What role does Blockstream, the company behind the Bitcoin bond in El Salvador, play in the world of Bitcoin?
In August 2021, Blockstream, a Bitcoin and blockchain infrastructure company, completed a $210 million Series B funding round and acquired Israeli ASIC chip design team Spondoolies. This marked Blockstream’s expansion into the upstream of the Bitcoin industry, moving beyond its software-centric business.
Prior to this, Blockstream’s commercial product line primarily focused on the Liquid sidechain ecosystem and Bitcoin mining-related services, as well as some data-related businesses. It aimed to provide expansion packages and enhancement work for the Bitcoin ecosystem.
Blockstream’s early product line mainly served institutional clients with its Liquid sidechain solutions and later ventured into consumer products by acquiring the Bitcoin wallet Green Wallet. Blockstream also maintains and iterates several free Bitcoin ecosystem product lines, such as the Bitcoin full node satellite network Blockstream Satellite, the multi-signature wallet Blockstream Green, and the Lightning Network client c-lightning.
Although Blockstream is involved in the development of Bitcoin Core, which is at the forefront of software development, there is also the mining industry involved in the upstream of the entire Bitcoin industry. Therefore, in early 2020, Blockstream announced its Bitcoin mining services through partnerships with Norwegian publicly listed company Aker, Square, and BlockFi.
One of Blockstream’s services, Blockstream Energy, aims to help energy producers sell excess electricity to miners, providing scalable energy solutions for mining projects and improving the economics of renewable energy projects, especially in remote areas.
From the perspective of chip manufacturing, Blockstream also acquired the intellectual property of Bitcoin mining hardware manufacturer Spondoolies, filling the gap in its ASIC chip design and manufacturing capabilities.
In addition, Blockstream introduced the Blockstream Mining Note (BMN), a Bitcoin mining token traded on Liquid for qualified investors. The mining facilities are located in Georgia, USA, and Quebec, Canada.
With these developments, Blockstream now covers almost all dimensions of the Bitcoin industry, including Bitcoin development, institutional services, and mining, creating a comprehensive product matrix.
The key core of Blockstream’s “Bitcoin toolbox” is Liquid. Liquid is the Bitcoin sidechain mentioned earlier, which will be used for the issuance of Bitcoin bonds in El Salvador. It can be understood as a “Bitcoin-based smart contract layer.” Liquid acts as a second-layer network for Bitcoin, allowing the issuance of security tokens and other digital assets. It aims to provide financial products and services through the Bitcoin network and is used for financial asset settlement.
The Bitcoin network ecosystem can be divided into four basic layers: the main chain, which is responsible for Bitcoin’s value system and represents Bitcoin’s decentralization and security, as well as the values represented by the Bitcoin community; the second layer, represented by the Lightning Network, focuses on expanding Bitcoin’s payment experience; the sidechain, where smart contracts are mainly placed, enables the integration of smart contract applications into the Bitcoin ecosystem; and cross-chain, where almost all mainstream public chains introduce Bitcoin into their ecosystems through cross-chain bridges and develop Bitcoin-related DeFi projects, especially in Ethereum.
Liquid, the sidechain, is Blockstream’s core product. Although all the other products are interconnected, Liquid is prioritized as the most important product line. For example, the wallets developed by Blockstream will eventually be connected to the Liquid network, so the profitability of the wallets themselves is secondary, and the main focus is on growing the Liquid network.
Blockstream was founded in the midst of significant events that had a profound impact on the industry, such as Ethereum’s presale, the Mt. Gox hack, and the Bitcoin scalability debate. Blockstream received a $20 million Series A funding round within a few months of its establishment and clearly positioned itself as expanding the functionality of the Bitcoin protocol layer (sidechains).
The company had an impressive lineup, led by Adam Back, former HashCash developer; Hammie Hill, early developer of e-cash and founder of zero-knowledge systems, with HashCash and e-cash being foundational products for Bitcoin. Blockstream also had a star-studded development team, including Gregory Maxwell, Jonathan Wilkins, Matt Corallo, Pieter Wuille, Jorge Timon, and former NASA engineer Mark Friedenbach.
During the Bitcoin scalability debate, the community leaders at the time, such as Gavin Andresen and Bitmain, were in favor of scaling, while Blockstream, represented by core developer Gregory Maxwell, was against it. The scaling advocates believed that the network congestion issue needed to be resolved immediately, as further growth in user adoption would lead to significant payment delays and skyrocketing transaction fees, which would be unacceptable for Bitcoin as “electronic cash.” The opponents believed that congestion could be addressed in the long term through second-layer networks. They advocated maintaining the Bitcoin network at 1MB and introducing off-chain solutions such as Segregated Witness and the Lightning Network.
The conflict between the developers and mining representatives stemmed from their lack of trust in each other. Developers did not trust mining pool representatives, believing that large mining companies and mining pool operators had usurped the voice of miners, turning industrialized mining into a centralized commercial activity that undermined the decentralized nature of digital currencies. Mining representatives believed that once the Lightning Network was established, the majority of transactions would occur on the second layer, leading to the centralization of the Lightning Network. They argued that the underlying network would become a settlement channel for the Lightning Network, with most people never using the underlying network, contradicting the original vision of Bitcoin’s creator, Satoshi Nakamoto.
Blockstream has been involved in three public funding rounds: a $21 million seed round in November 2014, a $55 million Series A round in February 2016, and a strategic investment by Digital Garage (DG Lab Fund) in November 2017, the specific amount of which was undisclosed.
It is important to note that Bitcoin Core is an open-source project responsible for maintaining and releasing the Bitcoin client software “Bitcoin Core” (including full node validation and Bitcoin wallets) and other related software maintenance work. Many core developers and contributors involved in the Bitcoin Core project are Blockstream employees who receive salaries from the company. This has led to a dual controversy surrounding Blockstream’s involvement in Bitcoin development and its corporate organization. Some members of the community have questioned the independence of Bitcoin Core developers due to their affiliation with Blockstream. They are concerned that Blockstream’s focus on second-layer solutions and Bitcoin products could lead to the centralization of the underlying Bitcoin network, with some even claiming that “Blockstream controls the Bitcoin code.”
Blockstream, as the most influential “KOL organization” in the Bitcoin community, has repeatedly criticized the Ethereum community, claiming that Ethereum cannot build a truly decentralized financial system and can only be achieved through Bitcoin, the Lightning Network, and Liquid. Figures like Adam Back and COO Samson Mow have enjoyed engaging in daily taunts with the Ethereum community. Adam Back once compared Ethereum to a Ponzi scheme, while Vitalik Buterin believes that Ethereum is rising and that history’s tide will not favor Bitcoin maximalists.
In the debate between Mow and Vitalik, there were even accusations of “mutual harm” between Ethereum and Liquid. Mow stated, “No one will build any secure (e.g., financial) system on the Ethereum platform. If you want tokens, you can issue them on the Liquid network, and you can thank me later.”
In a sense, Blockstream represents the entire Bitcoin community, encompassing the Bitcoin scalability debate, the Lightning Network and sidechain solutions, and the competition with Ethereum, among other things, making it a complex and intertwined entity in the Bitcoin world.