Kim Dotcom, a German expatriate currently living in New Zealand, founded the now defunct Megaupload: the online file sharing service that was shut down due to allegations of copyright infringement. The Megaupload service was used for many legitimate purposes, but it was the illegitimate sharing of Hollywood films that shined a negative light on the file sharing site.
As the founder and CEO of Megaupload, Kim Dotcom acquired great wealth while the original site was up and running. Dotcom had also made millions in a prior venture, Kimvestor. Enjoying his wealth, he amassed an impressive collection of 18 high-end luxury cars, which included a Rolls-Royce Phantom Drophead Coupe and a 1959 pink Cadillac. His home was full of big screen TVs, expensive tech, home entertainment gear, and works of art. Given all that, it’s not surprising he also acquired the attention of U.S. authorities.
On January 19, 2012, the United States Department of Justice seized and shut down Megaupload.com. The next day, New Zealand police arrested Dotcom and three Megaupload executives at his rental mansion outside of Auckland, NZ. The authorities literally landed a helicopter in his front yard and seized all of his assets. From the expensive car collection to 64 worldwide bank accounts, everything that was his became theirs. The raid was eventually found to be unlawful according to a New Zealand High Court, who found the search warrants were too general in their scope to be enforceable.
That was five years ago, and since then, Dotcom has been planning his comeback. He’s frequently taken to twitter to voice his opinions, recently writing: “On every anniversary of the unlawful Megaupload raid I've done something special for you. Today, on the 5th anniversary, I'll do it again.”
What he’s cryptically referring to is the relaunch of his original file sharing service as Megaupload 2.0. The new version of Megaupload is significant because Dotcom plans to leverage Bitcoin’s blockchain, existing distributed file storage systems, and lightning network style payment channels for scalable bitcoin microtransactions. This could bring about a greater awareness of blockchain technology, and promote the legitimate use of virtual currency, though it could also link blockchain-based tech with those who might use it to circumvent copyright laws. That could harm the ecosystem, similar to how Silk Road made cryptocurrency look like the preferred currency of criminals and drug dealers.
Due to his legal troubles with the U.S., Dotcom is only taking on the role of “evangelist” regarding the new ventures, Megaupload 2.0 and Bitcache. That means he’s technically not involved directly in the projects, though there’s no way of actually knowing how true that is.
Bitcache is the project that will operate alongside the Bitcoin blockchain, allowing off-chain micropayments between users. Tweeting about Bitcache, Dotcom said that “every Megaupload file transfer will be linked to a tiny Bitcoin microtransaction.” With help from crowdfunding platform BnkToTheFuture, over $1 million in investments were raised, entirely in bitcoin. The round of funding was only allowing investments in the form of bitcoin, and bitcoin will be used to power the network’s daily operations and transactions.
Megaupload 2.0 plans to reinstate around 100-million accounts of former Megaupload users, in the hope of reaching the critical mass of users needed for the site to operate successfully. The planned features in version 2.0 are universal device synchronization, no limits on data transfer, and 100GB of storage. That’s a whole lot of storage. But how is all of this going to come together “under the hood?”
Megaupload 2.0 will rely on its sister project Bitcache. Bitcache uses Bitcoin’s payment channels to facilitate off-chain transactions. This idea is like Bitcoin’s Lightning Network or Ethereum’s Raiden Network. By transacting off-chain, settlement times are near-instantaneous, since parties are able to trade virtual currency directly, instead of waiting for a block to be mined to confirm their transaction. These types of transactions keep the blockchain from becoming bloated; only writing to the blockchain once a payment channel is closed.
Bitcache is basically Dotcom’s version of a Lightning Network. It would solve the issue of scalability in regard to dealing with millions of simultaneous transactions on a blockchain network, and allow Megaupload 2.0 users to transact in micropayments, fueling the network. Dotcom plans to allow other businesses to use his lightning network as well.
While Bitcoin and parallel technologies will handle transactions across the network, how will files actually be stored? Instead of reinventing the wheel, Megaupload 2.0 would leverage already existing file hosting services. They plan to partner with third party enterprises like Storj and Maidsafe. This part is really interesting since those data storage providers host files in a decentralized manner. By combining decentralized storage, with the end-to-end encryption they’re planning, it seems like Megaupload 2.0 is aiming for resiliency.
In their new system of file storage, no one would know what file is being uploaded, because of the encryption Megaupload 2.0 plans to implement. No one would even have a full copy of the file, unless they’re the original uploader, because of how decentralized file storage breaks data up into small chunks and distributes them across its network. This can be equal parts good and bad, depending on what a user is uploading.
While the idea of Megaupload isn’t new, the way in which Megaupload 2.0 plans to operate is unique. The project stands to become the easy-to-use front-end of blockchain-powered technology. As long as the Megaupload 2.0 user interface is sensibly designed and simple to use, they could help onboard people unfamiliar with blockchain tech and virtual currency. Users could be transacting in micropayments, interacting with the blockchain, and sharing files around, all without knowing anything about blockchain technology or even cryptocurrency. That is a tall order to fill seeing as how no one has streamlined all the processes involved in acquiring digital currency.
Since Megaupload 2.0 would force its users to transact in bitcoin, the launch of this project could be very good for bitcoin, which could, in turn, increase public awareness about virtual currency in general. Though the biggest hurdle is the difficulty in converting fiat currency to a virtual one, especially for non-tech savvy users (and even some tech-savvy folks too).
When it comes to the legality of this venture, regulators may be blindsided, as lawmakers largely don’t seem prepared to deal with blockchain technology in general. Many authorities recognize a lack of regulation in the blockchain sector and have published papers along those lines, but few are prepared to promulgate viable legislation. This lack of blockchain regulation goes to show that authorities aren’t prepared for the decentralized future. One of the many benefits of blockchain is distributed ledger technology, which allows individuals to interact and transact in a trustless environment. When data is able to be freely shared in a direct peer-to-peer manner, like in a decentralized system, governments could become nervous about not being able to intervene, regardless of their desire to do so.
A decentralized Megaupload could become an unstoppable Megaupload, which would certainly draw the attention of regulators. Imagine an invincible Napster, where users can continue to use the service regardless of what any government entity might think since it lacks a single point of failure. There are no servers to shut down; there’s no centralized repository of data to seize.
An unstoppable Napster would certainly increase public awareness of cryptocurrency and its associated technologies, but is that necessarily a good thing? It could help to popularize blockchain, but in the same way, Silk Road helped “popularize” cryptocurrency. Public awareness and infamy are two very different things.
What’s interesting is Megaupload 2.0 isn’t really innovating at all. While their idea is somewhat unprecedented, at least in how its operation is planned, they’re mostly combining existing projects to bring theirs to fruition. Their venture serves as proof that 2017 will likely be the year of utilizing existing and emerging tech, instead of creating a proof-of-concept of some new, unrealized idea.
Bitcache, if launched, is proof of this. It’s taking the fantastic concept of a lightning network and bringing it to life, with its Megaupload 2.0 use case being developed concurrently. Storj and Maidsafe already exist as decentralized data hosts, so Megaupload 2.0 would leverage those technologies instead of spending time trying to create their own. While it may look like they’re combing several great projects to breathe new life into an old concept, this might simply be a strategic move to potentially shift legal blame, should upset copyright holders start pointing fingers again.
The big question is: will the user-facing frontend of Megaupload 2.0 itself be decentralized? Are they going to release the service as a Dapp? A website like Megaupload2.com could still be seized and shut down, while a Dapp version would be much harder to take offline once it’s released into the wild. It certainly is the type of project whose ideals align with those of decentralization activists. If Megaupload wants to operate with impunity, a decentralized approach would certainly make for a more resilient service.
It’s safe to assume this project will not roll out quietly. Kim Dotcom is already making sure of that. It will certainly shine a light on blockchain, and possibly call into question its lack of regulation. Only time will tell if this is good or bad for the blockchain ecosystem, though it will more than likely be bits of both. Much like existence, and the human condition in general, such is the duality of the blockchain.
As of the writing of this story, Kim Dotcom’s self-publicized deadline for his “big announcement” has come and gone. He took to twitter, saying the delay was caused by an “expected hiccup,” whatever that means. He then listed his new mission: “Destroy roadblock;” his new timeline: “A day or two;” and his mission’s status: “Top secret.” So it looks like Megaupload fans are going to have to wait and see what news the future holds.