The Rise of Social Tokens and BitClout

Recent enthusiasm surrounding NFTs (non-fungible tokens) has extended beyond digital art and collectibles, sparking discussions about their potential to revolutionize social media and how creators are compensated.

Introducing BitClout: A Crypto-Social Exchange

A significant focus of these conversations centers on BitClout, a new social crypto-exchange. This platform allows users to trade tokens representing individuals’ reputations. BitClout is exiting its private beta tomorrow and has already attracted substantial investment.

Investment and Backing

The platform’s native currency, BitClout, has garnered support from prominent Silicon Valley investors. Sequoia Capital and Andreessen Horowitz are among the early backers, as confirmed by the startup’s founder to TechCrunch.

Further investment comes from Social Capital (Chamath Palihapitiya), Coinbase Ventures, Winklevoss Capital, and Reddit co-founder Alexis Ohanian. Reports indicate over $165 million in bitcoin deposits have been made to a single wallet associated with BitClout prior to its public release.

The Expanding Social Currency Landscape

BitClout is part of a growing trend of crypto companies exploring tokenized social currency. Projects like Roll and Rally are also working to enable creators to directly monetize their online presence and allow fans to invest in their success.

This allows supporters of emerging artists to invest in their social currency, potentially benefiting financially as the creator gains prominence and the value of their tokens increases.

Addressing the Creator-Platform Dynamic

BitClout’s founder, known only as “diamondhands,” explains to TechCrunch that current social media relationships are often unfavorable to creators. Content creators frequently generate value for platforms without receiving equitable monetization in return.

How BitClout Functions

Users can deposit Bitcoin into the BitClout platform, which is then converted into BitClout tokens. These tokens can be used to purchase shares of individual creators within the network.

As a creator’s popularity grows and more users buy their coin, the price increases. Creators can also receive a percentage of transactions made within their BitClout wallets, ensuring continued benefit from their success.

Controversy Surrounding Account Creation

A key point of contention revolves around the platform’s approach to account creation. Unlike most social currency platforms that require explicit opt-in, BitClout has pre-populated its network with accounts scraped from public Twitter profiles.

This means users can trade tokens representing individuals like Kim Kardashian or Elon Musk without their consent or prior registration. This practice has drawn criticism from many within the crypto community.

Mitigating Impersonation and Handle Squatting

The startup’s founder argues this strategy was implemented to prevent handle squatting and user impersonation. They believe offering pre-purchased creator coins to account owners will incentivize verification and claiming of funds.

Limited Functionality at Launch

Notably, BitClout is launching without a cash-out function. While users can invest Bitcoin into BitClout, they currently cannot convert their tokens back into traditional currency.

The founder anticipates this will be resolved soon, citing potential support from exchanges like Coinbase and the Winklevoss twins, who are also coin holders, but offers no concrete timeline.

Community Concerns and Criticism

Despite the enthusiasm from investors, many in the decentralized community have expressed skepticism about BitClout’s approach to adoption. Concerns center on incentive engineering and the potential for damaging trust.

Jay Graber, a researcher involved in Twitter’s bluesky project, stated on Twitter that BitClout could serve as a cautionary tale regarding the monetization of social networks. She emphasized the importance of trust and reputation, and the negative consequences of manipulating them without consent.

Looking Ahead

If BitClout successfully converts a significant portion of its pre-seeded user base, it could gain substantial momentum in the emerging social token space. The underlying concepts are promising, but this particular implementation carries significant risk.

The platform’s launch tomorrow will provide a clearer indication of its potential for success.