BSV Series: Part III

Disclosure: The New Economy Fund holds all major implementations of Bitcoin: BTC, BCH, and BSV. The author of this essay series is not a financial advisor and this is not financial advice. Do not invest in speculative assets with money you cannot afford to lose.

Dave Mullen-Muhr
May 21 · 17 min read

If you are arriving at this essay without first reading parts I and II, some necessary context will be lost. The following links to each individual essay, several of which build off their predecessor.

Table of Contents

“Why” BSV?: Darwinian Fitness and Irrational Markets

If we accept the difficulties facing BTC and the community’s failure to acknowledge and address them, the next question becomes: which alternative blockchains are positioned to outlast, and eventually overtake, BTC? While bitcoin as BTC might be irreparably flawed, we are in the fortunate position of being able to capitalize off of its open source nature. Unlike an individual company that is built and will either fail or succeed over time, the public code and transaction history that is the bitcoin blockchain protocol is infinitely forkable, or copyable. If you copy the blockchain, make a change, and secure the energy to sustain it alongside its parent, your new blockchain will effectively be a variation with a genetic mutation. In a Darwinian battle for fitness, you can then hold all of the various forks (mutations) and rather than betting on the individual chain (species) who will be most fit to thrive in its economy (environment), you can simply wait and see, knowing one of your investments will likely prevail.

Imagine you are an early speculator observing the prehistoric Earth and its landscape of primates are your investment options. You are saddled with the task of picking the species who will be able to reach the moon. If given the opportunity to pick between two formidable primate competitors of your moment, say Neanderthal and Homo sapien, you may be tempted to develop a thesis around strength and pick the species that seems strong enough to build a staircase to the sky, or perhaps you value intelligence more and opt for the one that seems smart enough to innovate a tool which can catapult them from the top of the tallest mountain. These both sound like reasonable theses, but settling on just one is risky nonetheless. If instead, you were able to start a few generations back on the evolutionary chain and could bet on “primates” (whose species are blessed with both strength and intelligence) as a category rather than an individual species, surely your odds of ultimately seeing one of your choices orbit the moon greatly increases. Who can know which of these theses is best for the current landscape, let alone which will be best for the future (and ever-changing) landscapes to come.

Thanks to bitcoin’s open source forkability we have this same option. To continue the biological analogy (Neanderthal vs Homo sapien), if blockchains are the Kingdom (Animalia), and the proof of work consensus mechanism is the Phylum (Chordata), and the SHA-256 hashing algorithms the Class (Mamalia), and Bitcoin is the Order (Primate), then we can in fact bet on “Primates” to reign supreme. If either neanderthal reaches the moon by brute force or Homo sapien reaches it through brain power, we will come out a winner. Some speculators might argue that they know ahead of time the species of bitcoin which will win. Maybe it will be BTC with its strength, or BCH with its ideological purity, or maybe it will be BSV with its strategy. Regardless, holding all forks as a bet on “primates” writ large could prove most wise.

Note: If you spend time in the crypto currency space, or silicon valley generally, you will almost certainly hear the language of Nassim Taleb utilized. Antifragility and lindy are powerful concepts but often misapplied. While bitcoin is maximally lindy compatible within its field (10+ years old, 100% uptime, unhacked, high value blockchain) and, given bitcoin’s aforementioned forkability, it has a degree of antifragility, one must be careful not to assume bitcoin (the Order) is equal to BTC (the Species). BTC is arguably neither antifragile nor lindy. Thinking deeply about the implications of this is a fruitful exercise.

If this bet on bitcoin (again, as an order not species) opens us to the big block alternatives to BTC, in BCH and BSV, how do we go about valuing this range of investments? For the most hands off approach, one could simply aim to hold one complete “original bitcoin”, or 1 BTC + 1 BCH + 1 BSV = 1 bitcoin. If you bought a bitcoin prior to the major forks in 2017, then this would be your default investment barring any active rebalancing. However, now that the forks have occurred, in order to hold all forks new buyers need to effectively roll back the clock and manually purchase each. At current prices at the time of writing (5/5/19), if our total USD investment allocation was $1,000 this would look like $943.71 invested into BTC, $47.16 invested into BCH, and $9.14 invested into BSV for .165 of each coin’s 21 million total supply. This would guarantee us exposure to all three bitcoin potentialities without biasing our nominal vote for any single selection. While nominally we are hedged, emotionally we will rationally favor current market sentiment continuing such that our $943 investment into BTC doesn’t one day value as less than our $9 investment into BSV. Essentially, this hedge is saying “I think the market today is mostly correct regarding bitcoin forks”. Alternatively, another passive investor could equilibrate their hedge in real USD terms at today’s prices. This would look like a $1,000 investment into “bitcoin” as $333.33 for each BTC, BCH, and BSV. This approach would yield .058 BTC, 1.17 BCH, and 6.039 BSV. While you are now equally hedged in USD terms, you have an economic incentive biasing you to hope for a black swan event that proves BSV most fit giving you the largest percentage of total coin supply of the three. Essentially, this hedge is saying “I think the market today is likely incorrect regarding bitcoin forks.” Beyond these two somewhat passive approaches, a curious and more active investor with detailed knowledge of the differences between forks and a thesis about the future landscape of the industry could more heavily utilize current market sentiment and resulting price disparities to their favor by designing a portfolio that fundamentally respects the impossibility of perfectly foretelling Darwinian fitness while also incorporating observations about current market conditions and contrarian consensus biases.

Recalling our fractal contrarian consensus image from part I, we now enter into the smallest known transformation: BSV.

Given our concerns with BTC’s small block roadmap and its proposed last second fix-all in lightning network, we should error more towards the latter of the two passive investment theses from above. The market seems to be wrong, or worse, naively and wholly unaware, of these problems. However, rather than relying on a simple arithmetic real USD hedge between the three major bitcoin forks, let’s consider their specifics. Perhaps all three forks aren’t equally likely to survive. Perhaps market sentiment has an unwarranted bias against BSV. The noise surrounding BSV seems to universally suggest that it’s a scam. So much so that those earnestly seeking to understand it better can be led to believe that the very endeavor is a fool’s errand. Surely this is having an effect on its market price, perhaps to an extreme effect. Looking beyond the surface noise, what is the case for BSV from those who support it and what could cause a black swan to trigger a polar shift towards it in the market?

As I mentioned in part I, my introduction to the BSV community and their arguments as delivered from their own mouths was at a San Francisco BSV meet-up. I expected a mirrored echoing of the noise I was hearing about BSV, but what I got was light on noise and heavy on signal. My two big takeaways from this meet-up were:

  1. BSV has a different fundamental conception of what bitcoin should be


2. BSV is uniquely concerned about miner incentives and profitability

The first was entirely unexpected. I thought we all, at least, agreed on the what of bitcoin, and the fork disagreements were primarily concerned with the how. This proved incorrect. The highly technical discussion of the BSV meetup was primarily concerned with bitcoin as a serverless database infrastructure. If the popular conception of bitcoin was a future oriented competitor to dethrone gold (according to BTC) or the USD (according to BCH), BSV’s counter suggestion was that bitcoin was more like a future oriented competitor to dethrone AWS and other large, siloed server farms. This foundational change has huge downstream implications. If you are building a decentralized web protocol to be utilized by large corporations and governments, you want different things than if you are building a competing form of value or money with which to undermine and make those same corporations and governments less relevant. Having entered the meet-up as someone who understood the case against small blocks and the case for big blocks, this was still a new vision for bitcoin for me. The privacy features being added to BCH that I was celebrating as a benefit to government resistant money were being condemned by BSV as a surefire way to alienate the target market of enterprise business who would be concerned with legal compliance. Again, to my surprise, the disagreement was on the what, not the how. This required a mental system reboot. Immediately I was transformed from someone with competence and comfort in subject matter bitcoin to someone without.

This disorienting transformation was also significant in discussions I had regarding mining. The conventional wisdom regarding bitcoin’s halving always struck me as patently wrong. BSV elaborated on this intuition. Every four years, bitcoin’s block reward or block subsidy is decreased by 50% (from 50 to 25 to today’s 12.5) such that over time it asymptotes at 0. This reward is the mechanism for bitcoin’s inflation and the mathematical explanation for its absolute scarcity of 21 million bitcoins. The conventional wisdom in bitcoin is that the halving leads to a price increase since inflation is lower and, as a result, coin value is less diluted from that point forward.

Understanding the sound intuition behind basic rational market hypothesis from my economics study, this didn’t make sense. How could something public and mathematically fixed on specific time intervals not already be priced in? It seems illogical. If we know price will definitely increase tomorrow, we will buy it today. This results in a steady upward price appreciation given bitcoin’s fundamental selling point of scarcity, rather than the piecewise jumps suggested by the crypto currency contrarian consensus on halving. BSV then expanded on this notion and painted an even less rosy picture. Not only would the upcoming third BTC halving (in May 2020) down to 6.25 BTC/block likely not help the BTC blockchain, instead it could be an existential threat. While each halving is a 50% decrease, the drop from 50 to 25 is acceptable so long as mining margins remain profitable. If the USD exchange rate for BTC outpaces the block reward halving, this could even result in a real increase in mining revenue (exe. 50 BTC * $1/BTC = $50/block is orders of magnitude less than 25 BTC * $400/BTC = $10,000/block). If the block reward decreases by half and the speculative price growth of BTC doesn’t outpace this, miners may start to worry. Again, this is something that is mathematically fixed and curious miners should already be anticipating the change and investing into capital accordingly. However, if crypto currency contrarian consensus of the halving price pump is sufficiently doctrinal, the potential for a halving in real USD revenue may be under appreciated. Suppose the expected real USD block reward value increase doesn’t come as expected. How will miners respond? Will their support for the consensus pick of the crypto community supersede their value seeking?

The roadmap for BSV (and BCH) plans to make up this block reward difference by increasing the quantity of transactions per block, and as a result, the number of transaction fees miners receive as compensation. If there are millions of tiny transactions fees per block come next halving, this could make up for the 6.25 BTC block reward decrease. Since BTC has its fixed, small blocksize, their increase in transaction fee aggregation comes not from allowing more transactions per block but instead through increasing the fees per transaction. If the future prospects of BTC’s value is sufficiently high to incentivize users to pay increasingly high fees to compensate miners this may continue to remain viable. However, if this increase doesn’t come on schedule with the halving, miners may be incentivized to leave the network as they find themselves operating at a loss due to their primary fixed cost of electricity. If the SHA-256 miners currently mining on BTC opt to turn off their mining rigs, they could consider the capital invested into them as a loss, or they could easily transition to mining another SHA-256 chain, like BCH or BSV, which may have more aggregate transaction fees to pay them.

If BTC miners are more like profit seeking mercenaries than benevolent team players, BTC’s lack of transactions and aggregated transaction fees could prove costly. What happens if enough miners opt to leave the BTC blockchain and dedicate their hash power to a sibling blockchain that they deemed more future oriented?

Whether I agreed with the conclusions of the people at this meet-up or not is somewhat beside the point. Their arguments were rational. If BSV was building an enterprise and government friendly protocol in order to accrue as many transactions and transaction fees as possible, how would they make this pitch to said enterprises? Beyond legal compliance, BSV is focused on the theme of stability. “Solid foundation” is often juxtaposed to “quicksand” in professionally polished presentations delivered by nChain’s Jimmy Nguyen. Bitcoin as an Order level protocol is stable (perhaps lindy) in that it has existed for 10 years, but the Species level BTC and BCH have been regularly innovating and changing. Within crypto currency contrarian consensus, this is touted as a positive. To build the best value store or digital money you should implement the best code from the best coders and thinkers concerning themselves with that goal. They should stay competitive and maintain first mover advantage over the competing crypto currencies. Because BSV disagrees about the goal of the use of the protocol, they fundamentally disagree with this outlook. In order to attract established enterprises and entrepreneurs, they argue, bitcoin needs stability such that the rules for operating remain consistent and people can build for the future rather than the ever changing present.

This fundamental case for BSV doesn’t slightly differ with general market perception, it’s entirely absent. My assumption that BSV would be trying to implement some better plan to build decentralized cash was incorrect. Because of this, when I saw a lack of github commits to the BSV code I read this as evidence of a scam: they forked and are doing nothing! I was right about the lack of code commits, but I wasn’t made aware that this was essentially their entire pitch. A feature, not a bug. I know that I am not alone in this fundamental confusion regarding what BSV is aiming to do. Thus it must be reflected in the market via relative prices. What events could begin to change this? What could be a catalyst to trigger a rebalancing?

In the case of BSV there are a host of potential black swan events of which curious investors considering a hedge would want to be aware. Many revolve around the influence of BSV’s infamous unofficial figurehead, Craig Steven Wright: the man who claims to be bitcoin’s inventor, Satoshi Nakamoto.

“Who” is Craig Steven Wright?: Satoshi? Does it Matter?

Craig Steven Wright (CSW) is an integral part of the BSV story. This statement is actually a point of agreement between both the pro BSV camp and their anti BSV opposition, though in different ways. The noise from crypto twitter regarding CSW, the contrarian consensus of both crypto currency and big block BCH, is that he is an obvious fraud. The antithesis to King Midas; anything he touches is turned to shit. The unanimity of this consensus was powerful over me personally. Initially, the involvement of CSW, or Faketoshi as he is known, was the primary roadblock preventing me from investigating BSV altogether. While attending the BSV meet-up, Craig’s name did come up, but not in the way I was expecting. There was no “cult of Craig Wright” but there was a contrary perspective regarding who he was and was not. The cartoonish cult of CSW I was warned of was one where his followers are 100%, beyond a doubt convinced he is Satoshi Nakamoto, and as such, an infallible King Midas figure for bitcoins future development. Although contrarian consensus within BSV seems to be that he is indeed most likely Satoshi, nothing fundamental for the protocol depended on this being the case. If he were Satoshi, it would likely bode well for the protocol’s long term success as well as the coin’s short term price movement, but if he were not Satoshi, he was still providing value simply as CSW the Australian bitcoiner. Since we can’t know with certainty as we weigh the size of a potential BSV position in our bitcoin hedge, we should examine the ramifications of the two potential outcomes.

What if Craig is Satoshi Nakomoto?

If Craig is Satoshi this would obviously be a bullish revelation for BSV. The simplest reason being that Satoshi Nakamoto was an exceedingly bright guy. He had some really great insights and ideas that he compiled to invent bitcoin in 2009. If that came from the brain of CSW, then BSV will likely benefit from the ideas he has worked on since and will continue to work on over time. Craig, and his company nChain, have filed over 100 blockchain related patents since 2017. nChain says they have more waiting to be filed and Craig hopes to be the single largest patent holder in the world before he dies. A goal that seems realistically within reach. If these patents prove fruitful, developers will have many additional tools at their disposal when building on the BSV blockchain as nChain plans to license use of them for free to people building on their preferred protocol, a method historically used by Microsoft and other companies seeking to develop ecosystems that foster innovation and network effects.

If Craig is Satoshi, more weight would be given to his criticism of the directions that the BTC and BCH protocols have chosen. Although blind appeals to authority should not carry much weight, if the inventor of a category defining innovation offers a criticism of a secondary developer’s adjustment to that innovation, it should be deeply considered. Current crypto currency contrarian consensus accuses CSW of “technobabble”, or saying a lot of words that don’t culminate in anything of substance. Because of the baseline technical competence required to distinguish the substantive from the technobabble, determining this is often outsourced up to the most respected and technically competent voices in the space (more on them in the following section). As someone who is often required to do this outsourcing when discussion gets too technical, I noticed the interesting internal experience of watching CSW lectures and interviews with different framings biasing my viewings. If I watched him with the presupposed mindset of “let’s watch Faketoshi’s lecture on bitcoin” it read as clear technobabble. But, if I watched him with the alternate framing of “let’s watch Satoshi lecture on bitcoin”, it was profound. Because content like interviews and lectures are regularly shared embedded in twitter posts or reddit threads, the bias of the framing is often overt and unavoidable. The contrarian consensus of Craig being a scammer technobabbler likely plays a large role in confirming and propagating this bias.

Another key implication if Craig were Satoshi would be his potential plurality ownership of both BTC and BCH. Craig has made overtly malicious threats against both BTC and BCH as bitcoin chains he sees having perverted the goal of bitcoin. If he is one of the largest owners of both coins and he decides to dump them on market, both of these coins could see quick and drastic price decreases. This threat has existed since before CSW was claiming to be Satoshi with websites and email lists dedicated to tracking the currently unmoved “Satoshi Million”, fearing any movement could cause a preemptive psychologically induced crash in the markets even before they could possibly reach exchanges. If Craig is Satoshi, the asymmetry of coin ownership for some sort of malicious attack is likely in his favor as he would own all his forks as the result of a defacto “hold all forks” investment philosophy. This is in contrast to most BTC and BCH purists and their relative levels of fractal contrarian consensus who have likely already sold the majority (or all) of their post fork BSV.

What if Craig is not Satoshi Nakamoto?

If Craig isn’t Satoshi, the threat of malicious market sales fall away but his influence and patents wouldn’t necessarily suffer. Without needing to appeal to his authority as Satoshi, multiple high profile developers I met from the BSV meet-ups credited CSW with opening their eyes to previously unrealized potential of the bitcoin blockchain. Regardless of Craig’s position in the early days of its invention, his knowledge of the protocol must be real enough to inspire and enable these developers to build novel applications on the serverless web protocol of BSV.

If Craig is not Satoshi, what does this mean for his criticisms of the BTC and BCH roadmaps? Although this would remove his appeal to authority, it wouldn’t necessarily negate the case for BSV. A theme of Craig’s criticism of the other forks is their lack of pragmatism:

“People want to make this thing that they say will get around government. You don’t do it by walking to a government official and kicking him in the fucking nuts. I’m sorry. You do not make a system that will change the world by fighting the big bad gorilla and kicking him in the fucking nuts.”


With or without the approval of Satoshi, by building a protocol that is legally compliant and enterprise friendly in its stability, BSV could grow to a level that facilitates competition with other currencies after it has reached an appropriate size and utility such that it could not be easily removed or undone. The logic of this strategy is sound: the Uber method. If Craig as Faketoshi is successful in building a powerful company like nChain to achieve these ends, the fundamental value of the protocol and its native coin should be valued higher than it is today as an “obvious shitcoin”. If Craig is somehow proven not to be Satoshi, then BSV price would likely decrease even more and could counterintuitively become an even more attractive buy if this fundamental value proposition is strong.

Let’s assume Craig is not Satoshi. Might it still be the case that the hatred of Craig (no matter how deserved) is impairing the sensemaking ability of potential investors in the platform? Although it’s likely true that Craig being proven not to be Satoshi would have an immediate negative effect on BSV’s price, is the crypto currency consensus’ level of emotional disdain for him blinding them to the BSV protocol’s unrelated potential? In a recent video, Ryan X Charles, an 8 year veteran bitcoin developer and BSV proponent, demonstrated a social experiment he conducted to explore this issue. In it, he showed the response to a tweet he posted stating his personal experience of CSW. The tweet read:

“Craig Wright has 17 degrees and he’s getting two more PhDs right now, simultaneously, while working a full-time job. He is the most serious life-long learner and scientist I have ever heard of in my life. Inspiring.”

In the video, reading through all 200+ responses he demonstrates the low quality of the tweets, anonymity of the posters, and largely emotional (rather than rational) nature of their arguments. The video is definitely worth a watch. What tangential information could be gleaned from this social experiment? What are the origins of the emotionally fueled hatred of CSW and who is promoting it?

Continue on to part IV


Thoughts from Ezra Partners — an impact investment fund focused on the people, companies, and decentralized networks transforming financial and energy markets through use of blockchain tech. Ezra.Fund/New-Economy

Dave Mullen-Muhr

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Thoughts from Ezra Partners — an impact investment fund focused on the people, companies, and decentralized networks transforming financial and energy markets through use of blockchain tech. Ezra.Fund/New-Economy

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