Does Blockchain Tech Company Blockstream Have a Conflict of Interest?

What's Blockstream?

Blockstream is a blockchain technology company founded in 2014. The company’s known for its innovative blockchain solutions, the high-profile nature of its founders, and…  controversies.

It has several projects in its portfolio, including Bitcoin sidechain Liquid, a settlement network for faster and more private crypto transactions. Another is Blockstream Green – a Bitcoin wallet, a Block Explorer for blockchain, and Blockstream Satellite – a satellite service through which people can stream the Bitcoin blockchain from space for free. Blockstream has also been at the forefront in developing the layer 2 solution Lightning Network.

CEO Adam Back is the founder of Blockstream. Adam is best known for creating Hashcash – which implemented the proof of work algorithm that Satoshi based Bitcoin on. Gregory Maxwell, who’s known for his work on the Bitcoin protocol and is the inventor of Taproot and Graftroot, is also highly visible in the company. Other key figures include Peter Wuille, Austin Hill, Erik Svenson, and Jorge Timon. Matt Corallo, who now leads Bitcoin development efforts at Square was also an early member, as is Lawrence Nahum, Christopher Allen, and Andrew Poelstra.

Blockstream’s Biggest Projects

Blockstream has been a force in Bitcoin. First, it’s a major funder of Bitcoin’s development, having raised $70m+ in funding from venture capital firms. The company also created Blockstream Satellite as an “alternative method” for accessing the Bitcoin blockchain. The Blockstream Satellite is an invaluable contribution to Bitcoin, because it enables people around the globe to stream the Bitcoin blockchain without the internet. This means even if you’re living in some remote corner of the world, you can access and interact with the Bitcoin network.

The Liquid sidechain is another major Blockstream project. Built off of the Bitcoin blockchain, it’s a settlement network for traders and exchanges. Liquid moves funds quicker than the main blockchain and can handle large volumes of transactions for a multitude of Bitcoin businesses.

Liquid is what’s known as a “federated sidechain” – which means it’s a sidechain managed by a group of companies. Currently, the federation has 50+ members, including exchanges, trading desks, brokers, gaming companies, and other institutions. Some of the bigger names include Bitfinex (whose membership is controversial), Ledger, Coinshares, Huobi, and Okcoin.

But that right there is the caveat. Die-hard Bitcoin fans are not enthused with this arrangement because this federation is not advancing the development of Bitcoin’s main chain but rather some businesses’ interests.

Conflict of Interest Allegations

Some Bitcoin quarters contend that where Bitcoin comes short, that’s where Blockstream profits. Instead of promoting Bitcoin’s main chain development, Blockstream has created a federated chain to lure transactions off Bitcoin’s main chain. Note that there’s nothing decentralized about a federated chain. For the Bitcoin community, this is not in order for a company that purportedly champions decentralization.

It’s not just Bitcoin. Blockstream appears to have centralized a great deal of talent and resources. Blockstream has brought in many of the early developers of Bitcoin, which is curious for them to now work for a centralized, for-profit company.

Blockstream’s rather unseemly relationship with Bitfinex has been another source of contention. This was glaringly obvious in 2019 during the exchange’s $850 million controversy. High-profile Blockstream founders were defending Bitfinex. Community members think Blockstream sided with Bitfinex because it was an early investor in the company – something that Blockstream doesn’t necessarily make public knowledge.

Encroaching on Centralization

The other issue of contention is Blockstream Satellite and Blockstream Mining. Blockstream Satellite is a trailblazing contribution to Bitcoin, and the community appreciates the company for it. But Blockstream’s massive mining operations have raised the question of centralization. Blockstream waded into Bitcoin mining to reduce centralization. The idea was to redistribute Bitcoin mining geographically, given that over 60% of it takes place in China.

But legit fears exist about Blockstream overextending its hand on the Bitcoin ecosystem. It’s simply too big and powerful to have all these tarantula-like arms all over Bitcoin.

Pushing Back

Blockstream has firmly pushed back against these accusations. CSO Samson Mow told Forbes he doesn’t see Blockstream’s Bitcoin mining operations as encroaching on centralization. According to Mow, Blockstream’s foray into Bitcoin mining decentralizes the ecosystem. First, Blockstream does only a bit of the mining with their available power, while the rest of that power is allocated to customers. In addition, the company utilizes the BetterHash mining protocol, which customers can tap and run their own nodes.

What’s more, some people think Blockstream might have a conflict of interest, but it’s not that much of a deal. Shapeshift CEO Erik Voorhees told the Bitcoin.com podcast that Blockstream might have a conflict of interest, but “conflicts of interest exist everywhere all the time; no one’s immune from them.”

Final Thoughts

Blockstream has done great things for Bitcoin. The Blockstream Satellite is a first, and its usefulness for the space is apparent.

Its large Bitcoin mining setup has chipped at China’s near-monopoly of operations, which has enhanced decentralization even if to a small extent. That doesn’t mean there aren’t eyebrow-raising things about Blockstream. But it can be agreed Blockstream has contributed immensely to space.