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Mycelium Responds to Backlash over Chainalysis Connection

Op-ed - Mycelium Responds to Backlash over Chainalysis Connection

One of Bitcoin’s best features is its openness. Any person (or group of people) can build products that use the open-source network without needing someone else’s permission. This has lead to an explosion of companies looking for new and exciting ways to do just that.

Among them, the people behind Mycelium have stood out as consistent creators of quality products. Their Bitcoin Wallet is one of the most widely used mobile wallets and its built-in Local Trader system has been operating for almost a year now, offering users a reliable alternative to LocalBitcoins. Entropy, their newest product, has generated buzz in the community by promising users a cost-effective way to generate secure paper wallets.

Beyond these ventures, what might be Mycelium’s most exciting product yet is also their oldest. The company actually dates back to 2008 and initially had nothing to do with Bitcoin. At the time they were working on a way to use mesh networking to create an infrastructure-independent, self-powered, text-messaging system. When Bitcoin showed up in 2009, they decided to refocus on finding a way to use the same networking to create an ad-hoc crypto economy. Today that work has manifested itself in the Bitcoincard project.

More recently Mycelium has undergone some scrutiny due to connections between their Chief Technology Consultant, Jan Møller, and a company called Chainalysis. That company was founded by Møller and “offers a service that provides financial institutions with the means to obtain regulatory compliance through real-time analysis of the blockchain.” The discovery of this via a BitcoinTalkthread sparked a swift backlash on Reddit.

Mycelium was just as quick to respond with an explanation that Møller hasn’t had access to their nodes since he left his position as Lead Developer to focus on Chainalysis. They went on to say that they “are not fans” of deanonymization of transactions via blockchain analysis and further clarified a commitment to user privacy saying “Our goal was to have Mycelium Wallet be as anonymous as Dark Wallet, and that has not changed.”

I wanted to learn more about Mycelium so I reached out to their community manager, Dmitry Murashchik (/u/Rassah and the author of their Reddit response). He was kind enough to answer some questions of mine concerning the company’s mission, the development process for Entropy, Bitcoin consumer adoption, and more. You can find the transcript below.

1. Mycelium’s stated mission is “to make bitcoin penetration as prevalent in the lives of people as Internet is today.” Why do you think people need Bitcoin?

Bitcoin offers people a choice of currency that is not at the mercy of a few politicians or bankers, is much more efficient and cheaper to transfer over long distances than any other currency, is the only currency that allows for almost immediate settlement of asset transfers, and is not restricted by political borders like everything else on the Internet. It is really the first currency of the Internet. It also allows for a whole lot of use cases that are simply not possible to do with anything else but bitcoin. In much the same way that telephones and fax machines could not have predicted the rise of things like email, Amazon, Reddit, and YouTube, despite those being based on the same send-data-through-wires technology, there are going to be a lot of Bitcoin-related inventions that we would not even be able to imagine right now.

2. Are there any other Bitcoin companies (or companies in any field, for that matter) that Mycelium looks to as an example of the “right way” of doing business?

We generally look at other Bitcoin wallet and hardware developers, and our community as a whole, to figure out what is best, and what things we should avoid. No one specific, though.

3. You’ve become a highly regarded institution in the Bitcoin world based on your quality products. Unfortunately, you seem to be the exception. Every day it seems a new Bitcoin-related, scam company is revealed. Why do you think this industry attracts so many criminal actors?

It’s the people involved. All of us here are aware that the future economy will depend on reputation more than anything else, and all of us follow voluntaryist philosophy where high ethical standards are extremely important. We also all keep each other honest, and delegate various duties so as not to have one person have enough power to really screw things up. However, despite a large number of scams out there, there are still plenty of companies that have existed since the beginning who are still around and just as honest (BitPay, Armory, and come to mind). The scam ones are probably just the most sensationalist, especially with them advertising so much to drum up sales.

4. Bitcoin has obviously seen a ton of price volatility over the past few years going from being worth $2 to $1,000, then all the way back to $200. Do you think this sort of volatility keeps people from using it in the sort of everyday manner Mycelium wants to promote? What can be done to reduce volatility?

Any volatility like that will keep most people from using a currency. It’s why countries like Argentina, Ukraine, and others who experienced it have to use currency controls to force people to continue to use theirs. But there are still huge benefits of using bitcoin, such as more privacy, the money transfer mechanism, and many others, so people are continuing to use it without being forced to. I don’t think anything can, or should be done to reduce volatility, besides just offering ways for people to hedge their value using options contracts while the currency usage grows. We plan to offer that service soon through Coinapult Locks, directly within our wallets. But I believe bitcoin’s overall volatility will diminish and eventually go away as it gets adopted more widely around the world, just as stock values of large companies become less volatile as companies grow.

5. The release of your paper-wallet generator Entropy has been delayed for a few months now due to production issues (latest update here). What lessons have you learned from this experience that you will apply to future products?

Try to do as much in-house as possible, and expect that every little delay would add a week instead of a day or two, since it takes so long to communicate and get feedback from factories. Also, these delays would not even have been an issue if we didn’t need to raise money to make the devices in the first place. Our Bitcoincard has been in development for over three years, and it’s not an issue because we don’t owe that product to anyone yet. So, basically, preorders should be avoided if they can be. But that’s the same lesson that BFL and Trezor has taught before us, which we were very aware and concerned about when we took this route, and turns out for good reasons.

6. When working with hardware manufacturers, what is their initial reaction when you tell them that you are a Bitcoin company? Are they knowledgeable about the community?

They don’t really need to know that we are a Bitcoin company. Actually, the manufacturers for Entropy didn’t even know what they were making. We sent them hardware schematics, paid for and shipped them the electronic components they will need, and paid them to assemble and test it using test software we wrote. That’s it. To them, as long as the software tests correctly on the hardware they made, and as long as the payment cleared, that’s all that matters.

7. You have a unique view of Bitcoin adoption as one of the premier mobile-wallet providers. What kind of growth have you seen over the past year?

We don’t actually get to see a lot of growth through our wallet. Besides Google Play store, we also allow people to download our app directly, and have it on a slew of other app stores, including a bunch of them in China. Most of those we have no way of tracking download numbers from. But in general, based on feedback from our users and fans, the growth has been pretty good, considering the dreadful slide of the price throughout the entire year. It actually seems that our growth has increased a lot just in the last few months, compared to all of last year, so we expect it will increase even more once the price starts going up again.

8. In an interview with Bitcoinomics you said “(Mycelium’s) main challenge has been trying to keep up with innovation in the Bitcoin space.” What recent innovation are you most excited about?

For our wallet, the things we most want to bring out as soon as we can is Coinapult Locks to let people lock in value and avoid volatility, CoinShuffle to allow for complete financial privacy, and BIP70 merchant protocol, which has been out for quite some time, but has taken us way too long to implement into our wallet. We are also excited about the new hardware wallet options, including support for hardware already built into Android phones that Rivetz and Ledger are developing APIs for, multi-signature accounts, and microtransaction channels. So, we have quite a lot of things to add still, all of them huge features that will make Bitcoin either more secure or easier to use.

9. What is Bitcoin’s greatest strength?

I would say third-party independence. That means political (you can use it without caring which country issued it or which it’s being sent to), regulatory (you can send it wherever you want without needing your government’s permission), and financial (you can always send or receive it without having to get your bank’s approval, or even depending on your bank actually having your money). For a global economy, where everything else is already on a borderless apolitical Internet, that’s huge.

10. What is Bitcoin’s greatest weakness?

At the moment, the only one I can think of is slow development progress. All the issues that people are worried about already have solutions on paper, but it is taking a very long time for people to actually code, test and implement them. But that’s pretty much the case in any technology, whether software, hardware, biotech, space travel or whatever else: Awesome things are coming, and we all can’t wait for them to get here. So, I guess Bitcoin’s greatest weakness is it existing in an instant-gratification culture.