The average American business employs four people and generates $1 million a year. Satoshi Nakamoto singlehandedly created Bitcoin and generated what would grow to be a $100+ billion market. With the stunning rise of altcoins, how can we reconcile cryptocurrency business models with our existing understanding of entrepreneurship and economics?
The goal of this series is to examine the organizational characteristics of cryptocurrency. The benefits of understanding the organizational trends within cryptocurrency are vast - and range from gaining a sociological understanding of cryptocurrency as an economic movement to a more practical lens of analysis with which to make investment decisions.
For the first part of this series, we will talk about the origins of Bitcoin and look into the unique relationship between developers and adopters that has allowed it and other cryptocurrencies to flourish. This brief overview will help us identify some basic characteristics of the market and hopefully facilitate further inquiries into the new paradigms.
A Brief Overview of Bitcoin
The crypto movement all started with developers exploring the possibilities of computer programming, P2P networks and cryptography. From the theoretical white papers of the 1980s to the early prototypes of the 1990s, computer scientists pushed the technological boundaries of networking while simultaneously integrating the economic principles and safeguards required to prevent a network collapse. It was in this environment that many of the core tenets of cryptography and cryptocurrency were developed and designed and thus when Bitcoin: A Peer-to-Peer Electronic Cash System (the white paper) was distributed to a cypherpunk mailing list in 2008, it landed on a solid theoretical ground and an increasingly active developer community. The timing of the white paper was particularly profound, as evidenced by creator Satoshi Nakamoto embedding a text stating - “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” - in the first bitcoin ever mined. By 2009, both the technological and socioeconomic conditions had matured to a point where the cryptocurrency industry could be realized on a large scale.
Examining Bitcoins first two years is very telling as to the organizational characteristics of the cryptocurrency industry. After releasing Bitcoin 0.1.0 in January 2009, Satoshi stayed on as the sole developer, refining the nodes, the client, user interface and expanding operating system support. The community expanded in December 2009, when 0.2.0 added Linux and API/JSON/RPC support thus allowing for integrations to applications. In December 2010, two years after creating Bitcoin and four months after patching the only vulnerability found to-date, Satoshi left the project in the hands of the developer community. More specifically, he transferred the codebase and network key to Gavin Andersen (who would soon go on to establish the Blockchain Foundation) and transferred the various web domains to active community members. At the time of Satoshi's departure, the total market cap of Bitcoin was floating around $1 million.
With Satoshi out of the picture, the community continued to develop and navigate around Bitcoins’ restraints - addressing issues like blockchain size, mining equality, and voting power - via Bitcoin Improvement Proposals (BIPS), open-source structured discussion boards. The non-profit Bitcoin Foundation was established in September 2012 to support Bitcoin’s development and maintain its source code. In November 2014, after the Mt. Gox incident and the contentious resignation of its board members, the Bitcoin Foundation split into two: the Bitcoin Foundation, which would conduct promotional activities aimed at increasing BTC adoption; and Bitcoin Core, which would focus on the development and maintenance of the bitcoin source code.
Since Satoshi’s departure, the source code has been worked on by up to of 100 contributors and 35 developers per release. In the last few years, this work has been made possible through the sponsorships secured by the Bitcoin Foundation. Nevertheless, there are numerous controversies at the heart of this conflict between the need to scale Bitcoin’s source code and the motives of those paying for this work.
What emerges from a preliminary study of Bitcoin is enlighting. Bitcoin is not a corporation, but rather an asset. As a decentralized asset, wealth was not created by Bitcoin. Instead, wealth was enabled by Bitcoin and spurred by investors and adoption, as manifested in the form of exchanges, integrations and incentives. From an organizational perspective, employment has followed along similar lines - with the majority of job growth occurring on the adoption side as new uses and applications are realized. In the coming weeks we will explore this divide between created value and adopted value by examining the organizational structures of other cryptocurrencies.
Within Bitcoin there is a constant tension caused by Satoshi’s departure. As the adoption value of the coin has continued increased, the actions and inactions of the Bitcoin Core team have been cast under a scrutinous spotlight. With the adopted value at such high levels, it is now incumbent upon the Bitcoin Core team to scale the created value of BTC to match. Given the the non-corporate nature of Bitcoin and the speed with which the crpyocurrency industry is developing to fill the voids in BTC's created value, it will be fascinating to see how BTC adapts.
Bitcoin in so many ways represents a new organizational trajectory and an initial baseline against which we will be comparing other cryptocurrencies in our journey to better understand overall cryptocurrency as a market composed of organizational actors. Some questions we will be asking in following articles include: 1) what is the role of the "corporation" in a cryptocurrency?; 2) how can one achieve centralized maintenance of a decentralized asset?; 3) what categorical models can we make to understand the various organizational forms embedded in cryptocurrencies?; and 4) what is the baseline organizational model for cryptocurrency - and should we evaluate them through the same lens as "for-profit" companies?