Why You Should Invest in Spacemesh
Three Things #91: October 29, 2023
One of the reasons I joined Spacemesh back in 2019 is that I felt that the team had raised a reasonable amount of money from good investors. I had been a blockchain core developer for a couple of years at that point and I couldn’t imagine that it would take more than $10 or $20M to build a novel layer one blockchain. Raising $100M felt excessive, and raising $4 billion felt totally unethical.
Fast forward a few years and, well, a lot has happened. We made a lot of mistakes and some of the money we raised was wasted (although every team makes mistakes and hindsight is 20/20). The tech proved significantly more complex and harder to build than we expected and it took longer to launch the mainnet than we expected. We did finally launch just over 100 days ago and things are going pretty well, but the downside is that we’re almost out of money. However, Spacemesh raised that money to design and ship the network, and we did that successfully, beating even the most optimistic expectations along some dimensions, so I feel okay about that. We did what we promised to do with the resources we were given.
I’ve had a number of conversations with investors, current and potential, over the past few weeks and I thought I’d share some of what I discussed with them and some of what they shared with me. I wrote a few weeks ago about why you shouldn’t use Spacemesh; this week I’ll share my pitch for why I think you should invest in Spacemesh today.
One important caveat: I’m using the term invest here holistically and figuratively. This is not financial advice. I’m not a financial advisor and you really, really shouldn’t listen to me on financial matters.
Thing #1: Missionaries 📿
I’ve been a member of and contributed to around ten different blockchain communities over the years: some big, some small, some well-funded and some less so. I’ve spent countless hours getting to know the members of these communities on channels including Twitter, Discord, Reddit, Slack, Telegram, and Gitter. I’ve been active in both the theory and practice of governance. I’ve met these communities face to face at dozens of conferences. If there’s one thing I understand and there’s one place I feel at home it’s in the technical blockchain community, and the open source community more generally.
Each community is different but they all have some things in common. One of the most important is the missionary-mercenary dimension. Broadly speaking a community is dominated by mercenaries when people are there primarily to make money. Mercenaries aren’t necessarily uninterested in technology, they’re not devoid of values, and they’re not bad people, but they are opportunistic and transactional which means they’ll bolt as soon as something more profitable or interesting comes along. Missionaries, by contrast, are really committed to a cause. They stick around through thick and thin and adversity only serves to strengthen their resolve. They’re your strongest possible advocates: they recruit friends, colleagues, family members and strangers to your project and community. They can’t help but talk about the project because they’re truly passionate about it. Missionaries aren’t uninterested in making money but it’s not high on their list of priorities. They’re driven by values including curiosity, passion, and loyalty.
Every community has some missionaries and some mercenaries and there’s a place for both in any healthy ecosystem. But you need a balance: for your ecosystem to thrive and persist, you need at least a healthy, committed core of missionaries. I’ve participated in a number of communities with few to no missionaries and it shows; it’s one of those things that’s hard to quantify but you know it when you see it. When the main thing people in a “community” talk about are prices and trading strategies, go to market and profit margins, pumping and dumping, etc., that’s not actually a community, it’s a trading floor. In my experience the vast majority of crypto “communities” are in fact trading floors.
Spacemesh is the opposite. In this respect it’s the healthiest community I’ve ever seen. People do occasionally talk about coin price, exchanges, and profitability, but not very much and we discourage it. We’ve repeated certain messages like “exchange listing is not our priority right now and we don’t intend to pay for it,” and “we have no liquidity and cannot help with market making,” and “coin price means nothing in the short term and with no meaningful liquidity” so many times that I’ve seen community members saying it to new arrivals on our behalf (that’s how you know your values are contagious!).
While they don’t talk much about profit, the community talks about lots of other things: about how to build mining rigs, about headaches and troubleshooting, about upcoming features and upgrades, and about their vision for the project. I’ve engaged in numerous deep, interesting conversations with Spacemesh community members on topics ranging from the meaning of decentralization and how to achieve decentralized governance, to the social philosophy behind Spacemesh, to how the project might change the world. I look forward every day to logging in and catching up with the latest memes and inside jokes. The community is not large, not even by crypto standards, but it’s extraordinarily high quality and very values-aligned. It’s healthy and it’s organic and it’s growing steadily. The fact that the community has maintained its high quality as it’s grown over the months and years really says something about what makes Spacemesh unique.
Going back to missionaries vs. mercenaries: like I said, you sort of just know when you’re in the company of mercenaries. It never worked for me; I was never able to integrate into that sort of community. It never felt organic and it always felt like people were there on false pretenses: like everyone was really just there to make money but no one wanted to admit it so everyone was constantly lying to themselves and to others. I saw this especially in the communities of projects that raised huge sums of money and splashed out lavishly on marketing while underinvesting in things like values and constitution.
By contrast, Spacemesh is more like Burning Man: it’s so annoying to get there and remain there that only committed, values-aligned people make the hassle and stick with it. It’s getting easier but it’s still not “easy.” And you’re not going to make money there anytime soon, so the people who remain are there for other reasons. Communities of mercenaries always have trouble because no matter how much money you have, it will eventually run out, and what then? There’s always another profit opportunity, always someone with more money. There are limits to what money can buy: it can buy eyeballs but it can’t buy you a healthy, thriving, organic community. Only good tech and good values and slow, steady growth can achieve that sustainably.
I have my moments of frustration with Spacemesh and with crypto more generally. But the Spacemesh community keeps me going and makes me excited to start work every day. If I were an investor, that’s what I’d want to invest in: the healthiest, most sincere, most authentic, organic, committed community: in other words, the community of missionaries. This is the single most important KPI I’d pay attention to as an investor because it’s the single best indicator of long-term success. That’s what Bitcoin and Ethereum got right in the early days and I think Spacemesh is off to a great start in the same direction.
Thing #2: Decentralization (It Still Matters) 🤹♀️
Blockchain didn’t appear out of a vacuum. Bitcoin emerged in a particular place, at a particular time, for a reason and with a mission: to create a decentralized, unstoppable form of money that’s beyond the reach of the nation state. While we sometimes tend to forget, decentralization has always been at the heart of this movement.
Lots of things have happened in cryptocurrency and blockchain since then. Ethereum and other smart contract platforms, coupled with ongoing developments on Bitcoin, have made it possible to build a very wide range of applications including things much more complex than money. The cypherpunk ethos that gave rise to Bitcoin and made this entire movement possible still burns strong in the Bitcoin community and to a lesser extent in the Ethereum community, but it’s fading. The overall trend is towards centralization and the pressures in that direction are quite strong: usability, regulation, and the complexity of decentralization all drive projects in this direction. Decentralization is very, very hard. And without an unwavering commitment to the cause we’ll end up back where we started: centralized infrastructure and money and data in the hands of governments and big tech companies.
Decentralization is really hard but it’s also really powerful. The cypherpunks knew this, and it’s why a truly decentralized money like Bitcoin was their holy grail. Anything less decentralized would be shut down or captured by the state or by another powerful actor. The cypherpunks lived through the first crypto wars of the nineties and saw other, earlier attempts to create digital money fail. They knew that, given the chance, the state would try to shut down or capture any new digital money.
But that was a generation ago and we have a short memory. Our community today feels like it’s composed of a new generation of kids who grew up hearing their parents talk about a war they fought a long time ago. As a result of their experiences, the parents are strongly committed to a certain set of values and principles. To the extent that the kids follow the same values and principles, they do so out of a sense of loyalty to the parents and out of a form of cargo culting, without understanding themselves why those principles and values matter so much. This happens to every renegade social movement: over time it goes mainstream and gets diluted, or simply dies out gradually as later generations care less and less about the cause.
The cryptocurrency movement today is going through this, and in the process it’s splitting into two. The first half, the regulated half, is going mainstream through centralized exchanges and KYC and applications that are DINO (decentralized in name only) like NFTs. The second half, the dark, cypherpunk half, is being strangled by regulation and uncertainty, and is slowly dying because most people don’t, it turns out, actually care very much about abstract principles like decentralization or censorship resistance. Most people just want applications that are easy to use and that work for them (and, maybe, offer them the opportunity to make money), and truly decentralized applications ain’t it.
Even if most people don’t care about it, however, decentralization does still matter for all of the reasons it mattered in the first place. It’s the only way to assert our liberty and our sovereignty in a world that’s trying to control us, to stifle us with absurd laws and social dictates, more every day. It’s the only way to fight censorship and cancel culture. It’s the only way to stop putting trust in broken, corruptible, centralized human institutions.
Blockchains that are DINOs and the applications that run on them are a step backward, not a step forward for society. Sadly, this includes the vast majority of both layer one and layer two platforms today and the lion’s share of applications. Even applications that are decentralized on the backend and run on a platform with a reasonable degree of decentralization, such as Ethereum, are still too easily controlled when their centralized frontends disappear: witness what happened to Tornado Cash last year.
Ethereum is the second most decentralized blockchain after Bitcoin, and the most decentralized smart contract platform. But even in Ethereum the trends aren’t good. A worrisome portion of Ethereum blocks today are produced by validators that are censoring non-OFAC compliant transactions. And trends like MEV, rollups, and restaking all spell trouble for decentralization because all have centralizing tendencies and pressures.
That leaves Spacemesh in a category of its own as a layer one smart contract platform that’s bucking the trend and sliding the “decentralization” slider to max: we launched 100 days ago and we already have around 15,000 nodes, which is more decentralized than Ethereum by some measures. To be clear, this is not an easy thing to do. Being so decentralized makes our lives much harder. It makes the network much harder to manage since so many nodes are running on unreliable home internet connections and hardware. It makes upgrades hard: rather than coordinating a handful of enfranchised, known validators, we need to coordinate a community of thousands of home miners, many of whom aren’t terribly tech savvy. It means our block time is longer and slower than most other blockchains (although we have some ideas about how to improve that).
But it’s also a form of superpower. It means that Spacemesh can run types of applications that cannot run on any other platform: applications that require serious decentralization, sovereign-grade censorship resistance, and the other things the cypherpunks were after. It means that no adversary and no state actor can shut down the network simply by knocking on a few doors. And those applications are the really important ones, the threatening ones, the ones that will do the most to promote human liberty and flourishing.
Thing #3: Tech 👨🔬
Technology was a good reason to invest in blockchain four or five years ago. Bitcoin was of course revolutionary, as was Ethereum at the time. Solana has done some interesting, novel things with its technology, as have a vanishingly small number of other layer ones and a handful of innovative layer twos. Overall however layer one technology has largely become commoditized at this point: the vast majority of new blockchains that are launched today do so using “off the shelf” technologies like EVM or the Cosmos SDK. There’s still innovation happening, of course, but it tends to be layer two projects at the cutting edge of trends such as zero knowledge proofs and MPC. No one is building novel consensus mechanisms anymore (everyone uses proof of stake) and no one is building a new VM anymore (everyone uses EVM or a variant, or Wasm).
The technical innovation that is happening today at layer one tends to be small things “at the edges” of the protocol: tweaking the P2P layer, gradually improving the VM by adding new opcodes, or introducing new standards like data blobs and account abstraction. While these will lead to incremental improvements in transaction throughput, cost, and UX, none of them enables things today that were fundamentally not possible before. They’re optimizations.
For better or for worse we chose to go a very different direction with Spacemesh. We didn’t take an off the shelf consensus mechanism, we built our own. We didn’t take an off the shelf account model, we designed our own. And this is just the tip of the iceberg. There’s PoET, which permissionlessly lets one server timestamp the passage of time for any number of other nodes, and PoST, which allows initialization and management of the identity files that make miners eligible to participate in Spacemesh consensus. There’s Smapp, a novel frontend for managing all of these things—no other blockchain that I’ve seen has anything like it.
Then there’s the VM. We launched Spacemesh with a novel account design but a barebones VM that only runs a handful of hardcoded smart contracts (known as precompiles). We’re working on a full VM design now and expect to release a proof of concept in the not too distant future. As we explained in a position paper on the topic, we’re going to push the limits in the VM, too. It’s probably going to feature a based rollup design where layer one miners act as a decentralized network of sequencers, for one thing. And there will be other exciting, novel, cutting edge features. Stay tuned for more on this.
Lots of people think we’re crazy for designing and building so many new things on Spacemesh. In retrospect, maybe they’re right. We certainly didn’t expect it would take so long to design and build, and Spacemesh did get more complex in certain ways during this process (we simplified where we could, but it definitely got more complex overall). The biggest flaw of Spacemesh is its complexity. In retrospect we could’ve probably saved a lot of time by forking an existing platform and making some changes. But we buy a lot of nice things with that complexity, such as the fact that even small home miners can mine directly, permissionlessly, and profitably forever, without needing to join a pool or acquire stake ahead of time. It’s unclear whether we could’ve achieved any of that with a simpler, more standard design.
Investing in Spacemesh means investing not only in these specific core technologies, it’s also an investment in the idea that novel technology matters. It’s a statement that blockchain technology, Web3 technology, and the technology more broadly that powers permissionless, public, decentralized networks is not commoditized because frankly it’s not very good yet. It’s a statement that there are still a lot of unexplored corners in the overall design space that are worth exploring; in other words, the dominant blockchain design has not yet emerged. (This is almost empirically true: if it had, it would’ve dominated by now. But the landscape of blockchain architecture is still evolving so rapidly that it makes your head spin.)
It’s still way too soon to tell if Spacemesh will work, but it’s off to a good start, and an investment in Spacemesh is a statement that this experiment is worth trying. This is true even in 2023 when the rest of the ecosystem has coalesced around a small set of imperfect technologies like proof of stake—in fact it’s especially true for this reason. An investment in Spacemesh is a statement that technology matters and the best tech will win over the long run. We’re not naive and we know that projects don’t win only or even primarily because of the tech, but we do believe that good tech still matters a lot and we won’t sacrifice on this.