BR EXCLUSIVE. Two Romanian IT developers have raised USD 5 million to overtake blockchain

Newsroom 06/12/2018 | 08:13

Andrei Grigorean and Mihai Ciucu, the two founders of Blink.network, convinced Polychain Capital and Polkadot Ventures along with smaller investors from America and Europe to pledge USD 5 million to help them develop an alternative to blockchain. Their prototype is being developed under a protocol called Blink, using DAG-chain structure. BR talked to the two young entrepreneurs and found out how they managed to raise the money and what’s next for their prototype.

By Ioana Erdei

What do you do?

We solve a problem. We’ve found an extremely scalable solution to a general problem – distributed ledger technologies (DLT), a general theoretical problem that needs to be solved. It’s basically a database which exists in a peer-to-peer computer network that essentially anyone can access. Every node (computer) holds a complete copy of that database. The difficulty is in addressing all the challenges resulting from the decentralized nature of the network because there’s no one to coordinate the network activity.  You have said it’s a better alternative to blockchain.  Blockchain is simply one solution – it was the first functional solution to the theoretical problem of implementing a DLT. Blockchain as it is used with bitcoin is very limited. Bitcoin only supports three transactions per second on average across the world – even Mega Image probably has more than that in Bucharest! The second problem with blockchain is the confirmation time – if you’ve made a transaction, how long do you have to wait to make sure it’s confirmed by the system and accepted by all the computers in the network?

So what is new with your technology? How is it better than blockchain?

Our prototype supports 20,000 transactions per second and the time it takes for the first confirmation – which for bitcoin is 10 minutes and it’s actually recommended that you wait about an hour for the final confirmation – is under one second and we believe final confirmation usually comes after 20-30 seconds. So, in short, we solve the same problem, but our performance is much better.

What’s it called?

The protocol is called Blink, the same as the company name, and the structure we use instead of blockchain is called DAG-chain.

So it can be used in any industry?

Yes, but for most industries even our 7,000x performance compared to blockchain is still not enough.

Which industries could optimally adopt your technologies right now?

This is a question everyone is asking in the crypto world. We’re also trying to find commercial partners who might need our technology. We’re caught between two extremes – on the one hand, there are processes that need much less than we offer, and on the other hand there are others that need a much better performance than we can offer. For example, Google Search needs a much better performance – its need to store data is much higher than any DLT can ever offer.

How did you end up developing this solution?

Our background is actually not in blockchain or crypto, but algorithms and data structures. Before Blink, we were developing a competitive programming platform called CSAcademy.com where we used to hold weekly programming competitions. We would have a set of problems and users all across the world would solve them. Then, Mihai was invited to a crypto conference last year and that’s how he started to learn what blockchain actually does. We were all aware of bitcoin and I even had a little bitcoin of my own (but I didn’t make any profit from it). At the conference, when he found out more and understood what a DLT was, he thought since we already know about algorithms and data structures, it seemed like the kind of problem we could work on.

Why is your solution revolutionary? Has nobody else developed an optimized version of blockchain at the level you did?

Not really. Most of the other cryptocurrencies are nothing more than other versions of blockchain. Blockchain itself has some theoretical limitations. The goal is to solve the DLT problem – blockchain is a solution and many companies focus on optimizing that solution, and growing blockchain’s performances. But we found a completely different solution and no matter how much those other companies try to optimize blockchain, they’ll never be able to reach our performance.

How long did it take you to develop your technology from the moment you realized what the issue was?

We’re still working on the product, but we found the theoretical solution quickly, in a few days. Now we’re at the point where we have a functional prototype; we started working on it in December last year. But we still have to make it more secure. It’s not secure enough for us to launch it.

You went to the US and pitched your idea. Did you try to do it in Romania too and were unsuccessful or did you go straight to the US?

The first time we went to the US was in March and we spent three weeks there. We didn’t have a clear plan, we just bought plane tickets on the spot and went to San Francisco and thought we’d see what was happening there because that seemed to be the place where you could find serious investors. It was our first contact with the US – it wasn’t for nothing, but it wasn’t a big success in terms of fundraising, either. A few leads have materialized since then.

When we came back to Romania, we managed to reach large investors through recommendations – I can’t say any more than that they came from very well-known and competent people in the crypto world (not Romanians). We sent them e-mails and they looked at our whitepaper and thought we had a good idea. That’s how we found success.

I think readers would be interested to know that in order to be successful, you can’t go through the front door. That doesn’t mean you need to have connections – in Romania it’s all either through the front door or through connections. There are trustworthy individuals who have the time to do their due diligence and recommend you – and that’s how we reached big investors.

After we got these recommendations we saw a big difference in the way we were treated.

How much money did you raise and who did it come from?

We raised around USD 5 million, mainly from Polychain Capital and Polkadot Ventures, plus seven or eight smaller investors – not all investment funds, two or three were individuals, American and European. We met with them in the US, not in Romania.

What’s the next step now that you’ve managed to raise this money?

We have to complete our implementation of the protocol, our version of blockchain.

How do you plan to raise awareness about it? How long will it take you to finish implementation?

We hope we’ll finish within the next six months. Then we’ll also have to figure out exactly what the product’s direction will be – we basically have a high performance technology but from that to developing a product and, eventually, a company, a few more steps are required.

We’re also working to find the product’s direction from a business development standpoint.

What’s the general view you have of your product right now?

There are two main directions, both of which involve several different aspects. The first would be doing a public implementation, a network similar to blockchain on which you can develop things like cryptocurrencies or smart contracts, for example – an infrastructure to develop decentralized apps.

The second idea would be to develop private decentralized database solutions that we could personalize and sell. When several legal entities transfer assets to each other and don’t trust each other, there is a problem. For example, when banks make international transfers, they have this kind of problem – a bank in China will certainly not trust a bank in the US and vice versa, but they still have to send money to each other. A decentralized database solves this problem of lack of trust. Another example: supply chains – when you want to keep track of stuff, there are different entities interacting with each other and you’d need a database where each entity can track the process.

Do your US/European investors all have the same vision for what you’re about to launch? Which version of your product do they prefer?

All our investors are from the US with just one exception, and the European investor is on board with what the US investors want to do.

I don’t think there’s necessarily a consensus among all investors about what we should do, but I’m more inclined to think they prefer the first version, the public network.

Tell us more about the two of you. How old are you, what did you study, where did you start?

We’re both 30 years old. We met at a computer science contest (Olympiad) in high school, but Mihai was one year ahead of me. Actually, most Olympiad participants know each other since there aren’t that many of us in one generation. Mihai got the silver in the Balkaniad (?) and I got the silver in the International Olympiad.

After the Olympiad, Mihai went to work for Full Tilt Poker in Ireland. He studied Computer Science and Mathematics at the Bucharest University.  I am a college drop-out – I went to the same university and left in year two. I’m not sure why. Looking back, if I could go back in time and give myself some advice, I would tell myself to finish university.

Why? It seems like more of a personal responsibility thing, not something related to professional development, since you’ve been very successful despite not graduating.

Yes, that’s probably true. But you never know when you’ll need that diploma. There’s a lot of bureaucracy both here and in the US, both in the public sector as well as in the corporate world. It’s a risk I took in a very stupid way.

Even so, you ended up doing what the university would have taught you to do.

I’ve been very focused on algorithms and data structures. I’ve taught many students who have participated in the Olympiad.

So can you say that this was your first job? Tutoring others?

Yes. I’ve never been employed except for two internships at Google during university, in the California headquarters. Then I decided I wanted to spend at least the next few years in Romania. I didn’t like Silicon Valley at the time. I’m not sure why. I think it was my age and the pace of things and lifestyle there were not my cup of tea. Now, at 30, I think it’s a better place for me – but it’s still not ideal. It would just be easier to live there now than when I was 20 years old.

How long did Mihai spend at Full Tilt Poker, and when did he get back to Romania?

I’m not sure how long he spent there. We reconnected around 2012, when he took part in a contest and I was part of the committee. The contest was also related to programming and algorithms. He had returned to Romania and I think he entered the contest for fun – and won. I was surprised to see him there; I thought he was still in Ireland.

What does CS Academy do?

It’s conceived as a recruitment platform for software engineers worldwide, based on weekly contests. We didn’t manage to take it too far because the Blink project came up and we thought it was much better for us. It grew organically. At the end of last year, we were trying to find some partners in the US to help us connect with US-based companies. We already had a great database of engineers. We didn’t end up speaking with any investor, but we’ve seen some interest in the Academy recently, while we were already working on Blink. We might try to work on both of them, but the main focus right now is Blink. We’re also trying to hand CS Academy off to somebody else because we can’t spend time on it at the moment.

Do you think there are other people who can plan the contests?

Not in Romania. We’re trying to find people abroad to hand the project off.

Have you opened an office in the US?

We are going to open it soon, in San Francisco. It depends on how long it takes for me to obtain the visa (O1 visa) – related to special skills.

How do you see your expansion in the future? Are you planning to only use the USD 5 million or do you intend to raise more money?

For now we’re not looking to raise any more money; we’ve only just completed this round. Everything depends on how we’re going to build a product around the technology, how quickly we do it. If the product is promising, we’ll need another fundraising round to develop it.

Do current investors own a part of the product or is it still fully yours? How is the investment structured?

It’s a little more complicated. We’ve essentially gone through a seed round, not a regular investment round, where it’s clear – you pay a certain amount of money and get a certain number of shares. For a seed round, it’s like a loan that will convert into shares in the next investment round (by the same or other investors) – that will be a Series A round.

Have any investors rejected your proposals?

Oh, yeah. There were more who said no than who said yes. It wasn’t discouraging, but it was sometimes frustrating when we knew a certain investment fund was looking for something like our project. When a fund was only partially compatible with our product, it wasn’t that bad. But when the fund was promising to invest in our type of project it was more difficult for us to accept.

What are your expectations for your technology? What will it revolutionize? What’s your unique selling point?

The crypto world currently has a big problem: there aren’t any use cases besides the cryptocurrency market. It’s like a closed circuit where on one hand you have some cryptocurrencies that nobody uses to buy real-world goods, and on the other hand there are apps built on the crypto networks that also work with the crypto world. The link between the crypto world and the rest of the economy is very weak – it’s like a bubble.

This is the challenge – to bring the crypto world to the masses.

We’re also thinking of creating our own cryptocurrency, but I don’t think we’d be able to compete with traditional currency – when you create a currency, you have to compete with the dollar, euro and yen, and I don’t think this is really an option.

So when you launch this crypto you’d only want it to compete with other cryptos, not all the world’s currencies?

Yes, that’s what I mean. I don’t think it’s possible for a cryptocurrency to compete with traditional currencies (called fiat), at least not at the moment.

However, I think they can enable other types of transactions and payments which are not currently possible using fiat. For example, if you wanted to buy something that costs 1 cent today, you couldn’t, because Visa’s fee alone is around 20 cents + 2.5/3 percent of the transaction. So any type of transaction that’s below a certain value is not viable due to these fees. That’s the reason why there aren’t any micro-transactions.

Do you think you could develop micro-transactions?

This is one of the main things we want to focus on. Our platform is strong enough to support these micro-transactions. Visa, for example, has an average of about 4,000 transactions per second and its peak was around 56,000 at one point. We are currently able to support 20,000 and with the help of better hardware we could reach 50,000, and there are also other ways we can improve.

How long do you think it will take to at least finalize these goals, and perhaps later pitch or reveal them to the world?

I think we have a number of very different goals with very different expectations. For example, we need to finish work on our protocol and technically complete our DLT. That’s our first goal, before we manage to integrate micro-transactions between various global platforms. That’s going to take a while – several years, probably. And that’s if things go as planned. Between these two goals, we also have other objectives.

What exactly is the next development phase? Is it when you decide between the two product directions?

Yes, and when we find the right partners for the path we choose. If we choose the second path, that would be the moment when we’ll really have to integrate and recruit a sales team to sell it to commercial partners. At that point, the money we have now will probably no longer be enough.

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