Coinbase To Patent Hot Wallet for Holding Bitcoin, User Private Key Control, And Tip Button

According to the US Patent & Trademark Office (USPTO), Coinbase, a San Francisco online exchange and platform for bitcoin services, applied for nine patents in March this year. The patents include ‘Hot Wallet for Holding Bitcoin’, ‘Bitcoin Exchange’, ‘User Private Key Control’, and ‘Tip Button’.

The bitcoin community on social media platform Reddit are in an uproar, expressing that these are not Coinbase inventions and should not be patented. Coinbase CEO, Brian Armstrong, responded to the community by referring to an article by programmer Paul Graham called “Are Software Patents Evil,” in which the author describes business as a “a kind of ritualized warfare.”

“My personal view is that software patents should be abolished. But unfortunately we don’t live in that world today.”
— – Brian Armstrong, Coinbase CEO

“A closer comparison might be someone seeing a hockey game for the first time, realizing with shock that the players were deliberately bumping into one another, and deciding that one would on no account be so rude when playing hockey oneself,” said Graham. “Hockey allows checking. It’s part of the game. If your team refuses to do it, you simply lose. So it is in business. Under the present rules, patents are part of the game.”

“We do advise the companies we fund to apply for patents, but not so they can sue competitors. Successful startups either get bought or grow into big companies. If a startup wants to grow into a big company, they should apply for patents to build up the patent portfolio they’ll need to maintain an armed truce with other big companies.”
— – Paul Graham, Y Combinator

Some in the community were curious regarding Armstrong’s intentions, and inquired as to whether Coinbase would consider going down the same route as Tesla, who had similar quandaries regarding the patenting system.

When Elon Musk, CEO and Founder at Tesla started out with his first company Zip2, he believed that patents were positive and he worked diligently to obtain them. “And maybe they were good long ago, but too often these days they serve merely to stifle progress, entrench the positions of giant corporations and enrich those in the legal profession, rather than the actual inventors.”

“After Zip2, when I realized that receiving a patent really just meant that you bought a lottery ticket to a lawsuit, I avoided them whenever possible.”
— – Elon Musk

However, Musk also obtained patents for Tesla Motors, concerned that large car companies would copy the technology and use their manufacturing, sales and marketing power to overwhelm the electric car company. In 2014 he turned the archaic patent on its head by announcing, “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”

Armstrong’s response regarding Musk’s approach was that, “Tesla was awarded well over 200 patents before Elon musk blogged about open sourcing its IP (and they were a many billion dollar company at that time). Clearly their strategy was not to forego patent filing entirely, even if they ultimately intended to make a public commitment to open sourcing the IP. Coinbase is very open to making similar commitments in the future and we’re considering options,” he wrote.

“I’d say our strategies look pretty similar so far on the two timelines of the company. (you have to remember Coinbase is a much earlier stage company [than] Tesla).”
— – Armstrong

Musk’s ethos is rare in any market, and other companies who have chosen to entertain “a kind of ritualized warfare” over patents, bear the possibility of suffering significant losses. As an example, the saga between Apple and Samsung has been ongoing since litigation proceedings began in 2011.

When Apple released the first i-Phone in 2007, investors coined the term “you bet your company on it,” due to the billions of dollars invested into the product. In order to protect their investment Apple acquired five key patents, one of which is for the touchscreen “slide to unlock” feature, which was heavily marketed in their first ad campaign.

The i-Phone’s release was a raging success. “iPhone is a revolutionary and magical product that is literally five years ahead of any other mobile phone,” said Steve Jobs, Apple’s CEO. “We are all born with the ultimate pointing device—our fingers—and iPhone uses them to create the most revolutionary user interface since the mouse.”

Other companies followed in the company’s footsteps, releasing similar products. According to the USPTO, internal documents from Samsung showed that the competitor “paid close attention to, and tried to incorporate” some of Apple’s patented technology, which was “indicative of copying by Samsung.”

The most recent ruling, from the US Court of Appeals for the Federal Circuit, stated that Apple should have received an injunction which would bar Samsung from selling any devices which infringed upon its patents. This means that Samsung will be unable to sell products in the US with features protected by Apple’s trademarks, including autocorrect, lock screens and data detection applications.

"This is not a case where the public would be deprived of Samsung’s products. Apple does not seek to enjoin the sale of lifesaving drugs, but to prevent Samsung from profiting from the unauthorized use of infringing features in its cellphones and tablets.”
— – Circuit Judge Moore

In the bitcoin industry, Coinbase is not the only company to file for patents. The USPTO recently published that the Bank of America filed for a patent in March last year, seeking to protect a system which could enable the conversion of a customers digital currency funds into a foreign currency. Mastercard, IBM and Amazon have also made applications for bitcoin related projects.