Blockstream: $21 Million Funding Will Drive Bitcoin Development

While VC firms have demonstrated an overwhelming interest in funding the wider bitcoin industry, its core developers have long argued that contributions to the advancement of its protocol have lagged dangerously behind.

To the team behind Blockstream, however, its $21m funding round announced yesterday represents the first concerted execution of capital toward correcting this imbalance.

The funding will be used principally by the company to realize its sidechains proposal on the bitcoin network, which would allow assets to be exchanged across multiple blockchains via a two-way pegging system. Blockstream contends this would allow developers new freedoms of experimentation and provide the network with a way to trial potential alterations.

Speaking to CoinDesk, CEO Austin Hill sought to frame the funding as an investment that is as revolutionary as those contributed to space transportation pioneer SpaceX and electronic car giant Tesla Motors.

He said:

In turn, both Hill and co-founder Adam Back asserted that the experienced tech veterans that took part in the round – including LinkedIn co-founder Reid Hoffman, Yahoo co-founder Jerry Yang and Google chairman Eric Schmidt – recognize that bitcoin's core technology requires massive funding to reach its full potential, and that Blockstream's investors share its long-term vision for bitcoin.

"We showed them our vision for how bitcoin and the blockchain could evolve, and they saw the same potential we did," Hill added. "They saw that it was going to be an entire revolution in computing, distributed trust, [and] security, and they bought into it and gave us their support."

Hill sought to portray the sizeable funding as one that would enable Blockstream to focus on long-term architecture decisions that would later support a whole ecosystem of potential business opportunities.

The serial entrepreneur and co-founder of privacy technology startup Zero-Knowledge Systems compared the launch of Blockstream to that of Google, arguing that, at the time of its launch, many market observers questioned the need for a search engine given that AltaVista and Yahoo had already been developed.

"Google focused on a technology problem of how do you actually make all the world’s information accessible at the click of a button and that was a hard engineering problem ... you’ve seen entire industries be changed because of that," Hill said.

Hill explained that Blockstream's technology problem is more largely about how how society manages all manner of financial instruments and documents to solve inefficiencies. He suggested that Blockstream will seek to pioneer some of these lines of business, while allowing the open-source bitcoin community to handle others.

"There are so many businesses that will be born out of this and many of these will be businesses that we don’t choose to be in, frankly," Hill said.

Above all, however, Hill contended that what is needed first, is for the technology to begin developing at a more rapid pace.

Although Blockstream has come under fire from community members who feel the company represents a turn toward centralizing key aspects of bitcoin's development process, Hill and Back indicated the company would demonstrate a commitment to open-source principles.

"The entire project was born out of the open-source community, so the idea that we would do anything that isn’t open source or isn’t decentralized or open permission-less innovation is anti-bitcoin," Hill said.

Hill drew comparisons to open-source software product giant Red Hat and e-commerce software solution Magento as companies that have fostered entire communities of businesses in the manner that Blockstream is seeking to achieve.

Blockstream, he suggested, is a continuation of past innovation in the bitcoin space and seeks to empower the elements that have already contributed to making bitcoin the global transaction system it is today.

Blockstream also sought to frame its organization as interoperable with the bitcoin core development team, noting that some of its developers such as Greg Maxwell, Pieter Wuille and Matt Corallo have been long-time contributors to the bitcoin network.

Because of these relationships, Blockstream said it believes it can operate as a company, even as core development lies outside of its direct influence. In part, Hill described Blockstream as a solution to this common developer dilemma, saying that sidechains will allow for experimentation on bitcoin, without large-scale changes.

"You’ve seen instances where people want to make changes to bitcoin or they want to make changes to bitcoin in certain ways," Hill said. "Bitcoin has to be cautious because it’s protecting $5bn in value and you don’t want to tinker with it ... It’s hard to justify making changes to something that is so mission critical."

Back put sidechains into more concrete terms, posing them as a solution to bitcoin's scalability and security issues, and suggesting that they will bring more off-blockchain activity back to bitcoin's main ledger.

"With sidechains you can move forward with a kind of beta version of bitcoin with real value in it and add some of those features so that the projects that need access to those features can start to use them, add validation to it. Eventually that implementation could become a major upgrade," Back added.

This new capability, he argues, will benefit both the technology as a whole and entreprenuers.

Of course, Blockstream must also entice strong developers to its platform, something that the company acknowledged is complicated by the increasing number of more advanced blockchain applications in the crypto 2.0 segment of the industry.

"There’s a lot of education that needs to occur, there’s a lot of communication, and we look forward to the coming months where we’re going to be publishing more details, more technical details, sample code on GitHub, and allow people to start experimenting with various parts of the technology stack," Hill said.

The CEO said that Blockstream will strive to illustrate how sidechains can be used to empower entrepreneurial development, and that for now, this means educating developers through workshops and co-development.

Back suggested that developers should keep in mind that competing systems will need to replicate bitcoin's network effect, something he said would be a challenge to any project seeking to replicate aspects of what bitcoin's technology can provide.

"Once something takes hold and gets going, it makes more sense to focus on and build around and on top of that, and we feel that sidechains are the best way to do that," he said.

As for what that means in the short term, Back and Hill were less clear. Back indicated that sidechains are up and running on an internal test network and that Blockstream is currently in talks with an undisclosed number of potential pilot customers.

Currently, Blockstream is selecting co-development partners who are provided with early access to some of the development. This allows them to collaborate on making sure that the use cases – and the technology that supports them – accomplish their goals, Hill said.

As for deliverables, he acknowledged that company has a responsibility to its investors to show progress, but he did not share any specific goals.

"Right now that progress is deploying and interacting with the community, showcasing how sidechains and bitcoin and this ecosystem can evolve," he said. "We have some strategic objectives that we think are important that are not being done about the ecosystem."

Blockstream, Hill added, hopes to publicize potential use cases of its technology, but this is likely to take some time. He went on to estimate that the sidechains project would likely be open to the general public during the first half of 2015.

Images via Blockstream; Shutterstock