BitClout, a blockchain-based social networking platform branding itself on the ability to speculate on celebrities’ social media presence with real money, officially launches today.
But while BitClout’s novel premise has drummed up support amongst big-name investment firms, its password-locked pre-launch allowing insiders to access the platform and buy its token prior to the public release, has raised eyebrows. The fact that makers of the platform added profiles of top Twitter users without their permission has also stirred up criticism. Some members of the crypto community have gone so far as calling BitClout a scam.
Customizable Social Media
According to BitClout’s founder, who asked to remain anonymous to highlight the decentralized nature of the project, BitClout is the open-source, decentralized, creator-centric rebuke to centralized, ad-driven social networking platforms like Twitter.
“Public discourse shouldn’t be controlled by a handful of companies who are optimizing for ad revenue,” the founder, who uses the pseudonym “Diamondhands,” told The Defiant.
BitClout is built on a custom proof-of-work blockchain with similar architecture to Bitcoin, but with the additional complexity to support social network data, like posts and profiles. The network had been running on 12 nodes as of Monday, but the team expects that number to grow after the launch. The code will be open source after an audit is concluded within the next few weeks, Diamondhands said.
Anybody can run a BitClout node, gaining access to all of the social network’s core data through the blockchain, alongside the ability to build on top of it to create unique, innovative social media experiences.
For example, if ESPN opened a node, they could program their own social networking product with access to all the BitClout data, but with sports-specific features, too.
“In the same way [Ethereum] is bringing innovation back to the financial system, we think BitClout can do the same thing for social media,” said Diamondhands.
While Diamondhands vouches for the big-picture goals of the platform, BitClout’s one-pager also emphasizes its transactional system.
The BitClout platform features two forms of cryptocurrency.
The first is BitClout, which can be exchanged for Bitcoin through a “Buy BitClout” page and must be spent to fuel any action on the platform, from liking a post to contacting their automated help system (featuring the famous Microsoft Office avatar, Clippy).
The second are “creator coins” unique to each individual person on the platform (ie: an Elon Musk creator coin or an Ariana Grande creator coin). The whitepaper describes these creator coins as “a new type of asset class that is tied to the reputation of an individual, rather than to a company or commodity.”
In essence, creator coins are tokens linked to real human beings. These can be purchased in exchange for BitClout, and are priced based on a supply curve where buying creates the creator coin and pushes the price up, and selling destroys the creator coin and pushes the price down.
BitClout pitches creator coins as an innovative tool for creators, with potential use cases including stakeholder rewards (ie: an AMA session exclusively for coin holders), inbox management (ie: only allowing people who hold a certain amount of your coin to send you a message), sponsored posts, and more.
To kick off the market, BitClout developers scraped the top 15,000 influencers from Twitter and pre-loaded their profiles into the platform. This way, people can buy and sell those creators’ coins even though they’re not on the platform.
This co-opting of creator likenesses proved to be effective in driving interest to the platform, but it has also led some in the crypto community to question whether the practice is ethical and even legal.
BitClout recently blew up as a hot topic of discussion in crypto circles after some prominent creators discovered the duplicate versions of their Twitter accounts that existed on the BitClout platform.
Some were willing to claim their profile and start using the network, but others weren’t particularly happy about their profiles being co-opted, especially in a manner where other people could trade on and profit off their tokenized likenesses.
“[Diamondhands] and BitClout have shown a complete disregard for privacy, user safety, and basic engineering standards,” Summa founder James Prestwich told The Defiant after discovering his unauthorized BitClout profile. “This scam is an attempt to monetize other peoples’ brands without consent.”
The way Diamondhands sees it, these profiles have been pre-loaded for the creators’ own good.
“Fundamentally, the only reason why they’re pre-loaded into the platform is to prevent squatters and impersonators from taking over their handles,” said Diamondhands.
Creators are explicitly incentivized to join the platform. The subject of a “reserved profile” can claim their profile by making an account on BitClout, which requires providing a working phone number and then tweeting their BitClout public key (essentially a profile link) from their real Twitter account.
Doing so will give them a “founder reward” in the form of around a suggested 10% of the net value locked into their creator coin.
“For a lot of Youtube creators, we’re seeing that they have coins that are worth more than the entire time they’ve been on Youtube” said Diamondhands.
Right of Publicity
According to BitClout Pulse, which tracks and ranks market caps and prices of creator coins, the top 50 BitClout profiles alone have a market cap valued above $140M. Creator coins are designed to allow for practical value for holders (ie: in the form of access to their favorite celebrity).
Of these 50 profiles, only 11 have been claimed so far.
There’s a “strong argument” that BitClout is violating the rights of the thousands of people who were added to the platform without their permission, Jake Chervinsky, lawyer and Compound Finance GC, told The Defiant.
“US law recognizes a ‘right of publicity,’ which says that each person has the exclusive right to control the economic value of their name, image, and likeness,” Chernivsky said. “If BitClout is trying to profit on people’s names, images, and likenesses without consent, then those people could sue BitClout for violating their right of publicity.”
Diamondhands maintains that if a creator wants to be removed from the platform, it’s easy to do so.
“Basically, any creator who doesn’t want to be on the platform can be removed. When that happens, their profile’s just not on the platform anymore,” said Diamondhands.
In that case, any creator coins tied to that creator’s “reserved profile” can be sold back for the market price. There’s a decent chance that creator coins related to a removed profile would tank in value, resulting in holders of those coins taking big losses.
“It’s part of the risks of buying a creator coin,” said Diamondhands.
One Way Only
Notably, while BitClout and creator coins can be swapped back and forth, Bitcoin to BitClout transactions are one-way only. This means that any BitClout profits cannot currently be pulled from the system.
Diamondhands said that this is due to technical reasons. “When you do a certain type of transaction on the Bitcoin blockchain, the BitClout nodes are all watching the Bitcoin blockchain and they give you BitClout on the BitClout chain. That’s called an atomic swap. Essentially, the developers built the BitClout nodes to support getting BitClout with Bitcoin. To go the other direction would require modifying the Bitcoin blockchain to watch the BitClout blockchain.”
He clarified that people will be able to pull their money out when BitClout is eventually offered on exchanges.
“For that reason, the community is really lucky to have Coinbase ventures, Winklevoss capital, and Huobi Global, all the operators of large exchanges, owning BitClout as well,” said Diamondhands.
A16z and Sequoia
Indeed, BitClout’s veritable who’s who of investors include Sequoia, a16z, Social Capital, TQ Ventures (record executive Scooter Braun’s VC firm), Coinbase Ventures, Winklevoss Capital, Distributed Global, BlockChange, Arrington Capital, PolyChain, Pantera, DCG, North Island Ventures, Long Journey Ventures, Abstract, Huobi, Digg.com founder Kevin Rose, and Reddit founder Alexis Ohanian.
VCs only hold BitClout tokens, and not equity in a company, Diamondhands said, adding that due to the anonymity of the buying process, he isn’t sure exactly how many tokens have been distributed to investors.
Through tracing his Bitcoin transaction on BitClout, The Block analyst Larry Cermak discovered the BitClout wallet has raised over $179M USD over the past five months. That same BitClout wallet has spent $15M during the same time period.
Diamondhands is currently keeping specific details about governance under wraps.
“The developers just need to figure out governance around that Bitcoin to make sure everything is optimized. We should have some announcements pretty soon,” he said.
Prior to BitClout’s official public launch today, access to the site was blocked for most users by password protection.
“The reason for that is just because the developers wanted to launch responsibly and control the growth until the software is defined and ready for primetime,” said Diamondhands. In fact, the BitClout network crashed last Friday because of heightened activity, he said.
That said, the market for both BitClout and creator coins has been open for about two weeks to anyone with insider info, namely VCs, developers, and anyone in close circles with access to a private link.
VCs were brought in to get creators comfortable with the project, Diamondhands said, adding that the early VC buy-in is still better than public companies’ fund raises where individuals would only be able to buy after the IPO.
“The really cool thing is that the community is really lucky to have TQ Ventures, which is Scooter Braun’s fund, involved because he has so many relationships to all these big creators,” said Diamondhands. “So really just getting creators comfortable is the reason why there are any funds at all involved in the coin purchases. But you know, compare that to a public company where the first time that you or I would be able to buy is at the IPO after all these hedge funds and bankers buy at the pre-IPO price.”
This soft launch for VCs, developers, and insiders has brought up some concerns about fairness and transparency. One heavily shared thread on Twitter accused BitClout of allowing VCs and their friends to pre-mine loads of BitClout and buy up all the most desirable creator coins with the intention of reselling them at launch for 100 times the opening price.
BitClout Tokens Issued
Diamondhands said that while he didn’t remember the exact number of BitClout in circulation, he estimated the total to be under 10 million. He also said that he didn’t remember the original BitClout price, and that that information will be released in the coming weeks.
The first block of the BitClout blockchain shows about 8 million BitClout coins were issued when the chain was launched, The Defiant found. The BitClout whitepaper says a total 10 to 19 million BitClout will be minted, which means about 40% of the total supply may have already been distributed.
BitClout’s price doubles for every million coins in circulation. At the time of writing, one BitClout costs around $135.
Creator tokens for many popular “reserved profiles” including Elon Musk, Ariana Grande, and Kim Kardashian, have also been bought up pre-launch, with the top 10 creator tokens valued at a floor of $15k each.
The large-scale premise for decentralization of social media may very well be revolutionary.
Decentralized social media and creator tokens are a fresh market with huge potential, and with such major investor interest, it’s safe to say that BitClout isn’t the “scam” that some have suggested.
At the same time, more clarity on BitClout’s governance structure and token distribution would likely help it gain community trust. In the crypto community, which runs on an ethos of permissionless, transparency, and decentralization, BitClout currently stands on shaky ground.