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.
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.
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.