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 are shaping the future of Bitcoin finance. Blockstream's key innovations include the Liquid Network, the first sidechain for Bitcoin aimed at enabling faster and more private transactions, as well as the seamless issuance of stablecoins and tokenized real-world assets (RWAs). Back is widely known in the crypto community for having communicated with the anonymous Bitcoin founder Satoshi Nakamoto before the latter published the groundbreaking whitepaper in 2008.
In this interview, we briefly discussed some of Back's early work in Bitcoin, much 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 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 was not very detailed. I believe he had already developed the Bitcoin software, and what he did next was to write the whitepaper to describe how it works. He asked about the proper way to cite Hashcash. In subsequent exchanges, he told me he had published the whitepaper and asked if I would be 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 the question is becoming less and less important, as Bitcoin has a long history now and is a decentralized product. I think Bitcoin is more of a discovery, as it is decentralized, with no CEO or founder, unlike some other projects. Humans discovered physical gold as a good money, and now we have discovered a better money: digital gold. We've gone through a lot of dramatic changes, like the block size war, and the market ultimately prevailed, so even if Satoshi Nakamoto were to return, it wouldn't be a big deal. When you think about it, this is a quite positive outcome, as the market is a manifestation of users' desire for electronic cash.
Forbes: Let's talk about Blockstream. The primary use case for Bitcoin currently is as a store of value. How do you reconcile this with the goal of making Bitcoin a widely adopted payment system?
Back: We've taken a two-pronged approach. We have one of the leading implementations of Lightning, which is all about scalability and retail payments. Then we have Liquid, which is more focused on trustless transactions, smart contracts, assets, stablecoins, and securities. Although I have a computer science background, in the mid-1990s, I was quite an active day trader and investor, and I was really curious to see what Bitcoin technology (blockchain) could do to improve the trading infrastructure.
Events like the Mt. Gox collapse taught us that we should have a technology that allows you to do atomic swaps without custody. Effectively, everyone is handing custody to the exchanges, which means you have to trust someone. Liquid is doing a lot of things, and it's also being used for stablecoins and retail payments. There's a new thing emerging called cross-chain Lightning wallets, where there are three or four teams working on this. They look like Lightning wallets, but they're actually Liquid wallets, and when you want to make a payment, they use the trustless transaction to swap Liquid Bitcoin for Bitcoin on Lightning, and vice versa.
We've built a block explorer for Liquid, and now there's an ecosystem forming around Liquid. There's a startup called SideSwap that provides a trustless central order book where you can place limit orders. We've also made our own hardware wallet to accelerate innovation. You can directly approve transactions on the hardware wallet. This is very innovative and very exciting because you don't give up custody.
On the store of value issue, since the COVID-19 pandemic, people have been thinking about inflation. In the short term, cryptocurrencies feel a bit unstable. But remember, about 50% of the global workforce is in the informal economy, getting paid in cash without any government ID. This is very interesting because, although Bitcoin is volatile, its volatility is less than some emerging market currencies. So we're seeing Bitcoin payment use cases. Of course, there are also some gray markets in the West using Bitcoin, where the industry may be legal, but banks don't support them, like cannabis sales in some states and countries, and so on. Bitcoin does have these use cases.
Forbes: I know the usage of the Lightning and Liquid platforms is growing, but in terms of Bitcoin transaction volume, this proportion is still relatively small. What's your take on this? What measures can be taken to accelerate the adoption of these networks? Also, I see that people are as interested in stablecoins as you mentioned the emerging markets, in trying to mitigate inflation risk. How do you compare the pros and cons of Bitcoin and stablecoins?
Back: In some ways, stablecoins are very convenient, while Bitcoin is a bit volatile, which is a side effect of rapid adoption. For those who don't have much savings and need to do retail payments weekly, this can cause some inconvenience. Stablecoins are very popular, and there are some stablecoins on Liquid as well, the main one being USDT, as well as new issuances of stablecoins pegged to the Mexican peso, euro, and yen. The yen stablecoin is a bit special, as it's only for over-the-counter trading against 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're doing some things that could potentially achieve mass adoption and boost the retail payment use case.
We've already seen other types of bonds issued on Liquid. One of them is a $1.5 billion note issued by a company called Mifiel. Several large publicly traded US companies provided funding for the note. The note is then sent to small businesses in Mexico as loans. There are hundreds of loans, each for around $25,000 to $100,000 per company or individual. These activities were all previously paper-based and prone to errors. With this new source of funding, they've been using Liquid to track the debt instruments, which are now tradable. When the lenders disburse the loans, they get a DocuSign, and after linking with the borrower, they get another DocuSign, and the issuer gets a transferable loan certificate, so they can sell it to other lenders.
Forbes: Let's talk about your recent fundraising. How do you think Bitcoin-centric companies raising funds from investors differ from companies that raise funds through token issuances?
Back: I think the market has shifted. A venture capital firm called Trammell Venture Partners put out an annual report looking at crypto market investments and Bitcoin-related fund allocations across other blockchains. Due to the tokenization phenomenon, venture capitalists were heavily biased towards other networks in the past, as they didn't need to build successful products that fit market demand, they could just sell tokens as long as there was liquidity. But this has changed somewhat last year.
I also think the altcoin market is saturated. There used to be 20,000 altcoins, but now there are over 3 million, including memecoins. Another trend I'm seeing is increased interest in Bitcoin Layer 2. We're the oldest and largest company in this space. We also provide consumer hardware and software wallets, while doing R&D on privacy technologies and more.
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. There are several different companies doing this, one of which is Stockr, a securities tokenization fund management company headquartered in Luxembourg. We did something similar in 2021. One was a Bitcoin mining note. We had a mining farm, and at the time, we hosted many large corporate miners, such as Fidelity's miners, and we gained a lot of retail interest. Liquid even has MicroStrategy (MSTR) stock now. You can trade it, and it has some interesting advantages compared to trading on Interactive Brokers, such as being able to trade it 24/7. Another novel aspect of our fundraising is that a significant portion of the funds paid by the lead investor was actually Bitcoin, which we will hold. We did this even in our seed round in 2021, when we raised $21 million. In a sense, we were one of the earliest MicroStrategies, as we have Bitcoin on our balance sheet. Of course, many Bitcoin startups have done something similar now, but we've been around longer than most, since 2014.
