Reid Hoffman’s Startup to Give Bitcoin Technological Shot in the Arm


Reid Hoffman

LinkedIn founder Reid Hoffman announced an unusual new investment late last month. He and other Silicon Valley luminaries, including Sun Microsystems founder Vinod Khosla, sunk $21 million into a company that may never have to make a profit to be successful,  MIT Technology Review said on December 22.

The technology at the heart of Bitcoin could have a much wider impact if it could be used for more than just financial transactions, the report said.

That company is called Blockstream. Hoffman and others backed it in an effort to give a technological shot in the arm to Bitcoin, a currency built upon software that uses cryptographic transactions to prevent counterfeiting without the need for any central authority, said the report.

Blockstream is working on technology that will use the code that underpins Bitcoin to secure other kinds of assets, such as contracts or ownership of stock. The company’s technology could also provide workarounds to shortcomings in the design of Bitcoin, according to the Review.

Bitcoin has come a long way since its obscure debut in 2009, and the 13.5 million bitcoins in circulation are worth $4.7 billion. But the currency has yet to become widely used, and Blockstream’s founders and investors say significant technical improvements are needed for that to happen.

Bitcoin startups have received hundreds of millions from investors in the past few years (see “Bitcoin Hits the Big Time”). But few resources have trickled down to support work on the core technology that makes Bitcoin work. Startups have focused on building products on top of Bitcoin, such as online payments services. It has fallen mostly to a band of unpaid coders to maintain the core technology that underpins how Bitcoin operates (see “The Man Who Really Built Bitcoin”), according to the report.

That community has been unable to work on improvements to Bitcoin’s design, says Adam Back, a cryptographer and cofounder of Blockstream. “Core development has been quite conservative and focused on security and stability, ” he says.

Blockstream won’t be helping out with the core Bitcoin code, though. Instead it is building on top of it using what are known as “sidechains.”

At the heart of Bitcoin’s design is what is known as the blockchain, a digital file maintained by computers around the world that records every Bitcoin transaction. Bitcoin’s most novel feature is that everyone can trust the blockchain’s record, even if they don’t trust every individual contributing to its upkeep or using Bitcoin, the Review said.
A sidechain can also record Bitcoin transactions, but it can have different functions as well.

Blockstream has developed a way to safely move bitcoins back and forth between the blockchain and sidechains in order to add new functionality to Bitcoin transactions, the report said.

Back says his company is working on its first prototype sidechains now, and will release them next year in partnership with companies interested in using the technology. Blockstream will also release tools to allow people to make their own sidechains, the Review said.



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