nChain's $570 million investment reflects value of its IP, CSO says

Leading blockchain patent owner nChain recently announced that it has secured a $570 million investment from the Ayre Group as part of hybrid equity, credit and IP licensing deal. The agreement, which nChain claims is “the largest single investment in blockchain IP to date”, will see the Ayre Group obtain a controlling stake in the company founded by famous UK-based Bitcoin innovator, Dr Craig S Wright.

To find out more about the investment, as well as the IP strategy that made it possible, IAM spoke to nChain Licensing’s Chief Science Officer, Owen Vaughan. He characterised the deal as a reflection of the value and strength of nChain’s IP patent portfolio, but also of the company’s growing moves to commercialise its IP.

“It is fair [to say that most of nChain’s value as a business is in its IP],” Vaughan comments. “And the reason for that is that is the potential rapid scalability of the commercialisation options around the IP…I think we can see this recent investment as a recognition of that value.”

Founded less than a decade ago in 2015, nChain has already amassed 800 granted patents belonging to 500 patent families, and another 3,000 pending patent applications. “We have always had a very strong investment in patenting,” states Vaughan. “Every idea we have that will push the technology forward, we will file a patent. We have had a wide coverage for a very long time – since 2015. We have broad coverage of our ideas and if you Google ‘Top 10 blockchain patent filers’ you will see that nChain is usually in the top five or six. The other companies [in that list] are the Alibabas and IBMs of the world. We are the only dedicated blockchain company in that top ten,” he explains.

An in-depth analysis of the global blockchain patent landscape published by IAM in 2019 showed that nChain was one of only two non-Chinese companies – the other being IBM – ranked in the top ten worldwide for blockchain patent families. nChain was also ranked in the top 10 owners of US patent families related to blockchain. And its portfolio had the broadest geographic reach of any blockchain patent owner, with filings in 23 jurisdictions. Another IAM-published report from 2020 showed that nChain had the second highest number of blockchain patent applications globally.

Many of nChain’s patents derive from the inventions of Dr Wright. However, the company also has a dedicated in-house team of researchers, which is producing a large quantity of valuable new IP, explains Vaughan. “A typical output from my team, what we call a White Paper – a research paper of a quality you might see presented at a scientific conference– will become a patent application. We have over 500 of those. We have an extra 80 every year and we have 1,500 original ideas in the pipeline.”

nChain’s IP revolves around early and fundamental bitcoin innovations. “We have always had a very clear goal which is to get the most out of the original bitcoin on a fixed protocol – a bit like the internet protocol, which hasn’t changed since the 1980s – which is very interoperable,” explains Vaughan. “Whereas with Ethereum there will be some kind of update to their protocol every six months, which can be an issue for IP protection, we do research around the original bitcoin protocol which means the patents we filed in 2015 are just as relevant today as they were then,” he comments.

The company is not merely building up its IP portfolio, however. It is increasingly commercialising its inventions through licensing deals and collaborations as well as by translating its ideas into workable products and services, Vaughan explains. It is publishing some of its work in academic journals, he adds.

“We are also challenging ourselves now, not just to file patents, but to make our research accessible through publishing academic papers,” Vaughan comments. “We try to get into the highest impact, independent, double-blind peer-reviewed journals. This year we have had 10 acceptances so far.”

“We are also prototyping the best of our ideas, by which I mean taking it off the page and putting it into workable code,” he continues. “These things turn it from just a patent portfolio into an IP portfolio. It’s not just a patent: It’s an academic paper; it’s a working prototype – something that is easier to deploy in our own products or our partner’s products."

Among the partnerships that nChain has recently entered into is a collaboration with e-Livestock, an organisation using blockchain to help African farmers gain access to European markets more easily by tracking and tracing their cattle. “This helps them to prove that they have done everything they need to do, like getting vaccines, so that is a really positive social impact use case,” he states. “That epitomises what we want to use the blockchain for, which is data auditing,” Vaughan explains. “It is not about crypto currency trading or DeFi. We completely reject that. That’s not creating value for society.”

“I believe this [investment by Ayre Group] is firstly a reflection of the fact that, now we are starting to commercialise our IP with partners, people do not want to be left behind,” comments Vaughan.

In fact, the investment gives Ayre Group the right to grant access to nChain’s IP in certain circumstances. “This is an investment by an equity fund who are investing in other start-ups and companies and would like to offer those companies IP and know-how as well as cash,” Vaughan explains.

nChain wants to make its research as accessible and open as possible for a fair licence fee, Vaughan continues. One reflection of this approach is its involvement in IPwe’s Blockchain Smart Pool, which uses AI and a tiered pricing structure to offer licences to nChain’s portfolio. This had garnered 140 members by the time IAM interviewed IPwe CEO Erich Spangenberg in May last year, but Vaughan considers this project still to be in an early stage of maturation.

“We were very interested and willing to take part in that [pool], but with the understanding that it was a bit of an experiment,” Vaughan explains. “I do think that shows a certain position from nChain, which is that we want to go for a model where as many people as possible can get access to the licence…At the moment, I think that is still in the experimental phase.”

“We are not trying to create patents with the purpose of catching people out,” Vaughan concludes. “But we haven’t gone cheap on the patent attorney firms we use. We have gone to very established firms, and they make sure when they are crafting the protection, it is as broad as possible.