Dr. Adam Back, cofounder and CEO of Blockstream, is a British cryptographer and computer scientist, widely known for his 1997 invention of Hashcash, the proof-of-work system foundational to bitcoin mining.
As CEO of Blockstream, Dr. Back plays a central role in developing infrastructure and scaling solutions shaping the future of finance on Bitcoin. Key Blockstream innovations include the Liquid Network, Bitcoin’s first and leading sidechain, designed to enable faster, more confidential transactions, as well as the seamless issuance of digital assets, including stablecoins and tokenized real-world assets (RWAs). Back is widely known in the crypto community because he had communications with Satoshi Nakamoto before the pseudonymous bitcoin creator wrote his seminal white paper in 2008.
In this discussion, we briefly cover some of his early work on Bitcoin. However, the majority of it relates to his work at Blockstream, which just completed a $210 million convertible note offering to create more functionality on top of Bitcoin.
Forbes: How did you first start working with Satoshi?
Adam Back: I was the first person to receive an email from Satoshi before it [Bitcoin] was launched. It wasn’t a very detailed conversation. I believe he had already developed the software, and the next thing he’d done was write the white paper describing how it worked. He was citing related work and asked for the correct way to cite Hashcash. The next thing I heard was him telling me he had published the white paper and wanted to know if I would download the source code for Bitcoin. That was around January 2009.
Forbes: Do you think at this point it matters if we find out who Satoshi is?
Back: I think it is mattering less and less because we’ve got a lot of years of history now of experiencing Bitcoin as a decentralized thing. I think it gets viewed more like a discovery because it’s decentralized and there’s no CEO or founder, unlike some of the other projects. Humanity discovered physical gold as a good type of money. Now we’ve discovered a better one: electronic digital gold. We’ve gone through enough dramatic changes, like the Blocksize Wars, where the market ultimately prevailed, that it would not matter much if Satoshi returns. That is quite a positive outcome if you think about it because the market is a proxy for the user’s wishes regarding electronic cash.
Forbes: Let’s turn to Blockstream. The big use case for bitcoin right now is as a store of value. How do you reconcile that with your goal of making bitcoin a widespread payment system?
Back: We have a bit of a foot in two camps because we have one of the major implementations of Lightning, which is all about scalability and retail payments. Then we’ve got Liquid, which is more about trustless trades, smart contracts, assets, stablecoins and securities. While I have a computer science background, back in the mid-nineties, I was a fairly avid day trader and investor with my savings. I was interested to see what Bitcoin technology, like the blockchain, could do to improve the trading infrastructure.
That dates back to events such as the Mt. Gox failure because you’re finding that you should have a piece of technology that allows you to do atomic swaps without giving up custody. In practice, everybody was giving custody to an exchange, meaning you need to trust somebody else. It was the same story with FTX. Liquid is doing multiple things. It’s also been used for stablecoins and retail payments. There’s a new phenomenon: a crossover Lightning wallet. There are three or four of them now. They look like a Lightning wallet, but actually, they are a Liquid wallet, and when you want to make a payment, they use a trustless swap to exchange Liquid bitcoin for Lightning or vice versa. So all your storage is done on Liquid.
We built a block explorer for Liquid, and there is now an ecosystem of companies around Liquid, kind of like what exists around Lightning. One startup called SideSwap offers a trustless central order book, but you can place limit orders along the way. We also made our own hardware wallet to innovate a bit faster. You approve the trade right on your hardware wallet. That’s pretty innovative and exciting because you haven’t given up custody.
Regarding the store of value question, people have been thinking about inflation since Covid, and generally speaking, our currencies don’t feel too stable from a short-term perspective. But I think what you’ve seen is growth in emerging markets. Remember that about 50% of the world’s working population is the informal economy. They get paid in cash, there’s no paperwork, and they don’t have any government ID. Those people don’t have direct access to the global economy. That’s pretty interesting and supports the transactional use case because as much as bitcoin is volatile, it’s not as volatile as some emerging market currencies. So, ultimately, we get a bit of both. Of course, some gray markets use bitcoin in the West, too, where industries may be legal, but the banks frown on them, like marijuana sales in some states and countries and things like that. So it does get those kinds of uses.
Forbes: I know usage on the Lightning and Liquid platforms are growing, but it’s still relatively small in terms of bitcoin’s trading volume. What’s your assessment of that? What can be done to accelerate the adoption of those networks? Also, I see a lot of interest in stablecoins for the same purpose you mentioned about emerging markets. What’s the case for bitcoin versus stablecoins when trying to de-risk from inflationary currencies?
Back: In some ways, a stablecoin is very convenient, and bitcoin is a bit volatile, which is a side effect of undergoing rapid adoption. That can be problematic to somebody who doesn’t have a lot of savings and has to get through each week as it comes. Stablecoins are very popular, and we have a few stablecoins on Liquid. A few of the main ones are USDT, a Mexican peso that’s in development by a new issuer, a euro stablecoin and one pegged to the Japanese yen. The Japanese yen one is a bit specific, it’s limited to OTC trading with bitcoin. The market caps so far are not that big, around $35 million or something like that . But it’s early days for this type of wallet. We are working on a few projects that might get mass adoption and will pull up the retail payment uses.
We’ve seen other kinds of things issued on Liquid. One is a $1.5 billion promissory note issuance from a company called Mifiel. A couple of large and publicly traded U.S. banks that I can’t name are providing the capital. Then, the promissory notes are small business loans that are being sent to Mexico. There are hundreds and hundreds of loans, and they’re relatively $25,000-$100,000 per company or individual, whether for real estate or something else. All this activity used to be tracked with paper, which was error-prone. With this new source of capital, they’ve been using Liquid to track the debt instrument and those debt instruments are resellable. When the lender places the loan, they get a DocuSign, and a link to the borrower gets a DocuSign, and the issuer gets a certificate that is transferable for the loan so they can resell that to other lenders.
Forbes: Let’s talk about your recent fundraise. How do you think it’s different to raise money from investors for a bitcoin-centric company versus a company building on one of the newer blockchains with lots of different token issuances?
Back: I think there’s been a shift. A venture capital firm called Trammell Venture Partners puts out an annual report that looks at the crypto market investment and the allocation of money to bitcoin related to other blockchains. It used to skew heavily to other networks because of the tokenization phenomenon and VCs wouldn’t have to make a successful product that reached market fit. They could sell tokens as soon as there was liquidity. But I think that’s undergone some transformation in the last year. I think it’s correlated with the market, perhaps because Bitcoin is perceived well due to the spot ETFs.
I also think that the altcoin market has become saturated. There used to be 20,000 coins, but now it’s above 3 million, including memecoins. But then I think the other phenomenon you’ve seen is a lot of interest in Bitcoin Layer 2s. We are the oldest and biggest company in that sector. We also have a bit of a hybrid. We serve consumers with hardware and software wallets, along with our R&D work on privacy tech and things like that. On the institutional side, we have the trading use case.
For us, it’s a good time to expand on that. There is also a way to handle securities in a properly licensed way on Liquid. A few different companies are doing that. One is Stockr, which is a Luxembourg-based securitization fund manager. You can work with them if you’re a technology company to correctly license your shares or financial instruments. We did a couple of those back in 2021. One was a bitcoin mining note. We have a mining farm as well. We were hosting a lot of big company miners like Fidelity’s miners at that time, and we got a lot of retail interest. There’s even MicroStrategy (MSTR) stock on Liquid now so that you can trade it and it has some interesting advantages versus doing that on Interactive Brokers. For instance, it’s tradeable 24/7.
The other novel part of our fundraising is that a significant part of the capital from the lead investor actually was in bitcoin and we kept it in bitcoin. We’ve done that going back to our seed round in 2021 when we raised $21 million. In some ways, we are the original MicroStrategy in that we had bitcoin on a balance sheet. Now, of course, many bitcoin startups also do some of that, but we’ve been around longer than most of them, since 2014.
Forbes: What are the biggest risks to Bitcoin or Blockstream?
Back: I think that many initial risks around Bitcoin have receded because the original perception was that it was quite uncertain if a major country or an economic zone like Europe, China or the U.S. would ban bitcoin. That created a lot of perceived regulatory risk. But I think at this point bitcoin is bootstrapped sufficiently. Now the ETFs mean that the issuing financial institutions are interested in expanding those products and keeping them in market. So I think the banking or financial institutional lobby now wants that to be there. And you’ve got some other allies, too. You’ve got the early stages of sovereign wealth funds and countries buying bitcoin or bitcoin-related products and instruments. So I think a lot of the risks have subsided. I think a lot of the technological risks have subsided. Of course, it’s still challenging to scale blockchains. They’re broadcast mechanisms and I think there’s still room for innovation and improvement about how to do that. Lightning is pretty reliable and nice for point-of-sale terminals and person-to-person payments, but there’s still room for improvement.
Forbes: Thank you.
