By Michael J. Casey
The world’s best-funded bitcoin startup has revealed plans to market a line of chips to embed in consumer devices, allowing smartphones and other Internet-connected gadgets to continuously earn digital currency through the process known as “mining.”
The news from 21 Inc., which is also adding former Treasury Secretary Lawrence H. Summers to its advisory board and announcing that tech giant Cisco Systems Inc.CSCO +0.71% and former AMR Holdings PLC chief strategy officer Mark Templeton are investing in the company, ends 18 months of intense speculation within the bitcoin community.
In March, the company said it had stealthily amassed $116 million in fundraising– a record for the sector, based on data compiled by bitcoin news service Coindesk – from a list of Silicon Valley investors that included venture-capital firms Andreessen Horowitz and RRE Venture, chipmaker Qualcomm Inc.QCOM -0.90%, and founders from companies such as eBay Inc.EBAY +0.08%, PayPal, Dropbox Inc., Expedia Inc.EXPE +0.04%, and Zynga Inc.ZNGA -2.62% It kept its product line secret, however.
Now co-founder Balaji Srinivasan has outlined in a blog post various applications for 21’s embeddable mining chip, mostly aimed at what it sees as future “industrial uses” of bitcoin rather than treating mining as a means “simply to get rich.” He also announced that he is taking over from Matthew Pauker as chief executive and that 21’s board will now include Ben Horowitz, the founding partner at Andreessen Horowitz, where Mr. Srinivasan is also a partner.
A spokeswoman said Mr. Pauker would no longer be involved in day-to-day operations but would take on the role of chairman. The former CEO did not respond to an emailed request for comment.
The spokeswoman declined to reveal the total value of funds raised by 21 but said the new investors’ contributions put it “well north of $116 million.”
Bitcoin mining refers to the process of confirming digital-currency transactions performed by a global network of computer “miners” in return for bitcoin rewards. Through this decentralized activity, bitcoin’s core public ledger is authenticated and updated. This vital task is increasingly performed at an industrial scale by high-powered, dedicated computers installed in data centers that aim to maximize the payout and minimize operating costs.
Larry Summers, former U.S. treasury secretary, has joined the advisory board of bitcoin startup 21.
21’s concept of “embedded mining” marks a very different approach. It foresees mainstream consumer devices quietly mining in the background to receive very small, ongoing distributions from a managed pool of bitcoin earnings.
Embedded mining was long assumed to be part of the company’s mission. However, the business philosophy outlined in Mr. Srinivasan’s blog post paints a different vision than many bitcoin enthusiasts had assumed to be the case ever since a regulatory filing revealed an initial $5 million fundraise in November 2013.
Rather than seeking to dominate the highly competitive business of bitcoin mining for profit, 21 is focused on a future “Internet of Things” era in which interconnected appliances will, in Mr. Srinivasan’s words, draw from an “infinite stream of digital currency” to engage in micro-transactions. In theory, it would facilitate a new mode of commerce, interconnectivity and network access that is otherwise impossible under the traditional financial system.
The product launch reflects 21’s view that “bitcoin will ultimately be seen as a fundamental system resource on par with CPU, bandwidth, hard drive space and RAM,” Mr. Srinivasan wrote. It’s a notion of “Bitcoin for convenience, not profit.”
While 21 will in many cases derive bitcoin for its own account, its primary revenue stream will come sales of chips, a spokeswoman said. Separate to those chip sales, 21 expects to split the proceeds of mining with the device owner, depending on “different form factors” related to a variety incentive designs for device sales and contracts.
Just as “the iPhone’s subsidy model allowed a reduced upfront price point, allowing millions of people… to get started with a smartphone without a down-payment … we believe the 21 BitShare chip will enable a new generation of bitcoin-subsidized devices to help get the next 1 billion online,” she said.
Meanwhile, the inclusion of Mr. Summers at 21 marks him as the highest ranking former government official to provide services to a digital-currency startup among a growing list of such appointments.
Mr. Summers declined to comment beyond his quotes in Mr. Srinivasan’s blog post. In that post, he said: “The 21 chip adds a whole new dimension to bitcoin’s potential utility. At first we will be struck by the presence of a technology like embedded mining; eventually we may be struck by its absence.”