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Blockstream, Startup at Center of Bitcoin Brawl, Raises $55M

Correction: An earlier version of this story incorrectly identified Austin Hill and Adam Back as core developers of the bitcoin protocol. The other founders of Blockstream mentioned in the article volunteer as core developers of the open-source software.

Blockstream, a tech startup that employs several core developers of the bitcoin protocol, has raised $55 million in venture capital to develop its sidechain technology and expand its global operations.

The fundraising is in the same league with the more than $50 million recently announced by rival blockchain firm Digital Asset Holdings, founded by banking veteran Blythe Masters, and comes as banks are experimenting with all manner of shared ledgers. The technology is being touted as a way to make finance more efficient, resilient and transparent.

The fundraising comes as Blockstream's principals are embroiled in a feisty, high-stakes debate in the bitcoin community over when and how to scale the network.

Horizons Ventures, AXA Strategic Ventures and Digital Garage led the Series A funding round, which brings the startup's total venture funding to $76 million to date.

Blockstream, a developer of distributed-ledger and smart-contract software, plans to use the funds to expand operations and bring blockchain innovations to the finance industry through its sidechain technology, it said in a press release set for release Wednesday. Sidechains allow companies to trade assets across multiple blockchains — public and private — with bitcoin's public ledger as the "parent chain."

François Robinet, managing partner at AXA Strategic Ventures, said in the press release that sidechains "will allow interoperability between different chains" and "drive the transformation of insurance and asset management businesses."

Blockstream was founded by Austin Hill, Adam Back, and bitcoin core developers including Gregory Maxwell and Pieter Wuille. In October it launched its first commercial sidechain offering, called Liquid. Last week it announced a partnership with PricewaterhouseCoopers to bring the technology to the consulting giant's clients.

Mike Hearn, the bitcoin core developer who very publicly quit the project last month, accused Maxwell and other programmers employed by Blockstream of stonewalling what he characterized as desperately needed changes to the protocol. The Blockstream camp has cited security concerns and the risk of further centralization in resisting proposals to quickly increase the permitted size of transaction "blocks," currently capped at one megabyte. But bitcoiners on the other side of the debate say the company has a vested interest in limiting bitcoin's volume, since doing so would drive transactions to the sidechains. In response to such claims, Maxwell has noted that Blockstream uses time-locked bitcoins, which cannot be accessed before a specific future date, as incentive compensation for its employees, giving them a stake in bitcoin's long-term success.

"One concern is Blockstream is a very private organization that needs to make money," said Siddarth Kalla, a bitcoin enthusiast who works as the chief technology officer of Acupay, a securities processing firm in New York. "Does it have an outsized influence on where the future of bitcoin is going? It's especially relevant in the block size debate because the people behind the Bitcoin Classic [proposal] want to increase the block size with a hard fork" — a change to the software that would require all users to upgrade.

A spokeswoman for Blockstream could not immediately comment Tuesday evening.

Existing investors in Blockstream — including Yahoo! co-founder Jerry Yang's AME Cloud Ventures and Khosla Ventures — also participated in the round. Blockstream previously raised $21 million in seed funding in November 2014.




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