Business & Tech

Their invention is valued at $250 million. Here’s why they’re not satisfied

Programmers at work on Siacoin in an apartment in Cambridge.

Jim Davis/Globe Staff

Programmers at work on Siacoin in an apartment in Cambridge.

Most entrepreneurs would salivate at the prospect of their invention being valued at $250 million practically overnight. But for one group of twentysomething guys writing code in a Cambridge apartment, the wild interest in their product can feel more like a nine-figure distraction.

The programmers have developed a product called Sia, which helps people park data on other users’ open storage space. They also created a digital currency, called Siacoin, which is the only way to pay for those transactions.

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To them, Sia was a chance to make good on the promise of one of the most-hyped digital innovations in years. Their product is built on blockchain technology, which was invented alongside Bitcoin and has the potential to reshape transactions across the Internet.

Instead, Siacoin has been pulled into a frenzy of speculation over cryptocurrencies, which in recent months has led to unpredictable swings in value, powered eye-popping valuations, and left legacy investors and government regulators scrambling to catch up.

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“I think this is going to end in tears,” said David Vorick, chief executive of Nebulous, the company that runs Sia.

“The [Sia] tokens are for using the service, not for speculating, and it’s our job to keep them stable, not to bump them,” Vorick said. “That does create a lot of friction in the community. The people who are upset about losing money are outweighing the people who are excited about the technology we built.”

Users can buy Siacoins on public exchanges and then use them to pay for storage, or they can receive them as payment for hosting other peoples’ files. They can also aquire Siacoin through a process called mining, in which users are rewarded for helping to verify the security of transactions on the platform.

To the programmers, Sia was a chance to make good on the promise of one of the most-hyped digital innovations in years.

Jim Davis/Globe Staff

To the programmers, Sia was a chance to make good on the promise of one of the most-hyped digital innovations in years.

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Siacoins need to have real-world value for the system to work. Otherwise there wouldn’t be any incentive for hosts to participate. But Vorick and his colleagues are concerned that the unpredictability is overshadowing their upstart challenge to cloud storage providers like Google, Microsoft, and Amazon.

As billions flow into cryptocurrencies, some companies are issuing coins that essentially give buyers equity, in what are called “initial coin offerings.” Others have built coins explicitly as jokes, only to see investors respond with the same breathless enthusiasm.

The news site CoinDesk reported Monday that the total value of publicly traded cryptocurrencies had hit an all-time high of $116.9 billion, up from a recent low of $60 billion, set July 16.

Galen Moore, cofounder of the newsletter Token Report, said Sia stands out in the field because it has built its cryptocurrency as part of a real, working product.

But people need to be willing to spend the tokens in order for such a system to work, and they need to have confidence that they can cash out when they’re ready.

“The big question is what can be done and what needs to be done in order to make digital currencies . . . practical as a medium of exchange, because that opens up whole worlds of opportunities that won’t be available if it’s only used as a store of value,” he said.

Adding to the uncertainty is the question of how regulators will treat cryptocurrencies.

The Securities and Exchange Commission recently issued a long-awaited report concluding that the tokens in an unrelated coin offering were securities, raising the prospect that other digital currencies would be subject to increased oversight.

Sia believes that its coins are safe because they have an independent purpose, were not sold to raise money for the company, and came with no promise of future value.

Many holders of Siacoin say they own the currency because they believe in the product. In a Slack discussion group about the company, pure speculators are often quickly shouted down.

Ian Ravenscroft, a technologist who lives in the United Kingdom, said that he is hanging on to several million Siacoin because he believes he can get actual value from using the system as it grows.

“It’s not money that drives me. I like to feel that I’m part of a project that will actually make a difference. I think Sia will change the way storage is seen,” he said. “It could become the Facebook of storage if they get it right. It’s that disruptive.”

Drew Volpe, a partner at Procyon Ventures who helped lead Sia’s latest investment round, said he passes on a lot of blockchain startups. It’s not the most efficient computing method, he said, so he looks for projects that would not have been possible without blockchain technology, which tracks transactions in a way that keeps records in public view and makes tampering extremely difficult.

Sia will face many challenges as it seeks to convince users to store their data with other users rather than at servers owned by big companies.

Sia believes its product is safer, cheaper, and offers better privacy.

Data on Sia are broken into pieces and stored on multiple computers, a method intended to keep data accessible even when some hosts are offline.

Sia, which has raised about $1.7 million in investments and grants, makes money when people use the platform.

Outside trading of Siacoin doesn’t benefit Sia much. The company said it owns less than 1 percent of the coins.

Sia reports revenue in the thousands of dollars, in part because prices on the platform remain low, even with the high value of the coins.

Sia estimates that monthly storage costs are about $2 per terabyte.

Sia counts 690 hosts on its platform offering 3.4 petabytes of storage. About 2 percent is in use. As the company seeks to grow those numbers, it is developing ways to deal with the trepidation users might feel when agreeing to deals involving coins that can shift rapidly in value.

“If you’re a business or something, do you want to sign up for something that you don’t know what you’re going to be paying?” said Zach Herbert, vice president of operations.

Andy Rosen can be reached at andrew.rosen@globe.com. Follow him on Twitter @andyrosen.
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