The flip side of the bitcoin


To address the threats posed by crypto-currencies, brands will need to once again invest resources in monitoring the abuse of their names and reputations online, say Bharat Dube and Genevieve Lakey of Strategic IP Information

In the past year, bitcoin has rocketed to stardom in the financial world. However, like many a Hollywood starlet bitcoin has, in its short history, had a very controversial career. Released in 2009 by an anonymous developer named Satoshi Nakamoto, bitcoin is a decentralised ‘crypto-currency’ (so called because of the use of cryptography to create digital money) used in peer-to-peer transactions. Its appeal lies in the anonymity it offers to users and because it can be moved anonymously between digital wallets using secret codes.

To bitcoin fans, the currency is a radical new way of moving money, while skeptics view it as a gigantic online Ponzi scheme that is very susceptible to fraud. Indeed, the news broke recently of a colossal theft at Mt. Gox, the most prominent bitcoin exchange, threatening the exchange with bankruptcy.

Bitcoin and intellectual property

The rise of bitcoin’s popularity is readily seen in social media with dedicated news streams on Twitter, Facebook and a surprising number of Instagram accounts. All domain names for bitcoin have been taken along with many of the common variations (such as bitcoins.com or bitcoincharts.com). Companies are increasingly buying ‘bitcoin’ as an AdWord on Google. These advertisements stretch from bitcoin exchanges to online betting and life insurance. The US in particular has an increasing number of AdWords redirecting to shops that accept bitcoins.

Bitcoin has also been adopted as something more than a virtual currency. Several services across the world have been set up using the ‘block chain’ (the public ledger on which all bitcoin transactions are recorded) to notarise or date stamp documents. This is done by creating two addresses from the hash fragments of the document. By sending a very small denomination of bitcoin between them, the transaction is confirmed in the block chain, creating a decentralised proof of the documents existence without revealing the content or author.

Additionally, trademark applications including the coined word ‘bitcoin’ have been filed rapidly worldwide. Canada, India and Germany are among the countries where ‘bitcoin’ has been registered as a word mark. As of yet, there have been no successful applications for marks comprising ‘bitcoin’ in the US, Australia or China.

A significant number of the ‘bitcoin’ trademarks registered successfully are held by Tibanne Co Ltd, a Japanese company. Tibanne operated the Mt Gox bitcoin exchange referred to above. The ability to enforce these trademarks, especially the plain text marks, remains questionable, given the widespread use of ‘bitcoin’ to describe a digital currency.

Dark dealings

With lowered transaction fees and freedom from possible political manipulation, bitcoin apparently offers a viable choice especially for international financial transactions. However, the increased level of anonymity offered has made bitcoin the currency of choice on the Deep Web and given it a certain level of notoriety.

The Deep Web (aka the Deepnet or Hidden Web) comprises World Wide Web content that is not part of the ‘surface web’ (ie, not indexed by standard search engines) or the web as the general user knows it. The Deep Web, which is accessible only via TOR (The Onion Router)—a free software that enables anonymity online—provides a marketplace for a plethora of prohibited goods, including drugs, hard pornography and even the hiring of assassins.

The most famous of such hidden sites was Silk Road, which described itself as “the Amazon of illicit activity” until it was shut down by the FBI in October last year.

A new version, Silk Road 2.0, was launched soon after. However, while the new site remains online, its bitcoins (valued at $2.7 million) were reported stolen in February. Many similar sites—such as Black Market Reloaded and Utopia—have also been closed in recent months, while others remain online and more appear to be in the works.

Ironically, the recent cooperation extended by credit card companies towards brand owners’ efforts to close down websites dealing in counterfeit goods (through such groups as the International Anti-Counterfeiting Coalition, and programmes such as the Payment Processor Portal) may have helped to drive counterfeit transactions to the Dark Net.

Bitcoins remain the currency of choice for online transactions involving counterfeit goods sold in the context of the Deep Web. For example, Foxy Lady, a seller on the now defunct Silk Road, sold fakes of brands such as Cartier and Bulgari exclusively via bitcoin.

A coin by any other name?

Not many have heard yet of namecoin. This is also a crypto-currency and is in fact built on the same code as that used for bitcoin. That model was directly applied to the domain name system by modifying the bitcoin protocol, resulting namecoin.

In particular, a new genesis block was created for namecoin, in order to ensure that namecoin and bitcoin did not interact or interfere with each other.

Because of their shared heritage, there will only ever by 21 million namecoins created, with 50 bitcoins generated for each solved block of crypto problems.

This is similar to the bitcoin creation process. bitcoins are created by volunteer ‘miners’—those who maintain the block chain—who are essentially rewarded with newly created bitcoins. Currently, doing the work of payment processing is rewarded with newly created bitcoins, 25 per block. To claim the reward, the miner includes in the block a special transaction called the “coinbase” that assigns the reward bitcoins to an address of the miner’s choosing.

The block reward will be halved to 12.5 bitcoins in 2017 and again approximately every four years thereafter. Current estimates are, by 2140, there will be 21 million bitcoins in existence.

While namecoin can be used as a currency, it is mainly intended to be used as a ‘decentralised’ domain name system. This means that TLDs can exist that are not actually owned by anyone, with the relevant domain name system look-up tables shared on a peer-to-peer system. Since volunteers run the customised domain name system server software for namecoin, short of seizing the physical servers authorities cannot impose rules to affect the operation of such peer-to-peer TLDs, thus adding another layer of complication for rights owners.

The namecoin domain name system is not overseen by the Internet Corporation for Assigned Names and Numbers and consequently none of the dispute resolution mechanisms normally available in a domain dispute apply in the context of namecoin.

The system presents a further opportunity to infringe upon IP rights without being held accountable, particularly in relation to the use of trademarks.

On a normal domain name system, if a domain name is found to infringe a trademark it can, of course, be removed pursuant to an order from a court or arbitration panel. In the context of the namecoin domain name system, however, the ability to prosecute for use of a trademark as a domain name is impractical as the absence of central control is a defining feature of the system.

Namecoins can be used to register .bit domains, the first and apparently only TLD of the so-called ‘Domain 2.0’ namespace, ie, the domain name application of namecoins.

Even though the namecoin system effectively makes you your own domain name registrar, there are some registration services that offer to handle the registration on your behalf with payments made in bitcoins. Examples include namecoin.com and dotbit.me.

The following names, among others, are listed as being available for sale at dotbit.me: bananarepublic.bit; barclayscenter.bit; visacard.bit (there is a huge number of variations of Amex, Visa and American Express); dr-pepper.bit; goldman sachs.bit; and americaneagle.bit.

According to the Bitcoin Contact website (www.namecoin.bitcoin-contact.org) 140,230 .bit domains were registered as of 1 March. The full list of names can be viewed at the Bitcoin Contact website, and includes such names as americanairlines.bit, canalplus.bit, g00gle.bit, and yahoo.bit.

In addition to bitcoins and namecoins, there are presently more than 60 other crypto-currencies, including ripple, litecoin, peercon and mastercoin.

In order to address the IP-relevant threats posed by such crypto-currencies, brands will need to once again invest resources in monitoring the abuse of their names and reputation online.

This is an evolving area, and through monitoring brand owners will be better able to address the new IP threats presented by crypto-currencies.
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