information received by the customer as a result of consensus based on the consensus of the software connections in said network. The process ends with storing the result of data matches and creating a hash identifier (256-bit or 32-byte code of letters and numbers) for the client, representing a technically specific software code for the individualised personalised service given to an individual, as a part of blockchain program. 

In conclusion, unlike the scepticism of the banking sector in Bulgaria, many global banking institutions and software companies have a profound focus on the development of legally operating tools in the blockchain industry. In the future, this far-sighted business approach will only lead to one - confirming the leadership positions of certain public and financial institutions, due to their foresight and vision in the future, at the expense of scepticism deprived of legal motives. The collapse of the cryptocurencies and, at the same time, the reaction of the European Commission to the dynamic stimulation of the blockchain industry shows the correctness of the conclusions made in this article, namely that the speculative element of the cryptocurencies trade will soon subsist, replaced by the usefulness of the technology behind it - blockchain software as a technical, legal, and social achievement of the 21st century.


Author: Mr. Atanas Kostov – patent attorney



[1] The Italian Decreto Crescita 2.0 and Article 57 (1) of the Italian Decreto Correttivo Act. These two laws make a legal adjustment to the previously known Italian Civil Code, effectively derogating from Article 2468 (1), which prohibits small and medium-sized enterprises from operating as equity-crowdfunding companies;

[2] Kiskinov, V., "Towards a General Theory of the Law of the Information Society." - In: The Legal World, Book 2/2009, p.17. 

[3] English National Patent No. GB20150011964; 

[4] European patent no. ER3320504 "Secure digital data operations"; 

[5] So Stoichev, Kr. Negotiations on contract and pre-contractual liability. Sibiu, 2007. Second edited and supplemented ed., P.45-46. Also Kalaidjiev, A. Obligation law. General part. Fifth edited and completed edition. Sibiu, 2010, p.74 

[6] Thus, Emanuilov, I, "A Modern View of Negotiating and Concluding Contracts in a Virtual Environment", "Society and Law", issue. 9/2011, p. 70-84. 

[7] U.S. Patent Application Nos. 20180204191, which is a national phase in respect of the territory in question, designated by international patent applications WO2016GB52070 and PCT / GB2016 / 052070. 

[8] Kalaidjiev, A. "Obligation law. Fifth Revised and Supplemented Edition ", ed. "Sibi", 2010 

[9] Hristova, V. "Contract concluded in the framework of e-commerce: regulation of e-commerce in the right of consumer protection". - C: European contract law - consumer contracts. Compiled by: M.Pashke, V.Pavlova, T.Piperkov. Sofia, 2010. IM "St. Kliment Ohridski ", p.253 

[10] Kalaidzhiev, A. "Electronic Statement and Electronic Document", Digest "Market and Law", issue 1/2002.

[11] U.S. Patent Application Nos. 20180205537, which is a national phase with respect to the territory in question, designated by international patent applications WO2017006135A1 and PCT / GB2016 / 052072. 

[12] European Patent No. EP18186310 

[13] Article 4, paragraph 14 of the General Regulation on the Protection of Personal Data.

[14] Argument from Article 9 (1) of the General Regulation on the Protection of Personal Data.