Game of Coins: Why Fighting Strengthens the Crypto Ecosystem

If institutional investors are delaying entering crypto until the industry ‘settles down,’ they will be in for a long wait – as in-fighting and controversy are part of crypto’s DNA. And as with any Darwinian struggle, crypto’s dramas are fundamental to the sector’s overall health and prosperity.

In any other industry, fights like the current one between Bitcoin SV founder Craig Wright and the anonymous Twitter user “Hodlonaut” would be considered “bad for business” and would be avoided like the plague. But crypto isn’t like any industry that has come before.

The ethos that underpins it is a unique mix. On the one hand, Bitcoin was born out of cypherpunk principles that value technology, open-source code, decentralization and a mistrust of government and centralized authorities. At the same time, the sector is characterized by the high-stakes, gold-rush mentality that is common to all new boom markets when large sums of money are at stake.

The industry was born at a time when the world is undergoing a profound transformation as our lives become increasingly digital. With crypto barely a decade old, the overwhelming majority of its participants are young males who have grown up in the frequently combative online communities that evolved into the social media platforms of today.

The heads of most crypto companies are millennials and younger for whom fighting their battles online – whether in gaming, Twitter meme wars, or crypto trading – is second nature. They view crypto as the ultimate zero-sum game and they play to win. With so many competing alt coins, tribalistic behavior is driven by strong economic incentives – as token founders tend to view competing ideologies as a serious threat to their own financial well-being.

An asymmetric investment opportunity

Crypto is an immature industry that represents an asymmetric investment opportunity. For investors willing to take a position in new blockchain protocols or a decentralized digital currency with an unknown creator, the potential returns are significantly higher than almost any other industry – but so are the risks. For investors ready to enter the sector, first-mover advantage is more likely to be gained by those who are willing to embrace a level of chaos and anarchy not usually seen in other sectors.

As the chart below shows, even after the crypto winter of 2018 and early 2019, investors who purchased Bitcoin, Ethereum or XRP (Ripple) at around six months into each project’s existence have all seen massive returns:

Contentious crypto fights

In more mature industries, big players attempt to keep their conflicts internal or behind closed doors, fighting the pitched battles of capitalism under the guise of advertising, the free market and healthy competition. Western capitalism is characterized by ruthless business practices and a survival of the fittest approach, but it’s difficult to imagine the CEOs of major investment banks engaging in public Twitter arguments. Even the notoriously volatile Steve Jobs did his best to direct his temper tantrums toward his product teams, rather than attack Bill Gates in a public forum.

In crypto the game is played differently. Think of any crypto thought leader, company director or Head of Protocol and you’ll most likely be able to find an example of one of their tweets or public statements that a risk-averse PR company would characterize as extremely ill-advised.

In 2016, Jihan Wu, then the head of mining company Bitmain, famously tweeted, “f_ck your mother if you want f_ck” (without the underscore) to Mr.Hodl during the 2X block size debate. It’s now a much-loved crypto meme. Well known early Bitcoin investor turned Bitcoin Cash advocate Roger Ver is known for his fiery debate style. During a video interview with fellow OG Bitcoiner John Carvalho, Carvalho goaded Ver by using a disliked slang term for Bitcoin Cash, “Bcash,” and then accused Ver of using sock puppets to fake support for Bitcoin Cash. Ver responding by giving the finger and rage-quitting the interview. The image of Ver, face scowling, middle finger up, is now of course, also a much-loved crypto meme.

There are countless other examples of crypto thought leaders openly criticizing their rivals or going to great lengths to defend abstract philosophical positions. Vitalik Buterin, one of the creators of Ethereum, once tweeted, “Plenty of bitcoiners advocate legalization of all drugs. I don’t see legalizing possession of child porn as more radical than heroin.” Buterin was making a point about libertarian values, but can you imagine the PR meltdown and stock crash should Apple’s Tim Cook have said anything like this? Buterin has since deleted the tweet.

Don’t expect the robust debate and outright wars to stop, however. For now, instead of joining forces against centralized institutions, crypto’s diverse community remains divided. Behind the demographic inclinations to meme culture and a life lived online lie deep ideological disagreements on the future direction of the technology.

The lines of division

On one side are the purists, who accuse others of weakening core blockchain principles; and on the other are the enterprises—Ripple, EOS, and others—who critique the purists as naïve idealists.

[Related: “Busting the Myth of Public Blockchains for Business”]

There are the Bitcoin maximalists, who point to the dominance of Bitcoin as evidence that it is the “one blockchain to rule them all,” despite the dozens of projects that go beyond it in scope. There are those who support Bitcoin Cash and still more who support Bitcoin Satoshi’s Vision. Grown men, content to spend their days arguing with strangers on the internet, over which Bitcoin scaling solution is most in line with Satoshi’s original vision of a “peer-to-peer electronic cash system.” Every altcoin, from Ethereum to Litecoin, has its own community of supporters, all with a vested financial interest in seeing their coins succeed.

Darwinism at its best

From the outside, it’s clear that crypto can appear contentious, argumentative, and racked with internal divisions. What should also be clear, to potential investors especially, are the benefits that these conflicts provide. In an environment of chaos, only the strong survive. Bitcoin itself, is built on principles of antifragility. Each time the Bitcoin community is faced with a seemingly intractable disagreement or attack from outside, the protocol has invariably survived, even stronger for having overcome the adversity.

Conflict compels developers to improve their code, and rivals to test and defend their ideas, and discard defeated ones. When serious disagreements do arise, different factions are free to fork a coin and pursue their own path, a valid approach that many have taken, Craig Wright, Vitalik Buterin and Roger Ver among them.

The wild west environment also has another benefit: Instead of issues being left to fester until they emerge as institutional scandals decades later, they are instead ruthlessly interrogated by the community itself. Outright scams such as BitConnect and OneCoin get called out. When Coinbase acquired the Neutrino blockchain analysis firm, it quickly faced intense backlash from the community when it became apparent that some of the Neutrino team had been associated with Hacking Team, who worked on malicious spyware projects. The outcry was enough to force Coinbase to announce that the individuals involved would be transitioned out of the company.

In this sense the crypto community can be viewed as crypto’s immune system. Whenever there is an existential threat to the industry, the community rallies together to protect the industry when any single player steps across the line.

Despite the chaos, software continues to get developed, projects and platforms continue to grow, and evolution continues apace. Conflict is not a distraction, but a necessary mechanism for reaching “human consensus” as we build the future of decentralized finance.

This article originally was published on Brave New Coin.

TabbFORUM is an open community that provides a platform for capital markets professionals to share their ideas and thought leadership with their peers. The views and opinions expressed are solely those of the author(s). They do not necessarily reflect the opinions of TABB Group, its analysts, TabbFORUM and its editors, or their employees, affiliates and partners.

Comments

Add a Comment

Your email address will not be published. Required fields are marked *