IBM Files Patent to Track Value of Digital Currencies

Another patent application by a major corporation is raising eyebrows this week. This time, IBM’s application for an “E-Currency Validation and Authorization Services Platform” proposes a system to “track the life cycle of any individual e-currency token” both to detect its use in illegal activities and allow for a more accurate estimation of the e-currency’s value.

The application, made public recently after being filed in June 2012, says: “The ability to validate and authenticate digital tokens across the lifetime of any particular token will bolster trust and viability, allowing e-currencies to operate across disparate economic systems, fostering easier participating alongside sovereign currencies and other non-standard currencies.”

It drew almost instant comparison to Coin Validation, Matt Mellon’s proposed system of whitelisting “clean” bitcoins that had never been involved in illegal activity in order to make it more palatable to established financial institutions and regulators. The reaction from the bitcoin community to that plan has been almost universally negative, with accusations it would permanently “taint” coins and render them unacceptable for use even after changing owners numerous times.

Motives

So what is IBM up to? Is it applying to patent its own answer to Coin Validation? Posters in the Bitcoin Talk forum were initially concerned the company might also pose a threat to bitcoin fungibility.

Writing for Let’s Talk Bitcoin, Brian Cohen thinks it’s not as bad as that, though it definitely doesn’t reassure with lines like:

“When a user desires to verify a particular e-currency token, the e-currency Validation and Authorization Services Platform 100 may retrieve all transaction data, transactor data, grading data, etc. related to the e-currency token.”

And:

“The algorithm results may then indicate whether the particular e-currency token is fraudulent or involved in a fraudulent transaction.”

Cohen said IBM is interested in tracking digital currency tokens for broader reasons, such as the value estimation one. The company may instead be inventing a way for all kinds of different digital currencies, from bitcoin to X-Box Live Points to Zynga Credits, to have a common reference to validate their correct market values against national currencies, enabling their use far more broadly than their initial intended ones or for accounting and taxation purposes.

The platform would do this through tracking by determining an “average estimated value” for each currency. Proprietary digital currencies could thus break free of their “walled gardens” and be seamlessly transacted with each other. Users may better understand how accurate quoted market values indeed were, and verify whether the token being offered actually exists.

The application does seem to focus more on uniting information across various currencies rather than tracking individual tokens of one in particular, with identification of fraud as a by-product of analyzing patterns in the spending data. It’s important to remember it was filed in 2012, long before bitcoin started receiving mainstream attention and refers to several other systems without bitcoin’s characteristic public block chain for validating each coin’s existence.

IBM's interest in the future of finance

Cohen notes also that IBM, though a technology and consulting firm, has a keen interest in banking and finance. Richard Brown, executive architect of industry innovation for banking and financial markets at IBM UK, is particularly interested in bitcoin and said in the year’s most watched interview on Finextra:

“I believe cryptocurrencies — and bitcoin is the first example — are going to change the world. But probably not in the way we expect,” Brown said, adding that people “haven’t thought through” the important effects that some of the technologies underpinning cryptocurrencies will have in future years.

He noted that bitcoin is not completely fungible anyway given its public transaction ledger, and wonders if the technology is better suited to being primarily an asset register than a supposedly anonymous currency for daily use.

IBM logo image via Shutterstock