An economy exists to satisfy human wants across time, with capital enabling individual economic participation through choice. How an individual chooses to use capital is the physical expression of their time preference. Whether capital is held, deployed, pledged, or spent, every action is a judgment on what the future is personally worth relative to the present. Our fiat system structurally distorted this calculation. An expanding money supply imposes a persistent erosion on patience. Capital is driven to move out of a necessity to outpace decay, rather than being drawn towards opportunity. Movement is not a choice, but a coerced Red Queen’s race. Consequently, fiat replaces a patient option with a binary decision: you either run to stay in place, or get left behind. Bitcoin, by contrast, restores a spectrum of opportunities across a risk curve, allowing and rewarding patience to active stewardship.

Bitcoin’s fixed denominator decompresses the pressure of dilution. It allows capital to be allocated according to market judgment rather than the need to offset monetary expansion. Consequently, bitcoin cannot be reduced to a single "use case". To do so would be to ignore the agency of the individual. Bitcoin is not inherently a store of value or a medium of exchange, but a digitized capital environment that moves across a user's spectrum of time preference. The asset makes no structural demands from the user as the user of bitcoin only asks for a unit of fixed supply. The same unit can sit dormant in a personal reserve, fund productive capacity through credit, or be spent for immediate utility. The asset’s characteristics remain constant. Only the holder’s intent changes expressed by their choice, not coercion. By simply reflecting the economic goals of the user, bitcoin restores the spectrum of capital allocation that fiat compresses.

When allocation is driven by intent rather than the fear of eroding purchasing power, capital functions as it was meant to: the lifeblood of the economy. Blood must circulate, for no living system survives stasis, but circulation is not the purpose. Life is. Blood moves to nourish tissue and sustain higher functions and capital is no different. At its best, capital flows toward productive enterprise, financing the infrastructure that expands what the economy can satisfy tomorrow. At its worst, it merely recirculates through financial claims and extended leverage, mistaking motion for health. An economy is not strengthened by the velocity of capital, but by whether that movement nourishes the productive body beneath it.

Credit extends purchasing power across time, allowing future production to finance present growth. However, credit loses its integrity when it is insulated from consequence through monetary dilution, perpetual refinancing, or fiscal policy backstops. In such an environment, capital is used to preserve the body of what once was, rather than building the body of what could be. Bitcoin restores economic consequence. Governed by the fixed denominator and final settlement, borrowing must once again justify itself against the future it claims to finance. Credit becomes sound only when it is tethered to productive judgment.

The utility of choice on how to use bitcoin is not exhausted by the binary decision whether to hold or spend. The choice on how you can best use bitcoin can broaden within new credit structures as dynamic collateral. By infusing bitcoin into the credit stack (equity, mezzanine and senior tranches) users capitalize a structure capable of supporting new enterprises without being surrendered. Rather than being consumed, bitcoin is enlisted in the service of growth and leveraged by assuming the risk of forfeiting its future appreciation.

In this framework, volatility is not a bug to be suppressed, but a mechanism of discovery. Volatility reveals whether a lending structure deserves to endure. On the downside, falling bitcoin collateral values force earlier recognition of risk and a tightening of underwriting. Weakness is confronted rather than deferred. On the upside, appreciating collateral improves coverage, accelerates deleveraging, and can reduce lender exposure. In the right structure, bitcoin’s volatility disciplines both sides of the loan. Thus, the ultimate test of credit is whether it builds more than it protects. When borrowing finances new capacity, it enlarges the future. When credit is used to preserve inherited claims or maintain the appearance of health, capital circulates in defense of the past. This is where systems lose vitality. Bitcoin matters because it reintroduces consequence, pressing credit back toward productive ends and away from reflexive preservation.

The Red Queen’s fiat economy asks how quickly capital can be pushed into motion before it loses value standing still. A bitcoin economy asks a harder, more vital question: What is worth preserving, what is worth risking, and what future is worth building? This is the deeper significance of the fixed denominator. It does not simply improve savings, but restores the conditions for judgment. Capital can once again move according to purpose rather than decay. The result is not less finance, but finance returned to its proper task: bringing into being more of what should exist.

We can dive into this perspective using some fundamental principles of accounting. Every public company operates within a capital structure that markets assess with precision. Equity forms the junior-most layer, bearing the highest risk as the residual interest that absorbs uncertainty and embodies management’s credibility . Debt sits above, as senior claims defined by contractual obligations, enjoying priority in repayment. A company’s equity functions as its currency. When executives over-leverage or dilute shares irresponsibly, the market does not lodge formal objections. The market simply adjusts prices. Capital flows toward more competently managed opportunities. This is not theoretical abstraction but the essential operation of markets, where credibility is hard-won and price discovery acts as the impartial regulator.

Applying this framework to nation-states reveals profound implications. A government’s capital structure mirrors the hierarchy already defined but with currency functioning as the junior-most equity tranche. This tranche absorbs the sovereign’s variable claims on fiscal responsibility, growth, and security, all of which are ultimately reflected in the market’s adjustment of purchasing power in the nominal unit. The government’s bonds are senior debt above, secured by its creditworthiness (order and taxing ability). But an inherent distortion persists in plain sight: sovereign debt is settled in sovereign currency. This flaw is essentially a Payment-In-Kind (PIK) system, whereby senior creditors can be serviced through the dilution of junior equity holders. When debt accumulation exceeds productivity gains, the facade of seniority crumbles. Creditors obtain full nominal repayment, but the real value of that repayment (purchasing power) erodes. Inflation is a byproduct serving as the veil for fundamental economic vulnerabilities.

History abounds with efforts to address this flaw. A golden path was paved as a durable safeguard providing a physical, auditable restraint on sovereign overreach. However, its very materiality proved its undoing: too cumbersome to handle and verify at scale, it demanded centralized custodians and thereby laid itself open to appropriation. When gold’s limitations clashed with state imperatives, authorities intervened decisively: a litany of examples, including the USA’s most recent via executive orders in 1933 , the closure of the gold window in 1971 , and finally the flood of ad-hoc liquidity facilities post 2008. The enduring lesson is that any constraint vulnerable to suspension in crises is illusory. Savers found themselves exposed, dependent on issuers’ restraint and the slow pace of bond market signals. Lagging indicators on what had already happened.

Bitcoin could impose accountability on sovereign mismanagement by functioning as a relentless real-time market enforcer, disciplining irresponsibility by allowing for instantaneous, global capital reallocation. Unlike traditional assets susceptible to regulatory capture or confiscation, bitcoin’s decentralized protocol remains impervious to unilateral intervention. Thereby ensuring poor governance (manifested in unchecked monetary policy, unsustainable fiscal deficits, or excessive household/personal indebtedness) triggers immediate and measurable consequences. Capital does not have to wait for diplomatic rebukes or credit rating downgrades. Debasement-driven value transfer has already begun to diffuse and crowd into traditional assets (stocks, real estate, and commodities) thereby concentrating and overexposing holders to geographic, political, and execution risks. Now, any allocator can instead migrate to bitcoin’s verifiable finite scarcity , evading the offending currency’s value erosion and compelling policymakers to confront their offenses before the breaking point . This mechanism can transmute bad behavior from a hidden liability into a public current affair, where individuals within markets, rather than bond vigilantes and regulatory mandates, impose corrective pressure, fostering a global ecosystem where credibility is not assumed but continuously earned.

Complementing bitcoin’s role as the capped neutral layer, stablecoins have emerged as novel digital mechanisms for onshoring eurodollars by digitizing and repatriating the vast offshore dollar liquidity that has long existed beyond the U.S.’s borders. Eurodollars (U.S. dollar-denominated deposits held in foreign banks) have enabled global dollar circulation outside of U.S. control, satisfying dollar demand and offering regulatory arbitrage while remaining in a fragmented and opaque market. Tokens pegged to USD, such as USDC or USDT, function as modern digital eurodollars: they enable seamless, borderless transfers of dollar-denominated value from any digital client. These stablecoin issuers effectively repatriate offshore eurodollar reserves into programmable, digital pipes ring-fenced within the purview of U.S. Treasury-backed regulation, enabling the further expansion of U.S. debt. Without physical branches, vaults, or heavy legacy overhead, these issuers slash distribution costs to near-zero, providing channels for billions in remittances, trade settlements, and savings ability for global markets. This broadens voluntary access to the U.S.’s equity tranche, accelerates global economic integration, and can reinforce U.S. dollar hegemony. Hegemony not through imperial imposition, but by making offshore dollar liquidity more compliant, transparent, and demand-generating for U.S. debt in a digital era.

Bitcoin sits atop the stack and counterweights with pure choice unlike manipulable debt instruments that sovereigns can endlessly issue, refinance, or sweeten with flexible incentives. This unrelenting competitive pressure of choice produces a negative feedback loop that can induce an equilibrium. Sovereigns and corporations must continually enhance their debt and equity offerings through superior yields, geopolitical protections, exclusive trade deals, regulatory favors, or other dynamic perks to stop capital from migrating to an elegantly simple alternative. A simple solution creating a market, not a one-way-function as transacting in bitcoin offers none of the active externalities that dominant powers deploy through alliances, military umbrellas, or market privileges. Nevertheless, its open-source foundation, simple design, unique balance of incentives, and lack of any prior or future claims keep it flexible. Proven market demand can spawn integrations such as long-term dual-collateral loans and BitBonds that bridge bitcoin with real-world assets and governments, affording competition while isolating geographical, political, or executive risks. These innovations, along with yield mechanisms and governance tools, can be added without ever diluting bitcoin’s finite scarcity or resistance to unilateral control.

In this adjusted framework we see bitcoin completing the transformation from static electricity to electrical current. Bitcoin serves as the ultimate adjudicator of trust and scarce value, while stablecoins operate as the scalable pipelines for sovereign currency distribution. Together they form a single, self-correcting system: stablecoins broaden access and lower friction, while bitcoin’s fixed scarcity ensures that no issuer can escape market discipline indefinitely. They compel sovereigns to compete on genuine merit rather than coercion or monopoly, dismantling entrenched inefficiencies and unlocking unprecedented potential. As credibility trends toward becoming currency, markets will not simply reflect realities; they will shape them, granting innovation and fiscal prudence a privileged seat in the sovereign arena.

Oil was the industrial age’s stored sunlight as buried work, compressed by time and geology, waiting to be unleashed. Compute is the digital age’s stored competence as humanity’s accumulated experience, encoded in language and images , compressed onto silicon, and ready to be leveraged. Yet, an ocean of oil did not create wealth by simply existing. The economic surplus of oil emerged only when energy was refined, transported, priced, and sold to consumers in the form of goods and services. Production itself alone was never sufficient. Economic surplus was born only where producers answered the market’s “why” correctly. AI-assisted competence is forming a similar reserve today, not energy in barrels, but capability in tokens: a reservoir of “how” that can be summoned in seconds. Like energy, competence alone does not determine outcomes. Competence enables more execution, but it is human judgment at the edge that governs choice allowing for coherence to be established. Judgement is required for the answer to “why”. Why this product, why this market, why now rather than later. And when the cost of execution collapses, the penalty for choosing the wrong “why” rises. Therefore, internal judgement which ultimately leads to coherence must be protected.

In competitive markets, surplus is created in the spread between what it costs producers to deliver value and what consumers are willing to pay for it. As competence equalizes, that spread compresses: when stored expertise floods the market, the marginal cost of being “good” collapses with it. Baseline competence becomes abundant and widely accessible. The distance between good and great does not just narrow, it becomes more contested. When everyone draws from the same pool of competence, outcomes converge, and convergent outcomes cannot generate economic surplus. Competition intensifies not because opportunity disappears, but because more actors arrive at the same conclusions, armed with the same tools, at the same speed.

This is where secure and private coherence emerges as a critical differentiator. Coherence , in its core sense, carries two intertwined meanings: the quality of being logical and consistent, and the quality of forming a unified whole. It is therefore not mere consistency, rigid uniformity that can homogenize, but the deeper internal refinement of models (mental, operational, and strategic) that aligns actions across time and through uncertainties into a resilient, proprietary system. Without secure and private coherence, reliance on commoditized AI models leads to homogenized strategies. If organizations fail to secure their refined internal decision models, which provide this greater coherence, then they become indistinguishable from public, shared models. Those models accessible to all erode margins through sheer competition. As with every industrial revolution in our history, everyone optimizing toward the same equilibria competes away the very surpluses they seek, turning abundance into a zero-sum race.

Thus, AI introduces a multiplier that cuts both ways. AI accelerates trajectories already chosen both positively and negatively. Focus compounds faster, but incoherence leaks value faster too. Judgment outsourced to AI-generated competence without internal curation produces homogenized decisions where margins collapse under competitive pressure. To counter this, protected internal refinement becomes essential. Iteratively honing proprietary human insights, filtering noise, and building coherent frameworks that diverge from the crowd needs to be secured. In an era where AI agents operate hierarchically, secure and private coherence demands sovereignty at the root: the base agent, capstone of the system, must remain under sovereign user control. This capstone agent orchestrates specialized project agents, each being able to command legions of worker agents that execute across digital realms and embodied physical domains all refining, delegating, and acting on the user's proprietary vision. Without control over this foundational layer, the entire hierarchy risks compromise: deletion by platform whims, man in the middle attacks, theft by competitors, or seizure by governments, all of which would expose or dilute the human refined internal models that sustain differentiated coherence. Sovereignty here is not optional luxury but structural necessity. If the root is not owned and shielded, the cascading coherence built atop it becomes vulnerable to external capture, homogenization, and eventual margin erosion, rendering the user's strategic refinements no different from commoditized public outputs.

StartOS from Start9 delivers sovereignty at the root: it enables users to run and own their capstone agent on personal servers shielding from deletion, theft by competitors, or government seizure, while preserving full command over the cascading hierarchy of project and worker agents. Yet the high-scale inference that amplifies this original coherence will most likely still run on specialized, remote silicon farms, where hardware segmentation and economies of scale dictate location. Protecting prompts, contexts, and proprietary data during that inference is therefore non-negotiable. OpenSecret , the confidential computing platform behind TryMaple.AI , enforces this protection through secure enclaves . These isolated environments keep data encrypted in transit, at rest, and during GPU processing. Decrypted and executed only inside the enclave, invisible to cloud providers, hosts, or operators. The result is verifiable private leverage of full-scale models, device-synced via end-to-end encryption, backed by open-source code and attestation. By combining sovereign base-agent control with enclave-secured remote inference, organizations defend secure and private coherence against commoditization. Refined internal models stay meaningfully differentiated rather than indistinguishable from public alternatives. This is how margins are not merely defended but actively produced. The economic surplus isn’t acquired through hoarding competence, but by cultivating secure and private coherence that public models cannot access or replicate.

The contrarian refusal to follow the crowd becomes a strategic necessity. Ten31 exists to underwrite judgment in an era that is systematically trying to eliminate it. We are optimizing to operate in a landscape flooded with output, where output itself is not scarce. We invest and help to mold the systems that preserve the integrity of economic decisions, align producers with consumers, settle value without permission, and refuse to dilute consequences. Credible Finance is not about efficiency for its own sake, but about ensuring correct judgments are able to compound. We bridge individual judgment with systems designed to protect internal coherence that can thrive amid accelerating external competition.

The flood of competence commoditizes output, and only sovereign and secure judgment will survive this race to the bottom. Advancement requires coherence forged privately (StartOS), iterated under user control, and shielded from capture (OpenSecret). Ten31 capitalizes this architecture because we invest in what endures through abundance: systems that let the correct "why" compound without dilution or permission. We look to identify and amplify the economic surplus that emerges when sovereign judgment meets uncompromised consequences. In acceleration, surplus accrues not to those who produce the most, but to those whose coherent judgment cannot be copied.

Ten31 draws inspiration from the great networks that turned empty corridors into economic mainlines: railroads, telegraph wires, payment rails, and the early internet. Each began as a skeletal infrastructure and only became indispensable once the hard work of commercializing the opportunity was completed. Among those early networks, the story of James J. Hill and the Great Northern stands out as a blueprint for today’s bitcoin industrialization.

Hill did not build the most track. He built the most used track. While subsidized lines chased financial engineering in stock schemes, land grants, and leverage that masqueraded as progress, Hill treated his railroad as a commercial organism. To Hill, rails and spikes were not the end state. He viewed empty railcars as the raw capacity that remained a liability until the trains reliably moved grain, timber, cattle, people, and capital. Hill’s low time preference approach to seeding towns, teaching soil science, importing livestock, and manufacturing demand along the route, transformed industrial hardware (rails, engines, and freightcars) into a functioning economic network. That pattern of designing not just the machinery but the usage of the machinery is the lens through which Ten31 understands the challenges and opportunities of commercializing bitcoin today. We, along with our partners, look towards architecting a living organism of prosperity by serving as the commercialization engine rather than merely a passive investor.

Structure is Important, but Usage Matters More

The same distinction that separated Hill from his subsidy-fed competitors now separates meaningful bitcoin development from the noise of the past decade. Much of the early cryptocurrency landscape mistook industrialization for victory (building rails when there was no organic demand for the freight itself) and the market confused financial engineering for commercial utility. Blockchains proliferated, protocols multiplied, and speculative assets ballooned, yet little of it translated into durable commerce. The shiny distractions of NFTs, meme coins, and ICOs harvested speculative fervor but not economic substance, despite claims from altcoin promoters that their projects provided durable utility. Industrial capacity was built at extraordinary speed, but without the architecture to convert that capacity into utility. The result was predictable: empty blocks, boom and bust anemic user growth, and networks valued for their theoretical potential rather than their realized throughput.

Bitcoin’s next chapter requires a return to proper sequencing. Its infrastructure, the shared monetary equity programmable with global settlement finality, forms the industrial scaffold. However, the true economic destiny lies in commercialization: transforming these primitives into systems that merchants use, institutions depend on, and consumers rely upon without noticing. If Hill had merely laid track, the Great Northern would have vanished into history’s dustbin. It endured because he built usage. Bitcoin now stands in a similar liminal space between what it already is as infrastructure and what it must become as a commercial network.

Commercialization is a Deliberate Endeavor

Bridging this gap between industrialization and commercialization has never been a passive process. It requires deliberate architecture from decision-makers who understand that networks do not commercialize themselves. That work is slow, iterative, and deeply operational. It requires long-term vision for cultivating new behaviors, building trust, educating markets, and orchestrating complementary industries around the core infrastructure. Commercialization is the evolving coordination of deliberate choices of the present which compound into the economic patterns of the future. The frontier has always rewarded those who can hold a long horizon in their mind while solving immediate, ground-level frictions. It is this discipline of sequencing and building not for the hype-cycle but for the habits of future users that will determine whether a new network becomes foundational or forgotten.

The commercialization of bitcoin will follow the same pattern Hill confronted: the network becomes indispensable only when the economic life around it reorganizes to take advantage of its properties. Hill did not just sell railroads, he sold the possibility of a better business if you built your operations alongside his rails. Bitcoin can offer the same value proposition but also requires the same entrepreneurial migration. The companies that will commercialize bitcoin are not those that “use bitcoin” as a novelty, but those whose economics fundamentally improve when built around it. Companies like Start9 give businesses the digital homestead, a self-hosted infrastructure that replaces brittle cloud rents with sovereign compute. AnchorWatch isolates the operational risk of holding and settling in bitcoin, enabling commerce to flow with insured, institutional-grade reliability. Giga Energy and Upstream Data transform stranded and wasted energy into productive bitcoin-denominated revenue, turning dead capital into operating advantage. These are the modern equivalents of Hill’s early towns, grain elevators, and timber camps, which are the economic actors who become more competitive by relocating their business models to the edge of the new monetary rail. Commercializing bitcoin is not about evangelizing an asset, but is about architecting the conditions under which businesses discover that building near bitcoin’s rails makes them stronger, faster, and more durable than their fiat-bound competitors. As Hill brought people to the rails so the trains ran heavy, we, with the support of our investors and partners, bring businesses to bitcoin so the blocks are filled with the weight of real commerce.

Revitalization of Productive Businesses

An inflection point arrives when legacy businesses that are often unloved, undercapitalized, and trading at compressed multiples recognize their economics fundamentally improve when rearchitected toward the bitcoin network. A regional logistics operator suffering from thin margins can eliminate settlement lags and FX friction by settling invoices on digital rails, while insulating its treasury from inflationary decay with bitcoin. A specialty manufacturing firm with volatile working-capital needs can extend its operating runway by holding a portion of treasury in appreciating monetary equity while using StartOS for self-hosted infrastructure to reduce cloud dependence and data risk. A rural energy-services company with stranded or seasonally idle assets can deploy Giga or Upstream Data solutions to turn wasted energy into a permanent sats-flow engine.

Individually, these firms may look like low-growth relics of the old economy, however when architected around bitcoin, they become structurally advantaged enterprises. And as more of these legacy operators discover that they can do more with less delay, less dilution, and less dependency on intermediaries, their competitors are pressured to follow. What begins as a collection of rational reinventions becomes a self-reinforcing commercial district. Industries will reorganize around the rail not because they were evangelized, but because the economics made the choice inevitable. Bitcoin’s commercialization grows concentrically: Gradually, then Suddenly .

Hill choreographed outcomes by financing farms, constructing grain elevators, recruiting merchants, and synchronizing the movement of goods until entire communities trusted the rail as their economic spine. Ports, telegraph hubs, and early internet backbones followed the same sequence: credibility drew the first participants, and deliberate coordination created the rest. Bitcoin is no different. Perfect settlement assurances alone will not summon durable commerce. Businesses must be shown – not just told – how redesigning treasury operations, supply chains, data infrastructure, and credit channels around bitcoin’s monetary equity creates structural advantage.

This is the work of an architect, and this is the blueprint Ten31 carries forward. Like Hill, we move deliberately and sequence patiently, focusing not on short-term advantages but on the long-term process of reorganizing industries around a harder monetary foundation. We identify the businesses whose economics improve when aligned with bitcoin’s rails, and we help them restructure so their activity becomes the network’s freight. By financing, educating, coordinating, and cultivating the complementary industries that fill the blocks with real economic throughput, Ten31 works toward what Hill once did for the Great Northern. Turning raw industrial capacity into irreversible commercial gravity.

Headwinds for Some, and Tailwinds for First Movers

Every industrial revolution arrives at a threshold where potential hardens into permanence. While legacy accountants and auditors remain cautious due to novelty and volatility, industrial visionaries build out the future one block at a time. Bitcoin now crosses that threshold. The rails are down, the spikes are driven, and the first engines of real commerce are beginning to move. But energy markets are regulated, incumbents fight back with pricing power, and nation-states can still impose capital controls or outright ban themselves from bitcoin. These are not theoretical risks, as we have seen. They are the same headwinds that delayed the railroad, the telegraph, the early internet, and every prior network before it reached critical mass. In time the era of speculative noise will quiet, while the era of commercial architecture takes hold. This is the phase that requires the discipline of a James J. Hill: the patience to align incentives, coordinate industries, and cultivate the "towns" that make the railway vital.

Our ecosystem will be built by those who understand that a network’s value lies in its traffic, not just its tracks. Ten31, with the support of our investors, is already executing this architecture . Having helped commercialize the foundational layers of exchange, custody, lending, payments, and energy, we are now expanding to fill the design. We are a first-mover architect constructing the access points of this new economic map. Adoption does not occur on its own, but through the quiet, compounding decisions driven by superior economics. We view our work as more than supporting a network. Ten31 is developing a durable commercial district, ensuring that the map of the future is defined not by what bitcoin promises, but by the dense, immutable economic value it carries.

Credibility is the invisible balance sheet of economies, and reputation is its market price. Every enterprise, from kingdoms to corporations, has been built on the alignment between what is promised and what is performed. Benjamin Franklin observed, “It takes many good deeds to build a good reputation, and only one bad one to lose it.” Reputation measures credibility; credibility sustains reputation. Once either is squandered, both are rarely restored. History shows they cannot be printed, decreed, or willed back into existence. Finance arose to preserve that fragile alignment in order to anchor trust in proof and to transmit credibility through ledgers that outlast their makers. Yet over time, those ledgers drifted from proof to promise. The Dutch institutionalized equity through the East India Company , allowing strangers to coordinate at scale. It worked, until credibility itself became too elastic and broke from reality when the measure of truth was replaced by the convenience of belief. Ten31 was founded out of the restoration of alignment to build finance on proof-of-work rather than promise, where credibility, not convenience, again defines capital.

To understand how reputation became the currency of credibility, we must define their roots, for one is perception, the other proof.

Credible

1. offering reasonable grounds for being believed or trusted

2. good enough to be effective

Reputation

1. a: overall quality or character as seen or judged by people in general

   b: recognition by other people of some characteristic or ability

2. a place in public esteem or regard : good name

Equity built the modern world because it rewarded credible reputations and punished false promises. The joint-stock companies of the Dutch and English empires financed voyages that mapped the world, while the industrial corporations of the nineteenth century financed the infrastructures that connected it. Each era advanced because equity transformed credibility into capital and capital into civilization. Yet the same mechanisms that built empires also revealed their limits. The South Sea and Mississippi bubbles, the railway manias , and the credit booms of later centuries all proved that reputation without credibility ends in ruin. Warren Buffett’s warning at the fall of Salomon Brothers endures: “Lose money for the firm, and I will be understanding. Lose a shred of reputation, and I will be ruthless.” When paper claims multiply faster than proof, speculation hollows out trust.

Bitcoin and Ten31 work toward restoring that alignment. Bitcoin reunites and orders reputation and credibility because it ties identity to proof-of-work and ownership to verifiable truth as shared equity in an open permissionless monetary system . In the legacy closed and permissioned system, titanic reputations can be built without the foundation of real credibility. In bitcoin, reputation only follows credibility: it cannot precede it. As one cannot have a reputation for stewardship without the proof of ownership, which is easily and readily verifiable because bitcoin is free and open-source software. Ten31 takes this philosophy further by industrializing it. We finance builders the way bitcoin finances the world through shared equity in proof-of-work, where ideas harden into structure. Our model begins with bitcoin-aligned equity: patient capital structured for long-term and durable outperformance, not quick and illusory paper markups. Because our horizon on digital capital adoption is measured in halvings, not quarters. This way rewards stewardship over loose speculation, a discipline which compounds asymmetrically through power-law outcomes accruing to those who prove credibility longest.

Ten31 institutionalizes equity investing around bitcoin as we build the commerce base atop the digitization of value itself. The companies we’ve backed ( Unchained , Strike , Fold , Mempool , AnchorWatch , Battery , and more than thirty others ) form an economically dense core that gives Ten31 leveraged network effects that are not easily replicable. Each reinforces the others: custody enabling transfer and payments, payments driving commerce, commerce producing transparency, transparency strengthening connectivity. This flywheel compounds credibility across the ecosystem and lifts the durability of every business within it. Ten31 derives advantages by not only being first, but being right first . Early credibility attracts the class of founders and partners who understand that bitcoin is not a flash, but a foundation to exchange equity into a long-term bitcoin base for their business . They seek out Ten31 because we provide more than capital. We are a credible partner operating with credible businesses building and leveraging a new system of credible finance. In a world obsessed with immediacy, alignment with bitcoin mitigates this dissonance and returns allocators and operators to the core principle characterizing the generational companies of prior eras: proof over promise. Ten31 focuses on a return to building things meant to last.

Through this design, Ten31 is not betting on adoption. We are architecting it. Each new company that joins the portfolio expands the network’s reach and raises the standard for credible finance. As capital digitizes , Ten31 will continue to position ourselves centered with bitcoin translating proof-of-work into enduring institutions leveraging bitcoin’s credibility to code the balance sheet for the next economy. That foundation now radiates outward, enabling established enterprises to operate on harder rails utilizing the Ten31 network to accelerate their transition into the bitcoin economy, where credibility, not convenience, defines capital. Unlike the last era - when Theranos, FTX, and WeWork proved what happens when reputation outruns credibility - traditional businesses, like Steak’n Shake partnering with Fold , are beginning to wake up to what our portfolio has become, a dynamic financial infrastructure with ease of access.

As legacy firms integrate with this network, bitcoin adoption’s momentum increases. Each participant adds resilience to the system and credibility to the movement. Ten31 will continue to lay the railbed of capital anchored to proof-of-work, connecting credible enterprises into a coherent financial infrastructure. We speculate less on timing and more on direction. And, as the last sixteen years have increasingly shown, that direction continues to point toward bitcoin. This is the track on which we believe the next civilization will run. Here, credibility once again is the invisible balance sheet of corporate progress and reputation becomes the visible signal through bitcoin holdings, measured in Sats Flow .

An Investment Platform, Not a Bitcoin VC Fund

Many external parties view Ten31 as a "bitcoin VC." While this label brings awareness to a vital, overlooked vertical, it's a limiting and inaccurate description of Ten31. From day one, we have identified ourselves as an “investment platform,” not a VC fund. In fact, in our initial announcement we went as far as to say we were the "anti-VC fund," positioning ourselves against traditional venture capital. We envisioned a new strategy for supporting companies building technology relevant to bitcoin. Our goal was to become an investment platform dedicated to building the ecosystem for bitcoin adoption, one that runs counter to conventional venture capital strategy and wisdom.

VC funds are typically focused on a particular stage of an emerging company’s life cycle (e.g., pre-seed/seed, Series A, etc.). This dynamic evolved under a fiat standard, driven by the 'growth at all costs' mindset. Over the last few decades, as the cost of money has been artificially depressed, technology companies have been incentivized to burn cash for increasingly extended periods in pursuit of growth. This prolonged cash-burn phase made it advantageous for investors to specialize in stages of this unprofitable timeframe, as one investor often couldn't finance all the accumulated losses.

For example, pre-seed investors would specialize in companies lacking a product or business model. Seed investors would assess if a cash-burning business can deliver on its plan. Series A investors would determine if a company (perhaps with some revenue but still unprofitable) can scale. This sequence would continue, with later investors assessing public market or acquirer potential for the still-unprofitable story. Rarely in this cycle, or perhaps only at the very end, would an investor consider if the company might one day actually generate a profit. In this sequence, an investor's value at each stage was often just as much about making introductions and convincing the next group to subsidize the money-losing story as it was about supporting the company's actual growth. It became a game of hot potato, burning any investor holding on when the company failed to reach sustainability and couldn’t pass it on to another group.

We believe bitcoin is changing how companies are built and funded . Profit generation is sought earlier, and the need for venture capital 'fundraising stage specialization' is less powerful than bringing bitcoin expertise and alignment to the full spectrum of a company’s lifecycle. Ten31’s experience and network are applicable across all company stages, and bitcoin’s growing global impact creates an expanding sandbox for our thesis. While stage specialization may still have its place due to scarce fund resources or specific risk/return mandates, we believe bitcoin adoption is so early that the opportunities to extend the thesis into other categories and markets are far greater. Driving asymmetric returns and an outsized impact on adoption requires widening the aperture, and that’s the approach we have taken at Ten31.

Ten31 has been partnering with companies building important technology and applications to enable bitcoin adoption for more than five years. Over that time, we have invested over $200 million into the ecosystem across several types of investment vehicles, including traditional closed-end private equity-oriented funds disclosed on our website (the “Low Time Preference Funds”), as well as undisclosed vehicles for alternative strategies (e.g. credit) and bespoke vehicles for specific opportunities, which we often pursue privately with our existing limited partners.

The graphic below depicts the breadth of our involvement and the flexibility in our approach to date. While we typically lead any investment we make and usually pursue opportunities on an exclusive basis, the nature and structure of our partnerships have been incredibly diverse. We have done everything from being the first check in a pre-seed opportunity or helping incubate a new idea, to leading later stage and growth equity rounds, to structuring credit investments and also participating in various ways in public markets transactions.

The companies we back are also diverse. Some fit the traditional early stage bitcoin technology profile, while others do not look anything like a traditional venture capital backed business, such as hardware (Coinkite) or capital-intensive energy infrastructure (e.g., Giga, Upstream Data). Furthermore, Ten31 has solely funded numerous companies that achieved profitability and became self-sustaining without relying on any future capital injections, a benefit of this new approach to growth. Additionally, while most of our partners began with a bitcoin focus, some partnered with us to incorporate bitcoin into their existing business (like StatMuse, a leading search and knowledge platform that now offers a leading bitcoin search capability). We are also actively exploring this theme in the public markets, as seen with our recently announced SPAC transaction (BDCIU), further extending our prior public markets activity from Griid and Fold.

An Ecosystem Approach to Investing

Ten31’s scope is much larger than traditional VC. We take a holistic "ecosystem approach," with opportunities relevant for multiple strategies (equity/debt, private/public, various durations). In building Ten31 we have taken inspiration from the early days of Sequoia to influence our strategy.

Sequoia is one of the pioneers of the modern technology investment era, funding some of the storied technology companies of our time which now represent trillions in market capitalization, from Atari to Apple, to Oracle and Cisco, to Google to Instagram to Airbnb and Stripe, and beyond.

Many view Sequoia as a quintessential VC fund, but a more accurate framework, especially given their early evolution and contribution to the modern technology world, is that Sequoia is an investment platform. Sequoia founder Don Valentine came from the semiconductor industry, and the central idea behind their thesis was the coming proliferation of microprocessors. Sequoia brought a deep technical literacy to their approach. They were early to this idea and pursued this worldview aggressively.

There is a parallel to Ten31’s founding thesis. In our first published post, we specifically called out that bitcoin will be the future world reserve asset, and we have been pursuing opportunities aggressively to further express this thesis ever since. It is only over the last 12-24 months that this thesis started to become more accepted as a possibility in institutional circles, though it is still a non-consensus view and undoubtedly still early.

Sequoia became an investment platform in its early years by investing in the companies which would shepherd in the future behind their microprocessor thesis, and also supporting the interdependent layers which would be beneficiaries of this secular trend. First it was interactive electronics (Atari), and soon after personal computing (Apple). With the rise of personal computing and proliferation of data, the second order beneficiaries were data management (Oracle) and networking (Cisco). They continued to invest in the enabling companies around the PC and peripherals, including disk drives, printers, and components companies. Sequoia pioneered the ecosystem approach, which has been referred to as an “aircraft carrier” strategy (investing in the ship and everything in its orbit). Sequoia knew these categories were interconnected and would multiply each other's value, meaning the value of individual investments would be much greater when combined in a complementary, synergistic portfolio.

Ten31’s ecosystem approach is similar. We have invested in the essential, interconnected layers of the bitcoin ecosystem, the areas we believe are the building blocks to a new financial and economic system with bitcoin as the foundational reserve asset. This includes bitcoin exchange/brokerage, custody, lending, node infrastructure, energy and mining infrastructure, applications, and security, among other categories. Similar to Sequoia’s early investments, the nature of the companies we back span traditional technology and software, as well as hardware and other categories that do not fit the traditional VC profile. And just as Sequoia's portfolio added value to the rest of its investments, the companies in our portfolio are interconnected by bitcoin's open, interoperable network, enabling multiplicative benefits which have increased over time. This remains a dynamic which is not well understood or appreciated, and difficult to replicate by others without the scale of capital and breadth and depth of industry involvement Ten31 has brought to the market.

Sats Flow Investment Framework

The single biggest contrast between Ten31's approach and traditional venture capital is our focus on investing in sustainable business models we believe can generate “sats flow,” or the accumulation of profits which over time will increasingly be denominated in bitcoin. Traditional Silicon Valley VC has become synonymous with growth at all costs, burning cash, and relying on a money printer world. As the world shifts to bitcoin as a fundamental barometer of value and the future world reserve asset, we understand the days of easy money are over. With it, all economic actors will increasingly gravitate towards a focus on generating (bitcoin) profits in a sustainable way (sats flows), by providing a product or service to the market at a higher price than its costs to deliver. While this won’t eliminate money-losing endeavors, it will increase the urgency to reach a sustainable model, as external subsidies can no longer be relied upon in perpetuity.

This is the underlying philosophy for our investment selection. Every meaningful investment we make must have a strong prospect of generating profits and sats flows in the near term. This is a high bar because bitcoin itself is the opportunity cost. We have to believe an investment can outperform bitcoin, otherwise we would be better off just holding bitcoin instead. At its most basic level, there are only three ways to outperform bitcoin: financial leverage (add risk), multiple arbitrage (buy low / sell high, difficult to underwrite), and sats flow (our focus).

Based on the above, as compared to a traditional VC approach, our approach looks a lot more like a private equity style of investing (which is no coincidence, since that is my professional background for the prior 15 years before co-founding Ten31).

Over 50% of the capital we have deployed is invested in companies expected to be profitable in the next twelve months, and some of the companies we back already provide bitcoin denominated dividends, another core part of our thesis for investment monetization as we move to a bitcoin standard. We have been saying for years bitcoin technology companies could be viewed as synthetic bitcoin miners, with the prospect of producing an ongoing stream of bitcoin income but often with much less capital intensity and competitive pressure as bitcoin miners.

Conclusion

Sequoia didn't identify as being in the venture capital business. They were investing early across the entirety of a technology ecosystem based on a set of principles that diverged sharply from the prevailing wisdom of the time. Sequoia was in the company building business, and to this day their website says “We help the daring build legendary companies.”

We view Ten31’s opportunity similarly. We are not in the venture capital business, we are in the bitcoin adoption business. We are an investment platform, singularly focused on bitcoin, with many ways we believe we can help drive further bitcoin adoption and asymmetric investment performance. We partner with enduring, industry-defining companies that are helping us achieve those goals. We deliberately go against the grain, break the mold of traditional venture capital, and carve our own path.

I explained our ambitions in a presentation during SXSW last year , saying “just as Sequoia made their name early on by supporting a wave of technology adoption and backing many of the companies which became the technology leaders of today, we think there’s a similar opportunity for Ten31 to back and support this new wave of bitcoin adoption, and back many of the bitcoin companies which will become the technology leaders of tomorrow.” We believe the size of the opportunity and the potential impact on the world is comparable to what we’ve seen Sequoia accomplish, and we will be humbled if we can even have a fraction of the impact they’ve had on the world. We certainly believe bitcoin will, and for that it’s worth the effort.

Each digital industrialization decentralizes one domain and centralizes another.  The internet transformed distribution but concentrated value in platforms. AI will transform  access to competence, but consolidate value in the physics that make it possible: energy, compute, and fabrication. Bitcoin affords everyone access to capital, but concentrates credibility in those who steward it wisely and structure it well. That is the pattern of progress. Each industrial epoch begins by collapsing costs and ends by consolidating scarcity that makes the system stable. The internet expanded land with code and made logistics, discovery, and brand more valuable. AI is expanding labor with code and making knowledge, expression, and repetition scalable. Bitcoin solidifies capital into code, making credibility verifiable, fungible, portable, distributable, and finite which results in capital becoming equitable and trustworthy.

Ten31 exists to industrialize capital’s digital transformation. To organize capital and companies for the bitcoin era just as Morgan once organized steel and KKR organized credit. We have backed builders at both ends: those who digitize the constraints, and those who hold the scarce capital that finances them. This is the pattern of digital industrialization: distribution becomes digital land, competence becomes digital labor, and credibility becomes digital capital.

Land

Historically land meant location of ports, rail lines, storefronts, and physical distribution. It was the geography of access, defining reach, moat, and monopoly. An address mattered as much as its machinery. Then the internet transformed digital land and expanded businesses from somewhere in particular to everywhere at once. The mantra “location, location, location” morphed into “access, access, access.” A storefront became a website and billboards became banners and pop-ups. As distribution costs collapsed, firm formation exploded. The barriers to entry fell, but value migrated inward to those who enabled the digitization of the hard constraints of compute, attention, discovery.

Amazon Web Services is the clearest example. AWS turned the fixed cost of compute into a variable cost of growth, collapsing the capex that once gated entry. Facebook converted attention into captured audiences auctioning them off to any business with a budget. Google indexed the world’s information and monetized the route between curiosity and commerce. Each digitized a constraint (compute, attention, discovery) and exposed it as a rentable base for the next wave of builders.

More businesses than ever before, but competition pushed down margins at the edges and consolidated revenues to the centers. A café, a niche brand, a SaaS startup could appear overnight, yet all paid the new landlords of digital land through ad auctions, search rankings, hosting, and fulfillment. Abundance at the edge, consolidation at the core. Scale accrued to those who industrialized reliability, brand, and delivery. That was the first digital transformation: the digitization of land. When distribution was assisted by code, geography mattered less, and now competence itself is undergoing the same transformation.

Labor

Large language models and embodied systems are digitizing competence. The cost of knowing how to do something (write, code, design, model, simulate) will converge towards the marginal cost of electricity. Copilots have made “good enough” ubiquitous, allowing excellence to expand and collapsing the requirements needed for analysis and, in short order, production in the physical world. As access to competence becomes abundant, value consolidates wherever physics defends the margin. Scarcity now lives in the systems that make digital labor real: semiconductors, fabs, energy generation, cooling, data centers, robotics, logistics, and safety certification. These are slow to build, capital-intensive, and defended by regulation and time. Firms that master these constraints will define the infrastructure of the embodied economy.

NVIDIA is an obvious example that delivers proprietary software freely, but because they control the data center stack that others depend on (chips, ethernet switches, compilers, supply chain) its margins today are protected by atoms, not code. The same logic will apply to humanoid robotics, grid interconnection, and power distribution. Abundance in competence creates scarcity in energy, hardware, and manufacturing throughput as demand increases and supply lags. At the edges, the inverse dynamic unfolds. Cheap competence enables an explosion of new businesses: AI-enabled artisans, autonomous service operators, local integrators who deploy robots for specific environments. They will multiply as digital storefronts once did. Millions of small operators customizing generalized capability to unique contexts. They will compete with each other to thin margins, but they will push productivity to the limits of human imagination.

This is the new division of labor: centralization where physics and capital intensity defend margin, decentralization where creativity and service chase proximity to the consumer. The majority of economic value accrues to those who solve the hard constraints that make abundance possible (chips, energy, robotics, infrastructure) while the abundance itself spawns millions of edge participants. And as AI makes skill abundant, bitcoin will make credibility valuable through finite scarcity consolidating trust.

Capital

If digital land lowered the cost of distribution and digital labor lowers the cost of competence, then digital capital lowers the cost required for trust resulting in credible finance. Bitcoin solidifies credibility at its core becoming digital capital as a monetary good with finite supply, global portability, instant settlement, and neutral governance. Bitcoin introduces true scarcity as no one can ever create more. It is not software in the traditional sense, it is monetary infrastructure hardened into a global protocol, secured by rules that no actor can change which forms a truly global equitable playing field.

This is not partisan ideology or rhetoric, it is equilibrium. In a world of abundance, finite scarcity provides balance. Capital, the lifeblood of an economy, allows land and labor to coordinate and scale when the cost of trust does not expand. When capital is unstable, everything built atop it inherits that instability. A century of credit expansion blurred the link between productivity and price, distorting market signals. Debts swelled on the assumption that money would be cheaper tomorrow than today. We adopted the procrastinator’s creed deferring work, investment, and repair because when money is infinite time no longer matters.

Bitcoin restores time to money. It reintroduces scarcity to capital and anchors growth in credibility rather than limitless credit. It lets firms store earned energy equitably as a bearer asset, finance expansion with reduced counterparty risk, and settle instantly across the world. It collapses the cost of trust towards zero as anyone can hold it, no one can print it, and everyone can verify it, thus enabling a new era of credible finance. That is the meaning of digital capital. Not a speculative asset, but a public monetary good, which is stable ground for a world learning to value time again.

Ten31: Industrial Capitalists of the Digital Age

Ten31 invests where bitcoin meets production. Where energy, storage, compute, and security intersect with the neutrality of digital capital. We began with plumbing: Unchained securing custody, Strike moving value, Fold integrating commerce, and Mempool illuminating the chain. Each solved an institutional constraint and became new ground for others to build upon.

The next wave will not just use bitcoin but operate on it, treating bitcoin as both capital and operating infrastructure. Satoshi Energy pairs large energy loads with HPC and settles power invoices by the minute utilizing lightning. AnchorWatch insures custody for mitigating risk. Battery Finance pairs bitcoin with real-world collateral. Others will finance current projects by issuing bitcoin preferred shares and convertibles, raise dual-collateral loans, and use sat-grants as equity incentives. Their advantage will not come from speculation but from lowering costs versus peers still tied to debasement. Just as AWS abstracted compute, Google discovery, and Facebook attention, bitcoin abstracts credibility. Now that credibility is open source, the advantage shifts to those who can structure and steward it well. The optimal strategy is clear: exchange a small portion of today’s equity for digital capital while the option remains mispriced. The future belongs to those who preserve rather than print, whose assets appreciate in credibility as their operations scale.

What has emerged from Ten31 is not a portfolio but a compounding network effect . Compute, custody, energy, payments, and data infrastructure are converging around a single monetary truth: credibility is the final scarce resource. In a world where distribution and competence are abundant, the quality of capital decides who wins. The old economy was built on leverage against insider favors, while the new one will be built on equitable digital capital. Bitcoin does not replace market forces, it transforms them. It removes discretion that corrodes trust and replaces it with rules anyone can verify, thereby creating more trust than any policy regime can enforce.

The companies and capital allocators that understand this shift will not merely survive it, they will institutionalize it and thrive.

To be right early is not a victory, it is a sentence. A conviction to the fidelity of reality before consensus forms, and the consequence of being right is exile until the world catches up. The person who grasps the deeper order bears the “long solitude” of clarity, watching error (memecoins) flash, fashion (NFTs) parade as wisdom, and the scoreboard of tokenomics flatter the wrong team. Bitcoiners know this solitude. We began on different paths and did not arrive at a simple trade. We arrived at truth: money is a public rule set, not a government promise. Time preference disciplines civilizations, and credibility grows where issuance by decree cannot. The gestalt we embody is less a mood than a resolute structure resistant to the siren temptations of temporal fashion. Bitcoiners learned to endure the derision that greets those who do not conform and that protects complex, profitable back-room arrangements. Ten31’s portfolio companies know the burden of being right early: keep working in the face of “you’re wrong,” keep warning while others wave you aside.

History’s rhymes anchor the claim for those who see the shift in consciousness before its diffusion. Galileo’s sky did not rearrange itself when the court denied it. A retraction could not retroactively move the planets. Truth was not partisan, it was celestial. Likewise, the intolerant minority’s pursuit of happiness (virtue and liberty) set in motion the society we inherit. These episodes share a structure: individual clarity precedes social consent, and the ledger of reality eventually closes the debate. Bitcoiners live inside that structure. We accept that ridicule is a lagging indicator of reality’s return. We accept our warnings sound self-serving when the status quo is short-term profitable. We accept that knowledge with grassroots power must be patient. And we accept that patience without work is mere posture. So we build: nodes , networks , wallet tooling, insurance , mining infrastructure , custody hardware , and education . A scaffolding for a future that will call it obvious.

In a world addicted to “because I said so,” bitcoin replies, “because it was done.” The protocol waits without complaint, producing a new block every ten minutes on average, indifferent to narrative cycles and immune to editorial mood. Simply, tick-tock next block . Bitcoiners learn from the machine we steward. We withstand volatility because we understand what volatility is doing: transferring value from the impatient to the patient. We refuse the easy path that flatters, because the protocol does not flatter: it records. In our small way, we become the immovable object, standing while tides of fashion, fear, and inducement break and retreat. This is why being right matters, and why bitcoin lengthens time horizons for those who adopt. It gives builders room to make sovereignty usable. Start9 envisioned a world run by users and forged StartOS from the grit to refuse the present circumstance. A new operating system for today that can wrestle tomorrow’s problems. Now any person or business can run their own server, host their own data and websites, and depend less on distant intermediaries, returning power to the individual. Bitcoin is the engine that finances, authenticates, and inspires such tools. StartOS exists because it was done.

Vindication, when it arrives, arrives as function, not applause. From the jungle, bitcoin’s keys unlocked a different path in nostr . Primal , built on nostr, with a force-multiplier in bitcoin-native zaps: monetary truth that rewards effort in a way that is frictionless and uncensorable becoming unstoppable. The “I told you so” need not be spoken. It is measurable: reduced counterparty risk, transparency, finality that does not ask permission. And now it is visible in the field. A Start9 server replacing middlemen beholden to anyone but the user, an Upstream Data Hash Hut turning stranded molecules into persistent revenue. The gain bitcoiners seek is not merely asset-based, it is civilizational. Money and communication that cannot be gerrymandered lower the temperature of politics and ignite the flame in man. Property anchored in work rather than favor restores the link between effort and outcome. A society that cannot print its way out of choices must choose more carefully. None of this requires utopian claims. It requires only time:  reality, at length, rewards systems aligned with physics and punishes those that rely on persuasion to contradict it. Bitcoiners did not predict the future so much as refuse to pretend about the present.

The builders continue, eyes fixed on horizons not yet seen. We will not reach the stars with yesterday’s ladders. Tomorrow’s solutions are built by those who endure exile while the world catches up. Most will fixate on bitcoin as a price on a screen. A few will recognize a pursuit worth the effort where incentives are aligned, time preference honored, rent-seeking constrained, and truth cheaper than deceitful bondage. This is why being right matters: not to win arguments, but to enable a world worth inheriting. Soon enough, an unsatisfied engineer, developer, or entrepreneur will read a white paper as we once did and choose their tool to create so we may reach higher still. We are right, and we are patient, because what is worth having is not built by opportunists. It is built by those who accept the long solitude that conviction affords until it becomes, for everyone else, common sense. Then we will point to the work and say- it stands because it was done.

States begin as stories. Before there are buildings, flags, or budgets, there is a shared narrative about who we hope to be, what we should expect from one another, and which rules merit our consent. The American story was spoken into being before it was built with Thomas Paine instilling “we have it in our power to begin the world over again,” a sonnet at the harbor promising a fresh start to the tired and poor, a public debate informing citizens factions would always arise and to control their effects and to bind power with words where ambition checks ambition . America’s pattern of inception is repeatable: people tell a story, that story hardens with consent into a written charter, constitution , and only then do the visible structures coalesce into institutions, law, and civic culture.

Bitcoin is a constitutional order written in code and sustained by consent. One protocol, many software states. State represents both government and software: in government, a constitution that converts consent into authority, in software, the live version of a program, the rules and data we abide by. Because constitutions begin as stories, not structures, definitions come first. They decide whether effort compounds or is diluted, whether property is possessed or permissioned, whether terms can shift under our feet mid-game. Bitcoin doesn’t abolish tyranny or end politics. Bitcoin shifts incentives so good behavior scales and rent-seeking flames out, it honors effort by refusing debasement, it stabilizes meanings so rules don’t decay into favors. Because the rulebook is public, any citizen can verify a claim without a gatekeeper. Satoshi set this path in motion, millions have chosen to walk it, and billions will follow. Bitcoin’s hope endures because it is simple: with better rules, ordinary people can trade tyrannies for tools and in the spirit of Thomas Paine, begin again.

Every release of bitcoin core and every compatible implementation like bitcoin knots, libbitcoin, or btcd is a software state. Some citizens upgrade early or not at all, while others wait. Defaults vary and tooling differs. Yet the federation holds because the constitutional core is a shared set of rules that make a transaction valid. Upgrades add clarity, utility, and constraints. They are proposed in public, adopted voluntarily, and enforced at the edges by those who consent to that specific state. No single authority decides for the rest. A growing number of nodes, the local courthouses of this union, adjudicate the valid and reject the invalid blocks, regardless of who mined it or the self-serving views of any given constituency. That is federalism without a map. One charter with many states all interoperating in a single union.

When a story like this is believed, it unlocks humanity’s shackled past. The words entice those willing to venture for a better tomorrow to where freedom to transact is born and then thrives. The new federal union needs bridges and markets where people interact, and the most valuable builders are the ones who translate constitutional hope into daily use. Companies like Mempool.Space show how radical transparency becomes a civic utility. Anyone can search historical transactions and confirmed blocks, estimate fees, see the auction queue for scarce blockspace, and accelerate their transaction when needed. Their purpose isn’t theater, but to create a space for open auditability that safeguards the fairness of the rules themselves. Ten31 proudly partners with Mempool.Space because a more visible state is a trustworthy state and trust builds as verification compounds. A story that can be seen is a story that can be more easily shared.

Access is the next chapter. A union is only as strong as its ports and roads. Strike is building one such network of cyber-roads, a global bridge to bitcoin financial services where bitcoin’s growing population can earn and borrow in local currency, move through bitcoin’s rule-bounded rails, and settle often in a different currency while curbing the influence of excessive middle men siphoning off value. The promise is not volatility-free comfort, it is clarity. A path where value does not fade mid-route. Ten31 partners with Strike because bridges empower citizens with choices, not confinement. Access is how a constitution creates a market.

Households need a way to make the story their own. Fold meets people where they live today and not just where they are going. Familiar consumer products convert what would be ephemeral points into sats, turning rewards into savings that don’t wither with policy drift or corporate edict. The interface stays simple; the connection gets stronger. Ten31’s partnership with Fold is because confidence scales when ordinary families can store the fruits of their work in a unit that does not quietly leak. Households are where constitutions ultimately succeed or fail and the personal balance sheet matters in order to drive success.

The United States of Bitcoin, our running versions and diverse implementations, do not erase disagreement. They channel it into voluntary coordination. The bridges and markets do not guarantee easy times. They guarantee clearly defined rules and access points for those to freely enter. The citizens who freely choose to enter or exit are the shopkeepers and students, refugees and retirees, founders and families. People for whom the phrase “begin again” is not a slogan but a seed of hope. Ten31 exists to help access to bitcoin become ordinary. We back builders who make the software state legible (you can see it), accessible (you can reach it), and livable (you can use it without excessive friction). If you want in: educate yourself, acquire some bitcoin, use tools focused on bitcoin, support the builders who work tirelessly for the cause. Bitcoin is here and its global adoption moves forward relentlessly every 10 minutes: tick-tock next block. Between those motions is a freedom sturdy enough for families and ambitious enough for us all. The story is just starting and your authorship is waiting. Like Thomas Paine and the Founders, with the pen in our hands, it's time to begin again.

Author’s Note: This piece is intended to be an approachable summary for mainstream readers and capital allocators evaluating bitcoin, and it may be updated over time as new technological advancements are made. We would like to thank Adam Back and Hunter Beast for their technical review and feedback.

As the largest investment platform focused on bitcoin, we field questions about bitcoin every day, and there are a handful of concerns that are common to almost everyone exploring the space. Most of these have been pretty clearly addressed just by the natural course of history; for example, every year that bitcoin maintains its massive lead in network effects, resilience, and value accrual relative to the rest of “crypto,” it’s progressively clearer why bitcoin can’t be easily copied or outcompeted, and every failed government ban of bitcoin – or more recently, various governments’ pivots to embracing bitcoin – only further cement why “the government will ban it” isn’t a strong bear case. But one long-running concern we frequently hear that is harder to quickly dispel at this point in bitcoin’s history is the potential for advances in quantum computing to eventually compromise bitcoin security in some critical way.

This concern has recently been in focus once again thanks to the announcement of Willow, Google’s newest quantum computing chip. The Willow chip represents a noteworthy step forward in the decades-long process of building a quantum computer that can eventually perform practical applications like compromising the public-key cryptography securing many systems including bitcoin, so its arrival has predictably inspired the latest round of bitcoin obituaries. However, while Willow shows impressive progress on some key dimensions, the journey toward a cryptanalytically relevant quantum computer (“CRQC”) – that is, a quantum computer that can threaten modern cryptography – remains in its infancy with many massive hurdles still to overcome, and recent updates are unlikely to alter existing timelines for quantum computing development. Meanwhile, this issue is far from unknown to bitcoin developers, and a variety of potential mitigating solutions are already available today. All the same, the progress of quantum computing could certainly accelerate from here, so it’s worth developing a clear idea of how a sufficiently scaled quantum computer could ultimately affect bitcoin and how the network might be able to respond.

Some Very Brief Background

Before diving in, it may be helpful to briefly review some key premises built into most modern digital security systems, including (but not limited to) bitcoin. Modern cryptographic security relies on various forms of assumed “computational hardness” – that is, the assumption that certain math problems are complex enough to be effectively infeasible for conventional computers. One example is the discrete log problem, which posits in simplest terms that it is extremely difficult to determine the solution to log_b(a) when a and b are very large prime numbers.¹ Application of this problem to an elliptic curve allows for elliptic curve cryptography, an iteration of which underpins the generation of bitcoin’s public/private key pairs and the signature algorithm used for most bitcoin transactions (Elliptic Curve Digital Signature Algorithm, or ECDSA). This system rests on the fundamental asymmetry of “one-way functions”: it is trivial to produce and validate a signature for a public key (a particular point somewhere on the elliptic curve) if its private key (a randomly generated value) is known, but the discrete log problem makes it prohibitively difficult to reverse-engineer that same private key if only the public key is known.

This problem is difficult enough that there is no better approach for classical computers than guessing and checking many potential solutions for the private key – also known as “brute forcing” – but this is still practically infeasible even for the most advanced conventional supercomputer. Since a bitcoin private key is a 256-bit number, there are 2^256 or approximately 1.1 x 10^77 possible alphanumeric combinations in bitcoin’s keyspace, a figure roughly comparable to the number of atoms in the entire observable universe.² For the best known conventional algorithms, the difficulty of breaking a 256-bit key is the square root of the keyspace size (2^128 in this case),³ so if the world’s fastest conventional supercomputer were to focus solely on cracking a single bitcoin private key, it would need roughly 2 x 10^20 seconds, or 6.2 trillion years. For those keeping score at home, that would amount to ~450x longer than even the estimated age of the universe (~13.8 billion years).⁴ A graphic from Jameson Lopp may help to illustrate the scale we’re dealing with:

There are some proposed solutions for solving the discrete log problem efficiently, the most notable of which is Shor’s algorithm. However, all such approaches are untenable with conventional computers and explicitly rely on the development of a CRQC, whose basic computational units are known as “qubits.” In contrast to the binary “bits” familiar to users of conventional computers – which can only be in a 0 or 1 state at any given time – qubits can exist in a “superposition” of both states simultaneously and can be “entangled,” meaning the 0/1 state of different qubits can be directly linked regardless of their proximity to one another. Taken together, these properties could support greater processing power and more efficient parallel processing, potentially allowing a quantum computer to process many possibilities at once and (among other things) solve Shor’s algorithm exponentially faster than even the fastest classical supercomputer.⁵

Among the many issues that have historically plagued the development of this new mode of computing is the notorious difficulty of error correction to make a quantum computer’s operations reliable, particularly when scaling a quantum chip up to the sizes necessary for any kind of practical application. This was why Google’s recent announcement grabbed headlines: whereas prior attempts had shown worse errors at larger sizes, Willow is the first chip to successfully demonstrate exponentially better error correction with bigger qubit lattices, suggesting the eventual feasibility of practically scalable quantum computing hardware and, in turn, potential progress toward challenging the computational hardness assumptions baked into modern cryptography.

While practical quantum computing still has many hurdles ahead of it, bitcoin in its current form could be vulnerable to a CRQC attack in a few ways. At the highest level, bitcoin relies on two key cryptographic algorithms for most of its security: the previously discussed ECDSA, which generates keys and signs transactions, and SHA-256, which helps to generate addresses and is the core algorithm used in bitcoin mining. The latter would be much more resilient against even a very advanced quantum computer since Grover’s algorithm, the best known quantum approach for breaking SHA-256, only provides a quadratic advantage (rather than an exponential one), meaning such an attack would still likely be computationally infeasible even for a quantum computer.⁶ Bitcoin mining also has other defenses against a CRQC, including the sheer scale of network hashrate that a quantum computer would confront when attempting disruptive attacks, the difficulty adjustment, and changes that could be applied to mining’s underlying Proof of Work function to compensate for quantum miner participation.⁷ As a result, ECDSA would most likely be the first or only target of quantum computing attacks, and that will be the primary focus of this piece.

Putting Concerns in Context

Google’s Willow clearly represents a noteworthy milestone in the long history of quantum computing and has understandably reignited concerns about existing cryptographic systems like bitcoin that secure the world’s data and financial assets. That said, before prematurely declaring bitcoin dead yet again, it’s important to properly frame the actual impact of the announcement and its potential implications.

This is not a new concern. Anyone not following either bitcoin or quantum computing closely may be tempted toward a kneejerk view that Willow represents a previously undiscovered vulnerability to cybersecurity. But contrary to recent headlines in outlets like the Wall Street Journal which bizarrely claim that quantum computing has not been on anyone’s radar until now, this issue has been deeply analyzed by bitcoin enthusiasts for over a decade. The question of quantum computing was discussed in depth on bitcointalk.org at least as early as 2010, with specific discussion about vulnerabilities in bitcoin signatures as early as 2012. (As an aside, this is a good example of the rule of thumb that any concern one may have about bitcoin was already discussed at length on bitcoin web forums over 10 years ago.) More broadly, this risk is something cryptography experts well beyond bitcoin have been considering for decades, and there are already several quantum-resistant cryptography implementations available for deployment in bitcoin and elsewhere (discussed in greater depth below).

Bitcoin should be among the least of one’s worries. Virtually every sensitive system in the world – including bank and brokerage accounts, health records, personal identity information held by companies and governments, etc – relies on some form of asymmetric computational hardness for security, so any fears about quantum computing’s long-term impact on bitcoin must extend to these targets as well. While it’s possible that bitcoin’s ECDSA signatures may be more vulnerable to quantum attacks than the RSA-based cryptography that protects many other systems (though even that is up for debate), it’s safe to say that if ECDSA were ever cracked by a quantum computer, other frameworks would not be far behind. Moreover, while bitcoin would be a highly valuable target, the aggregate value of bank and brokerage accounts in the US alone still dwarfs bitcoin’s ~$2 trillion market cap by many multiples, making legacy systems a much richer prize.⁸ While it’s conceivable that a state actor not motivated by profit could covertly develop the first CRQC (or that they already have), such an actor would likely be reluctant to tip its hand by targeting bitcoin before first disrupting more strategically valuable targets like legacy banking rails or government intelligence databases. The upshot here is that it would be an internally inconsistent view to avoid bitcoin due to quantum computing risk while opting to store wealth in systems that would be both just as vulnerable and likely more attractive targets to both private and state actors.

Practical applications of quantum computing still have a long and uncertain road ahead. While Willow showed a breakthrough in its ability to successfully reduce error rates at larger qubit grid sizes, the quantum computing field still faces significant hurdles to reaching practical viability for applications like breaking traditional cryptography. These challenges include:

• Logical qubit capacity: Given the instability and error frequency of quantum computers, a critical variable in this field is the relationship between “physical qubits” (the actual hardware components built into a chip) and “logical qubits,” which are the error-corrected results of many physical qubits interacting. For example, Google’s Willow chip uses up to 105 physical qubits to produce 1 logical qubit that would be useful for quantum algorithms and computations. Other systems like the H1 processor developed by Microsoft and Quantinuum have produced 12 logical qubits with only 56 physical qubits, though this system has not shown exponentially improving error rates at larger grid sizes like Willow.⁹ These figures are noteworthy because various estimates suggest breaking the 256-bit ECDSA that secures bitcoin private keys would require something north of 2,500 logical qubits , several orders of magnitude above what the bleeding edge technology can produce today.¹⁰ While Willow’s exponentially declining error rates could be a foundation for building toward this level, it’s still far from clear if the chip’s error correction effect could be scaled sufficiently to allow for arbitrarily large logical qubit values, particularly as physical lattices get much larger.

• Stability and coherence time: Closely related to error correction is the need for systems that can maintain quantum coherence – the stable state in which useful quantum operations are possible – for longer periods of time. Better coherence times can improve error correction and effectively boost the “yield” of a system’s physical qubits, but coherence is fragile and can be easily disrupted, hence the need for highly controlled environments, and the longest recorded coherence times for general purpose superconducting chips like Willow are still measured in microseconds, or millionths of a second.¹¹ The Willow chip recorded a coherence time of ~68 microseconds, which was a 5x improvement vs Google’s prior-generation chip but still well short of even the most optimistic estimates for the minimum coherence time needed to solve the discrete log problem. For instance, one estimate from 2020 suggests a quantum computer would need at least ~11 full seconds of coherence under absolutely ideal conditions to execute Shor’s algorithm, representing a more than 100,000x improvement vs Willow’s current coherence time.¹² Given the practical constraints associated with quantum computing (e.g. time needed for error correction, measurement, processing of results, etc), this coherence estimate is still likely optimistic, and it’s important to note that actual required runtimes to break a private key even in this ideal state would probably be closer to one hour at minimum (which, as we’ll see, may be prohibitively long for many potential attacks on bitcoin).¹³

• Physical scaling constraints: Recent estimates have suggested something like 317 million physical qubits would be needed to crack an ECDSA private key within an hour or 13 million within a day – the most relevant time thresholds for bitcoin, as we’ll see below – highlighting just how physically demanding this process would be in practice.¹⁴ While ongoing improvements in error correction and coherence could reduce the absolute physical qubits needed to reach critical logical qubit thresholds, practically operating a system anywhere near this scale would still require, among other things: a huge physical footprint; precise control of extremely low temperatures; advanced interconnectivity and control systems; and extremely granular fabrication processes for all the key components, which would be even more delicate than the notoriously complex manufacturing process for traditional semiconductors.¹⁵ And that’s all before considering the power consumption of operating such a system, which various estimates peg at something like 100MW, or roughly the capacity of a small combined cycle power plant.¹⁶ Even assuming progressively better ancillary technologies for things like temperature control and interconnectivity, practical quantum computing will likely remain an extremely physically complex and capital intensive proposition for many years, a major hurdle for aspiring attackers (particularly since, as we discuss in more depth shortly, the energy cost for any such attack would scale linearly with the number of public keys targeted).

• Real-world applicability: A frequently hyped element of the Willow announcement was the chip’s five-minute completion of a benchmarking test (Random Circuit Sampling, or RCS) that would take classical computers 10 septillion years to perform. A quick glance at this result could lead a casual observer to extrapolate that Willow either already has surpassed or will soon surpass classical computers in the performance of everyday applications, but this would be a serious misconception. The RCS benchmark has no real-world applications, but rather was specifically designed to be infeasible for a classical computer while accentuating the strengths of a quantum computer to determine if a quantum chip can successfully perform a conventionally infeasible operation – basically a kind of go/no-go checkpoint for a quantum chip’s progress. While clearing the RCS benchmark was a noteworthy milestone and a precondition to eventually moving to practical applications, this test alone doesn’t tell us much about the probability that Willow will be able to perform real-world tasks anytime soon.

This wide array of hurdles helps explain why Google’s Quantum AI director noted in the wake of the Willow announcement that breaking modern cryptography is “at least 10 years away” and that the new Google chip doesn’t change previously established timelines at all. Similarly, Nvidia CEO Jensen Huang recently projected that we’ll need roughly another 20 years to achieve useful quantum computers.

Bitcoin’s Potential Vulnerabilities

All those significant caveats aside, it’s still no doubt disconcerting to think that bitcoin could one day be stolen by a quantum attack through a compromise of the signatures that secure bitcoin balances. However, it’s important to note that such a scenario could only take place under very specific circumstances, even assuming the emergence of a practical and cost-effective CRQC. There are four potential quantum vulnerability scenarios for bitcoin’s ECDSA signatures, each of which in some way involves revealing a public key to the bitcoin network – without that critical information, no form of quantum attack on bitcoin private keys would be possible.

• Obsolete addresses: Bitcoin’s very first address format¹⁷ was known as “Pay-to-Public-Key” or “P2PK.” Whereas later address types pay bitcoin to the hash of a public key or a redeem script, thereby hiding this sensitive information about the recipient from the network, P2PK addresses receive bitcoin directly to, as the name suggests, an exposed public key. Such addresses would be vulnerable to a CRQC because they give an attacker the starting point they would need (i.e. the revealed public key) to make an attempt at reverse-engineering the associated private key. These addresses have been effectively deprecated for more than a decade, and no modern wallet software generates them, so this category is not applicable to the vast majority of bitcoin holders.¹⁸

  That said, roughly 8% of bitcoin’s total supply currently sits in very old P2PK addresses, including about 1 million bitcoin commonly attributed to bitcoin’s creator Satoshi Nakamoto. Since this address format is theoretically the most vulnerable to a quantum attack and most of these addresses contain 50 bitcoin (~$5 million at time of writing), these balances would likely be the first to be targeted, thereby alerting the rest of the bitcoin network to the potential arrival of a CRQC. This protective effect for later address types has led some developers to term these coins “Satoshi’s Shield.”

• Taproot addresses: While most address formats introduced after P2PK encode the critical receiving information within a hash, Taproot (P2TR), bitcoin’s most recently introduced address format, also uses exposed public keys. Uptake of this address format is still nascent and many wallets still have yet to build out support for P2TR, so these addresses currently secure <1% of bitcoin’s supply. That said, Taproot addresses could also offer one potential upgrade path for bitcoin users to relatively seamlessly transition to quantum-resistant addresses if that becomes necessary down the road (discussed more below).

• Re-used addresses: While bitcoin held in post-P2PK and pre-Taproot addresses that have never sent any transactions benefit from hidden public keys, that protection disappears when coins from those addresses are first spent. Spending from any address type requires revealing the public key for that address, so any users concerned about quantum safety should be sure to not receive any bitcoin to addresses that have already sent a transaction. This is the category that could most realistically impact the widest array of bitcoin holders if a CRQC were to be developed, as estimates suggest something like 50% of bitcoin are currently held in re-used addresses.¹⁹ However, any risk here can also be easily eliminated by simply avoiding address reuse, which is a best practice for many other reasons and is already the default behavior of most wallets.

• “In-flight” transactions: The least likely but most potentially concerning vulnerability for bitcoin in its current state is the possibility of recently broadcast transactions being “sniped” by an attacker while awaiting confirmation in bitcoin’s blockchain. Since spending bitcoin from any address type requires revealing a public key, a sufficiently powerful CRQC could potentially scan mempools for valuable “in-flight” transactions and reverse-engineer private keys for the associated addresses before transaction confirmation. This would be the most problematic quantum attack as it would make any bitcoin transaction inherently very risky, but it would also be far and away the most difficult for an attacker to execute given bitcoin’s relatively short blocktime – new blocks are confirmed, on average, every 10 minutes, so a CRQC would need to be powerful and fast enough to reliably crack private keys in that window. This would be a very high-risk proposition for an attacker, as any energy expended in the attempt would be an irrecoverable sunk cost should the attack fail (the same game of chicken faced by dishonest bitcoin miners today). Meanwhile, pending significant improvements in parallelization, any quantum attack would only be able to break one public key at a time, so the energy expenditure required for more attacks would scale linearly with the number of attacks performed (that is, 100 public keys targeted would require roughly 100x the energy cost), further disincentivizing attacks on all but the most valuable transactions.

The key takeaway here is that, contrary to the impression fostered by much of the mainstream commentary on this topic, any bitcoin stored in a single-use address employed by most modern wallets could not be compromised even by an advanced quantum computer , and anyone with bitcoin in a reused address can gain robust security against most conceivable quantum attacks with some fairly trivial UTXO management. Even in the “in-flight” scenario and assuming no changes to bitcoin, attackers would face an incredibly high bar with a potentially unattractive risk-reward skew in most cases.

How Could Bitcoin Respond?

When considering both the hurdles still facing practical quantum computing and the various ways that much of the risk to bitcoin can already be mitigated even with no changes to the network, it should be clear that sensationalized headlines about bitcoin’s security are overblown. All the same, if bitcoin is ultimately expected to store hundreds of trillions in global wealth for centuries, it’s reasonable to look for ways to improve security over time for progressively greater assurances against even the most unlikely left-tail risks. Moreover, the National Institute of Standards and Technology (NIST), which sets US cybersecurity standards, recommends all systems upgrade to quantum-resistant cryptography by 2035, and an application of Moore’s Law to quantum chips would suggest critical qubit thresholds could be reached around 2040, so it’s undoubtedly prudent to consider potential upgrades before these dates (particularly since quantum development could accelerate even more rapidly from here).²⁰

Fortunately, there are already three NIST-approved quantum-safe algorithms that could lay the foundation for better security both in bitcoin and digital systems more broadly. All of these options are available for production and practical application today, and there are other implementations in development that will likely also play a role in the future. Meanwhile, since this issue has been discussed among bitcoin developers for some time, there are already several proposals at various stages of maturity that could be deployed to enhance bitcoin’s resistance to theoretical quantum attacks. Probably the most developed proposal is Hunter Beast’s BIP-360, which includes support for two of the NIST-approved quantum-safe algorithms and two others. This upgrade would add a new address format called P2QRH (“Pay to Quantum-Resistant Hash”), which, like most modern address formats, would hide each address’s public key within a hash. While these addresses would still reveal public keys at the time of spending, that information could not be used by a CRQC to reverse engineer private keys as part of an “in-flight” attack since P2QRH’s key pairs would be generated with quantum-safe algorithms. BIP-360 comes with some trade-offs, including the larger size of its quantum-resistant signatures and the fact that its implementation would require a soft fork (and thus a good deal of consensus-building among bitcoin users), but it could be a valuable foundation to future-proof bitcoin for the very long term.

Of course, it’s likely that best practices in this field will evolve as our understanding of quantum computing develops, and the quantum-safe primitives we have today would no doubt benefit from more real-world stress testing. These points are potentially an argument for moving cautiously with any bitcoin upgrades to avoid creating technical debt that swiftly becomes obsolete as quantum-safe cryptography matures. To that end, the ecosystem could also explore earlier-stage constructs like the ideas suggested by bitcoin veteran Matt Corallo in this recent bitcoin developer mailing list thread, which would leverage the existing capabilities of bitcoin’s recent Taproot upgrade to enable alternative, quantum-resistant spending conditions that could be used as emergency fallback options if CRQC development dramatically accelerated. Elsewhere, pseudonymous developer Conduition has also published a more fleshed out proposal that may be worth consideration. Notably, neither of these paths would require soft forks today , delaying both the need for consensus-building and costly on-chain transactions to move to quantum-safe addresses until a quantum threat is closer and more fully defined. Additionally, these paths could allow for greater flexibility into the future as the cryptography sphere further researches and builds out post-quantum algorithms. We encourage interested readers to take a deeper dive into these proposals, and we note this is not an exhaustive list of proposed solutions that could be deployed.

This discussion is not as an endorsement of any particular path, but simply an illustration that even in a downside case, the emergence of CRQCs would not be an intractable problem that bitcoin couldn’t solve. In fact, bitcoin is probably better suited to tackle this problem than the vast majority of software stacks protecting the rest of the world’s data. As a monetary network based on an endogenous digital bearer asset rapidly accruing value, bitcoin offers an embedded incentive for those working on it to move quickly and decisively if necessary to protect the project’s significant embedded value, a dynamic less likely to animate most government and corporate cybersecurity teams. Meanwhile, as an open source project securing ~$2 trillion in wealth, bitcoin is one of the most scrutinized and battle-tested pieces of software in the world and has attracted some of the world’s best developer talent to maintain and improve upon it, a claim few banking IT departments can make.

Conclusion

As with any legitimate risk, it would be misguided to completely dismiss the long-term potential for quantum computing to disrupt bitcoin and most other cryptographically-secured systems. On balance, though, the significant hurdles still facing quantum computing, the likely timelines needed to reach practically relevant quantum computers, and the various upgrade paths already available for the world’s digital infrastructure collectively suggest that progress toward a CRQC is not presently an existential bear case for bitcoin (and if it is, as discussed before, then it’s an even greater bear case for legacy financial rails and securities markets). But for readers who may still find themselves on the fence due to the complex, black-box nature of this field of study – and especially for those readers who have delayed an allocation to bitcoin because of this concern – it may be helpful to reduce this question to a simple expected value calculation. The table below shows that even if we apply extremely high probabilities to existential quantum risks for bitcoin, the probability-weighted upside to bitcoin’s current price would still imply 10-50x+ appreciation from here.²¹

This is obviously an illustrative, oversimplified binary, but it distills an important point for anyone still on the sidelines because of quantum computing risk. If any version of the bitcoin bull thesis proves correct, the asset is likely to continue capturing an appreciable percentage of the world’s total wealth, leading to substantial price upside from here (we recommend The Bullish Case for Bitcoin and Gradually, then Suddenly as refreshers on this view). Even if we were to apply a 50% chance of a sudden advanced quantum attack that sends bitcoin’s value to zero literally overnight – a probability which seems several orders of magnitude too high given everything we’ve covered in this piece so far – bitcoin at ~$100,000 is still extraordinarily attractive on a probability-adjusted basis. The development of quantum computing warrants close monitoring, but in any fair analysis, it should not be a barrier to owning bitcoin.

¹ For example, the result of this function where a = 8 and b = 2 is 3 because 2^3 = 8. This is easy to determine when these values are small composite numbers (even without a calculator), but becomes exceptionally difficult when a and b are both sufficiently large prime numbers (even for a conventional supercomputer).

² See Mastering Bitcoin and this lengthy Bitcoin Stack Exchange discussion for sources and additional detail.

³ See Pollard’s Rho algorithm as an example of one of the best known conventional computer algorithms that would only provide a quadratic speedup for an attacker.

⁴ Result based on 128-bit security, which gives 3.4 x 10^38 searchable keys divided by 1.7 x 10^18 guesses per second = 1.95 x 10^20 seconds or 6.2 trillion years required. It’s worth noting that the operations necessary to brute force a private key are more complicated than the simple floating point operations for which the fastest supercomputers are optimized, so in practice this process would most likely take even longer than reflected here.

⁵ This primer from Scientific American offers a longer discussion of these concepts.

⁶ See Cisco Systems, 2017 for more.

⁷ See Ten31’s discussion with Matt Corallo on this topic from December 2024.

⁸ Per the Federal Reserve, US commercial bank accounts collectively hold ~$18 trillion, while Vanguard and Charles Schwab alone hold ~$20 trillion in total client assets.

⁹ Microsoft and Quantinuum announcement, September 10, 2024.

¹⁰ Kudelski Security Research, 2021.

¹¹ Other approaches like trapped-ion quantum computing have shown much longer coherence times, but usually at the expense of computation speed or lack of scalability to multi-qubit architectures required for practical quantum computing tasks.

¹² University of Surrey, 2020. See calculations and discussion on pages 6-7.

¹³ Microsoft Research, 2017. See table and discussion on page 21.

¹⁴ AVS Quantum Science, 2022.

¹⁵ See this overview from McKinsey and this 2024 research paper from various industry professionals for more detail on quantum computing’s physical scaling challenges.

¹⁶ See estimates for quantum computing power consumption here and here.

¹⁷ For the purists, P2PK is technically not an address format at all since the whole point is it doesn’t generate an address for receiving bitcoin. We call it an address type here for ease of discussion.

¹⁸ We recommend this summary overview from Unchained for more information on bitcoin’s various address formats.

¹⁹ BitMex Research, 2022.

²⁰ See NIST memo on post-quantum cryptography and Introduction to Quantum Computing for Business.

²¹ Analysis assumes $100,000 current bitcoin price and approximately $500 trillion in addressable global wealth, per latest estimates from Boston Consulting Group.

President-elect Donald Trump has aggressively courted the support of bitcoin-aligned voters and interest groups over the course of his campaign with a variety of proposals friendly to the bitcoin ecosystem. Trump gave a lengthy keynote speech at the Bitcoin 2024 conference and has surrounded himself with advisors like Cantor Fitzgerald CEO Howard Lutnick, who recently announced a multi-billion dollar bitcoin-backed lending facility after having been adamantly pro-bitcoin for years. Meanwhile, Republicans appear poised to capture control of both chambers of Congress (a so-called “Red Wave”), likely reducing friction for Trump’s legislative agenda and approval of his appointees to key cabinet positions.

We acknowledge that campaign promises often diverge sharply from actual policy implementation and the President-elect may end up disappointing bitcoin enthusiasts in one way or another, particularly given his historical skepticism toward bitcoin. However, the combination of factors listed above could drive substantial tailwinds for bitcoin holders and the broader bitcoin technology ecosystem if the incoming administration approximately follows through on its proposals. The following is a brief summary of selected key impacts we see as most likely over the next four years if President-elect Trump’s campaign rhetoric translates to actual policymaking and cabinet appointments. In the optimistic case for bitcoin in President Trump’s second term, the tailwinds discussed here merit the serious attention of all individual investors, institutional allocators, and fiduciaries.

Strategic Bitcoin Reserve

At the Bitcoin Conference in July 2024, Wyoming Senator Cynthia Lummis proposed a bill that would direct the US Treasury to build a “strategic bitcoin reserve” of 1 million bitcoin to be acquired over 5 years and held for a minimum of 20 years. The same day, President-elect Trump endorsed the idea of the US building such a reserve, though he did not specify a target amount. While exact details behind the implementation of any such plan are still to be determined, this initiative would add a net new bid of up to ~550 bitcoin per day (relative to current daily new issuance of ~450 bitcoin) from a price-inelastic buyer with an infinite budget who has historically been a net seller of bitcoin.

To the extent the US does implement this plan, or is even thought to be seriously considering it, other large nations will likely be incentivized to make similar moves given bitcoin’s fixed supply. Several smaller nations including El Salvador and Bhutan have already been openly building their bitcoin reserves, but the world’s most powerful government doing so would materially raise the profile and credibility of this strategy, thus opening up a powerful new demand spigot for bitcoin (and consequently for the companies building the most successful bitcoin enabling technologies).

Reduction of Regulatory Risk

Given bitcoin’s well-established regulatory framework as a commodity (acknowledged repeatedly by both the SEC and CFTC across multiple administrations), the US government’s long history of open market sales of bitcoin, and the recent launch of spot bitcoin ETFs by massive institutions such as BlackRock and Fidelity, the left-tail risk of bitcoin ownership being “banned” in the US was already low and declining by the year. That said, the election of President Trump and a Red Wave in Congress further reduce the risk of adversarial regulatory action against key functions like bitcoin self-custody and bitcoin mining, both of which President-elect Trump has explicitly committed to protecting.

Given Trump’s rhetoric and campaign platform, his appointments for key cabinet and administrative positions — which a Republican-controlled Congress would likely approve without much friction — are all likely to be more friendly to bitcoin holders and technology companies than their predecessors, creating a clearer and more standardized regulatory environment for founders and developers in the space. In particular, new leadership at the Treasury Department, FDIC, and OCC (and potentially the Federal Reserve later in Trump’s second term) should solidify better access to legacy banking rails for bitcoin companies, which had become a notable sticking point under the previous administration. Meanwhile, a Trump-appointed Attorney General would be likely to overhaul the DOJ’s recent trend of regulation by enforcement of financial rules that are often poorly defined or inconsistently enforced.

Reduction of Career Risk

The above points further reduce the “career risk” capital allocators naturally face when advocating for exposure to a new technology like bitcoin. In a scenario where the world’s most powerful government is acquiring bitcoin (or at least explicitly protecting and promoting its use), institutional investors, corporate treasurers, and fiduciaries of all stripes will increasingly have the air cover they need to leg into bitcoin positions with the conviction that a catastrophic regulatory outcome is largely off the table. To take it a step further, if the US government and competitive foreign treasuries begin openly and aggressively acquiring bitcoin, capital allocators will increasingly be required to develop a serious bitcoin strategy to avoid becoming laggards in the adoption of a geopolitically significant technology. In such an environment, career risk will come from ignoring bitcoin rather than embracing it.

Meanwhile, a clearer regulatory landscape and government-level adoption of bitcoin should help pave the way for more executives at legacy finance, technology, and energy companies to evaluate integrating bitcoin into their products and technology stacks across a variety of use cases.

Continuing / Accelerating Fiscal Deficits

The US has spent the past two Presidential terms running peacetime fiscal deficits of unprecedented size, driving the publicly held debt to GDP ratio to ~100% for the first time since the 1940s. The CBO and the Treasury Department both project substantial increases over the next decade, and recent estimates suggest President-elect Trump’s policy platform (which combines sustained high spending with new tax cuts) will boost this metric even further. An acceleration of this trend under the new administration (enabled by an accommodative Congress) would likely be stimulative and inflationary on the margin, particularly if paired with the aggressive tariff policies the President-elect has floated, driving both individuals and institutions to seek exposure to hard assets like bitcoin or gold that have historically performed well in such environments.

At the same time, the growing burden of federal interest expense – which recently surpassed defense spending and will potentially exceed Social Security spending next year – will only get heavier as deficits widen under President Trump and inflation threatens a resurgence, potentially driving the need for more accommodative monetary policy by the Federal Reserve, which would also tend to drive more flows toward assets like bitcoin that best resist dilution. All such adoption growth would also be a tailwind for companies building the tools and services that enable bitcoin onboarding and extend the asset’s utility.

Greater Integration into Traditional Financial Services

With greater regulatory clarity and a more neutral or accommodative set of financial regulators at the Treasury Department, SEC, FDIC, and elsewhere, traditional banks and asset managers will likely have more leeway to enter the bitcoin custody market and provide associated bitcoin-native financial services. Bitcoin — which is highly liquid, fungible, permissionless, and globally salable 24/7/365 — has already proven itself to be uniquely pristine collateral, as evidenced by Unchained Capital’s 7+ year track record of originating more than $700 million in bitcoin-backed loans without a single loan loss across multiple turbulent market cycles. With fewer regulatory complications to bitcoin custody and financial services, we expect this “super collateral” value proposition will become much clearer to traditional lenders during President Trump’s second term.

Specifically and most significantly, a bitcoin-friendly President and Congress will likely allow for the repeal of SAB-121, a piece of SEC accounting guidance that has historically made bitcoin custody cost-prohibitive for traditional financial institutions. This guidance was repealed by Congress earlier this year in a rare display of bipartisanship, but that legislation was subsequently vetoed by President Biden. While BNY Mellon was recently granted an exemption to this guideline, successful removal of the rule would help clear the way for broader bitcoin participation among a wide base of banks and custodians, driving incremental institutional demand for bitcoin. This development would also potentially represent a tailwind for existing custody providers and bitcoin infrastructure businesses that may become attractive takeout targets among this large acquirer universe of banks and asset managers.

Continuation of US Bitcoin Mining Infrastructure Buildout

President-elect Trump has worked closely with several large, publicly traded bitcoin miners during his campaign and has made a variety of positive public comments about supporting the mining industry in the US. While various states like Texas and Tennessee have been highly accommodating to bitcoin miners over the past few years, several federal overtures such as the proposed DAME tax and an invasive but ultimately aborted “emergency survey” targeting bitcoin miners have threatened to send the industry into other jurisdictions. A more pro-bitcoin administration and Congress would ensure the industry can continue to grow sustainably in the US, a tailwind for the miners themselves, the energy and power industries that are increasingly intertwined with bitcoin mining, and adjacent infrastructure providers.

At Ten31, our central thesis – which we’ve written about extensively elsewhere – is that bitcoin is superior monetary technology, and as understanding of it distributes over time, all self-interested actors across industries will ultimately have to adopt it in some form, driving trillions of dollars of demand for enabling technologies and infrastructure to allow for that adoption. Communicating that thesis to capital allocators has its own hurdles given bitcoin’s relative infancy and volatility, though every year brings this view closer to the mainstream, as most recently evidenced by record-breaking launches for spot bitcoin ETFs and the capitulation of previously ardent critics like BlackRock’s Larry Fink. But once we’re past that discussion, the next question we typically hear from both dedicated bitcoiners and bitcoin-curious allocators is: if our bitcoin thesis is correct, the asset will likely see huge upside over the coming decades, so how can Ten31’s investments possibly outperform that hurdle?

This is an important question and one that is foundational to everything we do at Ten31 – we were the first investment platform to explicitly address this theme nearly three years ago, and it has informed all of our investment decisions since then. If investors agree with our view of bitcoin’s future adoption, they can always simply allocate directly into bitcoin to express that thesis. In the same way, the Ten31 team and all the founders we support could be spending our scarce time at larger companies drawing salaries to stack sats rather than investing in and building innovative bitcoin infrastructure, likely foregoing some near-term bitcoin accumulation in the process. As a result, we evaluate every investment we make relative to its potential to outperform bitcoin over relevant time horizons, and we seek to build a portfolio that can collectively do the same. At the end of the day, bitcoin’s performance is our cost of capital.

This is undoubtedly a high bar to clear, and many investors attempting to hurdle it will fall short. However, for a platform like Ten31 with differentiated deal flow and superior investment selection, the case for this outperformance is much stronger than might be immediately obvious when first considering bitcoin’s expected price trajectory over the coming decades. As the largest investor focused exclusively on the bitcoin ecosystem, Ten31 has deployed over $130 million into 36 of the best companies – including both blue chip “picks and shovels” providers and forward-thinking incumbents who were not originally “bitcoin companies” – that will directly enable and benefit from bitcoin’s adoption growth, and we have high conviction that this portfolio and our future investments will deliver levered returns on bitcoin.

The 21,000 Foot View

To build the high level intuition underpinning this thesis, we’ll start with a caveat: if you’re reading this, you should own bitcoin. Allocations to bitcoin itself and bitcoin-linked equities are not mutually exclusive, just as ownership of an internet-connected smartphone is not mutually exclusive with owning shares of Apple or Google – the potential cash flows and expected returns of the latter are a direct function of the utility and adoption of the former.

Owning bitcoin very likely offers more economic upside to a user than owning the latest iPhone, but that expected price upside forms the foundation of the bullish case for bitcoin infrastructure: ongoing and sustained growth in bitcoin’s price necessarily implies ongoing growth of bitcoin adoption (more users, businesses, and governments coming into the market to utilize bitcoin in a myriad of ways), which in turn implies growing demand for the technologies enabling and adding value to that same adoption. If you’re bullish on bitcoin, the only coherent position is to also be bullish on the infrastructure that will enable and propel its growth.

Many investors inadvertently take an internally inconsistent stance on bitcoin technology investments, arguing that since bitcoin’s expected price performance is so strong, it won’t be possible to outperform bitcoin with technology investments in the space. The key disconnect in this logic is that these technology providers are directly enabling and benefiting from the underlying dynamics driving that price growth. It’s certainly reasonable to take the view that the vast majority of alternative strategies (e.g. generalist venture capital and private equity) will not outperform bitcoin, but Ten31’s strategy is not attempting to drive outperformance with investments in some uncorrelated theme; rather, our investments are directly strapped to the rocket of bitcoin’s adoption growth across payments, financial services, energy and power, consumer technologies, and eventually every industry on earth. Bitcoin-levered equity is therefore the only strategy with a durable opportunity to outperform bitcoin in the coming decades.¹

Moreover, there is strong historical precedent for this dynamic playing out in other industries. The best equity investments in the bitcoin ecosystem will be leveraged plays on bitcoin adoption, just as the leading infrastructure and technology providers in oil & gas and pharmaceuticals have historically been leveraged plays on their underlying themes:

Getting More Granular

With that broad framework in mind, we can delve deeper to illustrate how this outperformance might play out in practice for Ten31, starting with the hypothetical case of an individual investment in our portfolio. A critical precept as we make this evaluation is that Ten31’s funds operate with a standard 10-year life, which means – contrary to a misconception that often plagues investors thinking through these dynamics – that we are not trying to outperform bitcoin over an indefinite, open-ended future, but rather over a defined 10-year window. Bitcoin may well go up forever in purchasing power, but our task as fund managers is to deliver superior risk-adjusted returns levered to bitcoin’s performance over the span of a given 10-year fund.

The most straightforward and obvious way to do this would be to provide investors with expedited dollar-denominated returns – said another way, our best investments should be able to drive 10-100x dollar returns over a shorter period than bitcoin itself and thus higher IRRs than bitcoin. For example, an emerging leader in bitcoin technology (or a forward-thinking player from a traditional vertical leveraging bitcoin in creative ways) might return 50x over a 5-year investment window while bitcoin appreciates “only” 10x over the same time frame. In practice, these expedited returns will be driven primarily by traditional exit events like acquisitions and initial public offerings (IPOs), though we expect acquisitions will be the more common path near-term.

If bitcoin’s ongoing adoption trajectory continues to look much like that of the internet several decades ago, incumbent players will experience progressively more disruption to legacy business models and see growing strategic value in many of the companies in the Ten31 portfolio. This increasing strategic awareness of and interest in bitcoin-linked technology will likely start in the verticals most clearly affected by bitcoin’s properties – financial services and fintech, payments, credit & lending, oil & gas, power & utilities – but will ultimately expand outward to touch virtually every industry on earth, as we’ve detailed in prior writing. As this incumbent interest spreads, the most expeditious and capital-efficient path to integrate innovative bitcoin technologies will in many cases be acquisitions of the leading bitcoin companies that have already developed differentiated technology stacks, expertise, network effects, customer relationships, and brand equity (i.e. strategic acquirers will often choose to buy vs. build).

When acquirers (or public markets investors evaluating new IPOs) take action, they will underwrite their valuations of the leading bitcoin companies by projecting the expected future cash flows of their targets, which will be at least partially a derivative of expected future bitcoin adoption. These acquirers and investors will be willing to pay the discounted present value of a bitcoin company’s future cash flows, in effect pulling forward bitcoin’s expected future performance and allowing early investors in acquired or newly-public companies to capture bitcoin’s price appreciation faster than they would have by holding the asset itself.

To really dig into how this might work and the drivers that could flex outcomes higher or lower, we can posit both an illustrative outlook for bitcoin’s price over the coming decades, as well as an operating profile of a hypothetical early-stage bitcoin company with the kind of growth trajectory and margin expansion typical of a top-quartile software or technology business:²

Given the hypothetical projections above, how might a strategic acquirer or IPO investor evaluate this target? While the answer can vary substantially based on the acquirer’s discount rate, the company’s maturity when the acquisition is made, and many more factors, we can establish some basic error bars. For instance, assuming an initial investment by Ten31 in 2024 and an acquisition of this hypothetical target nine years thereafter (in this case, 2033), an acquirer’s valuation might look something like this:³

For investors who deployed capital into this hypothetical company at the Seed or Series A Stage, exit valuations in the range above would drive highly attractive returns that would outperform bitcoin in virtually every scenario, even ignoring any potential synergies (e.g. cross-selling or back office rationalization) an acquirer might be able to achieve, which would serve to push exit valuations even higher:

For those most concerned with bitcoin-denominated returns – which doesn’t yet describe many institutional investors but certainly applies to the Ten31 team – it’s important to highlight that the above return profiles equate to earning more bitcoin than was foregone in the initial investment. If Ten31 made a $1 million Seed stage investment in this company at a $15 million valuation in Year 0 (2024) with bitcoin’s price at ~$65,000 and achieved a ~86x dilution-adjusted exit in Year 9 (2033) with bitcoin’s price at ~$1.2 million, we would have effectively invested 15.4 bitcoin and returned the equivalent of 72.9 bitcoin, a 4.7x multiple on foregone sats. Note also that in most cases in the above scenario analysis, an acquisition of this nature even in later years would yield an IRR superior to bitcoin liquidated much earlier on, meaning an early-stage equity investor would be more than fairly “paid to wait” for an exit, even in bitcoin terms.

The more bullish an acquirer or public markets investor is on bitcoin’s long-term adoption growth, the more they should be willing to pay for the company’s equity all else equal. Even more importantly, as bitcoin adoption grows and its market cap rises to levels only achieved by the largest, most liquid assets in the world, its staying power will become more obvious and assured, and it will seem progressively more de-risked to both corporate incumbents and large institutional investors (including the world’s largest asset managers). This growing certainty and comfort in bitcoin’s longevity will allow acquirers and investors to a) more confidently and optimistically forecast cash flows for leading bitcoin businesses and b) apply lower discount rates to those cash flows, both of which will tend to drive higher valuations for the best companies with a bitcoin strategy. The Lindy Effect will work just as well for bitcoin-levered companies as it has for bitcoin itself.

Finally, investors in the most successful early-stage bitcoin companies will benefit from a few additional levers that should further amplify returns:

• First off, Ten31 estimates roughly a 100:1 mismatch between cumulative funds raised for broader “crypto” funds relative to bitcoin-focused vehicles, meaning that investors deploying into this ecosystem today can often get deals done at valuations 25-75% lower than what might be expected in comparable rounds in broader crypto or tech thanks to the relative dearth of capital currently chasing the bitcoin ecosystem. Ten31 in particular benefits from this dynamic thanks to our deep network, reputation among founders, and our partners’ long track record in the bitcoin space, which have collectively allowed us to lead rounds or serve as exclusive partner for over 80% of the capital we’ve deployed, often at advantaged entry valuations.

• Meanwhile, at the end of the investment life cycle, returns to early-stage investors could be compounded by the growing sense of urgency and optimism that typically accompanies the later stages of bitcoin bull cycles, with the resulting spike in corporate and investor appetite likely supporting higher exit multiples for the best bitcoin businesses at local cycle tops (a dynamic that could become particularly common over time after a few early movers have set a precedent for acquisitions).

It’s still early, but Ten31 has already seen evidence of all these dynamics playing out in our portfolio, as several of our larger investments have undergone 20-30x valuation markups since initial deployment a few years ago while bitcoin’s price has increased only 5-6x over the same period. While these markup events still have yet to be monetized, they stand as solid early evidence that the market is validating our thesis that forward-thinking companies building on bitcoin can drive levered returns on bitcoin’s performance.

Downside Mitigation

Another angle on this question that investors should consider is the potential downside volatility mitigation that a portfolio of bitcoin-levered equity positions could provide across bitcoin price cycles. Anyone considering an allocation to bitcoin inevitably notices its price volatility right away, as the asset’s history is littered with examples of 50%+ drawdowns (only for bitcoin to eventually jump back to new all-time highs). However, the same is not true for the overall trajectory of bitcoin’s adoption, which generally seems to move consistently up and to the right over time. The process of a user coming to understand bitcoin is typically a one-way function regardless of near-term price volatility, as evidenced by HODL Waves – which illustrate a consistently growing proportion of bitcoin buyers turning into long-term holders – as well as persistent growth in unique on-chain entities and the number of bitcoin addresses with balances >0.1 bitcoin.

The users that continue to hold and interact with bitcoin across price cycles do so because bitcoin solves some underlying problem for them: a superior long-term store of value, a rail for cheaper remittances, a means of escaping hyperinflation, and many other use cases. Bitcoin’s unique properties can solve a variety of problems at the individual and enterprise levels regardless of the vagaries of short-term price action, and we expect a growing awareness of these properties to drive progressively greater appetite for bitcoin technology acquisitions among a diverse set of strategic players, even during price drawdowns.

For example, oil majors like Exxon and ConocoPhillips are increasingly recognizing bitcoin mining’s potential to monetize otherwise wasted resources like vented or flared gas, and we expect this convergence to accelerate over the coming decade since mining represents a unique and unprecedented source of revenue for the energy industry. Meanwhile, power grids have become progressively more intertwined with bitcoin mining over the past several years, as mining represents a unique flexible power load that – unlike traditional data centers – can be switched off and back on almost instantly to accommodate a grid’s unpredictable needs. While interest in these applications will no doubt be higher during bull markets, neither of these use cases are direct functions of bitcoin price gyrations, as clearly demonstrated by bitcoin network hashrate increasing more than 300% from 2022 to 2024 even as bitcoin’s price ranged anywhere from 30-80% off its prior cycle highs during that same interval – a dynamic that directly benefited several Ten31 portfolio companies during this period.

Various other verticals where founders are building thriving bitcoin businesses not directly tied to bitcoin’s price include payments and remittances, which can drive substantial disruption to legacy infrastructure across market cycles as long as bitcoin remains sufficiently liquid; on / off ramps that see increased trading volume during both upside and downside volatility; and consumer applications that can leverage bitcoin’s unique properties for new use cases regardless of price swings. The Ten31 portfolio has representation from all these sectors, and we believe category leaders in each vertical can drive favorable monetization events for early investors even during bear markets.

To be sure, we certainly expect our portfolio to perform better during periods of more bullish bitcoin price action, but our investments are fundamentally a levered play on bitcoin adoption , not necessarily bitcoin price. Over a longer time frame, those two will largely look the same as price follows adoption, but over shorter intervals they can decouple in either direction: price can outrun underlying adoption growth during periods of leveraged euphoria, and underlying adoption typically continues growing even during drawdowns. Indeed, many of our companies saw exactly that dynamic this past bear market, and we would expect that scenario to become more common as bitcoin technology becomes entrenched into more industries and its perception becomes more de-risked, offering another lever for periodic outperformance of individual investments relative to bitcoin’s price.

Sats Flows

A final and unique driver of potential outperformance for bitcoin companies is their ability to generate positive bitcoin-denominated cash flows, or “sats flows.” As Ten31 first discussed when we coined the term several years ago, companies that understand bitcoin today (whether they’re building enabling technologies for the ecosystem or are simply leveraging bitcoin’s properties to build an unrelated business) are in the uniquely advantaged position of being able to accumulate (or distribute to investors) a greater share of bitcoin’s fixed supply than laggards that only come to understand bitcoin years from now. As we said almost three years ago, those companies that can combine this early understanding of bitcoin with a profitable business model are therefore positioned to effectively become “bitcoin miners” that use their operations to acquire more bitcoin than they could otherwise accumulate by buying spot with the same starting capital. Critically, though, in most cases these businesses will be both far less capital intensive and have far more durable competitive advantages than traditional bitcoin miners.

A major theme of Ten31’s investment process is therefore evaluating how quickly businesses can achieve net positive cash (sats) flows, and bitcoin is a forcing function biasing founders toward this outcome. Just like Ten31, the best founders consider bitcoin their opportunity cost, and they are universally focused on flipping to profitability as quickly as is practical so they can begin accumulating bitcoin. Meanwhile, thanks to the relative scarcity of institutional capital historically focused on bitcoin, these founders have not grown accustomed to coming back to market for another fundraise every ~12 months to sustain unworkable unit economics. As a result of these dynamics, the vast majority of our portfolio companies operate on incredibly lean teams, and several have already paid out bitcoin dividends to investors.

While we expect that the majority of our fund returns in the coming decade will be driven by more traditional monetization events like acquisitions and IPOs, sats flows from efficient, profitable companies can further amplify performance. In some cases these sats flows could return an investment’s foregone bitcoin within a 10-year fund life even before any potential exit event of the underlying equity . For example, in the case of the illustrative company analyzed above, an investment could return 1x its foregone bitcoin solely through bitcoin dividends in as little as 6 years (and in most cases generally in less than 10 years) depending on a handful of variables:

Meanwhile, over the same period, this illustrative investment could drive positive bitcoin-denominated returns (i.e. returns that would more than compensate for foregone bitcoin) even if this company remained a private, independent sats-flow machine indefinitely:

While these returns would spill outside the boundaries of a 10-year fund life construct, investors in such a fund would still benefit from these longer term bitcoin returns either via 1) in-kind distributions of equity positions in this company at the end of the fund life or 2) secondary sales of equity positions to other financial buyers at the close of the fund. In either case, we would expect shares in a bitcoin-producing machine with a dominant market position to be highly attractive as bitcoin’s new supply issuance trends to zero and demand increases exponentially.

Alternatively, this company could use some of its free cash flow to accumulate bitcoin on its balance sheet – a strategy we’ve discussed at length in prior essays – which could support materially higher ultimate equity value for early investors in the event of a more traditional exit. This accumulated bitcoin treasury would effectively establish a floor value for a liquidity event, and in some cases the uplift in the value of the accrued bitcoin relative to the investment’s entry valuation could by itself drive equity value outperformance vs. bitcoin.

In the case of this hypothetical company, accumulating ~200 or more balance sheet bitcoin would drive equity value uplift (relative to the Seed Round valuation) in excess of bitcoin’s returns even before considering the discounted present value of the operating business.

Once is Happenstance, Twice is Coincidence…

So far, we’ve established that individual investments in the best bitcoin companies have the potential to outperform bitcoin within a typical fund life by pulling forward bitcoin’s future expected performance through traditional exits like acquisitions and IPOs, mitigating near-term price downside through leverage to ongoing adoption trends, and / or sweeping free cash flows to bitcoin. But however we conceptualize a single investment outperforming bitcoin, the ultimate question any individual or institutional allocator will have to ask is whether the same claim can be made at the portfolio level – given the risk and failure rates associated with early-stage companies, what would we have to believe for a fund composed of 20-30 investments to have a chance of outperforming bitcoin?

Assuming a $100 million fund ratably deployed over three years⁶ and a range of monetization outcomes similar to what we illustrated in the hypothetical investment above (and similar to outcomes for the best early-stage venture investments), we can envision a wide variety of scenarios where a fund could outperform even a very bullish price trajectory for bitcoin over the next decade:

As with the individual investment profiles above, this analysis is highly illustrative, but it paints a realistic case that an investor with access to the best deals and strong investment judgment has a path to building a portfolio that can meaningfully outperform bitcoin over a 10-year fund life, often by several multiples. We can make a few additional observations on the above:

• In Scenario A, which posits 4 monetization events (a 16% hit rate in a portfolio of 25 companies) evenly spaced across years 3 through 9, this portfolio would return a post-carry IRR substantially above bitcoin’s in virtually every scenario, even relative to the best possible bitcoin IRR in this projection period.

• In Scenario B, which assumes a more optimistic 6 monetization events – two in each of years 5 and 7 and one in each of years 3 and 9 for a 24% hit rate – the portfolio would outperform bitcoin’s 10-year IRR and its maximum possible IRR even if the portfolio were underweight its winners and if those winners averaged exit multiples well below 100x.

• Even in less favorable outcomes like Scenario C, which assumes only two monetization events in years 5 and 7, the fund IRR would still exceed most achievable bitcoin IRRs.

• In any given scenario, returns from an investor’s hit rate could be compounded by skillful sizing. If this fund were to skew more heavily toward investments in the portfolio’s ultimate winners (i.e. with an average pre-dilution investment above the simple average of $4 million for winners), the fund would drive even higher total returns on the same underlying percentage of monetized investments.

• All these IRR figures – including bitcoin’s – are highly sensitive to the timing of cash flows. Earlier liquidity events would drive substantially higher IRR figures all else equal, though later exits might be more likely to drive higher MOIC as companies become more mature over the fund life.

While we could construct a very favorable cherry-picked scenario wherein an investor could generate higher bitcoin IRRs by exactly timing cycle bottoms and tops (as indicated by the “Max Possible Bitcoin IRR” scenario in the output above), this is exceedingly difficult to do in practice, as the last few bitcoin cycles have illustrated. Moreover, this type of precisely timed trading strategy doesn’t capture the way the vast majority of capital allocators (from individual bitcoin investors to large institutions) tend to look at bitcoin; instead, most potential investors we interact with have at least a 5-10 year “buy and hold” time horizon for bitcoin, so it’s more instructive to compare a fund strategy to that investment horizon. That said, it’s noteworthy that in many cases the hypothetical fund above would still meaningfully outperform bitcoin’s IRR even relative to that maximally cherry-picked scenario.

We believe the bitcoin price performance outlined throughout this piece is not overly conservative, as there are still few market participants anticipating $1 million+ bitcoin within the next decade. If this bitcoin forecast were to prove too pessimistic – as many of bitcoin’s most outspoken proponents might argue – that would certainly raise the hurdle for fund outperformance. However, that would also necessarily imply an even greater secular tailwind for companies building bitcoin infrastructure and thus likely also higher exit multiples and / or faster monetization events for a fund investing in those companies.

The illustrative fund IRRs reflected in this piece are no doubt ambitious, so it would be reasonable to ask how these returns might compare to some historical benchmarks for early-stage investment funds.

The historical data shown here suggest the range of IRRs targeted by a bitcoin-focused fund should fall well within the established precedent of the best venture funds of the past several decades. This is obviously a bullish target to set, but it’s exactly what we should expect given the backdrop of the strategy. If we’re right about bitcoin’s monetization and its highly disruptive potential, we are sitting at the precipice of a transformative technological wave comparable only to that of the internet in the early 1990s, and the early investors in the blue chips of this wave should be able to achieve returns comparable to the funds that made similar investments during the early adoption phase of the internet.

Conclusion

Ultimately, the relevant question for an investor weighing an allocation to early-stage equity in bitcoin technology companies is not whether the emerging blue chips in the ecosystem can actually outperform bitcoin, or even whether a whole portfolio can outperform. In principle, the case for both of these is very clear, and there’s no fundamental reason either should be inherently unachievable. Instead, the right question is how do you get there? How do you select a fund manager that can provide the best opportunity to achieve positive bitcoin-levered returns?

As discussed, this is by no means a trivial undertaking, and it will require a manager with a combination of differentiated deal flow and superior investment selection. As the largest bitcoin-focused investment platform with over $130 million in cumulative capital deployed, Ten31 provides exactly these capabilities. We have served as lead investor for 90% of the capital we’ve deployed, and over 80% of our capital has been deployed on an exclusive basis. Our funds have sizable, unique allocations to both bitcoin bellwethers at the Series A and B stages and the most promising early-stage innovators at the Pre-Seed and Seed stages. Our team combines deep experience in bitcoin – including several partners with over a decade of focused work in the space – and long tenures at blue chip institutions including CVC Capital Partners, Goldman Sachs, and Citadel, giving us both an unmatched network of founders and the tools to identify and execute on the best deals with institutional sophistication.

Outperforming bitcoin will put the funds that can achieve it among the best-performing vintages of all time, and no investor is better positioned to accomplish that than Ten31.

¹ Some observers may contend that non-bitcoin “crypto” strategies have in some cases shown a track record of outperforming bitcoin. While this topic is beyond the scope of this piece, we question the long-term durability and risk-adjusted repeatability of such strategies as long as bitcoin continues to dominate the winner-take-all monetary race, a point addressed at length by Ten31 Advisor Parker Lewis here and here. We also note that a changing regulatory environment may limit some of the strategies that have historically driven outlier returns for some “crypto” funds.

² Metrics for this hypothetical company are partially informed by comprehensive benchmarking analyses from venture bellwether Bessemer Venture Partners. The operating profile shown here is highly illustrative and only intended to give a sense of a long-term glide path; in practice, most companies will likely show lumpier growth (higher peaks and lower valleys), particularly in their earlier years.

³ Valuation analysis in this section assumes 0 net debt at acquisition and includes no credit for any bitcoin treasury potentially accumulated by the company.

⁴ Illustrative Seed and Series A valuation ranges are broadly in line with median data from 2020-2023, per data collected by Carta.

⁵ Expected future dilution assumes this hypothetical company raises a $12 million Series A at a $60 million post-money valuation in Year 2 followed by a $21 million Series B at a $150 million post-money valuation in Year 5. Assumes the investor does not participate in any future funding rounds (e.g. no exercises of pro rata rights).

⁶ The hypothetical bitcoin deployment schedule shown here is aligned with the typical multi-year deployment of a standard private capital vehicle, which is representative of true opportunity cost given capital is generally called over a number of years rather than all upfront. We note that the illustrative bitcoin IRRs shown here would not materially increase even if all capital were deployed into bitcoin in Year 0.

Introduction

Trying to explain what bitcoin is to someone unfamiliar with financial and computer science terms is usually pretty difficult and nearly impossible when the definitions are not clear. There are typically a lot of words like money, bearer asset, trust minimized, network, protocol, as well as many others being used to describe bitcoin. So, to say someone can get lost in translation is an understatement as it can be a frustrating experience for either party. Given that every human on the planet from almost our earliest days has participated in the exchange of goods and services, it is fair to say that there is an inherent understanding of money and why it is useful. This basic premonition follows that money facilitates the exchange when you want to buy a house, a car, or food at the grocery store to alleviate the coincidence of wants problem (i.e. having to barter). Today’s money and all the historical iterations (transition states) can therefore be thought of in a broader approach as mediums *for* exchange. Thus, it can be understood that the advent of money indicates the purpose of an environment for exchange to occur. Bitcoin is simply the end state digital transformation of money from the shared physical environment to a shared digital environment. An openly accessible digital environment without barriers to entry or seigniorage creating conditions that are better described as a medium *for* exchange.  What could be brushed aside as a simple change in wording is actually a fundamental shift on how to grasp and explain what bitcoin is.

Medium

1. A medium is defined as the substance that transfers the energy from one substance to another substance or from one place to another, or from one surface to another.

2. surrounding objects, conditions, or influences; environment.

Of

1. expressing the relationship between a part and a whole.

For

1. used as a function word to indicate purpose

2. used as a function word to indicate an intended goal

Through this lens, Ten31 sees companies operating at today’s transition point as creating new technologies that will accrue outsized value facilitating commerce in different and innovative ways leveraging a new medium for exchange.  These bitcoin technology companies are allowing their customers to interact within the environment of bitcoin in such ways as for the visualization of the environment ( Mempool.Space ), entrance to a global marketplace for the environment ( Strike ), and many others Ten31 has supported over the last five years.

Visualizing Transparency

Historically, money has been understood through its functions as a medium of exchange, a unit of account, and a store of value, among other characteristics. However, when we adjust our viewpoint and look at money as a medium for exchange then the nature of the characteristics imbue money with an alternative framework affording for transition/upgrade from one environment to another.  For example, if gold were thought of as an environment to facilitate trade then some basic characteristics of that environment are: divisible, durable, portable, verifiable, and irreproducible. The second order effects of those characteristics create the historic concept that money is a store of value, unit of account, and medium of exchange.  Money should be thought of as being in a transition phase or evolution from physical to digital since man was able to write a numeric (digital) representation of money. From Mesopotamian Cuneiform to Flying Money of the 7th century to the first electrons creating wire transfers to the fiat US Dollar of the last fifty years, monies have been in a continuous transition state leading towards a medium for exchange natively embedded with superior characteristics (inclusive, auditable, finite, weightless, proof-of-work): bitcoin.

This new, electrical, digital money opens up the aperture and creates kaleidoscope visualizations on the network of users interacting in this shared bitcoin medium.  Mempool.Space affords anyone anywhere utilizing its free and open source code the ability to see the bitcoin mempool of pending transactions and the confirmed transactions in each block of the blockchain. For the first time in history the totality of the money’s past, present, and future is readily viewable/auditable to all. Mempool.Space has a dominant market share for transaction analytics and current business lines are for transaction fee estimations, transaction explorer, and a transaction accelerator.  As more entrants continue to enter this medium for exchange the demand for improved transaction analytics and acceleration for accessing blockspace , Mempool.Space’s market power will expand.

Global Access

Entering bitcoin’s environment requires energy and computation as proof of work or trade to purchase bitcoin, and Strike is the leading global bitcoin access point for buying and selling bitcoin in over 100 countries. Unlike gold’s weight standardization of Avoirdupois , bitcoin’s numerical standardization provides the divisibility in a Base Ten Format like the fiat US dollar.  Base Ten Format provides a universal acceptance for the unit of account in both mediums for exchange. However, unlike the US dollar which has an increasing supply leading to perpetual debasement bitcoin is juxtaposed with a finite supply of 21 million. Strike provides its global users with the ability to seamlessly trade their local currencies for bitcoin.  We are witnessing first hand Gresham’s Law play out as Strike’s users exchange their local debasing currency for a fixed supply asset.  People are organically choosing to transition away from inferior mediums to the end state medium for exchange as they store value from today into the future.  The transition has been and will continue to be volatile across liquidity horizons. As the distortion of more and more fiat continues to press up against the inelastic supply of bitcoin, volatility will not just persist but at times increase. For, the total value being absorbed by the end state medium includes past, present, and future resulting in an unbounded amount bitcoin will ultimately draw in.

Strike, operating in over 100 countries and counting, provides a low friction ability to access a global standardized medium for exchange that is emerging and will compete with legacy payment networks worth $1 trillion (Visa & Mastercard). As more countries are incorporated into Strike’s global offering a Schelling Point will occur where consumers and businesses will organically migrate towards a simplified global value exchange. Instead of the slow correspondent banks and other intermediaries trading liabilities, a Strike user in America with US dollars will purchase a stein from a German craftsman who will receive Euros in final settlement .  There are only three hops as value is transferred between three different mediums, and eventually in the decades to come there could only be one. Natural selection will continue to occur for global market participants seeking out the most efficient medium for exchange.

Occupying the Transition State

At Ten31 we have partnered with over thirty bitcoin technology companies operating in the transition state between different mediums for exchange. From Fold allowing their users to transition their fiat rewards into bitcoin to Unchained facilitating a transition between US dollars and bitcoin all while in a long term security structure. The companies accrue value from the transfer between the legacy medium for exchanges to the end state medium.  One could envision these businesses at the intersection of a broadening landscape being carved out today as extremely valuable real estate. With this real estate in a purely digital medium connecting all participants (business and consumers alike) in an interoperable base layer protocol the power of density unlocks new portfolio network effects accelerating collaboration among all businesses. A key insight about portfolio network effects (we are witnessing in real-time) on an interoperable base protocol is how the Ten31 Tribe is an emergent middleware self-reinforcing value accrual across the entire portfolio and new connections hypostatize between what would be considered non-adjacent businesses to materialize new business ventures.

Cyberspace Native Future

The march forward towards growing up with a purely cyberspace native childhood is complete with the acceptance of global interconnections occurring through a screen is an experience babies now have building relationships with distant relatives.  Yesterday’s youth collected and spent Rupies in The Legend of Zelda, and today's youth buy Minecoins and build in the virtual worlds of Minecraft with their grandparent’s birthday money locked in cyberspace environments. This native familiarity with digital assets and online transactions is shaping generations that view bitcoin not just as an abstract concept but as an integral part of their financial lives.

As cyberspace natives mature, their comfort with and reliance on bitcoin will continue to drive broader adoption and integration of bitcoin into the mainstream economy. Because, they will demand a more efficient, transparent, and secure medium for exchange, which bitcoin and its supporting technologies are solely positioned to provide. The barriers that once hindered the transition to bitcoin are being dismantled by intuitive interfaces, robust infrastructure, and a growing ecosystem of services that make interacting with bitcoin as easy as using a smartphone app. In this cyberspace native future, the potential for innovation is boundless. We will see new business models, financial products, and services that leverage the unique properties of bitcoin to offer unprecedented value and equitable opportunities for generating, storing and transacting value.

At Ten31, we are committed to supporting the pioneers of the bitcoin frontier. By investing in and partnering with visionary technology companies carving out their prime real estate at the intersection of bitcoin and human ambition, we are helping to build the infrastructure and applications that will define the future.

This has been a core part of Ten31’s thesis, and we have deployed over $125 million of equity into the bitcoin ecosystem over the last several years with this understanding. Our thesis still very much remains intact, and more investors over time will come to realize the merits of our strategy as bitcoin continues to eat the world . If understanding the flywheel from investing in bitcoin infrastructure is Bitcoin Technology Investing 101: Industry Network Effects, in this essay I would like to present the next level topic, Bitcoin Technology Investing 201: Portfolio Network Effects .

A Primer on Network Effects

Network effects is by now a common concept, popularized in the mid-90s by W. Brian Arthur with Increasing Returns and the New World of Business . Arthur pointed out that while traditionally there had been an assumption of diminishing returns in a market (that is, “products or companies that get ahead in a market eventually run into limitations, so that a predictable equilibrium of prices and market shares is reached”), he saw evidence that in the world of technology, information, and ideas, the mechanisms at play could drive increasing returns instead: that is, the tendency for that which is ahead to get further ahead; or, more practically, as a company or product with network effects becomes more successful and scales, it actually will command increasing returns and share over time.

Early examples of businesses that capitalized on network effects were Microsoft and IBM, and more recent examples include Airbnb, Amazon, Google, Meta, and Uber. David Sacks at Craft Ventures illustrated Uber’s network effects beautifully in 2014 when he tweeted “geographic density is the new network effect” . The network effects of Uber are obvious: the more drivers who sign up with Uber, the faster a customer can secure a ride; the faster a customer can find a driver, the more customers will want to sign up; and the more customers sign up, the more attractive Uber becomes to drivers.

While the graphic above is applied specifically with respect to geographic saturation, it is easy to apply the concept more generally to any business with a network effect, particularly so-called marketplace businesses like Uber which provide a technology platform to connect providers (sellers) on one end and users (buyers) on the other. As the marketplace grows, it becomes a better value proposition for both providers and users, and this results in a more valuable tech platform for its owners.

From Metcalfe’s law many will be aware the value of a network generally increases exponentially with scale, not linearly. As such, successfully investing in tech-enabled marketplaces with network effects has been a very lucrative business. Many investment firms have cemented their legacies based on the success of an early investment in just one of these marketplace businesses which later became dominant in its sector. However, marketplaces and network effect businesses can also present a number of potential issues and challenges for not just the participants on each side, but also the companies building the platforms and their investors:

• Participant lock-in: Successful marketplace businesses often lead to provider and user lock-in. The inherent network effects imply high switching costs for market participants, as the alternatives offer a suboptimal experience, service or value, and lock-in can eventually lead to exploitation of providers and users. An example is Uber “blitzscaling” in NYC by undercutting taxi fares to establish geographic density and network effect, only to later raise prices after they had successfully run the taxi companies out of business or driven them out of the market. While initially users were better off, in the long run the end result was less competition, higher pricing, and worse service.

• Bootstrapping problem: From an operator perspective, achieving truly sustainable network effects of meaningful magnitude is incredibly challenging. It is most common to underestimate the bootstrapping challenges with building a network and overestimate the likelihood of success. The last several decades of easy money pumped into VC funds which subsequently flowed into startup marketing budgets and “customer acquisition costs” only served to obscure this dynamic. What many thought were durable network effects proved only to be artificial growth driven by VC-funded user subsidies . As we’ve seen over the last couple years, once the VC money spigot dries up and marketing is pulled back, the “growth” and network effect go poof.

• Crowded trade: As the merits of seeking investments with marketplace characteristics and inherent network effects became more obvious over the last couple decades, more investors sought opportunities with this theme, and an entire category of investing and specialist funds evolved with this focus. These days you can go to virtually any Silicon Valley VC website and find tomes (tombs?) of content dedicated to investing in, building, and scaling marketplace businesses. It has become a very “crowded trade”. Not to say you can’t be skilled or lucky enough to pick a winner, but the competition is fierce, the upside is increasingly priced in, and the likelihood of success incredibly low without a unique informational or sourcing edge.

• Disruptive risks remain: Even if you have managed to achieve much sought after network effects, it doesn’t mean you are immune to disruption. There are a myriad of examples of network effects businesses which became obsolete after new waves of technology were adopted or user behavior evolved. For example, consider the famous Craigslist infographic depicting all the disruptors which spawned to compete in each Craigslist category, many of which proved successful in taking the lion's share of their respective categories.

Bitcoin Network Effects Powering an Investment Portfolio

One of the most underappreciated aspects of investing in the bitcoin ecosystem is the open and interoperable nature of the bitcoin protocol and the benefits that accrue to all participants from development in the space. Any developer, entrepreneur, or business can build on top of bitcoin’s standards and immediately plug into the scale of the network and both benefit from and contribute to its development over time.

What this means is that unlike what we’ve seen in the traditional Silicon Valley VC world, building and investing in exciting bitcoin technology companies is not zero sum. The success of one company does not have to be detrimental to another. This is because the network effect being developed is not at the company level, but actually at the industry level (i.e. across the entire bitcoin ecosystem).

At its core, money is the ultimate network effect. Money generally converges around one medium because its utility is liquidity, and liquidity consolidates around the most secure, long term store of value. Those who are contributing to bitcoin and building infrastructure interoperable with the bitcoin network are therefore enhancing bitcoin’s network effect as superior digital money and strengthening the ecosystem around it in which all participants operate. There are numerous benefits:

• Plugging into the bitcoin network provides access to a global base of users already on the network, thus helping bootstrap a potential user base and addressable market

• A company developing innovative technology, products or services for holders of bitcoin can enhance bitcoin’s utility, benefiting all participants in the network and driving increased adoption

• In a reciprocal way, participating in the bitcoin network allows one to benefit from the work of others who are adding value to the network

• Finally, the open and interoperable nature of bitcoin allows for more significant opportunities for collaboration with others than was possible before bitcoin

This last point is perhaps the least recognized aspect of the intra-bitcoin network effects and the point I want to emphasize the most. Because of the interoperability of bitcoin and its industry wide network effects, there are mutual benefits to collaboration and opportunities for partnership which are simply infeasible in traditional industry when competing standards, closed systems, and legacy competitive zero sum dynamics are often at play. Consider Venmo and Paypal: Venmo has been owned by Paypal for more than a decade, yet payments between the two are still not integrated. And that is within the same company; integration between separate companies will clearly present additional challenges.

The bitcoin network benefits from the opposite dynamic. Not only is interoperability ensured by compatibility with the base protocol, but the next order effect is an environment where collaboration can occur in interesting and unconventional ways, such as between companies which might otherwise be viewed as competitors in a traditional, non-bitcoin sense, or between seemingly unrelated companies whose only common ground is operating in the bitcoin network. One such example from within our portfolio is between Strike and Primal . Strike provides the backend bitcoin infrastructure which allows Primal to offer a native bitcoin wallet and bitcoin payments in-app within Primal’s broader social networking features. While there are many traditional companies that offer backend payments infrastructure for social media or online communities, the open source nature of bitcoin and nostr means Primal and Strike can still benefit from users within the network who are not locked into either business, and this is unprecedented. When viewed through a bitcoin lens, the aperture for collaboration presents compelling opportunities for groups to pursue shared objectives in an advantaged way relative to doing it alone.

At Ten31 we began seeing glimpses of this dynamic as our investment portfolio grew from 10 companies to 20 companies and beyond, and as the interconnectivity between these companies increased. Below is a depiction of the portfolio connectivity today as compared to two years ago. Each dot represents a specific company I have kept anonymous for purposes of this exercise, and each line indicates where there is a collaboration, official integration, or formal relationship in place between companies. No dots have moved positions from the left chart to the right; only new dots have been added (with new Ten31 investments over time), and new lines have been connected indicating increased collaboration across the group.

It will be easy for any reader to gloss over the above graphic and not appreciate how remarkable the level of connectivity is and the potentially significant implications that follow, so I urge you to pause and think about this. I draw a number of initial conclusions from this graphic:

• First, there are significant opportunities for cross-portfolio synergies in bitcoin, much more so than has ever been possible in traditional VC investing. You will not find any investment portfolio in any traditional VC fund which can demonstrate a similar level of collaboration with partnerships of significant substance.

• Next, I believe some of the partnerships indicated in the lines above will enable groundbreaking offerings in the bitcoin market with the potential to produce astronomical value for the companies involved. While some of the most exciting companies are the most connected on the chart, there is also tremendous potential value in areas of the chart you may least expect. For example, the short, diagonally-down line to a single dot at “7 o’clock” on the chart could prove one of the most powerful partnerships of them all.

• Lastly, I believe the value of the portfolio will demonstrate increasing returns as it grows and becomes more interconnected.

The secret sauce to all of this of course is the bitcoin network effects. Everyone is rowing in the same direction. In addition, part of the portfolio effect is the ability of Ten31 to help facilitate connections between companies where a mutual relationship might not initially seem obvious to the parties involved, or where the Ten31 relationship can be additional common glue between companies to help reduce friction and encourage closer collaboration. As I have described previously , we created the Ten31 Tribe for exactly that reason–as a network of founders, investors, supporters, and interested parties whose main interest was actively supporting each other and the ecosystem as a whole. As one of the founders we are backing recently put it to me, “one of the best values we get from Ten31 is through involvement with the Ten31 Tribe”.

It is a profound idea that one company in a portfolio can drive value in an investment portfolio not just based on its own success, but can also contribute positively to the investment prospects of other investments in a portfolio. In this way the value of the portfolio can truly be greater than the sum of its parts by leveraging the interoperability and network effects of bitcoin. In other words, bitcoin technology is the new network effect . Increased bitcoin technology investment provides greater infrastructure density and strengthens the overall network, adding value to the network and portfolio; increased investment density increases the opportunities for collaboration, allowing for better company performance and increased portfolio value.

I also believe more favorable conditions persist with bitcoin’s industry and portfolio network effects as compared to the challenges I outlined initially with respect to business network effects:

• Lock-in: while it may be possible for companies to establish early leadership positions in certain segments of the bitcoin industry, any position is susceptible to competitive dynamics and less prone to lock-in given a participant can always seek a competing option and  remain compatible with the rest of the network, still benefiting from bitcoin’s network effects and interoperability. A company must continuously provide a superior experience to retain its users' loyalty. In the words of Jack Mallers, “ open networks win ”.

• Bootstrapping: as I highlighted above, using the bitcoin network can help jumpstart the bootstrapping process. Companies building in bitcoin towards the same network effects is inherently more additive than winner-take-all competition where everyone is fighting to establish their own siloed network dominance. The same points can be made about those building in the open nostr ecosystem, and the integration of bitcoin in the nostr ecosystem only compounds the scaling effects of building in the space.

• Crowded trade: a bitcoin-focused investment thesis remains a non-consensus strategy, and I have not seen any other group even identify the idea of unparalleled levels of cross-portfolio network effects within bitcoin, much less capitalize on them to the degree we are at Ten31. The upside for the companies, investors, and industry as a whole is that much more significant as a result.

• Disruptive risks: I believe the industry and portfolio network effects will prove more sustainable with less binary risk of disruption, as any broken link in the network (e.g. from failed execution) or any new entrant in the market marginally reshapes the network effect topography while much can remain intact. This becomes increasingly true as the bitcoin network grows and the network or a portfolio’s interconnectivity increases. I believe this dynamic will encourage increased collaboration and result in more entrenched relationships across the network which may lead to a better value proposition for customers and users while fortifying the network as a whole. Much like a neural network, you can imagine the pathways in the network becoming more ingrained over time. This also reminds me of the network activity Slack observed after it  released shared channels . David Sacks was once again quick to point out that “ inter-company network effects are the holy grail ”, recognizing that greater levels of connectivity creates more resilience.

Not many are paying attention yet, but I believe the next level of network effect economics is already at work in the bitcoin ecosystem. It is transforming the way companies work together and has significant implications. Bitcoin network effects are industry-wide and can deliver outsized value in a focused, interconnected investment portfolio. I am excited to see these concepts play out not just for the benefit of those companies in our portfolio and the investors supporting us, but also for the betterment of bitcoin as a whole as the network becomes more robust as a result.

Over the last ten years our team has developed a deep and nuanced understanding of bitcoin's potential and its inevitable role in the future of finance and technology. This understanding wasn't immediate or obvious; it started as an inkling that became a belief and resulted in a conviction that bitcoin would eventually become the fundamental monetary good of the world. Our knowledge has been cultivated through rigorous analysis and hands-on experience questioning the very fundamental ideas underpinning money and global commerce. Our confidence in bitcoin has been cemented against the broader private investing market in what can only be described as a contrarian conviction, as 99.99% of individual and institutional capital allocators still have yet to recognize this outsized asymmetric opportunity of bitcoin and its ecosystem and are instead focused elsewhere.

Ten31’s first investment in the bitcoin ecosystem was in Unchained in early 2020.  At the time, underwriting Unchained’s unique model of leveraging bitcoin’s native multi-signature properties for collaborative custody and non-rehypothecation of customer assets was counterintuitive to traditional banking and the approaches by the leading crypto custody and lending platforms: Blockfi, Celsius, and FTX. However, we believed Unchained’s differentiated approach was the correct path forward for appropriately managing risk under a new paradigm underpinned by bitcoin, and this was ultimately proved correct after these now defunct crypto platforms zeroed out tens of billions of dollars of investors capital with near-overnight collapses as a result a fundamental misunderstanding and mismanagement of bitcoin. Meanwhile, for the last eight years Unchained has demonstrated an unblemished track record, with no losses of customer funds and zero loan losses on its lending product (even during 50% bitcoin price drawdowns), highlighting their position as one of the leading bitcoin financial services companies. We have continued to bolster our involvement with Unchained, investing in them multiple times further since 2020, and have grown our investment portfolio to more than 35 companies focused on bitcoin and freedom tech, many of which further exemplify our willingness to take contrarian positions in different ways when we have conviction in global bitcoin adoption and the companies which can enable and accelerate it. I highlight a few such examples below.

Going against the Grain

Our investment thesis is anchored in two core beliefs: firstly, the adoption of bitcoin will accelerate, reaching the untapped 99% of the global population yet to engage with this revolutionary asset in the coming decade. Secondly, widespread adoption will catalyze the development of innovative technologies designed to meet the diverse needs of a global user base. This perspective on bitcoin guides our investment decisions, leading us to look for and support unique companies we think have made or can eventually make the zero-to-one leap on product-market-fit, resulting in a coiled spring-like action ready to explode alongside the adoption cycle of bitcoin. A clear example of this thesis is our investment in Coinkite , which develops and manufactures the Coldcard , the industry standard for bitcoin security hardware for over a decade and a device our investment team has been personally relying on for years. While most traditional VC investors would quickly dismiss investing in any hardware business, we took a different point of view, even if non-conventional.

Ten31’s investment into Coinkite aligns with our core belief that as the realization of bitcoin’s value continues to grow, so will the need to safely and securely store bitcoin private keys.  This need will become such an imperative that individuals and institutions will be forced to adopt security best practices because of the sheer value of bitcoin being secured. We see significant value in best-in-class physical security devices protecting bitcoin private keys which are entirely digital: when money moves to the digital realm, we believe security needs to move to the physical realm. The demand for the Coldcard has been robust and accelerating year over year, with the device’s value being validated by spikes in sales every time there are exchange frauds and hardware hacks, which dramatically reinforce an individual's need for secure ownership of bitcoin.

In addition, security hardware businesses are more attractive and more recurring than they get credit for. Coinkite’s security offering is not a static endeavor isolated to one piece of software or hardware. Since security is a process that must be continuously refined for protecting against outside vectors and improving the user experience with updated software and hardware, first movers who continually innovate become impossible to catch, and the continuous innovation cycle drives repeat purchases from loyal customers. Security hardware competitors like Ledger and Trezor are not singularly focused on bitcoin, resulting in increased attack surface and continually compromised security for end users, as in the case of last year’s Ledger Connect Kit hack , the multiple hacks of Trezor products in recent years, and a variety of other noteworthy vulnerabilities . Coinkite has a decade head start in securing bitcoin value that has already grown 1000x since the company’s inception. They have kept billions of dollars worth of bitcoin secure in the early days and will keep trillions of dollars worth of bitcoin secure into the future.

Looking at Things Differently

Having invested in over 35 diverse companies to date, ranging from financial services and mining to consumer applications and scaling solutions, Ten31 has an unique vantage point in the ecosystem that bolsters our long term vision of how bitcoin adoption will evolve. This breadth of involvement allows us to identify and invest in companies that might not make sense to outsiders or those without the foresight to anticipate where bitcoin is going. The thesis driving our investment in Mempool.space, for instance, increasingly looks obvious in hindsight but was anything but just a few years ago. Our view was on the scarcity of blockspace and specifically the next block: we believed getting a transaction into the next block was going to become increasingly expensive as more users bid for the chain’s limited blockspace.  Wiz and SoftSimon, cofounders of Mempool.space, shared our vision of the future, and we have subsequently invested in Mempool.space multiple times over the past several years, during a period when blocks were usually empty and few cared about mempools. Each time we invested the company had progressively de-risked themselves as they moved from zero-to-one building the go-to block explorer.

Today, Mempool.space provides blockspace analytics and fee estimation behind most bitcoin apps along with their newly launched transaction fee accelerator . The new transaction accelerator provides a seamless way for enterprise clients to have transactions included in the next block reliably.  This is important because exchanges and other enterprises with large quantities of daily transactions interact with an open bidding market and therefore are at risk of frequently over- and under-paying miners to include their transactions in the next blocks.  Mempool.space’s accelerator helps to align the incentive structure amongst miners, pool operators and exchanges due to the shared economic benefit from out-of-band payments for the accelerated transactions as well as the enterprise clients receiving assurance on transaction inclusion in the blockchain. Mempool.space demonstrates an innovative business model with a clear vision for their role in expanding the bitcoin economy, and Ten31 is proud to be backing them and aligned on the same vision.

Finding Value Where Others Don’t

Bitcoin offers a blueprint on how to build a successful brand in an open permissionless manner, and at Ten31 we embrace investing in companies building open-source software that interacts with open protocols. What many traditional investors – and even some dedicated “crypto” funds – still haven’t grasped is that in an open system, all participants can benefit from advancements made by other independent participants. For instance, both individual academic researchers contributing to Bitcoin Core and large teams of engineers at PayPal, Robinhood, or CashApp can and have all added entry points for new users of the bitcoin network, which directly benefits all participants as the network expands creating exponential value. Thanks to Metcalfe’s Law we have a framework on how to model the future expected value of the network and thereby the companies servicing the bitcoin ecosystem. Thus, Ten31’s core beliefs align with the growing trend of new network participants ( Argentina , BlackRock , ERCOT and TVA ) and the outsized value to be captured as novel utility is unlocked for these new users of the bitcoin network and the resulting network effects.

Network effects or synergies usually do not exist across a portfolio, but they become more evident every day in ours. Traditional VC often takes a “spray and pray” approach across the broad digital asset ecosystem, and thereby completely misses the benefit of investing in singularly focused bitcoin companies. In contrast, Ten31’s sole focus on bitcoin companies provides our portfolio the ability to leverage one another with synergies emerging across every vertical we cover due to the open properties of bitcoin and the deliberate approach we have taken towards fostering an open community amongst our portfolio. Ten31’s initiatives are not just about capital infusion; we are about fostering a community, sharing insights, and building synergies that drive growth and innovation in an open and permissionless manner. Strike is a great example of the power of this approach. The interactions Ten31 facilitated between Strike and the rest of our portfolio helped Jack and team to identify unmet needs in the market that laid the foundation for new and upcoming Strike products. Strike Black now offers any company the ability to have a legally and regulatory compliant way to provide bitcoin services globally, thereby lowering the hurdles for start-ups to create new products and services seamlessly and legally in over 70 jurisdictions globally reaching 4+ billion people. Strike unlocking a global market for new companies to emerge creates a more rich and robust bitcoin ecosystem that can develop which aligns with our core beliefs at Ten31.

This kind of true cross pollination leading to unlocking new markets across a portfolio can only occur because our companies are building out and contributing to open protocols, whereas the walled gardens and closed source software stacks in traditional tech investing limit intra-portfolio synergies. We’ve seen security infrastructure companies like Start9 partnering with lightning infrastructure provider Mutiny and leading Nostr client Primal ; Primal partnering with Strike; and financial services players like Battery and Unchained partnering with Ibex and Coinkite, respectively. All of these unique collaborations exist because of the open properties of bitcoin and these companies’ direct proximity to one another in the Ten31 portfolio.

Conclusion

Ten31's investment strategy, deeply rooted in our hard earned core beliefs, reflects a long-term, contrarian vision of finding the best bitcoin founders and helping them unlock value in new and unique ways. So, while others are chasing the next buzzword blockchain or shiny NFT we will be focused on the best founders building novel, long-lasting technologies in bitcoin that are ready to scale to the next billion people globally. Our approach is characterized by a blend of strategic investment, active involvement, and a commitment to fostering innovation and growth within our portfolio companies and broader ecosystem.  We will continue to lean into the open permissionless model that is bitcoin and focus on the outsized asymmetrical opportunities in the emerging and globally expanding bitcoin ecosystem, even (or especially) if it is at odds with conventional thinking or the approach by traditional investors.

• GRIID is a uniquely positioned, vertically integrated bitcoin mining and energy infrastructure company and one of the first pure-play bitcoin miners to achieve public listing

• GRIID Chief Strategy Officer Harry Sudock to join Ten31 as Advisor

• Launch of Ten31 Fund III, which has already secured several anchor commitments and strengthens Ten31’s position as the world’s leading bitcoin technology investor

• Launch of Ten31 Tactical Fund, which provides access to individual accredited investors

• Ten31 also announced a grant to independent bitcoin developer calle for bitcoin powered Chaumian ecash

NASHVILLE, January 30, 2024 – Ten31 announced that its portfolio company GRIID Infrastructure has completed its listing on the Nasdaq Global Market stock exchange, representing the first public listing for any bitcoin-focused investment fund’s portfolio company. Ten31 served as GRIID’s exclusive institutional capital partner ahead of its public trading debut, investing in GRIID out of its second institutional venture fund, Low Time Preference Fund II. Ten31 is the world’s leading bitcoin technology investor, having deployed over $100 million through its prior two fund vehicles. Over five years of deploying capital, Ten31 has built an industry-leading portfolio of 36 companies focused on bitcoin and freedom technologies and served as lead investor or exclusive partner in 25 of its investments, including Pre-Seed, Seed, Series A, Series B, and pre-IPO rounds.

Public Listing Milestone

GRIID’s listing is a notable milestone for the bitcoin mining company, which first announced its intention to go public via a SPAC transaction reported in November 2021. After having successfully navigated a long SEC and regulatory review process, the Nasdaq listing represents not just the first significant liquidity event for any bitcoin-focused venture investor but also the first major equity liquidity event in several years for the greater “crypto” venture landscape, marking a major accomplishment for GRIID, Ten31, and the bitcoin ecosystem as a whole.

“As a vertically integrated operator, purpose-built for bitcoin mining from day one, GRIID is uniquely positioned to become one of the leading bitcoin mining companies in the world,” said Trey Kelly, Founder and CEO of GRIID. “We believe that listing on Nasdaq will enhance our visibility, liquidity, and broaden our investor base as we continue to strengthen our market position and reinforce our commitment to delivering shareholder value. Ten31’s capital support and strategic guidance were invaluable in helping us reach this milestone. We feel strongly that there is no better partner or investor in the bitcoin space than Ten31, and we look forward to continuing our close partnership.”

Harry Sudock Joining Ten31 as Advisor

In conjunction with GRIID’s Nasdaq listing, Ten31 also announced that Harry Sudock, Chief Strategy Officer at GRIID and a leading voice in bitcoin mining and energy infrastructure, will join Ten31 as an Advisor while maintaining his role at GRIID. “After many years building a bitcoin company, I know firsthand the crucial value of capital partners that both share our understanding of bitcoin and offer proven institutional investment expertise. They embody bitcoin’s proof of work ethos in everything they do,” said Sudock. “I expect GRIID to be the first of many success stories to emerge from the Ten31 portfolio, and I’m excited to help support Ten31 as it invests in the best companies in the rapidly evolving bitcoin ecosystem while serving as a resource to both portfolio companies and their founders.”

Ten31 Building on Its Success with Two New Funds and Continuing Contributions to Open Source Development

Ten31’s major milestone with GRIID coincides with the launch of Ten31’s third institutional fund, Low Time Preference Fund III, which has already secured anchor commitments and established an initial portfolio of investments, as well as the Ten31 Tactical Fund, which provides access to individual accredited investors. As the world’s leading bitcoin technology investor, Ten31 has unmatched reach and expertise across the breadth of the bitcoin ecosystem, driving a leading position in all verticals and all funding stages. Ten31’s investments include leading Strike’s $80 million Series B round in September 2022, leading exclusive Series A rounds for companies such as Coinkite and Upstream Data, as well as leading Pre-Seed and Seed investments in companies such as Mutiny, Primal and Mempool. 

Ten31 has also renewed its commitment to supporting open source development in the bitcoin ecosystem by providing a grant to independent bitcoin developer calle for his work on bitcoin powered Chaumian ecash. Ten31 is the most active investor in open source businesses in the bitcoin ecosystem and is the only investor in the industry which contributes a portion of its management fees to open source development. Ten31 was a founding contributor to OpenSats in 2021 and has supported a variety of open source efforts on a no-strings-attached basis, including making an early grant to Fedimint, a protocol for federated Chaumian ecash. Ten31’s early support of Fedimint, along with contributions from Ten31 Managing Partners Matt Odell and Marty Bent, were instrumental in catalyzing the formation of Ten31 portfolio company Fedi.

About Ten31

Ten31 is the world’s leading bitcoin technology investor. With a footprint in Nashville and Austin, Ten31 seeks to support the ecosystem's most promising founders and companies, leveraging its deep understanding of bitcoin, extensive experience, and broad reach to create value for its partners. Since the fund's inception, Ten31 has directed more than $100 million in equity to companies focused on bitcoin and freedom technologies. For more information, visit www.ten31.vc/funds .

About GRIID Infrastructure Inc.

GRIID is a purpose-built bitcoin mining company, founded in 2018, that has operated mining facilities since 2019. GRIID has built long-term power relationships securing affordable, reliable, environmentally responsible power, enabling a vertically integrated self-mining business model with significant growth opportunity. Headquartered in Cincinnati, Ohio, GRIID operates a R&D center in Austin, Texas and a development, deployment and equipment repair center in Rutledge, Tennessee. GRIID currently maintains mining facilities in Watertown, New York; Limestone, Maynardville and Lenoir City, Tennessee. To learn more, please visit www.griid.com .

Contact

ir@ten31.vc

Disclaimer: The information contained herein is provided for informational and discussion purposes only and is not, and may not be relied on in any manner as, legal, tax, or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any fund managed or sponsored by Ten31 or its affiliates (the “Fund”), or an offer or invitation to purchase or acquire assets, shares, partnership interests or other securities or interests in this regard. A private offering of interests in the Fund will only be made pursuant to offering documentation, including the Fund’s subscription documents (the “Offering Documentation”), which will be furnished to qualified investors on a confidential basis at their request for their consideration in connection with such offering. The information contained herein will be qualified in its entirety by reference to the Offering Documentation, which contains additional information about the investment objective, terms and conditions of an investment in any Fund and also contains tax information and risk disclosures that are important to any investment decision. No person has been authorized to make any statement concerning the Fund other than as set forth in the Offering Documentation and any such statements, if made, may not be relied upon. This communication has not been approved or disapproved by the Securities and Exchange Commission or by the securities regulatory authority of any state or of any other jurisdiction, nor have any of the foregoing authorities passed upon or endorsed the merits, accuracy or adequacy of the information contained herein. Any representation to the contrary is a criminal offense.

We submitted a legal response to the U.S. Department of the Treasury and FinCEN’s proposed rules that would seriously harm privacy by effectively prohibiting basic bitcoin best practices such as not reusing addresses and collaborative bitcoin transactions.

Below is an exact reproduction of the letter we have submitted to Treasury and FinCEN as part of the public request for comment period.

We are proud to have 26 bitcoin companies sign this letter to FinCEN in agreement with this position. They are listed individually at the bottom of this page.

You can view the letter below or download it here.

Andrea Gacki January 22, 2024
Director
Financial Crimes Enforcement Network
U.S. Department of the Treasury
P.O. Box 39
Vienna, VA 22183

SUBMITTED ELECTRONICALLY

Re: Docket Number FINCEN–2023–0016 – Proposal of Special Measure Regarding Convertible Virtual Currency Mixing as a Class of Transactions of Primary Money Laundering Concern

Dear Director Gacki:

We appreciate the opportunity to comment on Docket Number FINCEN-2023-0016 (the "Mixing Transaction NPRM"), released by the Financial Crimes Enforcement Network ("FinCEN") on October 22, 2023.[1] We are a variety of unaffiliated companies that rely on important cybersecurity safeguards and privacy-enabling software to protect our businesses and our users. The extreme breadth of the rules proposed by the Mixing Transaction NPRM would overly burden our use of such technologies in ways that would not assist FinCEN in achieving its mandate of preventing money laundering and other illicit use of money. As a result, we write to express our grave concerns regarding the novelty and scope of the Proposed Special Measures and the inadequate definitions contained therein.[2]

The Proposed Special Measures would unreasonably infringe upon the legitimate financial privacy interests of cryptocurrency users, and would apply to a variety of digital techniques that are not mixing transactions at all, but rather simply represent good cybersecurity practices. Moreover, the Proposed Special Measures are unnecessary to achieve FinCEN's aim, and we encourage FinCEN to either withdraw the Mixing Transaction NPRM altogether or to pursue a less invasive, less restrictive, and more effective approach—the same approach it has used since its first enforcement activities in the cryptocurrency space in 2013—to enforcement against specific bad actors.

1. FinCEN should exercise caution and either withdraw entirely or narrowly tailor the Mixing Transaction NPRM because if adopted, the Mixing Transaction NPRM would not only represent the first time FinCEN used its Section 311 powers against a class of transactions, but also the first time FinCEN has ever imposed Special Measure 1.

Historically, FinCEN has exercised caution in making designations under Section 311 and implementing Special Measures. Section 311 (31 U.S.C. 5318A), authorizes the U.S. Department of Treasury ("Treasury") to designate a foreign jurisdiction, financial institution, class of transactions, or type of account as being of "primary money laundering concern" and impose one or more of five possible "special measures." Treasury delegated that authority to FinCEN, which has used its power quite sparingly since Section 311's enactment. The first Section 311 action instituted by FinCEN in the virtual currency space occurred in 2013, when FinCEN instituted special measures against Liberty Reserve. Prior to that time, between 2002 and 2013, FinCEN had only ever implemented special measures against just four jurisdictions and 13 financial institutions. After a protracted legal battle regarding a Section 311 action between 2015-2017, FinCEN seemed reluctant to use its Section 311 powers widely. [3] The creation of the Global Investigations Division (GID) in 2019 [4] and the enactment of the Anti-Money Laundering Act of 2020, which increased FinCEN's authority "to prohibit or impose conditions upon certain transmittals of funds (to be defined by the Secretary) by any domestic financial institution or domestic financial agency," [5] coincided with an uptick in the use of Section 311 powers and a broadening of FinCEN's attention to all 5 available Special Measures.

Importantly, throughout its use of Section 311, FinCEN traditionally imposes Special Measure Number 5 to isolate a specific foreign financial institution and prevent it from accessing the U.S. financial system. Until this Mixing Transaction NPRM, FinCEN has only used Special Measure Number 1 one other time—in 2012 against JSC CredexBank ("Credex").[6] FinCEN later withdrew that proposed rule in 2016. [7] If adopted, the Mixing Transaction NPRM would constitute the first time FinCEN has imposed Special Measure Number 1 in exercising its Section 311 Powers. Moreover, this Mixing Transaction NPRM represents the very first time FinCEN has sought to designate an entire class of transactions as a primary money laundering concern. We encourage FinCEN to exercise extreme caution in the exercise of its Section 311 powers in such a novel way—the first-ever designation of a class of transactions and the first-ever imposition of Special Measure 1.

Exercising caution in Section 311 powers reflects the seriousness of Treasury's policy purposes for invoking its powers to make primary money laundering concern designations and impose special measures—namely, to act as a signal to the world that FinCEN is "serious about ensuring that the international financial system is safeguarded against the threat of money laundering." [8] As Treasury explained in the press release announcing the very first use of its Section 311 powers in 2002, when FinCEN uses Section 311, "[FinCEN] tell[s] the world clearly that these jurisdictions [or entities or transactions] are bad for business and that their financial controls cannot be trusted." [9] For the reasons further explained below, FinCEN's targeting of convertible virtual currency ("CVC") [10] purported "mixing" transactions does not achieve these aims. Rather than target transactions that are "bad for business," the Mixing Transaction NPRM targets an overly broad range of technical approaches used as best practices both by businesses and individuals for ensuring the security of CVC and impinges on privacy rights of legitimate users of CVC. In an attempt to exercise authority it has never used before (class of transactions) through a special measure it has never previously imposed successfully (special measure 1), FinCEN created a proposed rule fraught with misunderstandings and overreach. We urge FinCEN to withdraw the rule and reconsider its approach to this novel use of its authority.

2. The Mixing Transaction NPRM proposes a rule that is an improper and overbroad application of Section 311 measures to achieve transaction surveillance and suppression that FinCEN does not otherwise have a lawful basis to undertake.

Although the Mixing Transaction NPRM ostensibly designates a class of transactions as being of Primary Money Laundering Concern, its real goal is to uncover an alternative method for collecting information about and suppressing the use of digital currency in general. The Mixing Transaction NPRM is an improper and overbroad application of Section 311 measures for that purpose. Indeed, although the Mixing Transaction NPRM allegedly sanctions a class of transactions, it inconsistently throughout refers to "CVC mixers," "CVC mixing" and "CVC mixing services" by reference to specific business entities [11] and as a type of business model more generally.[12] If FinCEN has reason to believe specific entities conduct illicit activities, FinCEN could use the Section 311 powers it has traditionally and successfully used to target specific entities as financial institutions of primary money laundering concern. Such an approach offers a more targeted way to address actual money laundering while protecting legitimate users of legitimate privacy-enhancing tools.

Notably, Treasury has separately sanctioned what it refers to as CVC mixing transactions through its Office of Foreign Asset Control (OFAC) authority to designate people or property who conduct transactions with specifically designated foreign jurisdictions identified through executive order as posing terrorist threats. [13] Treasury is currently facing legal challenges to, and has been widely criticized for, its attempt to sanction the Tornado Cash open source software as property of a non-existent entity Treasury alleges is called "the Tornado Cash DAO entity." [14] Although we agree with the many arguments as to why Treasury's OFAC action with regard to Tornado Cash software is an example of agency overreach, we wish to make a different but related point here. To justify its OFAC sanctions against the Tornado Cash software, Treasury had to designate the software as property of an entity. [15] OFAC officially explained as part of defending its sanction to a judge that the Tornado Cash software was property under Treasury's regulations because it fell within the broad reach of "any contract whatsoever." [16] Although the definition of "transaction" under the BSA regulations is quite broad, it does not encompass "any contract whatsoever" but rather centers on monetary transfers and specific services offered by financial institutions, and provides a catch-all for "any other payment, transfer, or delivery by, through or to a financial institution, by whatever means effected." [17] No part of the definition applicable to CVC mixing is also a contract.[18]

In other words, in proposing the Mixing Transaction NPRM, one arm of Treasury is classifying CVC mixing as a transaction type while another arm of Treasury argues that mixing is a contract for services. Under the regulations governing both enforcement actions, mixing activity cannot be both a transaction type and a contract for service simultaneously. Treasury's attempt to designate mixing software as both a type of transaction and a contract is evidence of the arbitrary and capricious nature of its attempt to regulate open-source software that enhances the digital privacy of legitimate CVC users. To the extent that FinCEN really wants to target non-custodial, open-source software that individuals can use on their own accounts, FinCEN exceeds its statutory authority.

Indeed, tools that enhance digital privacy in CVC transactions simply seek to enable a form of digital cash. As a result, in its rush to find a way to suppress CVC mixing transactions, by whichever means, even if inconsistent amongst different internal branches of its own agency, FinCEN's Mixing Transaction NPRM amounts to an attempt to sanction "all transactions conducted in cash," which is both impossible and an unreasonable over-extension of its rulemaking authority.

3. The Mixing Transaction NPRM should be withdrawn because the proposed definition of "CVC mixing" is overbroad and targets lawful activity in a way that makes the agency's proposed action arbitrary and capricious.

Setting aside FinCEN's own apparent confusion about whether CVC mixing is a transaction, a service, a business, or a specific business entity, when FinCEN does attempt to define the "class" of transactions that it considers to be CVC mixing, the Mixing Transaction NPRM's definition of "mixing" is extremely broad and includes numerous activities routinely conducted by legitimate users as a matter of routine safety precautions in online transacting in CVC. Specifically, the Mixing Transaction NPRM provides:

The term "CVC mixing" means the facilitation of CVC transactions in a manner that obfuscates the source, destination, or amount involved in one or more transactions, regardless of the type of protocol or service used, such as: (1) pooling or aggregating CVC from multiple persons, wallets, addresses or accounts; (2) using programmatic or algorithmic code to coordinate, manage, or manipulate the structure of a transaction; (3) splitting CVC for transmittal and transmitting the CVC through a series of independent transactions; (4) creating and using single-use wallets, addresses, or accounts, and sending CVC through such wallets, addresses, or accounts through a series of independent transactions; (5) exchanging between types of CVC or other digital assets; [19] or (6) facilitating user-initiated delays in transactional activity. [20]

Indeed, most of the activities captured by the proposed definition of CVC mixing are considered established best practices within the industry for the use and safekeeping of CVC. Specifically, the proposed definition encompasses lightning transactions, single-use wallets, atomic swaps, decentralized finance protocols, privacy coin features, and multi-signature wallets, among other things. The main commonality among this broad range of software tools is that they enhance digital privacy and offer basic cyber-security techniques to owners or custodians of CVC. Employing these techniques to safeguard valuable digital assets is as routine and mundane and free of illicit purpose as using two-factor authentication to secure a digital wallet containing payment card information or an X (formerly Twitter) account to prevent an unauthorized announcement.[21]

4. The Mixing Transaction NPRM should be withdrawn because its inaccurate depiction of standard security practices as "mixing" impermissibly restricts the capacity of users to protect their property so that FinCEN can conduct a fishing expedition.

The proposed rule describes as red flags such everyday practices as "creating and using single address wallets" and "splitting CVC for transmittal." [22] The standard practice among cryptocurrency users is to change addresses with every transaction. For example, Coinbase Exchange describes to their users that: "[w]e automatically generate a new address for you after every transaction you make or when funds are moved between your wallet and our storage system. This is done to protect your privacy, so a third party cannot view all other transactions associated with your account simply by using a blockchain explorer." [23]

The fact that a small subset of users, who may be criminals, engage in the same operational security practices as ordinary users does not make those operational security practices suspect. The fact that criminals may use two-factor authentication to protect the security of their online applications does not mean that the use of two-factor authentication is itself an indicator or facilitator of criminal activity. In exactly the same way, the fact that users do not reuse Bitcoin addresses is merely indicative of basic operational security.

In an apparent recognition of the fact that these tools legitimately enable important cyber-security precautions, FinCEN exempts financial institutions from reporting on any of their own mixing transactions that they may conduct in the course of providing services to the public.[24] By exempting financial institutions from the rule, FinCEN creates a regime where financial institutions can take proper cyber-security measures for using CVC, but regular people cannot.

Perhaps even more problematic, throughout the Mixing Transaction NPRM, FinCEN justifies the proposed rule as necessary to enable law enforcement and the agency to better understand the transactions and the extent to which illicit activity occurs through CVC mixing. [25] The extraordinary and never before successfully invoked Section 311 power to designate a class of transactions and implement special measure 1 is not appropriate for use in a fact-finding mission. Employing such overly broad definitions as proposed in the Mixing Transaction NPRM for the purpose of authorizing an invasive fact-finding mission represents an arbitrary and capricious use of FinCEN's delegated rulemaking authority because FinCEN's justification for the rule lies outside of the statutory criteria for determining a class of transactions is of primary money laundering concern.

Specifically, FinCEN is statutorily required to consider the following factors when determining that a class of transactions is of primary money laundering concern: (1) the extent to which the class of transactions is used to facilitate or promote money laundering in or through a jurisdiction outside of the United States, including money laundering activity with connections to international terrorism, organized crime, and proliferation of WMDs and missiles; (2) the extent to which a class of transactions is used for legitimate business purposes; and (3) the extent to which action by FinCEN would guard against international money laundering and other financial crimes." [26] Throughout the Mixing Transaction NPRM, FinCEN acknowledges that due to a lack of data and a lack of understanding of CVC mixers, it cannot sufficiently assess the extent to which CVC mixing and the proposed rule measures up under any of these three criteria. [27] FinCEN's assessment ultimately boils down to: FinCEN does not have sufficient information to properly assess the statutory criteria required to justify the proposed rule, so the proposed rule is justified because, in FinCEN's own words, it "is necessary to better understand the illicit finance risk posed by CVC mixing." [28] Using a sanction to obtain the information necessary to justify imposing the sanction even when the agency knows that doing so will likely impose a high burden on legitimate uses and financial institutions is the definition of arbitrary and capricious regulatory action.

5. The Mixing Transaction NPRM should be withdrawn or significantly narrowed in scope because FinCEN's required statutory analysis fails to adequately value the legitimate uses of CVC mixing services and unduly burdens legitimate users and financial institutions.

FinCEN admits that public blockchains "make it possible to know someone's entire financial history on the blockchain" [29] and that it "recognizes that there are legitimate reasons why responsible actors might want to conduct financial transactions in a secure and private manner given the amount of information available on public blockchains." [30] Yet, in the same document, alleges that the Mixing Transaction NPRM is necessary because CVC "is not without its risks and, in particular, the use of CVC to anonymize illicit activity undermines the legitimate and innovative uses of CVC." [31] These two propositions cannot be simultaneously accurate.

As a matter of technical reality, FinCEN's assertion that public blockchains expose a user's entire financial history on the blockchain to the public for everyone to see and inspect is correct. [32] Indeed, that creates the fundamental need for legitimate CVC users to conduct CVC mixing transactions—to reintroduce the same level of financial privacy that they enjoy in the traditional financial system [33] to their transactions via CVC (for example, the traditional financial system does not expose a consumer's entire credit card history to the public, and indeed, federal law requires that financial institutions protect such information from being exposed to the public [34]). [35]

Ensuring their CVC transactions enjoy the same level of privacy as transactions in traditional finance reduces the potential danger of personal harm to legitimate users and enables legitimate users to avoid waiving their constitutional right to privacy. When the identity of a legitimate CVC user is known and connected to the wallets holding CVC assets, the user becomes a target for kidnap, robbery, extortion, and hacking schemes. [36] Further, because of this inherent transparency by design of public blockchains, the Fifth Circuit recently ruled that no expectation of privacy exists for users of permissionless public blockchains who take no additional action to privacy-protect their transactions. [37] Legitimate users employ privacy-enhancing software when transacting in CVC in order to avoid inadvertently waiving their constitutionally protected privacy rights.

Ultimately, FinCEN has completely failed in its obligation to adequately account for the impact on legitimate users as required by its rulemaking authority. In defending its selection of special measure 1 over 2 through 5, FinCEN emphasizes, without explanation, that special measure 1—additional record keeping—allows legitimate users to continue using privacy-enhancing software without interruption. [38] This is false, as covered entities must report on any transaction that may have involved CVC mixing and a foreign jurisdiction. Indeed, read broadly, it is possible that the rules proposed by the Mixing Transaction NPRM require reporting on transactions that involve CVC that were transacted through mixing software at any point in the asset's transaction history. Such reporting directly impedes the reasons for which legitimate users employ mixing software (to enhance financial privacy) by requiring the elimination of financial privacy (it is not a private transaction if an intermediary must surveil and report on the transaction). Software tools like mixers that enhance digital financial privacy provide a true electronic equivalent to cash. Notably, transactions in cash are not subject to rules such as those proposed in the Mixing Transaction NPRM. In an apparent acknowledgment of this deep and inherent conflict between the rules proposed by the Mixing Transaction NPRM and the legitimate uses to which legitimate users put CVC mixing software, FinCEN itself predicts that the rule will chill the use of CVC mixers.

6. The Mixing Transaction NPRM should be withdrawn because it requires covered financial institutions to perform law enforcement's function to accomplish FinCEN's AML goals, which FinCEN, DOJ, and law enforcement can achieve using existing tools when they have a proper legal basis to employ those tools.

Like the definitions of CVC mixing and CVC mixer, the Mixing Transaction NPRM's information reporting requirements demonstrate a deep lack of technological understanding. Notably, all of the transaction information that the Mixing Transaction NPRM proposes to include in required reports by covered financial institutions involves data that, in most circumstances, FinCEN can just as easily obtain itself through blockchain data analytics. Similarly, the customer information that FinCEN would require covered financial institutions to report includes the same kinds of information such institutions must already report if a transaction raises sufficient red flags to trigger the filing of a Suspicious Activity Report (SAR). Nevertheless, the Mixing Transaction NPRM seeks to require covered financial institutions to file such reports on every single transaction for which the CVC involved may have ever been transacted through the extremely broad set of software that FinCEN's proposed rule defines as CVC mixing software. In other words, because law enforcement investigations into activity involving CVC are sometimes more difficult, FinCEN seeks to impose broad surveillance of individuals without cause through covered financial institutions. Covered financial institutions should not have to become de facto law enforcement officers to make investigations easier for FinCEN.

FinCEN, the Department of Justice, and law enforcement have previously and successfully employed the very tools FinCEN asks financial institutions to use for reporting compliance under the Mixing Transaction NPRM to target specific illicit actors. FinCEN has demonstrated that it knows how to properly investigate and enforce against specific custodial CVC mixing service providers that are not complying with the regulations to which they are subject. Specifically targeting illicit actors about which FinCEN and law enforcement have built a clear, strong case using the available blockchain data analytics tools better balances the need to combat illicit CVC mixing with the legitimate use of CVC mixing by individuals seeking to protect their legitimate, constitutionally and statutorily protected privacy interests.

For all of the reasons discussed above, we urge FinCEN to withdraw the Mixing Transaction NPRM altogether.

Thank you for your consideration.

If you have any questions or would like additional information, please see the contact information below:

Rafael Yakobi, Esq.
Managing Partner
The Crypto Lawyers, PLLC.
rafael@thecryptolawyers.com
(619) 317-0722

Sincerely,
Samourai Wallet, Ten31, River, Strike, RoninDojo, Swan Bitcoin, Primal, GRIID, Zaprite, Peach, Mempool Space, Upstream Data, Stakwork, Vida Global, Voltage, Coinkite, Mutiny Wallet, Standard Bitcoin Company, Satoshi Energy, Cathedra Bitcoin, AnchorWatch, Bitnob, Oshi, Battery Finance,Fold, Start9

In the few centuries since the inception of the joint-stock company, equity investors have developed a toolbox of intermittently useful frameworks and heuristics for evaluating potential investments. Some focus on valuation, guided by the mantra that there’s always a price at which any investment can become attractive. Others anchor to market leadership, arguing that more often than not, you’ll succeed just by backing the best of the best. But one theme that unites virtually all investors is the search for large total addressable markets (or “TAM”). Explicitly or implicitly underpinning all discussions of valuation, competitive analysis, and projected run-rate profitability is this basic question of TAM: at the end of the day, how big is the prize?

This obsession with TAM, especially prevalent among earlier-stage investors, stems from a simple expected value calculation any investor naturally has to make when deploying capital. For a given probability of success and holding all else equal, a larger addressable market translates to a greater revenue opportunity and a higher probability-adjusted return on investment. TAM is far from the only factor that explains investment returns, but it is a very powerful lever – it is almost always better to be a decent company in a fantastic market than a fantastic company in a middling market, as operational efficiency and defensible share will only get you so far if your market has reached its natural ceiling.

A few decades ago, internet-enabled software began, in the memorable phrasing of Marc Andreessen, “ eating the world .” Said another way, its TAM exploded. Internet-enabled software’s addressable market became one of the largest of any industry because its dematerialization of previously physical products and services collapsed the marginal cost of information storage and transfer, opening up new ways of producing and consuming that would eventually impact every business and consumer in the world. This became the foundation for arguably the most successful investing theme of all time: riding the software wave up.

By now, this is a decidedly consensus view among investors, but what remains highly underappreciated by virtually all market participants is that we currently stand on the precipice of another even more disruptive theme: today, bitcoin is eating the world. Just as software and the internet dematerialized information and communication, bitcoin has dematerialized the most fundamental primitive of economic interaction – money itself – and consequently opened up step-function improvements and entirely new applications across industries. And since money is half of every transaction and commerce at virtually every scale is dependent on and downstream from it, bitcoin’s addressable user base will ultimately extend, like the internet before it, to every person on the planet.

As software ate the world, the greatest economic beneficiaries were the companies that carved out durable market positions as providers of software infrastructure and software-powered services, as well as the incumbents that moved first to adapt to this sea change. As bitcoin eats the world, the same will be true of innovative startups and forward-thinking blue chips that embrace bitcoin and leverage its unique capabilities. Internet-enabled software’s TAM is massive, but if bitcoin follows a similar adoption curve, then bitcoin infrastructure will become the biggest TAM on earth, and equity in the ecosystem’s bellwether companies will become the next generational investing theme. Crucially, though, few investors have yet to fully realize what’s about to happen – unlike in August 2011, when Marc Andreessen wrote his famous piece and many could already see the writing on the wall, this thesis is currently well outside consensus, meaning the asymmetric upside opportunity for those investing in bitcoin infrastructure today will be orders of magnitude greater.

Why is bitcoin eating the world?

We acknowledge this will sound like a bold claim to many investors, but we believe it is also set to become an increasingly mainstream view over the next decade. If we’re right about bitcoin’s ultimate fate, the rest of our thesis at Ten31 falls neatly into place, as we’ll show below. So why do we believe bitcoin will eat the world?

Most simply, bitcoin is superior monetary technology, and as knowledge of it distributes over time, there is no self-interested economic actor in the world that will be able to ignore it.

As (i) parabolically growing global debt necessitates accelerating debasement of even the most stable fiat currencies, (ii) price inflation across both essentials and durable assets marches higher, and (iii) more governments and banks around the world move to seize deposits and censor payments, the value of the properties above will become abundantly clear to billions (in most cases this will be an instinctive realization rather than an academic one). Even if these trends were all to reverse tomorrow, the superiority of bitcoin’s monetary properties would still tend to push its adoption forward, as economic actors will always prefer to store more rather than less wealth over time and will converge on using and saving in the currency that best facilitates that goal (at the expense of both fiat currencies and “altcoins” that fail to effectively compete with bitcoin as money).

Fifteen years in, bitcoin has now withstood a barrage of stress tests that have both demonstrated and increased its resilience, an incomplete list of which includes: four 80%+ price drawdowns; massive exchange hacks, bankruptcies, and rugpulls; “bans” by large sovereigns like China; and contentious hard forks of its code. These stressors help illustrate bitcoin’s antifragility, and each shock it survives boosts confidence in the network and the likelihood that bitcoin will continue to survive, thus drawing in more users and further increasing resilience in a virtuous cycle (the “Lindy effect” ). This phenomenon can be directly observed in bitcoin’s on-chain data through “ HODL Waves ,” which illustrate a consistently growing proportion of bitcoin buyers turning into long-term holders:

Like the internet, bitcoin has dematerialized a fundamental pillar of economic interaction – in this case, monetary bearer value itself – and the two technologies’ adoption curves look remarkably similar. But while the benefits of the internet’s early incarnations were more abstract, bitcoin comes with a powerful adoption incentive baked in: the opportunity for rapid and unmatched accrual of purchasing power over time (or more colloquially, “Number Go Up”). Early adopters will reap outsized and compounding rewards from this trend (i.e. a greater share of finite available bitcoin) at the expense of laggards, incentivizing a self-perpetuating rush to move first. Inherent in bitcoin’s design, then, is its own engine of adoption growth. The only winning move is to play.

A comprehensive case for bitcoin’s monetization is beyond the scope of our current focus, but we encourage interested readers to dive deeper in the suggested reading highlighted at the end of this piece. Suffice to say that the investment case for bitcoin’s continued adoption and monetization is highly compelling, and we therefore expect its ultimate user base to be virtually everyone in the world.

If bitcoin’s addressable user base is this large, then there will be a titanic wave of demand for new services increasing bitcoin’s ease of use and utility (the “picks and shovels”), giving rise to a generation of new innovators.

Bitcoin’s design makes a set of trade-offs that collectively enable the best monetary technology in history, but as with any emerging, paradigm-shifting technology, accessing and using it effectively are not always intuitive for newcomers. Anyone first coming to bitcoin, even if they’re constructive on its potential as a store of value or permissionless means of payment, likely confronts a series of questions right away: What exactly is this thing? How does it work? How can I get some? How do I store it safely and send it cost-effectively? What else could I do with it?

Bitcoin today is in a similar phase of its life cycle as the internet in the early 1990s, when the befuddled hosts of the Today Show famously asked “ What is internet? ” By that point, at least 10-20 million people were already using the internet, yet it remained a totally inscrutable tool to most mainstream observers. To take a bearish view on this technology because it was difficult for casual users would have been a terrible trade – the right question was just how long it would take for developers and innovative businesses to build approachable tooling and applications on top of the fundamental primitives of the internet protocol stack. That work would be carried out over the following decade with the proliferation of browsers (Netscape, Internet Explorer) built on easy, point and click graphical user interfaces (Windows, MacOS) offering access to applications and websites enabling previously inconceivable modes of interaction and commerce (Google, Amazon, Netflix, Facebook, thousands more). Less than 15 years after that Today Show clip, most Americans would have a miniature internet-enabled computer with them at all times.

If bitcoin’s superior monetary properties continue to drive its growing adoption along a curve that looks roughly like the internet’s, then demand for acquiring, securing, and using bitcoin will naturally support demand for tooling, applications, and infrastructure to make all of that easy and practical for consumers and enterprises. This opens up significant opportunities for innovators to build businesses catering to this demand, with early movers like the companies in the Ten31 portfolio set to reap outsized rewards as they amass reputation, brand power, and network effects. In essence, this is the classic “picks and shovels” play, whereby investment in the enabling technologies supporting a major secular shift can provide levered returns on the underlying theme, like selling equipment to gold miners during a gold rush, oilfield services businesses that enabled the early days of oil and gas extraction, or modern tech titans that built the user-friendly tools anyone reading this takes for granted today.

Moreover, just as with software, the addressable verticals available to bitcoin infrastructure investors will also proliferate and compound as adoption grows and the application ecosystem becomes more sophisticated. Use cases and business models that are inconceivable today will become multi-billion dollar opportunities in short order in the same way that cloud computing  – which depended on prior advancements in server architecture, network connectivity, and more – went from a ~$10 billion market to a half-trillion dollar revenue category over the past decade. Similarly, businesses like ServiceNow, Salesforce, and Shopify (all worth more than $100 billion) didn’t even exist at the turn of the century and couldn’t have gotten off the ground without work done by earlier innovators.

We’re already seeing many examples of these dynamics within the nascent bitcoin infrastructure market and in our own portfolio. Products like Strike’s Global Wallet , Coinkite’s Tapsigner , and Fedimint applications being built by Fedi and Mutiny are making bitcoin and the lightning network intuitive and accessible for billions of consumers, often in ways that require little direct interaction with bitcoin. Similarly, Unchained’s collaborative custody network and AnchorWatch’s bitcoin insurance platform bypass the technical burdens and black-box counterparty risks that have plagued bitcoin custody for much of its short history, laying the foundation for widespread institutional and enterprise adoption of bitcoin as a treasury asset . Few of these applications were on anyone’s radar as commercial use cases even five years ago, but the outlines of the value they will generate over the next decade are already coming into view.

Back in 2011, Marc Andreessen noted that internet-enabled software was taking off partially because “all the technology finally work[ed]” and could be “widely delivered at global scale.” We’re not quite there yet with all of bitcoin’s enabling technology, but the products above are clear evidence we’re getting much closer, and the companies building the infrastructure to make that a reality are in position to become behemoths. The first-order opportunity of this theme alone is likely in the trillions as bitcoin adoption advances parabolically upward, carrying bitcoin-native technology companies with it.

If this wave of new innovators emerges on the back of exploding adoption, then incumbents across industries will have to adapt, eventually becoming “bitcoin companies” themselves.

The “picks and shovels” thesis will prove to be a rich investing theme by itself, but it’s only the tip of the iceberg. Money is half of every transaction, so if bitcoin adoption proceeds as we expect, it will eventually touch virtually all economic activity in the world directly or indirectly.³ This tectonic shift in monetary technology is a trend that no commercial entity will be able to ignore indefinitely. Just as every company effectively had to become an “internet company” over the past few decades to both leverage the new capabilities offered by internet-enabled software and to keep pace with upstart competitors doing the same, so too will every business have to become a “bitcoin company” in some way to remain relevant. This will drive trillions of dollars of disruption to existing business models and open up massive new surface area for forward-thinking investors in bitcoin infrastructure.

The most obvious industries that will need to adapt include:

• Payments infrastructure: In contrast to legacy fiat payments systems’ reliance on the transfer of credit obligations to facilitate transactions, bitcoin allows for the nearly instant transfer of digital bearer value anywhere in the world, bringing the settlement finality of physical cash transactions into the digital world. Bitcoin over lightning – pushed forward by innovators like Strike and IBEX – eliminates the need for credit transfers and delayed settlement, which will have stark implications for the vast array of middlemen and counterparties that have sprung up in the past century to manage those credit flows. In general, any business that sells immediately consumed resources (from bandwidth to telecom services to GPU compute) but only receives final settlement for those resources well after the fact will be transformed by instantly settled bearer value.

• International remittances and FX: Bitcoin’s global, borderless value transfer network – which operates 24/7/365 and has achieved 99.99% uptime since inception – offers users an unprecedented settlement rail for international transactions. Cross-border payments drive over $150 trillion of annual transaction volume, but final settlement can cost as much as 5-10% and take weeks in some cases.⁴ Bitcoin infrastructure companies like Strike, IBEX, and Bitnob can facilitate the same types of transactions for a tiny fraction of the cost while providing final settlement in minutes or less, complete with local currency conversion at both endpoints, a massive challenge to the financial intermediaries that currently dominate cross-border payment flows.

• Asset management and custody: Bitcoin’s purely digital, cryptographically secured properties mean that, unlike any other asset in the world, its custody can be both distributed and permissionless. Unlike gold or real estate, it doesn’t have to be “located” in any one place; and unlike stocks, bank deposits or other financial contracts, it can benefit from custodial support without surrendering to custodial permissions thanks to multisignature quora and miniscript . As bitcoin’s adoption and purchasing power increase, all financial service providers catering to high net worth individuals or institutional treasuries will need to add bitcoin to their clients’ portfolios, and they will need to find ways to offer the unique benefits of proper bitcoin custody via service providers like Unchained and AnchorWatch.

• Credit and lending: Bitcoin’s fungibility, global 24/7 liquidity, instant settlement capabilities, and customizable ownership schemes make it pristine collateral. Bitcoin can be held in multi-party custody with tiered permissions, simultaneously allowing a borrower to verify their collateral is safe and a lender to quickly liquidate that collateral in a margin call. Unchained and Debifi are pioneering this lending model, and Unchained’s lack of loan losses despite bitcoin’s substantial volatility through the company’s 5+ year history speaks to the power of this offering for traditional lending businesses. Bitcoin’s substantial expected price upside (inevitable if adoption proceeds as we expect) also paves the way for compelling return profiles for creative lenders like Battery Finance .

The second-order implications for industries well outside the sphere of payments and finance are just as substantial, and the effects are already becoming evident in markets as diverse as:

• Oil and gas: Energy producers, including oil majors like Exxon and ConocoPhillips , are increasingly recognizing bitcoin mining’s potential to monetize otherwise wasted resources like vented or flared gas , and we expect this convergence to accelerate over the coming decade since mining represents a unique and unprecedented source of revenue for the energy industry, and oil & gas producers are naturally positioned as the lowest-cost power sources for the hyper-competitive business of mining. Companies like Upstream Data and Giga Energy are well positioned to capitalize on this trend as more of the traditional oil & gas industry gravitates toward bitcoin.

• Utilities and power: Power grids have become progressively more intertwined with bitcoin mining over the past few years, as mining represents a unique flexible power load that – unlike traditional data centers – can be switched off and back on almost instantly to accommodate a grid’s unpredictable needs (a process known as “load balancing”). Some publicly traded miners like Riot Platforms have made headlines through their participation in these flexible load programs, and emerging players like GRIID and Standard Bitcoin are ramping up this strategy with utilities throughout the US as well. We expect the success of these programs to drive an increasing convergence of bitcoin mining and electrical utilities both domestically and internationally.

• Consumer applications: A wide variety of new ways for consumers to interact with bitcoin have come to market just since the last halving in 2020. The bitcoin-gaming convergence (exemplified by platforms like Zebedee and THNDR ) is becoming much more widespread, as are consumer loyalty applications like Fold’s that pay out rewards points denominated in bitcoin, a concept Fold is set to scale up with a white-label enterprise SaaS product in the near term. Meanwhile, Primal , Vida , and a host of Podcasting 2.0 platforms are using bitcoin to allow content creators and brands to instantly earn and pay for content and attention through micro-transactions that are not possible over traditional fiat rails. Importantly, most of these use cases require no prior knowledge of bitcoin to get started, but rather leverage bitcoin’s properties as a means to an end. Brands, content creators, game developers and more will be progressively drawn to using internet-native money to drive customer acquisition and engagement over the coming decade.

And even these verticals are still just scratching the surface. As we’ve addressed extensively elsewhere , the rapidly growing ecosystem of generative artificial intelligence technologies will converge with bitcoin and lightning in the near future thanks to bitcoin’s digitally native instant settlement assurances and high divisibility, which differentiate it from both fiat and altcoins and make it the ideal way to pay for AI compute resources. The last year has shown many early examples of that convergence, including the release of the L402 toolkit to help developers unlock the unique properties of lightning payments for AI applications, as well as the emergence of Nostr Data Vending Machines , a technique using lightning and nostr to outsource data processing requests to competing AI agents. Companies already expressing this theme in the Ten31 portfolio include StatMuse , which pioneered the use of Natural Language Processing (NLP) for sports data search and has recently launched extensive bitcoin and finance data as its next search vertical, and Stakwork , which has been combining AI training workflows with instantly-settled lightning payments for several years. As the internet-native money of the future, bitcoin will be instrumental in powering the machine-payable web and the emerging economy of autonomous agents. If you’re bullish on AI, you should be just as bullish on bitcoin infrastructure.

The key intuition uniting all of these examples is that providing instant settlement of borderless bearer value is a unique and unprecedented phenomenon with derivative implications for every industry, and it will inexorably pull businesses that currently have nothing to do with bitcoin into bitcoin’s orbit. And as all these examples illustrate, this is not just speculation — we are watching it play out in real time across our portfolio. Bitcoin’s influence on a growing list of industries will lead to acquisitions of today’s foremost bitcoin companies, in addition to expanded addressable markets for bitcoin infrastructure investors as regular companies integrate bitcoin around the edges in their legacy businesses. To paraphrase Andreessen again: companies in every industry need to assume that a bitcoin revolution is coming.

If bitcoin both creates new categories worth trillions and forces all legacy industries to adopt it in some way, then bitcoin infrastructure will become the biggest TAM on earth.

What might this bitcoin revolution look like in practice for the companies pushing it forward? As a very rough, incomplete guidepost for the kind of value capture this secular shift could generate, it might be instructive to look at the revenue generated by all the industries discussed above. If bitcoin infrastructure captures even 1% of the annual revenue of those massive industries, whether through establishing a place in their value chains or outright displacing legacy business models, it will be well on its way to becoming one of the biggest categories in the world.⁵

Unlike any of these individual industries, bitcoin companies can capture a cross-section of all these disparate verticals thanks to monetary technology’s universal influence on all commerce.⁶ Even if bitcoin infrastructure captures only a minimal fraction of its most immediately addressable revenue pools – putting aside longer-term revenue opportunities like AI or telecommunications – it would still rival the size of the ~$200 billion SaaS market. Meanwhile, there’s a compelling case that bitcoin infrastructure should capture quite a bit more value in many of these categories, particularly those related to financial services.

But even that still only tells part of the story. Crucially, most of the applications we’ve discussed in this piece were fundamentally impossible before the advent of instantly settled, highly divisible, globally liquid, digitally native bearer money. This means that bitcoin infrastructure won’t just capture some portion of the existing pools of value discussed here, but also – like the internet before it – create totally new ones, which in turn means that despite the massive opportunity already at hand, many of the largest “bitcoin industries” of the future have yet to emerge. We might compare this dynamic to Netflix’s displacement of Blockbuster, which didn’t just siphon off the incumbent’s revenue base but dramatically expanded it through technology that was previously unavailable,⁷ or to the launch of the iPhone, which not only kicked off parabolic growth in the smartphone market but also laid the foundation for the more than $1 trillion of revenue built on previously nonexistent mobile app stores.⁸

Taken together, bitcoin’s “picks and shovel” opportunities, its inevitable permeation into virtually all existing businesses, and the totally new industries its unique properties can enable will make bitcoin infrastructure the biggest TAM on earth over the coming decades. To return to the framework established earlier, this means equity investors focused on bitcoin infrastructure benefit from a massive advantage that should drive superior risk-adjusted returns – the prize is simply bigger here than anywhere else.

Finally and importantly for any investor evaluating these claims: the market still has yet to fully appreciate the implications of this thesis. Given that only a few hundred million dollars have been deployed into companies focused on bitcoin, whereas well over $25 billion have been channeled to the broader “crypto” ecosystem, it is safe to say virtually every capital allocator around the world is substantially underweight bitcoin infrastructure. Those that recognize the opportunity now will not only have access to some of the most compelling investments of the coming decade, but will compound their returns by front-running the flood of capital that will eventually arrive as this theme becomes more obvious. Even if there’s only a 1% chance our view is correct, the potential asymmetric upside of moving first is too great for any responsible capital allocator to ignore. At Ten31, we have already deployed over $100 million into this thesis, and we are just getting started.

To quote Andreessen one last time: That’s the big opportunity. I know where I’m putting my money. 

Suggested Further Reading

• The Bullish Case for Bitcoin by Vijay Boyapati

• Gradually, Then Suddenly series by Ten31 Advisor Parker Lewis

• The Bitcoin Standard by Saifedean Ammous

• Layered Money by Nik Bhatia

• Bitcoin First by Fidelity Digital Assets

• Shelling Out: The Origins of Money by Nick Szabo

• Bitcoin is Worse is Better by Gwern

¹ Data as of 12/31/2023.

² Data complete through year-end 2022. Inception date for the internet refers to 1983, the beginning of the TCP/IP protocol. Sources include the World Bank, Glassnode, and Blockware Solutions.

³ Much of this future activity will likely not involve users or enterprises directly manipulating UTXOs on the bitcoin blockchain given the scarcity of blockspace and bitcoin’s intentionally limited throughput. Instead, most users over the long term will likely interact with higher layers built on top of and anchored to the blockchain, including scaling solutions like the lightning network, fedimints, federated sidechains, statechains, and / or a variety of new constructs that may potentially be enabled by covenants. This dynamic can be compared to the scaling of the internet protocol stack or the way that modern card networks are built on commercial banks, which in turn depend on central banks for final settlement.

⁴ River cross-border payments research report, 2023.

⁵ Sources for market size figures include reports from Boston Consulting Group, McKinsey, IBISWorld, PWC, and public market data.

⁶ It bears mentioning here that the same cannot be said for any other “crypto” project. As long as bitcoin continues to dominate the winner-take-all monetary race – which it will thanks to its entrenched and growing network effects and its credibly fixed supply cap – no other currency will be able to compete with bitcoin as money, which means the few altcoins (if any) that don’t trend to zero will have an addressable market orders of magnitude smaller than bitcoin’s.

⁷ At its peak in 2004, Blockbuster generated just under $6 billion in revenue; Netflix, meanwhile, posted ~$32 billion in revenue in 2022. This represents an inflation-adjusted market expansion of ~3.5x (before accounting for revenues produced by the wide variety of additional streaming services that have emerged since Blockbuster's disappearance).

⁸ Apple press release, May 2023.

There is a saying you often hear in bitcoin circles that “you can never have enough bitcoin.” This is typically expressed by those who have spent the time to both understand bitcoin’s unique and superior monetary properties and also to appreciate why those properties are protected from any attempted malicious interference. Bitcoin’s finite supply, protected by cryptography, game theory, and a decentralized computing network rooted in proof-of-work, was the 0 to 1 innovation.

Once one develops conviction in the long term prospects of bitcoin, regardless of what near term volatility may ensue due to resistance from regulatory bodies, political parties, or interest groups elsewhere (these are simply blips on the road to long-term global adoption), one also realizes that most people still do not yet understand or appreciate the value of bitcoin. Fifteen years in, there is still tremendous informational asymmetry in bitcoin, and that is why one often hears many repeat “we are still so early.”

The path to understanding bitcoin is long and arduous, requires humility, persistence, and an open mind, and the journey truly never ends. Most have simply not put in the work to go through this process, and therefore the knowledge of bitcoin has not yet been widely distributed. For that reason there is still tremendous economic upside in the purchasing power of bitcoin to be gained by those who hold it now as the understanding and appreciation of bitcoin spreads more widely over time. Therefore, for believers in bitcoin, no matter how much bitcoin they manage to accumulate, there is always a desire to acquire more. The opportunity is just too great, and the outcome is obvious.

Despite this belief, many of the same bitcoiners who cannot get enough personally often do not apply that strategy to their corporate balance sheets. With rare exception, most bitcoin companies (those who should clearly understand bitcoin more than others) do not hold much bitcoin. Their holdings are too conservative and incongruent with their personal beliefs about bitcoin and their companies’ positive operating leverage to the long-term success and adoption of bitcoin. It is not that they do not want to hold more bitcoin on their corporate balance sheets (they do), but they have deliberately (or implicitly) decided not to do so. I would encourage and challenge companies to consider holding more .

The conventional wisdom (or instinctual pushback) is that holding more bitcoin (relative to cash) in reserves is too risky and/or irresponsible for a company and that they cannot afford to stomach the volatility of bitcoin when their reserves are limited and precious (especially for early stage companies). I will not dwell on the fact that this sounds a lot like the argument of many bitcoin detractors, and instead I will acknowledge this is a tricky topic, and undoubtedly the consequences are significant. Making a strategic misstep with the company’s coffers could strike a fatal blow to a young company if adequate downside contingencies have not been planned for; but on the flip side, I would argue not being positioned to capture equity value appreciation from bitcoin on the balance sheet is actually taking on increased corporate risk of leaving value on the table as well in the form of foregone upside, the opportunity cost of being overly conservative. It is therefore every company’s fiduciary duty to consider a meaningful bitcoin position for their corporate balance sheet.

The fiduciary case for a meaningful bitcoin position

Most think of fiduciary duty primarily as managing risk and protecting the downside, but fiduciary duty goes both ways, encompassing both protecting against downside risks and pursuing opportunities for growth in equity value. In the context of a company, fiduciary duty includes both the executive leadership team and the company’s board of directors. The board of directors is responsible for overseeing the company’s management, setting its strategic direction, and ensuring the company is run in the best interests of shareholders, which includes corporate governance, appointing and incentivizing the management team, setting the strategic priorities of the business, and executing major financial transactions. The executive leadership team are responsible for day-to-day operations, executing the strategic plan set by the board, making operational decisions that impact the company’s financial health and performance, and managing the company’s assets, resources, and operations in a manner that maximizes shareholder value. Based on my descriptions above, I would assert evaluating the bitcoin treasury position is a responsibility of both the board and the executive team.

If bitcoin companies are building products and services for holders of bitcoin based on expected secular growth in bitcoin users globally, then they have already come to the view that the benefits to pursuing their business plan both justify the resource commitments (time and capital) required to achieve their objectives and outweigh the downside risks of bitcoin actually not being adopted at the pace or to the extent expected. From a fiduciary perspective, if the companies have already gotten comfortable with this “bitcoin risk”, why are they not as comfortable with that same risk on their balance sheet?

If it turns out there is some critical flaw discovered in bitcoin software or some catastrophic exogenous factor that suddenly makes bitcoin irrelevant, then it’s probably a safe bet there will be no need for the companies building products and services for the bitcoin ecosystem. As such, a bitcoin company’s fate is already inevitably linked to the lack of bitcoin adoption on the downside. On the other hand, if the adoption of bitcoin continues in the coming decades (as believers in bitcoin have conviction it will), then bitcoin companies are positively skewed to benefit from this growth operationally. While building products and services in the growing bitcoin ecosystem will not ensure success (this will depend on achieving product-market fit, developing a sustainable business model, and successful execution), a company’s proclivity for success is inevitably correlated to bitcoin’s upside.

Considering a company’s balance sheet, if bitcoin turns out to be a failure, the amount of bitcoin a company decides to hold in its treasury will not be the deciding factor in the trajectory of its equity value… the company will be destined to fail alongside bitcoin. On the other hand, if bitcoin adoption continues and the value (and purchasing power) of bitcoin rises consequently, then the benefit and equity value appreciation to come from a company’s decision to hold bitcoin on its balance sheet will be directly proportional to the bitcoin position they accumulated and held in their treasury over time.

To be sure, a company’s balance sheet should not become purely a speculation platform for the expected appreciation of bitcoin. However, as described above, to some extent bitcoin companies’ success is already dependent on the expected appreciation given these companies can be thought of as “derivatives” of bitcoin, and therefore it makes sense to consider whether a company’s liquidity is appropriately weighted between cash and bitcoin.

Bitcoin treasury as a lever to equity value growth

As I have described previously , a company’s equity value appreciation over a defined time period can traditionally be thought of as being driven by three primary factors: (I) company growth over the period (typically revenue or profit growth, multiplied by some constant valuation multiple), (II) cash flow generation (and more importantly going forward, sats flow generation), and (III) any change in valuation multiple of the business relative to financial performance (increase or decrease in valuation multiple, multiplied by current revenue or profits). I believe the incorporation of bitcoin in the corporate treasury allows companies to capitalize on a “fourth lever” of equity growth, simply defined by the appreciation of value in the company’s balance sheet over the same time period (apart from net cash flow), which benefits the earliest adopters of bitcoin most and diminishes over time as bitcoin’s value appreciates.

Based on the above, how should companies think about sizing bitcoin as a treasury asset and a lever for equity growth, given their business prospects are already tied to bitcoin’s long-term success as an asset? As one might expect, there is not a one-size-fits-all answer to prescribe for each company; however, I do think there is a framework each company can use for thinking through the near-, medium-, and long-term factors at play in their own financial planning decisions to find a sweet spot that can not only offer some protection against potential downside risks and unknowns but also offer a sufficient level of balance sheet upside through bitcoin’s long-term appreciation (thereby appropriately fulfilling their fiduciary duties of managing risks while pursuing equity value growth).

At Ten31 we have had a front row seat partnering with and advising more bitcoin companies than any other group, and our thinking on bitcoin treasury has evolved over time, particularly over the last twelve months. Our latest advice can be summarized as follows, with three big buckets I believe are important for including in a company’s treasury policy and goals:

• Near term working capital needs (first priority): As we’ve seen with many banking insolvencies in 2023 (SVB, Signature, Silvergate, Credit Suisse, among others), the banking landscape is fragile, and available funds can disappear at a moment’s notice when the next “rare” black swan surfaces from within an over leveraged financial system. Combined with the additional risks of being de-banked at the whims of politicians and bureaucrats who target the out-of-favor industries du jour, in this day and age one can never be sure assets in a bank account are actually theirs or can be accessed at will (hence, one of the key value propositions of bitcoin…). With that backdrop, it is critical that every company should maintain a minimum of 3 months of working capital needs in bitcoin in case there is a disruption of access to dollar reserves (which hopefully is only temporary). This will provide some flexibility to meet near term liabilities such as payroll using bitcoin as a fallback option.

• Medium term liquidity reserves (first priority): If a company is not already operating profitably or cash flow positive (which should be one of the top strategic priorities of any company), it should maintain enough reserves on its balance sheet to comfortably sustain itself until its next capital injection (i.e. a company needs to have enough capital to keep the lights on for the foreseeable future while it continues to build and invest resources behind its growth). For early stage companies, the requisite amounts can vary, but for example, this might typically amount to two years of runway in between sequential fundraising cycles. Ultimately, this will depend on what milestones a company may be targeting or what may be required by investors before the next fundraising “check point”.

  Given most companies’ obligations are still in legacy USD or international fiat equivalents, the medium term liquidity reserves would typically be held in cash or cash equivalents (to match the liabilities), though they could alternatively be held in a mix of cash and bitcoin, or 100% in bitcoin, provided there is additional cushion built into the reserves to account for the potential risks of drawdowns in the purchasing power of bitcoin over any near-term period.

  It is not unusual for bitcoin’s price to face 50-80% declines over shorter durations (despite an average four-year CAGR of 100% since the 2012 halving), so this must be taken into account if holding some medium-term reserves in bitcoin. Examples: (i) minimum 2 years runway if reserves held strictly in cash, (ii) 18 months runway in cash and 12-18 months runway in bitcoin (2.5-3 years total runway), or (iii) 3-4+ years runway if reserves held predominantly in bitcoin. These are suggested minimum starting points at the culmination of any successful fundraising cycle.

  A properly managed bitcoin position in the treasury can also be a non-dilutive way to extend a company's medium-term runway if executed correctly (e.g. we saw this with certain companies in our portfolio which allocated some portion of a fresh raise to bitcoin during 2H22 / 1H23). Given bitcoin’s volatility, the best strategy here so as not to purely speculate on market timing is a simple dollar cost averaging approach, planned in advance and accumulated over an extended period. In this way the long-term value appreciation of bitcoin on the balance sheet can be a lifeline for some companies and reduce the degree of potential future equity dilution.

• Long term balance sheet position (secondary priority / stretch objective): When a company’s near-term working capital and medium-term liquidity needs have been satisfied with adequate reserves as laid out above, the ideal end state is to also accumulate a long-term bitcoin position which is meaningful enough to positively influence the company’s equity value trajectory as bitcoin appreciates, since the success of the company is already inextricably linked to the success of bitcoin as an asset. 
  As alluded to above, when doing a back-testing of bitcoin’s price appreciation over every possible four-year holding period since the 2012 halving, the average appreciation of bitcoin has been roughly 100% annually (worst four-year return: 25% CAGR; 95th percentile: 165% CAGR). When assessing performance metrics of investments into private companies, most benchmarks would suggest top quartile performance in venture and private equity funds typically achieves at least 20%+ annual equity growth. With this as hopefully a lower bound of what should be achievable in the bitcoin ecosystem (where there is higher volatility, but also higher growth and exponential upside), then a sizable enough bitcoin position to have a meaningful impact on a company’s total equity growth is likely 10% of a company’s total equity value. For example, if a company is valued at $10 million, it would target $1 million in long-term bitcoin reserves; a $500 million company would target $50 million in long-term bitcoin reserves. Under this framework, if bitcoin delivers average appreciation of 50-100% per annum (below the performance of the last 12 years as specified above), a 10% position in bitcoin relative to equity value could contribute 25-50% of the growth required to hit top quartile benchmarks, before accounting for any equity upside delivered by company growth and financial performance (i.e. bitcoin would contribute 500-1,000 bps in annual equity appreciation).

A few notes to the idea above: first, this assumes a company has sufficient provisions to hold long-term reserves as just that, i.e. is willing and able to hold for at least 4 years (beyond assumed fundraising cycles which may be required if not yet cash flow positive). Second, I am aware there may be corporate finance rebuttals to the above, arguing a company holding excess assets in bitcoin may imply they have no better use of capital to achieve outsized returns in their own business and that this liquidity should instead be distributed to shareholders who can decide how to invest that capital at their discretion (including deciding whether to hold bitcoin themselves). Third, I acknowledge a 10% bitcoin target relative to equity value may be ambitious, especially given most early stage companies typically raise equity representing 10-20% dilution in each fundraising round just to provide them enough capital to hopefully successfully make it to the next capital injection (i.e. establishing a sizable long-term treasury position may not be feasible or practical in the context of just one fundraising cycle). As such, perhaps the 10% position becomes a stretch target to be achieved over time, either over multiple fundraisings, or by generating profits / sats flows which can accumulate as bitcoin on the balance sheet, or by allowing a smaller bitcoin position to grow into that level over time as it appreciates. For further context, I have shown balance sheet positions of several selected public companies below. A 10% target may be challenging, but I believe it is a worthwhile and achievable goal, particularly with the appreciation potential of bitcoin relative to traditional cash and marketable securities.

Conclusion

Successful implementation of the above strategy can extend a company’s runway as bitcoin appreciates (thereby minimizing potential future dilution), deliver a strengthened balance sheet over time, and even potentially position a company for the proverbial “last raise ever”. Further, accumulating a meaningful bitcoin position early enough can allow challenger companies to establish a solid foundation relative to incumbent legacy companies who may not decide to begin accumulating bitcoin until much later after the value has appreciated demonstrably (at which point their fiat cash flows will earn them considerably less bitcoin than would be available to them today).

Finally, as a thought exercise, imagine the scenario where a company has raised equity over a series of fundraising rounds, has accumulated a large bitcoin position over that time which has appreciated in value, and by the time it seeks its next round of fundraising the then-current value of its balance sheet has exceeded the cumulative amount of equity raised up to that point (including potentially reaching profitability and positive sats flow generation by that time). This would be the holy grail of building a sustainable bitcoin business to endure generations, and would likely require new ways of thinking about valuing businesses going forward.

I believe the end result is a return to a focus on profitability and sats flows. It is my hope and expectation that more companies in the space will begin thinking about these topics in a similar way and begin to accumulate a larger amount of bitcoin in their treasury. Those that do will be best positioned to survive and drive equity value creation over the long-term.

As the global economy grapples with ongoing financial turbulence, bitcoin remains a prominent subject of discussion that has increased in importance over the last decade. To an outsider  who is merely glancing through a singular lens, bitcoin is only seen as a speculative asset. However, such a perspective only scratches the surface of  bitcoin’s full potential. To truly fathom the possibilities of how this new medium will be used in value exchange, we must move past the surface level of market price and delve into the diverse financial functionalities this new technology affords. As we unearth more sophisticated avenues to leverage bitcoin’s properties of finite supply, fungibility, divisibility, and liquidity, a fundamental shift in its perceived and actual scarcity is inevitable. We will realize we have lived in an abundance of bitcoin with over 90% being distributed and easily accessible in the first decade, while in the coming decades acquiring bitcoin in size will become harder as companies begin to unlock bitcoin’s value.  Companies like Unchained , Battery Finance , and AnchorWatch are creating novel ways to pair bitcoin with the $46T US credit market, $4T US real estate market, and $1T US insurance market in a truly uncorrelated way for mitigating risk and increasing returns.  Unlike in previous cycles where dormant bitcoin has flowed onto exchanges for investors to access liquidity, in the coming cycles liquidity will be unlocked by novel products and services for holders of bitcoin, eliminating the need for selling bitcoin and further reducing the marginal supply available for purchase.

Bitcoin-backed Loans

Ancient Rome pioneered various financial instruments, with a formal process for collateral-backed loans standing paramount. Citizens often pledged tangible assets, such as land, as collateral to borrow capital. Bitcoin-backed loans are the digital age's interpretation of this practice, and Unchained, a bitcoin native financial service company, has produced the standard for lending in the digital age with their over-collateralized loans in a multisignature account. Much like how Roman farmers would leverage their land value while still cultivating it, today's bitcoin holders can secure liquidity without relinquishing their asset, preserving potential long-term appreciation while minimizing counterparty risk for both the lender and borrower through the use of distributed multisignature accounts that are easily verifiable on the blockchain.

Unchained currently offers loans at a 40% loan-to-value (LTV) ratio using Bitcoin as collateral protecting the borrower and themselves from the emerging asset’s volatility. Time and again, Bitcoin has showcased its superiority as pristine collateral thanks to its global availability for trade every minute of every day, which sets it apart from traditional collateral assets like real estate.  Traditional assets often require lenders to factor in liquidation discounts due to a limited buyer pool, high transaction costs, and other restrictions. In contrast, Bitcoin's vast accessibility makes it the ideal collateral.  Over the past six years, Unchained has successfully issued loans worth over half a billion dollars, all while maintaining a record of zero credit losses, even during dramatic 50% daily value dips.  Whereas some competitors have ceased lending operations or closed down due to significant losses stemming from counterparty risks, Unchained has thrived across multiple cycles and drawdowns.

Battery Finance Powers Novel Financial Solutions

Battery Finance is an innovative institutional platform providing structured credit opportunities powered by bitcoin to meet real world asset financing needs. Battery’s solutions add a small amount of bitcoin collateral to traditional asset-backed loans while allowing lenders and borrowers to share in the long-term price appreciation of the asset, fusing the digital and the physical worlds. These innovative loan structures are designed to enable lenders and borrowers to both smooth out the short term volatility of bitcoin and create a return profile that is superior to that of traditional real estate lending alone.  The infusion of bitcoin changes the financial contract’s overall profile like a pinch of spice changes a common dish into an exotic cuisine. Just as bitcoin revolutionized the concept of money and value, its union with real world assets is expected to further transform our understanding, laying the groundwork for a future where their interplay could redefine wealth and property in the 21st century.

To zoom in on real estate lending, Battery Finance’s solution is the creation of a dual-collateralized loan composed of bitcoin and the real asset. The way this can be envisioned is when a property owner enters into an agreement where they are refinancing an underlying physical asset along with financing a bitcoin purchase.  By pairing two uncorrelated assets, Battery is able to express its constructive long-term view on bitcoin as supplemental liquid collateral in a downside case, but also with bitcoin upside shared between the lender and borrower as the loan reaches maturity. Battery loan terms offer attractive borrower cash flow requirements through lower amortization or interest only rates and flexible repayment options without yield maintenance, compared to traditional loans that entail substantial interest, amortization, and make-whole clauses or prepayment premiums. In some instances, the cumulative difference between the cash flow requirements of a Battery loan and those of a traditional financing are close to the value of the bitcoin being financed (meaning the cumulative cash flow savings can nearly pay for the bitcoin being acquired).  Put another way, the borrower is getting a long-dated bitcoin call option at a very low cost through a Battery financing.

During the past cycle we have seen multiple institutional collapses with >$100 Billion equity value evaporate from businesses who were promising “yield” on your bitcoin.  What these businesses didn’t say was where the yield was coming from.  Turns out the yield came from greater fool games, along with outright frauds.  Unfortunately, a lot of hard lessons were learned by a global population of investors who may or may not have been fully informed on the risks they were taking.  Battery represents a different, new, and promising path, with a more ethically minded sharing of risk of future performance. Meanwhile, in downside scenarios the pledged bitcoin is available to over-collateralize the loan, and provide the borrower better terms than if they had only the one asset. By better mitigating risk and sharing upside, Battery is able to more efficiently utilize productive capital.

Bitcoiners can also use their bitcoin to sustainably acquire income-producing properties, reorienting their returns to include both income from the traditional asset and appreciation from both the traditional asset and the bitcoin.  Given that income generating assets often have extensive histories on their productivity, bitcoin holders will be better able to understand “where the yield comes from” and make informed decisions on the total risk they are assuming.  Strategically combining bitcoin with other income-generating assets, investors can cultivate a steady flow of income from one or more projects thereby diversifying their overall assumed risk. Like dividends, this income stream is derived from the underlying asset's performance, allowing bitcoin holders to diversify their portfolios and realize consistent returns while still maintaining bitcoin upside.

Bitcoin Insurance Breaks New Waters

There have always been watershed moments when innovation has paved the way for new markets. The genesis of maritime insurance in the 17th century occurred as seafaring trade grew exponentially.  There was an imminent need to cover the risk of valuable cargo being lost to pirates or natural calamities. Lloyd's of London , originally a coffee house where merchants and shippers met, transformed into an institution that started insuring ships and cargo. This innovation didn't just provide protection against losses; it fundamentally fueled global trade, allowing merchants to venture into new territories with minimized risks.  Fast forward to the present day, and we witness a similar transformation with AnchorWatch leading the way in the realm of a digital asset, bitcoin.

For the first time, bitcoin stored in multisignature accounts can now be fully insured, a stark contrast to today where exchanges and qualified custodians can only cover up to a certain limit, and do not allow insured customers to hold their own keys, thus injecting additional counterparty risk.  With 99% of all capital still to come into bitcoin the waters just got safer thanks to AnchorWatch who is able to fully insure institutions against lost and stolen bitcoin.  This groundbreaking stride has been possible due to the native scripting language of the bitcoin protocol, which lays the foundation for truly programmable money.  Multisignature accounts, by relying on multi-institutional custody and/or layered key permissions (such as AnchorWatch’s innovative and unique approach to Miniscript ), dramatically reduce the risk of single points of failure and introduce robust disaster recovery pathways.

Just as ancient ports transformed from simple docklands to sprawling harbors, and then evolved again with the construction of colossal container terminals, AnchorWatch is redrawing the financial horizon. Container terminals became an inextricable part of modern seasides, so too will fully insured collaborative custody solutions become the standard for all fiduciaries interacting with bitcoin. AnchorWatch recognized and acted on this paradigm shift allowing bitcoin and bitcoin-collateralized lending to stand shoulder-to-shoulder with traditional assets and collateralized credit. A new wave is upon us, placing bitcoin-centric financial instruments on the same pedestal as their conventional counterparts.

Implications for Demand and Supply Dynamics

The 19th-century gold rush serves as a compelling analogy for bitcoin's supply-demand dynamics and its ultimate use as a medium of exchange.  As thousands flocked to California, most miners’ immediate instinct was merely to sell the mined gold. Entire ecosystems — from infrastructure developments like railways to nascent financial systems — sprouted around the transaction of the precious metal. As new financial participants entered the fray to offer everything from bills of exchange to collateralized lending, there was a decline in the need to actively sell gold as value was exchanged in the form of a liability against an asset. This example showcases a historical path humanity developed for unlocking gold’s ability to be used as a medium of exchange in business without having to interact with gold directly.  Similarly, as bitcoin evolves into a cornerstone of diverse financial instruments, the impetus to outright sell the asset for liquidity will diminish.  Instead, leveraging bitcoin in a myriad of ways as presented above will become the norm.  Just as towns and ancillary industries burgeoned around gold mines with the requirement to directly liquidate gold diminished for transacting business, bitcoin’s future is unfolding now with innovations that maximize its utility without holders having to deplete their reserves for utilizing bitcoin as a medium of exchange.

Conclusions

Historical parallels aren't just exercises in retrospection; they provide a lens to predict the trajectories of emerging phenomena. Financial innovations such as the Roman collaterals, coffee houses turned insurers, and boom towns of the gold rush have often broadened economic horizons, fostering societal wealth and advancing financial inclusivity.  As our understanding of bitcoin transmutes around these time-tested analogies, its present day utility expands.  Instead of merely being a speculative asset or static store of value, bitcoin is swiftly becoming a foundational pillar in modern financial architectures. The diverse and growing  ways it can be interlaced with traditional asset classes not only accentuate its utility but also underline our evolving understanding of its scarcity.

Bitcoin is poised to be the cornerstone of 21st-century financial architecture on the back of innovative companies like Unchained, Battery Finance, and AnchorWatch, and will inevitably become far scarcer than many anticipate. As liquidity mechanisms evolve, selling bitcoin will become progressively less necessary, leaving less and less of bitcoin’s static supply available for sale against an accelerating market demand, radically amplifying bitcoin's scarcity. To be ahead of this curve, one must reevaluate their stance on bitcoin. The future is not just about owning Bitcoin; it's about comprehending its evolving utility.  By harnessing these emerging financial innovations, we don't just witness history — we become active architects of a new financial system. So, as stewards of the future, let's champion, embrace, and pioneer these avenues, ensuring that we are not just spectators but active participants in this financial odyssey before us.

Jonathan Kirkwood is a cofounder and managing member of Ten31, a venture capital firm that exclusively invests in the bitcoin ecosystem. Kirkwood previously served as a physician for several years, earning his medical degree at the Ross University School of Medicine in Barbados in 2009. He received an M.B.A. from Ball State University in Indiana in 2020 and a B.S. from the University of Evansville in 2005. Kirkwood started in crypto in early 2017 and became interested in a bitcoin-only strategy in 2019. In this discussion we cover why Ten31 only focuses on bitcoin, how his firm tries to pick winners in the space, his thoughts on the rise of ordinals and meme tokens on bitcoin and how he is preparing his portfolio firms for the halvings. We also focus on bitcoin miners and ways that they are trying to take advantage of the surge in artificial intelligence demand.

FORBES / Tell us a bit about your company.

JONATHAN KIRKWOOD / We’ve deployed a bit more than $100 million over the last four years into 30-plus companies within the bitcoin space. This includes vertically integrated miners, whether that’s oil and gas, renewables, co-location, on-grid or off-grid firms or other companies that are building linkages to financial services, like Strike, Unchained Capital and Fold.

FORBES / You only invest in the BTC ecosystem?

KIRKWOOD / We like to think of it as technology companies that are leveraging the bitcoin stack. You may have companies like Fold that are offering bitcoin rewards. They are utilizing the properties of the asset for attracting customers to its product and services, but you have other companies like Strike that are using the Lightning Network for providing instant global finality and settlement. We think that’s interesting.

FORBES / What about exchanges? Obviously, they have to integrate with the networks and many are also integrating Lightning as well to facilitate deposits and withdrawals.

KIRKWOOD / They are slowly doing that and some of them are partnering with companies in which we’ve invested.

FORBES / What kind of checks do you write? What do you look for in an investment?

KIRKWOOD / Our North Star has been bitcoin winners, building great products and services that we would want to be utilizing ourselves. We write checks for as small as $200,000 for early firms, where it’s just a founder with an idea they’re working on, all the way to Series B. We led Strike’s Series B last year, where they raised $80 million, and through our strategic partners delivered over half of that.

FORBES / What types of services do you provide portfolio companies?

KIRKWOOD / Between my partner Grant Gilliam and I, we sit on seven boards. And we also have two other partners, Marty Bent and Matt Odell.

One really unique thing we do, and we started last year, is having a portfolio retreat. We think bitcoin is a very interesting model to follow in that it is an open, permissionless system. And it is taking down a walled garden. In October, we bring together all the portfolio companies. They are all working in different sectors of the economy, but they’re all interacting with bitcoin in some way. So that there is this initial tie of camaraderie that can easily be fueled for synergies. We have seen real dividends over this last year from the event that we put on this past year.

FORBES / I think there’s a misperception that bitcoin is just this static, rigid thing that was unleashed on the world 15 years ago and hasn’t really changed much. Obviously, that’s not true. How do you see the bitcoin ecosystem evolving? What are you trying to sell to your prospective LPS in this new fund when they say what’s next?
KIRKWOOD / We think that bitcoin as an ecosystem is still nascent and emerging. Since 2013, the U.S. government has had a specific stance that bitcoin is a commodity—it will be regulated as a commodity and is taxed as a commodity—and they’ve been absolutely consistent about this over the last decade, through different administrations and regulatory bodies. Because of that we see bitcoin on a risk-adjusted basis as very low risk, and that as the adoption of bitcoin diffuses outward the amount of dollars and users coming into the space is going to be growing exponentially. As those users come in there’s going to be infrastructure built around the network and the asset that will be capturing value. The early movers and the companies we identified and targeted are building out the technology to be able to service the needs of these new users who are coming into the bitcoin ecosystem. And those different infrastructure plays or their technology then eventually will become the infrastructure that holds up the entire ecosystem, whether that’s mining, financial services, lightning or other layer services, consumer applications or emerging
markets. Each one of these buckets will have initial movers that are going to be gaining such outsized advantage that trying to displace them is going to become almost insurmountable.

FORBES / Why hasn’t bitcoin adoption really taken off, especially from a payments point of view?

KIRKWOOD / This isn’t a one-year or five- year time horizon. Our belief is that bitcoin is going to be the next world reserve asset. Right now the world is in flux. We don’t think that the world has settled on a world reserve asset. After having the U.S. Treasury market over the last 40 years hit that near zero bound, we’ve ended that period. And so now, over the next 10, 20, 40 years, while bitcoin makes this ascent to the world reserve asset, we think there’s going to be large-scale adoption.

One massive recent signal is BlackRock getting in with their bitcoin spot ETF. I think that is a monster of a signal that the market just hasn’t digested. What I think it does is lower the hurdle for financial institutions and financial advisors, because no longer are they going to have career risk. Over the last 15 years the mainstream media has classified bitcoin as something that is only used by criminals, for dark markets or money laundering. But now with BlackRock lowering the hurdle for these institutions to be able to come in I think that’s a big signal. I don’t think BlackRock takes a shot unless they think they’re going to hit it. A second thought is that it reduces the friction for anybody, anywhere with two clicks of a mouse to be able to sell their Apple stock and buy a bitcoin ETF.

FORBES / How does all that fit into your strategy? How much utility does there have to be for bitcoin to deserve the digital gold narrative?
KIRKWOOD / Let me answer like this: Look at what Strike is doing with its Send Globally payments service. This example highlights the second piece of the bitcoin network or the Lightning Network. We’ve needed five years of maturation on the Lightning Network for it to be able to be where it is today. And, yes, Strike allows users to send value anywhere in the world over the Lightning Network. But the real interesting piece, and what I don’t think people understand, is what they are allowing businesses to do. Let’s say a business in Nigeria wants to be able to purchase an input or a product from Ghana. But they can’t either move into or doesn’t want the naira currency. They want U.S. dollars. Now through Strike’s Send Globally, businesses in Nigeria can take their naira, convert it to bitcoin, move it to a U.S. bank account, where it’s in dollars, and then purchase those inputs in Ghana using U.S. dollars, so they can build and grow their business in Nigeria. All that happens instantly. And that has nothing to do with the price of bitcoin because that happens in a fraction of a second. All because this is a final settlement network.

FORBES / What are your thoughts on BRC-20 tokens, the Ordinals Protocol, and bitcoin meme tokens?
KIRKWOOD / Block space is a finite resource. I wrote a piece at the end of last year about block space, and I didn’t realize that you’re going to have ordinals coming out three months later or BRC 20, and that we would be innovating on ways to use block space. Do I think that ordinals or BRC 20 are something novel and investable to date? I don’t. I’m waiting for a bit more clarity, actual time in the market for people to decide. But I do think that is valuable and that there will be a use case.

FORBES / I want to go back to mining. Do you invest in public or private miners or both? and continued building

KIRKWOOD / Mainly private but we do have one public miner. We typically look for best in class, like Upstream Data.

FORBES / What is most important to you now?

KIRKWOOD / I think what’s shown to be most important is rack space. And who has the ability to build out low-cost rack space and highly attractive geographical locations. And what’s happening in the TVA (Tennessee Valley Authority) is very attractive, because they’ve really leaned into bitcoin miners and the programs that they’re offering. One of our companies targets rural de-industrialized areas so the regulators in these co-ops seek us out and say, okay, we have 10 megawatts or 20 megawatts for you guys. So we’ll go in and we’ll co-locate a 10-megawatt site. What we provide is the purchasing of that power, otherwise the co-op would have to decrease the amount of power they were purchasing. And then that would increase the rate that the end user would be paying. That’s why they seek us out because us coming in either maintains the current cost of electricity to the end users within those rural communities or reduces it, along with the ability to be able to turn off or put the energy back on the grid during peak times.

FORBES / Many miners are making noise about getting into artificial intelligence now. What are your thoughts?
KIRKWOOD / I group this all into distributed compute because bitcoin was the first distributed compute you can easily turn off and the network continues to function. The same is going to be for AI in the amount of rendering required. You can look out just a couple of years from now and I fully anticipate where these LLMs (large language models), like ChatGPT, will be where you will be able to watch a movie that never existed until you were viewing it at that time. But all the amount of rendering it’s going to take to be able to provide that to a billion people on the planet will require a massive amount of computing power. If you go back 15 years ago, a 50-megawatt site for building out a data center was enormous. Now that is almost average. And so, I think we’re going to have to 1,000x the amount of rack space over the next decade to be able to meet the amount of distributed compute requirements.

FORBES / Are there going to be some companies that just do bitcoin mining and ones that want to have flexibility? How do they do that in a cost-efficient way?

KIRKWOOD / I think there’s going to be multiple revenue streams. Right now with a data center you have one revenue stream where you’re taking energy in, and you are producing hashes with that. We’re now moving into where you have two revenue streams, where the second add-on is these programs where you’re returning power back to the grid. So I lock in a 5-cent power contract for five years, and then during peak times I sell it back to the grid for 15 cents. You’ll add on an AI amount so you will have 30%, 20%, 40%, depending on where the market falls. So you’ve got multiple lines that are very near term for these bitcoin miners.

FORBES / The halving is about a year away. I’d like to hear what you think about how the halving will impact the entire investable bitcoin ecosystem.

KIRKWOOD / We made a significant push in the first quarter of 2022 to make sure that all our companies had enough runway to last well past the second half of 2024. The halvening, BlackRock ETF, election cycle coming up, and federal funds rate in the second half of the year are expected to be a perfect storm for bitcoin and the middle of 2024. Then the second piece is that 90% of its total bitcoin supply has been distributed. So over the last 15 years, I’d like to think of this as an abundance of bitcoin that has been sloshing around the market and has been easily accessible. The next 10% isn’t going to be distributed for the next 120 years. The next 5% isn’t for the next ten years. So if you look at that on a relative basis of the last ten years 90% was distributed, the next 10 years only 5% is going to be distributed. That’s a 45% increase. I don’t think people understand that we’ve gone from an abundance to a supply that just doesn’t exist.

FORBES / Are there any interesting use cases or innovations coming out related to bitcoin that you think people should keep an eye on?
KIRKWOOD / I think we need to be paying attention to Nostr. This ties back into bitcoin providing the best way to build a business from scratch. If you look at bitcoin like a company, the asset has accrued $600 billion in market value with no CEO and no marketing budget. I think Nostr, as an open- source communication protocol, is going to do the same over the next ten years. And we’ll be utilizing bitcoin to be able to transfer value for value over this open- source communication layer so that eventually X (a.k.a., Twitter), Meta and Instagram are all going to be Nostr clients operating in an open permissionless network that is built on Nostr.

As we’ve written elsewhere , Ten31 believes that the Nostr protocol (“ N otes and O ther S tuff T ransmitted by R elays”) has the potential to be among the decade’s most significant steps forward for global communications. Nostr leverages public key cryptography to allow anyone in the world to create and manage a profile without permission, then seamlessly plug that identity and its social graph into any application using the Nostr protocol. Users can then transmit data including text, images, and video content through a distributed system of message relays that anyone can operate, ensuring resistance to corporate or government censorship. As an open protocol, Nostr allows any individual or company to freely build applications on top of its very simple architecture. Much like bitcoin, then, Nostr is permissionless, censorship-resistant, simple, and open, a powerful combination that has several significant implications:

• No gatekeepers : No user is beholden to the whims of any middleman. If one relay won’t broadcast your content, you can just connect to another of the dozens that have already sprung up, and broad-based censorship just creates market incentive for paid relays, which can charge a fee to broadcast content. Even if all relays refuse to broadcast your data at any price, you can always run your own , meaning the days of online deplatforming are coming to an end.

• Portable social graphs : Because each user’s content is tied to a public key identity (an “npub”), creators can build large social graphs across many different end-user interfaces (“clients”) – all their followers need to do is plug the creator’s npub into their favored client. This dramatically expands the network effects of the Nostr protocol since content isn’t siloed to one particular platform (as is the case with legacy social media like Twitter and Facebook) and can be automatically pushed to hundreds of clients at once. This also ensures creators can’t lose their audiences just because one client might not allow users to see their content, and they can’t be locked out of interacting with their followers (a problem that also plagued prior attempts at decentralized social media like Mastodon ).

• Better value capture : Creators on Nostr don’t lock their content into a centralized walled garden that can farm it for advertising dollars, demonetize it, or delete it on a whim (or at the behest of “misinformation” busybodies). So long as they maintain the security of their private key, anyone posting on Nostr fully owns their content and can receive value for it without permission or interference from middlemen extracting their cut, as evidenced by the proliferation of “ zaps ” – instant bitcoin micropayments over the lightning network – which have transferred nearly 1.2 billion sats (12 bitcoin) directly to creators over the past six months. This permissionless, direct value transfer can also become a powerful discovery tool since there is a real cost (and thus higher signaling value) associated with sending zaps, unlike “reposts” or “likes.”

• Real market competition : While we expect some relays and clients to eventually begin charging for services (e.g. paid relays could charge for enhanced filters, clients could charge for premium features), Nostr’s architecture ensures all these entities will be highly constrained by true competition. Since anyone can set up a new relay and users can almost instantly port their profiles to a different client without losing followers, all service providers will need to fiercely compete on both the user experiences they offer and the fees they charge, a stark departure from legacy online communication platforms.

• Rich, diverse ecosystem : Nostr’s simple, open standards allow developers to easily create a wide array of new applications, many of which were impossible or impractical before. While the applications with the most early traction have been Twitter-like social media clients like Primal, there is a host of other use cases already being built out, including longform content ( Habla.news ), music distribution ( Stemstr , Wavman ), marketplaces ( CivKit , Nostr Marketplaces ), exchanges ( n3xB ), and even totally new types of shared online content ( Highlighter ). We expect this ecosystem to grow substantially over the next several years.

• Privacy : Users can interact on Nostr with a much higher degree of privacy than is possible on any centralized social media platform. There is no need to verify one’s identity or provide sensitive personal information to get started or enjoy a high quality user experience, which is increasingly important given the growing KYC burden imposed on Twitter users – something Ten31 partner Matt Odell has warned about extensively in recent months.

This compelling set of benefits has led to explosive growth in Nostr use since late last year when the protocol began receiving more attention. In just over six months, the total Nostr user count has ballooned from under 20,000 to somewhere in the neighborhood of 300-500,000 with users showing solid 30-day retention rates , and all without any marketing budget or paid influencer endorsements. The organic and rapid expansion of the Nostr ecosystem since late last year confirms our long-held thesis that the real “Web3” will not be built by centralized, closed-source companies peddling their own proprietary and worthless “tokens,” but rather on open standards and decentralized, censorship-resistant infrastructure, with monetization powered by bitcoin, the native currency of the internet. The opportunity for true innovation that Nostr opens up is substantial, and we’re not the only ones who think so:

All that said – and as Jack points out in the post above – Nostr still suffers from many of the limitations typical of an emerging technology standard. Most notably, Nostr applications generally still can’t offer parity with the UX of the more widely adopted centralized systems they seek to replace. While many talented developers and contributors have made great strides in improving client UX over the past 12 months, most applications today are still at least somewhat slower, clunkier, less reliable, and / or more limited in functionality than the more established mobile and desktop apps to which users have gotten accustomed over the past couple decades. As a result, Nostr users today have to be willing to tolerate some subpar UX elements, which tends to select for users who are ideologically motivated (e.g. proponents of bitcoin, open source software, and / or censorship resistance). To take the next step forward, Nostr applications need to continue improving in accessibility and ease of use.

Primal fixes this. Through a first of its kind caching service and fully open-source tech stack, Primal – available now on the web , iOS, and Android – regularly loads full Nostr profiles and conversation threads in under a second, while offering an infinite feed that users can scroll for hours on end without lags, crashes, or other performance degradation. The Primal client also offers a full suite of discovery features that social media users have come to expect, including advanced and fluid search tools, trending content, recommended profiles, and more, all while making optimal use of both bandwidth and device battery life. Taken together, all this functionality gives users a Nostr experience that feels, for the first time, truly comparable with what they can get on a centralized platform like Twitter.

Meanwhile, Primal’s caching service also helps strengthen Nostr overall, as it both reduces load on the network’s relays (thus reducing the tendency toward relay centralization) and adds another layer of content propagation that potential censors would have to shut down in addition to the relay network. Simply put, Primal levels up Nostr’s UX to bring its benefits to a mainstream audience while further bolstering its resilience.

Though Primal’s initial focus revolves around its Twitter-like client, users should expect much more to come over the next couple years. As discussed above, Nostr’s primitives enable much more than just a recreation of more resilient, censorship-resistant social media tools, and Primal will be at the forefront of pushing those new use cases forward while maintaining a commitment to best-in-class UX. With an expansive vision to make Nostr-based applications not just comparable to but even better than legacy platforms, Primal is set to become one of the world’s premier Nostr companies, and we’re very excited to help support those ambitions.

Introduction

At Ten31 we started with the premise (i) bitcoin is a disruptive technology, and (ii) as adoption of the digital asset and network continued, there would be a growing demand for products and services built on top of the network to meet the needs of a growing user base.  We believed businesses building bitcoin technology would not only prove more robust and sustainable as a result of the secular tailwind i.e. long term trend of bitcoin adoption, but also companies building bitcoin-related technology would be afforded unique competitive advantages relative to legacy players based on the attributes of bitcoin and its network effects.  Specifically, companies building in the bitcoin space could leverage the network to benefit from (i) market segmentation, attracting high quality talent drawn to the larger mission of bitcoin; (ii) the “flywheel” of innovation, investment and development, where company development benefits the network as a whole and reinforces a feedback loop where both collaboration and competition can drive additive network effects; (iii)   a truly global addressable market, given bitcoin’s open nature and accessibility across borders which historically was not possible and (iv) an exponentially growing user base, driven by the emerging adoption of a new digital money, which is comparable to and is as unrepeatable as the adoption of digital communication was with the internet.  We understood first movers would benefit disproportionately from these network-oriented advantages, and this would enable growth and development with significant implications for the potential to generate profitability earlier in a company’s lifecycle. I will outline these ideas further in the sections below, using the examples of Fold and Strike, two Ten31 portfolio companies who are both poised to disrupt legacy categories in their respective markets in part because of these advantages.

Market Segmentation - Think Differently

Market segmentation has served as a unique tool for companies to set apart products and services, but segmentation could be thought about differently where companies adopting a bitcoin strategy are able to set themselves apart and thereby attract engaged talent from across different industries. Thanks to its unprecedented innovations, huge design space, and potential for positive social impact, bitcoin has successfully drawn in passionate entrepreneurs and dedicated customers that actively contribute to the development of applications, products, and services.  For example, Will Reeves, who began his career in venture capital and technology, went on to found Fold , a platform initially formed to enable users to exchange bitcoin for gift cards.  Around the same time, Jack Mallers started independently building out a bitcoin and lightning wallet – though initially a passion project, that wallet would become a precursor to Strike .

The success experienced by these innovators was accelerated by the embrace of bitcoin, which not only differentiated them in the market but also fostered a fervent community of developers and builders. Fold has witnessed first hand their ability to leapfrog into pole position for disrupting the rewards and loyalty market because of the knowledge and experience brought by individuals from Chase, Rakuten, Blackhawk, Lloyd’s and Lending Club.  Fold made a significant pivot early on, ultimately transforming their business model providing bitcoin as rewards instead of using it as a means of payment.  The market has confirmed this strategic shift was a correct move which has allowed Fold to grow at an advanced rate.  Instead of relying on conventional rewards programs such as frequent flyer miles or Starbucks points, Fold’s customers benefit from their unique rewards system on bitcoin, which offers distinct advantages over traditional platforms. In contrast to the depreciation seen in rewards platforms like Starbucks this year, which devalued customers’ points by as much as 50%, Fold users have the certainty that their rewards will remain a fixed proportion of the finite 21 million bitcoin supply.  Over time, this asset has demonstrated a tendency to appreciate substantially, thereby enhancing the value of their rewards and enabling Fold to unlock the creative potential of their dedicated workforce to develop an engaging platform for users that aligns with their passion for bitcoin.  Fold's innovative approach led to an enthusiastic reception when they launched their debit card on the Visa platform, a response echoing the corporate card craze of the 80s and 90s. This success contributed to Fold becoming a preferred partner of Visa, a recognition driven by impressive user growth and transaction volume during and after the launch.

Similarly, Jack Mallers, who has been innovating on the lightning network with Zap Wallet in 2017, scaled up his bitcoin ambitions substantially in 2020 with the launch of Strike.  Strike is working towards becoming the global leader in payments leveraging the bitcoin network and has recently extended its reach to 65 countries , enabling users to easily interact with bitcoin and a US dollar stablecoin. Strike's audacious mission to provide financial tools to everyone, everywhere, has attracted talent from across the board due to their shared passion for bitcoin. This includes top-tier professionals from technical, legal, design, and business development sectors who left established senior roles to join Strike. This team, comprising leaders from companies such as Nike, Robinhood, and Tiffany's, is committed to creating lasting and impactful products based on the mission of bitcoin and Strike's potential to uplift humanity.  Strike is currently leading the way forward as the premier technology company utilizing bitcoin to service customers covering the globe. 

Open Network Effects

Open source networks like bitcoin offer a unique competitive advantage due to their inherently collaborative structure. Companies such as Fold and Strike are prime examples of businesses that leverage this advantage. Each contribution made to this open-source network by various participants across the globe invariably improves the whole system's value, benefiting all users. Companies initially working in a self-interested way to maximize their edge will end up laying the foundation for others to integrate and build on thereby enhancing the overall network's value.  Because contributions to an open system have downstream benefits to everyone, including direct competitors and potential startups, using the bitcoin network will result in a positive flywheel of innovation . For instance, The Lightning Network is a revolutionary technology facilitating faster and cheaper transactions owing its success to an open-source movement involving various companies and individuals who at times can be direct competitors.  The lightning protocol, which operates as a layer-two solution for bitcoin has allowed for greater scalability and efficiency in conducting digital payments enabling new companies to emerge and leverage this open standard.  Both Strike and Fold have embraced this open standard, as it has enabled them to offer seamless and cost-effective payment solutions to their users and merchants.  Each company independently leverages the technology to expand the ecosystem of users resulting in a positive value accrual to all companies operating within this growing user base.

This collective effort stands in sharp contrast to the limitations imposed by closed networks.  An illustrative example of this is BlackBerry's struggle to compete against the open-source nature of Android. While BlackBerry had control over its ecosystem, Android's open-source model allowed an influx of diverse contributions, leading to rapid innovation and a wide spectrum of device compatibility. This open-source development approach has been estimated to be worth billions of dollars when accounting for the sheer volume of man-hours put into these projects. For example, the Linux operating system , another open-source project, is estimated to have received contributions from over 7,500 person years in development of the Linux kernel. If a company were to recreate the Linux kernel from scratch today, it would cost approximately $1.4 billion, illustrating the immense value inherent in open-source development. This highlights the competitive edge that open networks like bitcoin can offer, through collaborative development and the shared benefits of open source innovation. We wrote about this dynamic at length in our piece on Open Source Businesses .

Globally Available

In the digitized financial landscape, global availability and interaction have emerged as critical competitive advantages. Traditional banking systems, characterized by operational limitations, bureaucratic red tape, and temporal constraints, often obstruct cross-border transactions due to complexities in correspondent banking, exchange rate volatility, and rigid capital controls. These obstacles significantly impede the ability of businesses to expand globally. However, bitcoin, the decentralized network, presents an appealing and paradigm-shifting alternative. Bitcoin’s around-the-clock accessibility, worldwide interoperability, and insusceptibility to capital control mechanisms allow businesses to flourish beyond the limits imposed by the traditional banking infrastructure.  Thus it is no surprise, Strike and Fold have recently announced they are leveraging the forward leaning El Salvador for expansion into the global market.

Strike's "Send Globally" service epitomizes this new paradigm. By harnessing the inherent capabilities of bitcoin, Strike bridges the gap between consumers and businesses (C2C, C2B) and business-to-business (B2B) transactions. This platform allows companies to conduct seamless financial operations regardless of geographical boundaries. For the first time, businesses can sell their goods and services globally with instant and final settlement.  Consider a conventional dilemma in cross-border payments where a company in Nigeria needs a product from Ghana but is unable to procure it due to capital restrictions or exchange rate risk.  With Strike's "Send Globally" feature, any company anywhere can offer final settlement on sourcing inputs instantly.  This opens up unprecedented possibilities in the B2B segment, which handles over $100 trillion in payments annually.  Meanwhile, Fold’s bitcoin rewards are globally portable without gatekeepers anywhere in the world, a value proposition that is unheard of in the world of permissioned, vendor-locked rewards of the past.

Target a Growing, Passionate User Base

Successfully targeting an expanding user base holds paramount importance in the realm of any technology company with new products and services. The bitcoin ecosystem benefits from a continued increase in active participants seeking stable and debasement-resistant assets and has played an instrumental role in propelling bitcoin-related businesses such as Fold and Strike to new heights. These users not only act as early adopters but also assume the critical role of brand ambassadors, passionately spreading the word and attracting new users to these respective companies. This ripple effect fosters increased awareness and wider acceptance of bitcoin technology and the companies supporting adoption.  The correlation between a passionate user base and the triumph of bitcoin-based companies cannot be overstated. By embracing and championing these companies, these users become indispensable advocates, effectively acting as the foundation for further market expansion. Their positive experiences and endorsements generate trust and credibility within the wider community, thereby attracting new users who are intrigued by the possibilities offered by bitcoin and its associated services.  By strategically catering to this dedicated user base, businesses can unlock their growth objectives while simultaneously contributing to the broader adoption and recognition of bitcoin as a transformative force in the financial landscape.

Consider General Magic , a failed software and hardware startup that serves as a compelling cautionary tale highlighting the importance of a dedicated user base in the success of a groundbreaking product. General Magic was an innovative company that developed a revolutionary handheld device well ahead of its time, incorporating features that would later become commonplace in smartphones. Their visionary approach was commendable.  However, despite their pioneering efforts, General Magic faced a significant setback—they struggled to attract a sufficient number of users to sustain their business.  Marc Porat, the founder of General Magic, expressed deep regret over the lack of user adoption.  He recognized the importance of the product they were building, but unfortunately, they underestimated the challenges of selling it to a new audience.  This example vividly showcases the critical role users play in the success of innovative technologies.  Even the most groundbreaking ideas can falter without a passionate and supportive user base.  In stark contrast, companies creating bitcoin technology, such as Strike and Fold, have embraced a different approach.  Rather than building products and hoping for customers to appear, they focus on serving a large and expanding user base primed for substantial organic growth.  As people worldwide seek stable debasement-resistant assets and new payment solutions, these companies are well-positioned to meet the needs of an eager and receptive audience.

Conclusion

Fold and Strike stand out as examples of pioneering enterprises that have fully embraced and capitalized on the bountiful competitive advantages offered by the bitcoin ecosystem.  Their innovative approaches, which leverage bitcoin's global accessibility and open network while effectively utilizing market segmentation and benefiting from an exponentially growing user base, have propelled them beyond traditional competitors in their respective domains.  Such businesses are not mere participants in a changing paradigm but are at its forefront, embodying the future where companies fully integrate bitcoin into their core strategies, thus shaping an economic environment where bitcoin is foundational and early entrants reap outsized returns.

Fold has shown immense potential to revolutionize the substantial $200 billion loyalty and rewards market. The unique concept of earning bitcoin as rewards has not only created a new segment in the market but also offered an innovative and enticing proposition for consumers. In this un fold ing landscape, the stakes are high and the rewards , transformative. Strike, on the other hand, is poised to become the comprehensive global money app, delivering financial services to anyone, anywhere, thereby democratizing access to financial tools, thanks to the borderless nature of bitcoin. The growing user base of these companies attests to their potential and the compelling appeal of their value propositions.

The early success stories of Fold and Strike are a call to action for businesses and entrepreneurs globally to acknowledge the overwhelming potential benefits of incorporating bitcoin technology into their strategic framework. Those who heed this call will gain significant competitive advantages, foster innovation, and secure a prosperous place in the evolving digital economy.  Adapting to this new normal is no longer a choice but a necessity for businesses to maintain their competitive edge in an ever-changing global market.  Grasp this opportunity, dive into the bitcoin revolution, and shape the competitive landscape of tomorrow - the moment to act is now.

Last week, BlackRock officially threw its hat in the ring for a spot bitcoin ETF. A lot has already been said about the magnitude of this announcement. Not just because it’s BlackRock, the largest asset manager in the world with nearly $10 trillion in AUM and whose iShares ETF business is the clear leader in the US ETF market with a 33% share and $2.5 trillion in AUM, but also because BlackRock is 575-1 when it comes to success rate of ETF attempts. When BlackRock swings, it does not miss.

After all the recent failures of others to successfully launch a spot bitcoin ETF (e.g. VanEck, Ark / 21Shares, WisdomTree, Grayscale, etc.), why would BlackRock attempt this now? Do they know something others do not? With the recent Binance and Coinbase SEC actions, has it become more clear that the best path forward is a focus only on bitcoin in the midst of regulatory and securities risk surrounding the rest of the “crypto” ecosystem? Or, might BlackRock have just enough influence to get a spot bitcoin ETF over the finish line, despite others’ failures? One cannot be sure, but in any case this is a strong signal to others who have been watching from afar or lurking closely behind the scenes that it’s time to take bitcoin more seriously. The legacy financial incumbents have entered the room, and as expected many others are quickly following suit with similar spot ETF filings so as not to lose any early mover advantage (e.g. WisdomTree, Bitwise, and Invesco Galaxy; likely many others imminent). [Also of note, we just saw Citadel, Fidelity and Schwab announce a new exchange. Momentum from traditional players seems to be building, possibly suggesting a shift in sentiment or hinting at greater regulatory acceptance.]

When reading through the BlackRock S-1, it is unsurprising to see lots of disclosures concerning the risks inherent in investing in a securities product which is meant to closely track the USD price performance of bitcoin. SEC filings like this are meant to provide investors fair disclosures of the risks involved in investing in a given security, and typically the approach is to include “everything but the kitchen sink” as potential risks (many may recall the Coinbase S-1 had 60 pages of risks related to its 2021 direct listing). With this amount of disclosure it’s easy to drown in pages of financial and legal minutiae, but if you carefully read through the BlackRock document in its entirety, there are also some real gems sprinkled throughout that would be easy to overlook, highlighting the slow creep of bitcoin signal being disseminated publicly and entering the mainstream investor consciousness. The following are a selection of verbatim quotes from the S-1, which I thought were noteworthy and telling:

The Bitcoin network is the most established digital asset network. /

Bitcoin was the first digital asset to gain global adoption and critical mass, and as a result, it has a “first to market” advantage over other digital assets. /

The Bitcoin network operates based on an open-source protocol maintained by the core developers and other contributors, largely on the GitHub resource section dedicated to bitcoin development. /

A greater degree of decentralization generally means a given digital asset network is less susceptible to manipulation or capture. /

No single entity owns or operates the Bitcoin network, the infrastructure of which is collectively maintained by its user base. /

Governance of the Bitcoin network is by voluntary consensus and open competition. /

Prior to engaging in bitcoin transactions directly on the Bitcoin network, a user generally must first install on its computer or mobile device a Bitcoin network software program that will allow the user to generate a private and public key pair. /

Private keys must be safeguarded and kept private in order to prevent a third party from accessing the digital asset held in such wallet. /

If the Bitcoin network grows in adoption, it is anticipated that service providers may expand the currently available range of services and that additional parties will enter the service sector for the Bitcoin network. /

BlackRock is working closely with well known custodians in Coinbase and BNY Mellon and also has top tier legal advisors, so one would expect the S-1 to accurately depict the nature of bitcoin in the statements above, but nonetheless the fact that a major incumbent institution accurately described many technical aspects and facets that differentiate bitcoin is still a moment to be recognized. These statements and BlackRock’s stamp of approval are now filed publicly for institutions, investors, RIAs and others to evaluate for themselves.

So what are the implications when a spot bitcoin ETF is finally approved? Of course, the obvious first consequence will be the significant capital inflows seeking exposure to this market. There have undoubtedly been large groups of investors sitting on the sidelines over the last several years, waiting for either an easier or more traditional way to gain bitcoin exposure, greater regulatory clarity on the consequences of doing so, or a clear sign of the maturation of the industry, among other potential factors. Traditional investors like these are generally seeking convenience, familiarity, and assurances/protections from others. On the other hand, those who better understand bitcoin already know investing in a spot bitcoin ETF is a poor substitute for real bitcoin, and at Ten31 we will always recommend users instead acquire bitcoin directly and custody it themselves or through a collaborative custody partner like Unchained. Whereas assets across all other traditional asset classes are either impossible or impractical to directly custody without counterparty risk, bitcoin is uniquely suited for self custody. Bitcoin created the first credibly scarce, digital bearer asset which can be held and controlled with relative ease. Sure, it requires a new way of thinking and a level of personal responsibility which most have become accustomed to handing over to someone else in other aspects of their financial lives, but safely securing bitcoin oneself is in fact easy if one makes the effort to learn and gives it proper mindshare. With bitcoin, removing counterparty risk is the whole point…

With that being said, an ETF will clearly appeal to groups that don’t want that responsibility or don’t fully appreciate (or care) that without holding one’s keys, one does not have actual bitcoin (but rather an IOU that might not be redeemable when wanted or needed). Groups like these will therefore obtain their first bitcoin exposure synthetically through an ETF (and hopefully many will graduate to holding actual bitcoin themselves later on), and I expect fresh capital from these groups will enter the space in droves once a spot ETF is approved. The gold ETF (GLD) launched in 2004 was the most successful ETF launch ever at the time, gathering $1 billion in assets in just three days. The ProShares bitcoin futures ETF (BITO) hit $1 billion in assets in just one day after its launch in October 2021 (admittedly, BITO top-ticked the bull market when BTC/USD was $64,000). With the backing and distribution of BlackRock, a macro landscape with risks across other asset classes which could lead to a flight to quality (or flight to safety) in bitcoin, and the upcoming bitcoin halving early next year, the ingredients are in place for any finally approved spot bitcoin ETF to potentially surpass these benchmarks. Time will tell.

While many market prognosticators are most interested in the impact of the spot bitcoin ETF on the BTC/USD exchange rate, I am most excited about how it could impact the growth of the network and development of the ecosystem, namely around the continued buildout of products, services and infrastructure catering to this market, built by companies focusing on bitcoin. As the BlackRock S-1 stated:

If the Bitcoin network grows in adoption, it is anticipated that service providers may expand the currently available range of services and that additional parties will enter the service sector for the Bitcoin network.

As more people get their first exposure to bitcoin through the ETF, it will inevitably drive increased adoption of the bitcoin network, even if only a small percentage of those buying the ETF graduate to self custody and a fuller understanding of bitcoin. This will lead to increased network activity and demand for products and services built to increase the utility of owning and using bitcoin as an asset. There will be greater demand from business and retail users alike for connecting with and interfacing efficiently with the network and utilizing the asset. This will encompass a diverse group of bitcoin products, services and infrastructure, including:

• Bitcoin financial products including trading, lending, and insurance;

• Bitcoin payments services, remittances, settlement, and community technology services;

• Bitcoin security infrastructure including custody, computing, hardware, networking, analytics, reporting, wallet software, and communications;

• B2B and consumer bitcoin applications like rewards, loyalty/marketing, peer-to-peer trading and lending, gaming, and communications / social applications;

• Energy and bitcoin mining infrastructure, including on-grid and off-grid mining and mining services and infrastructure.

The last couple years have seen tremendous momentum in the buildout of bitcoin-related infrastructure, as evidenced by all the referenced links above (most of which we are proud are already represented in the Ten31 portfolio). The demand for these services is growing uninhibited by challenging macro factors and broader market illiquidity, and I expect any spot bitcoin ETF will only add fuel to this fire. The foundation for the next big adoption cycle is being built and fortified right now.

Whether BlackRock is eventually successful or it is someone else first to market, this filing is a big deal. Bitcoin is an unstoppable force, and if you zoom out it is clear there’s bitcoin and there is everything else. BlackRock did not file an ETF for ETH or SOL or Cookiecoin or any other unregistered security; they came for bitcoin, the King. Whether they eventually get the approval and how this plays out over the near term remains unknown, but over the long term it is clear the demand for bitcoin products, services and infrastructure will only increase from here. There has never been a better time to be supporting the buildout of the network and ecosystem, and there will be significant economic rewards for those who invest in this future now. If you are not paying attention, you probably should be…

As we are now in Ten31’s fourth year investing in companies building in the bitcoin ecosystem, I wanted to provide some commentary on our progress to date, reflect on what we’ve seen in the market over that time (particularly more recently), and share some of our plans for Ten31 looking forward. I also wanted to provide some perspectives on how Ten31 views the investable landscape for bitcoin companies, most notably how we expect it to grow over the coming years.

Ten31 Thesis and Vision

Ten31 was formed as an investment platform to scale and institutionalize investments in companies building products, services and infrastructure dedicated solely to the bitcoin ecosystem. Our thesis is simple: bitcoin is a humanity-shaping technology whose value and potential economic, societal and ethical benefits globally are not yet understood, and there is both a significant need and an asymmetric opportunity to invest in the companies building foundational infrastructure to support the growing demand for bitcoin products and services as more consumers and institutions inevitably adopt bitcoin over time based on its superior monetary properties.

As a result of broad investor misunderstanding of bitcoin (which generally still exists today), there has been a dramatic imbalance of capital allocated to newer, unproven “crypto” projects which were mostly speculation platforms built on poor incentives with significant counterparty and securities regulation risk, leading to an incredible under appreciation of more fundamentally sound bitcoin infrastructure. It is undeniable that the multidimensional nature of bitcoin–rooted in cryptography, game theory, monetary economics and energy–make it a very difficult topic to attempt to begin to grasp, and therefore it is understandable that most initially ignore or dismiss it, often instead gravitating elsewhere and accepting the fancy terminology and bold claims of crypto at face value without appreciating that the real innovation and focus of their attention and capital should be on bitcoin. But this flawed common perception of bitcoin vs. crypto is inherently why the asymmetry (still) exists in investing in bitcoin infrastructure.

We recognized there was a significant gap in the market for bitcoin-aligned capital partners, which were highly desired by founders and companies in the bitcoin space but in scarce supply, and with Ten31 we thought we could not only fill that void, but also attract institutional capital into the ecosystem and bring an institutional investing pedigree to the space while providing unique value to the bitcoin companies. When we announced more publicly in 2021 what we had been building, our strategy for investing in the space, and our plans for the future ( “Ten31 - A Vision for Supporting the Bitcoin Ecosystem” ), we asserted that a bitcoin-focused strategy–even though it was not popular at the time–would prove to be more successful than the approaches taken by other traditional and crypto-focused investors who did not yet understand bitcoin, and that we would create more value investing $50 million in the bitcoin ecosystem than traditional VCs investing billions across crypto more broadly.

Progress

Ten31 Positioning and Backing

I have been an institutional investor by profession and working directly with companies in that capacity for nearly 20 years. With Ten31 we have combined institutional investing experience at leading global investment firms (CVC Capital Partners, Goldman Sachs and Citadel), matched with deep industry and technical talent and specialist advisors providing subject matter expertise (bitcoin financial services, technical advisory, and energy/mining). Our team has been involved in bitcoin for over 10 years, and from the outset we have presented Ten31 as "bitcoiners supporting bitcoiners". We very deliberately and explicitly do not refer to Ten31 as a ‘VC fund’; we are an investment platform. It is incredibly important to differentiate ourselves from traditional venture capital, operating with a mindset and approach which contrasts with the stereotypes associated with the VC label. Just as bitcoin requires a new way of thinking about money, we believe the same applies to investing in companies and supporting the growth of the ecosystem.

We began building an initial portfolio of investments from a first fund in 2020 (Low Time Preference Fund I), came out of stealth in 2021, and then proceeded to raise the largest institutional-oriented fund focused exclusively on bitcoin (Low Time Preference Fund II). Our investors include long time bitcoiners, HNWIs, family offices, university endowments, pension funds, well-known bitcoin-focused institutions, even some of the other known bitcoin funds and their partners, and other institutional investors.

Fast forward two years, and we have raised and deployed capital across two funds, directing over $100 million into leading companies in the space, and we will soon start deploying a third fund, which we expect will take our support of the bitcoin ecosystem to the next level.

Investment Portfolio and Partnerships

We are incredibly proud to be backing and supporting a portfolio of over 30 leading bitcoin companies working to make bitcoin more accessible, usable, and robust for current and future bitcoin holders. Ultimately, bitcoin is a movement of individuals, and we have endeavored to support the best founders and teams in the space building critical technology to push bitcoin forward.

There has been much debate over whether the bitcoin ecosystem could support a more significant level of equity-oriented capital similar to what has been raised across broader crypto, and we believe we have proven in the affirmative that yes, not only is it possible, but it is also the correct strategy, further validated by the differentiation of bitcoin vs. crypto last year. Amid a sea of crypto blowups in 2022, bitcoin companies were largely unscathed, with many thriving as more users and industry observers recognized the resiliency of the ecosystem and flocked to bitcoin.

Ten31 has led the charge in deploying capital at scale in the industry, assembling a differentiated blue chip portfolio. We have often been the first investor in some of the most promising bitcoin companies, but we have also led large rounds for more established and higher profile companies (e.g. Strike’s Series B , Unchained’s Series A+ ). We invest across all parts of the bitcoin ecosystem, and our portfolio demonstrates healthy diversification across sectors.

Further, we are not afraid to go against the grain. We pride ourselves on leaning into opportunities others will not and making investments that don’t fit a typical VC profile. For example: we invest in hardware; we invest in profitable businesses (which we have long written about and referred to as ‘sats flowing’ businesses); we support and invest in tools providing privacy services; we have been extensive investors in mining (and even mine directly into our fund leveraging stranded gas assets); and we invest in and are one of the most active supporters of open source businesses (discussed below).

One of the most underappreciated aspects of investing in the bitcoin ecosystem is the significant opportunities for synergies that exist across the portfolio. Because of bitcoin’s open network, each company’s success contributes to the development of the entire ecosystem (benefiting all other participants, which I have written about and referred to as the “bitcoin infrastructure flywheel”), but that is not all. The open nature of bitcoin also allows cross-industry and cross-portfolio collaboration and partnerships in a way I don’t think you can find elsewhere in a traditional VC portfolio (e.g. Strike/Bitnob , which is just one among several others in our portfolio with either formal partnerships or ongoing collaboration). It is a very powerful concept that one company in a portfolio can contribute positively to the investment performance of the rest of the portfolio (and that there would be many such opportunities across a portfolio), and we think that will become more appreciated over time . As a result, we have been deliberate about trying to facilitate relationship building and collaboration across our portfolio, particularly where a potential partnership might not have occurred naturally otherwise (e.g. teams in different geographies or with non-overlapping areas of business focus). We host an annual retreat exclusively for Ten31 portfolio companies explicitly for that purpose.

Our relationships with founders and companies are our most valuable assets. In addition to leveraging a wealth of prior experience across all functional areas of business to support companies at the board level, the value proposition we offer bitcoin companies is that we live and breathe bitcoin 24/7, we are bitcoiners and active contributors to the space on a day-to-day basis, and we can open up a deep network to our partners and provide extended reach, which in aggregate is a differentiated combination they can’t find anywhere else. Since bitcoin companies and new entrants to the bitcoin ecosystem often navigate issues unique to this industry, our focus, experience and expertise are very much valued, making it very difficult for unaligned crypto funds and traditional VC funds dabbling in the space (but mostly focused elsewhere) to compete.

Open Source Contributions

We are very proud to be significant supporters of open source development in the bitcoin ecosystem. We have historically written about the importance of supporting and investing in open source businesses in bitcoin, and Ten31 has been the most active investor supporting businesses with FOSS business models and other companies contributing to the open source movement in some way.

In addition, a key tenet of Ten31 from day one is to use a portion of our management fees to provide non-investment capital as grants to developers and others making important contributions to the open source ecosystem. We thought this first-of-its-kind management fee-driven contribution framework would be an attractive way to create a recurring developer support model that other funds would also consider emulating.

We were a founding contributor to OpenSats, gave a grant to BitcoinQnA for his work in bitcoin education , sponsored the travel of several open source developers to attend the Oslo Freedom Forum, provided an early grant for the open-source Fedimint protocol, and support both the Bitcoin Commons and Bitcoin Park providing a Ten31 sponsorship seat for a developer contributing to open source (our first sponsorship seat was with Justin Moon contributing to Fedimint while working out of the Commons in Austin).

Through the Ten31 grant program we will continue to support open source development centered around the areas we believe are most in need of support and/or where the impact could be most meaningful. We expect our grants in 2023 will be centered around advancing the federated mining pools idea and supporting development in the nostr ecosystem, and we look forward to providing more details once the 2023 grants are finalized.

Ten31 Tribe

In the spirit of bitcoin’s open monetary network, we created the “Ten31 Tribe” as a network of active Ten31 investors combined with Ten31 portfolio companies and other bitcoin founders/entrepreneurs. The idea was to eliminate the walled gardens that typically exist at traditional funds between a fund’s LPs and the founders and teams behind its underlying investments, and instead offer an open network to encourage relationship building and facilitate potential support and collaboration opportunities. We typically host monthly virtual events and quarterly in-person events, typically with 50%+ of our investors participating regularly. These events have already led to productive relationships, including partnerships and financial investments outside of Ten31’s direct involvement.

Thought Leadership

Education is one of the most important ways to drive continued growth in the ecosystem: not just educating consumers and institutions about why bitcoin matters and how to use the tools, but also educating investors and capital allocators about the merits of deploying capital into the space to support development. We strive to consistently produce content to present unique insights from an investor’s perspective, and over time we hope these efforts, combined with attractive investment performance, will drive increased capital into the space. We therefore proactively put our thoughts out in the open. We have written about investing in bitcoin infrastructure, bitcoin corporate finance, open source business models, the expected enhanced utility of bitcoin blockspace, bitcoin and FedNow as settlement networks, and the expected coming intersection of bitcoin and AI, among other topics. We also produce one of the best weekly newsletters in the space, the Ten31 Timestamp .

Reflections on Recent Market Trends

2022 was the year when those who were once considered the “smartest guys in the room” were exposed, as excess leverage and misinformed “crypto” capital was flushed. We estimate over $100 billion of enterprise value was wiped out last year just from a handful of names which were once considered the darlings of the crypto industry. Just in BlockFi alone, roughly $1.4 billion in previously raised equity capital was wiped out, roughly 10x the amount of capital that had been raised in aggregate across bitcoin-focused VC funds (in just one deal!).

Meanwhile, bitcoin companies were largely unscathed (with many of our portfolio companies recording their best years ever in 2022), as there was (yet again) a clear separation of bitcoin and ‘everything else’. While it is still far too early to declare victory from an investment performance and value creation perspective, we remain optimistic about the health of our portfolio and the ecosystem more broadly, which we suspect looks quite different from your run-of-the-mill crypto funds, most of which will already be littered with write-offs amid the crypto chaos and bloodbath from last year.

Looking over a multi-year horizon specifically in the bitcoin ecosystem, we have clearly seen an uptick in activity. It is of course not surprising the fundraising environment was relatively quiet from 2018-2020 during the previous bear market and that transaction activity picked up with the market rebound in 2021 (and also coinciding with the entry of new bitcoin focused investors the last couple years). But we do see evidence the uptick in activity is also driven by underlying growth and development in the ecosystem, both in early stage company formation but also in the continued growth and maturation of existing businesses.

Based on the data we’ve tracked, bitcoin-only funding rounds (i.e. fundraising by companies with an exclusive focus on bitcoin) have been growing in both size and scale, even through the more recent bear market of 2022. In addition, our data suggests more businesses are maturing to the Series A and B stages, while the number of new early-stage companies continues to grow. We expect growth in the ecosystem to continue unabated as the next wave of adoption inevitably approaches. In addition, the total addressable market will expand as companies from outside the bitcoin ecosystem enter the market, as further described below.

Looking forward

Investable Landscape for Bitcoin Infrastructure

The Ten31 thesis is founded on the conviction that bitcoin is going to play an increasingly important role in the global economy over time and will eventually become the world reserve asset and the standard upon which economic, monetary and human activity is coordinated. As a result, we firmly believe every person, every company, and every institution will eventually hold bitcoin, and in order for that to happen they’re going to need not just bitcoin but also infrastructure built around it.

That is what initially defines the investable landscape for Ten31: the companies focused on delivering products and services that are (or are expected to be) desired and valued by holders of bitcoin (i.e. that bitcoin holders are willing to pay for). This includes many obvious initial categories, such as custody, financial services, payments, security services, business-to-business services, and a whole host of consumer-facing and institutional applications, as well as the energy- and mining-related infrastructure and services underpinning the network.

We expect that everyone will eventually need to plug into the new open monetary network of bitcoin in some capacity and will also require products and services to support their participation. As such, the implication is that investing in the new infrastructure required to support that transition will have an end market of potentially everybody. That is effectively the largest total addressable market that could exist, and therefore offers huge asymmetry to those who are supporting its early buildout.

By that logic, it also follows that all companies will eventually adopt bitcoin in some way. At Ten31 we like to say that just like after the ‘90s every company eventually became an internet company, every company will also eventually become a bitcoin company . That means that the total investable landscape will expand dramatically as a wave of new entrants from outside the bitcoin ecosystem begin to learn about bitcoin, evaluate its relevance and potential use in their businesses, and eventually use it or leverage the technology in some way. We expect initially this shift will be driven predominantly by technology companies who are more primed to consider it, and we are already seeing early glimpses of this in Ten31’s portfolio (e.g. StatMuse , which is an AI/ML-first business focused on sports/media but an early mover within their field into bitcoin with plans to grow a bitcoin-oriented business within their platform).

We expect $500mm+ will be invested in bitcoin companies in the next two years, and the entrance of other technology companies as I describe above along with founders and entrepreneurs from outside the bitcoin ecosystem could take the investable TAM to $1-2 billion . We believe there will be tremendous value in having specialist bitcoin platforms like Ten31 to help these companies navigate their bitcoin strategy, and with industry valuations still largely depressed from 2022 and the investable landscape on the precipice of significant expansion, there has never been a more attractive time to invest in this space.

Ten31 Future Plans

We are proud of what we have achieved so far at Ten31, but we are just getting started. As our next fund comes online to continue the same strategy we’ve proven out with our last two funds, we will be adding to our team and expect to make an announcement on the team front in the near future.

In addition, we also plan to share more on a new initiative we have in the works to help incubate new projects in the space, which we are tentatively calling Ten31 Timelock. This won’t be a high volume, formal accelerator model, but will instead focus on leveraging our on-the-ground presence to take a very selective approach to helping launch projects in a few areas we believe are in most need, more akin to an incubator or studio model. We’ve already had heavy involvement doing this with a few of our current portfolio companies, so we view this as a natural extension of what we are already doing and complementary to our existing business. We look forward to sharing more details soon!

Growing Ten31 into the largest bitcoin-only investment platform and partnering with many of the industry's most brilliant and driven founders has only deepened my conviction in the positive change that will be propelled by this industry in the years to come. We are seeing the future being built before our eyes. At Ten31, we see supporting bitcoin companies as both the most exciting investment opportunity in a generation and the best way for us to help move the world to a bitcoin standard, and we look forward to ramping up our commitment even further with our next fund and beyond.

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¹ Data refer to private financings of bitcoin-exclusive companies that were publicly announced or of which Ten31 was aware, including mining-related and later-stage fundraisings falling within Ten31’s investment mandate. Charts are representative of the most relevant fundraising activity but do not provide a complete accounting of all bitcoin-only deals given the availability of data.

Introduction

In July of this year, the Federal Reserve will launch its long-awaited FedNow service for instant payments between depository institutions, adding a new wrinkle to the fabric of global payments. Therefore in this paper, we explore the rapidly evolving landscape of settlement networks, specifically focusing on bitcoin and FedNow, two systems often perceived in direct conflict primarily as competitors. By examining their historical context, technological underpinnings, and the importance of the underlying assets’ integrity, we argue that these entities actually cater to distinct purposes and audiences and are likely to co-exist more symbiotically than most expect.  While the rise of bitcoin as the world reserve asset may ultimately challenge US settlement networks, in the intervening decades the US dollar will inevitably interact with and leverage the bitcoin network to facilitate the global economic demands of individuals and businesses that want to interact with US dollars (a co-opetition of sorts).  Meanwhile, the financial utility of both systems and the innovative solutions offered by companies leveraging the bitcoin network will provide a superior user experience and potentially counterbalance any attempts by foreign governments or conglomerates to displace the US dollar with a more restrictive monetary asset (e.g. BRICS commodity backed currency or a CBDC).

Settlement Networks through History

Throughout history, settlement networks have played a critical role in the development of civilizations. The ability to exchange goods and services for intermediate units of account (stone money, gold, silver, French francs, Dutch guilders, Euros) has enabled trade, financial transactions, and social interactions across vast distances. Systems have evolved from the ancient Greek agora where officials were responsible to verify the weight and quality of coins through to late-20th century systems of fiat central banking and the emergence in recent years of innovative technologies like bitcoin and FedNow .  The efficiency, reliability and overall utility of these networks have been instrumental in shaping the economic landscape and providing a foundation for the future. When drilling down into the utility of settlement networks, the integrity of and demand for the underlying asset being transferred is incredibly important.  History is littered with examples of settlement networks degrading and societies collapsing because of the gradual and/or sudden  manipulation of the underlying monetary asset and consequent decrease in demand for that settlement asset in trade. Separated by more than a millennium, the whole cloths that were the Roman Empire and the Weimar Republic both unraveled as authorities pulled the common thread of monetary debasement. Indeed, history suggests that the destruction of complex societies is often preceded by or accompanied by diminishing confidence in each society’s settlement network.

Considering the crucial role settlement networks play across generations and geographies, we can spring forward from history’s lessons as we think critically about how things have evolved in our recent past with legacy 20th century fiat settlement networks, where things stand today with these old approaches and emergent technologies gaining remarkable adoption and traction, and where the next chapter will be written tomorrow.

Settlement Networks: FedNow and Bitcoin

Two very different approaches characterize our current moment in monetary evolution: FedNow and bitcoin. Both settlement networks can provide near instant transfer of monetary value, but their underlying assets are fundamentally different.  FedNow was developed by the U.S. Federal Reserve to enable real-time settlement of US Dollars between banks and their customers 24/7 through a central processing unit—FedNow Service Reserve Bank. Bitcoin is a neutral digital bearer asset that operates through a decentralized peer-to-peer network, was introduced by a pseudonymous individual or group, and is continuously maintained and improved by a consensus-driven global volunteer initiative. Bitcoin transactions are verified by a network of computers via a proof-of-work blockchain rather than any centralized institution. The underlying assets of the two systems, US Dollars and bitcoin, depart at a right angle to each other with the total supply of US dollars skyrocketing upwards over time while bitcoin supply is fixed, its 21 million supply programmed in the code.  The contrast is stark: US Dollars are infinite and created in a credit based system; bitcoin is finite, with a fixed supply that is infinitely divisible.  When comparing their settlement networks, we see similar divergence. US Dollars payment systems are controlled by the Federal Reserve and other US regulatory bodies who have implemented and likely will continue to implement sanctions and restrictions that prevent market participants–individuals, companies, and other governments–from interacting with its walled-off payment systems. Bitcoin is different: a software program that is open-source, free and permissionless to run, and interacts with anyone globally for storing and transferring value.

Traditional payment systems can take days to process transactions because of intermediaries within correspondent banking. FedNow promises instantaneous transfers, purporting to reduce users’ exposure to chargebacks and fraud while facilitating capital flows. FedNow’s anticipated 24/7 availability will likely prove useful for businesses that operate in multiple time zones or need to process payments outside of local business hours. Notwithstanding these improvements, FedNow is also planned as a closed proprietary system accessible only to banks that are members of the Federal Reserve System. FedNow has not yet operated in an active environment and will begin testing in the coming months.  The fees proposed for using FedNow are currently set at nominal rates, but this could change considering that the Federal Reserve does not expect to achieve long run cost recovery for decades. As such, FedNow is reliant on the continued financial support of the Federal Reserve for the foreseeable future. Because of the dependence and direction of the Federal Reserve, FedNow is likely to suffer from the Innovator's Dilemma as development is subsidized by a parent company focused on their needs rather than market demands.

Assets: US Dollar and Bitcoin

While FedNow may offer some UX improvements for interacting with the Federal Reserve’s settlement network, its underlying asset – the US Dollar – will remain unchanged. The US Dollar is backed by the full faith and credit of the United States Government and operates as an ever expanding credit-based system where the value of the dollar is derived by demand of the debt obligations, both public and private.  The public debt of the United States is currently $31 trillion dollars, with Congress and the President negotiating to raise the debt ceiling by an additional $1.5 trillion dollars in order for the US to avoid nominal default on obligations such as Social Security, Medicare, military salaries, interest on the national debt, tax refunds, and other payments. The debt ceiling has already been raised 78 times since 1960, and this continued regular cadence of increasing the debt ceiling has so far allowed for an insidious inflationary diffusion that has been hard to perceive in real time.

More recent money expansions in the U.S., like the liquidity injections since March 2020, have had drastic effects similar to those of large money bursts such as that which the French suffered from their monetary expansion and the resulting Mississippi Land Bubble from 1716 through 1720.  France witnessed inflation jumps of +20% during the collapse of the Louisiana Venture while John Law, President of Banque Royale, issued ever more credit and expanded the money supply.  The United States has beat to a steady inflationary rhythm with secular increases in the money supply over the last 60 years, but in 2020 through 2022, the tempo picked up with a 40% increase in base supply, compounding a goods/service supply and demand imbalance that has resulted in inflation not seen in the US since the 70s.

Bitcoin, meanwhile, is a digital bearer asset and decentralized settlement network that has been self-funded from its beginning in 2009 and has gained popularity as an alternative investment and increasingly as a monetary asset by forward leaning technologists. One of the advantages of bitcoin as a bearer asset is that it operates independently of any global financial institution, which can make it an attractive option for individuals who operate in authoritarian regimes or are prohibited from using the banking system based on personal attributes, such as religion, gender, or ethnicity. As then-Fed Chair Janet Yellen told the Senate Banking Committee in 2014,  “Bitcoin is a payment innovation that’s taking place outside the banking industry. To the best of my knowledge there’s no intersection at all, in any way, between bitcoin and banks that the Federal Reserve has the ability to supervise and regulate. So the Fed doesn’t have authority to supervise or regulate bitcoin in any way.”

Bitcoin has a finite supply and has been regulated as a commodity since 2014 in the United States. A fixed total of bitcoin creates an inelastic supply curve that does not change relative to demand, driving significant appreciation in its purchasing power as more users adopt it. Bitcoin has proven extremely dependable, with 100% uptime over the last 10 years.  There are also limitations to bitcoin as an asset. For example, with rapidly growing adoption and no centralized control, price discovery has been highly volatile, and its value measured in fiat terms can fluctuate rapidly and unexpectedly. Bitcoin payments are also irreversible, which is an important feature of the network’s security and censorship resistance, but can be a concern for some users who do not trust themselves or others with that power or responsibility.  Additionally, bitcoin is not backed by any tangible asset but instead through the network effects of the entire bitcoin system, comprised of miners, node operators, and end users. These attributes have led bitcoin to become a popular and forward looking investment option for individuals, businesses, and governments who are looking for uncorrelated alternatives to both ancient settlement networks (like gold) and twentieth century settlement networks (like fiat currency).

Bitcoin is free and open source software, with new entrants able to join the market and innovate according to their skills, ambition, and capacity for execution. Increasing services, new tools, and a growing user base are together lowering costs and importing more value into the network. Looked at from any vantage, the bitcoin settlement network is orthogonal to the existing system and to proposed updates to that system like FedNow – it is not so much a significant innovation as it is a step-function change onto the Z-axis. From payments to remittances to digital gold to programmable money to cyberwalls to energy management, bitcoin is a fundamentally different type of network with a fundamentally different underlying monetary asset.

Companies Leveraging Bitcoin

The bitcoin settlement network refers to the technology and infrastructure that allows individuals and businesses to send and receive bitcoin transactions either on the blockchain or additional layers like Lightning. Companies like Strike are building novel infrastructure for providing a seamless way for users to interact with lightning and leverage the incumbent liquidity position of the US dollar with global instantaneous settlement (unlike the FedNow system, which is only focused on US banks interacting with the Federal Reserve). Strike’s innovation has provided solutions that free users from the need to manage channels while avoiding the tax events from selling or transferring bitcoin. Innovators like Strike reduce friction, lower barriers to entry, and build on growing momentum to meet individual and global market demands.  For example, folks in the US or other countries are able to use Strike’s “Send Globally” feature to link their US bank accounts to Strike and instantly transfer monetary value received in local currency to many countries around the world. Global foreign currencies can become interchangeable with USD on bitcoin rails instantly around the world for anyone on their phone. Send Globally users can transfer money to users through their telephone numbers in countries such as Ghana, Nigeria, Philippines or to a US bank account. People and businesses can then utilize those US Dollars to purchase goods and services needed to facilitate commerce locally and globally creating a more connected and fluid world. This is not the future: it is BitcoinNow, an organic, open, consensus-led, protocol-governed, transparent sound money alternative to FedNow.

The bitcoin settlement network is decentralized, which means that transactions are processed without a central authority or intermediary. This makes bitcoin payments faster, final, and more cost-effective than traditional payment systems, particularly for cross-border transactions. Bitcoin’s decentralized settlement network will put downward pressure on transaction fees as new entrants move into the market and compete to facilitate transactions. Companies like Mempool.Space are helping to facilitate this competition with easily accessible and intuitive tools to explore and audit the bitcoin blockchain, estimate upcoming fees, and more. Unlike the Federal Reserve, the bitcoin network is auditable by anyone with a computer by downloading the bitcoin software as can be seen below. 

Mempool.Space levels the global economic playing field leveraging transparency for all while insights into FedNow will remain a walled garden for the Federal Reserve alone.  The bitcoin network’s decentralization, bolstered by companies like Mempool.Space, helps ensure its high level of security, with transactions verified by a global network of independent computers rather than a centralized institution. By contrast, centralized institutions like FedNow have historically been compromised through control, corruption, or vulnerability, as they provide a single vector for malicious actors to exploit in the digital age.

These days, direct interaction with the bitcoin technology stack remains obtuse for less technically sophisticated users, but third party service providers like Unchained are filling the gap to manage onramps into bitcoin and provide solutions that make self-custody more convenient and accessible. Unchained is an example of innovation happening at the edge of an emerging system that could not exist in a top-down permissioned FedNow.  There are also limitations to the bitcoin settlement network such as base layer transactions per second, but companies like Fedi are mitigating those limitations with the introduction of chaumian mints to bitcoin.  Fedi provides a federated platform where trust is distributed and funds are pooled.  Fedi users have their interactions with the base layer and lightning abstracted away through a sleek curated platform. The Fedi platform is also being explored for potential use in mining pools, NGOs, and local banking partners. Unlike the Federal Reserve which is vulnerable to political capture, Fedi offers a federated trust model that reduces the potential for arbitrary political censorship. 

Conclusion

FedNow and bitcoin are two different systems that serve different purposes and use different technology. FedNow is a centralized transfer system developed by the Federal Reserve that enables real-time transfers of US Dollars between banks and their customers. It is designed to improve the speed and efficiency of traditional payment systems, particularly for businesses that need to process US dollar payments quickly. Bitcoin, on the other hand, is a neutral digital bearer asset and decentralized settlement network that operates independently of global financial institutions and its underlying asset, bitcoin, is not subject to debasement. Bitcoin payments can be processed instantaneously through a peer-to-peer Lightning network and can be faster and more cost-effective than traditional payment systems, particularly for cross-border transactions. While both FedNow and bitcoin enable faster transactions, they have different target audiences, are not direct competitors, and can and will be used together to meet the needs of individuals and businesses. Furthermore, the combination of a closed currency on top of an open network will help to mitigate foreign competitors or other sovereign conglomerates attempting to replace the US dollar as the world reserve currency with a more restrictive asset in the decades ahead.

FedNow has been primarily designed for businesses that need to process large volumes of US dollar payments quickly within the architecture of late-20th century central banking, while bitcoin is designed for individuals and businesses that want to transfer value without relying on global financial institutions or who prefer to seamlessly convert their goods and services into bitcoin. Bitcoin also offers some features that FedNow does not, such as the potential for pseudo-anonymity and the ability to make cross-border payments without intermediaries and currency exchange.

Overall, FedNow and Bitcoin are different systems, with different objectives and different rules. Speaking pragmatically, they are both likely to coexist in the payments landscape for the foreseeable future. Speaking prophetically, the question is: which system will benefit the most from the other?

“Roses are red, violets are blue,
Bitcoin and AI may help us renew,
As innovation and efficiency accrue,
A better world could emerge from the two.”
   - ChatGPT, optimistically

“Roses are red, violets are blue,
Bitcoin and AI may break what we once knew,
As algorithms govern what we do and pursue,
Our humanity may fade, and our freedoms too.”
   - ChatGPT, pessimistically

Bitcoin and new artificial intelligence (“AI”) applications are both on course to drive a new wave of productivity and efficiency gains for humanity. While more people each day are beginning to appreciate the independent potential of each of these technologies to positively reshape the world (bitcoin: cure the ills of money printing, seigniorage, and financial censorship; AI: unlock significant productive and creative output potential), we believe additional excitement is warranted for the coming intersection of bitcoin and AI. AI will be a powerful force to open up new design spaces and opportunities for bitcoin infrastructure and commodify bitcoin by making it more accessible, supporting the Ten31 thesis that bitcoin’s utility and applications will expand over time and that the TAM for bitcoin infrastructure is far bigger than most realize. In addition, bitcoin will naturally complement the growth of AI, both serving as a payments tool for computational demands and asserting its scarcity to impose real world costs and constraints on any tendency for AI algorithms and AI produced content to replicate to infinity. 

Introduction

Those paying attention have noticed the explosion of new generative AI applications over the last year. Suddenly, social media feeds seem to be flooded with exquisitely rendered art generated with a keystroke or screenshots of natural conversations with digital assistants demonstrating encyclopedic knowledge and better grammar and manners than most real humans.  It seems clear that we are witnessing the early stages of a paradigm shift in the human-computer relationship that will affect every aspect of the way we learn, work, create, and communicate. While there’s undoubtedly a nontrivial amount of noise amid the growing AI hype, we see mounting evidence that this technology and its applications will drive unprecedented improvements in productivity, individual empowerment, and knowledge acquisition that could provide a generational opportunity to those adopting these tools (and also pose an existential threat to those that do not, including the world’s most dominant businesses and institutions).

To bitcoin enthusiasts, these lofty references to a zero-to-one technical innovation with the potential to transform legacy systems and uplift individual creativity with global implications probably sound very similar to bitcoin itself. As we’ve done our best at Ten31 to drink from the AI firehose over the last year, it has struck us that few recently have sought to explore AI’s many parallels to bitcoin and the potential convergence of these two technologies. Neither bitcoin nor AI have yet managed to pierce the veil of truly mainstream awareness or adoption, but we believe both are on a path to becoming foundational pillars of 21st century society and will become progressively more intertwined and symbiotic over the coming decades.

At Ten31, our key conviction is that every company will eventually become a “bitcoin company” in some way (just as every company is now effectively an “internet company”), and we increasingly believe the same is true for AI: no company interested in survival will be able to ignore absolutely scarce, programmable, internet-native money (bitcoin) or technology that yields 1,000x productivity gains (generative AI), and those two forces will synergistically shape the coming decades in ways few have yet imagined.

As with bitcoin, the early adopters of AI tools and technologies will have the opportunity to benefit disproportionately relative to those that come later. Every company should have a bitcoin strategy, and similarly every company (including bitcoin companies) should have an AI strategy – and if you don’t have either of those now, you are already falling behind…

A Brief History and Overview of AI and Recent Developments 

People have been writing about the coming era of AI and the philosophical, moral and existential implications for a long time (e.g. I Robot, 1950; The Moon is a Harsh Mistress, 1966; 2001: A Space Odyssey, 1968). You can even trace related concerns back to Frankenstein (1818), which told the classic story of a scientist who creates a monster and then loses control over it, highlighting the potential consequences of creating something beyond our ability to manage. In these stories, there have clearly been warnings of the unintended consequences and ethical dilemmas as the line blurs between human and robot. Recent interactions with AIs have raised similar concerns – while we can’t address all possible scenarios, we explore below some reasons for optimism about the role that bitcoin could play in mitigating some potential dystopian outcomes.

Artificial intelligence generally refers to the idea of machines performing tasks that typically require human intelligence. Machine Learning (ML) is a subset of AI that enables machines to learn and improve from experience without being explicitly programmed; instead, machine learning algorithms are trained on large amounts of data to recognize patterns and use those patterns to make predictions or decisions.

Early AI research focused on symbolic reasoning and rule-based systems, but progress was slow due to limitations in computing power and lack of data. In the back half of the 20th century, the development of neural networks and other machine learning techniques led to renewed interest in AI, but advances in big data, cloud computing, and processing power over the last decade were what finally enabled breakthroughs in areas such as computer vision and natural language processing, among other fields.

Most notably, in 2017 Google AI researchers introduced “transformers”, which are a type of neural network architecture that can process and analyze large amounts of data, such as text, images, or sound. Transformers work by breaking down the data into small parts and processing each part simultaneously, allowing them to identify patterns and relationships within the data. Transformers can be used for a variety of tasks, such as language translation, image recognition, and speech processing.

Large Language Models (LLMs) are an application of transformer architecture specifically designed for language tasks such as language generation and understanding, and are often pre-trained on large amounts of text data using unsupervised learning techniques (e.g. the algorithm may be trained by digesting the entire internet). The transformer architecture allows the models to process language by looking at it as a whole, rather than one word at a time in order, enabling the algorithm to understand the context of each word and how it relates to the sentence as a whole, ultimately resulting in the ability to both understand and generate human-like language.

There have been several transformer- and LLM-based generative AI applications that have recently seen exponential adoption and generated tremendous excitement for the capabilities they may unlock:

• Image generation : deep learning models are trained with a large dataset of images which are used to generate new images from scratch. In some cases, these models can be combined with LLMs to allow image generation with text prompting. Some of the more common deployments include DALL-E, Midjourney, and Stable Diffusion. Tools like this have been estimated to reduce the cost and time of a graphic design from $150 and 5 hours to pennies and seconds. We note all of the images in this essay were generated with AI.

• Text generation : GPT-3 (Generative Pre-trained Transformer 3) is a language model introduced in 2020 and developed by OpenAI, using 175 billion parameters (learnable elements or weights of the model). It is the successor to GPT-1 (2018, 117 million parameters) and GPT-2 (2019, 1.5 billion parameters) and has demonstrated impressive language generation capabilities, including the ability to generate coherent paragraphs of text, answer questions, and even write code (discussed below). This type of model is pre-trained with a significant amount of unlabeled data (self-supervised learning), and then can be fine tuned by adjusting the model’s parameters for the specific task or by other training techniques. The most explosive use of this technology thus far has been the launch of ChatGPT , which is an AI-based digital assistant designed to respond to questions by generating human-like text, and has instantly become the fastest growing consumer application in history, reaching 100 million users after having been launched only 10 weeks ago. While ChatGPT and other generative AI applications are not perfect (and are already raising important questions about bias, censorship, dependence, and copyright, among others), it is clear we have crossed a chasm, and as a result there will now be a clear distinction between the pre- and post- GPT eras.

• Code generation : given code exists simply as text applied under various programming languages, LLMs have been extended into the realm of code generation. Two such examples are GitHub’s Copilot and Replit’s Ghostwriter . GitHub Copilot (owned by Microsoft, a major OpenAI investor ) is an AI system developed by OpenAI in collaboration with Github, designed to provide software creators with AI-assisted code completion suggestions (i.e. autocomplete), and can also suggest code snippets based on natural language descriptions provided by the user. Copilot is powered by OpenAI’s Codex system and trained on a large corpus of open-source code available on GitHub. Impressively, Github boasts a reported 55% increased speed in coding for software creators using Copilot (with Copilot generating 46% of code written), a dramatic improvement in productivity . Similar to Copilot, Replit’s Ghostwriter provides AI-powered code completion and natural language-prompted code generation like Copilot, but also provides additional features such as code transformation (e.g. refactoring code to make it faster or translating to another language) and code explanation in natural language.

Implications of New Generative AI Tools

It would be an understatement to say the new applications above represent a step change in productivity and output potential for individuals and businesses alike. What will now be possible leveraging these tools would have been unimaginable a few years ago, and the primary limiting factor will only be human creativity, with the underlying technology expected to continue improving significantly over the near- and medium-term (e.g. GPT-4 is speculated to contain 100 trillion parameters, a ~600x increase from GPT-3).

With regards to software development, we believe these new AI-assisted coding tools will be one of the fundamental unlocks of productivity and output of the coming years. We have previously written about the importance and impact of open source software; one of the many powers of open source is being able to leverage the work of others, rather than build from scratch. There are very clear comparisons between AI tools and open source in this way, where huge efficiency gains are possible (e.g. now you can “install” 100 hours of work with AI instead of doing it yourself, just like you would have done using existing open source software).

We can imagine many implications of the continued adoption of these new tools (some good, some concerning), including but certainly not limited to the below:

• The rise of the 1000x developer. The very best software creators with the capabilities and willingness to embrace these tools can leverage AI assistants to compound their output, with a single person doing the work of hundreds or thousands.

• Companies will be able to get more done with less. A company may only need a few of the most prolific creators, augmented by a small group of lower level developers also utilizing these tools. Small teams can scale while remaining nimble.

• The landscape for software creators will become more open and inclusive. People who did not know how to program previously will now have the toolkit and capabilities to become engineers, thereby increasing the number of developers by an order of magnitude in the next decade. This should also help alleviate the bottleneck of bitcoin and lightning developers over time.

• Powerful centralized actors (whether nation states or large conglomerates) may look to abuse this tech for their benefit. There are significant concerns that abuses of this tech could be a significant setback for civilization, creating a dystopia and digital panopticon, as well as the previously noted tail risks of hostile/adversarial AIs.

• The value of proprietary data and compute power will increase. Large, unique data sets used for training AI will become more valuable. Those that have this data could elect to monetize it in a more significant way, or leverage it for training their own proprietary algorithms. This will also highlight the importance of owning your own data and infrastructure to counteract potential centralization risk. Within the bitcoin ecosystem, we could see how data and analytics companies like Mempool.space could be potential  beneficiaries in this regard, as well as lightning infrastructure companies like Strike.

No matter the potential negative consequences of these technologies, the genie is out of the bottle; the potential  benefits have too much upside for these tools to be ignored or stopped.

The Likely Synergy Between Bitcoin and AI

Whether the long-term net result of AI will look more like C-3PO or HAL-9000 is beyond the scope of what any of us can predict today, but use cases that combine AI with bitcoin applications could help channel this emerging technology to accelerate bitcoin adoption and make it more accessible. What’s more, the pairing of these two technologies will likely emerge organically due to the many complementary characteristics they share:

• Universally relevant: Bitcoin and AI will both become foundational underpinnings of human coordination and productive output and are poised to have an impact on individuals and businesses around the world to a degree that rivals electricity and the internet.

• Purely data: Both bitcoin and AI are native to and only conceivable in the realm of information. The shared reality of bitcoin is captured entirely by the information on its blockchain (“ the map is the territory ”), in fundamental contrast to most “blockchain technology” projects. Likewise, generative AI LLMs were trained on a corpus of computer-readable data, and the resulting outputs are essentially interactive, iterative exchanges of yet more data. This fundamental trait makes bitcoin and AI natural bedfellows for new applications (described further below).

• Computationally intensive: A fundamental, non-negotiable component of bitcoin’s architecture is its Proof of Work, which requires miners to expend energy and perform significant computation to successfully append a new block to bitcoin’s blockchain. The self-attention mechanism of generative AI similarly relies on parallel processing performed by graphics processing units (GPUs), which impose a real-world cost on the system. While this cost will likely decline precipitously with further advancements in parallel processing, AI will remain tethered to the constraints of the physical world just as bitcoin is (though the simplicity and asymmetry of bitcoin’s Proof of Work makes it a superior source of truth ).

• Flexibly programmable: Bitcoin and generative AI both offer engineers and creative entrepreneurs powerful primitives on which to build a vast array of complex applications. Bitcoin’s simple design and sound monetary policy minimize attack vectors and align incentives to allow incremental functionality to be layered on top of a durable, robust foundation – such extended functionality includes bespoke transaction scripting, second layers like the lightning network, privacy tools like collaborative transactions, and smart contracts. While the latest AI models are significantly more complex than bitcoin, the volume and diversity of projects developers have already built in the early innings of generative AI, as well as the proliferation of open source models (CodeGen, Stable Diffusion) and frameworks (PyTorch, TensorFlow), are evidence of this technology’s programmability and versatility.

• Deeply researched: While both technologies are groundbreaking innovations, neither emerged from scratch. Bitcoin is built on decades of prior research and leaps in cryptography applications, including b-money , Hashcash , Merkle Trees , and DigiCash , while modern generative AI stands on the shoulders of early rule-based systems and neural networks. Both technologies are closer to the Model T than the horse and buggy and thus closer to being ready for primetime.

• Inherently deflationary: Perhaps the most crucial shared feature is the technologies’ tendency to support deflation, or the natural decline in prices resulting from a progressively more productive base of technological and human capital over time. In allowing for potential step-function improvements in human productivity like pivotal technologies before it, generative AI has the potential to enable the production of both more and better goods and services for the same or less input, putting downward pressure on prices to end users and turning luxuries into necessities . Meanwhile, bitcoin’s absolutely finite money supply will allow for the benefits of that exploding productivity to accrue to savers, as the purchasing power of bitcoin’s fixed supply balloons against an expanding basket of goods and services. Progressively more people will gravitate toward using productivity-enhancing AI tools and saving / transacting in productivity-preserving bitcoin, finally allowing the inherently deflationary nature of free markets to fully shine through – a boon for human flourishing, contrary to mainstream dogma.

Thanks to all these shared traits, we expect a powerful symbiosis will form: bitcoin will help support new AI applications, and new AI applications will extend the utility of bitcoin. A couple notable examples of this dynamic are already evident in the Ten31 portfolio.

Ten31’s Early Entry into Bitcoin-Oriented AI Applications

Ten31 has invested in two companies to date that are relevant to emerging AI trends, Stakwork and StatMuse.

Stakwork

Stakwork is a cloudsourcing platform that combines the power of humans and AI. Stakwork empowers a globally distributed ecosystem of workers, predominantly in emerging markets and Global South countries, who can opt in to automated microtasks driven by algorithmic tools designed to aggregate the completion of complex, repetitive work on behalf of customers who outsource work to Stakwork. Stakwork’s services range from data annotation to image and video processing, which pair AI-based processing with human oversight as appropriate. The human input from these microtasks feeds into a Reinforcement Learning from Human Feedback (RLHF) mechanism for various machine learning models and toolkits (including Stable Diffusion, OpenAI’s Davinci, and more), helping to train these tools and expand the scope of what’s possible with automation. Anyone can opt in to complete Stakwork’s tasks and can be paid in bitcoin over the lightning network without needing a bank account or even an email address; all that is needed is a mobile phone and connection to the internet. In effect, Stakwork trades digital scarcity (bitcoin) for human scarcity (time), and founder Paul Itoi likes to refer to the potential of this globally available decentralized workforce as a world computer or global brain .

StatMuse

Like Stakwork, StatMuse also has a theme tied back to the human scarcity of time. StatMuse is an AI search and knowledge platform that aims to save time by providing users access to data and intelligence using natural language processing. Leveraging proprietary natural language understanding & generation technology, StatMuse has developed the leading AI platform for discovering and generating sports information and content, and now is expanding into money and bitcoin. StatMuse has been ahead of the curve on conversational search (that is, queries based on natural language, rather than keyword-based search), and since the introduction of transformers, this has clearly been the direction the puck is going for search, knowledge and content creation. We expect human interaction with computers will be increasingly facilitated through natural language, and given the recent developments in AI it is not hard to imagine a future where consumers, creators, and businesses are supported by digital assistants providing personalized knowledge, support and infinite creative leverage to improve productivity and save time (a concept that was described in The Sovereign Individual in 1997).

StatMuse has deep domain expertise and unmatched data in sports, which is an important influence of culture and where the real-time nature of data is critical. Its expansion into bitcoin will allow StatMuse to serve the most passionate sports fans and bitcoiners directly on its platform worldwide. Money is naturally intertwined with the world of sports, and there is no larger or more important category than money itself, making a sports+money combined platform that much more powerful. StatMuse is also one of the earliest examples of a theme we expect to be more prominent going forward, which is traditional tech companies expanding into bitcoin, becoming bitcoin companies in their own fashion, and gravitating towards thinking in terms of and operating on a bitcoin standard in a world powered by AI.

The Future of the Bitcoin / AI Symbiosis

Both StatMuse and Stakwork are at the vanguard of what we expect to be an oncoming wave of companies leveraging both bitcoin and AI. While we can’t precisely predict every permutation of this megatrend, just a few more potential applications we’re excited about include:

Lightning Applications: The lightning network, bitcoin’s most widespread second layer, offers nearly instant and low cost transactions to dramatically extend bitcoin’s utility for daily, lower-value payments; however, despite significant recent improvements, it still suffers from early-stage UX headaches such as failed payments and the need for active channel management (either by end users themselves or trusted third parties, which present their own vulnerabilities and risks). AI applications for lightning could offer the potential for:

• Improved routing and pathfinding for higher payment success rates and optimal fees. For example, we imagine massive historical transaction data sets could be fed into action transformer models to pave the way for much better lightning transaction reliability and lower fees, while abstracting the underlying routing logic from senders and receivers, further supporting lightning’s adoption as a mass market payments network.

• Automated channel and liquidity management. A key burden shouldered by large routing nodes (and one of the major hurdles for fully self-sovereign use of lightning) is the need to open, close, and rebalance liquidity within payment channels. Blockstream has introduced the ability to automate elements of this multifaceted process with its recently launched CLBOSS system. We expect there will be opportunities for AI applications to perform similar functions by leveraging transaction data sets to help both routing nodes and regular users automatically manage channels and liquidity according to an increasingly granular set of criteria.

• Privacy improvements. lightning payments can provide some natural privacy benefits relative to on-chain bitcoin transactions, but can still expose users to various privacy vulnerabilities . While clearly there could be concerns that increased use of AI by surveillance companies could infringe upon user privacy, we also speculate that AI tooling and applications could automate privacy best practices and bridge the UX gap that often confronts less technical users even when they understand the importance of privacy, especially as more of these tools are open sourced and can run on local machines (e.g. like Stable Diffusion is with image generation).

Taken together, these automation improvements (alongside ongoing breakneck development in the lightning ecosystem more generally) could be the unlock to make non-custodial, sovereign use of lightning more accessible in the coming years.

Mining Optimization: Innovators like Braiins have already shown early advances in providing special firmware intended to “autotune” bitcoin mining ASICs to automatically optimize for hashrate or power efficiency depending on user specifications. We could envision such solutions taking another leap with transformer-empowered systems dynamically and independently determining when and how much to over- or under-clock, and when to turn on or off based on machine efficiency characteristics, hashprice, power cost, and a host of other factors. Bitcoin mining shares many characteristics with classic commodities businesses where positioning on the cost curve and marginal efficiency gains differentiate winners from losers, so even fringe improvements to operations powered by AI could have meaningful implications for the industry.

Micropayments for Compute: As discussed, generative AI applications like ChatGPT depend on costly GPU processing to return results for user queries. While these costs should decline over time and AI infrastructure providers will undoubtedly experiment with a variety of revenue models, we believe bitcoin offers a unique potential solution for sustainably monetizing these services in the form of bitcoin micropayments over lightning.

The enabling of digital bearer micropayments with bitcoin over lightning (which are fundamentally unlike the credit-based transactions that have historically defined online commerce) could be highly relevant as search and knowledge acquisition platforms confront potentially seismic changes in the way queries are monetized. To the extent that generative AI’s ability to provide answers more quickly or directly short-circuits the typical user flow that supports the traditional “Cost Per Click” search advertising model, per-query lightning micropayments could offer an alternative for knowledge platforms to build businesses on top of generative AI search tools, in this case focused on the long tail of individual user demands rather than a monetization of users’ attention.

We’ve already seen the lightning micropayments use case start to blossom on Stakwork, “value for value” apps like Fountain and WavLake, AI image generators that exchange art for sats, and “zaps” on Nostr. The LSAT protocol * has also provided an interesting proof of concept for metered access to compute based on lightning payments. We could envision similar lightning integrations into AI tools like Replit’s Ghostwriter or Github’s Copilot to enable users to pay sats for those programs on a per-use basis.

Finally, given that bitcoin mining involves expending computing power in exchange for bitcoin, it seems intuitive to us that bitcoin should naturally be used in exchange for AI computing power (i.e. bitcoin becomes the unit of account for computing power).

The Bitcoin + Nostr + AI Stack: Those following bitcoin, distributed technology, or social media have noticed the recent parabolic growth of Nostr, a simple protocol to facilitate robust censorship resistant communication and information-sharing. With no marketing budget or support from a centralized entity, the number of Nostr profiles producing content has ballooned to over 2.5 million in just under two months. Bitcoin has clear synergistic potential with Nostr – several clients have already integrated native lightning payments – but we also believe AI could have a notable role to play. A few potential integrations we believe could drive value and form the early beginnings of a Bitcoin + Nostr + AI “tech stack of the future” are:

• Censorship-resistant search and knowledge acquisition. Chatbots or digital assistants leveraging the natural language processing abilities enabled by transformer models and the open nature of Nostr relays could transmit sensitive or censored information in exchange for sats. A model like this might allow populations living under restrictive regimes (or just users dissatisfied with the curated information presented by traditional search functions) to query ChatGPT-like knowledge platforms built without restrictions or biases imposed by governments or corporations, and to receive that information through permissionless relays that are easy to spin up and difficult to fully eradicate. Compute costs for generative AI knowledge platforms still need to come down significantly for this model to scale, but we speculate that all the pieces are in place: AI could provide the content, relays provide the transmission, and bitcoin provides the monetization.

• Discovery mechanisms. Transformer models could be used to periodically digest the corpus of all Nostr notes, after which competing clients could integrate the resulting AI tools to offer end users finely customizable content filters and deeply-informed suggestions for new npubs to follow. An even more interesting iteration of this concept would be one that used sats as the signal for discovery – for example, surfacing new accounts to follow based on the social graph of npubs your account has frequently zapped, or potentially interesting content and accounts based on contextual understanding (not just keyword matching) of posts you’ve zapped. Additionally, there will likely be a need for search tools that can dynamically filter through spam at the client and / or relay levels and better tools for discovery of niche relays, both of which could benefit from lightning-monetized AI capable of understanding and evaluating context. We could envision a variety of other ways that zap-guided AI could help rebuild content discovery for a decentralized paradigm where attention has to be organically earned rather than gamed by a few corporate employees to drive outrage or clicks.

Rogue AI – Bitcoin Fixes This?

Despite all the productive applications we can envision from bitcoin, AI, and the synergy between the two, we acknowledge that technologists and developers have long worried about the many potential downsides of progressively advanced artificial intelligence. In particular, the concept of a highly advanced AI “going rogue,” self-replicating, and causing some kind of doomsday scenario has received particular scrutiny in recent years given the pace of machine learning advancements we’ve discussed. This is indeed a frightening future to imagine, but as in most other areas of life, bitcoin offers some reasons for optimism.

An AI’s ability to produce complex content in seconds is reminiscent of a central bank’s ability to trivially expand the money supply or a “crypto” developer’s ability to spin up a new altcoin at will – all seem to trend toward an infinite supply with few or no constraints. Ten31 has discussed elsewhere how bitcoin will fix the last two themes, but to the extent that some version of what we’ve discussed in this piece plays out, bitcoin could also become the ultimate constraint on the infinite replication of AI as well. As AI applications improve bitcoin’s UX substantially, they are likely to accelerate its pace of adoption, bringing it closer to becoming the global money of choice and thus progressively more necessary to pay for the (still very expensive) compute underpinning generative AI technologies. This trend will be further reinforced by the digitally native and instantly settled properties that make bitcoin ideally suited for this role. As this virtuous cycle progresses and the two technologies become more intertwined, bitcoin will begin to impose an unforgeable cost on compute power: unlike the fiat money paying for most generative AI today, bitcoin can’t be printed or manipulated, so any use of real-world resources (electricity, GPUs) to power generative AI will first need to either directly or indirectly perform Proof of Work to finance itself. No sats, no compute. In the age of digital infinity, bitcoin’s absolute scarcity will be king.

Conclusions

• Bitcoin and AI are world changing technologies to which all individuals and companies will be forced to adapt. Just as every company will become a bitcoin company (using or integrating bitcoin in some way), every company will also become an AI company. It is inevitable these two fields will eventually overlap.

• The dramatic upside offered by utilizing new AI technology will drive exponential adoption of these tools, even if these technologies also raise concerns of potential negative consequences. We expect an order of magnitude increase in productivity, as well as significant growth benefits to those who leverage generative AI technology.

• Bitcoin and AI are complementary and synergistic partners. Bitcoin will help support new AI applications as a payments tool, and new AI applications will extend the utility and accessibility of bitcoin. In this way, AI could be a Trojan Horse for accelerated bitcoin adoption and development, with AI-enabled apps and features bringing in new waves of users and software creators to bitcoin.

• AI has the potential to offer significant UX improvements to the bitcoin / lightning stack, which could provide an unlock to help bitcoin achieve escape velocity among mainstream users. By providing better automation and abstraction, AI-powered tools could drive vast upgrades in user flow to make using bitcoin a 10x+ better experience than legacy systems while enabling entirely new use cases.

• As the diversity of AI applications proliferate, bitcoin will also be a tool to counteract any centralizing forces which may attempt to abuse the power of AI. The freedom to leverage the capabilities of an AI-algorithm will depend on the ability to pay for its computation with a politically neutral form of money resistant to censorship and debasement, and bitcoin is the only form of money which fits that bill. “If you can’t control the money, you can’t control the algorithm.” In addition, bitcoin may also provide protection from the risk of an AI self-replicating or AI content being produced ad infinitum.

• The development of new use cases leveraging these tools supports Ten31’s fundamental thesis that the total addressable market of bitcoin infrastructure is much larger than most realize, and new verticals and applications will continue to emerge over time. There are parallel platform shifts happening as a result of both bitcoin and generative AI, and the benefits of such a change  generally accrue disproportionately to those who participate and/or invest the earliest. As such, individuals and businesses utilizing the tools now will be advantaged versus those who aren’t, and capital allocators who are investing in bitcoin infrastructure tied to these priorities in anticipation of the AI-driven tailwinds will be afforded the most asymmetric upside.

*Several months following the publication of this piece, this protocol was rebranded as the L402 protocol. 

**We want to thank the following people for providing input and influencing our thinking on these topics: Paul Itoi, Elaine Ou, and anonymous.

Abstract: The introduction of the bitcoin computer program by Satoshi Nakamoto was a fundamental advancement in computer science creating a new frontier, digital land i.e. blockspace, for humanity to explore and develop in the digital age.  Bitcoin’s technological innovation of combining cryptography and computation over time for connecting abstract concepts like value and ownership to the physical world has created a paradigm shift in how humanity interacts in the digital space.  Innovators utilizing the new digital property rights and blockspace are creating the first free and open market that is inclusive and equitable for all participants.  Novel infrastructure is being built for utilizing bitcoin in order to capture value for meeting the demands of users of the bitcoin ecosystem.

The digital land rush started in 2009 when the first plot was recorded after Satoshi Nakamoto sent Hal Finney the first bitcoin transaction thereby initiating the beginning of a network on the bitcoin computer program.  Initially, the usage of this new digital land has mainly been for recording transactions on the distribution.  Now, a ripening of innovation is occurring with new ventures carving out plots of land in the digital world for building novel infrastructure.  This new land rush is possible because Satoshi Nakamoto created digital property rights (contained in UTXOs) and the new digital element, blockspace.  Bitcoin’s introduction of this new digital element and property rights are causing a paradigm shift in how humanity interacts in the digital world by standardizing and consolidating segmented digital spaces.  Bitcoin combines blockspace and UTXOs (containers of rights to blockspace) to create the connection from the abstract world to the physical world in a “system for electronic transactions without relying on trust”.  Trust isn’t required to verify the state of all blockspace because bitcoin is free and open source software and everyone has the ability to access the same new digital world, the bitcoin blockchain (chronological, work-proven ordering of valid blocks made up of blockspace).  The continued adoption of blockspace, with all users operating under the same rules to access and utilize it, increases its density, thereby causing a gravitational pull for more users.  Just like an atom has specific properties allowing it to serve as the basic unit of a chemical element, so does the digital elemental blockspace. These are: finite maximum size, an incorruptible state, and universal accessibility.  The digital rights to access and utilize the blockspace, which are contained in UTXOs, are malleable, transferable, and protected through cryptographic and computational proof, which is to say the rights cannot be transferred without the digital signature of their owners.  Personal and commercial endeavors will continue to create novel approaches for building utility on blockspace, resulting in disproportionate value accrual to the first movers carving out their new digital land.

Blockspace

The state of blockspace is incorruptible because each newly crystallized unit of blockspace utilizes proof-of-work for the infusion of energy to forge the digital element and bind the digital right to blockspace.  Proof-of-work anchors digital space to reality.  Because each new blockspace has a finite maximum size and incorruptible state anyone anywhere in space and time can interact with the same blockspace and build new blockspace for utilizing UTXOs.  Similar to how bitcoin nodes validate the blockchain, all users past, present, and future making up the bitcoin network validate bitcoin by freely choosing to interact with all the products and services at the edges.  This network created around the new digital element (blockspace) and associated digital rights will facilitate new utility creation in the exploration of the digital age.  Utility will come from the anchoring of abstract concepts like money, ownership, contracts, community and truth by way of digital rights to blockspace.  Value can be captured as abstract concepts are given form on the blockspace, and as demand for the utility increases, novel infrastructure, products, and services will be built around blockspace.

UTXOs and Digital Property Rights

The UTXOs, where digital rights are located, give the owner of the digital signature the ability to confirm the rights’ existence on blockspace.  Bitcoin sets the bound on the base layer for digital rights to ~21,000,000.00000000 BTC or ~2.1 quadrillion sats. The total quantum of digital rights are fixed, but the free and open source nature of bitcoin’s software allows new applications to be built at the edges, providing a mechanism for increasing the utility of the rights and efficiency on accessing those rights.  UTXOs being made up of digital rights do not necessarily have to be uniform in size.  UTXOs can be easily transferred, divided, and combined; but UTXOs are immovable without the specific digital signature.

The rights to interact with blockspace are distributed when new blockspace is created and after being transferred amongst users of the network.  The initial distribution of the right to access the digital land is programmatically disbursed with the creation of blockspace, and will be over 95% completed by the end of the decade.  The right to access the digital land’s utility is open-ended, and the utility of the blockspace is derived from connecting the abstract world to the physical world.  The digital land could be considered like a city block which can be built up and bulldozed down again to facilitate personal and commercial utility.  In every city a business location can be created and monetized, and as time passes innovation yields new kinds of technology to facilitate new businesses to form and capitalize on the wants and needs of current users.  Bitcoin network users encompass past, present, and future participants' wants and needs and have those needs carried forward into the future.  An example of this is when someone first takes possession of bitcoin, i.e. the rights, and then reuses those rights later on to create a lightning channel.  The channel today allows users to send messages back and forth between the two parties in a secure and near frictionless environment that is dependent on where the balance of rights to blockspace reside within the channel. Because the channel was created in the present and then pushed to the past as additional blocks are validated, those rights held within the channel continue to exist into the future within a near frictionless state.  The environment is nearly frictionless because the cost to create the channel was paid upfront to access the blockspace at the time the channel was set up. The channel can be closed at a future date or can remain open indefinitely.  A channel closure could be thought of like a business that is being closed because the usefulness or lack of economic activity creates a drag where the digital land would be better used for something else like a new technology for the owner of the land to capture value.

Commercial Opportunity

The attributes of blockspace provide a building ground for new commercial utility to be created.  The initial bitcoin businesses were set up for selling digital property rights as forward leaning individuals and institutions realized there was something interesting with bitcoin, and being an early adopter to new technologies is one of the easiest ways to accrue value.  This excitement fueled the digital land rush, and thereby jump started the bitcoin ecosystem.  Businesses began to capture value facilitating the abstract concept of ownership being anchored to the physical world as users took custody by creating digital signatures for the UTXOs.  Self-custody of the digital signature gives the user the sole ability to move the UTXO, because the key can be held where all abstract thought began (the human mind).  Now, new businesses have emerged providing infrastructure for users to utilize blockspace.  Advancement of new technologies paired with the most secure network will continue to pull in new users attracted to value thereby continuously increasing the demand for access to the next blockspace.  As more entrants are pulled into the market, intersecting flywheels are propelled forward from the increased demand.  The new commercial use cases will attract users, and those new users will demand new products and services, thus driving even more new commercial use cases, etc.  More businesses will be created at the edges to fulfill the wants and needs of the continued growth of the network, resulting in the first free and open market in human history for tying abstract concepts to physical reality.

Today’s Businesses

The Ten31 portfolio is full of novel companies capturing value, and here are a few examples of increasing the utility of blockspace and digital property rights.  Unchained Capital is a business providing bitcoin-native financial services.  Unchained provides a model for bitcoin users to custody signatures in a risk limited way.  Unchained leverages the inherent properties of multi-signature addresses to mitigate single points of failure.  The bitcoin protocol permits the use of a quorum of multiple signatures (M/N) to access the blockspace.  Users of multi-signature addresses can help mitigate the risk of losing access to the blockspace because the quorum does not have to be N/N.  Unchained’s multi-signature approach provides the client with at least 1 signature Unchained controls.  Therefore, the client utilizing a 2-of-3 multi-signature and holding two signatures can lose 1 signature and still unlock their blockspace utilizing their 1 remaining signature and Unchained’s 1 signature.  This is a superior model to traditional signature or asset custody as the custodian traditionally has total control over the signature or asset while the user becomes a creditor and is forced to trust the custodian.  Over the course of human history creditors have awoken to the reality of eroded trust and loss from custodial relationships.  Unchained also provides financial services to their clients, including the ability to borrow USD against their bitcoin in over-collateralized loans secured in multi-signature addresses with the borrower still holding a signature which enables the borrower to confirm with absolute certainty the underlying plot of blockspace has not been changed. Unchained is helping provide security and redundancy to digital rights holders of the blockspace, and helping them extract incremental value from their blockspace by providing them financial services tied to the value of the digital rights.

Strike is a business working towards a more connected financial world.  The novel approach taken by Strike is the utilization of multilayer solutions to seamlessly transfer value between users of fiat and bitcoin.  The users are no longer siloed into fiat financial walled gardens like Paypal and Venmo or pigeonholed onto platforms only interacting with bitcoin users.  Now, users for the first time can effectively pay with dollars over the lightning network.  Jack Mallers, founder and CEO of Strike, believes this multi-asset value transfer protocol is the fifth payment rail and will supplant all other payment rails because of the near frictionless environment lightning channels create.  Users can now effectively settle any bitcoin invoice using USD or sats instantaneously without the need for additional intermediaries.  The introduction of the near frictionless state of lightning channels will outcompete antiquated, patched, and tech-debt-ridden closed source technologies for solo-asset value transfer, thereby creating a win-win for the consumer and merchant. By abstracting away any interaction with bitcoin in a secure and open way, Strike enables users to operate solely on the edges and still extract utility from the blockspace.  The barriers to entry for new participants is lowered, thus allowing for new personal and commercial endeavors as the potential for innovating edge case utility is infinite in an open system.  Significant value accretion will occur for companies like Strike who lower the cost of doing business and increase the value extracted from commerce by extending the utility of blockspace.

Mempool.Space is another business innovating around the interaction with blockspace.  Mempool.Space provides a visualization of the blockspace, offering detailed insights into its mempool (pending digital rights transfers), lightning analytics and mining dashboards.  The blockspace explorer allows users to verify transactions and evaluate if the blockspace has changed.  The mempool explorer allows users to see how many transactions are in queue to be added to the coming blocks, how the block is being constructed and the fees users are paying to include their transaction in the next blockspace.  Mempool’s lightning explorer allows users to graphically visualize the lightning network layer and easily navigate through lightning nodes and statistics to better optimize lightning channels.  Other bitcoin companies are able to access Mempool APIs to provide fee estimation insights and evaluate blockspace transactions.  As the user growth of bitcoin continues at an exponential pace the blockspace will become ever more desirable.  Tools like Mempool enabling the more efficient and effective exploration and use of the blockspace will capture a premium value.

Tomorrow’s Opportunities

As humanity continues its march into the future the adoption of bitcoin depends only on the imagination of new innovators and entrepreneurs building novel technologies and sought-after products and services for blockspace.  Abstract concepts like contracts, community and truth will be able to be anchored in some fashion to the blockspace in an incorruptible way with easy verification for all.

• Information can be embedded in a Merkle tree connected to digital signatures tied to blockspace, such as contractual spending conditions. This type of information can be easily and selectively verified to a counterparty enabling a contractual relationship.  This type of innovation is a step function upgrade from the difficulties in centuries old processes of human data manipulations and drag from a non-standardized way for categorizing and cataloging contractual verification.

• Additional layers tied to blockspace can help offer people greater access to their favorite authors, musicians, performers or other like minded or alternative groups in building digital communities.  Consumers of content would be able to demonstrate long-term, continuous, or intermittent consumption of the arts because of the permanency of blockspace.  Artists and brands would be able to reward loyalty and create communities with exclusive benefits to members who are able to provably demonstrate the requirements.

• A marketplace for truth could be created allowing users to stake their rights to blockspace on how events actually happened.  A proposed truth connected in some manner to the blockspace could be subject to a binary true or false statement.  Individuals could wager on if the event was true or false and after a quorum of signatures signed to the affirmative or negative winners on the correct side would collect from the losers instantly with the rights to blockspace being transferred.

The digital land rush is here, and everyone has a chance to be part of the exploration of the digital age through the use of blockspace.  As the reality of this paradigm shift diffuses outward an acceleration of adoption will occur.  There will  be a myriad of ways new entrepreneurs and companies utilize blockspace and leverage the capabilities of its digital rights.  We cannot imagine all of them right now, and there are likely to be new ones that could prove incredibly significant that no one has yet to devise.  Therefore, there is likely tremendous upside to carving out a piece of this digital real estate based on the expected increase in its value, driven by the increasing demand for the utility of binding abstract concepts to the physical world for everyone everywhere to access. There is also incredible asymmetric upside from investing in the companies paving the way with new ideas for maximizing the utility, and hence value, of the blockspace, as those are the companies we expect to benefit disproportionately as the value of the blockspace increases (in response to their efforts in giving it more utility).

“It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy.” -Satoshi Nakamoto

Glossary

Abstract Concept: Having no physical or spatial constraints because they have no direct relationship in the physical world

Bitcoin: the computer program running bitcoin

Bitcoin Blockchain: Valid blocks connected in chronological order

Bitcoin Network: The total of all bitcoin users past, present, and future

Blockspace: Digital space located within each block

Bitcoin Transaction: The act of transferring rights on blockspace

BTC: 100 million sats

Digital Element: Basic unit of digital space

Digital Rights: The rights to access the digital space known as blockspace

Free and Open Source Software: A program where the code is viewable, changeable, and free to run

Proof-of-work: A crystallizing process where energy is required to forge the digital element blockspace and bind the digital rights to blockspace

Sat(s): Smallest unit of expression of the bound total of digital rights

UTXOs: Unspent Transaction Outputs, containers for digital rights.

At Ten31, we believe the Bitcoin and Lightning stack is collectively the best monetary and settlement protocol in history. Bitcoin is the first-ever digital bearer instrument resistant to debasement, censorship, and seizure, while Lighting offers a permissionless means for instant, low cost transfers of value between peers anywhere in the world. Over time, more businesses and consumers will gravitate to this superior asset and payments network, and the companies providing the best tools and most value for the next billion users will cement themselves as the most important financial platforms of the coming decades. We believe Strike has the potential to become one such company as it leads the transition to an open, global monetary standard. A key aspect of Strike’s model is that a consumer or merchant using Strike’s infrastructure does not need to understand bitcoin and Lightning to benefit from its attractive properties and can choose to continue operating in their native fiat currency; Strike manages the complex liquidity, legal, and tax implications in the background to deliver a superior payments and financial experience to users, an approach that is unique in the space and which we believe has the power to accelerate bitcoin adoption globally.

Legacy payment systems supporting most commerce today are ripe for disruption. Debit and credit card transactions may seem simple at the point of sale, but they typically involve several layers of intermediaries, including an issuing bank for the customer, payment processors / independent sales providers, a card network (Visa, Mastercard, Amex, or Discover), and an acquiring bank for the merchant. A simple card swipe at a grocery store triggers a variety of relaying messages between these parties to authorize and clear a transaction, but final settlement of value typically will not occur for 2-15 days thereafter. In that sense, a credit obligation is therefore transferred in every swipe, rather than a settlement value with true cash finality. When all is said and done, the relevant financial intermediaries typically end up extracting 3% or more of the payment value through interchange fees, fixed swipe fees and other processing costs (collectively the “Merchant Discount Rate” or MDR). When also factoring in the risk, prevalence and cost of fraud, chargebacks and reversals, the burden on merchants (especially small businesses and businesses with low average transaction sizes) is even more significant and in many cases outright prohibitive, creating a very challenging operating and financial environment that has only become more restrictive over time.

The growing adoption of bitcoin and the Lightning Network can significantly improve this dynamic. A Lightning transaction transfers value via bitcoin with immediate settlement from one party to another. There is no need for the creation and subsequent settlement of a credit obligation between counterparties – with bitcoin on Lightning, the payment message *is* the settlement. Instead of value being extracted by intermediaries sitting in the middle of payment flows and exploiting regulatory moats and bloated fixed cost structures, consumers and merchants now have a way to directly facilitate cash-final value transfer through an open network protocol not controlled by any third parties, in which anyone can compete. Similar to the early evolution of the internet, where information could flow freely peer-to-peer and the most significant value accrued to those companies providing the best user experiences, the winners in this new payments paradigm will be those providing the best value to consumers on the one end and merchants on the other.

Strike is uniquely pursuing both ends of this payments flow. On the consumer side, Strike is building a suite of differentiated products to become the go-to bitcoin-native fintech platform of the future , including a debit card, an app for P2P payments over Lightning or traditional rails, tailored consumer rewards, international remittance, micropayments, and more. On the merchant side, its offerings are underpinned by the Strike API, which empowers merchants to accept payments over Lightning at lower cost and with superior settlement characteristics . It is increasingly clear that reducing payment friction and fees is a major focal point for merchants around the world, and Strike is positioned to offer merchant solutions to significantly alleviate these problems.

As the world trends toward the superior payments standard of bitcoin and Lightning, legacy players will be challenged with their significant existing fixed costs and the inefficiencies associated with the credit-based model (risk, credit, fraud departments, etc.) and the inertia of incumbency and disruptive risk to their legacy business (innovator’s dilemma). Meanwhile, the early innovators that can offer reliable and scalable solutions to consistently optimize users’ experiences will build a loyal base of consumers, strong relationships with end merchants, and a durable competitive edge. Strike is poised to be one of these early key innovators and thus has the potential to become one of the most important and valuable companies in this next evolution of financial services, the largest market in the world.

Most importantly, as Strike scales to target consumers and merchants globally, the platform will serve as a catalyst for adoption of bitcoin and Lightning more broadly. As legacy institutional financial barriers give way to open competition and rapid innovation, the resulting backdrop will be a boon for increasing financial inclusion, individual freedoms and ultimately human flourishing. Strike’s Series B thus helps push forward many of the key themes the Ten31 team is most passionate about, and we’re thrilled to help Strike take the next step toward these ambitious and crucial goals.

As discussed at Bitcoin 2022 ( Obi keynote and elsirion panel ), federated Chaumian mints could provide an open source, distributed, censorship-resistant custody layer for less technical bitcoin users, allowing competent technical leaders in a given community to create a multi-signature federation to process transactions for less technically competent community members. In addition, Chaumian mints have attractive privacy preserving properties through the use of blind signatures, as the mint operators do not know the number of users, their identities, account balances, or transaction history. Decentralizing private keys and improving privacy are central themes Ten31 strives to support within the bitcoin ecosystem (exemplified by its investments in Unchained Capital and Samourai Wallet), and Ten31 believes the development of federated blind mints can further advance these efforts and serve as a natural complement to existing scaling and privacy solutions.

Ten31 is an investment platform created with the express intention of investing in great bitcoin companies it believes will form the future foundation of the global economic and monetary infrastructure, and Ten31 is one of the most active investors supporting open source businesses. Ten31 is now investing out of its second fund, Low Time Preference Fund II, which is backed by a number of high quality individual bitcoiners, as well as bitcoin-oriented institutions such as Seetee and forward-thinking and aligned family offices and university endowments, among others.

In addition to its equity investments in bitcoin companies to support industry growth, a core part of Ten31’s mission is to support further ecosystem development by way of grants to the community. Ten31 pioneered a unique recurring funding mechanism by dedicating a portion of its management fees to support ongoing grants to developers and other contributors to the open source ecosystem. In 2021, Ten31 was a founding supporter of OpenSats and also gave a grant to Bitcoin Q+A for his contribution to education and content creation in the space. Ten31 has scaled its efforts to support the space in 2022, becoming the first sponsor of the Bitcoin Commons in Austin, TX (and providing a dedicated seat for a full-time developer to work out of the Commons), sponsoring the travel and accommodation of several developers to attend the Oslo Freedom Forum in Norway this month, and now making a significant grant to FediMint.

As the Ten31 platform continues to grow, Ten31 will look to further scale its efforts in supporting ecosystem development through additional grants under this model.

Ola Snøve, co-founder and Chair of Seetee, said, "Bitcoin is a protocol. As the internet has shown, resilient protocols are transformative and form the basis of entirely new industries. We believe that Bitcoin’s relevance will increase over the next decade, which is why we are especially excited about this partnership with Ten31. Grant, Jonathan, and their team have a deep understanding of Bitcoin and the long-term vision required to invest in companies and build structures that can last for generations."

Grant Gilliam, co-founder and managing partner of Ten31, said, "We are delighted to establish this partnership with Seetee, which is based on shared values and vision for the space, and an ultimate trust in working with high quality people of the highest integrity." Jonathan Kirkwood, also co-founder and managing partner of Ten31, added, "There is strong long-term alignment between the two organizations, and we couldn't ask for a better strategic partner than Seetee."

Seetee and Ten31 will each continue to independently invest directly in Bitcoin companies, with Ten31 serving as Seetee's preferred lead partner for investments pursued together or alongside one another. The alliance between Seetee and Ten31 aims to further the efforts each organization has made to support ecosystem development to date. Seetee and Ten31 have collectively already invested in more than 20 bitcoin companies, supported open source development through direct contributions and grants, and each brings to bear a diverse range of complementary experience and resources as value-added partners and contributors to the space.

Seetee became well known after its formation just over one year ago following the letter by Aker’s Chair Kjell Inge Røkke to the shareholders of the 180-year-old industrial group. In its announcement, Seetee highlighted its intention to actively participate in the Bitcoin community, contribute to free open source software, invest in and support projects and companies throughout the Bitcoin ecosystem, and establish bitcoin mining operations. Since then, Aker has executed exactly on that plan, building an in-house development team contributing to the space, investing directly as a partner to several Bitcoin companies, working towards mining operations that accelerate the energy transition, as well as keeping bitcoin on its balance sheet.

Ten31 has become a leading equity partner and supporter of bitcoin companies since ramping up its efforts over the last couple of years. In addition to Gilliam and Kirkwood, the Ten31 team includes notable venture partners Matt Odell and Marty Bent, each of whom are actively involved in numerous projects in the bitcoin space and have platforms for producing general industry and technical content, venture partner Michael Tanguma who is also an advisor to Unchained Capital, and Parker Lewis as an advisor to Ten31, who is head of Business Development at Unchained Capital and the author of the Gradually, then Suddenly series.

Through the partnership with Ten31, Seetee is significantly scaling its investment ambitions to support great companies in the space. Seetee and Ten31 believe their partnership will allow for a more positive overall impact on the ecosystem, with the overarching goals of facilitating further bitcoin adoption, advancing individual freedoms, and enabling human flourishing.

Both Seetee and Ten31 are supporters of the Human Rights Foundation, with Seetee sponsoring the Financial Freedom track as well as the Bitcoin Academy at the upcoming Oslo Freedom Forum, and Ten31 sponsoring the travel and accommodation of several developers to attend the Forum. Seetee and Ten31 view the further development of the bitcoin ecosystem as paramount to the advancement of human rights, and this is central to their motivations to be actively involved in the space.

About Aker and Seetee:

Aker is an industrial investment company with ownership interests concentrated in oil and gas, renewable energy and green technologies, maritime assets, marine biotechnology, and industrial software. Aker is listed on the Oslo Stock Exchange.

Seetee sees Bitcoin as a protocol for transfer of value much like https is a protocol for transfer of information. Seetee contributes to the development of free open source software, invests in seed and venture capital, encourages mining projects that accelerate the energy transition, and owns and accumulates bitcoin.

About Ten31:

Ten31 is a leading investment platform focused on backing bitcoin companies building the world's future infrastructure. Ten31 also supports development through grants to open source contributors using a recurring, management fee-driven contribution model, and also sponsors a developer seat at the Bitcoin Commons in Austin, TX.

While proof-of-work mining clearly plays a central role in bitcoin’s censorship-resistant and seigniorage-resistant properties, the open source nature of bitcoin is also a critical component enabling its decentralization and censorship resistance. In a world that is becoming increasingly gated, controlled, censored, and manipulated, it is more important than ever to offer an alternative which is open, permissionless, transparent, trust-minimized and egalitarian. Bitcoin offers a new financial system which provides financial freedom and financial inclusion to all. The open source principles from which it is based represent a key building block for protecting human rights and freedom over the long term.

It is also critically important to apply open source principles to software and business applications plugging into the bitcoin network or built on top of bitcoin. The continued development of open source software and business applications remains paramount to counteract the centralizing forces of institutions, technology, and the associated encroachment on human freedoms that come as a result.

Most people might instinctively think the pursuit or support of open source development is some combination of (i) a philanthropic endeavor, (ii) a lopsided David vs. Goliath battle with entrenched, better funded incumbents, or (iii) an effort destined to burn cash even if an open source project becomes successful. However, the development of open source software and business applications in the open bitcoin monetary network can not only coexist alongside commercial motivations, but open source development and commercial aspirations can in fact be additive to one another resulting in a better end result than would have been achieved by either strategy on a standalone basis. The value proposition from an open source strategy will be far more meaningful than we’ve seen prior to bitcoin, and the open nature of its network will be the key value unlock for enabling this.

While it is traditionally tough to derive the community benefits at the early stages of an open source project, the value proposition of open source within bitcoin will be accelerated dramatically as the network effect of bitcoin grows stronger block by block. Rather than starting from scratch, open source applications can plug into the growing open source network we already have with bitcoin and get a head start. Suddenly it’s not just David vs Goliath, but an army of David’s that can quickly displace incumbents with open source innovation and scale benefits from the growing bitcoin network. That paves the way for participants across the ecosystem to pursue open source endeavors in a more meaningful way than they might have considered previously, including individual contributors, companies, investors and other capital providers. Some already understand this (e.g. @jack), but most do not. The attractiveness of building, supporting, and investing in open source businesses specifically within the bitcoin ecosystem will become more obvious over time, especially as early winners emerge.

The importance of free and open source software

It is helpful to look back at the origins of the cypherpunk movement to understand the importance of open source principles. I will not give a full history lesson here—you will get a better overview from Alex Gladstein in The Quest for Digital Cash —but the cypherpunk movement is rooted in an open source ethos. To counteract growing concerns about technological power centralizing to institutions and governments (and the coercive tendencies as that power grows), the cypherpunks took an offensive approach to invent and use technology that these groups could not stop. Core to that effort was not just cryptography, but also open source principles.

Authorities classified cryptography as munitions and tried to ban the export of encryption software. The cypherpunks understood the importance of maintaining individual privacy through encryption, and Paul Zimmerman released PGP in 1991 under a core cypherpunk belief that code is free speech and should be protected by first amendment rights. There were significant efforts to share that open source code widely, and as a result the knowledge base decentralized and the code became censorship resistant. We may not have PGP today if it wasn’t for those open source principles.

Cryptography has done wonders to tip the scale in favor of individuals with respect to communication, information, privacy, and now money; open source values are a critical complement, democratizing and decentralizing access to information, tools and applications, thereby supporting censorship resistance. Cryptography and open source principles together serve as critical tools for protecting freedom. Just as encryption is a human rights imperative, so too are other open source tools and systems.

What is open source software?

Free and open source software (FOSS) is by definition software that is free for anyone to use, modify, and distribute. Free does not just mean free of cost, but also means freedom (the four essential freedoms as defined by Stallman ):

• The source code is available and open for anyone to see, verify, access and use

• Anyone has the freedom to modify the code in any way they choose

• Anyone has the freedom to redistribute and/or commercialize the code

• Anyone has the freedom to distribute copies of the modified code, which gives the community the opportunity to benefit from any such changes

There are many benefits of free and open source software, including accessibility and censorship resistance. FOSS can create a viral community that strengthens the software and can protect users from coercive actions of an antagonistic third party, whether a centralized authority or even the upstream team. In addition, open source software gives users the power to verify the code that is running (it is otherwise impossible to interact with software in a trust-minimized way if the source code is not viewable). In effect, open source software dramatically tilts the power balance away from those who might want to exploit their position to control users, allowing the code to outlive the team and project.

There are dozens of common open source licensing strategies, the most common of which are GPL, MIT and Apache, estimated to represent roughly 85% of open source licenses:

• GNU General Public License (GPL) - referred to as a “copyleft” license, GPL protects the open source code such that anyone can fork the code, modify and sell it, but the code (and any modifications/contributions) must remain open under the same GPL licensing framework (i.e. any derived code inherits its license terms). This license would, for example, provide protection that a corporate giant doesn’t steal the original work, make modifications to it and then switch the greater work to closed source.

• MIT - this license (used in bitcoin core) is generally most permissive in that it allows anyone to do whatever they wish with the original code without copyleft restrictions, meaning anyone has the freedom to fork the code and switch to another licensing model or even switch to closed source. The essence is that the community owns the code; no single entity owns more rights to it (important for self sovereignty). As well, there is no warranty behind it, removing any liability from the authors.

• Apache 2.0 - a permissive license similar to MIT, with the primary differences being that any major modifications to the original source code must be disclosed (unlike MIT) and the explicit grant of patent rights to users (somewhat ambiguous in MIT)

In practice, some companies opt for licensing strategies which are not by definition free and open source but do offer users benefits versus proprietary software. For example, two common approaches are:

• Business Source License (BSL) - the source code can be modified and compiled, non-production use of the code is free, and the code is available to become open source under a GPL or compatible license at a certain point in time. This license provides a model for a company to protect commercial interests, while allowing for open code which protects users from vendor lock-in.

• Open core - typically involves offering a core or limited feature version of open source software, while offering enhanced features in a commercial version. In this case some code is open source, but non-core code is not available in source form, cannot be modified and compiled, cannot be contributed to and will remain closed source (does not protect users from vendor lock-in for those features).

Under these approaches, users have the power of source-viewable code, but the companies utilizing these types of licenses do not fully unleash the viral nature of FOSS development.

For companies, the open license utilized has often been a triggering topic within the bitcoin community, resulting in feuds among different teams (usually based on the “openness” of a company’s license, how it is marketed to the broader ecosystem/user base, and the commercial implications of the license). I will not get into specific past debates here but will note there are tradeoffs that need to be considered in a company’s licensing strategy, including potential impacts on scaling, development, community building, competition, and funding/monetization, among other factors. Depending on the existing license (and subject to existing code remaining protected under that license), a company may consider pivoting to a different licensing strategy as its business objectives and the merits of its open source strategy evolve.

There are obvious benefits that can come to a company from building an open source business/application and allowing for community contributions, including accelerating product feedback and innovation, improving software reliability, scaling support, driving adoption, and increasing the pool of technical talent contributing to the business. On the flip side, some perceived challenges of open source are that a company opens itself up to more competition and restricts its ability to monetize its efforts. Common concerns are the possibilities of (i) a VC firm funding a fork of the project, allocating a significant marketing budget to prop up the new business, and none of the financial benefits accruing to the original creators, or (ii) a large corporation leveraging its more extensive resources or existing customer base to exploit the open source code for its benefit and at the expense of the original creators.

Notwithstanding these potential concerns, the real power of open source is the ability to take the code, remix it, provide it to the market and let the market decide. Competition drives progress. As we move towards a more bitcoin-oriented world, having an open approach will build trust with the community (anti-rent seeking behavior; win based on the merits, rather than exploiting a current position of power i.e. “proof-of-stake” approach). Within the bitcoin ecosystem, there are also tangible and reinforcing benefits for both the company and the network when building open source applications, which I’ll discuss in more detail further below.

Not every business will make sense for an open source model, and not every team or company will want to pursue an open source strategy, but every company should think about how it can support the open source mission in some way (for example, making a portion of its business open source or making contributions to open source development in the ecosystem). Some level of support for open source development is better than none, and we generally feel the more, the better, but that is up to each team to decide and strike a balance they feel is appropriate. From a company perspective, honesty is critical so as not to misrepresent the nature of the license used, the motivations around the selection of that license, and the considerations applicable to the use of its software.

Open source licensing is a tool to help deliver a better, more open and free world. Open networks are superior to closed networks, open software is superior to closed software, and everyone will win as these ways of business proliferate.

Open source business models

The full potential of open source can be achieved when technological development is paired with a sound commercial and funding model. Developing a viable economic model that pays for itself not only creates sustainability in a project, but can also accelerate the open source movement. A sustainable economic model can support a growing developer community, spurring further technological development, which in turn increases the economic incentives for open source.

There are many business models that can work, but they all typically revolve around selling services on top of open source software:

• Support services: maintenance, installation, support

• SaaS / managed services: backup, hosting, security, etc.

• Tooling / enhanced functionality: paid features / performance on top of base software

• Other services: diverse range depending on nature of the software functionality, and could even include hardware manufacturing / distribution bundled with FOSS

Red Hat is one of the more well-known companies to have successfully commercialized open source software by offering software for free and charging a support fee to customers for maintenance, support, and installation. Red Hat was founded in 1993, went public in 1999, was later acquired by IBM in 2018 for $34 billion, and today boasts more than $3 billion in revenue. Other businesses with open source models have proven successful, including MySQL (purchased by Sun Microsystems for $1 billion), XenSource (acquired by Citrix), Revolution Analytics (acquired by Microsoft), MongoDB (IPO), Mulesoft (acquired by Salesforce for $6.5 billion), Elastic (IPO), and Gitlab (IPO), among many others.

While it is not trivial to successfully commercialize an open source business, it is clear from past examples that companies can achieve tremendous success while incorporating an open source model. Companies must deliver a product or service which customers are willing to pay for on top of free software. The nuance is that it becomes less about monetizing the past (rent seeking), and more about getting paid for delivering value in the present. Companies that open source their business can win competitively by providing better service, community, expertise (knowing the code better than competitors), and customer experience.

There is a misconception that investors would not want to invest in something that isn’t proprietary, and that likely is true for a large chunk of traditional VC investors. But just like bitcoin requires an adjustment of mental frameworks and an openness to understand its potential, the same is true for conceptualizing investments in open source businesses. Investor participation in an open source business can also enhance development, growth and value creation.

Open source businesses in bitcoin

Building open source technology businesses has proven it can be an attractive strategy, but nowhere will this prove to be more true than in the bitcoin ecosystem, where the open monetary network will provide a stronger feedback loop to benefit both the network and those developing open source applications on top of it.

As above, an open source business model can provide a company with a larger developer network to support technological innovation, enhancing product support / reliability, building customer loyalty and brand equity and ultimately accelerating community building, which drives further interest from open source developers (the “company development flywheel”). In addition, within the bitcoin ecosystem, the value proposition to open source development extends beyond the company to also strengthen the network as a whole, driving enhanced utility for all participants, increasing adoption, and creating a flywheel that attracts additional capital into the ecosystem to support infrastructure development (the “bitcoin infrastructure flywheel”, which I outlined in my prior piece ).

Furthermore, as capital is deployed within the ecosystem, both in the form of investments in companies building open source applications as well as grants to open source contributors, (i) further company resources are available for technological development, driving accelerated company growth and attracting additional capital investment (the “company growth flywheel”), and (ii) further resources are allocated to protocol innovation, opening up the possibilities of enhanced features and functionality, further attracting new developers and altogether strengthening the network (the “bitcoin development flywheel”).

These forces together form a very powerful vortex through which the entire ecosystem is pushed forward, reinforcing its strength and benefiting all participants in the network.

It should sound intuitive that open source applications should go hand in hand with open source money, but I think it is difficult for most to comprehend just how dramatic the impact of this will be. It will not only be a game changer for individual participants, but there is also a significant opportunity for early movers in the bitcoin ecosystem to unleash the power of open source to drive growth for their business and create projects of unprecedented scale by leveraging the network effects of bitcoin. In addition, one of the pain points for open source tools in the past was receiving money directly from users without a trusted third party; bitcoin enables new models as a result.

While it might be instinctive to think offering open source products could be cannabalistic to one’s own business, in the future we will find these efforts to have been a significant net add, strengthening not only the network but also the business and any others who contributed to those efforts (individual contributors or capital providers). It should be noted that not every open source project needs to have a profit motive to drive value, but it is also not the case that contributing to open source vs. pursuing commercial endeavors is an “either/or”: open source projects can drive significant profits, and in the bitcoin ecosystem this will result in sats flows and bitcoin dividends.

Just as I’ve said investing in bitcoin infrastructure provides great asymmetry, contributing to open source development will similarly provide great asymmetry to all those who do it, while benefiting all other participants at the same time. Bitcoin is uniquely designed to provide an incentive structure where the devotion of resources can be good for business, good for the industry, and good for humanity.

Ten31’s contribution to open source

When we formed Ten31 we thought it was important at the outset to give back to the ecosystem and to those contributing to its development. We were inspired early on by the efforts of Square and HRF, as well as Brink and OpenSats. We created a recurring management fee-based donation model, earmarking capital that could create a consistent source of funds to support the ecosystem. In doing this, we also hoped it might inspire other funds to think similarly and consider giving back on a recurring basis.

We continue to be impressed by the magnitude of contributions and open source development happening in the ecosystem today, and are grateful for all those committing time and resources to that effort, especially the developers and companies.

At Ten31 we are supporting the open source ecosystem in a variety of ways:

• Grants to open source contributors: Initial grant in 2021 to Bitcoin QnA for his work in bitcoin education and informational content. 2022 grants will be announced soon

• Founding contributor to OpenSats

• HRF: sponsoring 4 developers to attend 2022 Oslo Freedom Forum

• Bitcoin Commons: sponsoring a permanent seat for a developer to work in the new Bitcoin Commons in Austin, Texas

• Investing in open source businesses: we are proud to be one of the most active investors supporting bitcoin businesses who contribute to open source development, including:

  • Hodl Hodl: built various open source tools on MIT licenses

  • Nodl: fully open source with a MIT license; supporter of OpenSats

  • River: supporter of Brink

  • Samourai Wallet: fully open source operating on a GPL license

  • Sphinx Chat: fully open source operating on a MIT licence

  • Start9: platform for hosting a broad suite of FOSS, operating with a custom non-commercial open source license

  • Strike: supporting open source development through the Bitcoin Indy car and recent Lightning bounties with HRF

  • Swan: supporter of OpenSats, released an xpub tool with a MIT license

  • Unchained Capital: its Caravan multisig tool is fully open source on a MIT license

Final thoughts

• Development of free and open source software is an imperative for human freedom.

• Open source development in the bitcoin ecosystem creates a powerful vortex that benefits contributors, companies and the network.

• Open source development can coexist alongside for profit business models and can be enhanced with external investment capital.

• There are many open source business models that can produce sats flows and bitcoin dividends, particularly when harnessing the power of bitcoin network effects and differentiating on services, brand, community, experience and time to market.

• Every participant in the ecosystem should be considering how it can support open source development. We will continue to contribute in a meaningful way from Ten31 and will actively encourage every company we invest in to consider the same.

• For companies building open source tools and considering taking on investors, it is critical to find a partner aligned with those objectives; the best way to judge that is by historical contributions (similar to reviewing a developer’s commits on github). The actions supporting open source development should speak for themselves (“proof of work”).

• Those that provide value and contribute back to the network will ultimately accrue value in their business, brand, customer base, and relationships. Open source development is good for bitcoin, and what is good for bitcoin will be good for humanity and will ultimately be good for those enabling it, whether developers, founders, companies or investors.

The economic case for investing in Bitcoin infrastructure

To see value, you need to think differently…

What is the key to being a great investor? Is sound investment judgement an innate capability, or can you learn it? In my 15 years as an investor professionally, I’ve found that investment judgement develops over time. You must have personal honesty and discipline. You must know when you should say “no” and be willing to do it. You should learn not just from the deals you do but also from those you don’t. But above all else, what I have found key to investing well is independent thought. That is, being yourself and challenging the norm, and seeing value where others do not. In my experience this usually comes from one of three sources:

1. Getting there first / being early (“unearthing value others have not”)

2. Having proprietary information / insights: not just unique information but also unique capabilities to capitalize on the information and insights you have (“the ability to crystallize value others cannot”)

3. Thinking differently: having the same data but a different view, or a greater understanding of that information, or seeing value (or risk) in it where others do not (“recognizing value where others do not”)

Ten31’s strategy is to invest in and support great Bitcoin companies, and we have the benefit of all three sources of alpha above. As it stands, most professional investors aren’t yet thinking about investing in Bitcoin companies because the broader market (even those interested in “crypto” or “blockchain”) generally still does not understand bitcoin. That’s what creates the huge upside in the BTC/USD price (which will ultimately be captured as information and general understanding of bitcoin becomes more distributed), but this pricing upside also often underlies the impulse to only hold the asset and not consider investing in the “picks and shovels” around it. I’ve found the hesitation among bitcoin believers to invest in Bitcoin equities most often stems from (i) a desire to wait until future price gains on bitcoin are realized (in a sense, a future FOMO), (ii) a disbelief that investing in Bitcoin equities can outperform bitcoin, or (iii) risk aversion.

Bitcoin is the safest asset and most pristine collateral on the planet (1 BTC = 1 BTC), so I understand the third group above who may prefer to only hold bitcoin out of risk aversion (every individual should decide their risk tolerance and orient their asset portfolio accordingly). I have less sympathy for the first two perspectives, (i) those waiting for a higher bitcoin price (i.e. future FOMO) and (ii) those who don’t think investing in Bitcoin companies can outperform bitcoin (i.e. Bitcoin equity skeptics), for several reasons.

First, both of these points of view implicitly suggest that an allocation to Bitcoin infrastructure is an “either/or” relative to holding bitcoin. Unless you have 100% exposure to bitcoin and hold no other assets or investments (in which case, well done), those arguments are misplaced, as an investment in Bitcoin infrastructure should be evaluated in context to all other allocations within a portfolio, including traditional markets (public markets, real estate, PE/VC, etc.). The measuring stick shouldn’t strictly be against bitcoin.

My second argument is that investments in Bitcoin companies can in fact outperform bitcoin. If deployed carefully and selectively, successful investments in early stage Bitcoin companies have 100x+ return potential over a shorter time frame, unlikely to be matched by bitcoin over the same horizon (even if we all believe the appreciation potential for holding bitcoin remains hugely significant over the longer term). Investments in Bitcoin companies that earn and build bitcoin on their balance sheet (at effectively below market prices) also offer the opportunity to outperform bitcoin (for example, think of a bitcoin miner). As more companies successfully offer products and services desired by holders of bitcoin, these companies will eventually be paid in bitcoin, and bitcoin will accrue to their bottom line and strengthen their balance sheet (indirectly becoming ‘bitcoin miners’...more on this below). In this way Bitcoin companies can in effect become leveraged plays on bitcoin.

Thirdly, and perhaps just as powerful and very much overlooked, investing in Bitcoin companies can enhance your bitcoin portfolio by offering returns which are disentangled from near term price swings of bitcoin, balancing out the underlying volatility of the asset. An early stage Bitcoin company with product market fit and/or customer traction might be achieving significant equity growth over a period when the bitcoin price temporarily stagnates or even declines due to broader market factors. Given the significant secular tailwinds expected over the coming decade as adoption continues, investing in early stage Bitcoin companies can capture these benefits, regardless of shorter term bitcoin price volatility. For example, BTC/USD is up roughly 35% over the last 6 months, 15% over the last 12 months, 350% over the last 18 months, and 400% over the last 24 months. In Ten31’s Low Time Preference Funds, we have investments in Bitcoin companies that have outperformed each of these metrics over the same shorter-term time frames. While in many cases the value of private, illiquid company stock doesn’t move over these shorter periods (updated mark-to-markets are typically done in conjunction with subsequent fundraising activity), the point is that once valuations are updated upon such an event, it can crystallize returns in excess of bitcoin over the same period.

And finally, as I described in my last essay, there is also a flywheel from investing in Bitcoin infrastructure. Investments in the Bitcoin ecosystem strengthen the network, driving increased adoption and value of the asset, which in turn attracts additional capital and supports further investment in infrastructure in a virtuous circle. There are natural synergies from holding bitcoin and investing in the network, and the result is an overall improved risk/return profile versus holding bitcoin on a standalone basis. Therefore, rather than an “either/or” with holding bitcoin and investing in Bitcoin infrastructure, the conclusion is that one should both hold bitcoin AND invest in Bitcoin companies. We were all convinced at one point to own bitcoin, and the next logical step should be to “get off zero” in terms of allocating capital to Bitcoin equities.

Tying back my concepts of independent thought to investing in the Bitcoin ecosystem, Ten31 captures all three sources of alpha previously mentioned:

• ✅ We are early: the capital misallocation is significant - most still are not allocating capital to Bitcoin infrastructure

• ✅ We have unique insights and capabilities: Ten31’s network and execution capabilities allow us to access investment opportunities other funds cannot (including top tier VCs and crypto funds), as well as offer unmatched value to the Bitcoin companies to support their growth and long term value creation. We bring an institutional background and blue-chip investing pedigree, combined with a deep understanding of bitcoin and a strong team with broad reach, to align ourselves with Bitcoin companies and support the ecosystem over the long term

• ✅ We see value where others in the space do not: as above, the rationale for investing in the ecosystem is clear, but not yet appreciated by most

Investing Under a Bitcoin Standard - A Shift to Sats Flow Investing

As we’ve seen over the last couple decades under a fiat standard, very often the profile for a venture investment has been to burn cash and pursue growth at all costs, with no need or ambition to consider profitability or cash flow (the profitability dial can theoretically be turned later, or perhaps an exit can be realized before ever reaching profitability). A world of infinite liquidity can prime the pump with fresh capital to rinse and repeat this process over and over again.

As we transition to a more Bitcoin-oriented world, the importance of profitability and sound business models will increase, and there will be a greater emphasis on returns on invested capital (measured in bitcoin terms). That is not to say that venture backed Bitcoin companies won’t also burn cash initially while experiencing hyper growth–likely most will initially, but the drive to achieve profitability more quickly will be greater, and the allocation of scarce capital resources based on those ambitions will be more disciplined than before. That’s because Bitcoin companies are backed by bitcoiners, and the common goal among every bitcoiner is to obtain more bitcoin. Under a Bitcoin standard, earning bitcoin today will generally require less work than earning the equivalent amount of bitcoin in the future. Said another way, for the same amount of work you will earn less bitcoin in the future. This will emphasize the opportunity cost of foregoing bitcoin today for the prospect of bitcoin tomorrow (which will be harder to earn). When the objective is to accumulate as much of the 21 million fixed supply as possible, this will become a forcing function on a company's mindset for evaluating investments in growth. Return on investment ("ROI")-based analyses will become more common, even in the earlier stage venture world (e.g. "what is the expected bitcoin yield we could expect in profits from this investment?").

Not only will entrepreneurs start to think in terms of how much bitcoin can be generated from allocation of its resources, but investors will also begin to think more in bitcoin terms when evaluating the risk/return of investment opportunities. Let’s take a look at some simple corporate finance and valuation concepts, applied to bitcoin.

If an investor is making the economic decision of holding bitcoin today vs. investing in the equity of a Bitcoin company, the investor should only do this if he/she has conviction the investment will yield more bitcoin, with some premium required based on the risk being taken and the cost of capital (i.e. the investment generates excess returns). Simplistically, an investor could value a business using a multiple-based approach (e.g. revenue- or earnings-based valuation) as a proxy for the bitcoin it can ultimately deliver to shareholders over the longer term. Alternatively, a business could be valued directly based on how much bitcoin it is estimated to produce in the future, discounted by its cost of capital in bitcoin (“discounted sats flow”).

These are familiar concepts to anyone who has taken corporate finance, but under a Bitcoin standard the relative level of importance of the different value drivers may shift. In an inflationary system, holders of assets win. With deflation, holders of money win. Under the simplistic multiple-based valuation approach above, equity value creation is driven by:

• (A) Growth in the company (revenue or earnings, measured in sats) relative to its valuation multiple; plus

• (B) The net additional bitcoin accrued on a company's balance sheet (net sats flow); plus

• (C) Any change in the valuation multiple of the business relative to its financial performance.

If future financial performance measured in sats (in the diagram above, KPI_n) is harder to achieve in bitcoin terms in an absolute sense due to its deflationary nature (i.e. KPI_n may grow less, if at all), it follows that the components (A) and (C) of equity value creation will also become more challenging in an absolute sense, and therefore component (B), the ability to generate sats flow, will become more important. Equity value creation, and by consequence investment success, will be more rooted in profitably generating sats.

In turn, this may lead to an increased emphasis on Discounted Sats Flow analysis. Following the same logic as above, if the amount of Bitcoin earned in the future (₿_t) is harder to achieve (and possibly declining over time), then the value of a company’s Discounted Sats Flow will be more heavily weighted towards the present than in the previous paradigm, incentivizing the pursuit of a sound, sustainable and profitable business model more quickly, as compared to the growth-at-all-costs model incentivized by the fiat standard. Another likelihood under this line of thinking is that profitable Bitcoin companies which accrue bitcoin on its balance sheets will benefit from a lower cost of capital than those who don’t, further incentivizing sound business behavior. In calculating a company’s cost of capital, investors using DSF models will likely estimate a risk free rate in bitcoin using an emerging bitcoin yield curve (see Nik Bhatia’s writing).

Qualitatively, it should seem obvious that Bitcoin will usher in a shift towards sats flow investing. In a fiat world of money printing, cash is not valued; artificially reduced interest rates mathematically favor growth investing, and cash flow investing has taken a back seat as a result. In a bitcoin world, if people start to value the monetary base unit more (sats), people will start to increasingly value the businesses that produce it. Ownership of sound money leads to ownership of sound equities and creation of sound business models.

As one last thought experiment, imagine a company that denominates its income statement in bitcoin, is profitable, and accrues bitcoin on its balance sheet. That sounds a lot like a bitcoin mining company. However, bitcoin mining companies are extremely capital intensive and fiercely competitive (anyone can plug in a miner and compete). In an open monetary network like Bitcoin, it is plausible that certain Bitcoin technology companies could establish early leadership positions in their respective fields with sustainable competitive advantages (sticky business models, technology infrastructure, network effect businesses, brand loyalty, etc.). Those companies would implicitly look a lot like bitcoin miners (generating a consistent stream of sats flows), except with a less capital intensive business model (no constant replenishment of equipment) and with less competition than bitcoin miners. This is a very compelling financial profile and an underappreciated aspect of investing in the future leaders of the Bitcoin ecosystem, and we are pursuing these types of investments at Ten31. I have provided below a snapshot of the investment areas we are targeting, and we’ll provide more detail about how we view the investable landscape in a future piece.

Conclusions

• Investing in Bitcoin infrastructure is one of the most overlooked and best kept secrets in the industry today, offering tremendous asymmetry

• An investment in Bitcoin infrastructure should be considered in conjunction with holding bitcoin (an “AND”, not an “either/or”)

• As we move closer to a Bitcoin standard, we expect a gravitation towards more sound business models and a re-focus by companies and investors on sats flows

• As the Bitcoin distribution schedule continues to reduce the new supply of bitcoin available to the market over time, one of the most effective ways to earn bitcoin will be to have equity stakes in Bitcoin companies

• Companies with the talent to build bitcoin infrastructure and profitably produce bitcoin will be significantly more valued, and this will be appreciated more by investors over time

• There is going to be a longer term increase in capital attracted to Bitcoin equities. Owning equity in the leading Bitcoin companies will become the future "scarce real estate." It might make sense just to get some in case it catches on…

In my view, bitcoin represents the greatest asymmetry that has ever existed. We are not just witnessing the monetization of a monetary good on the free market for the first time in any and all of our lifetimes but many of us are lucky enough to be building the monetary system itself, each in our own small way. Driven by the strength and credibility of its monetary properties, bitcoin is emerging as the global standard of value. I personally expect bitcoin to be adopted by billions of people and to mature into a day-to-day transactional currency that facilitates the vast majority of all the world’s commerce over the course of the next decade (maybe two).

When I say that bitcoin is the greatest asymmetry that has ever existed it is because there can be no greater asymmetry than that inherent in a monetization event (when one money emerges and displaces another). Money is the foundation of the entire economic structure and practically all economic activity is coordinated by the function of money. Despite the surrounding noise, what is actually happening at a fundamental level is the very early stages of the world adopting a superior form of money and shifting away from broken alternatives.

Everything hinges on the credible enforcement of a fixed supply of 21 million on a decentralized basis. That is the foundation of bitcoin’s value proposition and bitcoin’s monetary policy becomes stronger as the network grows. While most asymmetric events are low probability, bitcoin combines positive asymmetry with a high probability event. The global shift to bitcoin becomes more and more probable as a function of time, scale and further decentralization because it translates to an increasingly, and ever more, secure system. However, it does not end there. There is also great negative symmetry to holding money that is actively being displaced - a consequence of governments printing trillions of dollars combined with bitcoin emerging as a perfected alternative in parallel. That in aggregate is what makes bitcoin the greatest asymmetry that has ever existed; positive asymmetry of global monetary adoption + high probability + the negative asymmetry of a legacy currency being demonetized. Ultimately, the only winning move is to play and doing nothing has consequences.

Bitcoin is a strange game where the only winning move is to play. pic.twitter.com/dKpVK4R1G4

— Bitstein (@bitstein) January 14, 2019

When this reality came into focus for me over the course of 2016 and 2017, I also arrived at the conclusion that my time would best be spent building infrastructure for bitcoin. If there is asymmetry inherent in bitcoin, infrastructure critical to the bitcoin monetary system is similarly asymmetric. However, my decision to work on bitcoin wasn’t just about financial gains. At the risk of sounding hyperbolic, I also consider bitcoin critical to preserving our freedoms and the American way of life. To me, working on bitcoin is an imperative. When currency fails, Venezuela happens and anyone who believes it could not happen here is not applying logic to the inevitable end game of governments all over the world printing the equivalent of trillions of dollars in perpetuity.

While most people are resigned to sit back and accept the tenuous fate of financial instability, bitcoiners are chopping wood every day to build a more resilient monetary system. Failure is not an option because the stakes could not be higher. When I moved back to Austin, Texas in 2017 to work on bitcoin, I considered long-term custody as the most important problem to solve. I ended up joining co-founders Joe Kelly and Dhruv Bansal to help build out a vision of Unchained Capital centered on a foundation of custody where clients hold bitcoin keys alongside a financial institution as a partner. Rather than entrusting a financial institution with full control and custody of bitcoin, we had a vision that individuals and businesses would demand private key ownership. But beyond that, we believed that collaborative custody was the most secure and sustainable long-term approach to custody.

Despite a very clear vision and great conviction, building infrastructure dedicated to bitcoin was not popular in 2018 and 2019. There is a reality that the traditional world of San Francisco and New York venture capital is very much a monoculture. Most see crypto as a technology play. It’s the next tech wave! A world of 1,000s of cryptocurrencies, blockchain tech, ICOs and NFTs. That is the world most coastal tech investors see (and maybe want). The problem is bitcoin is moreso a monetary revolution than it is a technological revolution. It does not pattern match well and while VCs know easy money and asset-light, app-heavy business models, most of them do not understand money at a first principles level (or bitcoin as a consequence).

In my view, there may be a thousand cryptocurrencies, but there is only one that is relevant to the world in the end. And that is bitcoin. However, when you’re building infrastructure exclusively focused on bitcoin and have a vision of people holding their own bitcoin keys, well, that idea could not be further from the Silicon Valley world view and that largely closes it off as a source of capital to build bitcoin infrastructure. Ultimately, it takes bitcoin-minded entrepreneurs and bitcoin-minded investors to create long-term value in bitcoin. And I mean infrastructure that is actually of value to the bitcoin network and bitcoin holders.

I can speak from experience that entrepreneurs building on bitcoin value investors that have their own vision and understanding of bitcoin at a monetary first principle level. Coinbase may be Myspace, but bitcoin is not and Silicon Valley can’t see it. But that does not change the fact that the pools of capital willing to allocate to bitcoin-dedicated infrastructure were scarce at the time and remain scarce to this day. It is a contrarian view but having vision is about seeing things that are difficult to see. When we needed it and before it was popular to invest in Unchained, the two managing partners at Ten31, Grant Gilliam and Jonathan Kirkwood, both individually and as a fund understood and aligned behind our vision.

Grant and Jonathan understand bitcoin at an intuitive level and that matters materially for entrepreneurs in bitcoin. It meant the world to me personally and it helped afford Unchained Capital the ability to continue to work toward realizing our vision and mission. We subsequently gained sufficient traction to attract strategic partners in Stone Ridge Asset Holdings and its subsidiary NYDIG, which led both our seed extension and our Series A of $30 million in June 2021. But similarly, that only happened because the founders at Stone Ridge and NYDIG shared a North Star in bitcoin and valued the infrastructure we were building more than a traditional VC could.

When Grant and Jonathan approached me about their plans to expand Ten31 to a $50 million fund dedicated exclusively to bitcoin infrastructure, I actively encouraged them to execute on that path. That target figure has further expanded to $100 million based on the market opportunity. There is a significant gap between the founders in bitcoin with long-term vision working to build critical rails and the capital necessary to do so. That gap creates opportunity for Ten31. Risk and value are mispriced, and investors with a clear vision of bitcoin have a major role to play in bridging the gap. Bitcoin entrepreneurs with vision and defensible models want those investors on their boards and cap tables, and Ten31 will expand the pools of capital accessible to those founders by combining their institutional pedigree with the ability to effectively communicate a long-term vision of their own to investors.

After recruiting close friends of mine, Michael Tanguma, Matt Odell and Marty Bent, to be venture partners, the Ten31 founders asked me to come on board as an advisor. While my first, second and third priorities will continue to be building out Unchained Capital, I could not be more excited to have joined the Ten31 team in an advisory capacity. I align completely behind the vision and values of Grant and Jonathan as managing partners while Michael, Matt, and Marty individually and collectively have a strong pulse on valuable infrastructure and have deep relationships throughout the bitcoin community, especially among founders. The portfolio that Ten31 has already put together speaks volumes, and I look forward to serving as an advisor as the team expands the fund’s capital raising and evaluates future investments.

Building bitcoin infrastructure is critically important and in my opinion, there will be no greater opportunity to create wealth over the next few decades than through the rails that fuel bitcoin’s monetary revolution. The meek shall inherit the earth but not its bitcoin.

Best, Parker

December 27, 2021 ● Grant Gilliam

As we reach the end of what was another incredibly notable year in Bitcoin and look forward to what is to come in 2022, I wanted to share my thoughts on our vision for Ten31, investing in Bitcoin infrastructure, and my story as to how I got here. Bitcoin gives the world incredible reason for optimism, and we are excited to continue supporting the ecosystem.

My Path to Bitcoin

I am from Kentucky, the oldest of 7 children, and an Eagle Scout. I studied electrical engineering and math in college, with coursework in programming and cryptography. That probably doesn’t seem like an obvious path to Wall Street, but that’s where I ended up after graduating. I moved to NYC at a time when bankers were hiring anyone and everyone, regardless of background or degree. You only had to be smart and malleable, and they would teach you the craft. I never considered myself a suit, but up to New York I went, starting in leveraged finance and getting a front row seat to the excesses of the mid 2000s which were a precursor to the Great Financial Crisis. I then saw cascading failures of Bear Stearns and Lehman Brothers, which were pivotal in my young career trying to make sense of the financial system and the factors leading to its systemic collapse. I had a technical background from school, but I was also interested in business and investing, and I soon decided to pursue a career in private equity where I could develop professionally.

I was living in downtown Manhattan in 2013 and 2014 and would walk past the New York Stock Exchange every day on my way to the subway while commuting to work. And every day, right next to the NYSE, I would also walk by the Bitcoin Center founded by Nick Spanos. I never went in, initially thinking Bitcoin was a scam, and continued to dismiss it over the next couple years. It wasn’t until 2016 that I decided to look into Bitcoin, as I had enough pattern recognition after reading articles in Wired to finally become curious, and my college coursework gave me the technical interest to dig deeper. I heard Nick Szabo discussing Bitcoin and social scalability on Tim Ferriss’ podcast, and when I started looking more into Nick’s writing, my mind was blown. I became endlessly fascinated by what this new monetary system might bring to benefit humanity.

Bitcoin is complex; practically no one understands it with just a few encounters. It has a multidimensional foundation rooted in cryptography, game theory, and monetary economics, and its impact on the world will be all-encompassing, driving positive economic, societal, cultural and ethical change. Most people feel late to Bitcoin in hindsight, but those initial encounters I dismissed were important and valuable first sparks that eventually led to the burning flame that now feeds my passion to dedicate my time, energy, and career to Bitcoin.

My Proof of Work to Bitcoin

Over the last decade-and-a-half, I worked as a private equity investor, employed at one of the largest firms globally where I was tasked with building relationships with founders, sourcing interesting investment opportunities, and ultimately supporting companies as a value-added partner in their pursuit of growth. I was directly involved with deploying more than $3 billion in equity and served on Boards of multi-billion dollar companies, developing experience at all levels of business (strategy, HR/recruiting, finance, capital markets, governance, legal, IT/infrastructure, Ops, etc.) to understand what it takes to become best-in-class and eventually scale to the billion-dollar+ capitalization level.

Every partnership with a team is different, with unique challenges and opportunities, and therefore you cannot rely on the same playbook for each investment. However, patterns do emerge, and you develop insights from your experiences and learnings that can be helpful to companies as they inevitably encounter bumps on the road. No business plan ever goes exactly as planned. Therefore, as a business partner, being able to offer experiences and relationships to teams that haven't had the same number of repetitions with similar issues is often incredibly valuable.

While continuing to hone my skills as an investor over the last 5 years, I immersed myself more and more into Bitcoin in practically every spare moment of time I could find. As my understanding and conviction deepened, I felt an ever-increasing desire to get more involved. I followed this ambition and passion, and my financial investments evolved from initially holding bitcoin directly to also investing in Bitcoin-related companies. I wanted to support the great Bitcoin companies that I was getting to know, and I wanted to contribute my professional skills as an investor and partner to founders and businesses to help them in any way I could. I knew my professional background was relatively unique to the Bitcoin space, in that I had put in the work at a top-tier investment firm in what is a notoriously challenging and ruthlessly competitive field. I had risen the ranks and proven myself as an astute investor and reputable partner to companies and teams, and I had gained knowledge and experience that could be valuable to early stage companies in the space.

My first investment was in Unchained Capital, and my cousin Jonathan Kirkwood, who was also an avid Bitcoiner with a history of successful investing, invested alongside me. There was much less market enthusiasm for investing capital into Unchained back then (not to mention in companies dedicated to Bitcoin as a whole), but to us it was a no-brainer. While the fiat world didn't understand the Unchained business model, we understood Bitcoiners would hold their own private keys and needed a better form of custody, with access to lending and other future financial services that didn't map to the legacy fiat world. We continued to seek out other compelling Bitcoin companies to support as well, and as Jonathan and I increased our equity investments in the space, we decided we wanted to dedicate ourselves full-time to Bitcoin and this ultimately led us to found Ten31 as a better way to realize our vision.

Ten31 - An Investment Platform for Bitcoin Infrastructure

We are building Ten31 as an investment platform to scale and institutionalize investments in companies building infrastructure dedicated solely to the Bitcoin ecosystem. Ten31 has an investment edge due to:

1. The asymmetry of bitcoin : bitcoin is the most asymmetric investment the world has ever seen, which first and foremost provides an edge over investors deploying capital in any other ecosystem

2. Capital misallocation in crypto : capital has disproportionately been dedicated to crypto and underweight in Bitcoin infrastructure, creating an opportunity for Ten31

3. Ten31’s alignment, experience and value add : we are better partners for Bitcoin companies because our fundamental understanding of bitcoin, combined with our investment and partnership experience, allows us to add value beyond simply as a capital partner

The Asymmetry of Bitcoin

Bitcoin is solving one of the largest and most important issues of our time, creating a sound money that is outside the control or influence of centralized and trusted third parties. Without sound money at the base layer, we face negative externalities downstream in all aspects of our lives, most of which do not seem obviously related to a broken monetary system (except to Bitcoiners).

Bitcoin now provides a system where value can be protected from inflation, confiscation, or deauthorization, and proof of work is at the center of this innovation. Bitcoin is the best technology for storing and transmitting value over space and time. It represents a paradigm shift that will impact everyone; it is a tool to support individual freedom and allow for unprecedented human coordination and flourishing. Bitcoin will also unlock an energy revolution which is unfathomable to most at present—not just from a natural resources and energy production perspective, but also from the perspective of humanity’s collective allocation of financial capital, productive assets and human energy output. It is the most beautiful game theoretic system ever developed, and it will save us from the worst of human tendencies and the worst of technology while unlocking the best of our human potential and the best of technology. In short, it is the soundest and hardest form of money that has ever existed, offering the potential for a new monetary and economic system free from the pitfalls and broken incentives created by the current fiat-based command and control systems of today.

In our view, the world will converge on one form of money, and that will be bitcoin. The monetization of bitcoin over time will continue to offer asymmetry unlike any other asset previously; not only will holders of the currency continue to benefit from outsized increases in purchasing power, but investors in Bitcoin infrastructure will also inherently benefit from this asymmetry relative to investors deploying capital elsewhere.

Capital Misallocation in Crypto

Despite the incredible potential of Bitcoin, less than $100 million has been raised in Bitcoin-focused VC strategies, whereas we estimate more than $25 billion has been raised for crypto/blockchain strategies (a large portion of which are dedicated to trading, which artificially prop up the value of crypto ecosystems more than they are actually building real infrastructure). This imbalance ultimately will prove to be a massive misallocation of capital, which creates an opportunity for Ten31.

The exuberance we see today in crypto platforms, NFT exchanges, DEX speculation platforms, and promises of the potential for web3 remind me a lot of what I saw in the mid 2000s before the GFC. It is a symptom of money printing, excess liquidity driving speculation, and ultimately a broken base layer of money. It leads to crypto companies with unsupportable valuations and unsustainable/broken business models, whereas Bitcoin companies building real businesses are underappreciated by the market and deeply discounted because of the market’s flawed consensus view of bitcoin vs. crypto.

Bitcoin is the revolutionary advancement; crypto is the noise. The continued monetization of bitcoin will necessitate the further development of infrastructure built around the ecosystem, offering tremendous economic upside to those who invest in, build, and deliver that future. At Ten31, we understand not just bitcoin, but also the need for continued investment in real infrastructure around it and the importance of attracting additional financial and human capital into the space (including recruiting technologists from outside the industry).

Ten31’s Alignment, Experience and Value Add

The name “Ten31” comes from the day Satoshi released the whitepaper, October 31, 2008. We have named our series of funds the Low Time Preference Funds, in reference to the concept of time preference discussed in The Bitcoin Standard, which highlights (i) time preference is the extent to which individuals value the present over the future; (ii) sound money preserves its value across time, allowing humans to lower their time preference and plan for the future; and (iii) a low time preference underlies long term investment, which is the bedrock for driving productivity for society and improved civilization for future generations. In addition, we commit a portion of our management fees to developer grants on a recurring basis, the next round of which we will be announcing soon.

Because of our fundamental alignment with Bitcoin companies, we are more desirable partners than the traditional VCs or crypto funds. We understand bitcoin, we won’t be pressuring companies to support other assets, and we won’t be looking for companies to launch their own token so that we can obtain a pre-mined allocation. Instead, we will take a long term approach to supporting companies to build the Bitcoin future we want to see, which will provide asymmetric opportunities to generate value, discussed below. We aim to be a value-added partner to all the Bitcoin companies in which we invest – more than just a capital partner – and to do so in a way that aligns with the ethos of Bitcoin. Due to (i) our institutional background and blue-chip investing pedigree; (ii) the breadth of our portfolio and network in the space; and (iii) the depth and complementary skill sets of our team; we can offer unique insights and support to companies operating in Bitcoin, differentiating Ten31 in the ecosystem, especially relative to VCs without a laser-eyed Bitcoin focus. As a result, we are better partners and provide more aligned capital to Bitcoin companies, bringing to bear a Bitcoin mindset with broad reach and first class investing and partnership experience, all of which founders value.

Looking Forward - Bitcoin Infrastructure is Inherently Asymmetric

As we move towards a Bitcoin standard, Bitcoin will reset the way everyone thinks about opportunity costs. Every potential investment will be considered on a risk/return basis relative to the alternative of holding bitcoin. We are bitcoiners and of course believe holding bitcoin directly still has tremendous upside as an investment, but the only way it can truly reach its maximum potential is if infrastructure continues to be built around it . That seems intuitive, but investing in Bitcoin infrastructure remains a contrarian strategy. Bitcoin companies have been de-risked and are rapidly scaling. Many exciting technology developments are taking hold which we expect will unlock additional opportunities for entrepreneurs and new businesses as the next phase of adoption is underway globally.

Just as bitcoin as a direct investment offers asymmetric upside, equity investments in Bitcoin companies are inherently asymmetric, with a potential leveraged return to investing in bitcoin directly. There is a virtuous circle from investing in this space: investing in Bitcoin infrastructure causes the network to become more valuable, and as the network and supporting infrastructure strengthens, more capital is contributed to supporting and building out new infrastructure.

Our focus is on directing capital to the most promising founders and companies, and the successful execution of this strategy will allow our investors and the founders and companies we back to benefit disproportionately over time as these companies establish early leadership in the growth of the open monetary network. We are focused on supporting companies building infrastructure that holders of bitcoin will value over time, which is critical to building profitable Bitcoin businesses. If Bitcoin companies can consistently deliver services and infrastructure bitcoin holders value, then in a Bitcoin economy it follows that these companies will be accumulating the most bitcoin over time and becoming a larger part of the Bitcoin economy as a result (a larger portion of a fixed 21 million bitcoin supply).

We are moving towards a future where bitcoin will play an increasingly important role and will eventually serve as the world reserve asset and standard for economic and monetary activity. By consequence, eventually every person, every business, and every industry will need bitcoin and infrastructure that supports it. Building infrastructure that every other segment of the economy will need in order to access the Bitcoin network – whether it’s payment rails, custody/security solutions, financial services, consumer facing applications, mining/energy services, etc. – will offer exceptional asymmetry. We believe owning equity in the critical infrastructure built around the Bitcoin network will lead to immense equity appreciation and potential for long term bitcoin dividends from profits, which will be one of the most effective ways to earn bitcoin in the future, and we want to help the companies in which we invest capture a greater share of that value.

We have great conviction that we are right about bitcoin. Bitcoin accrued tremendous value over the last decade and will continue to in this next decade, and the value opportunity presented by investing in the infrastructure built around the network will become self-evident. The time is now for a platform like Ten31, and our ability to create value will be differentiated by our deep understanding of bitcoin and our execution capability in partnership with the founders and companies we back. We have a strong team, with Matt Odell, Marty Bent, and Michael Tanguma as partners and Parker Lewis as an advisor, bringing deep and complementary skill sets to support founders and companies in all aspects of their business (finance, technical, go to market, reach, etc.), but always with a Bitcoin-first mindset. We will be the anti-fiat VC, aligned with Bitcoin.

As a result, we will not just be better partners for Bitcoin companies than the likes of a Silicon Valley VC, but we will also be able to create more value investing $50 million in Bitcoin infrastructure than traditional VCs investing billions across crypto more broadly. By aligning with Bitcoin as our North Star, we can help make the world a better place, and ultimately long term value accrual will follow.

We will be sharing more thoughts on these topics in the coming weeks. Stay tuned for a dedicated series of writing with our views on venture investing under a Bitcoin Standard, as well as our views of the investment landscape.

It is time we flip the script.

Ten31 is a proper bitcoin fund; run by bitcoiners, for bitcoiners. We support teams from around the world who dedicate their time and energy to build on bitcoin.

No shitcoins, no tokens, no orb scanning retinas; only bitcoin, forever.

Ten31 will reframe how venture capital is done.

Our objective is clear: help build the future we want for our children and their children. We need a model properly suited for a post-bitcoin world. This means not only funding bitcoin businesses, but also free and open source projects. FOSS is absolutely crucial to our goals which is why we will be directing a portion of management fees with no strings attached to fund open source contributors and projects.

I love bitcoin. Bitcoiners are family. No matter how much time I give to bitcoin, I remain struck with the feeling I should be doing more. Ten31 is just one piece of this puzzle. My hope is that we will become a substantial force for good as we move to a bitcoin standard.

To all reading this, I expect you to keep us honest and to provide feedback. Your insights are always appreciated and together we cannot be stopped.

We must win. There is no other option.

stay humble and stack,

ODELL

Ten31 acts on an urge to help push Bitcoin forward.  We know not everyone can be shadowy super coders, but there are skills others have at their disposal to contribute to the ecosystem.  We believe the traditional venture capital model falls short in its potential impact on the space, and thus we have purposely designed Ten31 to be different from traditional VC.

Our series of funds are called the Low Time Preference Funds, and we direct a portion of our management fees to open source development and grants to contributors in the space . Rather than passive relationships with our LPs, we are building an active community of supporters who have seen the orange light of bitcoin and want to contribute. We are calling this the Ten31 Tribe. The Ten31 Tribe comes from all walks of life and brings to bear a wealth of experience, relationships and expertise across diverse fields and subject matter. LPs are largely an untapped resource for traditional VC, but we believe with the Ten31 Tribe we can be more impactful as a group and leverage the burning desire of those who have understood bitcoin and feel compelled to offer themselves to the Bitcoin mission. In a sense, we are the anti-fiat VC, with a singular focus: Bitcoin.

Finally, we are also excited to announce the addition of new members to our team.  Parker Lewis, Head of Business Development at Unchained Capital, has joined as an advisor.  Parker’s Gradually, then Suddenly series has been a source of in-depth evaluation on ‘why Bitcoin’ and has helped orange pill countless people.  We have also added Michael Tanguma, Matt Odell, and Marty Bent as Venture Partners. Michael is currently Managing Director of Client Solutions at Unchained Capital.  Matt Odell is a Bitcoin and privacy advocate, host of Citadel Dispatch and TFTC, co-Founder of several Bitcoin projects (Open Sats, BitcoinTV, Bitcoin Dev List, Final Message) and advisor to several Bitcoin companies (BottlePay, Hexa Wallet, Bitcoin Magazine, Swan Bitcoin). Marty Bent is the founder of TFTC.io, a Board member of Fortress Technologies (TSX-V:FORT), and previously Director of Business Development at Great American Mining.

Our Mission: To facilitate the freedom of mankind through individual sovereignty.

• Investing in Bitcoin-native companies.

• Focused on advancing individual sovereignty.

• Low time preference philosophy.

• Management fees directed toward Bitcoin core and Lightning developers.

Ten31 was formed by Bitcoiners looking to support the Bitcoin ecosystem by investing in Bitcoin-native companies building the world’s future infrastructure.

There are plenty of VC funds and ‘crypto funds’. Ten31 is neither. We are Bitcoiners supporting Bitcoiners. We believe there is an imbalance in the market of equity capital directed to support Bitcoin-only companies relative to the significant attention and amount of capital being deployed in ‘crypto’ and ‘DeFi.’ Bitcoin-only still remains somewhat of a contrarian view. In addition, among Bitcoin maximalists it is common to argue BTC will outperform all other investments (including equity investments in Bitcoin companies) and thus the argument you are better off to HODL.

We do not necessarily disagree — we are long term HODLers and will remain so — but as the monetization of Bitcoin as a world reserve asset continues, the relative balance between the asymmetric upside currently offered by holding Bitcoin vs. the return potential offered by supporting the companies which will ultimately form the foundation of the new economic and monetary system will (over time) begin to offer favorable risk/return tradeoffs. We admire what Fulgur Ventures, Trammell Venture Partners, and Bitcoiner Ventures are doing in the space, and we hope to emulate the success they have had so far.

With Ten31 we have formed our first fund, Low Time Preference Fund I, to actively support and invest in exciting Bitcoin companies. Ten31 will invest in the equity of Bitcoin-native companies and will also hold BTC directly.

Our Thesis:

• Bitcoin is the most important technology development in a generation (or more): an open source protocol for transmitting value over space and time; the first ever non-state monetary asset with provable and perfect digital scarcity where the supply is entirely unaffected by demand.

• Bitcoin will become the next World Reserve Asset.

• It is still early: Bitcoin is still misunderstood by most, and its upside is underestimated.

• The sheer potential of the Bitcoin ecosystem makes it risky NOT to have exposure.

• An entirely new decentralized economic and monetary system will be based on Bitcoin, where the monetary policy is governed by rules, and not rulers

• Bitcoin is a force for good that will reshape humanity, help alleviate inequality and allow humans to flourish.

• Ten31 is investing in companies forming the foundation of this new world through technological innovation.

Our Vision:

We believe founders and companies will welcome the involvement and support from like-minded investors like Ten31. We are not an incumbent VC and will not be taking an institutional approach to participating across other technology sectors. We are singularly focused on Bitcoin and have named our platform Ten31 after the date of Satoshi’s whitepaper. The Ten31 logo is a hat tip to the proof of work diagram within it. The fund name, Low Time Preference Fund I, embodies a long term philosophy and investment for the future, all of which is more natural with a sound money like Bitcoin.

Bitcoin is one of the most important things to ever happen to us personally. We have been passionate Bitcoiners for quite some time, have been feeling the gravitational pull of Bitcoin, and now feel compelled to dedicate ourselves to supporting the ecosystem given its importance to future generations.

We share the same philosophy and worldview about Bitcoin as many who are dedicating their lives to building companies in the space. Bitcoin has the potential to reshape the world and humanity for the better. This singular focus has already resonated with founders, and we are excited to continue backing interesting and exciting companies and their founders, employees and ideas.

However, we want to do more. One of the ideas we are most excited about is supporting Bitcoin and Lightning developers with the management fees generated by our fund. We have admired the efforts to support open source developers by the likes of Square and the Human Rights Foundation (among others), and we would like to follow their lead and do our part. We are not paying ourselves salaries and will be going out of pocket to cover fund expenses. We believe this will be the first time a fund has directed its management fees to developers and believe this signals strong alignment with and support for the ecosystem. We are hopeful others will consider similar actions.

Initial Portfolio

We are excited to already back a number of very promising companies in the space. To date, our portfolio includes Swan Bitcoin, Unchained Capital, Satoshi Energy and Start9 Labs. Going forward, we expect to focus on a number of areas within the Bitcoin ecosystem, including:

• Financial services (consumer / institutional)

• Bitcoin mining / energy services

• Personal sovereignty (hardware / software)

• Layer 2 / Lightning network (e.g. new payments infrastructure; applications for earning sats; gaming)

• Privacy

We look forward to providing further updates.