Victoria’s Blockstream Helps Global Adoption of Bitcoin as Legal Tender
Thousands of Salvadorans recently took to the streets to denounce their president, Nayib Bukele, who called himself the country’s âdictatorâ on Twitter. Some protesters carried anti-bitcoin signs to express their displeasure with his decision to make the cryptocurrency legal this summer, a move he said would strengthen the economy and reduce his dependence on his currency. main, the US dollar.
Bitcoin’s controversial status in El Salvador is in part due to Blockstream, a Victoria-based company founded in 2014 that builds products that allow cryptocurrency to be stored, traded, and mined. Mining is an energy-intensive procedure that uses computing power to solve complex equations and generate cryptocurrency, a process called proof of work.
Blockstream worked with the government of El Salvador to implement the infrastructure that would allow bitcoin to be adopted and help its citizens to mine it. The country has set up a mining operation near volcanoes, using geothermal energy to power its facilities.
âThey had no choice but to embrace bitcoin because they are wedded to the US dollar,â Samson Mow, Blockstream’s chief strategy officer, told The Globe and Mail.
âWhen the United States prints money, there is a first-rate advantage for the Americans, isn’t there? They benefit from infrastructure. But for Salvadorans who use the dollar as their currency, there is nothing for them, they are just devalued … so their escape is bitcoin.
Mr Mow said other countries were interested, adding that Blockstream had spoken with an adviser to the Colombian president – although that country’s government had not announced any plans to make bitcoin legal tender.
And he says he thinks governments in Canada should support cryptocurrency as well, especially when it comes to mining.
Blockstream has been mining bitcoin in Quebec since 2017. The province offers relatively cheap renewable energy, but its electric utility has imposed moratoria on mining in the past and tightly regulates the industry.
According to the Cambridge Bitcoin Electricity Consumption Index, 3% of the computing power used for mining is based in Canada, mainly in Quebec. More and more miners have recently moved their operations to Canada, after China, which had dominated the bitcoin mining industry, recently banned the practice. However, Quebec regulations have led Blockstream to expand its mining activities in the United States, where there is less paperwork.
Adam Back, CEO of the company and a pioneer in the development of bitcoin mining, said that easing mining regulations in Quebec “will bring you a lot of investment in Quebec, which is not the richest province.
âThere are a lot of ripple effects: construction, electrical engineering center, data center operators, management personnel to operate itâ¦ so it’s like the era of the gold rush and you are sitting on a gold mine and you decide not to mine it for confusing reasons.
Mr. Mow agrees.
âWe could be such a wealthy nation if we decided to mine bitcoin,â he said. “I hope Canada wakes up and understands that bitcoin is a revolution – and we need to be at the forefront of that revolution.”
Blockstream has the ambition to help replace the global fiat currency system with a bitcoin-based economy. Adopting it, the company argues, would create a sort of modern gold standard, where, ideally, an asset-backed economy dampens inflation, provides stability, and takes power away from governments with a Keynesian impulse to spend heavily.
Mr. Mow argues that “money printing” is the only real lever central banks can pull to intervene in the fiat economy, an instrument of brute force that he sees as unsustainable and intended to create hyperinflation. He is concerned about the effect of heavy public spending during the pandemic and the associated inflationary risks. Adopting bitcoin, he says, could mean avoiding a debt crisis or the episodes of hyperinflation that have plagued countries like Argentina.
Dr. Back wants his business to be successful, but profits are, at least in part, a means to a bigger end.
âWe’re not just trying to be successful in the business, it’s the other way around,â he said. “We’re trying to get the mission done, and making money as a business is fuel.”
Changing the economic paradigm does not come cheap. Since its inception, Blockstream has raised $ 300 million in capital to fund its operations and reached a valuation of $ 3.2 billion after its last fundraising in August. The company also holds Bitcoin on its balance sheet, and it has paid off: the price of the token has appreciated by around 10,000% over the past five years.
Dr Back says the company will still need more money to meet its goals.
âWe could do another raise or an IPO,â he said. âPeople sometimes compare us to SpaceX because [we build] big plans that need to be done that no one else seems to be doing.
Mr Mow says Canada could play a key role in the bitcoin revolution. He sees the country’s regulatory landscape as hostile to cryptocurrency exchanges, many of which have chosen not to operate in Canada because they must register with provincial and territorial regulators.
Although Blockstream is not in the stock exchange business, Mr Mow says securities regulators lack sophisticated cryptocurrency knowledge. He cited, for example, the Ontario Securities Commission decision in September to ban Tether, a cryptocurrency pegged to the U.S. dollar, without providing detailed reasons for the decision.
âThere is a lot of controversy around [Tether], which is manufactured, âMr. Mow said. âThey just read the mainstream press and think, Oh, there’s something wrong with that. “
After The Globe spoke with Mr Mow, Tether was fined US $ 41 million by a US securities regulator for not having sufficient currency reserves. The move came a week after a Bloomberg report that Tether was not fully backed by U.S. dollars, as its senior executives had always claimed.
After Tether was fined Mr Mow told the Globe it was “actually a point of clarity” as the regulator made it clear that lack of reserves was a problem in the past – that he was not punishing him for his current reservations. He added that another US-indexed stablecoin is under investigation by a US regulator, but the OSC has not banned it.
âIt just doesn’t make sense and it feels like the OSC is just lazily reading the headlines,â he said.
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