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What's Really Driving the Cryptocurrency Phenomenon?

Chris Dannen

Leo Zhang

Iterative Capital Management

Abstract

In this paper, we introduce investors to a decades-old subculture of eccentric software-makers who resist the oppressive and ethically-fraught traditions of corporate employment. We encounter how they set out in the 1980s to make commercial software irrelevant, and how their mission expanded into a war against all forms of institutional oversight. We examine their approach to organizing volunteer software production in service of this war, and how their methods produced successful software. We present Bitcoin as the next logical innovation in volunteer-based software development: an ad hoc human coordination machine, which uses unpaid, unplanned contributions in lieu of a salaried workforce. We will examine how a volunteer-based system can resolve moral hazards endemic to software infrastructure development in a commercial setting, if the participants in the system adhere to a strict set of rules. We look at how a distributed network of machines is used to enforce and maintain rules setup for human participants, even if those participants hold key roles in developing the system software. Finally, we consider the cost savings achieved in a system built with volunteer labor, and how the economics of these “permissionless blockchains” might undermine the value proposition of full-time software employment. We relate this outcome to the original goal of the software makers to make institutional software uncompetitive, and examine who will be caught in the crossfire. As a coda, we ask: what is the larger socio-economic impact of systems like Bitcoin, and who benefits?