Reid Hoffman: First, understand the value of Bitcoin?

LinkedIn founder and Silicon Valley tycoon Reid Hoffman published an article on his LinkedIn, explaining why he invested in Blockstream, a Canadian cryptography innovation company, and how he views Bitcoin and its value. The full text is as follows:

Bitcoin is always seen by the media as a virtual commodity with wildly volatile prices, more suitable for speculation than gold, subprime bonds, and tulips.

I have a different perspective.

What is Bitcoin? It is actually a technology that innovates Internet communication protocols. It can create a new trusted network, foster a huge economic ecosystem, and continuously generate value.

It is not worth spending so much energy arguing whether Bitcoin is more like a commodity or a currency. The revolutionary nature of Bitcoin lies in the blockchain technology, which relies on countless computers around the world to maintain a distributed ledger. Every time a Bitcoin transaction occurs, it will check this public ledger, which keeps all transaction records of everyone.

Blockchain means that "trust without trust" can be realized - the parties to the transaction do not need to know or trust each other - and there is no need for the intermediaries (author's note: such as financial guarantee companies) that are born for this purpose. In this way, blockchain greatly reduces the market's demand for third-party payment processors, saving transaction fees in this link; it can also eliminate credit card fraud; it provides the possibility for convenient promotion and operation of micro-payments - just imagine that when you read the Wall Street Journal or the New York Times, you can "pay" the author of your favorite article with one click; blockchain makes cross-border trade (payment) easier, especially in places where there is no credit network or sound banking system.

In addition, blockchain can also facilitate trustless transactions of various digital assets - domain names, digital contracts (such as digital property rights of physical assets such as cars and houses) (Recommended reading: Bitcoin Revolution, Not Just a New Currency + Color a Bitcoin: Using Bitcoin to Transform the Ticketing Industry). It enables digital assets stored in the blockchain to automatically execute certain programs when preset conditions are met - yes, Bitcoin is a programmable currency - to create self-executing wills, automatic dividend distribution, automatic agency and notarization...

In short, the concept of blockchain and the various types of transactions it can enable can consolidate and strengthen the foundation of the Internet and greatly expand the way people interact.

What’s even more amazing about Bitcoin and this “trustless trust” architecture is that it is open source and a public good—no one (such as a consortium, political leader, company, association, etc.) can own or manipulate it. This is the core of Bitcoin’s value and will be a huge success. But then again, this may also mean that Bitcoin’s core code will be very slow to upgrade. Now it basically relies on developers to volunteer to develop Bitcoin projects in their spare time—but only when the Bitcoin development community reaches a consensus (and standards) can the upgrade of Bitcoin code be effectively turned around.

Hundreds of millions of dollars in venture capital have been invested in bitcoin startups: wallets, exchanges, and other valuable products and services that make it easier for individuals to obtain and use bitcoin. These startups are attracting more and more money, and the services are improving rapidly.

To keep up with the pace of development of Bitcoin companies, Bitcoin's core technology also needs investment and innovation. Unfortunately, the current situation is that most developers who can expand Bitcoin's core functions and innovative ideas are working on their own cryptocurrencies - these "altcoins" are inspired by Bitcoin's code, technology and ideas, but they are isolated islands from each other.

It is undeniable that these "altcoins" bring interesting things and new possibilities. But for now, users, merchants, and companies have gathered on the Bitcoin platform - this is also Bitcoin's first-mover advantage. For this reason, it is particularly important and valuable to promote the development of Bitcoin, increase its core functions, and improve its flexibility. To achieve this goal, it is necessary to keep Bitcoin open to all users and developers, so that it can continue to be a public good.

This is the original intention of my personal investment in Blockstream. After discussing with my partner Greylock, we both felt that Blockstream was the best solution to achieve this goal. Blockstream's primary goal is to strengthen the openness and functionality of the Bitcoin ecosystem through sidechain technology, moving towards making Bitcoin a public good. Investor returns are of course also a goal, but they are secondary.

The founders of Blockstream are Austin Hill and Adam Back. I first met Austin in the 1990s. He was the CEO of Zero-Knowledge Systems (author's note: an Internet privacy company with a good reputation in the industry). Adam developed the hashcash algorithm - Satoshi Nakamoto relied on the hashcash algorithm to generate and confirm Bitcoin. These two have accumulated decades of experience in the fields of encryption, trust, and identity.

Blockstream's idea is to expand Bitcoin's functionality through sidechain technology. Today, when developers want to add new features to Bitcoin - such as stronger anonymity - they have two choices: develop software and hope that the Bitcoin core development team can use it, or create a "altcoin" - the latter can promote innovation, but it cannot take advantage of and is difficult to subvert the network effect that Bitcoin has already generated: developers, entrepreneurs, merchants, customers, and peer-to-peer nodes have already gathered here, which is a reality that needs to be recognized.

Sidechain technology allows developers to add new features and functions to Bitcoin through "two-way wedging" without modifying the Bitcoin core code, thereby innovating in a faster, more flexible and distributed way.

However, implementing sidechains requires certain changes to Bitcoin Core. Unless the Bitcoin Core development team and the majority of the community believe that this change can indeed improve the overall functionality of Bitcoin and make Bitcoin an open, decentralized public good, the sidechain strategy will be difficult to implement.

This is why I participated in the first round of financing as an individual, and why Blockstream will operate like Mozilla, the father of Firefox. Our primary goal is to maintain and strengthen the open ecosystem of Bitcoin. Blockstream's corporate structure gives us more freedom and flexibility to prioritize the public goods characteristics of Bitcoin, and then investor returns.

Over time, I firmly believe that creating new features on Bitcoin - rather than creating "altcoins" - will bring rich returns to all participants in the Bitcoin ecosystem, individuals, merchants, developers, entrepreneurs, and investors. In order to more fully apply the "trustless trust" architecture, we also need a series of new companies, products, and services. A few months ago, I guided Greylock to invest in a Bitcoin wallet company Xapo.

Bitcoin is constantly evolving, and Blockstream makes it easier to add new features to Bitcoin, helping Bitcoin maintain its first-mover advantage. Blockstream's success will lead to a new wave of technological and entrepreneurial innovation. It will help the Bitcoin ecosystem become an open and adaptable platform, which will leave ample room for new supporting products and services.