by Nicholas Fett

In the recent months of the now accepted bear market, many crypto experts and investors are calling for the influx of ‘institutional money’ to save us from the depths of our self-inflicted bubble. As a holder myself, I would certainly appreciate that extra digit or two back to my account, however I think this may be the beginning of the end if we succeed in luring the mammoths of the financial world. The long run success of our movement depends not on getting capital into it, that will come, but rather on us maintaining the integrity of why these products are built.

The late bubble of 2017 in many ways can be defined as the corporatization of the crypto space. From the long rise of Bitmain, to the billion-dollar exchanges and Silicon Valley unicorns whose value was promised to accrue through a protocol token, we handed the keys from the individual developer and mining pools to the more familiar corporate structure. Although for most revolutions this would be the writing on the wall, we were fortunate that the gentleman anarchist and early adopter that predated the most recent rise were the primary leaders of these corporations. The faces were familiar, the ideologies were known, and their ultimate influence remained tied to their general belief in the vision of decentralization.

The institutional money coming next will not be as considerate to this underlying philosophy.

The governments of the industrial world and the sociopaths of the corporate financial world do not desire our validation. They are middle men and they will use politics, regulations, fear, and outright lies to maintain their status. The crypto movement is nothing to them but a shiny new form of uncorrelated volatility with a slightly interesting technology they may be able to utilize.

As a general supporter of new market participants and a believer in the idea of unrestricted access to markets, I would traditionally welcome large sums of capital with little reservation. Unfortunately, the current structure of crypto systems will not survive.

To explain, let’s take a step back.

We’ve seen Bitcoin move from the anonymous peer-to-peer payment method to being a pseudonymous unstoppable currency to the current status of digital gold, and so the question of whether Bitcoin is Bitcoin is valid as ever.

To understand why the communities view over a protocol matters, one must fully grasp the artificial nature of immutability in these systems. We’ve heard it parroted ad infinitum that crypto is the immutable public ledger to which all records will become subject. Unfortunately, once any system upgrades even slightly, this statement no longer holds. We all recall the DAO hack and the Ethereum community’s coming to Jesus moment as they reverted the ledger. And then last year, the drama surrounding the Bitcoin block size debate brought the idea of upgradability even further into the spotlight.

Whether a coin has a built-in method for upgrading, or simply embraces forking, the process is inherently democratic as parties ultimately can vote by leaving one community for another. With this ultimate threat, any system that has extreme levels of wealth inequality will be controlled by the richer parties as the threat of their exit has undue control over the viability of the original chain (an exit can drastically reduce the price). This unfortunate reality places the fate of a given crypto community in the hands of none other than the community itself.

Many original cryptos were coded at the protocol level to circumvent the authoritarian regimes that control the current monetary system. They truly believed that the ideals of a community could be enforced in the source code, but sadly this has not proven to be true. At best, the original implementation is a suggestion of a non-altered version of code. As with any upgrade, the true power is in the community and is best achieved when the goals of the community and the code are aligned. The features of a given piece of code regarding immutability, upgradeability, and even morals are owned by the community, whether or not they are even aware of such power.

This principle necessitates that we apply the same rigor in adopting new users that we do the adoption of new code. Do these new entrants share the values of the community? Do they maintain the same goals? Is their value proposition tied to those of the systems creators? If the answers are in question, the community should be very wary of its own moral dilution while welcoming the new entrants.

This logic leads us now to the current state of affairs, mainly the supposed influx of institutional capital.

It is no doubt that the lure of institutional money is tempting, but it is also indisputable that the parties which will hold the keys of the newly acquired coins are not friendly to the cause of the once vocal crypto revolutionaries. Any crypto community worth its salt is inherently at odds with the institutions the OG’s once sought to replace.

For a great example, one needs look no further than the current push for regulations in the crypto community. Code is not unstoppable if only a regulator can stop it. Current law requires registered exchanges, custodians, brokers, clearing houses, licenses, KYC and reporting. How does one plan to disintermediate a system if the intermediaries control the system? How can one change a law necessitating a clearinghouse if the clearinghouse itself owns a lion’s share of all cryptocurrencies? We don’t need regulated exchanges to start trading crypto, we need to get rid of the dated concept of an exchange. We don’t need banks to verify the validity of crypto investors, we need to part with the notion of a bank.

Can one possibly look back at the block size debate of 2017 and imagine a better outcome if Goldman Sachs, JP Morgan and CME were the largest holders of Bitcoin? Those of us who want to see unstoppable applications powered by an unstoppable, anonymous currency know that we would take the internet trolls and FUD any day over a coordinated appeal to regulators to step in on behalf of investors.

To be fair to our corporate incumbents, some individuals are comforted by the familiar enemy and their traditional moral hazards and costs. The thoughts of terrorism, hacks, or even the custody of our own assets, are controlled in a manner that is currently accepted by the common man. The result is that banks, like they do today, will be fine with rolling back hacks, depriving undesired participants and telling us they will help keep the world safe. The trade-off between security and freedom in basically all of corporate finance has sided unabashedly with that of security.

But the systems of crypto were not built with a liking to access control and regulations. If your government can control your access to a platform, then other governments can certainly advance their own interests. Without the open nature of a distributed system, the entire value proposition of cryptocurrency is lost. If you can’t hide a transaction, run a piece of code without approval, or store your own money; then neither can the Venezuelan whose savings are now lost; neither can the revolutionary whose despotic leader denies them a bank account; and neither can a piece of code truly displace an intermediary.

Crypto is open and free. Open communities afford little ability to keep the morals of the users intact. I know this and I’m not asking for closed systems, but quit trying to invite them in. Those with known differences to the values of these systems should be welcomed with extreme hesitance and caution. This was built without them and we shouldn’t start building it for them. The interesting thing about crypto isn’t the technology. It’s the revolution that is built into the technology and enforced by the morals of its users.

Unless the idea of institutional money is solely a long con to eventually fork them out of our systems, I cannot understate the danger of having our community infiltrated by these organizations. Simply looking at the market capitalization of our systems, it is not difficult to imagine them buying a controlling share relatively quickly. The price may rise, but the dream will die. Bear markets are not easy, but let’s be careful what we ask for and more importantly who we accept with open arms.