Do you remember BitConnect, which promised a lot of gains for its investors, coming from their fictitious algorithmic bitcoin trading bots? A lot of hype, a lot of marketing, but without firm foundations. This led to a bubble. And when the government sought to inquire, it caused a panic and "bank-run". Another Ponzi scheme met its inevitable fate. Has anyone ever managed to build castles on thin air? Not any which last anyways. A lot of people lost their hard-earned life savings.
Is BitClout another such crypto scam? Will BitClout follow a similar fate as BitConnect, or is it the harbinger of a new social capital economy? What is the Basis behind BitClout? How do we launch self-sustaining, simultaneously stable and highly responsive, automated, algorithmic, and innovative financial markets, amidst restrictive rules from traditional gatekeepers and overseers? As we tread new, unexplored territory, how do we balance ethics and innovation?
BitClout: A New Decentralized Social Networking Platform
Imagine a decentralized version of Twitter. We already have that, it is called Mastodon! Now imagine a Mastodon where social reputation and influence acts as a currency, or rather, a cryptocurrency.
From Bitcoin to $BitClout to Creator Coins: A cryptocurrency for every person
The Austrian School economist Friedrich Hayek wrote the book "Denationalization of Money" in 1976. In it, he imagined and advocated for a competitive private market of money. This was in deliberate contrast to the monopoly that Governments and Central Banks enjoy over fiat currencies. A world with a multiplicity of currencies, one for every context: whether within a company, community, and even for every person. A coin for every person!
How does BitClout work?
That's the concept BitClout is inviting people to participate in. The concept goes like this: first, you must have some bitcoins BTC. You use these to buy $BitClout, the local currency of the platform. In this way, you are giving some of the original cryptocurrency that you hold to this ghost-company or decentralized network, whichever way you'd like to see them as. With the $BitClout that you purchased, you can now buy the Creator Coins of any person, including yourself.
Prices are shown in US Dollars to give you real sense of the price. But you pay in $BitClout. The greater the clout or influence of the given person or creator, the greater is the price of their coin. You can buy and sell between different Creator Coins and $BitClout. There is no way currently to withdraw your BTC at this time. This can be a growth hack to lock-in sufficient investment to make the platform stable. In the long-run, once there is enough traffic, the feature to convert $BitClout back to BTC needs to be activated.
The prices of $BitClout and Creator Coins follow an exponentially increasing (and decreasing) formula, whereby the more these coins are bought (or sold), prices of the respective Creator Coin, and $BitClout itself, will rise (or fall) sharply. This incentivizes early adopters of the platform and early investors in any person or creator. It also attracts earnest believers or fans to buy and hold the coins of their favorite influencer.
Similarly, if you genuinely believe a friend or an upcoming creator has got the talent, you can become an early supporter and buy their coin, to have your "skin in the game". BitClout may be a newly launched microblogging service, but it is mostly likely an offering that has been long in the works. Not the microblogging part - there are plenty of Twitter clones; but rather, the cryptocurrency aspect.
The Basis Project: A Stable Coin with an Algorithmic "Central Bank"
In December 2018, Nader Al-Naji posted the farewell letter marking the end of the sixteen month long Basis project. The project had raised $133 Million from the biggest VCs in Silicon Valley, after publishing the Basis Whitepaper. But US securities regulations posed a serious challenge to them. If they went ahead, they would encounter severe restrictions, losing a bulk of their potential to thrive. The regulatory restrictions and centralized oversight would make the project lose its censorship resistance, liquidity, and render it severely difficult to sustain. With this deadly blow to their vision, they decided to shut down the project, and returned the capital back to the respective investors.
Basis was to be a price-stable cryptocurrency, or in common terms, a stablecoin. The volatility in Bitcoin and altcoin prices makes their usage as everyday currency difficult. Stablecoins serve the role of being a suitable exchange cryptocurrency, whose price is maintained very close to a fiat currency, like the US Dollar. Some well-known stablecoins today are Tether USDT, Circle's USDC, MakerDAO's DAI, Binance's BUSD and Gemini's GUSD. They are commonly used as the base coin in crypto trading pairs in centralized and decentralized cryptoexchanges. Traders can hold their account in a stablecoin, thus keeping the base value of their portfolio more or less stable with the fiat currency they use.
There are two main mechanisms for stabilizing the stablecoin price: either by collateralization or algorithmically. Collateralized stablecoins basically hold an actual physical reserve of currencies, commodities or any other stores of value, in a physical vault as the collateral. The money supply of the stablecoin is maintained to be equal to the value of that collateral. For $100 of collateral, there can be 100 stablecoins, pegging the price close to the 1:1 ratio.
Non-Collateralized Stablecoins: Highly Challenging but a Much-Needed Innovation
On the other hand, algorithmic or non-collateralized stablecoin use the automated-market-maker mechanism to adjust its money supply. Basis was to be such a non-collateralized stablecoin. For it to perform its functions, they had envisioned a 3-token system. It consisted of the Basis coin, the bond token and the share token. To expand the money supply, new Bond tokens (face value 1 Bond = 1 Basis) would be created by the blockchain. And then auctioned off (<1 Basis) to create new Basis coins. If more new coins were needed, they would be created by the blockchain. And then distributed among the limited 1000 shares created only once in the beginning (or genesis of the blockchain).
The reference for stability of the Basis coin price, could have been the market prices of any currency, or basket of goods, or indices like Consumer Price Index (CPI). Thus, Basis could have functioned as a decentralized world reserve currency. Or, it could also act in a more regional context, like within a country or state (with the prices pegged to the currency or commodity prices in that region).
Will the Central Banks Ever Accept being Replaced by Better Alternatives?
The "bond" and "share" tokens of the Basis protocol had the same logic as the traditional bond and share securities. The Bond tokens were to be purchased in open auctions at a price slightly lower than 1 Basis, and then redeemed within 5 years by selling them back. Thus they acted as US Govt. Bonds, or securities. The Share tokens got their value from the dividends that were paid to shareholders whenever more coins were added to the money supply.
The Basis protocol wanted to automate the regulation of its money supply, by expanding or contracting using its Bond and Share tokens. Rather than wait for months like the Central Bank to see what its Quantitative Easing and Fixing of Interest Rates did to the macroeconomy, the decentralized Basis protocol would monitor market feedback and manage its money supply in near-real-time.
How Open and Decentralized is BitClout?
The "mysterious Satoshi-like" pseudonym of DiamondHands is behind BitClout. But it is an open-secret that he is Nader Al-Naji, CEO of the former Basis project. It is backed by the same big-name VCs who had invested in the Basis project. BitClout is pitching itself as an fully open-source project, with "no company behind it". A google search at this time did not reveal their open-source codebase, however. As the BitClout 7-paged "one-pager" states, "15,000 Twitter influencers' profiles have been pre-loaded onto BitClout".
But many of these non-users or prospective users, are complaining about this permission-less usage of their likeness. Some are threatening legal action as well. BitClout is supposed to be running on the blockchain, and you can supposedly run your own node of BitClout, but it is unclear how to do that at this time. Users' complaints are being silently responded to, by the removal of their BitClout placeholder profile.
Interested users among these 15,000 Twitter influencers, however, can claim their profile, and the Creator Coins associated with it, by tweeting from their official twitter handle the public key provided on their BitClout page. So, if Elon Musk wanted to claim his BitClout profile, he could have gone to https://bitclout.com/u/elonmusk, copied the Public Key provided there, and tweet it from his Twitter handle.
Are you going to invest in BitClout? Elon Musk seems Disapproving so far
Alas! That page appears to have been removed at the time of writing. (UPDATE: Elon Musk's placeholder BitClout page appears available again; this might have to do with different nodes hosting slightly different versions of the BitClout network; We had experienced glitches while registering and sending messages too;). Elon Musk recently created a song about NFTs, and made it into an NFT, but when he started getting big bids, he decided that "it didn't feel right".
For a visionary, and a big social media prankster, then Elon could've responded favorably to these novel concepts. But it seems, even for him, ethical considerations are raising questions. Questions, which we can answer only in the time to come. It all depends on how we all collectively respond to these concepts, fads, opportunities and risks. We are co-creators of our reality. And it is a wild wild west, the crypto land!
The Bootstrapping Challenge
All-in-all, introducing the platform by piggybacking on the Crypto, DeFi & NFT mania, and seeking to bootstrap their engine by borrowing the popularity and network effects from Twitter influencers, BitClout has played a bold gamble. Could it not have sought express permission from them, or invited them to the platform more formally? Also, what about the unfair early opportunity that VCs got to buy $BitClout, the local currency of BitClout, at a cheap price? It doesn't look like a decentralized, community-driven project so far.
This issue of bootstrapping was also present in Basis, where the markets for the 3-token system of Basis, and its Bond and Stock tokens would have to be set off by trading with themselves at first. All the proposed functionality sets in only once the markets become self-sustaining. And therein lies the rub. 2017 saw the trend of ICOs or Initial Coin Offerings to raise capital for projects (both legit and fraud ones). 2020 was the year DeFi took off in a big way. In 2021, we are witnessing new experimental ways to attract investors. The challenge is to get an adequate capital locked into the system, to make it self-sustaining.
The Ultimate Investment Vehicle: BitClout, or YOU?
The BitClout one-pager discusses how new unimagined emergent phenomena can arise in the social interactions. Once there is no intermediary to censor (theoretically at least), and a we have a truly free market where every person is a Creator. Backed by a Creator Coin, their value proposition can be bought, speculated on, invested in, and sold off. Is the idea to turn people into NFTs, with fractional shares of these People NFTs being traded off in the free market? It hold promises for direct interactions between Creators and their Fans. But it is also an idea that seems way ahead of its time.
The deadly coronavirus pandemic has been on for more than a year now. There is a lot on people's minds already. There will only ever be 21 million bitcoins. The scarcity of the 21 million bitcoins makes them a safe long-term investment vehicle.
But how many lives do you have? Just one! Now imagine how invaluable your limited lifetime is! Learn to recognize the Ultimate and Safest Investment you can ever have.