If you've been waiting for the greatest thing since sliced bread to come along, cryptocurrencies might be it. Over a 53-week span from the beginning of 2017 through the first week of January 2018, the combined market cap of all cryptocurrencies surged by more than 4,500% to as much as $835 billion. At no point in history have investors seen a single asset class increase in value by more than 4,500% in roughly a year's time.
There are, admittedly, a host of catalysts that have fueled the rally in cryptocurrencies. Investor emotions, a falling U.S. dollar, and news-driven events -- such as Japan accepting bitcoin as a legal form of tender beginning June 1, 2017 -- are all reasons behind the surge in cryptocurrencies. But if there were a single catalyst that rose above them all, it would have to be the emergence of blockchain technology.
Blockchain offers game-changing potential
Blockchain, in its simplest form, is the digital and decentralized ledger that underpins virtual currencies and is responsible for logging all transactions. Its invention and evolution were predicated on the belief that the current banking system is inefficient and needs to be overhauled. Though blockchain offers numerous advantages, it intends to "fix" the financial services industry in three critical ways.
First, as noted, it brings decentralization to the table. Rather than having all transactions stored in a data center, blocks of data that make up the chain are stored on servers and hard drives all over the globe. This ensures that no single entity can ever gain control over a cryptocurrency, and it keeps cybercriminals from being able to cripple a virtual currency by gaining access to data.
Second, blockchain eliminates the need to process transactions with the involvement of a third party, which is most often a bank. Financial institutions love playing the third party since it means they get a fee for every transaction. Since blockchain transactions skirt the need for a third party, transaction fees are expected to be lower.
Third, and perhaps most importantly, it drastically speeds up transaction verification and settlement times. With today's banking system, it's not uncommon for cross-border payments to be held for three to five days before they're validated and settled. Given that blockchain transactions are being proofed 24 hours a day, seven days a week, verification and settlement can occur in a matter of seconds, depending on the network.
It's also worth pointing out that while the financial services industry would benefit most from the implementation of blockchain, it's far from the only industry or sector that will. Technology, energy, and consumer goods companies are all looking at how blockchain could better help them manage networks or their supply chains.
Blockchain patents could soon become a gold mine for businesses
While the cryptocurrencies and companies developing and marketing blockchain for enterprises have a means to financially benefit, the intellectual property (IP) underlying blockchain technology could prove even more valuable over the long haul. We only need to look at Qualcomm, which has made tens of billions of dollars over its existence as a result of its wireless technologies (LTE, CDMA, UMTS, and GSM) patent portfolio, as evidence that patents can be worth a fortune.
So, which companies currently hold the most blockchain patents? For that answer we turn to a recently released analysis from Envision IP, a New York-based law firm specializing in intellectual property. According to its analysis, 1,045 patents or applications related to blockchain had been filed in the U.S. by 478 owners. A majority of these were filed by "blockchain-specific companies" or cryptocurrency start-ups, according to Maulin Shah, managing attorney at Envision IP. However, there are a handful of companies that stood out as owning more blockchain patents than others.
For example, Fidelity Investments, Toronto-Dominion Bank, Accenture, Dell, and cryptocurrency exchange Coinbase all ranked in the top 10.
In a tie for second, with 27 blockchain patents each, were payment facilitator MasterCard and IBM (IBM 1.71%). IBM probably comes as no surprise, as it's a tech company that's been on the leading edge of blockchain development. In fact, it announced this past week that it and global shipping company Maersk would be forming an as-of-yet unnamed joint venture spinoff company devoted to shipping-based blockchain solutions and supply chain management.
You'll never guess which company holds the most blockchain patents
However, sitting at the top of the pack, well ahead of every other company is...Bank of America (BAC -0.49%). Who saw that coming, right?
According to Envision IP, Bank of America has 43 blockchain patents or applications, although Mark Pipitone, a Bank of America spokesperson, said in an email to Bloomberg that the company had 48 blockchain-related patents and applications. Why the difference? The Envision IP study only included patents and applications that were made public, which often occurs about 18 months after they're filed. This means that other major tech players like Google (a subsidiary of Alphabet) or Microsoft -- companies that you'd expect to be leading the charge in game-changing technological development -- may in fact be ramping up their blockchain IP, but it hasn't shown up in Envision IP's analysis as of yet.
What's interesting about Bank of America leading the pack on blockchain IP is that it has been very much against allowing its clients to invest in cryptocurrencies. It hasn't opened the door to bitcoin futures trading for clients like a number of other investment firms have and has closed off other avenues in equity markets that would have given its clients exposure to bitcoin or other cryptocurrencies.
Yet, these roughly four dozen patents and applications related to blockchain could be worth a fortune. If blockchain can be scaled to handle the same number of transactions the current payment networks process, and their processing speeds don't slow, widespread adoption is a possibility.
Remember to be realistic
Still, it's important for investors in these blockchain patent-holding stocks to keep two things in mind.
For starters, there are no guarantees that blockchain will be widely adopted by businesses anytime soon. We have to face the fact that blockchain has been around for about a decade, and it has taken that long to really begin to see widespread demos and small-scale tests. Even if companies like what they see, the technology itself is unproven on a large scale, and it would require, at least in some industries, a complete retooling of either payment or supply-chain networks. I believe the mainstream adoption of blockchain is still many years out, making these blockchain patents and applications more of a long-term story.
Also, there are few if any guarantees that today's big blockchain players will remain the preferred choice of enterprises. The barrier to entry in developing blockchain technology is very low, meaning any company or team of developers could come out of the woodwork with a superior product at any time. That provides very little solace to today's leading blockchain developers and IP holders.
While I'm happy as a shareholder to see Bank of America building its blockchain patent and application portfolio, I wouldn't consider placing any nominal value on this IP as of yet. Give this technology a few more years to evolve, and then we can talk.