Jack Ma’s Alibaba applies for smart contract “intervention” patent

The Chinese e-commerce giant put in the application in through its Grand Cayman-based subsidiary on March 23, 2018. The U.S. Patent and Trademark Office published the details of the application on October 4, 2018.

In the application, Alibaba explains that the development of blockchain technology has facilitated the growth of an entire sector due to its inherent properties. The immutability of blockchain provides individual users and businesses alike with certain advantages. Alibaba, however, states that the fact that the blockchain is immutable presents a challenge, especially in the context of any illegal activity.

The patent states: "In real life […] there is a type of administrative intervention activities in the category of special transactions. For example, when a user performs illegal activities, a court order may be executed to freeze the user’s account. However, this operation activity conflicts with smart contracts in existing blockchains and cannot be carried out."

This is a true representation of how most blockchain networks currently operate. While there are permissioned blockchains, where access to certain portions of the network are restricted based on the security clearance of the user, it is generally not possible to reverse a transaction once it has happened and been added to the blockchain.

The system proposed by Alibaba involves a novel way of utilizing smart contracts. The patent describes a system where a smart contract would act as an intermediate between two parties in a transaction.

The patent explains: "Upon receiving an operation instruction sent from a designated account, a node in a blockchain network can invoke a corresponding smart contract when determining that the operation instruction is issued legally, to execute corresponding operations on an account corresponding to the to-be-operated account information, which achieves a goal of supervision on accounts in the blockchain and solves the problem of processing special transactions like administrative intervention in a blockchain."

The two parties would themselves be interacting in the context of, and governed by the terms, of a smart contract. However, the Alibaba system would empower another smart contract to have jurisdiction on the transactions within the first contract.

The jurisdiction is dependent on the creators and administrators of the system but it is not unfeasible to postulate they can go as far as to reverse transactions.

One of the major features of most blockchain networks is their decentralized nature. This feature is part of what makes the technology so innovative and powerful. Decentralization helps blockchains achieve a certain censorship-resistant quality while promoting fair access to its users. However, the Alibaba system may be able to allow authorities to have a significant amount of influence on the happenings in a blockchain network.

The system will allow its administrator to have access to tools through which it can amend transaction data on a blockchain network. The curious thing is the fact that this technology will be available to private institutions, individuals, and governments alike. "The issuing account recorded in the various embodiments may be an account owned by a government agency or a trustful institution," the patent explains.

One of the reasons decentralization is important is the security it provides. Creating a tool through which a single administrator can amend the terms, or otherwise affect the data, of a smart contract, obviously opens up a network to security breaches. Alibaba concedes that this is a concern but explains that it has made provisions for it.

The system will allow for the creation of more than one account with administrative oversight. Alibaba believes this will work to negate the security risks.

"In this way, the supervision power of the accounts in the blockchain can be decentralized, such that the supervision power against the blockchain is not centralized in one designated account and the effectiveness and credibility of supervision can be ensured. […] At the same time, it prevents the loss of all supervision power over the blockchain when one designated account is compromised."

Chinese firms dominating blockchain patent applications

The smart contract intervening patent is one more in a long line of patents filed by Jack Ma’s Alibaba. The conglomerate was reported to have filed more than 10 percent of the global patent applications related to blockchain technology in 2017.

The large number of patents from Alibaba, as well as fellow Chinese companies Tencent And Baidu, made up for over 50 percent of the blockchain-based patent applications in the year of 2017, beating the US which came in at a distant 22 percent. The continued filing of a patent application reiterates the esteem at which the company holds blockchain technology.

Ma has previously stated: "Blockchain technology can help overcome the challenges of security, sustainability, and inclusion. It could change our world more than people can imagine."

Is this new?

The Alibaba patent application represents a new dawn in the blockchain sector. On the Ethereum blockchain, it is possible to issue upgradeable contracts. These are contracts within which the logic and data are contained in different contracts. The two contracts interact using commands and proxy contracts. Therefore, as a result, it is possible for developers to amend some aspects of the contract after it has been deployed.

However, due to their much more intricate nature, in comparison to regular smart contracts, upgradable contracts require a very high level of coding. Even with a critical eye, they are still highly susceptible to bugs in the software, which poses a security risk.

If it materializes, the Alibaba patent would allow for administrators to have far-reaching powers, affecting an entire network as opposed to just a single smart contract. While it remains to be seen how this development would affect the blockchain sector, it does seem to herald the coming of greater regulations and potential restrictions for the blockchain industry but also greater flexibility for smart contract technology.