Open Source by Design
In 2009 Satoshi released the bitcoin source code on the world, inviting its computing power to collectively govern the open source experiment in a fully transparent manner.
For those of you who are unfamiliar with the term “open source” think of Netflix. Netflix is the opposite. It is an application that for a fee you are able to use, but you have no access to the code which dictates its features and look. If you don’t like a feature, you can’t modify the code and make a change to suit your desires.
In August of 2017, a high-profile section of the bitcoin community decided they didn’t like a feature - the block size. Because of the open source nature of bitcoin, they modified (“forked”) the code.
For those unfamiliar with the concept, a fork happens when developers take a copy of source code from one blockchain and start independent development on it, creating a distinct and separate chain from that point in time.
In this instance, the developers increased the block size and changed the difficulty mechanism of mining. At that time, a new crypto currency--bitcoin cash-- was born. The complete story of this is much more complicated and political, but the result was a new cryptocurrency and the most public implementation of the open source nature of bitcoin.
What crypto followers had always known was then more evident than ever. In a world when your “product” can be stolen or forked at any time, the product can’t be the edge.
If anyone can steal the best product, then how can any project or community compete and protect itself? How can a reasonable investor make a bet on a new project when the next person in the door can simply steal the fruits of their labors?
The Protection Lies in Network Effects
To answer these questions, one must understand what makes bitcoin bitcoin. The value can’t be in the code, because as discussed above the code is unprotected. The value is in the network.
Network effects are massively complicated and often misunderstood. Network effects govern consumer trends and preferences in more traditional markets. For example, Facebook is a fantastic case study in the power of a network. Facebook offers only a blank template for people to post content. If no one posted, no one would visit, and the company would have no value. Through marketing and social engineering, Facebook has convinced billions of people to post the content that drives their friends to visit. In turn, this allows the company to collect data and sell that and advertising to other companies. Facebook’s value is almost entirely derived from the size of its network. In technology this network effect is measured by the concept of daily active users.
Bitcoin, while decentralized and entirely different than the closed source Facebook, similarly experiences the benefits of a larger network than its competitors. The size of the bitcoin network leads to enhanced security relative to that of other blockchains.
Put all too simply, the crypto markets, like many technology products today, are as valuable as the network effects drive them to be.
Ramifications of Open Source
While this open source nature poses challenges in terms of value and IP protection, it goes a long way for setting the tone for those who are in the crypto field professionally. The edge is in the community and the network. If value is to be built in the long term, it must leverage the network. We all realize this and emphasize this value. Personally, this is a welcome change from the experiences of my past.
I came to crypto full-time from the Chicago based proprietary futures trading industry. The “prop world” has a culture of secrecy and bitter competitiveness. Chicago has always been known as a trading town, but “Chicago Trading” has evolved.
In the early days on the floor of The Chicago Board of Trade, traders met in person to transact the future value of commodities like corn. In the current world, a small handful of powerful firms compete with one another to shave microseconds off their execution time at a cost of millions of dollars monthly to maintain their dwindling piece of the below chart.
This technology based arm’s race has led to a culture where no one collaborates for the growth of the market and everyone tries to protect what little edge they have left which resides in the implementation of their closed source code.
Phil Elsasser, the CAOF’s technology advisor, the CTO of the MARKET Protocol and, oh yes - my brother, has made a similar transition. As a developer from the futures trading world and now full-time in the crypto space, he has enjoyed global collaboration. Phil has said “The pace of progress and development in this space is refreshing. With MARKET Protocol we have had over 40 people from all over the world contribute to the code base. This participation helps to ensure we are building a protocol that the world wants.”
Spending full time working in crypto in 2018 (unless you are one of a handful of traders with large short positions), has not been the euphoric ride we experienced in 2017.
However, despite the frustration that the markets can provide, when speaking with potential investors or anyone else looking to learn about the crypto markets, I always emphasize the point my brother made. I value our culture and I try to be a good steward of the value of openness.
Bear markets, like the one we find ourselves in the midst of now, go a long way in separating the contributing members of our community from the people who were only here to make a quick buck. This market can be as cruel as they come and in the last six months, we have seen cryptos that were the popular targets of the get rich quick group lose as much as 90% of their value.
If you are a believer in blockchain technology and the role that crypto currencies play in it, even in moments like this in the market, one needs to remain focused on working towards your goals.
What I find so appealing about our community is the willingness to work towards those goals together.
What It Means to The CAOF
Last March when work began on the CAOF, I began reaching out to top fund managers in the crypto markets. From general networking, operational advice to crypto specific market chatter, I have forged meaningful relationships with my “competitors”.
So why is this? What makes our community and market different?
Crypto and blockchain offer a chance to be a part of a new technology and a new asset class at an early stage. The people who are involved because they believe in what this opportunity represents, strive to do everything in their power to ensure the success of the ecosystem.
Put simply, those who want to add value are embraced by the community. There is a sense that a rising tide raises all ships.
Many people spend time pontificating on the intentions of the project that Satoshi gave the world. The truth is that no one can know. Bitcoin is open source code that allows the world to exchange value and view history as a community in a peer to peer manner.
The values of the crypto community have evolved to reflect what bitcoin truly strived to be.