There's a saying about standing armies in peacetime, it's generally not a good idea. Wartime emergencies are one thing, but when you have a standing army during peacetime, they generally just get in the way because, like most armies, they crave action.
If you have a perfectly virtuous military, perhaps having a standing army is fine, but given the flaws of the human condition, there's bound to be some trouble. Many a revolution started with standing armies that felt disrespected and seized power when they could.
I mention this because this dynamic is at play in the Bitcoin ecosystem, where a bunch of bored holders are starting to make trouble. They identified as Bitcoin Maximalist even as recently as a few years ago, yet got off the rails, pushing all sorts of idiocy like this ordinals/brc-20 stuff.
The problem with these people is that they crave action. They can't just sit back and enjoy the ride. They're the type that needs to always be doing something, good or bad. And let's face it, once you get that Bitcoin is sound money and have given your pitch to your friends and relatives, it's a matter of waiting things out and watching your fiat enemies float by the proverbial river. I've been in those conversations, they go around the same topics over and over again.
As a result, these people feast on news. Wow, Michael Saylor did something, or there's an ETF coming, or X or Y or Z is happening. They're all addicted to talking and rallying the troops and once you're bored of talking about the things that matter, there's a natural tendency to talk about the things that don't matter as if they were.
I blame the BUIDL movement that emphasized building something, anything. It's an understandable attitude. Surely, doing something is better than doing nothing, right?
This is the error that every politician makes and it's high time preference behavior. X just happened and so you have to do something to react, right now. Or Y is a problem so you do something to "solve" it. The problem with these actions is that they're usually not well thought out and good actions, the ones that provide value, require some planning and research. But for the people with the BUIDL mindset, they just go and make something regardless of whether there's a need in the market or not. And the people addicted to action love this stuff because it's new.
I'm old enough to remember the 2008 crisis and the $800B TARP bailout that came along with it. The idea was that there would be lots of "economic activity" in the form of "shovel-ready projects." 16 years later, there's very little in terms of real, useful stuff that got built from the program. Most of that money ended up in slush funds and the coffers of the Cantillon winners who magically doubled or tripled their billions in the decade or so since.
That mindset of "build whatever" is a fiat mentality. It's not "if you build it, they will come." There has to be value being added to real people and not just a good story about what's possible. And that's what we're seeing in the Bitcoin community. There's a lot of VC money floating around still and they'll put money into anything with a good story, even if it makes little sense.
The fact is, VC investment is a fiat vestige that's horribly inefficient. And the incentives around it are deeply misaligned. The VCs, even the good ones, will pump their bags. And once invested, it's very hard for them to be objective about anything and takes superhuman amounts of virtue to do what's good for Bitcoin and not for your fund. You'd hope those things are aligned, but every VC inevitably gets into the situation where they have to invest in something questionable.
And invest in questionable things they have. This has been going on since 2013 or so with "investments" on "blockchain technology" and "ICOs" and "DAOs" and "DeFi" and "NFTs" and on and on and on. They may not even be explicitly looking to scam, but that is what they inevitably do. The pump and dump nature of tokens is such that they benefit the early pre-sale investors at the cost of the public, though to a large degree, this no longer has the returns it once had.
The flavor of the day is ordinals/brc-20 and unsurprisingly, a lot of VCs, even "Bitcoin-only" VCs, are invested in one or two already. That's because this is their model. They have to invest in a lot of stuff because their hit rate is so low. And diversification necessarily means you let the foxes into your henhouse. The "investment" ends up enriching scammers like the TARP bailouts did and the stuff that gets built ends up being largely useless.
And really, that's who is addicted to action the most. It's the VCs. Unsatisfied with Bitcoin's insane returns (or lacking justification for their fund in lieu of Bitcoin's existence), they talk and talk and talk on clubhouse and twitter spaces and whatnot to pump their bags. Even if they don't have bags to push, they're always talking openly to people about what investments they should make. And because they are looking for places to put money, they become much less objective and will fall for anything with a good story.
Investing in a good story is not a bad strategy in the fiat world. The narrative wins over things that provide value as long as there's an overwhelming amount of money put in on the narrative side. And the money printer is ultimately run by humans who will put resources toward good stories because there's no hard reality of the market to deal with. In other words, you often don't have to win the market. You can win it later with some money-printer-induced advantages.
But in Bitcoin, things are a little different. We have to be a lot more choosy about what gets built because what fails is a lot of wasted time and resources. Worse, that which gets built which ends up scamming wastes even more time and resources and sets Bitcoin further back. The entire altcoin industrial complex and the billions wasted on them since 2011 are the vestiges of this build-anything mindset.
Building has been very inefficient in the fiat world and unfortunately, we're having to re-learn what it means to build something that provides value.
Back during the gold standard, Standard Oil once paid 33% in dividends in a single year. That's not price appreciation or profits, that's dividends, as in money that went straight to the shareholders in a single year. And that's not a huge outlier. Most years, they paid over 10% in dividends.
Nothing like that exists now because all profitable stuff has been arbed to death. Anything that profitable gets "investment" (read: debt) which ultimately scales the business but reduces profitability. Most businesses these days are zombies, living out a dead existence while sucking value out from everyone else through inflationary theft. And unsurprisingly, that is the state in which most altcoins currently continue.
Which brings me back to the issue of Bitcoin culture. The problem right now is that too many people build on Bitcoin the same way they build on fiat. They play by the same rules and systems which have caused the stagnation we see all around us. But as we're progressing toward a sound money world, these processes and the fiat games that they run on won't work. The building that people do will have to run on a different set of values, not the fiat ones like satisfying venture capital with good stories.
The sad thing is that most people would rather do something rather than nothing. The lesson of the last 11 years in Bitcoin is that building something that is hurtful is worse than useless, it's better to do nothing.
@niftynei said something I liked on this:
Here's to fewer startups and more small businesses.
I blame the BUIDL movement that emphasized building something, anything. It's an understandable attitude. Surely, doing something is better than doing nothing, right?
This mentality is how great innovation are made
Not sure who said it but there's a related quote:
Don't just do something, sit there!
Bitcoin seems to reward this (lack of) behavior.
I'm 99% sure that the quote came from the Vietnamese Zen teacher, and monk, the Venerable Thich Nhat Hahn.
Nhat Hanh always used to love subverting well-known sayings into something that makes you ̶t̶̶h̶̶i̶̶n̶̶k̶ reflect further - possibly bringing it closer to zen Koan status.
I crossed out 'think' on purpose as one of the most famous of his sayings (subverted of course) was from Descartes quote
I think, therefore I am"
"I think, therefore I am lost in my thinking, I'm not there"
Dying just a few years ago at 95, Thay had an amazing life - he was nominated for a Nobel Peace Prize by no other than Martin Luther King (he didn't get it as, controversially, no Peace Prize was eventually given that year). Nhat Hahn was a prolific writer, with his works published in multiple languages.
Nhat Hahn was a friend of the monk who self-emoliated himself in protest of the war (the monk unflichingly died and will be forever shown on the iconic Rage Against the Machine album - Thay felt great sadness losing him)
I had the fortune to meet Nhat Hahn a few times, even visiting his abode - he truly was an extraordinary person.
The sad thing is that most people would rather do something rather than nothing.
This is especially true if your paycheck relies on doing "something". Living in the Bay Area, it's remarkable how quickly I saw all the engineers switch from altcoins to AI. People need jobs, and most don't choose their job based on worldview or anything like that.. They choose it because they need to put food on the table.
Idk how you counteract this. There will always be VC money chasing the shiny thing, and it's likely to always out-price the people trying to build the "right" thing
Really, those engineers could retire somewhere non-sucky after a year of slaving away.
Really depends on what you like. I'm not into living in the boonies.
Great post, Jimmy.
Oscar Wilde put it well - “To do nothing at all is the most difficult thing in the world, the most difficult and the most intellectual.”
Fascinating perspective Jimmy — I especially tend to agree “build anything” ends up generating technical debt, and debt is far worse than not debt. Most of the garbage eventually just becomes a page the historical section of wikipedia. I think the zirp exacerbated this problem, but it does come from a fiat mindset.
I’m interested to get your perspective of how VC funding may work in a Satoshi standard future. Will this only be after price discovery phase?
Investing sats in projects is almost certainly going to never yield even the principal back due to time, halving phases and supply. Deeply disincentivizing investment, which unlike life costs, cannot he waved away in deflationary assets - Eg why would you spend your precious deflationary sats — I have to live/eat/roof etc — but investment is discretionary and a result of idle capital with an objective of value growth. Extremely difficult, ala trading meme tokens for sats and profiting.
VC funding has been the biggest enabler of innovation in technology for the last 40y+ I don’t see it going away as a strategy, and we need to think about how this works in future. Bitcoin denominated timelock bonds as instruments could be one idea.
Great question. I will write another post on the VC complex in the near future to answer what I think will happen.
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