Steph Smith and Ethan do a deep, skeptical walkthrough of BitClout — the blockchain-based platform that lets users buy and sell “creator coins” tied to people’s reputations. They break down the bonding curve math, the dubious launch (where 15,000 Twitter profiles were scraped without consent), the incentive problems with shorting, and what it would take for the platform to actually be worth creators’ while. They end with a considered view of what BitClout might evolve into and why the underlying idea of decentralized social media has more merit than the current reputation-betting scheme.
Speakers: Steph Smith (host/contributor, My First Million), Ethan (host/contributor, My First Million)
Introduction: Why We’re Skeptical [00:00:00]
Steph: All right, what’s up everybody. I’m here with Ethan and we want to talk about BitClout. Everyone’s talking about it already. We don’t talk about it because, you know, we don’t really care if it’s a scam — we don’t care, you can put your money where you want, it’s a speculative bet, everyone knows that. But as something that relates to money, it also relates to reputation, right? People are putting their reputations on the line if they’re on this platform in some way.
So how are we thinking about it? As we read through the one-pager, as we do some of our own research — what ways are we thinking about this, what incentives are there long term? We’re just here to chat about it because it’s such an interesting, viral topic and platform right now. We have the one-pager up — you guys can’t see it, but we’re going to walk through and comment on it. Ethan, you want to give us a start?
Ethan: Yeah, sure. I’ll say one other thing too, which is that the reason this call came about is because Steph and I seem to have a sort of contrarian opinion on this thing right now, and we don’t know why. It’s kind of funny — we’ve been laughing about it back and forth, like, “What are we missing here?” Because everybody seems to be super bullish on this, but I keep reading through the one-pager or just looking at the numbers and I don’t get it.
Quick caveat: neither one of us are blockchain experts, but our full-time job is to kind of understand businesses and markets and people and stuff like that. So we’re going to talk about this from that perspective. Open to feedback — I want people to come in and explain to me what I’m not getting about this. So far, this terrifies me. This is like a “let me off the rocket ship” kind of thing for me. We’ll get into why, but that’s the quick caveat.
Steph: I couldn’t agree more. I have alarms going off in my head the more I read into this. But I also feel like maybe we’re missing something. So let us know if we are. Let’s jump in.
What Is BitClout? [00:02:00]
Ethan: All right, so the first thing — for anybody who hasn’t heard of it — what is BitClout? I’m going to read a sentence or two out of the very beginning of the white paper, then I want to go a little bit deeper and pull back the curtain on why their explanation of what the platform is might be different from what the actual eventual outcome of the platform is. There’s a difference between what it’s being marketed as and what it really is.
From the white paper: “BitClout is a new type of social network that lets you speculate on people and posts with real money. It’s built from the ground up on its own custom blockchain. Its architecture is similar to Bitcoin — only it can support complex social network data like posts, profiles, follows, speculation features, and much more, at a significantly higher throughput and scale. Like Bitcoin, BitClout is a fully open source project. There’s no company behind it — it’s just coins and code.”
Steph, I’m going to pause there to see if there’s anything you want to add. There are a couple reasons why I think there’s more to this than meets the eye.
Steph: You said something important, which is that it’s “kind of like a stock.” I don’t even think BitClout necessarily says in their white paper “we are the stock market for people” — I think they were actually pretty clear about that. But the natural association people have is to be like, “This is the stock market for people,” and one thing that’s really important is that it’s not.
Normally when you have a stock, you have actual ownership over something, and that ownership is very clear about what you get — voting rights, dividends, the right to know what’s happening within the company through public reports. That’s not true with this. So even though there are certain mechanisms where, yes, people have an asset that’s based on a person — so it’s kind of like a stock — it’s not similar in how it actually functions. That’s really important to call out.
Ethan: That’s a great point. There are three things in this first paragraph that grab my attention. Let me just read it top to bottom and call them out.
“BitClout is a new type of social network that lets you speculate on people and posts with real money. It’s built from the ground up as its own custom blockchain. Its architecture is similar to Bitcoin, only it can support complex social network data like posts, profiles, follows, speculation features, and much more at a significantly higher throughput and scale. Like Bitcoin, BitClout is a fully open source project. There’s no company behind it — it’s just coins and code.”
Three things jump out at me.
First: “You can speculate on people and posts.” The speculating on people makes sense to me — you know, people can issue their coin and you can basically bet on whether the value of that coin is going to go up. What’s unclear is what do they mean by speculating on posts? I don’t know, and I’m curious to learn more.
More important to me is this thing about the speculation features in general. Right now, I think a lot of the excitement around BitClout is related to the values of all these creator coins going up. The company basically scraped the top 15,000 Twitter accounts and automatically created profiles for them — they automatically issued coins for the top 15,000 creators in the world out of the gate. The value of all those coins is going up right now, and that’s exciting.
What I think is a little bit unclear at this point is what they mean by these “speculation features,” because the platform is unfinished. One thing Steph mentioned early on: anybody who puts money in right now has no clear path to take money out. That feature is probably coming.
What I find myself wondering is: will it be possible to short people’s coins? That’s the biggest concern I have, because if it is, that opens up a series of incentive problems. You’re basically giving people an incentive to trash somebody else’s reputation. Steph, to me, that’s the biggest drawback right now — if those speculation features include some kind of shorting functionality, then there’s not just an incentive for somebody’s reputation to go up, there’s also incentive for it to go down.
The Creator Risk Nobody’s Talking About [00:06:30]
Steph: Yeah. There are issues with the platform as it exists today — you mentioned one, there’s no way to take your money out currently. There are also issues with how the platform was seeded. That was a super smart growth hack, but parts of it were actually illegal — monetizing someone else’s identity without their permission. Let’s just ignore those for now and say every platform starts half-baked.
But to your point, what I think people haven’t really thought far enough along with is: what does this turn into? Right now it’s small, it’s invite-only to some extent. But as it evolves into something perhaps meaningful in size and volume, you’re going to have different financial instruments created. Most people are familiar with those instruments as they relate to companies. What does it mean when that turns into someone’s reputation?
Of course, people would be opting in — at least in theory. But I don’t think people have really thought about what it means to have people betting on your reputation. To your point — someone shorting your reputation, someone actually creating things to manipulate the world such that you look good or bad. Those incentives exist today, but not with the same force or the same perverse incentive where there’s actual money behind it.
Then you start to get into questions like: if I created a BitClout coin, opted into the platform, and eventually realized people are shorting my coin, making up stories about me, my own following is upset because they bought in and my coin is going down — how do I opt out? Maybe they’ll find a mechanism where this works, but I don’t think people have thought into those aspects.
When you join Twitter, Patreon, or Substack, you have a very clear agreement about what someone’s getting and what they’re not getting, and you can end that contract. But once you’ve created a BitClout creator coin and it’s out there, it’s unclear how that relationship can ever end. And if it does end — if there’s a hard stop at some point — someone’s going to be holding the bag. It’ll just be a race to trade out of it as soon as possible.
Ethan: So creators joining the platform may not have thought through what they’re really opting into. You made a great point, which is that someone opting into this is putting their reputation at risk, while the actual BitClout platform has no skin in the game — they’re basically offloading the risk onto a creator that’s opting into sharing this with their audiences.
Even past that, if we just talk about what someone gets if they buy into a creator coin — it’s not a stock. You’re not actually buying into the future income or creations of that creator. You’re buying into their reputation, which is a vague, amorphous thing. That’s fine — there are a lot of amorphous things people buy into.
But you mentioned this idea that you may also be able to buy and sell posts and things like that. I actually think what they’re getting at is: if you own a Chamath coin, maybe Chamath opens up the door for coin holders to DM him, or access his newsletter or something. I think there’s merit to that.
But what doesn’t bake out for me is — as soon as you start incorporating those things, I think it actually undermines this very amorphous thing that is reputation. We can all kind of vaguely say Chamath’s market cap on BitClout is, let’s see — I think it’s around $14 million. And you can be like, “Okay, that sounds about right.” But as soon as you say he’s offering DMs as a reward for coin owners, the math doesn’t work. At the current market cap, you’re looking at a single DM being worth like ten thousand dollars.
All of a sudden, people owning it are like, “Okay, this is not worth the money.” So you either have to keep it as this amorphous reputation thing, or it basically becomes a Patreon or Substack where it’s very clear value for value. As soon as you blend the two, I think you confuse people and undermine the original concept.
The Steph Smith Analogy: Can Creators Actually Win Here? [00:12:00]
Steph: This is one of the things I’m also confused on. Let’s look at it through the example of Shaan Puri — the co-host of the My First Million podcast, really successful guy. He’s put a lot of effort into building his reputation. You two were having an exchange on Twitter yesterday, which was really interesting. Shaan’s pretty bullish on this thing. He has a couple points — he says something along the lines of, “Here’s why this is cool: as a creator, I get to monetize my reputation building. I’m not just monetizing at the end — if I’m becoming more and more popular, my personal value is growing along the way.”
I think I understand why people are bullish. It appears to be a win for creators: you’re no longer building your reputation for free. But what confuses me — or where I’d push back — is two things. One, a lot of the features mentioned in this white paper already exist. Two, in my opinion, this platform actually increases your risk and exposure as a creator. So I don’t think the value it creates is worth the risk to your reputation, especially given that there are other ways to capture this value elsewhere.
Let me quickly run through it. The white paper says creator coins are useful for several things: stakeholder meetings — you can meet directly with coin holders. A new way to prioritize messages — rather than an overflowing inbox, you show only messages from people who own ten or more of your coins. Sponsored posts, premium content, paid likes. These are all legitimate ideas. But here’s the thing — you can already do all of this on other platforms.
There’s already a way to do a stakeholder meeting through something like Patreon. It says right here: “Creators have an inbox where anyone can bid to have them repost a particular post. If you want Kim Kardashian to retweet your fashion brand, you submit an entry to her inbox, and if she retweets it, she keeps your money.” But that already happens. They’ve streamlined it a little bit — but at what cost? The cost is the whole world can now gamble on your reputation.
I don’t know that long-term creators are going to see the extra value in that when they could just do this through other avenues. The last feature they mention is “money likes” — likes reimagined as purchases of the creator’s coin, so it costs money to like something. Technically that’s a feature that could be implemented. But I personally think people are overestimating followers’ willingness to pay to like content. There’s a reason Facebook and Twitter are free. It’s not that they haven’t thought of monetizing those like buttons. Most followers just wouldn’t do that.
Ethan: To your point, people could argue that aggregating all these features into one platform is really interesting. But I actually think that undermines aspects of it. If you’re just trading on reputation and there’s no direct “I give you X and you pay Y,” then the amorphous thing breaks down. And as soon as you introduce stuff more like Substack or Patreon — a clear value trade — the economics no longer make sense because of the bonding curve.
Within BitClout, every time additional coin is purchased, it’s done at a higher price. There’s going to be a limit to what people will be willing to spend on your newsletter or to get a DM from you. That relationship incorporates scarcity and rewards early buyers, but it degrades really quickly for something like this.
The other part people are missing: marketplaces for companies make sense because companies can last a long time — even as a creator, I can write a book that will outlast me. But people’s reputations are fragile and short-lived. And that’s without extended incentives to actually manipulate them. Even top celebrities — maybe their shelf life is a couple decades. Most of them, it’s a couple years. And your favorite creator today is probably not the same as a year or three years ago. So betting on people’s reputations is like betting on a stock you know will almost certainly go to zero within the next couple years.
Steph: Yeah, totally. This is a really important point that for whatever reason isn’t being discussed widely enough.
The Shorting Problem and Incentive Structures [00:18:00]
Ethan: Let’s assume for a second that eventually there’s the ability to short these coins. Right now I don’t think it’s possible, and it may be that the platform doesn’t intend to build that ability at all. But even if the platform doesn’t, people will create it — if there’s incentive to create a monetary instrument like that, someone will.
So if we assume that’s the case: statistically, what’s the smartest play for an investor? What’s more likely — that somebody’s reputation is going to continue to go up forever, or that they will eventually get canceled?
Steph: Especially today? Getting canceled feels inevitable for people with large followings.
Ethan: Exactly. Which means that if some kind of shorting instrument becomes possible, the smart money is actually betting against most reputations.
The stock market over time is expected to continuously go up — that’s why in general you want to bet on stocks, not against them. But this is almost the opposite. The trend line of what most people’s reputations will do tends toward zero. So actually betting on this — maybe shorting is the play, the same way shorting a stock can provide short-term returns. And the potential upside on shorting could be significantly higher than even owning the coin in the first place. This just becomes much more complicated when you introduce large financial incentives for tanking somebody’s reputation.
Steph: Totally. That aside — let’s dig into the actual math on how these coins change in value over time. I know how hard it is to make money from an audience, and I really care about creators. So I get the enthusiasm for what this could mean for them. But the coin supply curve is interesting.
The value of these coins doesn’t change based on the perceived value of the creator. It’s not a direct correlation. The value goes up and down based on supply alone. When somebody buys your coin, new coins are minted and the price goes up. When they sell, coins are destroyed and the price goes down. That means there’s a very predictable price for the coin depending on how much has been minted. You can tell me what somebody’s market cap is today and I can tell you exactly how many coins are in circulation.
This means two things. One: this isn’t really based on reputation, it’s based on supply. Two: you can do the math on how many coins you need to sell to make a certain amount of money.
The Math: What It Actually Takes to Make $100K [00:22:00]
Steph: Let me talk about two situations. One is what it takes to make about $100,000 as a creator. There are different ways to do this. As a creator, you have the ability to set a percentage of the supply that you automatically get. If someone comes and buys 100 coins, you automatically get 10 of them. That’s one way to do it. The other way is to set it to zero and then buy a bunch of your own coin yourself, so your own holdings go up as other people buy.
One important thing that for whatever reason isn’t widely discussed: creators only get paid on net coin sales. That means if I come and buy 100 coins and then sell 100 coins, you actually don’t get anything — even if you have your creator percentage set. There has to be a net purchase of your coins in order for you to be paid.
What’s also unclear in the white paper is the timeframe they’re calculating that net purchase on. Is it hourly? Daily? Monthly? Yearly? It’s not stated. If it’s daily, there could be tons of trade volume on you across the day and you don’t benefit at all if it nets to zero. There needs to be some clarity around how quickly that percentage is actually calculated before I believe this is a benefit to creators rather than just to the people behind the platform.
Here’s the thing: if you set your percentage to 10%, based on the economics of the coin, to make $100,000 you’d need to have 132 coins sold. At that point, your coin would be worth about $7,600, and people would have pumped about $339,000 into your stock. That’s exciting on the surface — but the question is: if you can get people to spend $339,000 on you, are you capitalizing at the highest possible rate? Is there a better way for you to capture more of that directly from your supporters without risking your reputation?
Ethan: That’s exactly what I’m thinking. Yeah. A couple of thoughts. Right now, to reap the rewards of being a creator on the platform, you need to basically push someone to buy your coin. That’s what’s driving people to the platform — gotta give them kudos, such a great growth hack, preceding the platform, although partially illegal. But that is what’s happening.
But remember — as a creator today, ask yourself: would I sell my supporters a shitty product? Some creators are fine with that, there are MLM schemes and all that. But most creators would say no — I care about how my audience views me because I have a long-term relationship with them. As soon as you start pumping them into a reputation scheme where you no longer have control… when I say “hey, Steph Smith audience, I want to sell a book,” I’ve created it, I understand what’s in it, I think it’s valuable.
As soon as you’re trading on this reputation mechanism and pushing people to actually buy in — and if it crashes, which we talked about, reputation life cycles are short — then you’ve in some way probably sold your audience a shitty product. People may view this differently, but I want to only push my audience to buy things I’m proud of.
And there’s something really important here: it’s different if BitClout is pushing people to buy creator coins versus if they’re offloading that task — their genius growth hack — onto other people. If you’re a creator listening to this, if you’re creating a coin and pumping it to your audience, that is what you are doing. You may think it’s actually a good investment and they can make money being early. Cool. But just know that you are selling something to your audience.
Steph: And the interesting thing is, it’s not just your audience — these are your biggest fans. These are the people who are literally willing to put their money on your reputation. The ones you have to take care of the most. So it’s a very complicated scenario where the people you’re supposed to protect the most are the ones who stand to lose the most if an outside force takes an interest in your stock price. And there’s not a lot you can do to control it.
BitClout as 15,000 Unauthorized ICOs [00:29:00]
Steph: Can you give the ICO analogy? Because that’s basically what it is. This thing has been positioned so many different ways — partially because it’s still half-baked — but as to what it is today, I thought what you said was spot-on.
Ethan: Sure. I think one of the reasons BitClout has been so successful is because they are master marketers. The other thing is that they’re positioning this product in a very smart way where the reality of what it is has been abstracted away.
What this is on paper: they’ve basically done 15,000 ICOs without the permission of the people who are backing those coins. By scraping Twitter and creating accounts for the top 15,000 people, they’ve done 15,000 ICOs, and now they’re just trying to get people to buy into those ICOs.
Anyone thinking of getting into this — either as a creator or an investor — should ask themselves: as a creator, would I create an ICO for myself? If the answer is no, think twice. Just because someone did it for you doesn’t mean it’s suddenly a good idea.
And as a backer — would I buy so-and-so’s ICO? It starts to break down. Because when you think about it as “betting on somebody’s reputation,” you can be like, “Oh okay, somebody like Kim Kardashian or Tim Ferriss or Steph Smith — these are people I think are doing interesting work and probably going to become more popular, so if I’m early I should buy in.” But you have to ask yourself the real question: if you issued an ICO tomorrow, would you buy it? Probably not.
What the platform’s done is aggregate thousands of ICOs and make it extremely easy to issue a new one. There’s potential there. But let’s not mince words about what it is — these are just ICOs. That’s literally all they are.
The Bonding Curve Exit Math [00:33:00]
Ethan: One other thing that’s really important is how you actually capture value as a creator. In the example I gave — if you want to build $100,000 in value, you’d need roughly 132 of your coins sold, and each coin would be worth about $7,600. Now what happens when you want to take your money out?
Shaan gave a good example: let’s say I want to take a year off and just work on creating. I can cash out of my coin and go do that. Okay. So if you’ve gotten yourself to the point where you have $100,000 in value — in order to get any money from that, you now have to sell your coins. If your coin is trading at $7,600, to realize $100,000 you’re talking about selling around 10 to 12 coins, which would be most of your holdings as a creator.
The curious thing about that: with only 130 coins issued, if you sell 10 or 12 of them, you’re destroying roughly 10% of the stock, and the value of your coin will go down. Maybe nothing happens. Maybe people buy in. Maybe people start looking to figure out why your reputation is tanking and start finding reasons. But it just doesn’t seem like something creators should not be thinking about — because there are other ways to make $100,000.
Steph: There was a tweet in response to some of the conversation happening, from a guy named John, who basically said: “The bonding curve encourages creators to pump and dump their own reputation. I know creators who have bought up their own BitClout cheap and then dumped it on later investors. Horrific incentive structure.”
Again — sure, you can make money off of this, there are endless ways especially if you’re early. But remember that even though this seems like an easy way to make money, anything where you make money, there is a cost. And in this case, part of that cost is your reputation. If it’s your own coin and people put in real money and you end up selling to net that profit, they lose money.
Ethan: One quick question though — is the same exponential relationship that applies on the way up also in play on the way down? Because you said if you sell 10 coins, wouldn’t it go down more than 10% in value?
Steph: It would go down exponentially, the same way it went up exponentially.
Ethan: Yeah. So let me pull up the chart. At 132 coins — which is where you need to be to make $100K based on today’s prices — your coin would be selling for $7,600. If you then sell 13 of those to capture your money, that would bring you down to 119 coins and the price would drop to about $6,200. That’s a difference of $1,400, which is about 20%.
Steph: Yeah, exactly. So one of the things this makes me think: sure, it’s great to be early to a platform. But just be aware of the difference between “is this platform providing value to people and therefore they’re engaging?” versus “is it set up in a way where they’ve just done excellent growth hacks with excellent incentive structures to get people to want to participate?” Which one of those is happening? It may be some combination. But right now the door is closed — you can’t exit. So the price is only going to go up right now. People know this. But that’s something really important to keep in mind.
Also: you have all these people they’ve incentivized by seeding their accounts, who are now sharing the platform. But it’s early days. You don’t have the negative stories that I think will come. Right now everyone is making money, everyone’s audience is excited because they’ve told them about this thing, and more people are rushing in. There’s totally an argument that you can make money off this platform today. But just keep in mind that the structure as it exists today can only go up. That’s why people are excited. But what we’ve been talking about is what happens when those stories start coming out.
The “Friends Only” Problem and Platform Dynamics [00:40:00]
Ethan: I think there’s a very lopsided view of what this actually is, in large part because of what you’re talking about — the gearing — and also in small part because of the network effects of the way it was launched. A lot of the people who are on this platform know each other. They’re all friends. The only people who have access right now are friends and super fans. So it’s all just kind of a party — everyone’s having a lot of fun with it. Everyone’s happy when they’re making money. Until they aren’t.
Steph: Yeah, exactly. And it’s worth discussing this by the way — we don’t want to turn this into a hate fest on BitClout. We want to get into some of the legitimate uses and what we’d need to see to be more bullish on this. But it’s also worth pointing out to any creator: this is not geared towards your happiness.
There’s already an example of this playing out. Once you open yourself up to be bet on by the world, the only incentive is for people to make money. Some may buy your coin to show support, sure. But major players — that’s certainly not the incentive. The major incentive is to make money regardless of whether or not you are happy.
We saw kind of a funny version of this play out recently. Ryan Begelman was on the My First Million podcast — Ryan’s a friend of the show, really interesting guy, he’s built some successful media companies, and he was early to BitClout. He was brought on as one of the experts to talk about it. Ryan and Shaan were bullish. Sam was a little late to the party and was asking questions, not really sold on it. Ryan was trying to stir the pot — he was trying to get Sam to take on Austin from Morning Brew and see who could get their value higher. Just friendly competition; Ryan’s friends with both Sam and Austin, invested in both those guys.
The question is: Sam said something small but important. He basically said, “I don’t want to do that. I’ve made my money, man, I don’t want to take on this competition.” But everybody who invests in those stocks has the exact same incentive — they do want them to compete. In this case it was just friends bantering. But what happens when larger money moves in with the exact same incentives? They are not set up to care about your happiness the same way your friends are. Right now the whole platform is mostly friends and fans. So it’s extremely lopsided.
Ethan: Right now the platform is benefiting from people with large audiences who, to your point, already have money. What they want to retain is their reputation and how they’re viewed in the world — they’ve already got enough to last their lifetime. And I think what we’re going to see is that as some of the negative aspects of this platform potentially emerge, these people are going to be like, “I don’t need this. Why am I putting my reputation on the line where people can have additional, more concrete incentives to take me down or manipulate my reputation?” They’re going to say, “I don’t want this.” And these people already pay tons of money to be seen positively — whether it’s buying art, wearing certain things, being on certain shows. They’re just going to say, “This doesn’t make sense for me.”
And that’s BitClout’s big problem. Their genius is also their downfall. They conscripted 15,000 of the most influential people in the world at the beginning — you could not have a better marketing team. But you also couldn’t have a worse enemy. As soon as people find that this isn’t worth the upside, they’re going to start encouraging their audiences to get off the platform. And that could spell the end for this.
Steph: It’s possible that’s all it needs, though. Like you and I mentioned, there are some legitimate use cases, and maybe all it needs is a little bit of time to develop the more legitimate sides. In five years we might not be talking about BitClout as a betting platform — the underlying infrastructure will still be around if it pivots. If that’s the case, great. But that’s a different conversation than whether or not this really is the future of reputation management.
What Would It Take to Be Pro-BitClout? [00:47:00]
Ethan: Let me ask you a question then, because I think it’s important to be balanced here. We’ve talked about this a lot — “how are we going to make this not just a hate fest on BitClout?” So: what would you need to see in order to reverse your current opinion and think that it’s actually a benefit long term?
Steph: Great question. I think in most cases you want a platform to succeed — any sort of innovation tends to be good. If you think of it as a spectrum: on one side you’ve got posting a GIF online — who cares if it’s half-baked, it’s not hurting anyone. On the other end you’ve got something like a vaccine — this cannot be half-baked, if you’re injecting this into someone it matters. This sits somewhere in between, and the reason I think it skews toward “get this right” is that people’s reputations are all they have. From the day I’m born to the day I die, my reputation is the one thing that carries with me. Everything else comes and goes — relationships, assets. And on top of that, you’re laying on not just reputation but money.
So for BitClout to evolve into something less half-baked:
Number one: it needs to be opt-in. Right now they seeded 15,000 people — incredible growth hack, borderline or maybe fully illegal. That needs to change. It can only be opt-in, and you should need to be able to verify that this person is who they say they are. On top of that, there need to be very clear terms about what happens if someone no longer wants to participate. Because I do think that’s a very likely scenario for some people at least.
Number two: transparent terms. Right now they have this amorphous “is it reputation, is it your posts, can creators pick and choose what they get?” If you’re going to create this marketplace, it should be very clear about what people are actually getting with a certain coin. Today it’s nothing. If you’re going to create it, maybe certain creators have more of an ISA structure, maybe certain creators offer access to one-on-one conversations with their audience. But then you start getting more into things that already exist, like Patreon or Substack — just built on the blockchain.
Number three: transparent marketing. Most people have caught on to the fact that creator coins aren’t really equivalent to a stock. But that matters — if people are buying in and thinking they’re getting anything in return other than just speculating on reputation, that’s not right. You can’t have people saying “this is the stock market for creators” when that’s misleading about what people are actually buying.
Ethan: Fully agree. And to add to the opt-in point — right now, if you’re making your money online, or if you have any online presence at all, you now have to protect against this. Because it’s not opt-in, it’s opt-out.
Steph: Can we just talk about that for a second? When I tweeted about someone impersonating me on BitClout — basically someone took my @stephsmithio handle, put my picture and the same bio as my Twitter — certain people were saying, “Steph, you should just create your own BitClout so your audience knows this is you, not the other one.” I don’t want to do that. I shouldn’t have to. If people want to participate, go participate — this is not a conversation about what people should or shouldn’t do. But if I personally as a creator don’t want to participate, my course of action shouldn’t be “you have to participate to block other people from impersonating you.”
Ethan: I was thinking about this yesterday. I actually think there’s a big opportunity here for some crypto law firm to get involved. At this point I have a tiny audience, but I wouldn’t want to have to think about this. There’s an opportunity where law firms or talent agencies could basically do reputation management on these platforms, policing them to make sure your identity is not being used. Even if BitClout eventually pivots, unfortunately I think this is the kind of genie that can’t be put back in the bottle.
The blockchain is open source. Even if they change it, it wouldn’t take much for somebody else to spin up something similar. So we now live in a world where it’s possible to spin up a betting platform based on people’s reputation. You can’t just undo that. There’s some kind of opportunity here for law firms to get involved.
The Founders and Their Anonymous Skin in the Game [00:54:00]
Ethan: Related to this, the founders have got to have some skin in the game. One of the things that’s crazy to me is that this platform was built by a pseudonymous founder. People say they know the person behind it, maybe they do, maybe they don’t. But the person who built this has no potential downside for their own platform.
And there’s something kind of funny I told you about this yesterday, Steph. There’s a tweet from Michael Arrington, the founder of TechCrunch — he basically said, as a PSA, that there’s a Twitter account trolling BitClout. It’s a Twitter account not associated with the company that’s insinuating they’re associated with the company and is about to make money off of issuing coins. And early users of BitClout are trying to protect against this. Getting a dose of their own medicine.
It was just funny to me — BitClout is now facing a situation where a pseudonymous user is insinuating they’re involved in their company and making money off it. And they’re like, “Yeah, this sucks. It’s a terrible way to launch a business.” Yeah.
Steph: I totally agree. And I feel like some people listening, and even some who’ve seen the document I walked through, commented along the lines of, “The fact that you don’t understand crypto or the blockchain…” Look, we may not be experts, but we’ve done a little bit of diligence to understand it at the base level. But separate from that, this isn’t even just a conversation about crypto. The blockchain underlies this platform, and there are elements very similar to other financial assets.
But I can say candidly: I’m invested in cryptocurrency, and I actually buy into aspects of it being the future. Not all crypto — just like not all parts of any innovation are good. In this case, when crypto is decentralized, that makes sense when you’re talking about money as some abstract entity. But when you’re talking about people’s reputations, that should not be decentralized, because I am centralized. I am a person that is impacted by this platform. And as a person, if I want to take myself off the platform, take legal action — there are reasons certain things should be decentralized and certain things should be centralized.
When you’re actually potentially breaking laws by seeding a platform, you have to be responsible. There’s always this fine line between centralization and decentralization, or something being anonymous or not. Anonymity has a lot of good behind it in certain cases. But the counter to that is always: where does accountability lie if something is anonymous? As soon as you go into the realm where you’re dealing with other people’s lives — people who are not anonymous — there’s got to be an entity that is responsible for that. The same way Twitter is responsible for fake accounts, the same way all these other platforms are responsible for what happens on them.
Ethan: Totally agree.
The VC Math and Early Investor Incentives [00:59:00]
Steph: So tell me — long term, what do you think the outcome is here? But first, let me quickly comment on the fact that there is a lot of money going into BitClout — not just from retail investors, but from specific large VC funds. Sequoia and a16z, I believe. Chamath has publicly said he’s invested. Several other investment firms.
Before we get into what we think is the future, something to keep in mind: just because you see someone betting on this — especially a VC firm — if you understand how venture capital works, they make tons of bets in the hopes that something becomes huge. Most people already know this, but just because venture capital is investing in this just means they think there’s a chance this thing can become big, and they’re okay if it falters. Actually, they expect it to fail — they just expect that one of their many bets is the long shot.
Ethan: That’s important. And financially speaking — if you look at how the value of BitClout scales, you’d kind of have to be insane as a VC not to get involved. Here’s the deal.
The value of the BitClout base currency doubles with every million coins that are sold. If you do the math: right now there’s about $172 million worth of money tied up in creator accounts. The current cost of a BitClout coin is about $149. So that means there’s about 1.1 million of these coins that have been created. Maybe I’m off — let’s say I’m 50% wrong and there are actually 2 million coins.
The value of the coin doubles every time another million coins is sold. The company says in their white paper they’re expecting about 10 to 19 million coins to be created — that’s a pretty big gap, but let’s say just 10 million. If you’re currently at 2 million and it goes to 10 million, that means there are going to be about seven more doublings of the value of a BitClout coin. If you’re an early investor, your money could literally double seven times.
Now here’s the other thing worth calling out: there were 2 million coins set aside pre-launch for founders and investors. At current prices, that’s worth $300 million. By the time 10 million coins are issued, the value of those 2 million coins would be somewhere around $534 billion. So there’s an enormous potential upside for anyone who got in early.
Steph: Yeah. And not just investors — this idea of “I’m not even calling it a Ponzi scheme, but…” In a typical Ponzi scheme you benefit from someone below you doing what you’re doing and selling it to more people. This has similar mechanisms. Not only do you benefit from people who come after you, but because of the way the coin is structured and how it doubles, your upside is even more lucrative. Which is what you’re getting at — it’s not even judging anyone for doing this. But as you get into anything, ask the question: why is someone else sharing this?
If I share a link to an article, it’s probably because I read it and thought it was great and want you to share in that value. And there’s no financial upside for me other than maybe feeling good about myself. Here, there’s very clear upside for someone who got in early — whether it’s an investor, someone who created their own coin, or someone who happened to invest in another creator’s coin.
So always ask yourself: what are the incentives of someone sharing this? This platform was literally designed for growth. So smart. But then it does make me question: typically when you see a platform grow, it’s because people are getting value from the platform and what it provides. In this case, the incentives are structured so that it really makes me question whether it’s really because people have been incentivized in this way. It’s just something to be aware of.
Ethan: The other thing that comes to mind when I think about early investors getting into this: I don’t know if this is the case, but it strikes me that the way they launched is extremely dubious. It’s possible some investors bought in to protect themselves. Because here’s another thing that can happen — if you understand how the value of the coin scales, you can set up a blockade against character assassination by just buying enough of your own coin to drive the price up so high that most people can’t buy it.
You could buy a pretty significant chunk of your own coin if you have the resources, driving the price so high that you’d own the vast majority of the coins that will ever be issued for you. These mega firms — maybe that’s what they did. Who knows. I don’t know if they really believe in the idea or if they did it as a potential protection against future downside that happens to come with enormous potential upside.
I don’t judge it. When you look at the potential payout, it makes perfect sense. Turning a few million bucks into billions of dollars is literally why they exist. But it’s worth remembering that saying every major investment firm is involved in this is kind of like saying every major influencer is involved in this — the company didn’t give anybody a chance to opt out. So it’s worth questioning that initial assessment.
Long-Term Predictions and What This Becomes [01:06:00]
Ethan: Long term, here’s what I think is going to happen. Similar to what you’re saying — I actually don’t think this platform will disappear forever. The incentives are too strong. The genie is out. But I do think we’re overvaluing people’s willingness to interact with creators over the long haul, and we’re overestimating the willingness of creators to stay on the platform.
Here’s what I think happens: the prices are going to continue to run up for the next couple of months while people get involved. Then they’ll stabilize. At the same time, the company is ostensibly creating a way for people to get their money out. Once two things happen — once creators can exit and once the upside stabilizes — I think you’re going to start to see people migrate off. Once it becomes more like a typical stock ticker where you’re not really increasing your holdings regularly, and are potentially even decreasing them, the upside is small enough and the downside is big enough that you’ll see people migrate back off.
BitClout’s got some time to pivot between now and then. They’re going to have to in order to survive. But five years from now, I don’t think we’re going to be talking about a stock market for people.
Steph: I think the evolution will look like one of the platforms that exists today. If they really focus on the social aspect, it’ll end up being a Twitter clone. If they focus on the transfer of value between creators and their audience, it’s going to be more like a Substack or Patreon. If they focus more on this idea of selling part of your future earnings and really incentivizing your audience behind you, that’s more like an ISA.
You’ve heard of Big League Advance — I think they talked about it on My First Million. That’s already happening in other industries: athletes give away part of their future earnings to a company that bets on them early. So this stuff already exists. But really what I think is that you’re going to see BitClout pivot in some way after they make their initial feature adjustments, and it’s going to look like something that already exists today.
Ethan: And to piggyback on the investment point: there are two things worth calling out. I’ll fully admit I may be misinterpreting things, so shout us out if I’m doing the math wrong or something. I’ll also give one more disclaimer: we’re both in media. I’m more than willing to bring on the founder of this and let them speak their piece if they want. Somebody’s willing to come forward and discuss some of these potential questions? By all means. This is not meant to be a takedown — it’s just things that are occurring to us, and if there are legitimate plans in place to curb them, we want to hear about it.
The Decentralized Social Media Idea That Actually Has Merit [01:12:00]
Ethan: The last thing I’ll say — the second-to-last sentence in the white paper: “In the same way that you can move Bitcoin from one wallet to another, BitClout makes it so that you can move your clout — in the form of your followers, posts, creator coin balances, etc. — anywhere as well. Thus, in some sense, BitClout is decentralizing social media much the same way Bitcoin decentralized the financial system.”
If anybody is involved from these major VCs who genuinely believes in this idea, I think this is probably why they did it. I don’t think most rigorous thinkers look at the idea of trading on people’s reputations as a good concept. But this idea of being able to move your clout from place to place — maybe not perfect, but it’s better than what we’ve got in terms of social media today, where character assassination runs rampant. This is an important feature that needs to be developed. And it’s possible that this whole BitClout betting scheme is just what was needed to get the more important thing into the world.
In five years, if it still exists, I think that will be the form it takes. Decentralized social media will be much more popular. But the idea of betting on reputation — a lot of people are going to get hurt in the meantime.
Steph: I totally agree with that. I think this idea of decentralized social media has merit. The problem today is that there are some great ideas here, and if implemented transparently — where people know what they’re getting — there’s some real merit that just doesn’t exist today.
And the problem when you’re dealing with people’s money is that today BitClout has trouble iterating the way something like Twitter would. Twitter can just launch a feature, and if it doesn’t work, launch another one. But there’s so much money already baked into how BitClout runs today that it’s going to be hard to pivot.
I do actually think there’s merit to the idea where you can have your own coin and there are benefits that come with it. But it’s very similar to something like a Patreon or Substack. And the market caps for these people — the largest ones just don’t make sense relative to what they’d be if you actually pivoted to something more like a Substack or Patreon. So it’s going to be interesting to see how BitClout has launched and how they maybe pivot. What happens to the existing coins? What are they worth? Just interesting to watch.
Closing Thoughts [01:17:00]
Ethan: The thesis we were trying to get at in this conversation — hopefully it came across — is not that BitClout is binary bad or good. But if you’re going to participate, whether you’re a creator who wants to create your own coin or you want to speculate, do what you want to do. Obviously this is not financial advice and there’s no judgment here. But think through past today — what does this look like, and do you really want to participate in that? Not even from an ethical perspective, but where do you see this going as an investment? Because it’s not as clear-cut as it appears today, when the system is literally structured so that things can only go up.
Steph: Absolutely. All right, enjoy. I guess we’ll leave you with one piece of advice: never invest in something you don’t fully understand. So do your diligence. Even if this sounds like a stock market for people — do your diligence to understand what it is and where you think it’s going.
Ethan: I like that a lot. And the last thing that comes to mind: I think it’s Charlie Munger and Warren Buffett who are both big on this concept that trust is your only real long-term asset. If people think more about that, I think they will make different decisions than if you only focus on the financial upside. So get out there, good luck. Let us know where we’re wrong — we’ll hear from you. You know where to find us. All right, see ya.