Reddit ponders creating its own cryptocurrency

Reddit’s announcement of $50 million in funding today came with an unusual caveat — the company plans to give 10 percent of the series B round back to its user base. But how do you distribute company equity among so many people? It appears as though Reddit is turning to cryptocurrency.

In the comments on Reddit’s fundraising thread, CEO Yishan Wong addressed how the site plans to distribute the money to its users:

“We are thinking about creating a cryptocurrency and making it exchangeable (backed) by those shares of reddit, and then distributing the currency to the community. The investors have explicitly agreed to this in their investment terms.

Nothing like this has ever been done before. Basically we have to nail down how to do each step correctly (it is technically, legally, and financially complex), though in our brief consultation with an ex-SEC lawyer, he stated he could find nothing illegal about this plan. Nevertheless, there are something like 30 different things we have to pull off to make this work, so we’re going to try.

(Also, I know this totally contradicts what I said over here but that was before Sam proposed this plan to me, and the idea of being able to distribute ownership of reddit back to the community – a long-held dream of many of us, frankly – is important enough to try and do this)

Again, we want to emphasize that this plan is in its earliest stages right now and could totally fail (if it does, we will find another way to get the shares to the community somehow), but we are going to try it because… well, because we are reddit and we do these kinds of things.”

The funding round’s lead investor Sam Altman, who is CEO of startup incubator Y Combinator (where Reddit launched from in 2005), further elaborated on the plan that he originally pitched to Reddit over the summer.

“You can in theory create a currency and have each coin be backed by one share of a company,” Altman explained to me. “Some day later, when the company goes public in the future, each coin can be traded for a share.”

How exactly that will be done — and be legally compliant — is a big question. Based on Wong’s post, it seems like the details of how exactly they’re going to use the block chain technology are unclear — and I’ve reached out for more comment from Wong and Altman. The company though has been hiring cryptocurrency engineers to work on the project, including Ryan Charles who was formerly Lead Developer for BitPay in San Francisco, according to his LinkedIn.

Altman though that it was important that Reddit users have some part of the company. “Reddit is a community, and you want the community to have ownership,” Altman said. “[Cryptocurrency] is one cool way to handle distributed ownership.”

Reddit’s no stranger to cryptocurrencies. It already has some monetization on its platform in the form of Reddit Gold. Users can buy Reddit Gold to get special features on the platform, or give Reddit gold if they like a Redditor’s comment or post. Bitcoin, the leading cryptocurrency, is already one of its payment options. On the cryptocurrency subreddits, like Dogecoin, users already tip each other with what are known as “changebots”, which gift a small amount of cryptocurrency to the user.

One way to implement a new cryptocurrency could be to turn Reddit Gold into its own alt-cryptocurrency that’s based on the block chain, which is essentially a distributed shared public ledger. However, it’s hard to guess where Reddit would take it from there, especially on a legal level if we’re talking about equity in a company.

This post was updated at 4:45p.m. with comment from Sam Altman. We’ve reached out to Reddit for additional comment, and this post will be updated as we learn more.