On October 15, 2015, The United States Patent and Trademark Office (USPTO) published 21 Inc.’s (21) patent application 20150294308 for “Digital Mining Circuitry.” Matthew Pauker, then CEO (now Chairman) alongside his co-founders are listed as the inventors. The application reveals how mining circuitry in various devices can be used to profit share or share in bitcoin (or other cryptocurrency) rewards with a number of participants in the scheme.
Earlier this year, 21, a company whose name is homage to the maximum number of bitcoins to be mined (21 million), announced that it raised a record US$116 million in venture funding. 21 effectively became the best funded Bitcoin company. More recently 21 announced the “world’s first Bitcoin computer” with native hardware and software support for the Bitcoin protocol. The bitcoin computer will be released on November 16, 2015 and is available for pre-order on Amazon.
The Naysayers
The announcement didn’t come without its detractors. Chris DeRose, community director of the Counter Party Foundation tweeted a message to CEO of 21, Balaji S. Srinivasan that “I'm a fan of yours, and certainly of Bitcoin. But ... this product isn't going to work. I strongly suggest you consider pivoting.” A former engineer of Qualcomm also told popular Bitcoin podcast Epicenter Bitcoin (as reported by CoinGecko) that 21’s bitcoin mining plans make no sense.
Qualcomm, who makes a fair share of it profits from licensing patents was one 21’s investors through its venture capital arm Qualcomm Ventures.
The engineer flummoxed by 21’s mining plans wasn’t privy to 21’s patent application nor has an appreciation of its former employer’s business model. A cursory review of Qualcomm’s annual report shows that it makes about 30% of its revenue through QTL or “Qualcomm Technology Licensing.”
Qualcomm
Qualcomm is the leading patent holder for 3G and 4G and “license streams from the patents on these inventions, and related products are a major component of Qualcomm's business” according to Wikipedia.
Unlike Coinbase, which responded to Cointelegraph’s news breaking story Bank of America’s and Coinbase’s Bitcoin Patents Revealed that it was applying for patents for defensive reasons, it seems likely that 21 will proactively enforce its intellectual capital and create a technology licensing program similar to Qualcomm, perhaps even leveraging the relationships Qualcomm has with existing licensees, which includes every major mobile device manufacturer.
The Reveal
Balaji S. Srinivasan CEO of 21 in a Medium post earlier this year entitled “A bitcoin miner in every device and in every hand”, revealed BitShare, an embeddable mining chip. It also explained can be used to pay “channel partners”:
“At the manufacturer’s discretion, the 21 BitShare chip can be configured to support a variety of different revenue shares for the mined bitcoin. For example, one could build an internet-connected device that shared some portion of mined bitcoin between the user, the retailer, the handset maker, and the carrier — thereby reducing costs and/or increasing margins throughout the entire supply chain. And because of the nature of mining as an embarrassingly parallel problem, embedded mining can scale up or down to fit within the power and thermal envelope of virtually any device.”
In a world of contract free and “pay as you go” data services, it is increasingly difficult for telecom providers to retain customers. Early termination fees are assessed on subscribers breaking their contracts and jumping from one service to another. Carriers are forced to subsidize phones to compete for customers. While providers such as Verizon seem to be breaking out of this paradigm, the long term contract/customer model seems to be in peril.
Free voice calls are now possible through Google Voice and Google hangouts to and from a standard phone number. Disruptors such as Republic Wireless have been putting heat on the industry. In June, zany T-mobile announced ‘JUMP! On Demand’ and declared “revolutionary Un-carrier moves” enabling “one low monthly phone payment [that] covers the cost of a new smartphone and gives you the freedom to swap it for a new one absolutely anytime you like … at no extra cost.”
Last year a hardware teardown showed Apple’s iPhone 6 costs at least US$200 to build that doesn’t include the price to retailers, which includes service providers bundling and subsidizing the phone through contracts with subscribers.
The industry is looking increasing schizophrenic with carriers claiming to “add value” with new plans while simultaneously taking away the value of a subsidy.
What it comes down to is how can you extract the most value out of a customer and retain them?
21 seems to be able to offer both manufacturers of cell phones (and other devices) and service providers (those who provide data and connectivity) a new “stickiness” paradigm. The customer is effectively locked into a mining scheme that is earning “channel partners” (i.e. device manufacturer and/or service provider) cryptocurrency … even if the subscriber switches carriers!
The Application
The patent application explains how a cellphone or virtually any other type of device can be used:
“Electronic device may be a desktop computer, a server in a rack-based system, a portable electronic device such as a tablet computer, laptop computer, or a cellular telephone.”
And provides information on how profit sharing can arranged:
“[…] [A] transaction may be divided between multiple destination wallets. During mining operations performed by profit-sharing mining circuitry, the profit-sharing circuitry assigns a portion of the new currency to one or more predetermined wallets that have been assigned to the profit-sharing mining circuitry (e.g., hardcoded in the dedicated circuitry). For example, a percentage of the new currency such as 50% (or any desired percentage) may be assigned to the predetermined wallets. The predetermined wallets may sometimes be referred to herein as profit-sharing wallets or reward-sharing wallets. The remainder of the new currency may be assigned to one or more user wallets such as wallets of the miners that are operating the profit-sharing mining circuitry […].
[…] One or more profit-sharing wallets may be hardcoded into the dedicated profit-sharing mining circuitry during design and fabrication of the mining circuitry […].”
This technology will be hardcoded into the device apparently making it hard to jailbreak or opt out of mining for crypto:
“[…] profit-sharing wallets may be hardcoded into dedicated profit-sharing mining circuitry include mask programming, selectively shorting pins of the integrated circuit chip (chip-level hardcoding) or solder bumps of an integrated circuit package (package-level hardcoding) to a positive power supply or a power supply ground, permanently programming fuses or anti-fuses, or storing in non-volatile memory. If desired, hardcoding of profit-sharing wallets may be provided at a board level such as configuring jumpers on a motherboard to which the dedicated profit-sharing mining circuitry is mounted […].”
21 will also create mining pools, which will be particularly useful for relatively low profile devices such as cell phones. Collectively they will create quite the punch:
“[…] electronic devices with mining circuitry may be grouped to form a pool of devices. Devices may be pooled, for example, to help increase the likelihood that the pool as a whole will be the first to discover a valid solution and add to the public ledger [...].”
Whether or not the telecom industry will get on board (pun not intended) to a 21 future remains to be seen. But reading through the patent reveals a number of potential applications for various device manufacturers. While 21 may have some skeptics I think there is a bright future in 21’s bitcoin profit sharing technology.
[Note: Patent application quotation from this article included numerical references. They have been removed for reader clarity.]