Sam Reynolds

<div id="highlights-block_614e25af424a7" class="highlights">
 <ul>
 <li>Blockstream sees itself as a bitcoin financial infrastructure company, and promises to do everything you’re excited about on Ethereum without using the ‘world’s computer’ or a layer-1</li>
 <li>Part of company’s recent $210 million round will be used to develop institutional-grade miners and their chips, which is no cheap task</li>
 </ul>
 
</div>



Blockworks recently sat down with Blockstream’s Chief Strategy Officer, Samson Mow at the company’s headquarters in Victoria, BC, to talk about the company’s plans for its recent $210 million round. Then, with less than a week to go before Canada’s federal election, Mow first had to talk about his frustrations with politicians. Canada — home to the world’s first bitcoin ETFs — is actually a pretty unfriendly place for crypto, said Mow.



Blockstream, with its fresh <a href="https://cms.blockworks.co/bitcoin-infrastructure-firm-blockstream-reaches-unicorn-status-with-3-2b-valuation/" target="_blank" rel="noreferrer noopener">round</a> of funding and newly minted unicorn status, should be the kind of company that politicians are head over heels for —&nbsp; it employs tech workers and pays them well. Plus Blockstream, as a Bitcoin infrastructure company that focuses on using hydro and nuclear power, could be considered to be producing green tech jobs.



<h3 class="wp-block-heading">A surplus of power, but nothing to sell</h3>



Blockstream’s Quebec-based mining operations exclusively use hydropower thanks to the province’s energy company, Hydro Quebec, which built out massive capacity in the middle of the twentieth century with sweetheart financing deals from the Canadian Feds. Power is cheap and plentiful in the province.&nbsp;



Despite having a power surplus, Hydro Quebec, the provincial-owned company is <a href="https://www.cbc.ca/news/canada/montreal/cryptominers-are-stuck-in-limbo-as-hydro-qu%C3%A9bec-suspends-requests-for-power-1.4644682" target="_blank" rel="noreferrer noopener">notoriously difficult</a> to deal with as it places moratoriums on the amount of power miners like Blockstream can buy.



In fact, Compass Mining, another bitcoin mining company, noted in a recent <a href="https://compassmining.io/education/content/images/attachments/Compass%20Mining%20North%20American%20Bitcoin%20Mining%20Index.pdf">industry r</a><a href="https://compassmining.io/education/content/images/attachments/Compass%20Mining%20North%20American%20Bitcoin%20Mining%20Index.pdf" target="_blank" rel="noreferrer noopener">e</a><a href="https://compassmining.io/education/content/images/attachments/Compass%20Mining%20North%20American%20Bitcoin%20Mining%20Index.pdf">port</a> that the high level of bureaucracy in Canada has hindered the growth and scalability of bitcoin mining.



“If they&#8217;re willfully ignorant, there&#8217;s not much you can do about it,” Mow said. “So if it&#8217;s a politician fighting Bitcoin energy usage — maybe they&#8217;re spearheading some wind project or something — it&#8217;s going to follow the money where it goes.&#8221;



“There’s always some ulterior motive. Elon Musk was <a href="https://cms.blockworks.co/crypto-industry-skeptical-on-musks-bitcoin-u-turn/" target="_blank" rel="noreferrer noopener">FUDing Bitcoin</a> because he wants miners to buy his carbon credits,” Mow added.



When possible, Blockstream’s mining operations source power from hydro and nuclear, what Mow described as the best zero-emission sources. He prefers those two power sources over wind and solar because helicopters must de-ice windmill blades, and the blades themselves get buried at the end of their serviceable life, while solar power’s photovoltaic cells have a long-tail carbon footprint from their rare-earth heavy manufacturing supply chain, he said.



<h3 class="wp-block-heading">Solana as a distraction</h3>



Ethereum was initially developed because of the belief that Bitcoin, the protocol, had limited programmability which would make the execution of smart contracts impossible. The Liquid Network, a sidechain-based settlement network, fixes this challenge, as well as Bitcoin’s settlement problem by moving things to a sidechain instead of the main Bitcoin network.&nbsp;



As interest in Ethereum as the rails that power everything from DeFi to NFT has grown, so has the congestion on the chain. With this congestion comes higher gas fees, and, as a result, a <a href="https://cms.blockworks.co/competition-in-layer-1-space-continues-to-heat-up/" target="_blank" rel="noreferrer noopener">constellation</a> of layer-1 blockchains like Solana that are all set to help clear this traffic jam.



“I don’t think too much about Ethereum,” Mow said, saying that the protocol as well as its layer-1s and layer-2s have a centralization problem.



Protocol partisanship aside, Mow might have a point in that the reliance on centralized services seems to be a flaw for Ethereum and others. Think about the reliance the industry has on the ubiquitous interface layer called Geth. Bugs in Geth almost caused Ethereum to do a <a href="https://cms.blockworks.co/bug-in-ethereum-interface-causes-inadvertent-chain-split-chaos-on-network/" target="_blank" rel="noreferrer noopener">chain split</a> in late August.



As another example of the flaw, Mow imagines a scenario where a security token offering (STO) is creating a whitelist of investors for a regulatory compliant token issuance which tracks ownership of the digital asset. And then, Ethereum does a chain split which would create duplicate records in parallel.&nbsp;



“How would you explain that to the SEC?” he asked, rhetorically. You can’t, really. Instead, there are side chains to the rescue, touting Blockstream’s asset management suite called <a href="https://blockstream.com/amp/" target="_blank" rel="noreferrer noopener">AMP</a> which runs on its Liquid Network and was used to help process its<a href="https://stokr.io/blockstream-mining" target="_blank" rel="noreferrer noopener"> recent STO fundraise</a>.



STOs have a world of potential ahead of them, Mow thinks, since there’s now liquidity in place as well as the infrastructure. You just can’t annoy the regulators, the third pillar. Having key regulatory data for the STO become duplicated thanks to an Ethereum bug would drive them ballistic and push back the offering class.



“I’ve been around long enough to see all these [altcoins] get pumped up, and then they vanish,” Mow said, asking where some of the best performing altcoins and tokens of 2016-2017 now are. “Shit runs downhill. Everything but Bitcoin is a distraction. Solana is a distraction.”



<h3 class="wp-block-heading">Miners, a hydro dam, and maybe a fusion reactor</h3>



Ultimately, the Bitcoin network needs miners as much as it does energy as the decentralization and strength of the network’s mining capacity lends to its security.



While many mining operations are in the process of <a href="https://cms.blockworks.co/bitcoin-mining-shifts-to-n-america-amid-fee-compression/" target="_blank" rel="noreferrer noopener">relocating</a> to North America from China given the hostile regulatory environment in-country, the mining machines are still made in China. Although this is changing as some parts of the manufacturing are moving to countries near China that don’t have the same trade war tariffs, there’s still a market for a made-in-North America miner. And that’s one of Blockstream’s post-fundraise projects.



To be sure, mining is one of the core components of the company, but as a Bitcoin infrastructure firm there’s more to Blockstream than just mining. There’s so much that needs to be built on Bitcoin — and Blockstream has freshly raised capital that values the company at $3.2 billion.



“We’re working on the first made-in-North America miner,” Mow said, saying that there’s a team already in place to design the ASIC — the chip at its core. Mow also said that this will be an “enterprise-grade” miner, designed to fit in a standard server rack in data centers instead of the usual ‘shoebox’ size miners are right now.&nbsp;&nbsp;



In order of importance, next to mining is energy. Not for this fundraise, but maybe one or two down the road — in a decade’s time — Mow thinks that Blockstream could one day own a whole hydro dam. Or, maybe a fusion reactor. “How do you fund something experimental? Well, you have bitcoiners with billions of dollars that are looking for cheap, reliable power,” Mow said. “Fusion is the future of humanity, and we’re probably going to get there with Bitcoin.”

Samson Mow

Newsletter

Blockworks Research