Recent news of a patent application filed by Bank of America for a cryptocurrency wire system could be bad news for Bitcoin and other cryptocurrencies. Reading through the application, it isn’t really clear what makes the “invention” so innovative and worthy of patent protection. But if the future sees more of these attempts to patent cryptocurrency technology and services then the long-term success of cryptocurrencies is very much in doubt.
When Bitcoin was really making waves last year, many wondered why the big banks and financial services companies were moving very slowly to embrace Bitcoin. Now we know. They are working behind the scenes and using the power of government to use Bitcoin to enhance their own businesses. Reading through Bank of America’s patent application, it isn’t clear what is novel about the service they describe. It could very easily describe the existing operation of some Bitcoin exchanges, wallet providers, etc., that provide cross-border transaction services. If such patents were to be approved, it would be a relatively simple matter for Bank of America’s lawyers to file suit against “infringing” Bitcoin businesses, and either drive them out of business or co-opt them by buying them out in exchange for dismissing the lawsuit.
Already, some of the first and most innovative Bitcoin companies have been driven out of business in states like New York because of onerous and burdensome financial regulations. Expect that to continue as states and the federal government continue to force Bitcoin companies to comply with the existing financial regulatory framework, particularly anti-money-laundering, Know Your Customer, and similar regulations. The Bitcoin businesses gaining the most attention and funding from Wall Street are those who have capitulated to the regulatory regime in order to conduct their business legally. Add patents to the mixture and it could be very difficult for Bitcoin companies to gain a foothold in the marketplace.
What this means is that Bitcoin and similar cryptocurrencies will not end up being a disruptive, game-changing new technology. Rather than upsetting the existing order and allowing people to transfer and hold money without having to deal with banks, Bitcoin will be completely co-opted into the existing financial system. The gears of government may grind slowly, but they will eventually put out of business any first movers in the Bitcoin world who fail to comply with government edicts. The big banks can afford to take it easy and wait things out. They will take advantage of their privileged position to scoop up the leftovers and integrate Bitcoin into their own business models, leaving consumers, investors, and savers with no alternative.