Centralized Blockchain Trademarks

By December 9, 2021 TM VLOG

The invention of blockchain distributed ledger technology has sparked a technological boom that has unceremoniously thrust the legal system square into the middle of a new and rapidly evolving digital landscape. One field at the forefront of these massive changes is intellectual property, where the legal community is grappling with the unenviable task of outlining whether the names and logos associated with blockchain technologies, and the ever-growing network of cryptocurrencies that can be built off of such programs, serve source-identifying functions such that they are eligible for trademark protection. The United States Patent and Trademark Office (USPTO) has boiled this determination down to assessing (1) whether the proposed mark is associated with an actual good or service, and (2) whether the name or design functions to identify its source.

While the debate over whether blockchains and associated cryptocurrencies indeed qualify as protected goods and services rages onward, another battle over a proposed mark’s ability to show source has also presented a rather complex dilemma. Blockchains are digitally distributed ledgers which share bits of information among multiple computers. The pool of data creates “blocks” of information, which are cryptographically secured and authenticated before a new block of information can be added to the “chain”. The network of computers maintains a secured digital record of each transaction, and the computational work for validating such a transaction (often called “mining”) is then automatically compensated with newly-created currency. It is important to note that while different “types” of blockchain designs are now emerging, these core components will generally remain the same.

With that being said, at some point, all budding blockchain companies will have to ask themselves whether the intention is to build a network that is centralized or decentralized, which beyond security considerations, also has prominent implications when attempting to establish “source” for trademark purposes. The designation of “centralized” vs. “decentralized” has nothing to do with the distributed nature of any blockchain, as any such system will always involve some level of distributed ledger technology, but instead comes down to defining which parties have the ability to participate in mining functions and the rights of those who can transact. In the case of decentralized currencies like Bitcoin, anyone can transact on the ledger (provided that they provide “proof of work”), and thus the computational work can be completed by anyone the computing power to do so. Conversely, centralized networks only permit known and approved parties (usually owned by or associated with a specific company) to transact on the ledger, and because the parties are identified, the transactions can also be audited. In highly regulated industries, like finance, many prefer the security of knowing what entities are conducting transactions so that if anything deemed invalid does indeed occur, then the parties responsible can be identified. Centralized networks prioritize the ability to identify any attempts to corrupt the system through detailed inspections over the open anonymity native to decentralized chains.

Most cryptocurrency exchanges have embraced centralized blockchain networks, where companies operate as third parties to process the transactions between buyer and seller. In this instance in particular, companies are inuring themselves to the benefit of more reliability over more security. While this decision should not be made lightly, as there are horror stories like Mt. Gox, a centralized blockchain company which was hacked in 2014 in an attack that led to over $460 million in customer funds being stolen, it does tend to make the process of determining source for intellectual property purposes much simpler. Trusted centralized exchanges like Coinbase, Binance, and Kraken have all successfully registered trademarks in their associated companies’ respective names. In this sense, guidance from the USPTO tends to suggest that the more blockchain networks function in a standard way (i.e. as close to traditional banking as possible), then the clearer the path towards registration.

Given the complex considerations that must be made when determining the optimal way to structure and protect a blockchain company, it is important to speak with a dedicated trademark attorney to help find a strategy that works for your business. At McCoy Russell LLP, our trademark and branding team have the technical knowledge and experience that it takes to assist in traversing through these new and exciting times in law and technology. And on the patent side, McCoy Russell attorneys are highly skilled in protecting the underlying technological innovations.