The Anti-ICO Bitcoin Cowboy
The Expert View
Featuring Jimmy Song
Published on: June 18th, 2019 • Duration: 22 minutesJimmy Song is a Bitcoin educator, developer, and entrepreneur. In this interview, the venture partner at Blockchain Capital explains why the power of Bitcoin lies in the change it brings. From removing the power to print money from governments to promoting entrepreneurship and minimizing rent seeking behavior in the economy, Song explains why the future for Bitcoin adoption is bright. He illuminates why he is a Bitcoin evangelist, outlines when Bitcoin could become a true medium of exchange, and reveals why he is an Initial Coin Offering skeptic. Filmed on December 13, 2018 in Austin, Texas.
JIMMY SONG: The opportunity in Bitcoin is that it is sound money. And this is not just about making sound money. For me, at least, it's all about taking the power of money printing from the state. Because that is how they fund a lot of programs that ultimately do not benefit anybody but the people that get to print the money. Having sound money, having hard money causes a lot more entrepreneurial behavior instead of rent seeking behavior. And that's where I want civilization and society to go.
My name is Jimmy song. I am a Bitcoin developer, educator and entrepreneur. I do a lot of different things. But among other things, I am a venture partner at Blockchain Capital, and I am the author of the upcoming book, Programming Bitcoin. I
first learned about Bitcoin back in 2011. And it was really interesting because of the 21 million limit. It had provable scarcity. I started developing in 2013. I started blogging in early 2017 about some of the scaling issues that were going on. And it turns out that a lot of people wanted to read it. And I got something of an audience starting right around then. And later on, in that year, some people from Blockchain Capital approached me because they're very, very much the venture capital types. And they wanted some technical due diligence on some of their projects, and they wanted a good relationship with open source be which I had because I had been contributing to open source for a number of years.
What are the biggest opportunities and risks in crypto right now?
My investment thesis is that Bitcoin is sound money, that it is hard money and that according to Gresham's law, whenever you have bad money and good money, people spend the bad money and save the good money. And if you have a constant supply and increasing demand, price tends to go up. The opportunity in Bitcoin is that it is sound money. And this is not just about making sound money. For me, at least, it's all about taking the power of money printing from the state, because that is how they fund a lot of programs that ultimately do not benefit anybody but the people that get to print the money. And having sound money, having hard money causes a lot more entrepreneurial behavior instead of rent seeking behavior. And that's where I want civilization and society to go.
The risk is that the bear market will last a lot longer than people think. Certainly, around 2013 when it crashed then, a lot of people were expecting it to recover in six to 12 months. And it certainly did not. It took three, four years before it really recovered. 2018 might be the same way, it might last shorter, it might last longer. But the big risk is that the market can stay rational longer than you can see solid. So, that's the main risk that you're running. But I think ultimately, over the long run, Bitcoin will do well, because there's a fixed supply and increasing demand.
What is the source of Bitcoin's value?
Bitcoin is something that we've never had before. It is decentralized digital scarcity. We've had decentralized physical scarcity, something like gold or before that, salt or things like that. We've also had centralized digital scarcity. That's something like the US dollar or concert tickets or something like that. Until Satoshi Nakamoto created Bitcoin in 2008-2009, decentralized digital scarcity didn't exist. And that is a profound and significant achievement because that allows real financial freedom. That allows people to be their own bank, to have control over their own money, which you do not in any centralized system and a physical, decentralized system like gold. Unfortunately, all the gold is kept in one place, so it ends up becoming more centralized as a result. So, Bitcoin is decentralized digital scarcity and it allows no one party to control the supply of money.
Why are you skeptical about ICOs?
ICOs are tokens that are put on some blockchain, but it is centrally controlled and distributed by somebody. As far as I'm concerned, they are attempts at printing your own money. Most of them do not have any utility whatsoever and the ones that keep promising utility have not really followed through or delivered on their promises. ICOs are a form- initial coin offerings that is, are a form of attempts at being your own central bank. Bitcoin is actually decentralized so it's more having control over your own money.
What do you believe the future of ICOs will be?
Will ICOs stick around? I believe that there will be ICOs from time to time. Although the degree and scope of these ICOs will certainly diminish as more and more of these ICOs failed to deliver on their promises. That said, ICOs are really centrally controlled. The issuer gets to decide what to do. They have no investment protections, whatsoever. Most of them say these are not meant to be money as to avoid regulation. People still buy them with the expectations that they might go up in price. Unfortunately, the real world does not work that way. And economics of token generally are not in favor of those that are holding it.
So, yeah, that's my personal view on ICOs on why they don't really succeed, because even if they had utility, there's no real reason why they should go up in value per se. Most of these projects claim that they will be decentralized, but they already are centralized by the very fact that they are issuing the token. There's a central entity that controls the development, that controls the token distribution, that does the token generation event. You can't be centralized and decentralized at the same time. If you're both, you're really just centralized. So, in a way, a lot of these ICOs are ways to get around regulations, while getting the benefits of a public sale. This is why the SEC exists to a large degree is to protect consumers from this scammy behavior.
How do you see the ICO shakeout unwinding?
ICOs have been around since 2013. I think the very first one was something called Master Coin. There were ICOs or the equivalents, I think they called them token sales back then, back in 2014. None of them have really delivered anything. And I expect most of the projects, if they deliver anything at all, will be completely useless. Maybe some of them will have a slight use case. But the vast majority or actually, I think I am going out on a limb here, all of them will not deliver the value that the investors put in is my guess.
Now in 2018, what we saw was that a lot of ICOs dropped 90% or more, some of them like 98%, 99%. I imagine more of that will be happening in the next year as well. But because a lot of these ICOs are centralized, what you will end up having are a lot more lawsuits, a lot more litigation, a lot more of the things that everyone was here in crypto to get away from, that's I think the reality of the next year. Will there still be ICOs? Probably. And there will always be room for that thing because it's the cat's out of the bag already.
But it will be harder and harder to convince investors to actually pour money into these things because we've seen in the last three four or five years that these things don't deliver. And until somebody does in a way that makes the token actually valuable and I'm not sure there exists even one project where that that's true, then it's just going to go the way of the dinosaur I guess.
Is Bitcoin version 1.0 of blockchain tech or is Bitcoin here to stay?
A lot of people tend to think of Bitcoin as a technological play, in which case, you need to iterate, add new features, give new ways to spend it and things like that. Almost any website is constantly iterating and changing things and adding new features and trying out different things. That's not what Bitcoin is. Bitcoin is primarily a monetary medium. And monetary mediums actually are things that you don't want to change, especially if you're storing value in it. And this is what's been the problem with central banking over the last hundred years or so, is that so many of them are constantly intervening in markets saying that they- feeling like they have to do something anytime there's a hiccup.
With Bitcoin, it is a monetary medium, not really necessarily a technological play. There are technological innovations constantly happening. But that's not what the primary thing is. So, I think the question has an assumption built into it, which is that Bitcoin is primarily a technological innovation. It is not, it is a monetary innovation. It is decentralized digital scarcity, something that we've never had before in combination.
My personal view on what Bitcoin is, is that it is a currency and that we will get there eventually. And if you've studied some of the monetary history of different monetary mediums, typically, the progression is that it starts out as some collectible, then it becomes store of value because people are willing to store it because other people value it as a collectible. Only when enough people really desire it as a store of value does it become something like a method of payment or medium of exchange, as you would say. Medium of exchange can also be store of value, because you're exchanging value against yourself now for the future.
Eventually, when it is a method of payment, because so many people desire it, think like Venezuela, and the dollar versus the bolivar, if you have equivalent amounts of both, you most always spend the bolivar first and use the dollar for store of value. But in the black market, they won't take the bolivars, they'll only take US dollar. So, that's how it becomes a method of payment even if it was a store of value first. Eventually, it becomes a unit of account because so many people are using it as a method of payment.
So, I think that's the normal monetary evolution of any medium. Right now, we're at the store of value stage. And the closest analogy that we have to it is something like digital gold. But it's not really competing with much in that arena if you think about it. Medium of exchange or method of payment, there's 100 different players. There's good old cash, there's bank checks, there's credit cards, there's PayPal, there's Venmo, there's Apple Pay, there's Samsung Pay, there's a lot of different competitors, and you go around the world that you have stuff like Mpays, Octopus card, WeChat. They are a legion.
What is lacking in the world today is a really good store of value. A way to keep your wealth without the money being available for somebody else to take away from you- whether or not that means that you have your money in a bank and the government seizes it or gives you a haircut on the money that you have or inflate it away from you. That's the thing that Bitcoin compete so well against almost every other asset.
Where do you think Bitcoin is heading over the next five years?
Well, I certainly think it will be higher than it is now. The more people that actually study this stuff and understand it, the more there will be demand for this stuff. A lot of the people that came in during the last bubble didn't really understand that they were really just gambling, that it would continue to go up. I like the word investment. And that word comes from the French word vestments, which is really clothing. And when you do invest, it almost becomes like a part of you. A lot of the people that were "investing" in the last bubble, they weren't really investing, they were just gambling. They didn't understand what Bitcoin was or what benefits it had or why it was actually useful.
In five years, I expect many more people to understand that fact, that Bitcoin is a very good store of value, because it has a credible long term scarcity. There's almost an inborn human instinct for something that is scarce. And many people know that one of the easiest ways to sell something is to tell other people that it is limited or rare or scarce. So, that's where I see Bitcoin going, is that it becomes, at least in people's minds, as a lot more scarce that it is because it will have lasted about 15 years. That will give it some credibility in that regard. Also, other people will be valuing it for its scarcity. And that has its own network effect. Because once all your friends are valuing it as something scarce, then it's a lot easier for you to value it as something scarce.
What is the biggest threat to Bitcoin?
The single biggest threat to Bitcoin's adoption is the lack of developers. There's not that many people that really understand Bitcoin and what all of the different gotchas are, and just the difficulty of keeping it decentralized. There are certainly developers that are on it now, but who's to say that they will continue to exist for a long time. Certainly, many are rich enough to retire, some of them have, and continuing to train those people up and making sure that they have the same ethos and have the same vision towards a self-sovereign decentralized money. That's going to be pretty critical, because not everyone has the skills to be able to do this kind of development.
Certainly, there's a lot more opportunity for developers to get time jobs and make a lot of money doing some of this stuff. Unfortunately, many of them have gone over and done ICOs and raise a ton of money. And they're sipping pi?a coladas in some tropical beach somewhere. I would say that for developers right now, there's still a lot of interesting technology that they might want to know about. And there's certainly opportunity for them to make money in that way. So, I would say market forces are aligned right now in keeping developers or bringing more developers in if they happen to have the skill.
What are the long-term implications of this technology?
Major thing that you get if everybody moves to Bitcoin is that you take the power of money printing from the state. And we all know that most governments are deficit spending by insane amount. So, right away, almost all of them have to stop spending so much. So, you get rid of a lot of rent seeking behavior, a lot of wasteful spending, a lot more focus on efficiency. And people aren't necessarily going to stand for large taxes when the monetary medium is inflating, and instead, might be even deflating a little bit.
The goods themselves will be a lot higher quality as they were doing the gold standard. I still have woodworking friends that purposefully buy tools from like 1880 because they say that the tools were made just so much better than they are today. I imagine that that thing will happen a lot more. Right now, a lot of consumer goods are almost made to break, and a lot of people consume a lot of goods because they don't have a very good store of value. I imagine that mentality will change. A lot more focus will be on building things that last, building things for the long term, capital accumulation.
What capitalism is really meant to be it's you accumulate capital so that you can launch a venture or build stuff that can make even more money. That's the focus I think that people will have when the vast majority of people are on the Bitcoin standard. And I imagine a lot of the shallowness that you see in people, a lot of the cultural things that you encounter these days, YOLO and FOMO and things like that- will go by the wayside as people are more incentivized to think long term and about saving and about doing things that benefit them years from now instead of what makes them happy now.
I imagine that as interest wanes that more people will be building actual useful things. One of the underrated things about 2017-2018 was that there were so many ICOs and cryptocurrency-related things that weren't actually relevant to establishing sound money that they took a lot of developers and people that are interested in this technology away from the real, actual innovation. Instead, they were talking about medical records on the blockchain, supply chain management on the blockchain or food on the blockchain- like ridiculous things that are completely unworkable. And they're being shown to be that as these ICOs are showing, they're not delivering any product or anything like that.
So, going forward as interest in that stuff wanes, I think what you get are people that are recognizing what the actual innovation is. And that's the next step, is that people recognize that, okay, Bitcoin's actual real, innovation here, it's decentralized, it's digital and it's scarce and that makes it an excellent money. And going with that, taking the power of money printing from the state, taking power away from central banks, that's the next step as more people adopt it.
So, individuals are sovereign over their own wealth, which is not something that they have right now. And when you're sovereign over your own wealth, you care a lot more about it. So, you're not as frivolous with your money. You care more about how it does over time. And as long as it's storing wealth, you work harder, you try to create goods and services that people actually want instead of looking for rent seeking opportunities. So, in that way, I think it is much better for civilization.
What is your book about?
It's based on my two-day seminar programming blockchain where I do the same thing but it's in a book form. There's a lot of exercises, there's a lot of description, and there's a lot of practicing, basically, to get you to that point. And as I said before, developers are the biggest scarce resource that's lacking and the biggest risk in Bitcoin. So, this is my way to try to solve that problem.
What are the biggest opportunities & risks in crypto right now?
What is the source of bitcoin's value?
Why are You Skeptical about ICOs?
What do you believe the future of ICOs will be?
How do you see the ICO shakeout unwinding?
Is Bitcoin Version 1.0 of Blockchain Tech — Or is Bitcoin Here to Stay?
Where Do You Think Bitcoin is Heading over the Next 5 Years?
What’s the Biggest Threat to Bitcoin?
What are the Long-Term Implications of this Technology?
What’s Your Book about?