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4:39 pm ET
Jan 22, 2014

Angel Investing

New Use for Bitcoin: Compensation for Open-Source Software Development

  • Article
  • Comments
  • Angel Investing

  • BitAngels

  • Bitcoin

  • open-source software

  • By
  • Yuliya Chernova
    • Biography
      • Biography
    Tomohiro Ohsumi/Bloomberg News

    Bitcoin, a digital currency introduced in 2009, is already being used by investors who place bets on its volatile price, and increasingly in retail, with Overstock.com being one of the latest to accept Bitcoin as payment.

    Another application of Bitcoin that’s gaining traction is as a means of rewarding programmers in open-source software projects.

    “The real potential [of Bitcoin], the mass-market potential, is the stuff we are working on with these new projects,” said David Johnston, executive director of BitAngels, a loose network of angel investors that back Bitcoin startups. “It’s where we replace more consumer-facing things, like eTrade or Dropbox ,” he said. “In the next couple of years this next wave of applications will be built on top of Bitcoin.”

    Open-source software is often developed by many programmers who volunteer their skills. Some developers have found ways of getting compensation for their work via crowdfunding on Kickstarter or on BountySource.com, a platform specifically for funding open-source software development.

    Mr. Johnston believes that Bitcoin may be another and, possibly, better way of sponsoring open-source development. “It’s a new way to monetize open-source,” he said.

    BitAngels have already invested the Bitcoin equivalent of $5 million into MSC Protocol, an open-source platform that runs the Mastercoin.org website. In this case, Mr. Johnston said, 50 members of the BitAngels network used Bitcoin to buy digital tokens called mastercoin. The bitcoins that were received are now used to entice programmers to develop new features built on MSC Protocol.

    Currently, the main feature is a digital-currency exchange, Mr. Johnston said. Down the line, there may be other uses for MSC Protocol, such as enabling people to virtually hand over digital documents like deeds and titles to one’s car or house.

    The idea, Mr. Johnston said, is that as the Mastercoin platform gets developed and provides new features, the value of mastercoin–the digital tokens that the platform uses to conduct transactions–increases, and the original investors can get a return on their investment.

    The Mastercoin protocol doesn’t just use Bitcoin as an incentive, it also uses the Bitcoin network to verify transactions. It’s an application built on top of the Bitcoin layer, said Mr. Johnston, in a way that mobile apps are built on top of an Android platform. “The layers that are developing  are similar to layers in technology today,” he said.

    Mr. Johnston said he expects his group to back 20 more open-source software projects this year that rely on Bitcoin. Another project Mr. Johnston is evaluating uses digital tokens bought with bitcoins to reward people who provide storage space for shared digital files. The goal would be to compete with other cloud-storage services, like Dropbox, by crowd-sourcing storage space.

    This wave of projects may end up competing with incorporated companies, many backed by venture capitalists, that are building a business around Bitcoin, such as bitcoin-to-dollar exchanges.

    Write to Yuliya Chernova at yuliya.chernova@wsj.com. Follow her on Twitter at @ychernova


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