Why I’m not a Bitcoin maximalist

I recently had a friendly exchange with @RadagastTBrown on my Twitter account. Radagast is a Bitcoin maximalist. He used to buy into the promise of smart chains like Ethereum in the past, but after several ETH2 delays he’s consolidated his faith into Bitcoin as the end all be all crypto. Radagast is a smart, level-headed guy worth following. I think it’s important to surround yourself with people who disagree with you lest you fall into the echo chamber trap we’re all too aware of. In the exchange linked to above he forcefully argues that chains like Ethereum suffer from too much centralization: all the applications it enables ultimately amount to a house of cards where trust plays a crippling role. I, of course, disagree.

The crux here is to not think in absolutes. Once we’re honest with the fact that a) even in Bitcoin there’s subjectivity expressed in the decision of which network miners choose to mine for, and b) we trust large mining pools not to cooperate, we can start to see the bigger picture: this is a game of trade offs.

Of course the subjectivity in Bitcoin is small compared to alternatives, but it’s still there. The trade off is immutability (trust) for functionality. And that’s okay when you only want to store value. But there’s more possible with a different trade off. Take oracles for instance.

Oracles fall more towards trust than trustless on the spectrum that all cryptos in fact fall on. Relying on 1 party for info is completely trustful. Relying on 2 is less so. Relying on 3… you can the idea. The goal of oracles is to have several feeds of data provided to a chain to decrease trust in any one of them. As n number of oracles increases, trust decreases. It’s all a trade off. Dismissing oracles because they’re not 100% trustless is dogmatic. 

A live price feed of BTC/USD on the Chainlink oracle network. Each box represents an individual oracle who’s price is constantly checked against all other oracles. A deviation of 0.5% is allowed before network enforced castigation begins.

Trustlessness isn’t an intrinsic value. It’s a means to an end. In the case of Bitcoin that means is storing value. In the case of oracles, it’s to bring off chain assets on chain. Why is this an improvement? Because the alternative is 100% trust which invites bad actors to exploit. Oracles dilute this trust. They add more trustlessness into the system. This amounts to an improvement over the alternative. 

But why bring off chain assets on chain in the first place? Because it allows us to bring markets (which are going to emerge anyways) onto a network which requires less trust than completely centralized exchanges (think NYSE, or Coinbase). The markets are going to exist anyways, so we might as well have them require less trust. That’s an improvement over the alternative. Is it 100% trustless? No! But it doesn’t have to be! Remember, trustlessness isn’t intrinsically valuable. To dismiss anything more trustful than Bitcoin is to forget this fact and to fall back into utopian dogmatism. 

In short, a) nothing is 100% trustless, b) that’s okay, and c) adding trustlessness to a previously trustful environment is an improvement worth celebrating. But what does this bring? DeFi, NFTs, DAOs and more.

DeFi on Bitcoin for all intents and purposes doesn’t exist. DeFI, nonetheless is worth celebrating. DeFi requires a bit of trust: we need to trust the democratic process of altering protocols via DAO votes is in our best interest, but that’s an improvement over the alternative traditional financial centralization. Do you think loans are useful? Do you think trading is useful? Of course they are. So why not have all those nice things but with less trust required compared to the current fiat system? That’s an improvement a chain like Ethereum enables. There’s so much possible on these smart chains

Now anyone with a smartphone has the ability to:

  • provide loans for profit and enable liquid markets
  • provide liquidity for profit and enable decentralized exchanges
  • collect trading fees by supporting decentralized exchanges 
  • trade assets assets on and off chain
  • grow one’s pile of native tokens by staking
  • continue to trade or yield farm with liquid staking
  • participate in the governance of these protocols via DAOs 
  • create, sell, and collect royalties in perpetuity on art in the form of NFTs
  • make digital assets portable between games via NFTs enabling the dawn of modular gaming
  • pay to earn games enabling real income to those in poor countries

This is a huge win for people’s financial freedom. And it’s all done is a largely trustless way! This is a huge win for artists. This is a huge win for the democratization of finance. To deny this improvement because there’s still a modicum of trust in the system is to ignore the addition of trustlessness over the alternatives. To deny this improvement is to loose sight of tangible benefits. To deny this improvement is to worship at the alter of utopian trustlessness. To deny this improvement is to be dogmatic. 

Are there scams in DeFi and NFTs? Are there Ponzi schemes? Of course there are! But those schemes happen after the nth layer of yield farming. There’s usually nothing real going on in the last few steps of: staking->providing liquidity->wrapping LP tokens->bridging->staking the LP tokens->providing liquidity for those LP tokens->staking that, etc. But there certainly is something real in staking, providing liquidity, and providing loans. It’s the stuff that comes after that’s an artificial attempt at making profit. But you know what, that’s fine too. If you can get in and get out with a 3 digit APY, more power to you. Making money isn’t a bad thing. But it’s important to remember that those house of cards maneuvers aren’t the point of DeFi. They’re a downstream effect of very real democratized financial services. 

Keeping the above bullet points on mind, it’s also important to remember: these recent developments are the result of only a few years of brainstorming. What’s possible with these highly, but not perfectly, trustless distributed computing networks is limitless. Smart contracts on networks like ethereum, and not on bitcoin, are Turing-complete: this means there’s no limit to what can be built on top of this highly trustless network. If that’s not grounds for celebration, someone might have lost the plot. And to claim that Turing-completeness is a liability because of bugs is more dogma. Yes bugs are bad. But what Turning-completeness enables is…well.. everything digital you see. Remember, trade offs. Should we just shut down all computers and the internet because bugs exist? Of course not. 

So we have to keep in mind the goals here. Trustlessness isn’t a terminal value. It’s useful. But useful to what end? There are several ends we care about. Storing value is certainly one of them. In that case, we want to minimize trust as much as possible. Bitcoin does this. This is why it’s such a big deal. 

Value is fundamental to networks. It’s how they grow, thrive, and stay robust. It’s the neurotransmitter in neural networks, it’s the nutrients in an ecological system, it’s the money in an economic system, it’s the praise and blame in moral systems. It’s everything. 

Bitcoin is largely immutable digital value. That’s a hell of an innovation. It’s a fundamental innovation. But there are things we want to do with value besides just storing it. We want to loan it, trade it, grow it. We want to vote with it, play with it, beautify it. We want to export it, import it, and earn with it. 

Of course, some of these things already exist in a centralized manner. Some of them were only recently made possible by these networks. In either case, doing them on a highly trustless network like ethereum is a massive improvement, and isn’t that the point?

There are so many things value is for. Storing it is only the first step.

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