Wall Street Is Bitcoin’s Biggest Threat, Not Arbitrary Data

Wall Street has unequivocally arrived. The long awaited phase shift is here. We have discussed for years what this time period and shift will be like, many cheering it on in anticipation of the economic implications and shockwave it would cause in terms of liquidity and price movement. 

In the last few years it has undeniably come to dominate the narrative, shaping dialogue and focus across the entire ecosystem. Where before large communities of people would spring up around technological innovations, or philosophical schools of thought on how Bitcoin can positively shape the direction of the world in a time of tumultuous change and metaphorical ground shifting out from under us, now the cultural zeitgeist is driven by the phenomenon of treasury companies. 

There is an entire wave of recent entrants into the space who have never held their own keys, never directly interacted with the protocol themselves at all, they have simply acquired proxies such as treasury company equity or ETFs. This is a massive cultural, and philosophical/logistical shift, for the entire ecosystem. It is not going to wind itself back. This is a new presence and a new attitude that we are going to have to confront. It’s here to stay. 

So what are the implications of that? Bitcoin is a peer-to-peer system, its very essence and nature is defined by the people who choose to participate directly in that system itself. By those who do interface with the protocol directly, who do not resort to TradFi wrappers such as ETF products and equity in holding companies. 

It is one giant inter-subjective hallucination manifested through and verified with software. So what does it mean that a massive section of the population who chooses to interact with it financially avoid ever participating in that hallucination themselves? What does that mean for its nature, its functioning? 

That is very much an existential question, and one that we are all going to have to grapple with over the coming years. Bitcoin is for anyone, and there is nothing we can do to stop people from using it in whatever fashion they so choose, no matter what the wider implications of those people’s choices might be. 

Economic Consensus And Wall Street

The nature of Bitcoin, i.e. the consensus rules that nodes (and therefore its users) enforce, is defined by those who actually engage in economic activity on the network. In its most abstract sense Bitcoin is just a system composed of people “just doing things,” and the only reason that it is a singular coherent system, rather than a random collection of individuals doing very different and incompatible things, is because of the economic incentive to do the same thing. 

Think of it in some ways as similar to a black hole. That black hole forms in the first place after reaching a point of “critical mass”, after which it literally implodes on itself and the resulting gravitational force begins pulling in everything around it, increasing its mass, and expanding the radius in which things are sucked into its dark maw. 

The incentive to voluntarily choose to participate in one particular “set of rules” over another is the “black hole” of Bitcoin, and its gravitational pull is directly proportional to the economic mass of the system as it exists today. Unlike a black hole though, it is not truly a “singular” thing. Rather it is a number of different things (or entities), all holding themselves together to emulate being a singular thing. Unlike a blackhole, these entities can choose to defy the incentives to remain together, or follow counter-incentives against doing so, and enforce or follow different rules. 

The reason this does not frequently happen at scale (such as the fork of Bitcoin Cash in 2017), is the complexity of coordinating all of those individual entities switching to the same thing at the same time, so as to maintain the same collective “gravitational force” as they had under the previous rules. 

So what happens when the number of those entities starts shrinking? What happens when they condense and combine, and you wind up with fewer and fewer larger ones?

That complexity of coordination starts getting less complex. 

Centralization Is Efficient, But It is Poison to Bitcoin

Bitcoin’s entire promise is to be an apolitical and neutral platform for economic activity. It is to be an unshifting and solid foundation for you to stand surely on, devoid of concerns that it could shift out from under your feet and throw you into economic chaos. ‘

That entire promise of stability is purely a result of Bitcoin being sufficiently distributed, i.e. being composed of independent actors performing their own self-validation of the system in large enough numbers that their ability of coordinating amongst themselves to change fundamental properties of the system is either exceedingly difficult, or literally impossible. 

When the set of economic actors participating in self-validation collapses in size, when it turns into fewer and fewer entities operating on behalf of other stakeholders, that promise of stability and neutrality collapses in lockstep with it. Bitcoin must maintain some minimum degree of distribution of self-validating actors, that make up a substantial portion of economic activity, or else the core promise of stability and neutrality evaporate.

Wall Street isn’t going away, so this is something that we are going to have to confront. There is no shaming them away, or chasing them off. That is simply not possible in a system like Bitcoin, that at least for now, is robust in its distribution and decentralization. This is a war of incentives and counter-incentives. 

We must create positive incentives to encourage more direct self-validating use of Bitcoin rather than legacy financial wrappers like ETFs and treasury companies, or Bitcoin will be confronted with a fundamental crisis as to whether its core promise was ever really possible.