The Social Media Experiment Sparking Controversy on Twitter
BitClout’s creator says it’s a new way to monetize a following. Crypto Twitter’s brightest lights are nonplussed
Prominent users of Crypto Twitter have suddenly discovered they have another profile on a new social network called BitClout, except over there some people are buying and selling tokens representing their identities. It does not matter whether the people behind those profiles have ever touched the social network.
“The core insight behind BitClout is that if you can mix speculation and content together, you can not only get a 10x product that creates innovative ways for creators to monetize, but you also get a new business model that’s not ad-driven anymore,” BitClout’s lead creator, who goes by Diamondhands, told CoinDesk in a phone call.
BitClout is not a company. It is a proof-of-work blockchain designed for running social media. It was created by an anonymous group of developers. Backers only hold its token, BTCLT. Nevertheless, a set of prominent investors and crypto businesses have bought in.
This has been unpersuasive to many prominent members of the industry, who by and large seem to particularly object to their images and Twitter profiles being scraped and copied onto a whole other website.
BitClout is social media on a blockchain (like Hive, Steem or Cent). It also generates social tokens (like Roll or Rally), which represent actual people. Those social tokens’ supplies are controlled by automated market makers (like Uniswap or Curve), though one governed by a bonding curve that explicitly ratchets up the value as more tokens get minted.
In order to do anything on the site, users need to get their hands on BTCLT. To really trade, that means putting in BTC to get BTCLT, but there’s no way to trade it back. Users can send BTC to BitClout for BTCLT but they can’t trade it back to BTC on the site.
James Prestwich, the founder of Summa (acquired by the operators of Celo last summer), has been highly critical of BitClout – and that’s one of his key reasons.
“There’s no venue to sell BitClout,” Prestwich told CoinDesk in a phone call. “You can put money in but you can’t get money out.”
Diamondhands said the platform welcomes exchange listings and bridges to other blockchains. It includes exchanges among its investors, and hopes listings should come soon.
“To me, it’s just a matter of time before everybody sees where the right side of history is,” Diamondhands said.
According to Diamondhands, there was a pre-mine of 2 million BTCLT tokens for founders and investors. There’s technically no supply cap on BTCLT, he explained, but the cost of new emissions will become so high at some point they don’t expect any more will be purchased after the supply hits something like 19 million.
Miners securing the network will also earn BTCLT, but that’s only about 500,000 over the next few years.
In order to convince creators that this was not a project that would cut and run with BTC put into the system, BitClout sought the backing of major investors in crypto.
Diamondhands sent CoinDesk a list of investors via email, which included: Sequoia, Andreessen Horowitz, Social Capital, TQ Ventures, Coinbase Ventures, Winklevoss Capital, Arrington Capital, Polychain, Pantera, Digital Currency Group (CoinDesk’s parent company), Huobi, Variant and others.
Diamondhands said that he and his co-creators felt like they needed those well-known names to make creators feel confident the project was real.
BitClout runs on a proof-of-work blockchain much like Bitcoin’s, but one designed to hold the text of social media posts. The BTCLT token is used as gas and will likely eventually be used in a governance process that manages the project’s BTC treasury. The code will be open-sourced on the BitClout site soon and when that happens others will be able to join permissionlessly as nodes or as miners, Diamondhands said.
CoinDesk agreed to respect pseudonymity at the start of our discussions. Diamondhands said the creators are hiding their identities in order to keep the project decentralized in spirit as well as fact.
Crypto social networks are not new, but Diamondhands argues the key innovation with BitClout is that it emphasizes the value of the creator, not their content.
“The platforms that have existed up to today, really focus on speculating on the post as the atomic unit, rather than on the creator. And there’s a very big difference, because posts are short term,” Diamondhands said. “That makes it not really very exciting as an asset class. Whereas if you have a creator that you can speculate on, that’s a very long-term thing that you can really invest in for a long time.”
The notion of being creative and boosting one’s value is powerful, but others see a darker side.
Lumi is a blockchain researcher who has been digging deep into BitClout since it started driving conversation last week, shortly after launch.
“People are incentivized to cancel people,” Lumi told CoinDesk in a phone call. “All you have to do is open a short position and then try to mangle someone’s reputation.”
He further objected to the qualitative experience of BitClout. Sending money to a crypto address in order to get tokens back is the same spirit and feel of the early initial coin offering rush of 2017. He doesn’t like seeing those kinds of optics return to the space, only with marquee names.
But the lure of a pre-existing pool that appears to have already accrued value could be alluring.
For creators with reserved accounts, a certain number of their tokens have been set aside for them already for whenever they choose to activate. That said, users don’t need to wait for an account to be activated in order to speculate on such tokens, which could be part of why many Crypto Twitter denizens are so uneasy about this new project.
A former CoinDesk employee who has not yet activated the BitClout account already has two dozen accounts that hold their coin.
This reporter’s profile (which has not been activated and has not sold any tokens) is shown as having a $12,000 market cap.
That’s based on the idea that 32 tokens have been minted in the set aside for the profile of @BradyDale. If anyone wanted to buy one more, it would cost around $400, so the “market cap” assumes all 33 would fetch that price. (Each token that gets sold slightly increases the price of the next token to sell. The website then lists a market cap as if the whole supply would sell at that price.)
But, as the white paper explains:
“Buying creates coins while pushing the price up and locking money into the profile, while selling destroys coins while pushing the price down and unlocking money from the profile.”
So it seems fair to say that the market caps of the tokens are overstated, at a minimum. “This is engineered to show people paper gains very quickly so they will put in more money and buy more BitClout,” Prestwich said.
“I dont think it’s a ‘scam’ though. People use that term way too loosely,” Castle Island Ventures’ Nic Carter, who had not activated his account nor invested, told CoinDesk. “I think it’s certainly got some Ponzi-like features, but so does everything now. Every consumer app is gamified. Frequent flier miles are basically a Ponzi.”
A user doesn’t need to be on Twitter to create an account, but to activate a reserved account, a user needs to tweet out their BitClout address. This verifies legitimate owners, Diamondhands said, but no doubt the publicity also helps.
Once an account has been activated, its owner can set a sort of tax on new token emissions if they so choose. So each time someone makes a purchase of their token that increases total supply, some portion of that would go to the person the token represents.
Celebrity accounts and various crypto denizens with preloaded accounts already will find that they also have a certain amount of their tokens set aside for them now. The amount was set proportional to their followers, according to Diamondhands. There were about 15,000 pre-loaded accounts, all based on Twitter.
If a BitClout page doesn’t have a blue check next to it, the person it represents has not actually activated on the blockchain, but the rest of their basic content from Twitter is already there.
Up to now, it has required an invitation from a user to access the website, but Diamondhands said that will change shortly. Also, a user doesn’t have to pair an account with a Twitter account. In fact, if someone wants to stay anonymous and just buy people’s tokens from a wallet, they can do that, too.
“The awesome thing about BitClout is it lets you be totally anonymous, which most platforms in general don’t even allow,” Diamondhands said.
“What got me excited about the project is what I call ‘fundamental demand,’ which is where the creator monetizing on the platform is actually what drives the value,” Diamondhands said.
The users and their posts on BitClout are an underlying data structure that any web application can access. Sites that publish BitClout content and allow people to interact with it are nodes. With this open data structure, sites can invent new ways for creators to monetize or give people incentives to hold their tokens.
Diamondhands contends that larger objections will be worked out in time, as exchange listings come to enable people to exit positions and new nodes spin up new experiences for users. It’s also open to bridges to other chains.
“Any platform that wants to implement an atomic swap from BitClout onto their chain, that would just be such an amazing thing,” he said.
UPDATE (Marc 23, 16:12 UTC) This post has been revised to remove an erroneous mention of BitClout using an atomic swap with the bitcoin blockchain.
Data source:Brady Dale (CoinDesk)