A startup company with some very big-name backers has just come out of stealth mode and revealed a business plan that could turn bitcoin mining—and even the economics of selling chips and smartphones—on its head.

The first thing to know about the company, which calls itself 21, is that it has designed an embedded chip for bitcoin mining—the process of running complex algorithms that are required to solve an equation to generate, or mine, new coins in the digital currency.

Bitcoin mining initially was done by individuals on home PCs, but the work has gradually been taken over by mining collectives and large compute clusters that are now needed to solve the increasingly complex Bitcoin algorithms.

21 is coming at the problem from a different angle. The details aren’t entirely clear, but the plan seems to be to get its bitcoin mining chip, called BitShare, embedded into millions of smartphones and tablets, and for those devices to work collectively to mine new currency.

But not just bitcoins

But the startup—whose backers include Qualcomm, Cisco Systems and a former ARM executive, and which reportedly has raised “well north of $116 million”—has larger ambitions than just a new way to mine bitcoins.

For starters, it sees its chip as a way to solve the problem of micropayments, or payments that are too small to make it worth the hassle or cost of using a credit card to process them. If each device containing 21’s chip generates a small stream of digital currency, that currency could be used to pay for services, as well as for cloud applications like online storage.

It could also be used to pay for the chips themselves, which would be a radical new model for the semiconductor industry. “This means any vendor can take a chip performing a normal function (say video decoding or networking), add 21s BitShare technology, and thereby enable the chip to continuously generate revenue simply by being connected to power and Internet,” Balaji Srinivasan, 21’s CEO, said in a blog post Monday.

“Because this technique can replace or augment traditional methods for silicon monetization (namely chip sales and IP licensing), it has the potential to revolutionize the way chips are built and sold,” he said.

In other words, a chip maker such as Qualcomm could embed 21’s mining technology in a smartphone processor, collect some of the digital currency generated by the device, and use it to offset the cost of the chip.

In a similar way, a smartphone maker could use the currency generated to subsidize the cost of a device—an alternative to the carrier subsidies that helped smartphones get off the ground in the first place.

“What they are doing now could ultimately be as big as Artisan/ARM was for the semiconductor industry,” Mark Templeton, the former CSO of ARM and an investor in 21, was quoted as saying.

A dose of reality

They’re lofty goals, and it’s easy to imagine numerous issues. Among them is whether the technology actually works, how much battery life it will suck up from devices, and whether smartphone makers and chip companies will buy into the idea.

“The concept is interesting, but every time you are doing an activity, even bitcoin mining, you are consuming power, even if it uses an ASIC,” said industry analyst Patrick Moorhead of Moor Insights & Strategy, referring to the type of chip 21 has developed, an application-specific integrated circuit.

“Im not aware of any consumers today who would sign up for something like this when the device isnt plugged in, but maybe when the phone is plugged in they would,” he said.

The idea reminds him of the Folding@Home project, he said, which leverages unused CPU cycles in a PC to fold genomes and help develop new drugs.

“The only benefit to having it in a phone would be that you have guaranteed connectivity and the ability to have the value where you may transact, or buy goods,” Moorhead said, which could be useful in developing markets like India and Brazil.

It’s also unclear how far along the technology is, though presumably 21 has made progress if it’s attracted so much financial backing. Electrical engineers, chip designers and others interested in using the technology can sign up now on 21’s website to request a development kit, the company said, though it doesn’t say when those kits will arrive.

Still, 21’s backers add credibility to its efforts. In addition to Qualcomm Ventures, Khosla Ventures and Cisco, 21 has secured investments from founders of EBay, PayPay and Dropbox, according to a Wall Street Journal article Monday. Ben Horowitz of the venture firm Andreessen Horowitz is on 21’s board, and Larry Summers, a former U.S. Treasury Secretary, has been hired as an advisor.

21 didn’t come out of nowhere, but its plans have been largely secret until now. It started attracting attention two years ago when a regulatory filing revealed it had raised $5 million. It’s picked up considerably more funding since then and is now “the world’s best-funded bitcoin startup,” according to the Journal report.

Its BitShare chip comes in a variety of form factors, the company says. It can be used as a standalone chip or embedded into an existing chipset “to generate a continuous stream of digital currency for use in a wide variety of applications.”

Along with those uses mentioned above, BitShare can be used for applications that aren’t monetary in nature by leveraging the blockchain, the underlying distributed ledger that records and verifies all bitcoin transactions. That system means the chip could be used to authenticate devices on a network, for example.

“Ultimately, though, it is the community of electrical engineers and computer scientists that will judge whether embedded mining technology solves their problems,” 21’s Srinivasan said in his blog post.