Bitness As Usual: Could VCs be funding the bitcoin companies that ultimately undermine Bitcoin?
Opening remarks from Silicon Valley Bitcoin’s George Burke at September’s “unstoppable exchange” crypto VC event.
“Why does Bitcoin have value? What ARE investors speculating on?”
They’re speculating on future speculation.
Ha, OK. But future speculation of what???? Future utility.
If promise of utility is what drives Bitcoin’s trading speculation, then what fuels that engine of utility behind Bitcoin’s value?
Look at the fundamentals. It boils down to the intersection of two properties: censorship resistance and sound money.
This means speculators are valuing Bitcoin’s present and future ability to privately and trustlessly transact sovereign wealth.
Any “bitcoin first” CEO who gets excited with the prospect of the Fidelitys of the world bringing crypto mainstream is well-intentioned but sadly forgetting these fundamentals.
Most crypto companies that are custodians in the US must collect Know Your Customer info, but they have to work extra hard because this makes them not just honeypots for crypto thieves, but also honeypots for sensitive personally-identifiable financial data. You can say “But, George, this is independent to the value of bitcoin”. Yet I posit that systemic vulnerabilities at the service layer can be just as detrimental to Bitcoin’s value as a vulnerability in the core protocol.
Imagine a Bitcoin protocol where some of your transactions natively leaked your identity without consent, or imagine it allowed some stakeholders to block certain wallet address from placing valid transactions?? Trust in the network would break and we would see the price drop to the floor like a stinking turd. But our antiquated global financial system currently works this way, and we’re improperly attempting to force-fit Bitcoin’s square peg into a regulatory round hole.
When we hear “mainstream bitcoin adoption” we don’t think too clearly about what the end-game looks like and we simply cheer on the large banks, the custodial exchanges, and the regulation-friendly crypto services who announce that they’re ushering in the next wave of retail investors.
So let’s for a second picture the end-game in a regulated crypto world.
Let’s imagine our beloved open and un-censorable Bitcoin network operating in a society where regulated gatekeepers held the only “legal” participatory access. These gatekeepers can shut down accounts at-will, block transactions, and reverse your revenue.
This becomes censorship at the Service Layer, which can be just as detrimental to the utility of Bitcoin as censorship problems at the protocol layer.
Exchanges are no exception. The long-held FATF “travel rule” used by 36 countries to report customer identity information on any $3,000 transaction has now just been officially applied to crypto exchanges, but no conclusions on technical implementations. Even if exchanges figured out a way to fall in line with demands and report off-chain — or god forbid on-chain where your customer identity becomes laser-etched into your withdrawal transaction or all eternity — it obviously shows a fundamental misunderstanding of how transactions within permissionless, pseudonymous blockchains work.
BTC dropped almost $1,000 the day the travel rule was announced. We all know the market reacts wildly to any geopolitical news involving Bitcoin because — despite exchanges having been the biggest enabler of adoption by providing mechanisms of trade — exchanges are actually THE most vulnerable link in our Bitcoin ecosystem. Not just because they can (and have) lost BILLIONS of our funds to hacks and incompetence and exit scam shenanigans, but because they, as gatekeepers, succumb to the same banking regulatory scrutiny that leads to shutting down accounts, blocking transactions, and other censorship activity. This slowly erodes Bitcoin’s universal utility… and therefore undermines its monetary value.
Why would we continue to go to the race track if the horses we’re betting on are all malnourished with broken legs?
At that point, what are traders even speculating on???
But I’m not sure if venture capitalists see things this way. Hundreds of millions of dollars were pumped into services like Bakkt, Tagomi, many others. Yes, they’ll prime the pump of adoption and, yes, they’ll reap a large reward for such a feat. But would it be short-lived? Where along the adoption curve would the Bitcoin we know start to sunset, and give rise to nothing more than the millennial-friendly digital stock market 2.0?
And here’s a crazy thought:
Could these VCs be investing today in the very companies that ultimately neuter the Bitcoin they thought they were upholding?
Tonight, here at another historic Silicon Valley Bitcoin Meetup, we brought in some of crypto’s top investors to touch on this, their thoughts on the future of exchange, and more.
My hope is to garner conversation on how to support bitcoin trade for all. Not for some… not for the privileged… not for first-world citizens with social security numbers and credit card accounts… but ALL. If the price on exchanges is linked to the speculation of Bitcoin’s future as the self-sovereign money for all, then imagine tomorrow’s falling price set shifted investor expectations when ALL really means SOME, and Bitcoin becomes nothing more than “bitness as usual”.
- George Burke
