21: step forward or back?

Tuesday 26 May 2015

Secretive bitcoin startup 21 recently secured record VC funding. We are only just now learning more about its plans to mainstream bitcoin - and why.

At the end of 2014, bitcoin startup 21 (then known as 21e6, a reference to the total number of bitcoins allowed by the protocol) secured a massive $116 million in venture capital funding - more than any other organisation to date. Since then, details have slowly dripped out. The first tranche of these were snippets about the company’s plan to embed mining chips - called the BitShare - in everyday devices, news that prompted speculation of bitcoin-enabled toasters. You can sign up for a dev kit on their website

Toaster

Perfect toast. And I mine bitcoins in my spare time.

More recently, reps from the company have commented that chips could be included in networking and media equipment, even USB chargers - things that tend to be on a lot, rather than kitchen items - and used to generate revenue in the course of their everyday use. One of the benefits of this might be to reduce the costs of certain services for the consumer. CEO Balaji Srinivasan commented, ‘A wide variety of new Internet-connected devices require an associated SAAS [software as a service] subscription to work. Rather than paying a number of different subscription bills, by including the right-sized 21 BitShare with the device one can under many scenarios wholly or partially defray the expense of the cloud service.’

The economics of this remain unclear. The first law of thermodynamics (‘there is no such thing as a free lunch’) raises questions about how efficient both mining rigs and markets would need to be to make this work sustainably - a variation on the problems faced by miners encountering soaring difficulty now.

On-boarding

One strength of the approach is that it on-boards consumers who might otherwise never go through the hassle of acquiring bitcoins. The current system of sending funds to shady and unregulated exchanges is a major hindrance to adoption, and even when regulated exchanges begin trading it’s unclear whether enough people will grasp the benefits of digital money to dip their toes in the water this way. Having money just appear, as if by magic, on a hardware wallet embedded in your media system or router is a much lower-friction approach.

Srinivasan’s blog is well worth a read, as it’s something of an exercise in blue-sky thinking - raising all kinds of different use cases for the company’s embeddable chips. And if it takes off, even a little, it will have some significant implications.

Where the future lies

One effect is the re-decentralisation of mining that it could bring. 21’s chips will revolutionise the mining space, distributing responsibility for securing the network over potentially millions of devices, rather than a handful of centralised pools. (This is, of course, assuming that they are dealing with the block rewards issue in an appropriate way. If there is a ‘21’ pool then it raises the very real risk of a 51% attack.) Addressed intelligently, this would recover the original aims of decentralised mining and allow sceptics to breathe a sigh of relief over the influence of a few big mining pools.

One of the biggest implications is, simply, that bitcoin will go mainstream as an online payment method. It will become commonplace to pay for all kinds of services with your bitcoin balance, assuming they’ve done their economic modelling correctly - and, despite $116 million in VC funding, that’s by no means a given. (The dot-com boom and bust is a great example of how big money isn’t always smart money.)

Where it has caused criticism is in what will be for sale. The advent of a new payment method raises the possibility of providers charging for new services, ones they previously would not or could not have done. In a society where money is truly frictionless, what will now have charges attached to it? Some of 21’s ideas have included paying for bandwidth and paying to skip ads on streaming media. The net neutrality brigade are not impressed. On the other hand, there’s the prospect of buying cheaper cloud and software services through the possibilities offered by micropayments, and much else besides.

How will it all end? No one knows. That’s one of the things that makes crypto so fun.

Brandon Hurst


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