The bets that Silicon Valley is placing on Bitcoin are getting bigger. Even though concerns remain about the digital currency's staying power, Bitcoin start-ups are attracting more dollars from well-known venture capitalists.
In the latest move, Blockchain, a Bitcoin wallet provider and software developer, is expected to announce on Tuesday that it has closed a roughly $30.5 million fund-raising round, led by Lightspeed Venture Partners and Wicklow Capital. The investment, raised from Blockchain's first round of outside financing, is one of the biggest in the digital currency industry to date.
Since it was founded in 2011, Blockchain, which is based in Britain, has gained respect in the industry for adhering to the virtual currency's original philosophy of anonymity and decentralisation. Roger Ver, a libertarian known in some circles as the Bitcoin Jesus, was the first backer and supporter of the company.
The price of one Bitcoin, which reached a peak of about $1,150 last year, fell over the weekend to its lowest point of the year after tumbling 20 percent, to about $286, according to CoinDesk, a virtual currency website. Bitcoin was trading on Monday evening at about $330.
But despite the failure of some Bitcoin-related sites and new regulatory challenges, more than $250 million has been invested in Bitcoin companies, most of that in the last 12 months, according to Wedbush Securities, a financial services firm. "Over the course of the next 10 years, Bitcoin is going to have a big impact," said Jeremy Liew, a partner at Lightspeed who will join Blockchain's board. "Where is the central nexus of value creation in this whole industry? It has to be the wallet," he said.
Blockchain's financing round follows a spate of big investments in Bitcoin companies, particularly those that offer storage services. Coinbase, for example, secured $25 million last year in a financing round led by the venture capital firm Andreessen Horowitz. Another Bitcoin company, Xapo, said in July that it had raised $40 million from investors including Greylock Partners and Index Ventures.
Bitcoin has been slow to gain more widespread use in the mainstream. In developed countries, virtual money is still largely the plaything of technology enthusiasts and speculators, though some retailers and stores have trumpeted their acceptance of Bitcoin. In emerging markets, where some see enormous potential for Bitcoin, the infrastructure to process transactions simply does not exist.
For Bitcoin to become more widely adopted, supporters say, the virtual currency must find a unique application that will take it beyond the realm of speculation. And for that to happen, companies must first build a robust platform, which is what Blockchain says it is trying to do. Blockchain has criticized other companies that essentially allow customers to bet on Bitcoin's price, a practice that it sees as straying from the currency's core mission.
Blockchain says it tries to make it easier for people across the globe to use Bitcoin. The company has 2.3 million consumer wallets, making it among the most popular wallet services in the world. It has also developed a search engine that allows users to verify transactions quickly in the currency's public ledger, known as the Bitcoin blockchain. Most of the company's revenue comes from advertising.
Peter Smith, the president of Blockchain, said the company planned to use its new financing to expand and to invest in developing markets. The company says it is working on software to make it easier to transfer Bitcoin. "Right now, we're going into a period where it's not just enough to have Bitcoin be tantalizing," Mr. Smith said. "We need Bitcoin to actually be useful."
It is this emphasis on improving the Bitcoin platform that seems to have attracted Blockchain's latest investors, a group that also included Mosaic Ventures and Richard Branson. In particular, investors said that they had been impressed with Blockchain's ability to establish itself as a key player in the industry without outside capital.
"Blockchain is far and away an early leader in Bitcoin," said Rafael Corrales, a partner at the venture capital firm CRV who personally invested in Blockchain's funding round. "They're actually enabling the entire ecosystem."
©2014 The New York Times News Service
