On the 28 of January 2016, Blockstream announced its strategic partnership with PriceWaterCooper (PwC), one of the four largest international accounting firms.
“PwC brings deep industry experience, a broad range of business services and cutting-edge client insights,” read part of a blog post that announced this development, “Together, PwC and Blockstream will help companies evaluate cryptocurrencies and blockchain technologies and launch new uses for the Bitcoin protocol.”
Exactly 5 days later, the Montreal-based blockchain startup has made another attention-grabbing announcement. It has raised a relatively significant amount of venture capital in its second Series A funding.
“I'm excited to announce that we raised $55 million in Series A funding,” declared Austin Hill, who is listed as Blockstream’s Chief Instigator, in a blog post “to further enhance our Sidechain technology, expand our operations globally, and support new industry partnerships, bringing our total investments in the company to $76 million.”
There has been no Bitcoin price shift attributed to these pieces of news yet. However, in the words of Austin Hill, “Blockstream is off to a strong start this year”.
In the minds of many within the Bitcoin community, there are reasons to wonder whether a successful Blockstream will turn out to be stumbling block or stepping stone for Bitcoin as a whole, and, by extension, the Bitcoin price. More of that later.
Who are Blockstream?
Blockstream is a company started by several of the core Bitcoin developers including Adam Back, Matt Corallo, Gregory Maxwell, Gregory Sanders and Pieter Wuille. Its primary mission is to develop interoperable blockchain markets, which it has given the technical term of Sidechains.
For Blockstream, the Bitcoin Blockchain is a foundation on which to build smaller blockchains that are tasked with specific functions such as asset markets, exchanges and smart contracts.
It therefore makes some sense to think of Blockstream as standing at the opposite end of the spectrum from where the private blockchain projects such as R3, which is a consortium of over forty commercial banks, and Digital Asset Holding, known better through its CEO Blythe Masters, who used to work for JPMorgan Chase, stand.
Digital Assets and R3 are working on blockchains that are not connected in any way, at least not yet, with the Bitcoin blockchain. They copy many of the Bitcoin Blockchain aspects, though.
As a matter of fact, most of those behind private Blockchain projects such as Charley Cooper, Managing Director at R3, and James Dimon, CEO JPMorgan Chase, have insisted that the Bitcoin public blockchain will not survive for long. And that it is the private blockchains that will revolutionize the future of finance and other sectors of business.
Public versus Private Blockchains
It is therefore interesting when a startup like Blockstream, which has based its entire business model on the Bitcoin Blockchain forms strategic partnership with the likes of PwC and raises huge amounts of venture capital.
Perhaps, the recent achievements of Blockstream drive the point home that the battle line between the private blockchains and the public blockchains are still being drawn. As to which one will be the winner when the dust settles is far from being clear at the moment.
Now back to the question of whether a successful Blockstream is good or bad for Bitcoin; both the protocol and the bitcoin price.
In other circumstances, there will be no question that it is a good thing that a company that seeks to build solutions for mainstream businesses on the public and decentralized Bitcoin Blockchain is making the steps that Blockstream making.
However, that is not the case because of the ongoing block size scaling debate. As things stand now, Blockstream hold a critical position in the debate. The core developers of bitcoin who also work in the startup have their own proposal on how to increase the Bitcoin block size.
Not so fast
And theirs is a conservative approach. They do not think it is proper to put the need to increase the size of the Bitcoin block size ahead of other considerations such as the risk of centralization and security of the network.
As a matter of fact, the Blockstream group of Bitcoin core developers’ proposal, which is known as the Bitcoin Core, has seemed to antagonize other developers, especially those pushing for a hard for to adopt Bitcoin Classic, another Bitcoin block size scaling proposal.
The Blockstream group of Bitcoin core developers is also the same one that has proposed the Segregated Witness (SegWit) solution. With SegWit transaction signatures will be separated from transactions hence creating more room for transactions in Bitcoin blocks without the need for a hard fork.
The accusations that have been leveled against the Blockstream team include that it seeks to keep the block size smaller so that scaling could be achieved through the Sidechain solutions it is working on.
“I like what Blockstream is currently doing, but I do find this particularly worrying. It is good that bitcoin is used for other - for profit - production use cases. It is good that bitcoin's core codebase is adapted to allow for this,” one redditor has pointed out, “It is NOT good that this is the same team doing so. This will inevitably lead to decisions regarding prioritization and direction that are in conflict with the public utility of bitcoin.”
Will conflict of interest affect Bitcoin price?
However, not everyone within the Bitcoin community thinks that a successful Blockstream will present a conflict of interest on the part of the Bitcoin core developers who are actively involved in both projects.
“Blockstream doesn't have 60% of power over commit privileges for Bitcoin. For a single Bitcoin repository Blockstream has as much power as Garzik has, as well as Gavin since every committer gets a veto,” another Redditor has observed, “They only represent 1/4 of that repos contributors with merge access. You are taking the truth and making little stretches in a bunch of dimensions to paint a completely different picture.”
Whatever your persuasion might be on the role of Blockstream in the development of Bitcoin, one fact stands out; investment going into it proofs that there is a lot of confidence in the Bitcoin technology amongst investors. And this is a good thing for Bitcoin price, in the long if not in the short term.