Linked-In, Sun Microsystems Founders Lead Big Bet On Bitcoin
Source: Michael J. Casey
Billionaire entrepreneurs who helped lead LinkedIn Corp.LNKD -0.03%, Sun Microsystems Inc., Google Inc.GOOGL -0.08% and Yahoo Inc.YHOO -0.69% are among a group of investors who’ve contributed $21 million to an unorthodox bitcoin project that has no clear plan for turning a profit. Their bet: that the project’s A-list of cryptography experts and bitcoin coders will unleash a new wave of Internet disruption that decentralizes the entire economy.
The company, known as Blockstream, aims to enhance bitcoin’s “blockchain” ― the distributed, public ledger that is the defining technological feature ― and turn it into a universal platform for multiple new applications that go far beyond the digital-currency payments for which bitcoin is best known. The co-founders hope to turbo-charge the development of so-called Bitcoin 2.0 applications, which will allow people to engage in “trustless” transactions without having to pay fees to middlemen such as trustees, registrars and escrow managers.
The decentralized blockchain is “extremely difficult to corrupt” and so has the potential to be “an efficient platform for trading pretty much anything of value,” said Reid Hoffman, a co-founder of LinkedIn who was one of three lead investors in the funding round. Blockstream, he said, is “developing the bitcoin ecosystem” to facilitate these prospects.
The other two leads were Sun Microsystems founder Vinod Khosla’s Khosla Ventures and Canadian firm Real Ventures. Other contributors among the list of nearly 40 in total included Google Chairman Eric Schmidt’s Innovation Endeavors and Yahoo founder Jerry Yang’s AME Ventures.
Blockstream has no clear roadmap on how it will turn an open-source software engineering project into a corporate money-maker. Instead, investors took a leap of faith, mostly based on the reputations of the company’s co-founders, who Tally Capital partner and co-contributor Matthew Roszak described as the “highest caliber of human capital in the blockchain planet.”
Blockstream came from the initiative of Adam Back, a Malta-based British cryptographer whose “hashcash” and “proof of work” inventions were critical to the currency mining and transaction confirmation system developed by the mysterious inventor of bitcoin, Satoshi Nakamoto. “Adam is second only to Satoshi in bitcoin,” said Mr. Hoffman.
Late last year, Mr. Back flew to Montreal to recruit Austin Hill, a 1990s pioneer of encryption-based privacy-enhancing services, to his cause. The pair had first met as members of the early-Internet Cypherpunk movement, a loose-knit community of cryptography enthusiasts and pro-privacy activists that included Wikileaks founder Julian Assange.
Messrs. Hill and Back then appealed to Belgian Pieter Wuille and American Gregory Maxwell, two members of the five-person team of software developers assigned to maintain and update bitcoin’s core software code, as well as to Matt Corallo, one of the biggest contributors to core bitcoin development projects, and others.
The money will go toward implementing these developers’ primary project: Sidechains, which aim to bypass bitcoin’s rigid organizational structure by creating parallel blockchains in which innovators can safely develop new Bitcoin 2.0 applications without jeopardizing bitcoin’s core computer code and putting billions of dollars’ worth of digital currency at risk.
Bitcoin 2.0 ideas include: “smart contracts” whose obligations aren’t managed by lawyers but are executed by a software program; stock trading that requires no brokers; and decentralized registries for transferring homes, cars and other assets without agents, notaries or registrars. But there are many other possibilities, developers say. “We are just millimeters into a marathon in terms of developing the software that can use the blockchain,” Mr. Hill said.
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For Mr. Khosla, smartphone apps offer the best analogy for the open-source blockchain platform’s unimaginable prospects. “When Apple AAPL +1.18% first announced the iPhone, nobody imagined there’d be a million apps and that the slogan would be ‘there’s an app for that,’” he said. The payoff for his investment in Blockstream will come later when it allows him to conduct privileged due diligence on many of these future money-earning applications, he said.
Still, the indeterminate nature of Blockstream’s business model made it a complicated investment for many venture capitalists, who typically must justify returns to their investors. The manager of one fund said he turned down the pitch because he couldn’t invest in such a vague plan. Mr. Hoffman said he invested via his personal not-for-profit foundation, not his Greylock Partners firm, because he felt strongly that Blockstream’s first funding round “had to be invested in the development of the bitcoin ecosystem and not have, as its primary focus, economic returns.”
While leading commentators from the bitcoin community have mostly praised Blockstream, some commentators have worried that a private company with such intellectual clout could have undue influence in a bitcoin network that’s supposed to be community-owned and decentralized.
Mr. Hill said that’s why it was paramount that Blockstream was set up in a transparent way, as “a public utility, and not a way to hijack bitcoin.”
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