In 2001, a 25-year-old unemployed college dropout named Bram Cohen crafted an elegant protocol for moving data around the internet. Titanic numbers of pirated songs and movies, and countless lawsuits, later, he’s putting the finishing touches on what he hopes will be another world-changing protocol—this time for moving around money.
Cohen’s earlier invention was BitTorrent, a specification for peer-to-peer file sharing that delighted millions but angered entertainment moguls, and at one point consumed more than a third of global internet traffic. His latest creation is a digital currency and startup called Chia, aimed at making cryptocurrency acceptable to the financial industry.
“I like hard technical problems,” says Cohen, with a knowing smile. The solidly built 42-year-old met WIRED in a San Francisco skyscraper built as the headquarters for Wells Fargo, which now houses other financial industry tenants. Chia Network, as Cohen’s startup is called, plans to move into its own space in the building soon.
After that move, Chia’s neighbors will include the west coast office of the Securities and Exchange Commission. That may seem bold, as the regulator pressures cryptocurrency startups for flouting securities rules. But Cohen, Chia’s CTO and chairman, is happy to have the SEC looking over his shoulder.
SEC complaints about the frothy cryptocurrency market have focused on ICOs, or initial coin offerings, in which startups sell units of new or planned cryptocurrency as a quick and easy way to raise capital. Cohen says he plans a more distinctive route by filing for a conventional initial public offering before the end of this year, to list shares on a small-cap public stock exchange. Chia’s revenue will come from helping banks build systems to use the cryptocurrency of the same name for functions like international transfers. The company will also own a significant chunk of available Chia coins, which the company hopes will become a valuable commodity over the longer term; but it won’t be selling coins in an ICO.
To pull all that off, Cohen needs to repeat his technical success with BitTorrent—and avoid the legal and business challenges that followed. Cohen’s file-sharing protocol was wildly successful, and won interest from companies such as Facebook, which has used it to speed the distribution of internal software updates. Yet despite raising more than $30 million in funding, BitTorrent Inc., the startup Cohen cofounded to maintain and monetize his free-to-use creation struggled to build a business. In 2005 the company agreed to work with the Motion Picture Association of America to remove links to copyrighted content from its search engine. Cohen left day-to-day operations at BitTorrent to cofound Chia in August 2017, and vacated his seat on the board this past July.
On the technical side, the Chia cryptocurrency is the result of Cohen looking hard at the guts of Bitcoin and trying to design substitutes that are less dangerous to the planet, and more palatable to banks. “Satoshi was not a really great protocols engineer,” Cohen says, referring to the pseudonymous person or persons who announced bitcoin in 2008 using the name Satoshi Nakamoto.
Bitcoin’s environmental problem is rooted in the way Nakamoto’s design secures digital transactions. It incentivizes people to run “mining” software that races to solve cryptographic puzzles and win transaction fees or newly minted bitcoin. Although the currency is still a niche interest, one analysis last year estimated bitcoin mining consumes as much power as Serbia, a country of 7 million people.
Cohen gives his version of mining the more bucolic name “farming.” Similar to bitcoin, participants compete to win Chia cryptocurrency in a race that also processes transactions. Unlike in Nakamoto’s system, maximizing your chance of winning depends on amassing disk storage space, not running more powerful—and energy-hungry—hardware. Cohen reckons that there are already countless computers with spare storage in the world that could start farming Chia alongside their existing uses. Anyone motivated to buy more storage just to earn cryptocurrency wouldn’t have an outsized effect on the world as bitcoin miners do, he says.
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Chia’s system depends on two new cryptographic protocols, one that verifies the storage a computer has committed to farming, and the other that guards against fraud while determining which farmers win rewards for verifying transactions. Anyone curious about the details can read the two peer reviewed papers Cohen has coauthored with academic mathematicians. On Wenesday, he launched a competition that invites the mathematically minded to test the speed or security of the cryptography behind Chia farming. The winners will receive $100,000—denominated in bitcoin because Chia has not yet launched its currency.
When the Chia currency does launch sometime next year, Cohen says it will be attractive to financial institutions because of its greater flexibility than bitcoin. Like Nakamoto’s cryptocurrency, Chia is built around a distributed, unchangeable ledger of past transactions. But it’s also designed to support custom add-ons that can automate contracts, holds funds in escrow, or implement features such as chargebacks not supported by bitcoin’s design but central to how the financial system deals with fraud. “The idea is to make Chia the premier cryptocurrency based off of our technology,” Cohen says. “A competitor to bitcoin, but better.”
Unsurprisingly given Cohen’s track record of delivering technology that makes the internet more useful, Chia has attracted leading Silicon Valley venture capitalists. It raised $3.4 million this spring, including from Greylock Partners and Andreessen Horowitz, both of which previously invested in leading cryptocurrency exchange Coinbase. Katie Haun, a partner with Andreessen, says Cohen and his cofounder Ryan Singer’s plan to IPO rather than ICO made the company a more attractive investment. “The early ICO market is full of abuse,” says Haun, who as an assistant US attorney helped take down the digital black market Silk Road. “Chia’s approach provides a roadmap that other crypto projects can follow.”
Chia’s journey to a public listing may not be smooth. Singer, who recently took over as CEO from Cohen, expects some complicated conversations with the SEC. He’s convinced they will be worth it. “Going public is difficult and expensive but we think it’s an important way to professionalize the relationship between us and investors,” says Singer. He previously cofounded the early bitcoin exchange Tradehill, which shut down in 2012 saying it lacked the money transmitter license necessary to operate.
Professionalism isn’t a term commonly associated with the cryptocurrency market, which has become synonymous with hype, fraud, and questionable hijinks such as conference catering spiked with marujuana. “It’s basically the dot-com frenzy all over again, investors have to try and separate hype from information,” says Atif Ellahie, a professor at the University of Utah business school. “Taking on the cost and complication of going public could help make Chia more attractive to investors,” he says.
Ellahie recently showed with colleagues at Columbia University and London Business School that some cryptocurrency investors are ready for more disclosure. Analyzing almost 800 ICOs between 2014 and 2018 that collectively raised more than $13 billion revealed that projects disclosing more technical and financial information were more likely to be successful. It’s starting to look inevitable that US regulators will place more controls on cryptocurrency projects, Ellahie says.
Chia’s IPO strategy could be a savvy way to get ahead for that. Cohen says arguments that forcing the sector into line with conventional regulations would quench technical innovation are wrong. “If you start loosening those up you don’t get technologists coming in with better things, you get scam artists coming in and stealing things,” he says.
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