Original source: Foresight News
Reprinted: Koala, Mars Finance
Blockstream co-founder and CEO Dr. Adam Back is a British cryptographer and computer scientist known for inventing Hashcash in 1997, which later became the foundation of Bitcoin's proof-of-work system.
As CEO of Blockstream, Back plays a central role in developing the infrastructure and scaling solutions that shape the future of Bitcoin finance. Major innovations from Blockstream include the Liquid Network, the first sidechain for Bitcoin, aimed at enabling faster, more private transactions, as well as the seamless issuance of digital assets like stablecoins and tokenized real-world assets (RWA). Back is well-known in the crypto community for having communicated 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 on Bitcoin, most of which relates to his work at Blockstream. Blockstream has just completed a $210 million convertible bond issuance aimed at creating more functionality based on Bitcoin.
Forbes: How did you 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 wasn't very detailed. I believe by then he had already developed the Bitcoin software, and what he did next was write the white paper to describe how it worked. He asked about the correct way to reference Hashcash. In subsequent communications, he told me he had released the white paper and asked if I would like to download the source code for Bitcoin, which was around January 2009.
Forbes: Do you think it's important to figure out who Satoshi Nakamoto is now?
Back: I think this question is becoming less important because Bitcoin has a long history now; it is a decentralized product. I think Bitcoin is more like a discovery because it is decentralized, with no CEO or founder, which is different 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 Satoshi Nakamoto were to return, it wouldn't matter much. If you think about it carefully, this is quite a positive outcome; the market is a reflection of user desires for electronic cash.
Forbes: Let's talk about Blockstream. What is the biggest current use of Bitcoin as a value store? How do you coordinate that with the goal of making Bitcoin a broad payment system?
Back: We have prepared for both scenarios. 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 trading, smart contracts, assets, stablecoins, and securities. Although I have a background in computer science, I was quite an enthusiastic day trader and investor in the mid-90s, and I was curious about what Bitcoin technology (blockchain) could do to improve trading infrastructure.
Events like the Mt. Gox collapse tell us that we should have technology that allows atomic trading without custody. In reality, everyone hands over custody to exchanges, which means you need to trust someone else. Liquid is doing a lot of things, and it is also used for stablecoins and retail payments. Now a new thing has emerged: cross Lightning wallets, and there are currently three or four teams 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 an ecosystem has now formed around Liquid. A startup called SideSwap provides a trustless central order book where you can place limit orders. We also created our own hardware wallet to speed up innovation. You can approve transactions directly on the hardware wallet. This is very innovative and exciting because you are not giving up custody.
Regarding the issue of value storage, people have been considering inflation since the COVID-19 pandemic. In the short term, cryptocurrencies feel somewhat unstable. But remember, about 50% of the labor force in the world belongs to the informal economy, receiving wages in cash without any government identification. These people cannot directly access the global economic system. This is very interesting because, despite Bitcoin's volatility, it is less volatile than some emerging market currencies. So, we see the payment scenarios for Bitcoin. 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 marijuana sales in certain states and countries, etc. Bitcoin indeed has these uses.
Forbes: I know that the usage rates of the Lightning and Liquid platforms are growing, but in terms of the transaction volume of Bitcoin, this proportion is still relatively small. What is your take on this? What measures can be taken to accelerate the adoption of these networks? Additionally, I see that people's interest in stablecoins is similar to what you mentioned regarding emerging markets. In trying to mitigate inflation risks, how do Bitcoin and stablecoins compare?
Back: In some ways, stablecoins are very convenient, while Bitcoin is somewhat unstable, which is a side effect of rapid adoption. For those who don't have much savings and need to make retail payments weekly, this can pose some challenges. Stablecoins are very popular, and there are some stablecoins on Liquid, the main one being USDT, along with newly issued stablecoins pegged to the Mexican peso, euro, and yen. The yen stablecoin is somewhat special; it is limited to over-the-counter trading with Bitcoin. So far, the market cap is not very large, around $35 million. But this type of wallet is still in the early stages. We are working on some projects that could 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, a company. Several large publicly traded companies in the U.S. funded the promissory note. Then, the promissory note is for small business loans in Mexico. There are hundreds of loans, with loan amounts for each company or individual ranging from $25,000 to $100,000. These transactions were previously all recorded on paper, which is 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 the borrower, they receive another DocuSign, and the issuer gets a transferable loan certificate so that they can resell it to other lenders.
Forbes: Let's talk about your recent funding situation. How do you think Bitcoin-centric companies raising funds from investors differs from companies financing through token issuance?
Back: I think the market has shifted. A venture capital firm called Trammell Venture Partners released an annual report studying crypto market investments and the allocation of Bitcoin funding relative to other blockchain-related projects. Due to the tokenization phenomenon, venture capital firms have heavily favored other networks in the past; they didn't have to create successful products that met market demand; they could just sell tokens as long as there was liquidity. But there has been some shift in this situation over the past year.
I still believe the altcoin market is 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. We are the longest-standing and largest company in this field. We also provide hardware and software wallets for consumers while conducting research and development on privacy technologies.
For us, now is a good time to expand this business. On Liquid, there is also a way to handle securities in an appropriately permitted manner. Several different companies are doing this, one of which is Stockr, a securities fund management company based in Luxembourg. We did something similar in 2021. One is Bitcoin mining notes. We have a mining facility, and at that time, we hosted many large companies' mining machines, such as Fidelity's machines, and we received a lot of interest from retail investors. There are even MicroStrategy (MSTR) stocks on Liquid now. You can trade it, and compared to trading on Interactive Brokers, it has some interesting advantages. For example, it can be traded around the clock.
Another novelty in our funding is that a large portion of the funds paid by the lead investor was actually in Bitcoin, and we will retain this Bitcoin. We did this back in the seed round funding in 2021 when we raised $21 million. In some ways, we were among the earliest MicroStrategies because we had Bitcoin on our balance sheet. Of course, many Bitcoin startups are doing similar things now, but we have been around longer than most companies, starting in 2014.
Forbes: What are the biggest risks facing Bitcoin or Blockstream?
Back: I believe many of the initial risks associated with Bitcoin have dissipated. Our initial concern was whether a major country or economic area (like Europe, China, or the United States) would ban Bitcoin, which was highly uncertain. This created a lot of perceived regulatory risk. But I think Bitcoin has now been adequately guided. Now, ETFs mean that financial institutions issuing these products are interested in expanding and keeping them in the market. So I think bank or financial institution lobby groups now want to do this. And you have other allies, some sovereign wealth funds and nations buying Bitcoin or Bitcoin-related products and tools in the early stages. So I believe many risks have dissipated. Additionally, many technical risks have also faded. Of course, blockchain scalability still presents challenges, and there is still room for innovation and improvement in how to achieve this. The Lightning Network is very reliable for point-of-sale and person-to-person payments, but there is still room for improvement.
