The Separation of Money and State: Bitcoin Maximalism vs. ETH’s Ultra Sound Money
Can Bitcoin Maximalists and Ethereans coexist?
This is essay 4 of 4 for the 1729 Writers Cohort 2. Read our work here and follow us on Twitter.
The militancy of Bitcoin maximalism in 2022 is a thing to behold. Its members are either a dying breed or the start of the next tectonic cultural shift, depending on who you believe. They are simultaneously taking on the entire alt-coin world, warning about scams like Celsius and Luna and then cheering gleefully as they burn (with a somber nod to those who lost billions). But with Maximalist-colored glasses, everything not Bitcoin is a scam, it’s just a matter of time before it all goes to zero against Bitcoin.
When they’re not trying to rhetorically bring down the alt-coin world, they’re self-policing and ejecting their most fervent allies for stepping out of line. In the Maximalist culture, the willingness to kill your heroes stands somewhere between a virtue and a command.
It is wild. It is fanatical. I love it. I fear it. I am entertained by it.
“Bitcoin maximalism is the most important ideology in the world that people don’t know about.” — Balaji Srinivasan
This intensity can be extremely messy. Nic Carter, one of the most influential Bitcoiners in the entire space recently ran afoul of the Maximalists and is now calling for their downfall.
In this essay, I will talk about Maximalism and its motives. I will talk about Ethereum Maximalists (ETH Maxis) and their desire for monetary dominance in Crypto, and why these two views inevitably clash. And finally, I’ll give some thoughts on what a path of agreement might look like.
What’s different about these two communities, and why do they repel each other?
Bitcoiners tend to fall along the conservative end of the political spectrum and Ethereans are more progressive.
This political alignment is not a deliberate choice, but rather the result of the fact that Bitcoin is anchored in monetary theory which references thousands of years of history, whereas ETH is anchored in aspirations for innovation. Bitcoin’s goal is to move slow, be clear, be secure. ETH’s is to be a platform whereon a billion flowers can bloom, (even if a few hundred million of them are lost to hacks and bugs along the way).
These different cultural leanings attract different types of people who self-sort over time. So, often, if you’ve chosen to support either BTC or ETH, it’s not necessarily because you love cryptography or see the potential of DeFi, it’s because you prefer the community.
The sacred calling of the Bitcoin Maximalist: Separating Money and State
Maximalists have zeal… and zeal really, really, really matters. Zeal matters because zeal is the difference between selling when it’s low and selling never… Zeal means putting it at the top of your identity stack, putting it in your profile, having it be part of your existence. The top of your identity stack, that’s a really precious space, what you identify yourself as. — Balaji Srinivasan
So what are Bitcoin Maximalists so fervent about? I believe it all boils down to one thing: the Separation of Money and State. There are other stated reasons of course, but I would argue they all roll into this one.
“It’s very attractive to the libertarian viewpoint if we can explain it properly. I’m better with code than with words though.”― Satoshi Nakamoto
In the early days of Bitcoin, before it was ever on TV, the Bitcoin community was extremely Libertarian. Libertarians got to it early because they were already walking around looking for something like Bitcoin to fix the world. Their economic model claims the state’s ability to create money out of thin air leads to war, death, the militarization of the police, declining moral values, mass incarceration, poor healthcare, corruption, and two political parties that refuse to change any of it. Core to the political theory of Libertarianism is that it’s the power of the state to create money out of thin air that enables a mass perversion of incentives that can turn a prosperous, free and honest society into.. wherever it is that we’re becoming. All of it traces back to one source — money.
So for them, taking that power back from the state is a sacred calling. It’s a tremendous life purpose. This is the impulse towards their transcendental attachment to Bitcoin, and their equal loathing of everything not-Bitcoin. To them, those things that are not-bitcoin are false idols. They are DINO (decentralized in name only). They do not have the network or the power to take on the central banks of the world, whereas BTC Maxis believe only Bitcoin can, and will. The great dream of Bitcoiners is for Bitcoin to be the global reserve currency after the US dollar. This would do more to promote freedom, prosperity and peace on earth than anything else they could do. Literally. That is what they think. And they think Bitcoin is their shot at making this happen.
“I don’t believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can’t take them violently out of the hands of government, all we can do is by some sly roundabout way introduce something they can’t stop.
- Friedrich Hayek (chad libertarian economist)
Why BTC and ETH Maxis can’t get along
If you spend any time on Bitcoin or ETH Twitter, you’re well versed in the feud between the two leading networks. ETH Maxis eagerly anticipate a great “flippening” when ETH will overtake Bitcoin’s market cap (they’re currently around 50%), and from there drive it to zero where it belongs because it’s a stupid boomer coin and is the pet rock of blockchains.
Ethereans tend to find Bitcoin boring. While Ethereum’s EVM (Ethereum Virtual Machine, i.e. the ETH network) is spinning out exciting innovations like DeFi, and NFTs, and a million tokens on which DAOs can collectively allocate Millions to funding cool projects. Bitcoin just sits there, kicking out an extremely secure and accurate monetary ledger every ten minutes. “Tick tock, next block” as Bitcoiners say. In other words, ETH does a lot, whereas Bitcoin basically just does money.
Allow me a brief aside on what is money: The green paper with important people and numbers printed on it is the modern instantiation of a thousands year old technology that helped us evolve out of barter and coordinate in ways that were incalculably valuable for collective coordination and individuals and society in general. It’s taken many forms from glass beads to stones to shells and finally converged on gold around the world until very recently. All of the things which were counted as money possessed certain monetary qualities that allowed them to be used as money. According the the St. Louis FED website, the qualities of money are: durability, portability, divisibility, uniformity, limited supply, and acceptability. (emphasis mine)
The problem is that ETH Maxis claim ETH is the superior money to Bitcoin.
Ethereum as Ultra Sound Money
“The fight to be Money is the fight of the crypto industry.”- David Hoffman, Bankless
According to David Hoffman in his Essay “The Empire Model for Blockchains,” it’s not enough to be the top smart contract platform. ETH needs to be “money”:
“There’s only so much monetary premium to go around. This is why we’re tribal. This is why crypto-twitter is toxic. This is why we fight all the time. There can only be one #1 crypto-network, and we all want to be it.”
But is ETH actually money?
Whereas Bitcoin is definitely money (this is not disputed), there is quite a bit on contention even inside the ETH community as to whether ETH is. The above Ethereum Developer says ETH isn’t money.
“Ethereum currently doesn’t have an issuance limit or a defined monetary policy for ether. “ — Investopedia
And yet, for the sake of a strategic advantage against Bitcoin, they want to claim it isn’t just money, but superior money. They call it ultrasound money.
So it is money? But then:
Cobie is the 5th most influential guy on Crypto Twitter and often very comoplimentary to ETH. But even he readily admits it is not, in fact money.
But then Vitalek will go on Bankless to discuss how the “ultrasound money” meme is an important stepping stone to becoming money. They’ll will themselves into being money.
A critical flaw in Ethereum’s desire to be money
Something the St. Louis Fed left out in its qualities of money above is the ability to resist censorship and government coercion.
Bear with me as I lay out a recent example of why censorship-resistance matters if you want to be money.
Last week, the treasury moved to sanction Tornado Cash. I won’t go into too many details, but here is some background from an excellent explainer written by my friend Jon Stokes:
The US Treasury Department’s Office of Foreign Asset Control (OFAC) moved to sanction Tornado Cash, an on-chain application for anonymizing cryptocurrency flows…
The two main crypto infrastructure providers (Infura and Alchemy) that are the main way that most developers actually interact with the blockchain have cut off access to the affected addresses.
Circle, the party behind the USDC stablecoin, has frozen coins held by wallets that have touched the Tornado Cash addresses so they can’t be moved.
It cannot be overstated how much the above moves have shaken the Crypto ecosystem. OFAC moved to censor a bunch of addresses and the key infrastructure that Ethereum runs on played along and cut off access. Now the community is trying to figure out whether they can even resist this kind of censorship.
And investors, even extremely crypto-friendly ones, are catching on to what it means that US regulators can force the Ethereum ecosystem to do its bidding.
But the above is just the tip of the iceberg in terms of vulnerability to censorship. Read on.
This is all taking place while ETH is in the process of pushing through its biggest upgrade ever, commonly referred to as “the merge.” The merge represents a transition to an ESG-friendly model of mining called Proof of Stake, which will also change the mechanism for making consensus and setting the protocol rules.
Dedicated Ethereans are looking at the Tornado Cash situation and considering the possibility that a sufficiently powerful nation state or group of states could force large players, many of whom will be licensed institutions, to force rules into ETH that are favorable to the state.
So now you can perhaps see why Bitcoin Maximalists are so frustrated with ETH Maxis and their narrative that they are not only money, but the best money. You can also possibly see why if they were to get their way and “flip” Bitcoin and convince retail and institutional investors that they are in fact money, the battle for the separation of money and state would be lost.
Final thoughts and the search for middle ground
I don’t have the same disdain for ETH that many BTC Maxi’s do. I think that it has a right to exist and experiment and create new things. My heart, mind (and disclaimer: wallet), are with Bitcoin’s cause. But I see no reason why ETH needs to be maligned and hated on.
I tend to hold ETH Maxis more responsible for the hostilities since BTC mostly stays in its lane leaving room for Ethereum. They tend to reject attempts to bring smart contracts to BTC. Whereas it’s increasingly central to ETH to try too grow to displace Bitcoin. And as I discussed above, that would likely be to the detriment of everyone.
I’ll finish with a quote from Frank Downing, an analyst at ARK from an interview on the Pomp Podcast. It’s long, but he does a great job of summing up how these different assets can be viewed and valued respectively. If more of us could get on board with this, maybe we could learn to live together and not spend so much energy in battle.
“The market is bigger than just cryptocurrencies now, and I don’t think they’re competing on the same dimensions. When we look at the market of public blockchain innovation we see three parallel revolutions that are all happening. (1) The revolution in monetary policy, this money revolution, is the first and probably most profound application of blockchain infrastructure. It’s really Bitcoin, a self-sovereign form of money that is displacing government issued money. Displacing the FED, displacing traditional international settlement rails like FED wire.
Since 2018 we’ve seen new revolutions emerge in addition to that monetary revolution which we classify as (2) the financial and internet revolution. It’s innovations built around smart contracts like DeFi displacing traditional financial intermediaries.
And (3) Web 3 and the broader user-owned internet displacing traditional web2 intermediaries.
And we think there’s room for all three revolutions to grow in parallel on the fundamental basis of public blockchain infrastructure.
Just that there’s going to be different lanes in which they compete that are important to recognize and different tradeoffs that you have to make.
So for example, Bitcoin is not trying to facilitate smart contracts or NFTs or all this kind of crazy stuff that you see out in the financial internet revolution. And nor should it, because to support those, you need to make sacrifices on the ultimate level of decentralization, the solidness and the credible neutrality of your base-layer that Bitcoin is uncompromising on because it needs to be. Because you can’t have a nation-state adopt a currency that undergoes a massive transition like Ethereum is about to, like the Merge, that could disrupt your monetary base.
When you’re thinking about something at that level, you need this conservative lane that Bitcoin takes.
Now when you look at those financial and internet revolutions, you have more competition on technology rather than monetary soundness. That’s why Ethereum and Solana has to advance and iterate on its technology, and also some of the more ultra throughput, low value transactions like gaming, you need to sacrifice that level of decentralization that you have in the network. You have Solana that costs hundreds of thousands of dollars a year to run validators on — they need to do that to support what they’re trying to do. Bitcoin doesn’t need to do that to support what it’s trying to do.”
Matt Harder runs the civic engagement firm Civic Trust, where he guides cities in re-building their civic infrastructure by helping residents, civic organizations, and local government collaborate to build public projects. He is a passionate Bitcoiner. Follow him on Twitter.