CME Files Patent for Bitcoin Mining Derivatives

Rage Comment : As a derivatives giant, CME Group is good at discovering new product development opportunities. Now, CME has turned its attention to Bitcoin mining, which is at the center of the topic, and has developed a derivative tool and submitted a patent application. This derivative tool is designed to help miners deal with the risk of mining hardware depreciation, which is conducive to protecting the rights and interests of miners, thereby protecting the sustainable development of the Bitcoin blockchain.

Translation: Ina

Derivatives giant CME Group is patenting a method that would allow bitcoin miners to insulate themselves from operational risk.

The patent application, published by the U.S. Patent and Trademark Office last week, describes a proposed system that would receive data from the bitcoin network as a means of keeping contracts up to date — monitoring metrics such as network difficulty and price.

CME released a set of Bitcoin price indices last year.

The application is noteworthy because bitcoin mining (the process by which new transactions are added to the bitcoin blockchain) is a commodity production. Miners expend energy and manpower in exchange for newly minted bitcoins.

However, the increasing difficulty of mining activities means that costs for miners are rising.

With mining derivatives, “miners can lock in a projected growth rate for the difficulty factor,” the patent application reads.

The application explains:

“If the network hash rate grows faster than expected, mining revenues could fall, but the loss would be offset by the movement and settlement of futures or funds received through cash-settled call option contracts. On the other hand, if the difficulty factor grows slower than expected or falls, the contract would lose value or the call option premium would be void, but miners would make more money from mining than expected.”

According to the application, CME believes that Bitcoin mining derivatives are a way to cope with the depreciation of mining hardware.

CME went on to explain:

“…as the difficulty factor increases, mining computers may become less marketable, so taking a long position or extending the term of a call option on an existing contract allows miners to lock in the expected increase in the difficulty factor and protect against the risk of falling hardware prices.”

CME first applied for the patent on October 13, 2015. Its inventors are Mansoor Ahmed, Ryan Pierce and Sandra Ro.