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As a major player in the world of Bitcoin, what role does Blockstream play behind El Salvador’s Bitcoin bonds?
Summary:
El Salvador: Bitcoin “immigrant visa” sold out by the end of the year, $1 million price is “fair”
Background:
El Salvador’s $1 billion Bitcoin volcano bonds will be launched in early 2024! Will be issued through Bitfinex
Table of Contents:
Blockstream’s involvement in the “Bitcoin industry chain”
The product matrix of the “Bitcoin ecosystem”
Bitcoin sidechain “Liquid”
Blockstream: The “veteran” of the Bitcoin world
The opposition in the Bitcoin scaling debate
Controversy over “Bitcoin development” and “corporatization”
Daily banter with the Ethereum community
In December of last year, the El Salvador National Bitcoin Office (ONBTC) announced that the Bitcoin bond “Volcano Bond” has been approved by the El Salvador Digital Asset Committee and is expected to be issued in the first quarter of 2024. The bond will be issued on the Bitfinex securities platform.
“The funds raised from the issuance of bonds will be used to build a city called Bitcoin City, and this bond issuance will make El Salvador a new global financial center,” said Samson Mow, the former Chief Strategy Officer of Blockstream, at a meeting on El Salvador’s Bitcoin bonds in November 2021.
So, what role does Blockstream, the company behind El Salvador’s Bitcoin bonds, play in the world of Bitcoin?
In August 2021, Blockstream, a Bitcoin and blockchain infrastructure company, completed a $210 million Series B financing round and acquired the Israeli ASIC chip design team, Spondoolies. This marked Blockstream’s expansion from its original software-focused business to the upstream of the Bitcoin industry chain.
Before this, Blockstream’s commercial product line mainly focused on the Liquid sidechain ecosystem of Bitcoin and mining-related services, as well as some data-related businesses, aiming to provide expansion modules and strengthening work for the Bitcoin ecosystem.
Blockstream’s early product line mainly served institutions with Liquid sidechain solutions, and later entered the consumer market by acquiring the Bitcoin wallet, Green Wallet.
At the same time, Blockstream also has several free product lines in the Bitcoin ecosystem that are continuously maintained and iterated, such as the Blockstream Satellite, a Bitcoin full-node satellite network, the multisignature wallet Blockstream Green, and the Lightning Network client c-lightning, and more.
However, although Blockstream’s participation in Bitcoin Core development belongs to the forefront of software development, there is still the mining industry involved in the upstream of the entire Bitcoin industry chain. Therefore, they also started Bitcoin mining services in early 2020, cooperating with Norwegian listed companies Aker, Square, and BlockFi to expand their Bitcoin mining business.
This includes the subsequent launch of the “Blockstream Energy” service, which aims to help energy producers sell excess electricity to miners, thereby providing scalable energy solutions for mining projects and improving the economic viability of renewable energy projects, especially in remote areas.
In terms of specific chip manufacturing, Blockstream also announced the acquisition of intellectual property rights of Spondoolies, a Bitcoin mining hardware manufacturer, at the same time as the public announcement of the Series B financing. The core team of Spondoolies will also join Blockstream and focus on ASIC chip design and manufacturing, filling the gaps in Blockstream in this area.
In addition, Blockstream has also launched the Blockstream Mining Note (BMN), a Bitcoin mining token traded on Liquid for qualified investors, with mining facilities located in Georgia, USA, and Quebec, Canada.
With the perfect layout of the mining sector, Blockstream now covers almost all dimensions of the Bitcoin industry, including Bitcoin development, institutional services, mining, and more, forming a comprehensive product matrix.
And the key core of Blockstream’s “Bitcoin ecosystem” is “Liquid”.
“Liquid” is the Bitcoin sidechain mentioned earlier, which El Salvador plans to issue Bitcoin bonds on. It can be simply understood as the “smart contract layer based on Bitcoin”:
As a second-layer network of Bitcoin, it allows the issuance of security tokens and other digital assets, aiming to provide financial products and services through the Bitcoin network and be used for financial asset settlement.
Currently, the Bitcoin network ecosystem can be divided into four layers:
1. The main chain, which is mainly responsible for the value system of Bitcoin, carrying the decentralization and security of Bitcoin, as well as the value orientation represented by the Bitcoin community.
2. The second layer, represented by the Lightning Network, focuses on expanding the payment experience of Bitcoin.
3. Sidechains, where smart contracts are mainly placed, and the most important function of sidechains is to introduce smart contract applications into the Bitcoin ecosystem.
4. Cross-chains, where almost all mainstream public chains introduce Bitcoin into their own ecosystems through cross-chain bridges and use it for the development of Bitcoin-related DeFi projects, especially in the Ethereum ecosystem.
The “Liquid” sidechain is also the core product of Blockstream. Although other products are interconnected, Liquid network is given priority as the most important product line. “For example, the wallets we develop will eventually connect to the Liquid network, so the profitability model of the wallets is secondary, and the main focus is on how to grow the Liquid network.”
In 2014, Ethereum began its presale, Mt. Gox was hacked, and the Bitcoin community’s scaling debate became more intense. The attention of the entire crypto world was focused on these significant events that had a profound impact on the industry.
At the same time, Blockstream, which was established only a few months ago, raised $20 million in Series A funding and clearly defined its project positioning—expanding the functionality of the Bitcoin protocol layer (sidechains).
The company had an impressive lineup, with Adam Back, the former HashCash developer, as its leader, Hammie Hill, the early developer of e-cash and founder of zero-knowledge systems. HashCash and e-cash were both foundational products for Bitcoin.
In addition, Blockstream had an all-star development team, including Gregory Maxwell, Jonathan Wilkins, Matt Corallo, and Pieter Wuille, who later became leaders among Bitcoin core developers. They were joined by Jorge Timon, the project leader of Freicoin, and former NASA engineer Mark Friedenbach, among others.
In the Bitcoin scaling debate, community leaders at the time, such as Gavin Andresen and Bitmain, were proponents of scaling, while Blockstream, represented by core developer Gregory Maxwell, was among the opposition.
The scaling proponents believed that the network congestion issue needed to be resolved immediately; otherwise, as the user base continued to grow, payment delays and soaring transaction fees would become significant problems. This was unacceptable for Bitcoin, which aimed to be “electronic cash.” Gavin Andresen bluntly stated, “Rising Bitcoin transaction fees will drive the poor away from Bitcoin.”
The opposition, on the other hand, believed that the congestion problem could and should be solved through second-layer networks in the long term. They argued that scaling could only address short-term congestion, and as more people flocked to Bitcoin, it would have to continue scaling. This approach had no end in sight, so they advocated keeping the Bitcoin network at 1MB while introducing the segregated witness and Lightning Network solutions outside the Bitcoin network.
The contradiction between developers and mining representatives lies in their mutual distrust. Developers do not trust mining representatives, believing that mining pools and the companies operating them have taken away the voices of miners, turning industrialized mining into a centralized business activity. The existence of “mining hegemony” is destroying the decentralization nature of digital currencies.
Mining representatives, on the other hand, believe that once the Lightning Network is built, the majority of transactions will occur on the second layer network, which will eventually become highly centralized, with transaction channels monopolized by central nodes. The underlying network will become a channel for settling transactions between central nodes in the second layer network. Most people will never use the underlying network, which goes against the original intention of Bitcoin established by Satoshi Nakamoto.
In the subsequent New York meeting aimed at negotiations, due to various discrepancies, Samson Mow, who represented Bitcoin Core and Blockstream, was excluded from attending.
The subsequent disputes and conflicts over the roadmap are well known, as the Pandora’s Box of Bitcoin forks, such as BCH, was opened, and everything became irretrievable.
Previously, Blockstream had publicly disclosed its financing information three times, including 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 Blockstream in November 2017, with the specific amount undisclosed.
It should also be clear 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.
Among the core developers and contributors involved in the Bitcoin Core project, a considerable portion are Blockstream employees who are funded by Blockstream for their development work. This has led to a double contradiction and controversy surrounding Blockstream regarding “Bitcoin development” and “corporatization”:
On one hand, Blockstream has gradually gathered a group of the best developers in the Bitcoin community who contribute to daily code development and maintenance.
On the other hand, these developers have a different form of involvement compared to the original Bitcoin core developers—they are directly employed by Blockstream and are salaried employees. Combined with Blockstream’s financing and business development centered around second-layer networks and other Bitcoin products, this has raised concerns in the community about the independence of Bitcoin core developers. Some members of the community worry that Blockstream’s control over the Bitcoin codebase may turn the entire Bitcoin underlying network into a vassal of second-layer networks. Some have even said, “Blockstream controls the Bitcoin code.”
“Based on the fact that Ethereum cannot build a truly decentralized financial system, it is only possible to achieve this through Bitcoin, the Lightning Network, and Liquid,” Blockstream can be regarded as the most influential “KOL organization” in the Bitcoin community. Both CEO Adam Back and COO Samson Mow enjoy criticizing the Ethereum community.
Adam Back once referred to Ethereum as similar to a Ponzi scheme when responding to others’ comments, while Buterin believed that Ethereum was rising and that the tide of history would not favor Bitcoin maximalists.
In the debate between Samson Mow and Vitalik, there were even doubts raised about Ethereum and Liquid causing “mutual harm.” “Nobody will build any secure (e.g., financial) systems on the Ethereum platform. If you want tokens, you can issue them on the Liquid network, and you can thank me later.”
To some extent, Blockstream represents the entire Bitcoin community—Bitcoin scaling debates, Lightning Network and sidechain solutions, competition with Ethereum, and other competing coins. The entanglement is difficult to untangle.
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