Last week was a rough week for Bitcoin, as you may have heard. Long-time Bitcoin core developer Mike Hearn decided to let the world know that he was cashing out of Bitcoin, in pursuit of greener pastures, the nature of which he neglected to mention exactly in his extensive post on Medium. This new venture is the blockchain-based startup known as R3, a consortium of the world’s largest banks, from Morgan Stanley to Goldman Sachs, to JP Morgan and UBS, all looking to capitalize on Bitcoin’s underlying technology, as banks have been known to do.
Read the full story below.
Bitcoin has had many a rough week before, and “The Honey Badger of Money” has always shown an intrepid, resilient spirit of the wild ferret-like animal. This shot was different, coming from “one of our own”, someone who was in Bitcoin before 98% of us. Hearn has spent more hours on Bitcoin code than most of us will ever know or appreciate, so he deserves many thanks from the community, regardless of his endeavors for 2016 and beyond. This doesn’t make the cold shoulder any less frosty to ardent Bitcoin fans worldwide. Walking toward the banking establishment side of the economic field is not going to get you many pats on the back, in this anti-establishment community.
Having been on that side of the fence myself years ago, I have been where he’s going, to some extent. Leaving Bitcoin to go all-in on R3 is like leaving the Kansas City Royals to sign a huge deal with the New York Yankees. It’s a different culture altogether. Profits and revenue are huge, but something about how the game is played is lost in the translation. The next bonus, contract or quarterly revenue report is what matters. The ethics of how the game is played is a distant second. Wins aren’t measured in building something that never existed before that can change the world, but in IPOs, stock valuations, and corporate takeovers. I chose walked it, then chose a different path, while Mike has yet to embark on this new journey.
“I want to be in a professional environment again where people are grounded in some sort of business reality.”
The reality of the situation with Bitcoin and with a group of bankers looking to capitalize on Bitcoin’s tech are two very different realities, indeed. I have no doubt that R3 made it worth Mike’s while to divest himself of Bitcoin and any such entanglements. Maybe his very public disassociation was staged in favor of a future grandstand play for R3 in the near future, maybe it was not. He tried to walk the fine line of giving constructive criticism to the Bitcoin community at large without burning bridges for all times. He is no professional writer, in this regard, so how effective he was will remain up to the reader, but the early returns are not encouraging.
“Why has Bitcoin failed? It has failed because the community has failed.”
His blog post dances between a hissy-fit over his Bitcoin XT not being accepted by the community, and he desperately made a case that it was sabotaged, not publicly denied due to its own flaws. We’ll beg to differ on this. After reading his post, Bitcoin mentor, and Bitcoin Oracle extraordinaire Andreas Antonopoulos also voiced his disapproval with the general state-of-the Bitcoin sentiment:
I disagree with Mike Hearn's analysis and concerns (see LTB show next week). I thank him for all his work and wish him all the best. Onwards
— AndreasMAntonopoulos (@aantonop) January 15, 2016
Bitcoin XT failed with the general public because 8MB is not needed now, and such size won’t be needed for a long time. I had always backed Jeff Garzik’s more pragmatic, less corporate-friendly 2 MB BIP 100/102 proposals as more appropriate in scale. The need to go from 1 MB to 8 MB right away was never made clearly, or convincingly. Chinese miners claimed this would create more trouble with bandwidth and empty blocks than it caused. The Chinese online community has a very shaky grasp of the Internet’s capacity with their “Chinese Firewall” as it is. Could Mike have been making this play for corporate masters he had already sworn allegiance to last year? Bitcoin XT seems to have been his last saving throw at Bitcoin, and it missed, so he has moved on.
Bitcoin XT would’ve made Gavin Andresen and Hearn the new Dons of Bitcoin, by default, which many were not comfortable with, either. The Bitcoin community is looking to stay decentralized, so moving two developers into a leveraged leadership position made much uneasy at the potential conflicts of interests. There were plenty of holes in Bitcoin XT, not that any proposal is perfect, but having the largest Bitcoin corporate interests jump behind 8 MB blocks, and then Bitcoin XT didn’t do much to win over the crowd, that’s for sure.
Hearn cashing out all his Bitcoin is a move that you make for one of two reasons: Either you don’t think Bitcoin is a sound financial investment, and it has peaked, in your opinion. Or you think it is so unethical and so sorted that you want nothing to do with it. It seems like the latter is the case since you can’t convincingly argue that Bitcoin value is a poor play, long-term. He can’t think much of the current investors, developers and miners to work through the issues he brought up.
His new banking buddies don’t have similar problems, since they buy regulatory capture, and any political muscle they need to get their way. The banking elite work towards a zero-sum game where they control the economic pie and look to destroy any competition. Maybe by buying out Hearn, they can destroy Bitcoin from the inside-out? If you follow wrestling lore, this would be similar to WWE’s Vince McMahon and WCW’s Eric Bischoff buying the best ECW stars from the 1990’s until the company implodes under its own weight in 2001.
Is that what is going on here? Maybe, maybe not. One thing I do know about bankers is they only care about bankers and making money. The one with the most cash at the end of the game wins, and they control the rules of the game.
Bitcoin is here to change the rules, so the board is level for all players. That ethos doesn’t fly on Wall Street, so I bet on the subplot for the block.
So why did I title this “Why I Applaud Mike Hearn For Turning on Bitcoin?” He is doing what is best for himself, financially. He is exposing himself as a true capitalist, not an altruistic computer developer devoting his life to Bitcoin, and seeing it through to the end. He did provide a nice laundry list of issues for the community to work on for 2016, and I appreciate that. He sees problems, where I see challenges Bitcoin has yet to overcome.
I guess what I applaud is being true to himself, if not with us. He didn’t explain cashing out his Bitcoins. I don’t think any consortium can tell him what commodities or currencies to personally invest in. He didn’t go over what R3 means to him that Bitcoin will not. Is he devoting his life to the monetization of blockchain technology over the unlimited potential of Bitcoin and the decentralized global economic dream of Satoshi Nakamoto? He can claim economic stability with this move, but he’s lost the right to the moral high ground, Medium post or not. He can’t have it both ways. Throw all the tantrums you want, but Bitcoin XT was pretty much DOA, and not from some grand plot, but from poor planning and PR.
When the going got tough, Mike got going, to the rich bankers with deep pockets. At least, we know where he stands. He didn’t seem very proud of his new gig since he didn’t mention it in his farewell speech. He’s no Lou Gehrig, but turning blockchains loose on the banking industry may make him “the luckiest man on the face of the Earth.” Maybe he’ll make tens of millions and sit at corporate banquets for the next decade, hobnobbing with hedge fund managers, That’s great for Mike, I guess.
For me, there were a lot of things going on in banking that weren’t in the brochure. Rigging the economic game of life for the banks and against the common man was not what I had in mind. I decided to walk towards the light, and away from the darkness. Yeah, I lost plenty of money, but I gained a perspective on what it truly is to be wealthy. I didn’t understand true wealth until I gave up the pursuit of money as a lifestyle. Mike still has that lesson to learn.
Maybe Mike will find all that glitters with the bankers is gold. Some do, some don’t, but if he’s betting against Bitcoin and the world of digital currency not growing, even flourishing without him, he’s got another thing coming. Working with “banksters” can bring you a lot more than you bargained for. This may be the first case of someone defecting from Bitcoin to banking, and not the other way around! The last two years have seen a mass exodus from legacy economics to “The Future of Money.” Why is that? Mike Hearn is a buyout heard round the world, but not altogether unexpected by me. If you can’t beat ‘em, buy ‘em!
All I see is a man walking towards the wrong side of history. The Kansas City Royals won the World Series, playing the right way, without buying out the system. The New York Yankees spent wildly, played meaningless games, and really went nowhere. I’ll let you fill in the blanks of how this simile is relevant here.
Having a lot of money doesn’t change the fact that the bankers are losing the game that really counts. If it did, they wouldn’t have a need for Bitcoin’s technology in the first place, or need to buy out Mike Hearn to make it work for them, right?