LedgerX co-founder Paul Chou is building on the sale of the company he created by raising capital for a new kind of cryptocurrency that can be spent on Earth, the Moon, Mars and beyond.
It’s just before midnight on a rainy autumn Friday. Paul Chou and his entourage dodge puddles on the runway of the Teterboro Airport in New Jersey as they board a Gulfstream private jet bound for Las Vegas. The flight attendant cracks open a bottle of champagne and with a nod welcomes the passengers aboard. The girls disappear into the back and emerge minutes later wearing sequined cocktail dresses and feather boas. Sensing she’s in for a party, the attendant offers a round of tequila shots just as the inertia from the plane taking off to the Bellagio Hotel & Casino forces her laughing into her seat.
Ostensibly, Chou, 38, is celebrating not only his birthday but the sale for an undisclosed amount of LedgerX, the ground-breaking bitcoin derivatives firm he co-founded with his wife in 2013. As the plane levels off at 45,000 feet, traveling at nearly the speed of sound, Chou hits play on the plane’s sound system, blaring Fuckin’ Problems by A$AP Rocky. He unlocks a black Halliburton briefcase handcuffed to a slender brunette in thigh-high stiletto boots and strikes a pose as he reveals his Audemars Piguet watch, and several plastic baggies obscured by $70,000 worth of hundred-dollar bills.
But the celebration is bittersweet and feels more like what Chou thinks should have been than what it actually was. Three years earlier, just as LedgerX was on the verge of getting historic regulatory permission to trade bitcoin futures, Chou published a fiery tirade against the very regulators he’d been working with for years, getting him and his co-founder wife, fired in the process. Away from the festivities, through a pair of automatic doors that separate the main cabin from a smaller vestibule nearer the cockpit, the mood on the plane changes. Kid Cudi’s ironic anthem, Pursuit of Happiness, plays over the sound system and Chou sinks into an oversized, champagne-colored recliner.
As he stares out the window the lights of New York City disappear around the inky curvature of the Earth behind him. His eyes flicker as if his thoughts have shifted from what might have been to what might be. “There's a nonzero chance the Earth is doomed,” says Chou, his voice cracking with emotion. “We should have a backup plan.” For entrepreneurs like Elon Musk, Jeff Bezos and Richard Branson, that backup plan is increasingly in outer space, where Musk, the billionaire founder of SpaceX, hopes to have tens of thousands of people living by 2040. The moguls are leading the charge to build what Morgan Stanley predicts will be a $1 trillion space economy that same year.
But Chou is concerned these billionaires’ work runs the very serious risk of importing the same preconceived notions and biases that colonists have brought with them for millennia. To subvert the old aphorism that trade follows the flag, he is raising capital from a syndicate of MIT grads to build his next project, Foundation Coin, a new category of digital assets that like bitcoin doesn’t rely on any government, and depending on your interpretation of the law, finally and truly escapes the reach of those meddling regulators. But unlike bitcoin, Foundation is being designed from the ground up to settle transactions on any planet (or moon) in the Solar System. If successful, when the first bodega, or brothel, or bank sets up shop on the moon or Mars—or any other planet surrounding the sun—it will have a new kind of money, void of colonial baggage, ready and waiting.
“Mars is a unique, blank slate starting point where we can try something from scratch,” says Chou. “So we should treat it as such, and then take all the advantages and use that speed that's going to be necessary for those intrepid people that go there to move as quickly as possible. And we just need a financial bridge to do it.”
In the vacuum that resulted from Chou being forced out of LedgerX in 2019, he started looking anew at an old idea he’d dabbled with years before, called StarCoin. What began as an idea to use starlight to create a unique cryptocurrency key by pegging each oscillation of a light wave to a one or a zero slowly evolved into an idea for a constellation of satellites that would let anyone spend bitcoin without an internet signal before settling into a new kind of cryptocurrency that could be spent on any planet in the solar system.
While it takes less than a second for light to travel around the Earth, making it relatively easy to sync up transactions on a terrestrial distributed ledger, it takes an average of 28 minutes for a signal to reach Mars, making it impossible using current tech to ensure the same cryptocurrency isn’t spent on two planets at once. It’s called the double-spend problem.
After helping a few LedgerX staffers who lost their jobs in the weeks following his ouster, Chou booked a hotel room in Atlantic City and held a brainstorming session on a whiteboard away from the chaos of New York. “We did math and crypto in a suite,” says Chou. “Then played blackjack at night.” The result was a new kind of consensus mechanism that takes into account the time it takes for light to travel from planet to planet at any given point in their orbits around the sun.
“We know how the speed of light works depending on how close Mars is to Earth at any given point,” he says. “Now it's a coding problem.”
Then, last October, Chou got a call from LedgerX’s first investor: his mom. She still owned equity in the company and had just learned it was being sold to FTX, which is in the process of adapting its licenses to sell highly lucrative leveraged futures. “It's obviously gonna be totally huge for the business,” says FTX co-founder and CEO Sam Bankman-Fried, “If and when that happens.” While terms of Chou’s departure from LedgerX are being kept under tight wraps, he says the sale ended up yielding at least a 10X return for his mother, turning her $100,000 seed investment into a seven-figure sum.
The real celebration, however, didn't start until the following day when his old LedgerX investors, friends from MIT and elsewhere started to call him, asking about his next project. One previous investor told him in a text: “Let it ride.” Jameel Khalfan, a business developer at Google, and a former classmate of Chou’s who calls him one of the smartest people at MIT, has closed his first investment in the firm for undisclosed terms. He’s now gathering a group of Chou’s former classmates, previous investors in LedgerX and others to form a special purpose vehicle with the sole purpose of backing the firm.
“Every kind of building project, every pizza restaurant that's open, requires some sort of financial resources, whether dollars or yen or euros or whatever,” says Chou. “And if we're going to build that infrastructure on other planets, we need to rethink how that financial system works.” “If you could design this whole financial system from scratch, what does that look like?” adds Khalfan. “To me, that's the really exciting part.”
Rechristened Foundation Coin after the Isaac Asimov novel about humanity exploring the furthest reaches of the Milky Way, the cryptocurrency is now much more than scribbles on a whiteboard. Chou calls Foundation Coin Inc. a “DARPA for cryptocurrencies,” inspired by the U.S. State Department’s Defense Advanced Research Projects Agency, that laid the foundation for decades-long projects, leading to the creation of the internet, GPS and other “out there” technologies.
Based in New York, Chou’s team of a half-dozen theoretical mathematicians, computer engineers and blockchain developers from the NSA, NASA and Google are figuring out how to build a new financial infrastructure that helps groups of strangers on different planets avoid the double-spend problem without the need of middlemen. Bitcoin solves this problem by using what’s called a consensus mechanism, known as proof of work, that rewards a network of computers that audit the transactions, sometimes taking a few minutes, other times longer than a day. Chou likens this to a traditional race to a finish line.
“Whoever happens to get their first wins,” he says. But given the great distances in space, Foundation will need more precision. An early version of the white paper describing the technology lays out what Chou calls “transition blocks” that offset the delays resulting from planets revolving at varying distances around the sun. These blocks flip the race concept on its head with what Chou calls proof-of-timed-work. “We can fix it so we know we're going to get a block within a set period of time,” he says.
Though bitcoin can be sent via the traditional internet or satellite-based alternatives, Foundation will require super-powerful alternatives. NASA already has an array of global radio satellites, the Deep Space Network, sending enhanced signals to spacecraft on other planets. But Chou would prefer the hardware not to be controlled by a government. “I am not talking about sending a confirmation on ACH or a wire transfer to Mars, because who knows who's gonna be there?” says Chou. “What happens if the laws get changed on Earth, or they put a hold because the Fed says this or that? You don't want the bureaucracy to slow down the progress of what the people on Mars are trying to do.”
Chou’s vision for a space economy free of the bonds of Earth is far from certain. But he’s not alone. On Valentine’s Day 2016, astronaut Scott Kelly bought his wife a dozen roses from space and paid for them with a credit card. While the internet connectivity in space is horrible, the astronaut, who spent 520 days in orbit, says when he mustered the patience he could even “do some banking,” and once managed to buy a plane ticket home. Cash, he says, is forbidden. “If we don't destroy ourselves, absolutely, someday, we will have the need for currency in space, whether it's an orbiting hotel, or something on the moon or something on Mars,” says Kelly. “But if we do, there will absolutely, at some point, be a place for space currency and it just makes sense that it's crypto, because it's not a fiat currency from any particular government.”
Already, Canada-based Blockstream broadcasts the bitcoin blockchain to a satellite network. Singapore-based SpaceChain has launched multiple payloads into space for processing bitcoin, ethereum, and qtum transactions and is now building a decentralized satellite infrastructure, owned by multiple individuals and companies around the world. However, the most likely near-term alternative to NASA’s Deep Space Network is Elon Musk’s StarLink network of 2,000 satellites. The StarLink fine print codifies Musk’s vision for interplanetary communication divorced of government obligations: “For Services provided on Mars, or in transit to Mars via Starship or other spacecraft,” it reads, “the parties recognize Mars as a free planet and that no Earth-based government has authority or sovereignty over Martian activities. Accordingly, disputes will be settled through self-governing principles, established in good faith, at the time of Martian settlement.”
“Stacks of cash don't do much on Mars.”— Paul Chou
In the United States alone, the U.S. Chamber of Commerce estimates that $31 billion was invested in the private space economy over the past ten years, nearly a third of which—$10 billion—came during the first three quarters of last year alone. While Morgan Stanley estimates the global space economy will reach $1 trillion by 2040, senior Commodity Futures Trading Commission economist George Pullen puts the number closer to $4 trillion by the same year.
“In an idealized version of the future space economy, we will have both national actors, private actors, large corporations all functioning together in an economy where they need to buy and sell, and trust each other as they buy and sell,” says Pullen, speaking in his capacity as a founder of consulting firm, MilkyWayEconomy. “Blockchain technology gives us a base layer to solve for that. And so I think by default, that becomes the base layer of all of those transactions in space.”
But what about when things go wrong? Way back in 1967 the United States and the Soviet Union crafted the Outer Space Treaty, now signed by 111 countries, to address concerns ranging from the militarization to the commercialization of space. Laura Montgomery, a space-law professor at the Catholic University of America in Washington, helps launch-providers obtain FAA licenses, and argues the regulation defines how governments should act, “and does not extend to the citizenry unless Congress passes a law.” This would be good news for Chou and others like Musk who are building products designed for space.
But an assistant professor of Space and Society at Arizona State University, Timiebi Aganaba, disagrees. “I see space as a canvas for the human imagination where we can paint a future that we want, but it's more of a mirror that actually reflects back who we are,” she says. "And so if we take this mindset that because we go somewhere far, we can do whatever we want, it continues the degradation of environments in developing countries, it continues the idea that these big countries can just go somewhere where there are no regulations and do what they want.”
Chou himself says regardless of the answer his company is building something bigger than a single regulatory regime, or nation, and wants to make sure he can leave behind as many of the problems on Earth as possible. “When you divorce yourself from the political system, the currency system will naturally have to follow as well, because there’s no currency without the political system that enforces it. And what that political structure looks like, hopefully, is an improvement on what we see right now on Earth.”
It’s perhaps no surprise that Chou wants to build an economy beyond the reach of Earth’s gravity and regulators. Born in Flushing, New York, in 1983, his first lesson in running a business came from his mother. Growing up in Bridgewater, New Jersey, to parents who immigrated from Taiwan in the 1970s, he watched as his mom and dad founded WebEx Inc., an early Internet Service Provider. On the verge of going bankrupt, his mother told him, “‘I’m not going to pay them,” he recalls. ‘“They’re going to have to sue me.’ It’s always the survival instinct that drives entrepreneurs in the end,” he adds. “And she’s a real entrepreneur.”
Shortly after graduating from MIT in 2006, with a double-major in computer science and math, Chou married fellow grad and childhood friend, Juthica Mallela. The duo celebrated by gambling at the same Bellagio hotel he visited for his birthday, though in a nicer suite this time around, he says. Months later the newlyweds moved to New York, where they reported to the same Goldman Sachs boss, Mark Dehnert, the bank’s now-retired execution and clearing managing director. While the vast majority of their colleagues competed against each other on opposite sides of the high frequency, statistical algorithmic trading floor, they built a reputation for sharing notes over dinner and identifying opportunities that would otherwise be lost.
In the summer of 2011, Chou followed his entrepreneurial calling to Mountain View, California, as part of the Y-Combinator startup incubator. There, he first read the bitcoin white paper describing how the underlying blockchain settles transactions without the need of middlemen. He was instantly enamored of the technology’s ability to store value without banks. That June he sent an email to Juthica with the subject line “important but long email,” arguing that while most the demand for gold is for governments, the IMF, Fort Knox and the Federal Reserve, “in case of emergency,” everyone from criminals to small-government advocates and everyday people buying goods will eventually prefer bitcoin’s light weight and openness. The following Sunday night, while banks were closed, he sent a thousand bitcoins to Juthica using nothing but command line code. “In the banking system that would never happen,” he says.
At the time, though, bitcoin was still a fringe asset, best known as the payment of choice on the Silk Road market for drugs and other illicit goods. Though Paul had left Goldman, Juthica still had to get permission from the bank for the couple to trade the cryptocurrency. “Eventually, after three weeks, compliance was like, ‘Nobody knows what this is. So just go ahead and do it,’” says Juthica. In November 2013 that started to change when a number of Senators showed an early openness to the fledgling asset. The price of bitcoin exploded from $200, crossing the $1,000 mark for the first time, and inspiring the young couple to personally get involved.
This was truly the Wild West of crypto. And Chou loved it. In the winter of 2013, he and Juthica merged their derivatives experience with their new love of bitcoin and founded New York-based LedgerX, a first-of-its kind platform for trading regulated crypto derivatives. Raising capital was slow and regulators had no idea what bitcoin even was. “No regulator understood it or even wanted it,” says Chou. “The first check we got was from my mom,” followed by $4,000 from a lawyer who hated bitcoin so much Chou says he invested out of spite so he could have “a platform where he could bet against crypto.”
Chou promptly set about helping define today’s regulatory landscape. After several informal meetings with members of the Commodity Futures Trading Commission in January 2016, the regulator appointed him to their Technology Advisory Committee as its first crypto expert. The following year LedgerX raised a Series B, bringing the total capital to $30 million and two months later received the first two of three licenses it would need to physically settle bitcoin futures, meaning dividends would be paid in bitcoin instead of cash.
Before the year was over, however, two of LedgerX’s biggest competitors, foes of the old guard that Chou wanted to defeat, beat him to the punch. Since the Chicago Mercantile Exchange (CME) and the Cboe Futures Exchange (CFE) were already licensed, they were allowed to add new assets, including bitcoin, through a process called self-certification. What had taken Chou three years, and would eventually take three more, the finance giants had done in six weeks, according to a CFTC statement. “We knew that by being first we might be a little too early in that we’re subsidizing the other competitors’ education,” says Chou.
Applying the lesson his mother taught him, in 2017 the company’s finances got so tight the Chous took out a line of credit against their home and sold their wine collection to pay their staff. Caught in the quagmire of government bureaucracy, with dwindling resources, Chou says he started to go stir crazy. Past employees complain he was distracted from the task at hand, keeping the team busy building an “oracle” that would answer basic questions on the site’s home page. But it was also during this time that he, Juthica, and other members of the LedgerX team started sketching out StarCoin.
Progress on interplanetary cryptocurrency, however, was pleasantly interrupted on the morning of June 25, 2019. The CFTC published a statement approving LedgerX as a Designated Contract Market, seemingly the last piece of the puzzle for trading bitcoin futures. That afternoon Chou pre-maturely sent a celebratory tweet from the LedgerX account, declaring they were “officially licensed to offer our physically-settled #btc spot and derivatives trading to all investors,” triggering one of the messiest fallouts in the history of crypto, ending with both he and Juthica losing their jobs at the company they founded.
Though Chou is quick to point out the value he sees in regulators on Earth, he and his investors believe space is an opportunity to build something bigger. “Interplanetary commerce will change the way humanity views itself by giving perspective to all of us,” says Khalfan. “And having us focus on humanity as a whole rather than fighting between ourselves on this planet.” Chou concludes simply: “Stacks of cash don't do much on Mars.”