Bitcoin ‘creator’ races to patent technology with gambling tycoon

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By Byron Kaye and Jeremy Wagstaff | SYDNEY/SINGAPORE

SYDNEY/SINGAPORE The man who last year made
global headlines by claiming to be Satoshi Nakamoto, the creator
of bitcoin, is working with a fugitive online gambling
entrepreneur to file scores of patents relating to the digital
currency and its underlying technology, blockchain.

Craig Wright, the Australian computer scientist who made the
Satoshi claim, has the backing of Calvin Ayre, a wealthy
Canadian entrepreneur, according to people close to Wright and
documents reviewed by Reuters. Ayre has been indicted in the
United States on charges of running online gambling operations
that are illegal in many U.S. states – an accusation he rejects.

Wright’s expertise combined with Ayre’s support make a
potentially formidable force in shaping the future of bitcoin
and blockchain, the ledger technology that underlies digital
currencies.

Wright and his associates have lodged more than 70 patent
applications in Britain and have plans to file many more,
according to documents and emails reviewed by Reuters and
sources with knowledge of Wright’s business. The patents range
from the storage of medical documents to WiFi security, and
reflect Wright’s deep knowledge of how bitcoin and blockchain
work.

Their total compares with 63 blockchain-related patents
filed globally last year and 27 so far this year by
multinationals from credit card companies to chipmakers,
according to Thomson Innovation.

Neither Wright nor Ayre would comment for this story on
their business relationship, details of which are revealed here
for the first time, or their goals. But their interest in
bitcoin and blockchain highlights two key trends.

First, an increasing number of entrepreneurs believe
blockchain, which can circumvent the need for big financial
intermediaries, will challenge traditional payment systems.
Various banks are investing large sums to explore how blockchain
could revolutionise payment systems and cut costs.

Bitcoin involves sending payments directly, securely and
potentially anonymously between two people’s digital wallets,
whereas all mainstream transactions, including those using
intermediaries like Paypal and credit card lenders, run through
banks and usually require named accounts and verification.

Second, blockchain has the potential to defy authorities
trying to enforce borders and national regulations – and it
already does so in areas such as online gambling. In internet
chatrooms some online gamblers say that using bitcoin enables
them to disguise their identity and transactions.

The confidentiality conveyed by the currency is one source
of its popularity. Bitcoin hit a record high this week, partly
because of speculation that the first bitcoin exchange-traded
fund is set to receive U.S. regulatory approval. After a sharp
rise this year, the cryptocurrency reached more than $1,200 per
bitcoin.

Ayre said last year that he saw a “growing convergence” of
bitcoin and online gambling, according to the website
CalvinAyre.com. Documents reviewed by Reuters show Wright’s
links to online gambling go back decades and that bitcoin grew
out of code originally developed with gambling in mind. Early
bitcoin code, seen by Reuters and analysed by a computer coding
consultant with no ties to Wright or any blockchain-related
project, contains unimplemented functions related to poker.

Wright’s vision for bitcoin, though, goes much further than
gambling, according to his research papers and interview
transcripts. It remains unclear whether he is Satoshi Nakamoto
or not, and even whether Satoshi is one person or a group of
people. But some of the documents, including two folders of
computer code for early versions of bitcoin, support Wright’s
claims that he was closely involved in the development of the
cryptocurrency before it became public in 2009.

Whatever Wright’s original role, he has suggested bitcoin
could have widespread applications. In a paper from November
2015, also reviewed by Reuters, he wrote: “The bitcoin
blockchain can be scaled up to replace all existing payment
system networks to become the world’s single global economic
infrastructure.”

The paper is unpublished, but it gives an insight into the
global scope of his plans for the technology. While it’s far
from clear the two will be successful in their patent
applications, bitcoin and patent experts say Wright’s project
represents the single largest filing of bitcoin-related
intellectual property they’ve seen. “It’s certainly bullish,”
said Justin Hill, a patents expert with law firm Olswang. “With
the ambition comes the risk.”

ANTIGUA CONNECTION

Reuters has previously reported that Wright was filing
patents through a company called EITC Holdings, which is based
in Antigua.

Ayre lives in Antigua, and EITC Holdings is headed by
associates of Ayre, according to one source close to Wright and
one with direct knowledge of his business, as well as corporate
documents reviewed by Reuters.

Australian Stefan Matthews, who began working for Ayre in
2011, was a director of EITC Holdings until at least late 2016.
It isn’t clear if he’s still associated with the company.
Canadian Robert MacGregor, another long-term Ayre associate, was
a director of EITC Holdings until mid-April 2016. The documents
do not disclose the shareholders of the company.

Matthews and MacGregor appear with Wright in a June 2015
photograph seen by Reuters. Neither man responded to requests
for comment. Sources familiar with the company said they had
gone to some lengths to avoid their roles in EITC being
discovered.

In September, Ayre posted on his Facebook page that Wright
was his “crazy/smart friend.” Photos on Ayre’s Facebook page
show him and Wright boating and swimming together in what Ayre
identifies as Indian Arm, a fjord near Vancouver, the previous
month. A spokesman for Ayre, Ed Pownall, said Ayre was living in
Antigua while trying to clear his name and was not doing “any
interviews at the moment, on legal advice.” Pownall added that
Ayre “wanted you to know the information about him is
incorrect.” He declined to specify what information he was
referring to.

The range of patent applications lodged by Wright and
colleagues is wide. Five, registered on Dec. 14, were made by
EITC Holdings with the bland description “computer-implemented
method and system,” public filings show. One, registered on Dec.
28, was described as “Determining a common secret for two
blockchain nodes for the secure exchange of information” –
apparently a way to use the blockchain to exchange encrypted
data. Other applications by Wright and his associates relate to
sports betting and a blockchain-based operating system for
simple electronic devices.

Emails from Wright to Ayre’s associate Matthews, reviewed by
Reuters, set out plans to file 150 patents. A person with direct
knowledge of Wright’s businesses said he and associates
ultimately aim to file closer to 400. None has been approved so
far and it’s not clear whether the patents would be enforceable
if granted, but Wright’s associates have been quoted as saying
the patents could be sold “for upwards of a billion dollars.”

They face stiff competition from other players who are
spending significant sums to explore blockchain’s potential.
About 70 banks (and Thomson Reuters) have joined a company
called R3, which is examining whether blockchain could cut costs
in the way financial markets execute transactions. A
spokesperson for R3 did not respond to requests for comment.

PwC, a consultancy, said more than $1.5 billion was invested
in blockchain companies in 2016.

Whoever wins this intellectual property race, the rush to
patent applications poses a threat to the original conception of
bitcoin as a technology available to all.

“What was started by Satoshi as an open source project is
going to be far from an open project by the time all the
commercial projects weigh in,” said Nigel Swycher, CEO of
London-based Aistemos, an IP analytics company. “People will try
to use patents as one of many ways to protect their interests.”

THE CODER

Details about Wright’s links to the online gambling industry
have emerged from previously unpublished information from the
Australian Tax Office (ATO), which is investigating Wright over
his claims for tax credits relating to bitcoin ventures. In 2014
Wright told the ATO that he had been producing software for
online casinos and other gambling businesses when he was writing
computer code that later helped to develop bitcoin.

A 2015 video, reviewed by Reuters, shows Wright being
interviewed by three ATO officials. Wright is clad in a
waistcoat and tie, fielding questions about his complex
businesses and claims for tax breaks. At one point he is quizzed
about his work for Bodog, the online gambling network set up by
Ayre. Wright clams up and says he cannot disclose any details
because of “contractual obligations.”

The ATO declined to comment on Wright, saying that its
investigation into him was continuing.

A person close to Wright told Reuters that Wright began
working for Bodog in 2010. Ayre had set up Bodog in the 1990s.
It expanded into entertainment and proved so lucrative that Ayre
featured in the 2006 “billionaires” issue of Forbes magazine.

Ayre chose to base his gambling business in Costa Rica. But
much of its revenue came from players in the United States,
where online gambling was and is illegal in many states. In
February 2012, the U.S. Attorney’s Office in Maryland indicted
Bodog, Ayre and four other people (Wright not among them) for
allegedly conducting an illegal gambling business between 2005
and 2012. They were also indicted for moving funds from overseas
to pay winnings to gamblers in the United States.

The Maryland attorney’s office said the case was “still
pending.”

MOVE TO BRITAIN

Wright’s involvement with bitcoin was initially lucrative.
He worked on computer code with an American cybersecurity
consultant named David Kleiman, and by 2011 the pair had amassed
1.1 million bitcoins, worth more than $1 billion at today’s
prices. Their activities were described by Wright in his
interviews with the ATO, of which Reuters has reviewed the
transcripts. Kleiman died in 2013.

Wright lost money when an online currency exchange ran into
difficulties, according to documents reviewed by Reuters. Wright
left Australia and relocated his business ventures to Britain.

In 2015, associates of Ayre began setting up companies which
are now involved with Wright and bitcoin and blockchain. In
September 2015, EITC Holdings, the Antiguan company that has
filed scores of patents, was incorporated, originally under the
name NCrypt Holdings.

That month, two companies – The Workshop Technologies and
The Workshop Ventures – were incorporated in Britain with Ayre’s
associate MacGregor as their sole director. According to the
person with direct knowledge of the patent filings, Wright now
works for The Workshop Technologies and MacGregor is his boss.
The Workshop Technologies did not respond to requests for
comment.

In May 2016, MacGregor presented Wright to the world as the
creator of bitcoin through a coordinated media campaign with the
BBC, the Economist and GQ magazine. However, when the cameras
rolled, Wright failed to convince experts he really was Satoshi
– and the bitcoin world dismissed him as a crank.

The publicity misfire led people with knowledge of Wright to
speculate at the time that he would stop making bitcoin and
blockchain patent applications. Wright did drop from public
view. But he continued to produce papers, handwritten notes and
voice recordings about patent applications, many of which have
been reviewed by Reuters, for colleagues at The Workshop
Technologies to convert into patents, according to the person
with direct knowledge of Wright’s businesses.

In September last year, a relaxed-looking Wright resumed
making visits to the company’s premises in central London,
according to the source, who saw him there several times.

In Antigua, meanwhile, Ayre began construction in October of
a $25 million call centre, saying it was part of his vision for
bitcoin and online gaming. Speech notes provided by Ayre’s
spokesman, Pownall, show that Ayre said at a launch event: “I
see a growing convergence of Bitcoin, online gaming, virtual
reality and gamification technologies, and progressive countries
like Antigua are poised to take advantage of this convergence by
developing a truly global services industry.”

According to an overview document and presentation slides
reviewed by Reuters, in 2015 Wright planned to propose to the
Antigua government that the island adopt bitcoin as its official
currency. It is unclear which government department Wright
approached, or indeed whether he made the proposal as planned.
Requests for comment from three ministries in the Antiguan
government produced no response.

“Bitcoin is not just a currency,” Wright wrote in his
proposal for Antigua to adopt bitcoin. “It’s a new backbone and
commercial foundation for the internet.”



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