Blog > Bitcoin & Blockchain Tech

Patent wars…

By Craig Wright | 13 Apr 2019 | Bitcoin & Blockchain Tech

Blockstream raised USD60 million on the promise of 2 patents. The patents are:

And the existence of others demonstrating that Mr Back can complete a patent and have it granted.

The first two are filed by Blockstream, the third is a Microsoft patent that had been granted before Mr Back had any involvement with Bitcoin and which is not related to blockchain at all. It just shows that he could follow through on something of such form. Mr Back also has other patents that have nothing to do with Bitcoin, such as “Multi-site data redundancy.” So, he has demonstrated that he can write a patent as a part of a team.

Neither have been granted; both remain pending.

So, as those dedicated to bringing a world of anarchy, drugs, and illicit material fight to defame me, I work faster, more thoroughly, and far more effectively individually than all of them combined, and that’s before I add my team which makes me more efficient and far more effective.

Transferring ledger assets between blockchains via pegged sidechains

First of all, it calls for an SPV proof. SPV or simplified payment verification is defined in section 8 of the Bitcoin white paper. It involves a Bayesian query system. As the Bitcoin whitepaper explains, a user simply needs to keep a copy of the block headers of the longest proof-of-work chain and then verify the Merkle branch.

You will be told over and over that it doesn’t work. The claim is that SPV doesn’t enable simple and secure access to Bitcoin for users. The truth of the matter, though, comes down to the patents. Like all the other things they are doing in attacking Bitcoin, they are seeking to make something that does the opposite of what Bitcoin does. They are seeking to “rectify” the ability to trace monetary transactions that is part of the foundation of Bitcoin.

The patent here is about sidechains. Like Lightning and the failed attempts before it, it is all about losing information. When we’re talking about money, the way it works in the current financial system, all transactions are recorded. Not just for the period of the transaction but for years or decades. Doing so is ideal when we’re talking about normal commercial transactions. Bitcoin allows privacy, but it doesn’t allow anonymity.

And here lies the rub: With a sidechain, they seek a system that can be secured using Bitcoin but yet allows the loss of the transaction record. When you’re buying a coffee, a refrigerator, a car, or anything in the normal commercial world, records are important. But when we compare it to the illicit market, we see that Bitcoin doesn’t work very well as it can be traced. In other words, Bitcoin allows honest transactions but at the same time increases the ability of law enforcement to trace illicit transactions such as those that exist in drug markets.

A sidechain is effectively a completely new blockchain that runs in parallel to Bitcoin but which may be deleted periodically. For instance, the concept would allow a blockchain that updates every month. At the end of each month the account status is recorded, and then the original sidechain is deleted. The concept allows for accounts without a history. It is effectively opening up the ability to launder money and engage in illicit activity.

Doing so in effect is the only use case. It is also one that cannot exist in law. The fact that it is an anathema and breaches existing law means little to them. The argument will be that it increases the ability to scale. Yet the truth is that records must still be kept. In a system with 1 million transactions occurring using a sidechain, we have just as much data being created as in a system that is a single blockchain. There is no saving in having many blockchains running as sidechains unless you incorporate record destruction.

And such is the gain.

In Bitcoin, all the records need to be maintained. In a sidechain, you can periodically delete records. The overhead of a sidechain actually reduces the scaling capability of Bitcoin, unless you consider each system able to be pruned with the records being deleted. If we imagine the use cases, we start seeing that it has no use in anything legitimate.

Share transfers need to be maintained. Consequently, tokenised shares and other securities or derivatives would not be able to run on such a system. Tax receipts need to be maintained, Bitcoin allows doing so in a simple manner, yet you don’t want and cannot use a tax receipt for an illicit purchase or sale as would be conducted over a drug market.

Blockstream and its personnel and some of the trolls they fund will tell you that Bitcoin was designed to allow drug markets and illicit use. It is not. I created Bitcoin following my time in an audit firm. It helps create an honest marketplace. It reduces corporate fraud, tax fraud, and general account fraud. It was created to make an honest system.

My claim in R&D in Australia would have, if the government had not attacked Bitcoin and had the patents I had been filing remained in Australia, been taxed there. Such was the purpose of the R&D tax credit. Blockstream and the trolls that they help promote will tell you how nothing that I created has value. Yet nChain, the company I founded based on the research I had been conducting in Australia, has already got 16 patents that have been granted, 700 patents that have been published, and a total at present of 1278 patent families in progress.

Such patents are more fundamental and deeper on a business level than anything created by Blockstream. Blockstream have managed to get multiple rounds of funding for a total of over USD101 million with a seed round alone of USD21 million. With such funding, they have not managed a single useful addition to Bitcoin. They have engaged in boondoggle projects such as Lightning and altered a system (BTC) that was originally based on Bitcoin but became an airdrop copy that I will refer to as SegWit coin.

I have no problems with the Australian government rejecting my USD36 million research and development claim. If they had not rejected it, all of the funds would have been left within Australian jurisdiction and the government would have the right to tax me on each individual airdrop derived from Bitcoin. You see, BTC has become a new creation. It is not a split in the sense of a share split, but rather a new system with an initial value grant. As such, it is taxable. So, being that there are multiple billions of US dollars value that have resulted as a consequence of my research, I am more than happy to have taken them away from Australia and now be located in the UK.

The irony in what they try to tell you about myself and my company is that they say what I’m doing is a scam. Yet, Blockstream with two patents and no ability to scale BTC’s airdrop raised US$100 million. My research and the team I have put together have resulted in a patent pipeline that will likely deliver over 10,000 patents. Not two, 10,000.

At the same time, my team is building our scaling platform. I started such work in Australia with a platform called iDaemon. It was a micro-services node designed to scale. Next year, the results of such research and the extensions done by the team that we have put together in the UK will result in the launch of what iDaemon became: Teranode.

I don’t think many people think through the costs of running a team of 50+ people. IT engineers and researchers with an average salary cost around £130,000 a year (including the ancillary costs and remembering that what you get as an engineer isn’t the cost to the employer). This comes to 6.5 to £7 million a year. With office space, computer systems, legal and accounting fees, and more, we end up with a cost in the order of £10-£12 million a year, before we take all the ancillary costs into account.

We have been running at such a level at nChain (including as its predecessor, DeMorgan group) since 2013. It comes to around AU$23 million each year in expenses. That is over a period of more than six years.

This is before the cost of mining systems, computer systems, networks, and more has been incorporated. All up, it’s an amount in excess of AU$140 million. So, remembering that the Australian research and development program delivers a tax offset, that is not even the full picture if it had been granted as money in hand. The Australian tax incentive program for R&D returns 43.5% of eligible expenditure for companies with less than AU$20 million aggregated annual turnover.

But then, why would we expect them to tell the truth about any of this. When you can put documents on the Internet and say that the creation was purely mine, yet you can create hearsay, why would you care about truth? Then again, the truth of the matter is we fired multiple staff members who were engaged in the theft of intellectual property.

We ended up taking an injunction out against such former members/employees of one of my companies. They had approached investors with a plan to raise between AU$10 and AU$20 million in seed capital. They seem to believe that any code they had created while working for me remained theirs. After we took an injunction on them, at least one of them leaked modified stolen information.

Others altered records.

Interestingly, the anarchists who seek to say that law doesn’t matter ignore whether things are hearsay. If you receive a document that is posted on the Internet from a random control that is claiming to have taken the document from a hacked server, you should treat it with a grain of salt.

One thing you need to understand: even in Australia, I didn’t do the accounts. You may not understand, but I ran a public company. We had engaged internal audit and accounting staff, Ernst & Young as risk advisers and internal auditors, KPMG as external auditors and accountants, three separate chartered accounting firms to file taxes. So if you’re asking me whether I filled out and signed forms based on material that I had been given from auditors, accountants, lawyers in three countries, and more without checking every value line by line, I will answer yes, as will every other company officer or director I’ve ever met who was not directly in charge of finance.

There’s a reason I had a CFO. There’s a reason we had an audit committee.

I know many people seem to think that many things go away with Bitcoin, but they don’t. Bitcoin does not remove audit staff. Bitcoin doesn’t remove the need to pay taxes, nor does it remove banks.

We can compare the numbers to capital raised by the Ethereum foundation. For a dead-end project that I could have explained the flaws of in aim and focus more than a decade ago, it raised in excess of USD200 million.

It’s strange, there are a few documents that float around the Internet that people seem to think are the entirety of everything we did. My firms have and had multiple project managers. Some of them were absolutely amazing. The risk register below was conducted as a weekly exercise, and was updated with all the exposures on the different projects. It was one of over 50 different risk registers that we maintained.

And projects such as iDaemon, which formed the foundation of what will become Teranode when it is launched formally next year, consisted of complex systems that were interconnected and which had high risk and a lot of design. Yet, few people understand the complexity that results from changing protocol. I would have been happy to sit there doing work in the background with nobody ever discovering who I was, that I created Bitcoin, before it launched and even later. The image below is from the project as it was in December 2013. It’s changed a lot since then.

In the four years from when I initially launched my creation, it took a lot of time and effort to get to the point where we could start even testing a future design that would scale and which would enable businesses to manage a distributed blockchain, Bitcoin.

Critically, the biggest issue stemmed from the constant changes. A protocol that was designed to be fixed and set in stone kept being modified by a bunch of fools seeking to create a system that was more friendly for drugs and illicit markets. If it wasn’t for such idiots, we would have been able to launch a scaled node years ago. A tremendous amount of time was wasted. But, we shall be launching a system that can scale into terabytes and eventually petabytes per 10-minute blocks. The system will be able to handle global commerce, not just cash, all commerce on a single system that is immutable and resistant to fraud.

BTC is not Bitcoin. It is a fraudulent airdrop designed to scam money out of the unwary.

  • The joke is… Bitcoin is “pseudo anonymous” rather than “anonymous;” hence, one’s illicit activities are recorded in the transaction chain for the entirety of time and for the whole world to reveal.
  • How else would law enforcement be able to celebrate the capture and shutting down of Silk Road and other illicit activities?

So, it is close to being funny to think that such people believe that they can stop what we’re doing by having altered documents, having had staff that had formerly worked for my companies breaking in and altering my records (and making my life more annoying), that doing so will in any way stop what we’re doing. The truth of the matter is that for every altered record that has been recorded and claimed to be something I had personally authored, there are around 3000 business documents. Documents that have been reviewed by lawyers, accountants, and auditors and which are associated to research that is leading to the largest portfolio in this sphere of influence globally.

But even so, what people neglect is how little my competition is doing other than base attacks. They believe they can stop me and my companies and my partner organisations (note this is not a partnership but refers to agreements under joint venture between other groups) in what we are creating.

Each week, in addition to my studies and other aspects of my job, in addition to the research I complete and file, I review reports on the status of different aspects of the company.

I care about the status of the scientific research we are conducting.

I put a lot of time and effort in doing so.

But no, other people do finance, and other people do HR. I admit such things are critically important and that the company can’t run without them, but at the same time, I’m smart enough to know that they are not my strength and that other people do them better. Each of such reports exceeds 50 pages, to go through all of it without being kept in endless rounds of meetings means that I have to focus on what I do and leave other aspects of the company to others. So, when you want to talk about documents that purportedly show how I have been manipulating records, you might want to note that I have no access to the financial systems of the companies I manage or have founded. I like it better that way.

But then, we are building a trusted financial system, it takes time. And yet, we are still doing it faster than the scared children that attacked my reputation or believe that doing so will stop me. They are too busy of course trying to create systems that lose financial records and create anonymity.

Cryptographically concealing amounts transacted on a ledger while preserving a network’s ability to verify the transaction

Here lies the other aspect of what Blockstream and associated parties sought to do.

They want to take the simplicity away from Bitcoin to create a system that is more similar to Monero. That is, one that hides the amounts spent makes it simpler to engage in illicit activity. As I keep saying, the only reason for doing so is the creation of an illegal system. There is no valid system here that will ever result. It creates an account-based version of a digital currency that would not meet the requirements of the MLD5 updates that are due to come to force in January 2020. That is, if they even managed to create it. The truth of the matter is that an anonymous system is incredibly simple to stop.

Many forms of anonymous digital cash have existed in the past. A mere banning of such an instrument makes it unable to be used, it leaves the system impotent. Such laws can cover all of it in restricting access to applications. Strict liability offences of mere possession utterly destroy the usefulness of any such system, and yet they still try.

I’m not going away — which is unfortunate for them.

We are here to create a global financial system. One that is more effective and more efficient than anything people can imagine and that needs to work within the existing legal framework if it is to succeed. The simple answer is that there are very few people in the industry who understand it enough to see what’s going on. Those who do will take sides. Those who want global financial freedom will understand that Bitcoin needs to work within the law. Those who seek an anonymous drug coin will continue on the path selected by BTC in its airdrop copy of Bitcoin. Unfortunately, or, if you hold my point of view, fortunately, such fools will see that they are going down a dead-end path and that code is not law and never will be.