What makes a cryptocurrency a «shitcoin» vs the more benign label «altcoin?» And while we are at it, what makes a project truly decentralized?
If you don’t know for sure, don’t worry: some of the biggest names in the industry can’t agree on the answers either.
In an extraordinary panel organized at the end of the first day of LaBitConf 2022 in Buenos Aires, Ethereum founder Vitalik Buterin and Bitcoiners Jimmy Song and Samson Mow discussed the state of the industry and the FTX debacle, and the contradictions between these widely used labels came to the fore.
Samson Mow, the former chief strategy officer of Blockstream who is now running Bitcoin startup JAN3, said that FTX’s problem was essentially caused by issuing a shitcoin (FTT) and then treating it as if it were an asset with real value.
«They printed a shitcoin out of thin air and treated it like it was some sort of asset,» he said on the panel discussion. «Then Alameda blew themselves up on some trade… and then Sam lent them money with more FTT as collateral. Then there was a bank run and now they’re insolvent. But the crux of the issue is they built a company based on a shitcoin.»
But whoever takes Mow’s criteria into account could then argue any token or even cryptocurrency is categorizable as shitcoin in hindsight, especially securities associated with the performance of companies.
And in the absence of due regulatory process for the issuance of cryptocurrencies, technically all of them (including Bitcoin) were issued out of the blue and had no value at the first moment of launch.
FTX Used Client Funds, FTT Tokens, and Robinhood Shares to Prop Up Alameda: Report
For his part, Buterin is pragmatic, and acknowledges the subjectivity inherent in the term.
«A shitcoin is a coin that is shit,» he replied, to applause from the audience. He later elaborated on his answer, asserting that a project has a shitcoin when it relies on a model that is fundamentally evil. The co-founder of Ethereum did not pull punches on the FTX debacle, comparing Sam Bankman-Fried to a «1930s dictator,» which is the “exact opposite of every ethos of crypto projects that try to be decentralized.”
Vitalik Buterin speaking at LaBitConf. Image: Jose Lanz/Decrypt.
And what about (de)centralization?
So, what makes a project centralized or decentralized? The debate on this issue was intensified by Song and Buterin, who tried for a few minutes to refute the opposing views.
For Vitalik, decentralization depends on the nodes and the community capable of verifying, auditing and executing the code in a moment, establishing a consensus around the characteristics of a protocol.
Song, a Bitcoin evangelist, believes that decentralization depends on the people in control of the project. If a handful of identifiable developers, bankers, or entities have the ability to change the protocol without needing to involve the community, then the project is centralized (even if it runs on a decentralized blockchain) and is a shitcoin.
«If you have to trust somebody, whether it’s the Argentinian central bank, or the Federal Reserve, or Charles Hoskinson, whoever you’re giving your freedom to, that’s the major hole in your security,» Song said. «If you have to trust someone, that’s the definition of ‘centralized.’»
Song also criticized Ethereum, calling it a centralized project since it forked periodically and at will. Buterin of course vehemently disagreed, arguing that Bitcoin creator Satoshi would be the perfect definition of a centralized controller.
Samson Mow chimed in that the rhetoric used when discussing a concept is important. Satoshi Nakamoto used his figure or moral authority to unilaterally set the rules, but later, a large community agreed to work according to those rules in a permissionless way, effectively removing Satoshi’s characteristic as a central figure.
All three crypto influencers could certainly agree on one thing: the FTX meltdown is a disaster.