Blockchain Patent Filed By CME Group

Blockchain | February 13, 2018 By:

CME Group, one of the world’s largest derivatives marketplaces, is developing a system that would allow for modifications of a blockchain protocol without a consensus from all participants of the network.

In a patent filing, published last Thursday by the US Patent and Trademark Office (USPTO), CME Group cited the example of airline frequent flyer programs as a potential spot where the new blockchain system can be utilized.

The application explains: “The users of frequent flyer miles acknowledge that the airline administering the frequent flyer program has the right to change the terms and conditions of the program at any point in time. This presents a number of obstacles to using an open, public blockchain like bitcoin to exchange frequent flyer miles as a digital asset. The airline administering the frequent flyer program is not concerned with reaching consensus regarding the rules that govern the blockchain protocol.”

CME said if the airline uses an open blockchain protocol like bitcoin, where anyone may act as a node or miner, the increase in transaction fees would have to be approved by the blockchain users. The rule change would require virtually every node and miner to update their software before the rule change could take effect. Otherwise, a fork may occur.

CME added that it is infeasible to make such a change if the majority of miners and nodes are outside the direct control of the airline, seeing as the miners must update their software to allow the airline to implement its fee increase. A majority of miners may not wish to make the change to transaction fees as requested by the airline. This creates a significant obstacle to implementing this change in a timely manner.

In another example, the filing states that an airline may want to implement an identity management system to facilitate anti money laundering/know your customer. Only parties vetted by the airline or other parties (such as banks, travel agencies, etc.) may be allowed to create wallets that may hold airline miles. Certain parties may hold digital certificates that the airline designates as signers, who are authorized to sign certificates that entitle users’ wallets to hold airline miles.

In cases where a user is found to be exchanging airline miles for criminal purposes, that user’s certificate may be revoked. The airline needs a method to distribute an authorization list of valid signers of wallets and changes to that list, as well as a certificate revocation list identifying all revoked user certificates. In order for the authorization list to function, all miners must have consensus concerning these lists so that the miners only accept valid transactions.

CME said that by using the blockchain itself to synchronize rule changes affecting it, the disclosed embodiments eliminate the need for miners and nodes to download new software that enforces new rules, which may delay implementation of said rules substantially. It also eliminates the possibility of race conditions caused by different miners and nodes querying external web sites or other sources outside of the blockchain to determine the rules, or to undergo complex and slow voting processes as with bitcoin.

CME Group is one of the more established financial players that has embraced blockchain technology. The company’s past patent filings suggest how it might look to use blockchain to store and manage transaction data in connection with trading venues.

In December 2017, CME Group implemented a blockchain-inspired platform to cut costs associated with back-office operations while simultaneously accelerating funding timeframes on margins.