Bank of America files patent on blockchain sentry

In a US Patent & Trademark Office (USPTO) filing disclosure today entitled "Cryptocurrency Suspicious User Alert System," Bank of America (BoA) has set out to protect the ability to watch the blockchain for various events, that they call signs of a ‘suspicious transaction,’ and report them to the user and/or administrator as they are discovered.

The 42,000-word patent filing goes into great detail of possible customer transactions, with many variations and permutations, in order to discuss the situations where suspicious activity could be detected, and how they plan to spots such activity with their “validation engine.”

Filed in June 2014, this is from the second batch of patents with a cryptocurrency theme filed by BoA. The first was published in September this year, and it attempts to protect a new type of wire transfer system using a blockchain as the payment rail.

The first patent was not as much of a threat to Bitcoin companies as it was to legacy wire transfer and remittance companies. However, this new patent seems to target bitcoin exchanges, and especially bitcoin banks like Coinbase, Circle, and Xapo, because they hold onto customer’s funds.

"The processor may determine whether the cryptocurrency transaction is suspicious based on the associated user profile and communicate an alert to the enterprise."
— – Bank of America USPTO Patent application

The second largest US bank, and eleventh largest in the world by assets, BoA was the first large bank to talk openly about bitcoin, in December 2013, while bitcoin’s price was near its all-time high.

Having issued a 14-page “client note” to subscribed investing customers, Bank of America currency strategist David Woo stated that bitcoin had “clear potential for growth.”

“Bitcoin makes sense as a medium of exchange,” Woo bullishly stated, and “has the potential to become a major means of payment for e-commerce.” He went on to state that “it could even emerge as a serious competitor to traditional money transfer providers.” The note famously went on to place the estimated maximum market cap of bitcoin at US$15 Billion, or about $1,300 USD per bitcoin. Within a month, the price started plummeting.

Today’s patent very clearly communicates an intent to detect these signs of suspicious activity in many ways, while looking at many different factors. Some of the information the Bank will  be watching includes the IP addresses and public keys from both the user’s location and the location of a third party, presumably the holder of the third key in a 2-of-3 Multisignature transaction or exchange platform.

The filing goes on to say that whether the suspected transaction is suspicious will be determined, in part, upon the associated user profile. This will include calculating first and second-factor scores based on information such as locations, history, and wallet use.

The documents author takes great care to describe the possible flow of cryptocurrency through their system in detail, mentioning bitcoin by name 17 times throughout the document.

“Upon deposit, the funds become an asset of the enterprise and thus the risk of holding those funds transfers from the customer to the enterprise. An enterprise may desire to securely store funds that may be in the form of cryptocurrency. For example, an enterprise might apply a security function to one or more private keys associated with the cryptocurrency and store the result in one or more data centers. An enterprise may even disconnect the storage device holding such private keys and subsequently physically secure such storage device.”
— – Bank of America USPTO Patent application

Every variation of a user purchase flow on their hypothetical website is then described, a very long task that took 318 steps to complete, many of them written as very large paragraphs.

The 18-month delay between the filing date and this disclosure is a standard way for inventors to protect their idea while filing. It means we can’t see whatever else the Bank has filed since June 2014, even though we have ample reason to suspect other filings could exist, due to the previous patent and the fact that Bank of America joined the R3 CEV banking consortium in September.

Assuming this patent is granted, and the exchanges and bitcoin bank services haven’t filed their own versions in that time, it will be possible for Bank of America to sue them in the US , if and when it discovers that they have set up any similar basic alarm systems.