Crypto is the Currency of the Venture Capital State
There are a number of technical and economic debates about whether or not Bitcoin is technically a currency and the differences between it and other economic instruments and categories.
I want to focus in on a critical element here, which is the relationship of a financial instrument, or not, to a nation-state level entity. For example, with the US dollar you are backed, in multiple meanings of the term, by the sovereign of the nation-state; this is also what allows countries to participate in the global markets. And this is widest pattern and this is a critical factor in the definition of currency. Per Wikipedia, currency “is a system of money in common use within a specific environment over time, especially for people in a nation state.”
The common belief is that Bitcoin is NOT backed by a nation-state power; indeed, this is one of the supposed benefits of crypto, is that it provides a global, distributed, country-agnostic way of storing and exchanging value.
The problem is that there is very much a nation-state level entity in crypto, that isn’t being considered, and that IS asserting itself as a sovereign: venture capital. By missing the presence of this entity, not only have we not been able to use correct terminology, we have been unable to understand crypto as an economic phenomenon in general.
The question of whether or not VC is a sovereign state is not, and has never been, a question of metaphor or of fancy; but rather, a material consideration, whose existence or not has massive implications for analyzing the situation and what is going to happen. Venture capital *is* a nation-state level actor and is literally organizing itself to become a sovereign nation-state. This changes the story of Bitcoin and cryptocurrency entirely.
Everyone likes to pretend that Bitcoin came out of some hugely benevolent benefactor to all of human kind; in tech we believe that it came somewhat nebulously out of the animus of the cypherpunk movement, and in the mainstream Satoshi is just a mythical figure if known at all to them. In all cases, there is an assumption of neutrality and benevolence for which there is no evidence; there is an assumption that this happened outside of the aims of a nation-state level entity; which is only true for the existing nation-states with existing currencies; and NOT true for a rising nation-state for whom Bitcoin itself could be sovereign currency.
In reality, Bitcoin came out of a very specific economic context, which was venture capitalists in Silicon Valley were actively trying to develop their own currency and own economic system, a pursuit they’ve had since Marc Andreessen was figuring out how to get credit cards payments going through Mosaic in 1995. The founding goal of PayPal was to come up with something like Bitcoin, but the technology wasn’t there at the time. We know that Satoshi was in the circles of these payment platform venture capitalists; Hal Finney, the first recipient of Bitcoin, ran pen tests for Marc Andreessen in those Netscape days. Other early recipients were also associated with the cypherpunk movement and of course the cryptography list of original distribution, which very much coalesced in the internet bubble, among Bay-area technologists and future venture capitalists. Not that there’s any particular reason to trust Peter Thiel, but he has stated that he thinks he met Satoshi in the early days of PayPal at a technology event. Most other accounts position Satoshi as a first-order party in these circles, including more unsubstantiated theories I.e. that Musk was personally the creator of Bitcoin.
No matter who the specific person or people are, it is clear that the original creation of blockchain happened somewhere inside of this fulcrum of money, power and quest for financial sovereignty that not only existed in 2009 but was highly mature; notably at the start of the second, or cloud computing bubble.
Since that day, it has been primarily venture capitalists who have built up the financial infrastructure around crypto and taken its overall cause in the market. Crypto has been propelled by the venture capitalist, away and above all other forces that might act on the destiny. Just a16z alone has deployed tens of billions of dollars to build its own territory, and now holds unparalleled sway. They own multiple crypto banks: Mercury, Anchorage Digital and Cross River Bank. They have multiple startups in institutional asset trading. As well as the monster Coinbase exchange. And also Uniswap. And so on.
Venture capitalists have saturated the space; the crypto ecosystem is most defined by venture capitalists, that is where the most capital has been invested and that shows absolutely no signs of slowing down as VC continues to push huge amounts of cash into this. For all intents and purposes, it is venture capitalists that are running crypto. And in fact, most people wouldn’t argue with that assessment. Venture capitalists are the defining factor of the space.
Now consider the fact that venture capital is actually the size of a nation-state. Venture-backed companies contribute up to 60% of the American GDP, and tech is one of the only industries that is actually growing in this country. The total value of venture capital — its land holdings, its tens of thousands of companies, its corporate and personal real estate, all of its datacenters, its unicorns, our many multi-billionaires — is very much that of a nation state.
This is the nation-state level actor that is missed in discussions about crypto currency as a currency; the presence of a unified financial, political and cultural entity that rises to the level of wealth and power that demarcates other nation-states. Venture capital has a persistent, ongoing shared ideology and identity, a persistent, ongoing shared politics, and it can be observed to move very much independently of America — I.e., in its direct negotiations with other nation-states for weapons contracts (Ukraine), investment (Saudi Arabia), and land (El Salvador and Nigeria). And in the fact that VC doesn’t follow America economically; indeed, it has had its greatest success while America has been on its knees in market crashes, recessions and pandemics.
In conjunction with these crypto plays, venture capitalists have been buying up land all around the world and developing their vision of themselves as a distributed, global, venture capital state. They are actively setting up new cities around the world — “Bitcoin” cities -- and have been evangelizing their “network state” plan for sovereignty.
The reality of cryptocurrency and particularly BTC is that all of these crypto assets are backed by a nation-state level force, that being venture capital. Which means that far from being backed by “nothing”, Bitcoin and the entire crypto system is backed by the venture capital body.
It is significant backing. A16z has funded hundreds and hundreds of companies in over 1300 investments and more than 100 exits. Their companies go on to start their own VC arms, such as Coinbase Ventures, which in and of itself has made 328 investments. There are literally tens of thousands of venture backed tech firms in America and close to 400 publicly traded tech companies. Other VCs who have invested in the crypto space heavily also have vast portfolios.
Startups are a very serious economic force on the playing field; startups are worth a fuck ton of money and if you think of startups as being the assets of a nation-state level power, you see that there is, in fact, major, serious, committed, material, nation-state level backing for crypto. And this backing comes in “hard” assets too: the venture capital ecosystem owns large amounts of real estate — new a16z real estate Flow has already purchased 4,000 apartments. Venture capitalists are major land owners — a16z head Marc Andreessen is one of the biggest landowners in the Bay Area after marrying into a real estate empire. Most of these people own land around the world, many of which they have built elaborate underground bunkers in, and own entire islands. The venture capital ecosystem owns thousands of office buildings, its own transportation infrastructure, factories, manufacturing centers, its own farms. Its own fucking space rockets and killer drone fleets. Wake up.
The venture capitalists at the very top of the pile are nation-state level forces *in and of themselves*, when you start talking about people who are just personally worth hundreds of billions of dollars.
I would argue, strongly, that venture capital is not just any other industry in America, it is an entirely separately managed financial ecosystem, and the existence of crypto, and the way it has been built up under such a narrow set of interests, proves their insularity and their borders, which in the financial sense are extremely well defined. You can look at just a single firm like a16z, start adding up the net-worth of all its employees, start adding up the value of all the startups, start adding up the breadth and depth of infrastructure plays, the factories, warehouses and offices… pretty soon you are seeing dollar amounts that are dwarfing most country’s GDPs. All together, you’re talking about an actual world super-power. To ignore this critical attribute of the crypto ecosystem is to miss the biggest existing driver of crypto and its dimensions.
Bitcoin is very much set up to be the currency of the venture capital state — this is a key ingredient for sovereignty but also gives them far more control over a very differently constructed economy. In order to be a true currency though — the sovereign has to transact directly in its own currency.
That is the major piece missing here.
Venture capital needs to start running all of its shit on all of its own financial infrastructure. In the same way that America uses the USD and that other countries use their own currencies, this is what closes that loop between a nation-state level entity in venture capital, and the crypto as a nation-state backed currency.
This is what I am looking for as the next step of the maturation of the venture capital plot: to actually start eating its own dogfood and to onboard its economy onto the new financial infrastructure in a deep and enduring way. That mean funding startups in crypto, getting returns in crypto, buying all startup products with crypto, exiting startups on a crypto stock market. In addition to having all of its startups purchasing the things they need — typically, tech products produced by other startups — via crypto as well.
In my mind this is unavoidable and it is also tablestakes. If I were them, I would be racing forward to this point, and taking a “bite the bullet” kind of approach. The more systems, infrastructures, companies, etc. you can have running on crypto to create a critical volume, the more likely adoption is because people will suddenly be able to buy a number of things they need/want — products from startups — using crypto.
I think that maybe an all-at-once move is going to be the most effective because you are looking for lots of transactions and a milestone event as far as the adoption process; essentially a sea change. Lots of the crypto winter saw VCs and their crypto startups integrating with major financial institutions, credit cards, brands and retailers, and existing payment infrastructure; that means that the plumbing is all set up to start running volume, transactions through this puppy. Startups always test our infrastructure out on ourselves first (well, that and unsuspecting “communities” created early in the lifecycle), so this is very much in line with how we usually do things.
At the point that venture capital starts actually running its own economy on crypto, that will be the true point at which cryptocurrency in general and Bitcoin specifically will be backed by a nation-state level entity. As venture capital continues executing on its plan to set up sovereignty via the “network state” model, and acquires sovereign land and recognition of sovereignty from other nations (for now, from the global south), it becomes more and more true — or just more and more apparent — that cryptocurrency does NOT actually lack a nation-state level operator, but in fact, has a nation-state level operator that almost entirely controls the ecosystem through its major infrastructure plays and pursuit of monopolies.
I understand the temptation, especially for people who believe in the possibilities of crypto, to double and triple down on the notion that this is some truly decentralized, anti-monopolistic economy outside of traditional nation-state actors; this is simply not the case. These properties cannot emerge inherently from any given technology; they must be responsibly shepherded, and developed, so that the technology CAN live up to its full potential. Indeed, crypto CAN be a true paradigm shift… but not if it is held in a vice grip by a very small group of venture capitalists for whom crypto has very specific goals tied to the existential future of venture capital; its transformation to a sovereign venture nation-state. And that is what all of this was started for and what it is meant for and how it is being executed. This is also bringing them face-to-face with sovereign nations like China which itself is competing for dominance and space in this area.
I stay extremely unbothered when people are like BuT CRyPTo INSNT BacKeD BY AnyTHIng because what is actually backing it, is one of the most powerful financial forces in the world, and one that has been growing at a truly remarkable rate: the venture capital nation-state.
It’s just a matter of them pressing play. The controlled demolition of Silicon Valley Bank left a world of startup and venture capital assets seeking a new home; under these conditions VCs like a16z were able to quietly start onboarding startups to its competing banks. As tension between VC and the American financial and regulatory system increases, there is more actual and perceived cause to accelerate the transition.
The integration of crypto into Twitter (just purchased by a16z in collaboration with Elon Musk), integration of crypto into all of the different VR/AR hardware form factors coming online, and into the new age of AI apps, means that all this technology is the first generation of technology that will be built from jump to run crypto and run on crypto financial infrastructure. This new age of crypto-native technology experiences will be a game changer and it will also allow venture capital to make its transition onto its own financial infrastructure.
There is something behind crypto.
Unfortunately, it’s bad people.
Really really really
bad people .