Though altcoins use Bitcoin to gain people’s trust, they’re simply a reimagining of fiat incentive alignment.
This is an opinion editorial by Jimmy Song, a Bitcoin developer, educator and entrepreneur and programmer with over 20 years of experience.
“We are all in this together.” So say the altcoiners when regulators are bearing down on them. Also altcoiners: “Bitcoin is wasteful, outdated and toxic.”
The weird frenemy status that Bitcoin enjoys among altcoiners is as arbitrary as it is confusing. On the one hand, they try to present a united front because clearly, Bitcoin adoption is greater than that of any altcoin, or even the entire space of altcoins combined. On the other hand, they criticize Bitcoin whenever they get a chance to build interest in their own coin. Altcoiners practice self-interested mental gymnastics worthy of the most partisan politician.
The reason for their flip-flopping inconsistency is due to monetary incentives and in that light it’s fairly easy to understand. They will argue for whatever will pump their coin. There is no sin so grave, no security exploit so big, no rent-seeking so obvious that altcoiners won’t excuse it for the sake of the pump.
Some Bitcoiners find their behavior annoying, some find it irrelevant. This is understandable because in many ways altcoins really have nothing to do with Bitcoin. Yet to ignore them would be a mistake, because they are causing tremendous amounts of harm.
And that harm is what I’m writing about today. You may think the damage of altcoins is limited, or think of those that lose out as suckers getting their due. And indeed, there’s some amount of distance that’s healthy to keep from their antics. Still, there’s a lot of collateral damage from their actions and it is for that reason we must make the argument against altcoins.
There have been many arguments against altcoins. They don’t provide anything from a technical perspective. They’re terrible assets from an investment perspective. They’re piss-poor from a security perspective.
We look frequently at their shenanigans dispassionately and even make fun of their many obvious failures, but to really convince people of the futility of altcoins, we have to argue at another level.
We must make the moral case against altcoins. In this article, I will explain how altcoins impede Bitcoin adoption, destroy value and create terrible habits. In short, I will explain how altcoins are unequivocally immoral.
Altcoiners Are Rent Seekers
The confusion that most people have when they learn about Bitcoin is based on this idea that altcoins are “similar” to Bitcoin or that they’re even in the same category. This confusion is understandable. Media organizations lump Bitcoin and altcoins into the same category of “crypto,” but more importantly, venture capitalists (VCs) and altcoin founders benefit enormously from altcoins’ association with Bitcoin. The price rise of Bitcoin and its long history of security give legitimacy to the entire category.
As a result, VCs and altcoin founders have a strong incentive to associate altcoins with Bitcoin. Of course, it’s well near impossible to copy the main property that makes Bitcoin interesting, which is decentralization. And also, it’s very difficult to value-capture and get rich without being a trusted third party in the middle, so they make up this fiction that they’re “working toward decentralization.”
Of course, even if they could add decentralization, which they don’t know how to do, they don’t want to do it because that would mean they no longer would be able to profit from the project. Still, they keep up this fiction about decentralization being a spectrum and that somehow, they’re not in the middle, stealing value. The fiction of decentralization, or being decentralized in name only (DINO) serves two functions which reveal their rent seeking.
First, it associates them with Bitcoin, which legitimizes their project in the eyes of the public, or at least to the extent that Bitcoin is legitimate. The halo effect of Bitcoin is used for marketing. The halo effect gives their coin a completely undeserved frenzy. They are making superficial copies and selling them as the real thing.
Second, it absolves them of any responsibility should anything go wrong. Altcoins are the perfect rent-seeking job. They are all salary without any of the responsibility. Their token sale terms are pretty explicit about this fact but few people read what these obscure legal documents say. It’s specifically not defined as a security in these documents and it’s specifically not a share in anything, just a donation to the development team/centralized party that created the token.
These antics are highly immoral on its face, as it’s really committing fraud by using Bitcoin’s good name. They’re like the knock-off brands from China which try to confuse the buyer into thinking they’re the genuine product. As you might expect, this has consequences for Bitcoin.
Impeding Bitcoin Adoption
Explaining Bitcoin to normies has become 100x harder because of the muddying of the waters by altcoiners. Altcoins create all sorts of confusion by saying things like “Decentralization is a spectrum,” and “Blockchain technology has many use cases.” Books like Dan Tapscott’s “Blockchain Revolution” and Chris Burniske’s “Cryptoassets” give just enough details to make blockchain seem like the secret sauce that made Bitcoin successful.
Anyone technical that’s studied what a blockchain is knows that it’s a very restricted database and not like anything they describe. As a result, as with decentralization, there’s a huge confusion about the word blockchain. People now are being sold on blockchains with magical powers like being able to solve supply chain problems, HIPAA compliance or click fraud.
Despite the “verify, don’t trust,” ethic that defines Bitcoin, altcoiners make it very difficult for people to verify. They rely instead on gaining peoples’ trust and abusing that trust for their own gain. That trust gets continually violated with all manner of broken promises about adoption, development and even price. We get giant disasters like LUNA and Bitcoin gets lumped together with the incompetence and dishonesty of altcoiners.
Sins Of Fiat Money
The fact that there are promises at all should give people pause. Who’s giving a promise in a supposedly decentralized system? And what are those promises worth?
The whole problem with fiat money is that promises to pay later are conflated with the money that’s available now. By issuing lots of promises, fiat can expand infinitely through theft. It’s only when there’s a loss of confidence in those promises that the whole scheme collapses in hyperinflation. Altcoins work the same way. They are fiat money complete with a central bank, monetary machinations and control.
Altcoins thus inherit all the moral problems of fiat money. They steal through monetary expansion, they change the rules without the consent of everyone and create all manner of rent seeking. The monetary expansion they practice is slightly different from traditional central banks in the sense that there’s a giant premine that’s released a bit at a time, but in practice it’s very similar to fiat money printing.
The muddying of the waters has had devastating effects. There are so many people that could benefit tremendously by having the ability to save without debasement or theft. Instead, many people get caught in the bear trap of altcoins, which is essentially degenerate gambling. The constant speculation on different altcoins adds no value, whereas saving allows for capital accumulation. Civilization is built using capital accumulation, which is stalled because so many resources are directed toward these useless value-destroying projects.
Destruction Of Value
The contrast between Bitcoin and altcoins couldn’t be more stark. On one side, there’s a tool to let people keep more of the value they create over time. On the other is a trap that extracts whatever value they have in indirect and obscure ways. Bitcoin is based on verification and is thus a truly decentralized money. Altcoins are based on trust that is easily abused for the benefit of the VCs.
These VCs get altcoins at massive discounts and pump the heck out of these things through marketing. They trade on the trust that the public implicitly gives them to exploit them. They make tons of money because of the discount by dumping on retail. And these retail investors aren’t just in Western countries. The investors are often the poorest and most vulnerable people in the world. Ripple, for example, is one of the most frequently traded coins in Iran. Iranians would benefit tremendously with Bitcoin, which lets them save and not be subject to the theft of their central bank. Instead, many of them are gambling.
Much like central-bank backed fiat money, the clear Cantillon winners are the rich people in the West while the poorest see their hard-earned savings stolen away from them.
So much capital, not just money, but developer time, marketing, not to mention all the effort put into altcoin trading are completely wasted instead of being put into productive use. VCs already have a poor track record of investment, given that the vast majority of their investments fail completely. With altcoins, even their failures end up profitable for the VCs.
Sadly, most VCs have no qualms about playing the role of altcoin central bankers and don’t mind deceiving the public or exploiting the poor people as long as they make their profits. Altcoin pumpers are not much different, even if they don’t go so far as participating in pay for play.
The tradeoff that’s being made here is trust in exchange for money. Multi-level marketing schemes make the same tradeoff, in which personal relationships are leveraged to sell stuff that the buyer would not normally buy. Still, at least with multi-level marketing, there’s some product that people get, whether it be some food or vitamins or clothing. With altcoins, there’s nothing provided and it’s as pure an exploitation of trust as can be.
Destruction Of Virtue
Altcoins take advantage of the most basic instincts of people, which are to get something for nothing. People naturally want to do the least amount of work for the most amount of money. In the current system, the positions that people want are exactly that. Investment banker, fund manager, venture capitalist, etc. These are what we would call rent-seeking positions because these people tax transactions without providing any value. They are leeches on society and unfortunately most jobs today have some rent-seeking component in them.
A system that lets people rent seek is a morally deficient system. Rent seeking is a form of stealing. Altcoins give people the opportunity to rent seek, provided you can get people to trust you. Cynically, you can call altcoins a way to monetize trust.
Sadly, too many people go after rent-seeking positions and don’t realize they’re destroying value. Think about all the time, labor and effort put into altcoins versus the comparative value that it’s provided to people. This is a massive waste that ultimately reduces accumulated capital, including trust.
Altcoins inflame the high-time-preference behavior that started with fiat money. You cannot plan with fiat money because the rules change all the time. Altcoins have the same problem. The rules can and do change constantly. This is why trading is such a big part of the altcoin ecosystem. You need to get in and out before the rules change.
Attacking Bitcoin
Altcoiners are not only sowing confusion and co-opting Bitcoin’s legitimacy, but they actively attack Bitcoin. For example, they assert that proof-of-work is bad because it uses too much energy. This is an ignorant technical statement and a baseless moral assertion as I’ve explained before, but has an effect on people that don’t understand energy production.
They also assert mining is centralized. They confuse mining operators with mining pools and omit the fact that users can ultimately act to deny a bad-faith block. Much like a politician caught accepting a bribe blaming the journalist for having bad moral standards, this assertion is a way to deflect from the fact that altcoins are utterly centralized.
There are many more such assertions, such as that wealth distribution is “unfair” in some way or that Bitcoiners are toxic. These are all ways to add fear, uncertainty and doubt to Bitcoin and to make the altcoin look better in comparison. Altcoiners use FUD as a way to get people interested in their altcoin from which they can rent seek. They’re trying to get people to drink mercury instead of water by pointing out the negatives of water.
Destroying Altcoins
Altcoins are a cesspool of theft, cronyism and rent-seeking. Altcoins build themselves up on the reputation that Bitcoin has worked hard to attain. They enrich the VCs and altcoin pumpers at the expense of the poor and vulnerable and inflame the high-time-preference behavior of the fiat system. They prevent the adoption of Bitcoin by their very existence and exploit the very people that Bitcoin could help. In short, altcoins are evil.
Sadly, the attitude of altcoiners is that saying good things about Bitcoin is enough to make up for their altcoin vice. They think that owning Bitcoin means they can pump altcoins to their heart’s content. That’s not how morals work. Doing the right and good thing is expected. Doing even one wrong or bad thing is something you have to answer for.
Altcoins delenda est.
Top Ten Rationalizations By Altcoiners
- A premine for altcoin founders is totally consistent with a decentralized, leader-less system.
- Adding a developer tax is totally not theft of value from everyone else that owns the coin.
- A Turing complete smart contract totally won’t have any bugs, especially if someone tells me so. Who has time to verify, anyway?
- My drooling chimp DB row designation is worth way more than a patent or a copyright.
- The influencer who’s getting paid by cryptocurrency companies is totally trustworthy.
- Even when the founder says two contradictory things, he’s completely correct both times and anyone that says otherwise is just a hater.
- We can totally vote for the money we prefer and they will not be subject to the laws of economics.
- The people initially selling tokens and making all the decisions are totally not the central single point of failure.
- The laws of economics don’t apply and the market cap of my token is totally going to be $500 trillion.
- Information security totally doesn’t matter since no one’s going to be doing anything bad with all the power they have.
This is a guest post by Jimmy Song. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
