Open source technology is at odds with venture capital funding
In the 1990s, Linus Torvalds turned his community software project Linux into the leading choice for global server infrastructure, paving the way for free and open source software (FOSS) in an industry used to large bankrolls from powerful corporations. In 2009, Satoshi Nakamoto took the next step with open-source money, a concept set to change the world to an even greater extent. Decentralized currency provides new incentives for engineers and creators and redistributes power among individuals.
As Apple rolls out surveillance technology to iPhones, technology approaches a crossroads. Only projects with a strong ethical mission will be principled enough to turn down the temptation of harvesting their users’ data, once Apple sets the precedent. In the same way that wireless headphones exploded in Apple’s wake, centralized services owe it to their shareholders to seize the market opportunity of user surveillance. Restricted freedom makes for better sales.
When an industry starts to overflow with venture capital (VC) funding, there is an increased tendency to compromise. Even in traditional business circles, critics point out that this type of funding pushes startups to grow however they can, to secure the next funding round and an ever-higher valuation and, ultimately, to cash out via IPO or acquisition by a large corporation looking to buy innovation. In cryptocurrency, this high-risk pursuit is exacerbated by targeting absurd returns and underestimating Bitcoin’s resistance to compromise.
Building without limits
There are two approaches to building cryptocurrency-related projects: build for short-term growth, or build for long-term sustainable value. Internet users have been increasingly monetized over the past two decades, and crypto communities as a subset are highly engaged and willing to invest in entirely new services and products, making it an attractive bet for investments from venture capitalists targeting a significant short-term payoff without needing to worry about the impact on the industry and users.
When Whatsapp launched in 2009, it used VC funding to expand without any clear business model, until acquisition by Facebook in 2014. The only value to Facebook was the massive user growth WhatsApp had experienced, which it sought to monetize. Following the acquisition, WhatsApp creators moved to work on Signal, which better represented their original vision. The dramatic WhatsApp exodus of millions of users in 2021 demonstrates the community’s power to resist when they realize what’s happening behind closed doors.
Building a company disconnected from a central authority — a funding body such as a venture capital fund or other creditor — means the free market governs its success based on solving user problems, not by trapping them in a closed system of adjacent services in order to squeeze them for profit.
This may mean more volatility and a greater risk of failure for individual startups but it allows the community to direct effort to real needs and coordinate changes transparently to avoid causing harm. Trezor was built this way, and sticking to open-source principles has made it the most user-friendly hardware wallet.
Left to the FOSS market, creating a product becomes more focused on improving functionality and concentrating development on actual user needs, rather than driving businesses to grow faster and compromise on product quality and values.
Reinvesting funds into the product to better serve the community is difficult — it requires sticking to a low time preference and long-term mission rather than driving the company toward the fastest, most lucrative exit by acquisition or IPO.
Value and valuation
The influence of venture capital is already evident in the industry. These large investments consistently focus on taking control of the money itself, rather than empowering users through self-custody.
The ecosystem is being monetized in two ways: through selling users and their data, or by seizing control over certain protocols. Services that deal with either can be portioned off to the highest bidder and the resulting inflated valuation grants investors yet more influence with which to aggressively expand, increasingly monetizing the customer base at the expense of their freedom.
Non-crypto native companies are investing in cryptocurrency startups to gain access to consumers who are highly engaged and easy to market novel products to, rather than to support the development of a decentralized economy.
The largest recipients of VC funding are exchanges, lending providers, stablecoins and other projects that have historically scored high returns for relatively low risk. Large investors are still acting as speculators in the market, hoping to make it work in their favor — naturally, this is incompatible with a decentralized monetary policy.
Bitcoin’s market cap could eventually reach tens of trillions of dollars, reflecting the economic, social and ecological value of a digital reserve currency with a fixed supply. For the moment, however, outside investors are more interested in speculating on the value of its users rather than the long-term prospects of the technology.
Bitcoin is risk-averse
There is only one thing you need to participate in cryptocurrency: a secure key to your coins. Investments into cryptocurrency infrastructure by large funds should be a positive thing. Yet too often they lead to compromise or bloat. Speculative investment harms company objectives and cheats users for whom decentralization matters, undermining the perception of cryptocurrency on the global stage.
Control over Bitcoin cannot be bought, and companies seeking to improve it should hold themselves to similar standards. Bitcoin is risk-averse, and outside investors keen on heavy-handed changes will not succeed in influencing its trajectory.
To see Bitcoin flourish, we should fully embrace open source for the equal playing field that it is, one that treats both users and developers fairly. An added benefit of transparency is greater security — there can be no closed technology or potential backdoor used to secure coins on an otherwise transparent network: doing so introduces more threats than are mitigated.
Using closed-source methods in any stage of a Bitcoin product is at odds with the nature of the system. Anyone can take part in developing open source software like Bitcoin, without the need for external funding — if the change is good, the community will embrace it. There can be no deceit or ulterior motive that won’t be discovered in open source.
A struggle for control
Bitcoin and Bitcoiners offer promising new markets that investors are keen to assert dominance over. But if we build the right way, there will be no place for them to hide their intentions. It is clear in the patterns of investment that users are the commodity, and leveraging their engagement is more important than expanding the potential of cryptocurrency.
Taking control of key infrastructure such as wallets and exchanges, and buying out branches of media are a way to centralize the use and perception of Bitcoin. That’s why open-source infrastructure, which SatoshiLabs continues to help maintain, is essential to prevent users from becoming the product.
Seeking external funding is often seen as the only route to success. But that’s not the case in a world where open-source, community-built and crowdfunded projects are beginning to thrive. Exchange IPOs, large funding injections from tech giants in exchange for equity in Bitcoin infrastructure, and acquisition by incumbents are all a return to the relics of the past — an attack on the transformative value of Bitcoin.
Bitcoin has been a great opportunity to bootstrap yet the temptation to cash out to fiat also pervades the business space. Many projects continue to stick to their principles and minimize or recycle profits in order to build better products.
A decentralized revolution is under way and it can only be led by those groups attuned with Bitcoin philosophy. The likes of Strike, Bisq, Tor and hundreds of others have shown commitment to making Bitcoin better for its users, without attempting to undermine or control it. Vote with your keys and stick to open-source software for Bitcoin.
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