A small San Francisco startup is about to play a central role in unlocking the true Bitcoin value.
You see, while many assume the sole value of Bitcoin is in its role as a digital currency, that definition fails to recognize a game-changing technological enhancement that Bitcoin offers...
I'm talking about the blockchain, which is the digital public ledger that records and verifies every Bitcoin transaction. The company, called simply Chain, will serve other Bitcoin companies by simplifying their access to the blockchain.
This is a big deal because it opens the door to what's being called "Bitcoin 2.0" - the next phase of Bitcoin development that will only marginally involve its role as a currency.
What many people don't yet realize is that the blockchain has the potential to be much more than merely a ledger because it can be used in non-financial ways, and supplemental data can be embedded in the transactions.
So far people have come up with a range of disruptive ideas. For one thing, the blockchain can be used to store and transfer ownership data.
When venture capital firm Ledra Capital put the question to Twitter in May, people came back with a long list of suggestions, including decentralized stock exchanges where securities could be traded peer to peer, mortgages, "smart" contracts that could fulfill their function without outside intervention, voting, trademarks, proof of authorship, and more.
The list of ideas is literally growing by the day, and a lot of entrepreneurs are starting companies to capitalize on those ideas.
This is where Chain comes in...
How Chain Will Unlock Bitcoin Value
Any software that's designed to use the blockchain for an alternative purpose will require the creation and maintenance of "nodes" on the Bitcoin network. These nodes are the autonomous computers that process the transactions.
Chain is offering to perform this function for any company that needs it and would rather not be bothered with the hassle of doing it internally. It's not unlike the "software-as-a-service" (SaaS) that tech companies offered by giants like Cisco Systems, Inc. (NYSE: CSCO), IBM Corp. (NYSE: IBM), and Oracle Corp. (NYSE: ORCL).
Here's how Chain founder and Chief Executive Officer Adam Ludwin describes what his company does:
"Our thesis is that we're in an era where people are looking for services to simplify very technical infrastructure so that they can build on-demand services," Ludwin told Fortune. "The blockchain is this mammoth network that is quite difficult to build on.... It's like telecom or credit card processing or web hosting where certain people at the beginning tend to do it themselves but, over time, it matures and bigger companies start accessing it. So what you need is reliability and real service-level agreements. When a big bank wants to connect to the blockchain, they want an expert to help them. We want that to be us."
Just six months old, Chain has already signed up more than 1,000 developers building Bitcoin-based apps that tap into the power of the blockchain. Their work will transform the blockchain from an abstraction into software that people will use every day and will cause the Bitcoin value to skyrocket.
And as the enabling entity, Chain will be in the heart of that transformation.
It's clear that Ludwin is on to something big. Chain just secured its second round of venture capital funding last week, $9.5 million, and it included several high-profile names.
The lead investor on this round, for instance, is Khosla Ventures, headed by Vinod Khosla - a cofounder of Sun Microsystems. In addition a Khosla partner, Keith Rabois, has joined Chain's board. Rabois is a former chief operating officer of Square in addition to having worked as an executive at PayPal.
Other noteworthy venture capitalists putting money into Chain include Pantera Capital, a VC firm that also operates a Bitcoin fund, and SecondMarket CEO Barry Silbert, who runs the Bitcoin Investment Trust, a Bitcoin hedge fund.
The recent investments bring Chain's venture capital funding total to $13.7 million.
"I think [venture capitalists] now recognize the huge commercial potential of the technology," Ludwin told The New York Times. "Every single top-tier firm is taking Bitcoin incredibly seriously."
For more Bitcoin news and insights, follow me on Twitter @DavidGZeiler.
UP NEXT: E-commerce giant eBay Inc. is very close to offering Bitcoin payment as an option - a high-profile move that will mark another milestone on the road to mass adoption of the digital currency. And when it goes live, other major merchants will face some major decisions...
- The Wall Street Journal: 'Bitcoin 2.0' Developer Chain Lines Up $9.5 Million Funding Round
- The New York Times: Chain, a Bitcoin Start-Up, Raises $9.5 Million Led by Khosla Ventures
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.