- BitClout is an ambitious decentralized social network that tokenizes Twitter personalities. But one of its own investors says BitClout “fucked up their launch.”
- The project has nearly $170 million worth of Bitcoin in a wallet, most of which comes from its investors. BitClout aims to use the funds for something socially "good."
- The man behind BitClout, whose identity is well known, hopes to withdraw himself a la Satoshi Nakamoto.
Decrypt’s Art, Fashion, and Entertainment Hub.
Diamondhands greets me on the encrypted messaging app Signal. He can see me over video, but his own video is turned off, and he has asked me not to use his real name—a curious demand given that Diamondhands has uploaded the images of thousands of people to his platform BitClout without their permission in order to sell cryptocurrency tied to their identities.
"If you can mix speculation with social media, you can have an amazing product. This will change the world for the better," says Diamondhands about BitClout, which went live last week.
Unsurprisingly, not everyone agrees with him. To critics, BitClout feels like a dystopian "Yelp for people" backed by an anonymous James Bond villain. But Diamondhands and his defenders (and investors) insist that suspicions about BitClout are misplaced, and that the new platform is a superior, decentralized alternative to the social media monopolies run by Facebook and Twitter.
BitClout also has money—a lot of it. The project controls a wallet containing nearly $170 million worth of Bitcoin, most of it raised from A-list crypto and venture capital investors, including Andreessen Horowitz, Coinbase Ventures, and the Winklevoss twins.
According to Diamondhands, who asked for anonymity even though his real identity is well known, BitClout's developers will soon announce plans to use its Bitcoin stash for something "good." Diamondhands declined to say if such good would come from donating the money to save-the-whales style charity work, or from starting a foundation to promote its BitClout token (BTCLT), which other projects have done in the past.
The promise of good intentions is unlikely to allay suspicions about the controversial project. But regardless of whether it’s a force for good or evil, BitClout deserves a close look as one of the most audacious crypto projects to date, and one that could foreshadow the future of social networks.
People for sale
At first glance, BitClout looks and feels like primitive mashup of Twitter and Robinhood, including a stream of messages and buttons to like or share what other people post.
Anyone can create a profile and begin participating in the network by providing a phone number. But BitClout has already created 15,000 profiles based on popular Twitter personalities, including ones for Elon Musk and influencers in the cryptocurrency world—all without asking anyone’s permission. Diamondhands says BitClout created the profiles to prevent impostors from creating fake accounts and squatting on them.
Every BitClout account is also tied to a "coin" that rises and falls in value depending on how many people use it. Anyone can follow a given account—as they would on Twitter or Instagram—but the coin means they can also own an asset that is hypothetically tied to the person's public reputation.
"What you get to do is monetize yourself," says Diamondhands. "All the positive things you put out in the world will cause people to like you and buy your coin. You can monetize pent up enthusiasm for you, and let fans ride the rocket ship with you."
BitClout users who feel inclined to being bought and sold in this way can create a profile to earn a portion of the coins associated with their image. In the case of those Twitter personalities whom BitClout already added to the platform, they can claim their profile (and a portion of the coins associated with it) by tweeting that they have joined the network—a requirement that conveniently provides free marketing for BitClout. Among those who have yet to do so are Decrypt's Editor-in-Chief, whose profile currently looks like this (the bio BitClout pulled is a month old):
A tracking site called BitClout Pulse has already sprung up to track the value of more popular coins.
BitClout’s unusual twist on social networking extends beyond adding people without their permission. The project also stands out for its technical operations, which rely on dozens of autonomous blockchain-based nodes scattered around the world—a very different architecture than Facebook or Twitter, which rely on centralized servers to keep their networks running. Every message or transaction is recorded to BitClout’s blockchain, which Diamondhands describes vaguely as custom-built software similar to Bitcoin’s, but with greater capacity for social networking functions. He says BitClout's code is open source and the team will soon publish it.
All of this, says Diamondhands, will eventually lead to brand-name organizations hosting BitClout nodes that will display feeds tailored to various interests. For instance, he says, ESPN could run a node that displays a feed heavily populated with sports figures, while Politico might do the same with a focus on political leaders.
But Bitclout’s node structure also means it will lack centralized moderation policies like those found on platforms like Twitter or Facebook.
Michael Arrington, an outspoken venture capitalist who invested in BitClout, says there is enormous desire for a “censorship resistant” platform where users aren’t punished for expressing unconventional views. Noting that he voted for Joe Biden, Arrington says he has nonetheless been appalled by Twitter’s willingness to kick controversial right-wing figures off the site—a phenomenon he says reflects a liberal groupthink that is pervasive among Silicon Valley employees.
BitClout is hardly the first to try to build an alternative to Twitter and Facebook, of course. Sites like Gab and Parler have tried to fashion themselves as “anything goes” forums for Trump supporters. Meanwhile, others—notably Steemit and newcomers Roll and Rally—are experimenting with decentralized blockchain designs.
So far, none of these has come anywhere near mainstream adoption. But Diamondhands is confident BitClout will break through, not least because the world is ready for a social network that doesn’t rely on Facebook-style ads and data-gobbling.
“This changes the incentives for social media to openness and collaboration, rather than building ad revenue and data moats,” he says, adding that he was inspired by the world of decentralized finance (DeFi), a fast-growing investing sector of the crypto industry that lets people trade assets without a middleman.
If its boosters are right, BitClout is an idea whose time has come. But that hasn’t prevented a rocky rollout and a torrent of criticism.
“I did not agree to promote your coin”
When new crypto projects launch, the response is usually relentless cheerleading from Crypto Twitter. That wasn’t the case with BitClout.
As details of the project began trickling out, including its decision to add people’s image without permission, a backlash swelled.
— James Prestwich (@_prestwich) March 20, 2021
Such complaints do not appear unfounded. According to Jennifer Rothman, a University of Pennsylvania law professor and expert on the “right-of-publicity,” BitClout might have crossed a legal line.
“It does seem like they are using people’s names and likenesses for commercial gain," Rothman said. "Reminds me of the celebrity stock market sites, but this seems more problematic and less likely to have free speech defenses."
Unsurprisingly, BitClout has already attracted the attention of lawyers, including those at Anderson Kill, who issued a public cease-and-desist letter demanding that it stop using images of its partners. BitClout complied.
Arrington, the venture capitalist, dismissed the letter as a publicity stunt to gin up attention for the firm’s cryptocurrency practice. Diamondhands, meanwhile, says only a tiny portion of the users added to the site have objected, and that far more are rushing to claim their profiles. He added that BitClout will comply with future requests for removal, though it has yet to build a mechanism for making those requests.
While Diamondhands appears blasé about the right-of-publicity flap, the early controversy has unnerved some investors. Speaking on condition of anonymity, a person close to a major VC firm described BitClout’s rollout as a “doozy,” while a different investor said BitClout has “fucked up their launch.”
The launch has been further complicated by technical failures as a flood of traffic has knocked BitClout’s nodes—including the core one at BitClout.com—offline, and required developers to put up a password to limit the number of visitors. Diamondhands says these problems will soon be fixed.
The controversy over BitClout’s launch has also included concern over how the project is handling the Bitcoin it collects. Right now, users must purchase around $55 of the site’s native currency BTCLT to buy coins, including the coins tied to their own profile. Any such purchase must be paid with Bitcoin, but the currency conversion only goes one way—it’s impossible for a user to trade their BTCLT back to BitClout.
This has set off alarms, including from the forensics firm Cointrace, whose executives told Decrypt that BitClout could be the second coming of Bitconnect—a Ponzi scheme that became one of the most notorious crypto scams to come out of the 2017 ICO bubble.
Diamondhands says such fears are misplaced, and he likens his company's requirement for users to forfeit Bitcoin to the process in which Bitcoin itself is obtained—namely, by mining, a process that requires people to burn computer power to obtain Bitcoin. But in the case of BTCLT, users burn BTC to get it.
Whatever his justification, the arrangement means BitClout now holds over 3,200 Bitcoins (currently worth nearly $170 million) in a wallet over which it has total control. Diamondhands says the vast majority of those Bitcoins came from its well-heeled investors, a list that also includes Sequoia Capital and Reddit co-founder Alexis Ohanian.
This might provide reassurance to those who fret that BitClout is all a scam, though the specifics of how exactly the project is being funded remain opaque. BitClout has “pre-mined” two million BTCLT tokens for its founders and investors and, if the project is following the model of other token projects, has likely distributed them at a steep discount.
This pre-mining arrangement has led Anderson Kill attorney Stephen Palley to suggest BitClout is not decentralized as it claims, and that it is violating U.S. securities laws:
in other news, it appears that bitclout investors received tokens in a common enterprise with the expectation that they would increase in value based on the managerial and entrepreneurial efforts of others. https://t.co/RLAkdDILqp pic.twitter.com/jcwJDwoS0D
— Palley (@stephendpalley) March 23, 2021
Palley is not the only one to point out BitClout could face trouble from the SEC. The project has also made the bold decision to sell coins tied to the identity of one of the agency’s most prominent officials, Hester Peirce.
how dumb do you need to be to put an SEC comissioner's face on a shitcoin pic.twitter.com/hUFkQfU0iz
— James Prestwich (@_prestwich) March 22, 2021
As for BitClout’s $170 million stash, Diamondhands assured Decrypt that neither he nor BitClout’s developers would use it to pay themselves, saying their financial incentives are instead tied to the success of the BTCLT token—which he says will one day be traded on exchanges, providing a way for its holders to cash out.
From Satoshi to Diamondhands
In wrapping up our Signal conversation—me still visible, Diamondhands still obscured—I pressed him with an obvious question: Why all the secrecy? Couldn’t BitClout have allayed so many of the doubts simply by being transparent about the project and the team behind it?
The layers of secrecy seem unnecessary, even absurd, given that there is little doubt about Diamondhands’ identity. In numerous tweets complaining about BitClout, crypto industry veterans directed their ire at Nader Al-Naji.
Al-Naji, a former Google engineer who is still only in his twenties, made a splash on the crypto scene in 2018 with another ambitious project that also proved controversial: Basis, which purported to offer an algorithmic stablecoin and raised over $130 million from the likes of GV (Google Ventures), Andreessen Horowitz and Bain Capital.
Despite such backers and a spate of hype, Basis closed up shop only months later amid regulatory concerns and skepticism about the viability of its stablecoin. Al-Naji returned the remaining money to his investors, a move that signified to many that he misfired on Basis, but was not dishonest.
Indeed, his standing has remained such that many Basis investors returned to back BitClout. “We are investors. Same team behind Basis [from] a few years back,” Tyler Winklevoss of Gemini Capital wrote to Decrypt.
When asked directly if he is Diamondhands, Al-Naji did not deny it. As for why he adopted the Diamondhands moniker—Reddit slang for someone who holds onto a strong financial position—he pointed to an earlier decentralized project: Bitcoin.
The origins of Bitcoin, of course, are tied up with the mysterious Satoshi Nakamoto, the person (or persons) who breathed life into the project and then receded into mythical status. Over time, Satoshi's disappearance has added to the mystique of Bitcoin and helped the currency’s boosters claim it truly is decentralized and controlled by no one. If BitClout is to become truly decentralized in the same way, says Diamondhands, it must follow the same path.
“If something is to be decentralized, it needs to be run by a community not a dictator. Diamondhands is there to absorb all [the attention] and prevent any individual from becoming associated with the project,” he said, adding that one day Diamondhands will disappear, like Satoshi did.
It’s a compelling argument for anonymity, though one wonders if BitClout’s early public stumbles might have been avoided by forgoing the attempt at a mythical founder.
For now, the identity of Diamondhands is the project’s least pressing concern. It faces not only a backlash from its rollout, but skepticism about whether anyone wants or needs it. In a recent Twitter thread, longtime crypto developer Jay Graber warned that BitClout’s attempt to explicitly monetize social interactions is a turn-off to social media users, and that the project will fail:
Trust and reputation are key, and if you create a sketchy platform and mess with people’s reputations without their consent it is not going to go well.
— Jay Graber (@arcalinea) March 22, 2021
Kathleen Breitman is another skeptic. A highly-regarded crypto entrepreneur and cofounder of Tezos, Breitman says the earlier Basis project was doomed to fail—in her words it was a “Matrix scheme” that depended on the impossible proposition of prices only going up—and that BitClout is doomed as well.
Breitman sees BitClout as a blatant money grab, and said its attempt to commodify individuals creates an “ick factor" that is especially off-putting to women. "It will be a disaster."
Diamondhands, for his part, appears sincere in his belief that BitClout can change the world for the better, and frames it as a boon for creators. “As to where it is on the spectrum of good vs bad," he said, "it’s definitely a better thing for society that these small-medium creators can connect with fans."