Blockstream is working on new technology capable of using the Bitcoin protocol in order to secure any form of online value transfer and organise the safekeeping of digital ledger assets.
Since it was set up in 2009, Bitcoin has become a highly powerful information storage network, capable of storing thousands of gigabytes of data by using ‘miners’, which approve transactions and host the relevant information on their servers. The 13.5 million bitcoins circulating on the network today have a total estimated value of $4.7 billion, in spite of the volatility of this crypto-currency and the technical deficiencies from which it suffers – major reasons why Bitcoin has not expanded further around the world.
The crucial innovative idea that the Bitcoin originators came up with is the creation of what is known as a blockchain, which records transactions on the network, the information being distributed across multiple servers all over the globe. Another startup called Genecoin has recently embarked on a mission to store individual people’s DNA on the same network and thus enable them to ensure their digital immortality. Meanwhile the blockchain approach has also generated ‘sidechains’ – otherwise known as ‘orphan’ blocks, which are created when two main blocks are generated within too short a time-span.Now Montreal- and San Francisco-based Blockstream is looking to exploit these sidechains to develop new functionality. The startup team have developed software capable of ensuring safe transfer of bitcoins or other digital ledger assets from the blockchain to ‘pegged sidechains’ and back again as required. Cryptographic expert Adam Back, who co-founded Blockstream, explains that it will be feasible to use the pegged sidechains to create instantaneous transactions. Bitcoin transfers can currently take as long as ten minutes to confirm, which is rather a long time compared with other means of purchasing goods and services.
The major innovation in Blockstream’s proposals is the creation of a ‘two-way peg’, a tool enabling the transfer of bitcoins of other crypto-assets between all the various ‘chains’ in the network. The new applications that are likely to spring from this approach include ‘smart contracts’ – i.e. using an IT protocol to establish/authenticate a contract without the need for intermediation by lawyers – for trading in such financial instruments as equities, bonds and derivatives, plus ‘smart’ physical property trading. Gavin Anderson, an engineer working at the Bitcoin Foundation, reckons this innovation will enable a range of services to be provided, underpinned by the ‘trustless’ security of the Bitcoin network.
Blockstream has just raised US$21 million in capital from investors including LinkedIn founder Reid Hoffman and Vinod Koshla, who founded SunMicrosystems, and is currently working on the first prototype sidechains, with a view to launching the technology during 2015 in partnership with other interested companies.
In a recent paper, the Blockstream team purport to demonstrate how the Bitcoin network could prove to be the most appropriate secure system for authenticating many different types of contract, enabling distributed applications and avoiding the need for third-party intermediation. Working along similar lines, Ethereum, a startup founded by Vitalik Buterin, provides an open-source platform that enables entrepreneurs and developers to build new, decentralised applications based on the blockchain.