Author: Steven Ehrlich, Forbes
Compiled by: Luffy, Foresight News
Dr. Adam Back, co-founder and CEO of Blockstream, is a British cryptographer and computer scientist known for inventing Hashcash in 1997, which later became the basis for Bitcoin's proof-of-work system.
As CEO of Blockstream, Back plays a core role in developing the infrastructure and scaling solutions that shape the future of Bitcoin finance. Blockstream's major innovations include the Liquid Network, which is the first sidechain of Bitcoin aimed at enabling faster and more private transactions, as well as seamless issuance of digital assets such as stablecoins and tokenized real-world assets (RWA). Back is well-known in the crypto community because he had communication with the anonymous Bitcoin founder Satoshi Nakamoto before the groundbreaking white paper was written in 2008.
In this interview, we briefly talked about some of Back's early work with Bitcoin, most of which relates to his work at Blockstream. Blockstream has just completed a $210 million convertible bond offering aimed at creating more functionalities based on Bitcoin.
Forbes: How did you first start collaborating with Satoshi Nakamoto?
Adam Back: I was the first person to receive an email from Satoshi Nakamoto before Bitcoin was launched. The conversation was not very detailed. I believe he had already developed the Bitcoin software at that time, and what he did next was to write the white paper to describe how it works. He asked me about the correct way to reference Hashcash. In subsequent communications, he told me that he had released the white paper and asked if I wanted to download the Bitcoin source code, which was around January 2009.
Forbes: Do you think it's important to find out who Satoshi Nakamoto is now?
Back: I think this question is becoming less and less important because Bitcoin has a long history; it is a decentralized product. I think Bitcoin is more like a discovery because it is decentralized, lacking a CEO or founder, which differentiates it from some other projects. Humanity discovered that physical gold is a good currency, and now we have discovered a better currency: digital gold. We have gone through many dramatic changes, such as the block size wars, and the market ultimately prevailed, so even if Nakamoto were to return, it would not be a big deal. If you think about it carefully, this is a rather positive outcome; the market reflects the users' desire for electronic cash.
Forbes: Let's talk about Blockstream. The biggest use of Bitcoin right now is as a store of value. How do you reconcile this with the goal of making Bitcoin a widely used payment system?
Back: We have made two preparations. We have one of the main implementations of Lightning, which is entirely about scalability and retail payments. Then we have Liquid, which focuses more on trustless transactions, smart contracts, assets, stablecoins, and securities. Although I have a computer science background, I was quite an avid day trader and investor in the mid-90s, and I was very curious about what Bitcoin technology (blockchain) could do to improve trading infrastructure.
Events like the collapse of Mt. Gox tell us that we should have a technology that allows atomic transactions without custody. In reality, everyone hands over custody to exchanges, which means you need to trust others. Liquid is doing a lot of things; it is also used for stablecoins and retail payments. Now there is a new thing emerging: cross Lightning wallets, with three or four teams currently working on this. They look like Lightning wallets, but in reality, they are Liquid wallets that use trustless transactions to swap Liquid Bitcoin for Bitcoin on Lightning and vice versa when you want to make a payment.
We built a block explorer for Liquid, and now an ecosystem has formed around Liquid. A startup called SideSwap provides a trustless central order book where you can place limit orders. We also made our own hardware wallet to accelerate innovation. You can approve transactions directly on the hardware wallet. This is very innovative and exciting because you do not give up custody.
Regarding the issue of value storage, since the COVID-19 pandemic, people have been considering inflation. In the short term, cryptocurrencies feel somewhat unstable. But remember, about 50% of the working population in the world belongs to the informal economy, receiving wages in cash without any government identification. These individuals cannot directly access the global economic system. This is quite interesting because, despite the volatility of Bitcoin, it is not as volatile as some emerging market currencies. So, we have seen Bitcoin's payment scenarios. Of course, some gray markets in the West also use Bitcoin, where the industries may be legal, but banks do not support them, such as cannabis sales in certain states and countries, etc. Bitcoin does indeed have these uses.
Forbes: I know that the usage of the Lightning and Liquid platforms is increasing, but in terms of Bitcoin's transaction volume, this proportion is still relatively small. What is your comment on this? What measures can be taken to accelerate the adoption of these networks? Additionally, I see that interest in stablecoins is similar to what you mentioned for emerging markets. How do Bitcoin and stablecoins compare when trying to mitigate inflation risk?
Back: In some ways, stablecoins are very convenient, while Bitcoin is somewhat unstable, which is a side effect of rapid adoption. This can cause some trouble for those who do not have much savings and have to make retail payments weekly. Stablecoins are very popular, and there are some stablecoins on Liquid, the main one being USDT, along with stablecoins pegged to the Mexican peso, euro, and yen introduced by new issuers. The yen stablecoin is somewhat special as it is limited to over-the-counter transactions with Bitcoin. So far, the market cap is not very large, around $35 million. But this type of wallet is still in its early stages. We are working on some projects that may achieve mass adoption and enhance retail payment use cases.
We have already seen other types of bonds issued on Liquid. One of them is a $1.5 billion promissory note issued by Mifiel. Several large publicly traded U.S. companies funded the promissory note. Then, the promissory note is for small business loans going to Mexico. There are hundreds of loans, with each company or individual’s loan amount being about $25,000 to $100,000. These activities used to be recorded on paper, which was prone to errors. With this new source of funding, they have been using Liquid to track debt instruments that are transferable. When lenders issue loans, they receive a DocuSign, and after establishing a link with borrowers, they receive another DocuSign, and issuers get a transferable loan certificate so they can resell it to other lenders.
Forbes: Let's talk about your recent financing situation. How do you think Bitcoin-centric companies raising funds from investors differ from those financing through token issuance?
Back: I think the market has shifted. A venture capital firm named Trammell Venture Partners released an annual report studying crypto market investments and the allocation of Bitcoin funds related to other blockchain projects. Due to the phenomenon of tokenization, venture capital firms previously leaned heavily towards other networks, where they did not have to produce successful products that met market needs; as long as there was liquidity, they could sell tokens. But this situation has changed somewhat last year.
I also think the altcoin market has become saturated. There used to be 20,000 altcoins, but now there are over 3 million, including memecoins. Another phenomenon I see is the growing interest in Bitcoin Layer 2 solutions. We are the oldest and largest company in this field. We also provide hardware and software wallets for consumers while working on privacy technology research and development.
For us, now is a good time to expand this business. On Liquid, there is also a way to handle securities appropriately licensed. Several different companies are doing this, one of which is Stockr, a securitized fund management company based in Luxembourg. We did something similar in 2021. One is Bitcoin mining notes. We had a mining farm at the time, and we were hosting many large company mining machines, such as Fidelity's machines, and we garnered a lot of interest from retail investors. There are even MicroStrategy (MSTR) stocks on Liquid now. You can trade it, and it has some interesting advantages compared to trading on Interactive Brokers. For example, it can be traded around the clock.
Another novelty in our financing is that a large part of the funds paid by the lead investor is actually in Bitcoin, and we will retain those Bitcoins. We did this during our seed round financing in 2021, when we raised $21 million. To some extent, we are among the earliest MicroStrategy, as we have Bitcoin on our balance sheet. Of course, now many Bitcoin startups are also doing some of these things, but we have been around longer than most companies, starting back in 2014.
Forbes: What are the biggest risks facing Bitcoin or Blockstream?
Back: I think many of the initial risks of Bitcoin have faded. Our initial focus was on whether a major country or economic zone (like Europe, China, or the United States) would ban Bitcoin, which was very uncertain. This created a lot of perceived regulatory risk. But I believe Bitcoin is now well-guided. Now, ETFs mean that financial institutions issuing these products are interested in expanding these offerings and keeping them in the market. So I think banks or financial institution lobbying groups want to do this now. And you also have other allies, some sovereign wealth funds and countries buying Bitcoin or Bitcoin-related products and tools in the early stages. So I think many risks have faded. Moreover, many technological risks have also subsided. Of course, blockchain scalability remains challenging, and there is still room for innovation and improvement in how to achieve this. The Lightning Network is very reliable for retail terminals and person-to-person payments, but there is still room for improvement.
