TMT focus
Ahmad Saleh Partner, Head of Innovation & Patents
N.B Research by Reem Albudoor and Maya Bouayed.
Cryptocurrency mining (or “crypto mining”) is the process in which new cryptocurrencies are entered into circulation. Individuals mine cryptocurrency by using crypto mining software to solve complex mathematical problems involved in validating transactions. Each solved equation verifies a transaction and earns a reward paid out in the cryptocurrency. In essence, crypto mining is a term that refers to the process of gathering cryptocurrency as a reward for work that you complete.
In a more technical sense, cryptocurrency mining is a transactional process that involves the use of computers and cryptographic processes to solve complex functions and record data to a blockchain. In fact, there are entire networks of devices that are involved in crypto mining and that keep shared records via those blockchains.
In contrast to the traditional banking system, there is no central authority with cryptocurrencies, nor is there a centralized ledger. That is because cryptocurrencies operate in a decentralized system with a distributed ledger known as blockchain. Unlike the traditional banking system, anybody can be directly connected to and participate in the cryptocurrency “system.” You can send and receive payments without going through a central bank. A distributed system means the record (ledger) of all transactions is publicly available and stored on many different computers. This differs from the traditional banks, which are centralized systems.
However, without a central bank, how are transactions verified before being added to the ledger? Instead of using a central banking system to verify transactions (for example, making sure the sender has enough money to make the payment), cryptocurrency miners use cryptographic algorithms to verify transactions.
Performing the cryptographic calculations for each transaction adds up to a lot of computing work. Miners use their computers to perform the cryptographic work required to add new transactions to the ledger. As a result, they get a small amount of cryptocurrency themselves.
Some of the innovations existing and emerging in relation to crypto mining include improvements or modifications to existing hardware, which are involved in the verification of crypto transactions; software or code which execute the verification of such transactions; crypto mining systems; and new methods or processes for authenticating financial transactions on the blockchain.
The two financial free-zones in the UAE are (1) the Dubai International Financial Centre (“DIFC”) and (2) Abu Dhabi Global Market (“ADGM”) - each of which have their own commercial and financial laws, independent of Federal and Emirate laws that apply to the rest of the UAE, including free zones (“UAE mainland”). The financial regulators in ADGM, DIFC, and UAE mainland each have their own respective regime for regulating crypto assets including crypto currencies. The jurisdiction of these regimes is currently limited to conducting financial activities, and does not extend to non-financial activities, such as technical activities relating to crypto mining.
A crypto mining business may employ several IPRs to protect the technology associated with the business. These include patents, industrial designs, copyright, and trade secrets. Some examples are set out below.
Patents can protect parts of the hardware used to verify crypto transactions, the process or method used to mine crypto currencies, or a crypto mining system (either in its entirety or elements of such a system).
Industrial designs can protect the visual features used in a crypto mining system, including a graphical user interface (GUI).
Copyright can protect the software code associated with the verification of crypto transactions.
Trade secrets can protect parts of the code associated with the verification of crypto transactions, business methods of the company, or any other industrial, technical, business or financial information that may provide the business a competitive edge in the market.
The availability of the above legal protection vehicles are subject to specific legal conditions and requirements.
A crypto mining business is recommended to protect its technology by taking the appropriate measures vis-à-vis third-parties, external contractors and consultants as well as internal employees or individuals working within or for the company.
It is important to execute suitable legal contracts with all parties involved with the technology including those involved with the ideation, design, conception, development, improvement or exploitation of the technology, as well as with all those who have access to confidential information pertaining to the technology or related business, financial, technical or industrial information. These legal contracts may include IP assignments and confidentiality agreements.
Patents can protect technologies in relation to crypto mining, such as parts of the hardware used to verify crypto transactions, the process or method used to mine crypto currencies, or a crypto mining system (either in its entirety or elements of such a system).
Specific examples of crypto mining patents:
System, device, and method of detecting cryptocurrency mining activity (US11089049B2)
Architecture for cryptocurrency mining operation (US10455742B2)
Method for adjusting mining difficulty of a cryptocurrency block chain system (US10764325B2)
Exercise measurement device having cryptocurrency mining function (WO2019212099A1)
Cryptocurrency mining system with hot water production (KR20190117353A)
The five most common patent classification classes used to protect crypto mining technologies at the USPTO are:
Data processing systems or methods, specially adapted for administrative, commercial, financial, managerial, supervisory or forecasting purposes; systems or methods specially adapted for administrative, commercial, financial, managerial, supervisory or forecasting purposes, not otherwise provided for (G06Q)
Transmission of digital information, e.g. telegraphic communication (H04L)
Electric digital data processing (computer systems based on specific computational models) (G06F)
Wireless communication networks (broadcast communication; communication systems using wireless links for non-selective communication, e.g. wireless extensions) (H04W)
Computing arrangements based on specific computational models (G06N)
Generally, many of these patented technologies and business activities are concentrated in the United States, China, Korea, and Japan.
There are several legal and regulatory considerations relating to crypto mining businesses, which we have touched on in a separate article.
Infringement in the area of crypto mining can occur when an IP right associated to the technology has been breached by a third party. For example, if a patent or industrial design has been registered in relation to the technology, exploitation of the patent or design by a third party without authorization of the owner or his authorized licensee may lead to an act of infringement. Copyright infringement may occur when the code or any other copyrightable material pertaining to the technology has been reproduced. A trade secret violation may occur when confidential information pertaining to the technology has been disclosed without authorization or acquired through illicit means. IP infringement may have heavy repercussions, including accountability of the infringer to monetary damages, fines and even imprisonment in certain cases.
A crypto mining business should consider IP protection of the technology and related operations where available very early in the process. Also, legal agreements should be put in place and executed with all relevant parties involved, including IP assignment and confidentiality agreements. Market clearance and freedom-to-operate searches may also be required to ensure that the crypto mining business is not infringing on any third party’s intellectual property rights as part of its activities. A crypto mining business can work with a tech specialised IP/Patent attorney to audit the internal activities and technologies related to the business and identify existing or potential IP assets and put in place the requirement legal measures to protect the same, as well as any other legal measures required to protect the business against third party’s IP claims.
For further information, please contact Ahmad Saleh.
Published in June 2022
