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 infrastructure and scaling solutions that shape the future of Bitcoin finance. Blockstream's major innovations include the Liquid Network, the first sidechain for Bitcoin, designed for faster, more private transactions, as well as 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 creator Satoshi Nakamoto before the latter wrote the groundbreaking white paper in 2008.
In this interview, we briefly discussed some of Back's early work in Bitcoin, most of which is related 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 initially 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 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 worked. He asked about the correct way to reference Hashcash. In the subsequent exchanges, he told me he had released the white paper and asked if I was willing 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 issue is becoming less important over time, as Bitcoin has a long history now, being a decentralized product. I see Bitcoin more as a discovery, since it is decentralized and has no CEO or founder, which is different from some other projects. Humanity discovered physical gold as a good form of currency, and now we have discovered a better currency: digital gold. We have gone through many dramatic changes, like the block size wars, and the market ultimately prevailed, so even if Satoshi Nakamoto were to return, it wouldn't be that significant. If you think about it, this is quite a positive outcome, as the market reflects 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 prepared for both scenarios. We have one of the main implementations of Lightning, which is all 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 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 collapse of Mt. Gox tell us that we should have technology that allows you to perform atomic transactions without custody. In fact, everyone hands over custody to exchanges, which means you need to trust others. Liquid is doing a lot of things, and it is also being used for stablecoins and retail payments. Now there is a new thing emerging: cross Lightning wallets, with 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 when you want to make a payment, and vice versa.
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 have also created our own hardware wallet to accelerate innovation. You can approve transactions directly on the hardware wallet. This is very innovative and exciting, as you do not relinquish 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 keep in mind that about 50% of the labor force in the world belongs to the informal economy, where they receive wages in cash without any government identification. These individuals cannot directly access the global economic system. This is quite interesting, because although Bitcoin is very volatile, its volatility is less than that of some emerging market currencies. Therefore, we see Bitcoin being used for payments. 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. Bitcoin indeed serves these purposes.
Forbes: I know the usage of the Lightning and Liquid platforms is increasing, but the proportion of this in terms of Bitcoin transaction volume 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 that of emerging markets you mentioned. How do Bitcoin and stablecoins compare in 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 pose some problems for those who do not have much savings and are making retail payments weekly. Stablecoins are very popular, and there are some stablecoins on Liquid, the main one being USDT, as well as stablecoins pegged to the Mexican peso, euro, and yen from newly issued issuers. The yen stablecoin is a bit special, as it is limited to over-the-counter trading with Bitcoin. So far, the market cap isn't very large, around 35 million dollars. But this type of wallet is still in its early stages. We are working on some projects that might achieve mass adoption and enhance retail payment use cases.
We have already seen the issuance of other types of bonds on Liquid. One of them is a $1.5 billion promissory note issued by Mifiel. Several large publicly listed companies in the United States financed the promissory note. The promissory note is for small business loans in Mexico. There are hundreds of loans, with each company's or individual's loan amount being approximately $25,000 to $100,000. These activities used to be recorded on paper, which was prone to errors. With this new funding source, they have been using Liquid to track debt instruments that are tradable. When lenders issue loans, they receive a DocuSign, and after linking with the borrower, they receive another DocuSign, while issuers receive a transferable loan certificate so they can sell it to other lenders.
Forbes: Now let's talk about your recent financing situation. How do you think Bitcoin-centered companies raising funds from investors differ from companies financing through token issuance?
Back: I believe 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 related to other blockchains. Due to the phenomenon of tokenization, venture capital firms used to heavily favor other networks; they did not have to create successful products that met market demand, as long as there was liquidity, they could sell tokens. But this situation has seen some changes over the past year.
I also 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 oldest and largest company in this space. We also provide hardware and software wallets for consumers, while also conducting research and development work 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 a properly licensed manner. Several different companies are doing this, one of which is Stockr, a securitization fund management company based in Luxembourg. We did something similar in 2021. One was Bitcoin mining notes. We had a mining farm at that time, and we hosted many large company mining machines, such as Fidelity's machines, and we gained a lot of interest from retail investors. There are even MicroStrategy (MSTR) stocks available 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 significant portion of the funds paid by the lead investors is actually Bitcoin, and we will retain these Bitcoins. We did this back in the seed round of financing in 2021 when we raised 21 million dollars. In a way, we were among the earliest MicroStrategy-type companies because we had Bitcoin on our balance sheet. Of course, now many Bitcoin startups are doing similar things, but we've been around longer than most, having started in 2014.
Forbes: What is the biggest risk facing Bitcoin or Blockstream?
Back: I believe many of the initial risks of Bitcoin have subsided. Our initial focus was on whether a major country or economic zone (like Europe, China, or the USA) would ban Bitcoin, which was highly uncertain. This created a lot of perceivable regulatory risk. But I think Bitcoin has been sufficiently guided now. The ETFs mean that the financial institutions issuing these products are interested in expanding them and keeping them in the market. So I believe the banking or financial institution lobby now wants to do this. And you also have other allies, such as sovereign wealth funds and countries that have purchased Bitcoin or Bitcoin-related products and tools in the early stages. So I think many risks have subsided. Additionally, many technological risks have also receded. Of course, scaling blockchain remains challenging, and there is still room for innovation and improvement in how to achieve that. The Lightning Network is very reliable for point-of-sale and person-to-person payments, but there is still room for improvement.
