When Peter Todd tweeted his thoughts about BitGo and their patent claims, it set off and opened the door for an online debate about the role of patents in the cryptocurrency space and their impact on innovation. Cointelegraph spoke to Todd about the issue, along with the topics of centralized blockchains and Bitcoin core development funding.

My standard consulting contract says either side owes the other $25k if they apply for a patent on work done. #BitGoFuckYourself — Peter Todd (@petertoddbtc) May 1, 2015

Cointelegraph: Can you speak on your tweet and your concern about BitGo’s patent filing?

Peter Todd: It’s known that BitGo was using the term “patent pending” to promote their technology to potential clients and investors. It is known that they did apply for a patent on a particular way of using multi-sig. When the reddit discussion came up, they claimed that they were only going to use it for defensive purposes. However, one of the issues for the people in the community was that they never said this in advance, so not everyone’s trusts that those were the intentions all along.

“I and many other people in the space think the best thing to do is to simply cancel the patents and move on.”

The other key thing is the way they are setting up the patents for defensive purposes. It’s legally very weak. For instance, if BitGo goes bankrupt, it would be very easy for the patent to end up in the wrong hands and be used offensively against other companies. It’s very possible that the patent can be used to stifle innovation in Bitcoin and create an anti-competitive advantage to whichever company gets the patent.

There are better legal structures you can use but none of them exist for Bitcoin yet. I and many other people in the space think the best thing to do is to simply cancel the patents and move on.

CT: So they did it unannounced, behind the scenes?

PT: Yeah, that’s exactly what they did. The fact that they were going to apply for a patent was known as they were using it in their marketing material to promote their service and technology. But the actual patent itself only recently became public. And their plans for defensive versus offensive patents — in terms of using it to either protect yourself against someone else with patents or prevent someone from implementing your technology.

They didn’t make any of that public previously. So regardless of what they’re saying now, the fact is we don’t know what their intentions were. It could very well be that their intention was to apply for an offensive patent and prevent people from competing with them.

“[T]here is no real compelling evidence that we actually need software patents to incentivize the creation of new software.”

CT: Similar to a patent troll?

PT: Well, frequently that term is used for companies that don’t have a product. And BitGo certainly has a product. Having said that, there are many who disagree with the idea of software patents in general. Personally, I take the view that there is no real compelling evidence that we actually need software patents to incentivize the creation of new software. The barriers to entry are extremely low and we see lots of innovative software get created. So why should society allow someone a monopoly on an idea?

CT: Do you think innovation is hampered by patents?

PT: Yeah, absolutely. That’s a very commonly shared opinion. I’d personally go a little farther and say even hardware patents are frequently anti-competitive and don’t actually add value.

I myself used to be an electronics designer. It was so common that I would be researching patents to go look for ideas and I’d find stuff that I had invented. And if some young kid who didn’t even have a proper engineering degree can be coming up with ideas that show up in patents — it kind of says that you may not have necessarily needed the patents.

“MIT in general is looking to fund research, which I think we desperately need in Bitcoin.”

CT: What are your thoughts on MIT taking over funding of three Bitcoin Core developers?

PT: I’m not too worried about the funding sources myself. The amount of people working on Bitcoin core is quite a bit greater than Wladimir, Cory and Gavin. MIT asked me for my thoughts on who should they hire and why and, in summary, my main thing here is for Wladimir and Cory to keep the project going and maintain a basic structure to keep the development on track.

The key thing is you need people to coordinate. And as much as that is kind of a centralized thing, it does make the whole process go smoothly and I think Wladimir has done a real good job of that. He stayed politically neutral and let other people take part in those battles. MIT in general is looking to fund research, which I think we desperately need in Bitcoin.

Frankly, right now there is very little new functionality that we can add to Bitcoin core without new research with the elephant in the room being scalability. Right now we just don’t know how to scale a bitcoin.

“If people can’t verify the blockchain cheaply, if people can’t distribute the blockchain cheaply, the assumptions that Bitcoin rests on break.”

CT: What do you think about Gavin’s proposal to increase the block size limit to 20 MB?

PT: I think it’s quite premature. That’s a view held by many people.

CT: Is more research needed before doing something like that?

PT: Absolutely. You’ve got a fundamental tradeoff. With the current Bitcoin protocol architecture where if you want to scale it up, you decrease the security of the system by decreasing its decentralization. If people can’t verify the blockchain cheaply, if people can’t distribute the blockchain cheaply, the assumptions that Bitcoin rests on break. We need to find a better architecture. The way the reddit community seems to be taking this is they see it as a solution. They think this will solve the scalability problem.

Suppose we did get a 20 MB block size increase. It would be really easy for Bitcoin transaction demand to go up forty times or by a hundred times — Bitcoin is still incredibly small. We already know that Gavin’s 20 MB proposal is flawed; there are a few arithmetic mistakes. The actual number that kind of came out of his assumption was about 6 MB, if I remember correctly.

So if transaction demand goes up about a hundred times — which can easily happen — then we can’t just do another block increase. Six megabytes is the best you can do; twenty megabytes is already stretching it based on optimistic set of assumptions. You are not to going to get hundred-megabyte blocks, gigabyte blocks; not in a system that’s decentralized.

“[W]e can’t compete against these centralized systems if we’re also centralized ourselves.”

CT: That would be a pretty big download if you want to run a full node.

PT: Yea, people often forget that the only thing that truly makes Bitcoin different from other systems is that it is decentralized. It would be trivial for some corporations like PayPal to just copy the Bitcoin source code and replace proof-of-work mining with trust. You would get all of the same functionality, minus the fact that you are trusting someone in charge.

There are serious projects on the government level. I’ve seen the bids for contractors. I’ve been contacted myself to work on this stuff. It is certainly coming down the pipeline, so we have to continue to preserve what does make Bitcoin different, which is that it’s strongly decentralized. Because we can’t compete against these centralized systems if we’re also centralized ourselves.

Ultimately, we can’t predict the future and we have to do something better than to just put on a Band-Aid.

CT: What is your view on companies such as Eris Industries pitching the blockchain technology to centralized entities and big banks? Won’t their size prevent them from competing with the (much larger and distributed) global Bitcoin network?

PT: Well, the question isn’t size in systems like that. For a system like Eris, the security is as good as the person in charge [that] you trust. Now if you do a system where, say you got five different banks on five different continents, each signing blocks in a 3 of 5 system — that can be very secure. Until some government agency or the banks themselves decide to freeze your funds.

“[B]anks are very interested in putting themselves in a position where they can’t just necessarily change the rules of the system.”

Yet, the flip side of this, and this is something I’ve seen in my consulting practice, is banks are very interested in putting themselves in a position where they can’t just necessarily change the rules of the system. Suppose I’m a bank and you’re a bank. And we’re using a blockchain between the two of us to settle our accounts. We may actually want a system in which the process that guarantees consensus links back to the blockchain, precisely because Bitcoin is a neutral entity. It would still be a controlled system with the rules set up in advance, but you can use Bitcoin to ensure that rules are followed.

CT: So the Bitcoin blockchain is a clearing house, essentially?

PT: Yeah, absolutely. Even for them, having a politically neutral system — free from central regulation, source of truth if you will — a PoW blockchain can actually be quite useful.