Bitcoin startup CoinLab lands funding from Tim Draper and others, aims to help monetize games

Tim Draper

CoinLab, a Seattle startup working on projects involving the Bitcoin digital currency, has raised $500,000 in seed funding from a group of prominent angel investors, including Silicon Valley venture capitalist Tim Draper, Seattle’s Geoff Entress and others.

No, for the record, Draper didn’t fund the investment in Bitcoin. But he’s bullish on the prospects for the digital currency, and CoinLab is on a mission to make Bitcoin more widely used.

The startup, co-founded by Seattle entrepreneurs Peter Vessenes and Mike Koss, is starting with a plan to use the Bitcoin system to help video-game companies make money from people who play free games, without requiring game companies to deal in Bitcoin directly.

Under the plan, game makers will offer their users a chance to voluntarily install a program that makes their idle computing resources available for use by CoinLab, in exchange for in-game virtual goods and points.

CoinLab then plans to sell that spare computing time to the Bitcoin network, for use in Bitcoin “mining” — using computer processing to generate units of the virtual currency. The startup will pay game companies for the computing resources made available by their customers.

Mike Koss and Peter Vessenes, co-founders of CoinLab

Vessenes estimates that the average gamer will generate 50 cents to $2 per day for the game companies by making that computing power available, working out to more than $15 per gamer per month.

CoinLab will pay game companies in government currency, not Bitcoin, and will use price hedging strategies to protect its own interests.

The startup’s new tagline: “All your gamers are gold.” CoinLab has signed up two game companies so far, GraFighters and Wurm Online, and is talking with others.

Bitcoin was a hot topic in the tech industry at one point last year, but the virtual currency’s severe price volatility and other problems made many people wary of jumping into the market. Vessenes and Koss both say they are still big believers in Bitcoin’s potential.

“What the Internet did for publishing, I think Bitcoins will do for financial services,” said Koss. “That’s pretty bullish.”

Vessenes acknowledged that Bitcoin has an image problem, but he’s hoping to help change that.

“It was much harder to raise our round using the word “Bitcoin” than without,” he said. “One of my goals is helping Bitcoins get legitimized in the U.S. It’s a big goal for our company. Bitcoins have a branding problem right now, in my experience.”

That wasn’t a problem with Draper, who is also enthusiastic about Bitcoin, said Vessenes. In addition to Draper and Entress, other investors include Roger Ver, a Bitcoin booster in Japan; and Jack Jolley, a former assistant treasurer at Microsoft who is also joining CoinLab as chief financial officer.

  • http://blog.calbucci.com/ Marcelo Calbucci

    Congrats guys. This is very exciting.

  • http://twitter.com/ggoodale Grant Goodale

    Congrats!  Great to see a team exploring alternatives to ads for game developers.

  • Dr.Savior

    This company has a self life. Bitcoin mining won’t last forever. Once all the coins are mined this is done. 

    • http://twitter.com/ErikVoorhees Erik Voorhees

      Incorrect. New coins do indeed run out, but transactions have tiny fees attached to them which, if Bitcoin becomes widely used, will be far larger than the current reward of new coins. Miners get these fees + the new coins.

      • Anony Mouse

        The question is, will gamers (mostly Nvidia GPUs) get much rewards.  That $15 per month they earn in-game is costing these gamers more in electricity on that hardware.

        We’ll see though.  There is about $35K USD of bitcoins issued (at the current exchange rate) and there are a lot of gamers who would use this, so CoinLab could do very well with this.

        • Bob

          Off by an order of magnitude on the market cap – it is
          $45.38
          million, assuming $5.13 /BTC 
          (http://bitcoincharts.com/ or https://blockchain.info/stats )

          …which is not even round off error on a 4 trillion dollar a day forex market, but it adds support for your point – Coinlab could become quite profitable,

          • http://bitcoindocumentary.com/ Bitcoin Documentary

            He obviously meant $35k USD worth being mined per day, not in total.

    • http://www.potentialgames.com/bitcoin/ neb

      Even after Bitcoin generation via mining is mathematically complete, the so-called mining process still serves a central role in the Bitcoin distributed network. Namely, “mining” becomes a misnomer, and the purpose is to solve blocks for the chain, earning any pending transaction fees. So long as there are Bitcoin transactions flying about, there will be something for idle CPUs to work for.

    • Adam Stg

       not true, Once all the coins are mined, miner will be mining for transaction fees

  • http://twitter.com/ErikVoorhees Erik Voorhees

    Very clever ;)

  • bc

    This is exciting. If CoinLabs can turn a profit, six months later the next big idea won’t have as hard a time attracting VC money. 

  • Chirag P

    Awesome Peter and Mike!

  • http://www.potentialgames.com/bitcoin/ neb

    This is great concept, and I think it’s just the thing to combine Bitcoin with gaming. Best wishes.

  • Anonymous

    The math in this article doesn’t work; its estimates of per-user revenue are high by at least an order of magnitude. 

    Taking current numbers, the entire bitcoin network is generating 5.56 blocks per hour running at 10.46 Thash/s.  This works out to 135.45 trillion hashes per bitcoin.  The low end of the estimate, $0.50, would at current rates be about 0.1 BTC.  To generate 0.1 BTC would take 13.545 trillion hashes.  You’d have to mine at 156 Mhash/s for 24 hours straight to mine that much.  Even assuming they’d average 156 Mhash/s per user (on top of running a potentially GPU intensive game), they’re not going to play 24 hours a day.  2.4 hours is much more reasonable.  Hence, estimated revenue per user is high by at least an order of magnitude. QED

    • http://mckoss.com/ mckoss

      The point of our service, is that gamers can mine when they are NOT playing on their computer.  So if they play 4 hours per day, their computer can be mining during the OTHER 20 hours.

      The easiest way to understand the potential value is that there are $35,000 worth of BTC being mined each day (at current exchange rates).  A high end GPU can generate 700 MH/s (more common are the 100 MH/s cards).

      We pay for mining based on the proportion of hashing compared to the network total.  100 MH/s divided by 10 TH/s is 1/100,000.   That’s $0.35 per day if your computer is mining all day.  For the high end card the ratio is 1/15,000 or about $2.30 per day.

      Many gamers have dual GPU’s as well – so they can double their earnings.

      We also feel that BTC are undervalued today (but we’re biased).  So even as mining rates go down, we think it possible that returns equal or greater than those available today will still be possible.

      • Anonymous

         “The point of our service, is that gamers can mine when they are NOT playing on their computer.”

        The article didn’t make that clear; it is more feasible when you put it that way, though I still think your numbers are a bit optimistic.

      • Steve

        If freemium providers like AVG, Avast, BitTorrent, IrfanView, and at least half a dozen others that all have staggering installed bases measuring into the hundreds of millions of active users, where to follow your strategy of letting people use their freemium products in exchange for making their computer a member of the Bitcoin network, what would happen?  For example if 300M computers were added to the Bitcoin network in 2 months, how much value could be produced per computer?  Doesn’t the success of this approach crush the revenue per computer value?  Maybe I’m not understanding Bitcoin?

  • Choscura

    I like the idea of using bitcoin, I think it has a lot of potential, but this is like buying a rocket ship, fuelling it up and riding to the moon just so you can get out and take a piss before coming back.  There are so many more things to be done with this that it’s just a waste.

  • Elwar

    Great idea and I am glad it is being implemented. I had wanted to create a game that would use player GPU to mine coins without them even knowing.

    One thing I thought about…the fact that you make most of your money when they are NOT playing the game makes for the opposite incentive that most video games have, which is to get people to play their games.

    Though I guess it is like a monthly subscription to an MMO. You want people to buy the subscription, but you waste more money the more resources they use throughout that month.

    My only suggestion would be to use Bitcoin as the in-game currency if you have an MMO where people can trade with each other. Charge a transaction fee for in-game trades and make bank.

    • Peter Vessenes

      Yes, most games (especially online ones) strongly prefer that you play as little as possible while still paying. 

      Re: Bitcoin as in-game currency, there are a few attempts at this right now. Exchange rate fluctuations make this a tough sell for game developers as it is, though.

      • Steve

         

        If freemium providers like AVG, Avast, BitTorrent,
        IrfanView, and at least half a dozen others that all have staggering installed
        bases measuring into the hundreds of millions of active users, where to follow
        your strategy of letting people use their freemium products in exchange for
        making their computer a member of the Bitcoin network, what would happen?  For example if 300M computers were added to
        the Bitcoin network in 2 months, how much value could be produced per
        computer?  Doesn’t the success of this
        approach crush the revenue per computer value? 
        Maybe I’m not understanding Bitcoin?

  • Steve

    I’m
    not that educated on Bitcoin so excuse me if I am missing the point.  If idle computer resources can be used to
    create Bitcoins which can then be converted into US dollars or other
    currencies, then why wouldn’t someone like Avast with 150M active freemium
    users do the same thing?  

  • qqq

    why bitcoin needs to be invovled?

    • Healthpoolforyou

      Good question! There are plenty of distributed computing projects designed to help everyone. Look at Folding@Home (google searchable) for instance. Their pool helps analyze proteins in a way that can’t be done in any other way, and this pool has the ability to help Alzheimer’s disease, Huntington’s disease, and many forms of cancer. Many of us will get these eventually. Wouldn’t you like the best chance when you get there to have a cure already in place because you where part of a HealthPool instead of a CoinPool. The cost to each gamer in the pool is the same. So why not setup a HealthLabPool that benefits the ill and those that are to become ill. And all that computing time you donated will come back and help save your life later among so many others. Awesome PR campaign here I think!!!! I would jump on that one in a heart beat. The dollars you spend here don’t go towards lab fees, building expensive hospitals etc. but 100% directly to the effort to fight cancer.
      I’d rather have a few ads in a game then to miss out on the next big leap on curing cancer. That much I can say….Or better yet, swing the whole operation from that PR standpoint and make your money that way. Be the Game Coders that gave back to the world by using what was availible to them for a good cause other than mining BTC for themselves. Can’t tell me that people won’t donate to your pool to keep it up and running. Cause I would! Or maybe I should stop here and set one up myself. Anyone gamers interested in that? email me at healthpoolforyouyahoo.com. Insert the @ as necessary to aviod spam.

  • http://twitter.com/iC cliveboulton

    Fascinating innovation monetizing attention via game play regardless of location.

    The Royal Canadian Mint is thinking about discontinuing penny’s and using digital http://www.springwise.com/government/canada-launches-government-backed-digital-currency/

  • Guesty McGuesterson

    Why would I agree to install a bitcoin mining program that mines bitcoins and gives them to somebody else rather than a program that mines bitcoins for me?

  • Angelo Badalamenti

    The first time my wife hears 2 nVidia 480GTXs howling away at 2am minting BitCoin she is going to pull the plug.

  • http://about.me/chrisco chrisco

    Congrats / exciting. Seems like a wave of new Bitcoin starts is on the way. I bought http://BitcoinBanker.com for a project in the space, but it has been pushed deep into my backlog and might never see the light of day. So if anyone wants to put the name to use, let me know.  I have some (possibly) interesting ideas for the space that I can share.  Cheers.

  • Uh7tr

    Just as Guesty said, why mind coins for someone else, while the end user (gamer) is paying the higher electirc bill and replacing cards once they die from overuse and heat. If they can convince the gamer that in game incentives is worht it, they have a shot, but every gamer needs to look at the pros and cons.

    Pros:
    1. In-game incentives O.K.

    Cons:
    1. Higher electric bill. (IE 1 gamer running an HD5970 card is going to see a $1.46 extra each day. Thats almost 45 dollars a month (at .10 cents/kwh). Is he going to get more rewards on his game for being one of the bigger hashers or get the pool shared standard that’s deflated by lower end cards in the pool?

    2. Is the game going to override fan settings and full run the fan or is it just going to 100% load the GPUs and leave the fan at normal. Most ATI cards will melt!!! Pro miners do this manually and with constant monitoring of the complete system.

    3. Are they coming out with specs for what power supply is needed to handle such a 24/7 load. What needs to be updgraded to handle the constant draw costing investment for each gamer. Cooling costs to keep the cards from melting. All to be swallowed by the end user??? I don’t think so!

    4. Noise. Just as mentioned below, full running GPUs are noisy at best. Better plan on making a den to have as a seperate game room. No more playing at your favorite spot.

    5. Where are you going to put a heat generating setup. Keep in mind that any extra power used is producing the same in heat which is great for winter, but this additional heat in the summer puts more load on your AirConditioner to pump it back outside. Pro Miner setups have special setups to deal with and evacuate the heat effeciently.

    Just wanted to point these out for I am a gamer myself, and while most of us get what we need to play high GPU load games, this does not come close to what is needed for 24,7 mining. I would never go for this. I would do it solo without them. I consider this a scheme for them, the Game companies, to get the overhead for bit mining to be free by having the game users themselves absorbing all the costs. And let’s see, once it’s implemented, do you get any incentives anywhere else anymore except from mining??? Just be sure that all other free game incentives will be on the chopping block. No more stat prizes etc. because you will need to bit mine for them or you (the gamer trying to beat the game fair and square) can’t because he has to have the miner incectives now to move along in the game. I don’t like where this is headed at all.

    If they came out and said, hey will split the coins 50/50 with yeah, great! You might have a chance because atleast I may recover some of my extra overhead. But to bit mine yourself with a pool, they will only take 2%, the computer owner gets the whole other %95. So why wouldn’t you do that instead. And then is $15 a month really enough to justify the risks of blowing up your brand new ATI HD card!!

    By the way, the software they install to do the bit mining is open source!!! It’s not even the games companies software system to begin with!!