The Great Bitcoin debate has been focused for nearly a decade on the question of scaling, that debate is basically over at this point in terms of the cultural question within Bitcoin. The beautiful thing about Bitcoin which I have written about in a previous article, is that cultural debates which masquerade as technical ones, are resolved peacefully in the form of a fork, a possible roadmap for the future of humanity. If you side with the Store of Value culture you are squarely within Bitcoin BTC, if you believe in the need for cheap payments you are either in BCH or BSV depending on your level of comfortability with size and personality cults.
The most important question in Bitcoin is “What is Bitcoin?” and nearly everyone in Bitcoin gets it wrong, because they are framing it to fit their answer. The answer is. We don’t know. Anyone who says they do know is either ignorant or willfully dishonest. Bitcoin isn’t JUST money, money is a characteristic of it in the same way that a car is not wheels, but wheels are a characteristic of a automobile. Factual, but not truthful.
I have spoken extensively with a variety of guests on my old podcast about the greater nature of Bitcoin and the more I speak, listen and learn about it the more questions I have and the less I feel I know. For the sake of this article we are speaking specifically about its characteristic as money.
Specifically in Bitcoin BTC and to a extent in Bitcoin SV there is a severe lack of understanding of the nature of financial institutions. The calls for “institutional money is coming” was one that really gained popularity in 2017/2018 as the Biggest boom we ever saw in terms of interest both individual and corporate has ever occurred. Since then the refrains on twitter have revolved around the pleb level exhortations to “HODL” for the individual and that its going to change the world.
Behind the scenes as institutional money has been entering (albeit not as quickly as was predicted) we are witnessing the foundations for the demise of the nature of Bitcoin. Bitcoin is a renegade, a rebel a trouble maker, and its money that was made for those people not the ones who are linked into, support and defend the system that Bitcoin was created to be the heroic protagonist against
The thinking goes that as Institutions become more and more heavily invested into Bitcoin they will slowly and then quickly realize it’s a better money and then stop trading, investing and using anything involved in a fiat money system. In my more naïve days I believed this too.
Unfortunately history shows this pre written novel to be just that, fiction of the most self masturbatory kind. The good guy doesn’t always win, the nice guy doesn’t always get the girl in the end. It is a preposterous notion that institutions who’s very existence and more importantly profit is reliant on the continuation of the system we are in opposition to will somehow change its course because Bitcoin is better is ridiculous to say the least. Its not a matter of Banks and investment firms will do a few Basis points less of profit in a switch to a Bitcoin based system its orders of magnitude. Banks get free money from central banks, loaning it out to individuals and at cheap rates to other corporate entities. A return to sound money with a “Bitcoin Standard” doesn’t spell the end of profits, it however spells the end of preferential treatment in the market and why would ANY institution willingly give up its privileged position? You can bang on all day about the moral cases for it, why fiat is bad, but that means nothing.
So why are institutions getting into Bitcoin? This is mere speculation on my part, I am not on those boardrooms or conference calls, however its not too hard to figure out. They recognize there is money to be made in Bitcoin, 99% of them view Bitcoin the same way 99% of the public that has ever bought Bitcoin views it. A speculative instrument. Bitcoin is not designed to be such, nor is its destiny to be that, but currently that is its main use case for the majority of holders. It’s a way to buy low, sell high, hold for longer terms in hopes of higher returns. The smarter ones have an inkling of what Bitcoin will be and see that it may very well be a successful rival to the national currencies of the world and that success as a rival will create higher returns for an investment today and in their minds its pragmatic hedge to have a toe dipped in this nerd money thing.
The other reason some may be starting to get into Bitcoin is to co-opt it. Now regardless of whether this is their specific intention or not, the end will be the same. If institutions become large holders, and over time in aggregate the largest holders of Bitcoin, they will hold immense power and sway over Bitcoins community and culture. Now is about the time the screeching of “reeee” is being made by some reading this. I am not saying that Bitcoin has no defense or that there are no ways to fight this, but Bitcoin is not impervious to being co-opted.
The S2X debate showed us, empirically that there are leaders in Bitcoin and these cultural leaders can sway the network to moving in a specific direction. One group of leaders wanted S2X implemented, the others didn’t. in the end the group that killed this change and eventually forced out those that did into a rival forked chain came to be called the maximalists. As in any group there are nuanced and some larger differences of opinion between members but in a large part if you want to introduce a BIP (Bitcoin Improvement Protocol) into BTC and don’t have the support of the majority of the powerful (many well known, some less so) maximalists that BIP is dead on arrival.
What many in Bitcoin failed to understand (BSV followers, however, understand very well) is that there will always be leaders, even in a decentralized network, however it takes more legwork and winning of hearts and minds in Bitcoin to move the needle than say in a monarchy or autocracy. In BTC there is no founders reward or other source to fund developers. At first it was done completely for free, enthusiasts and zealots committed to Bitcoins ideals volunteered to fix bugs, create improvements and that small group of peers became the leaders, discussing ideas and implementing them as the group approved. Now many developers are funded by companies built around the network and increasingly as institutional money pours into the speculative side they will instinctually want
to be involved in the development side. If your firm or bank is putting billions into a car manufacturer you will want board seats, backroom approval of CEO changes, etc. That money buys you influence. In Bitcoin the only influence you can buy is either through mining or through developers.
Institutional money doesn’t want renegades and agorists, anarcho capitalists, libertarians or other counter culture ideals being realized. They want, and rightly so, profits. If there is tumult in the culture or controversy it creates volatility and downward pressure of prices. They will want to introduce stability and no the kind Bitcoiners today envision, into the network. We envision stability as, people wake up realize Bitcoin is better, buy it, use it, mine it, etc. The more people join and participate the less volatility in the price, increased mining, more stability. We want success in our goals, they want success in profits. Institutional money will not care about the ability to conduct private and/or pseudonymous transactions or the ability to hold your own keys.
Institutions are inherently, highly linked and interwoven with the state and they support and provide cover for each others goals. Do you think that State actors will in a scenario when Bitcoin is becoming popular and mainstream (actually , not the very minor amount we see today) look kindly on a BIP that introduces something like confidential transactions into the network? Allowing individuals to conduct tax free commerce and savings? Who do you thing these institutions will back? The libertarian maximalists or the state?
As Bitcoin becomes more institutionalized so will mining. They will either directly be involved or indirectly through investment creating a world where the majority of mining is corporate and public. To illustrate this better, perhaps a scenario is in order.
Its 2029 and roughly 18% of people in the developed world hold some amount of Bitcoin, and nearly everyone has a portion of their investment/retirement portfolio or pension invested in Bitcoin. It is openly discussed in a positive light in mainstream media and entertainment akin to AOL in the late 90’s something cool, but not completely ubiquitous with American life in the way the internet would be 10 years later in the 2000’s. Bitcoin developers are nearly all funded by corporations as they work for companies like Square, Bank of America, Morgan Stanley leading their Bitcoin integration teams with only a few remaining independent and nearly 100% of those being early adopters and independently wealthy.
A growing industry is being built around Bitcoin whether its creation of payment processing apps, wallets, integration into existing financial institution or investing, with an estimated of 5% of computer science majors going on to work on it. Most of the Developers are still committed to the ideals Bitcoin was created upon and have finished working on a BIP that would allow for confidential transactions on both 1st and 2nd layer of Bitcoin with varying differences in its operations.
As the implementation time grows nearer, Law enforcement, regulators and Congress begin to sound the alarm. They hit podcasts and talk shows, decrying a future where funding of terrorism, human traffickers and election meddlers will be able to operate with impunity, nullifying any efforts to catch and convict them as their money is now completely hidden, unable to be broken or ever seen. Major institutions involved in Bitcoin are called to congress where they half heartedly say they do not control Bitcoin merely interact with it.
A fiery law and order congressman from Tennessee steals the show and lists off case after case of child sex traffickers who were apprehended because of financial forensics that led them to being taken off the street and the remaining children who were saved still in captivity. The talking heads latch on and ask what can be done? A Bill is introduced into congress with bipartisan support that bans use of untraceable transactions and is so wide ranging in its regulatory and onerous disclosure requirements the banks and other institutions get the message that it was intended to serve. Fix this ourselves or watch Billions of dollars in annual profits from the growing Bitcoin industry disappear. Informal discussions are held and a flurry of similar statements flows out of institutions in the form of press releases that they will not support the BIP and will force a fork in Bitcoin BTC if it is pushed. Most miners line up behind the institutions as they are the largest purchasers BY FAR of their newly minted bitcoins and developers are forced into a Sophie’s choice of relinquishing well paying jobs with benefits and prestige or their principles.
Now I understand its easy to dismiss “what if” scenarios but this isn’t hard to see as a possibility or where institutions want a less private version to abide by regulations pushed as a BIP and the same choice faces them. The point is not that this exact scenario is a prediction but the general sentiment is. At some point institutional money will have more sway and power over miners and developers than the community does now. At some point after that there will be a civil war between these institutions and the principles Bitcoin is founded on. The institutions will likely win and create a corporate BTC and a much smaller pure BTC. The best devs, thinkers and creators will all be forced to choose sides and most will choose the corporate as they are people, and people are often more loyal to the hand that feeds than the ideas that free them.
Bitcoin has been inviting these foxes into the henhouse for a decade now without much thought as to the implications of it. This is no progressive, far left screed against corporations or markets, this is a warning. Who do these people serve, where are their incentives and where do our beliefs and incentives diverge from them? If they had Bitcoin’s best interests in mind, if they believed what we do, would they be kneeling to the gods Bitcoin wishes to cast into the fire?
We cant stop institutional investment, but we need to understand the fight that is coming our way. We need to understand that this is not a decade until moon battle, but a generational one. This next fight will be a severe setback, pushing Bitcoin back to a level of its earliest days in terms of acceptance and network effect. We will once again be back where we belong, as a dark market money, as a value transfer for those outside the system. This is our home.
Bitcoin will not convert bankers into Bitcoiners. We need to convert your neighbor into a black marketer.
Why is this inevitable?
The reason why is because we are mimetic creatures. We mimic our surroundings and derive our desires from what we think others do. In children you can see this quite planly. Two children will be playing happily, and one grabs a red firetruck and starts to play with it. The other child had made no moves to the truck prior, hadnt voiced a claim to it, but now that the other has it, he wants it. This leads to a rivalry that may or not devolve into violence.
Regardless of Bitcoiners being on average, more out of the box thinkers than the average person, we are just as easily led by mimetic desire as those same people. We desire to be triumphant, to win, to have the status as the bankers and financiers do today. In our narrow minds the only way we can achieve that is to mimic their actions, their choices, their concepts of possibility. We imagine Bitcoin banks, Bitcoin based hedge funds, Bitcoin corporations. We imagine the only way to win is to copy and infiltrate the institutions that we are hero protagonist to.
We desire their status. You see this among many prominent Bitcoiners, especially those who are the “thinkers” and “intellectuals”. They mimic the behavior, the clothing, the social currency of the same institutions they say they have disdain for. They will declare that colleges are breeding grounds for keynesians and communists but don the suits and tout their university credentials at every opportunity. They will declare that Silicon Valley has sold out to the mass surveillance industrial complex, but don the hoodie and take positions with social media spin off corporations.
We have to break the mimetic desire and embrace Bitcoin. Bitcoin is the crazy ones. The misfits. The rebels. The troublemakers. The square peg in a world that favors round holes. We are a vanguard for a time that has not come.