This article might irk a few people, but it’ll be worth it for the end result. Far too many blockchain platforms who consider themselves to be the ‘next big thing’ have sold their souls to venture capital funds and large institutions for financial prosperity. And while financing is important, selling decentralization for that money renders the end-product useless. “VC chains”, aptly described by Larry Cermak, will crash and burn due to their inability to build a genuine community.
Imagine if Satoshi sold the idea of Bitcoin to VC investors and offered them a stake, say, a million BTC pre-mine in exchange for some money to bootstrap and run their life. Bitcoin would be nowhere near the network it is today. Satoshi’s benevolence was a cornerstone to ensuring the network stayed out of the grasp of return-hungry institutions.
Ethereum took the pre-mine route, but they sold tokens to people for a small quantity and low valuation in order to fund initial development. The network suffered from concentrated oversight as a direct result of not having an anonymous founder. Nevertheless, Ethereum has marched forward with community-led decisions and one non-contentious hard fork after the other.
A big part of this was Vitalik Buterin’s insistence that Ethereum governance must come from a non-profit entity, while Ethereum co-founders Charles Hoskinson (of Cardano fame) and Gavin Wood (of Parity and Polkadot fame) wanted it to be run by a for-profit corporation.
Here we are, half a decade later, watching Hedera Hashgraph raise $100 million from institutional investors in one fell swoop. Not just that, but this money was raised at a colossal valuation of $6 billion in the midst of crypto winter in 2018. For reference, at the end of August, Ethereum had a valuation of $30 billion. Hedera Hashgraph, a blockchain that competes with Ethereum, had no product, no community, but just a plan – and they raised money at a $6 billion valuation.
This cascaded, and now we have multiple VC chains like Orchid, Kadena, and Solana adding to the list. And major players like Coinbase are enabling this. Now, don’t get me wrong, these products could still do well. They could be successful. But one thing they’ll never be is permissionless, decentralized, and open.
And BTC shows that having these characteristics is enough to be successful. The Bitcoin price is at $8,400 at the time of writing, and Bitcoin’s valuation stands at $152 billion.
But even on the success parameter, the entire USP of Ethereum is permissionless execution of services. Without that, why even have a blockchain? Just for ease of accounting? And if that’s the case, how does one of the chains have the gall to call themselves decentralized, when in reality they go around asking people not to use their official name because of trademarks.
If crypto shapes up the way we want it to be – permissionless and truly decentralized – VC chains like this need to be overhauled by the market. But that’s already in the work: since listing HBAR, their token, Hedera’s circulating market cap fell from $180 million to $20 million, and they postponed the vesting of VC tokens as a result.