Heated discussions ensued on Twitter following Naval’s comment that Bitcoin HODLers are freeriders.
This post is my attempt to logically unpack this topic.
Top 3 points (TL:DR):
- “Freerider” is a loaded term and it’s understandable that people rejected it.
- That said, the Bitcoin network does have its own version of freeriding.
- We can acknowledge this without announcing Bitcoin’s doom.
Thesis
Following Pareto’s Principle, a small percentage of people drive most of Bitcoin’s development.
These talented individuals are not paid for their efforts. If they want to participate in Bitcoin’s success, they have to buy their equity in the network like everyone else.
As leading engineers in a capital-rich field like crypto, their time is enormously valuable, and working on Bitcoin means incurring a massive opportunity cost.
HODLers are not required to make the same sacrifice, but they get to buy equity at the same price and enjoy the same upside.
This is Bitcoin’s version of free-riding, and it’s one we’re not familiar with because we never had anything like Bitcoin.
Counter Arguments
Let’s examine a few counter-arguments.
Everything Ben says is true but irrelevant to the freeriding issue.
Consider the Story of Tom and Bob:
Tom and Bob are building a house together. Neither has enough capital to do it alone, so they split the costs equally.
Tom is a talented and industrious builder. Bob is more interested in writing a novel.
Unsurprisingly, Tom does 90% of the work.
If the project succeeds, they sell the house and split the money equally.
Bob has capital opportunity costs and he’s exposed to volatility in the housing market, earthquakes, criminal activity, and countless other risks.
His participation in the project isn’t free, but it’s cheaper than Tom’s. He has the same expected value in the project without investing as many resources into it.
Vijay is a brilliant guy, and if you haven’t read his essay titled “The Bullish Case for Bitcoin”, I recommend you do so.
Vijay argues that HODLers are necessary for increasing Bitcoin’s price. They are the financial backbone of the ecosystem and thus critical to its success.
This is also true but irrelevant.
Bob’s capital is required for building the house, and the project would collapse if he pulls his funding. Still, he is a freerider.
Jeremy says that the free-rider argument is dangerous and can lead to community fights.
I believe that acknowledging reality is not dangerous, it’s essential for moving forward in the best possible way.
I agree that we are all in this together, and I love that Jeremy is putting things in this context.
The word “freerider” is often used to describe bad actors who take advantage of others, and I’m not surprised that it rubbed people the wrong way. That said, I believe many of them overreacted and got defensive instead of evaluating the argument in a rational way.
To me, freerider is a word that describes someone who benefits from an imbalance in the ratio between investment and reward. Adam Brown put it better than I could:
Notice how Adam points out that the rewards are better for devs, but not “enough better”.
Bitcoin developers do earn experience and credentials that you don’t get by just holding. Whether it’s “enough better” is a question that each individual has to answer to himself based on his own values.
Freeriding Doesn’t Spell Doom
There’s no denying that some very capable people will decide to invest their time working on other blockchains. I subscribe to Charlie Munger’s maxim of “Show me the incentive, I’ll show you the outcome”. Money is a powerful incentive.
On the other hand, there are good arguments for why Bitcoin can win without them:
- Some of Bitcoin’s developers are already independently wealthy.
- Money is not the only value that people gather around.
- Bitcoin is already successful.
- Everyone is freeriding Wikipedia and it still became the greatest body of knowledge that the world has ever seen.
- Since it’s complicated to reward developers in a decentralized way, networks that reward developers will tend to centralize, inviting regulation and governance problems.
Don’t Just HODL, do something
There’s more than one way to contribute to Bitcoin.
The dedication of Bitcoin’s developers can inspire all of us to find our own way of helping the network grow.
Andreas M. Antonopoulos is not a core developer but his contribution to Bitcoin cannot be denied. Interestingly, the community voluntarily rewarded him, demonstrating its unique generosity and commitment to the network’s success.
If core developers ask for similar support, I hope it will be met in the same way. Until then, it’s important to keep our minds open and evaluate criticism in a rational way.
Jeremy is right: we are in this together.
