CME Patent Sees Derivatives Opportunity in Bitcoin Mining

CME, exchange

Derivatives giant CME Group is looking to patent a way for bitcoin miners to hedge against operational risks.

As detailed in a patent application published last week by the US Patent and Trademark Office, the proposed system would receive data from the bitcoin network as a means of keeping contracts up to date – monitoring metrics like network difficulty and price.

CME previously launched a pair of bitcoin price indexes last year.

The filing is notable as bitcoin mining, the process by which new transactions are added to the bitcoin blockchain, is a kind of commodities production. Miners expend energy and manpower in exchange for newly minted bitcoins.

Yet, the ever-rising difficulty of mining can mean ever-encroaching costs for for miners.

With the mining derivative, “a miner can lock in a projected growth rate of the difficulty factor”, the patent filing reads.

The application goes on to explain:

“If the network hash rate grows faster than anticipated, the income from mining may fall, but the variation and settlement of the futures or the funds received by exercising a cash-settled call option contract would cover the loss. On the other hand, if the difficulty factor grows more

Read more ... source: CoinDesk

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