Inside Austin’s bitcoin underground

AUSTIN
—
There
is
a
sort
of
clubhouse
for
Austin’s
bitcoin
believers
on
the
second
floor
of
the
Littlefield
Building
at
the
corner
of
Congress
Avenue
and
Sixth
Street.
The
hideaway
is
at
the
crossroads
of
two
worlds
—
the
majestic
thoroughfare
that
leads
to
the
Texas
State
Capitol
and
the
iconic,
albeit
notorious,
stretch
of
bars,
restaurants,
and
live
music
that
define
the
capital’s
party
vibes.
It’s
an
apt
metaphor
for
the
space
itself.

The
Bitcoin
Commons
is,
at
once,
many
things.

By
day,
it
functions
as
an
open
plan,
fluorescent-lit
co-working
space
for
the
more
corporate-minded
bitcoin
operators,
but
at
night,
it
moonlights
as
a
safe
space
for
underground
meet-ups
of
the
industry’s
rogue
actors.
Periodically,
it
plays
host
to
conferences
that
draw
in
a
mix
of
attendees
ranging
from
venture
capitalists
to
armed
preppers
living
entirely
off
the
grid.
And
on
some
afternoons,
once
happy
hour
hits,
the
kitchen
at
the
back
is
retrofit
with
a
stowaway
bar.

“We
also
fund
developers,
and
we
help
them
advance
their
projects,”
said
Parker
Lewis,
one
of
the
stewards
of
the
Commons,
as
well
as
the
author
of
a
new
book
on
bitcoin
called
“Gradually,
Then
Suddenly.”

“We
help
advance
bitcoin
through
education
and
actually
developing
the
monetary
network,
the
code
base,
and
the
applications,”
said
Lewis,
who
is
widely
considered
to
be
one
of
Texas’
de
facto
bitcoin
ambassadors.

Francisco
Chavarria
was
born
in
Mexico
City
and
spent
time
in
Salt
Lake
City,
but
three
years
ago,
he
made
the
move
to
Austin
to
be
a
part
of
a
community
of
like-minded
thinkers.
His
company,
Yopaki,
which
is
a
neobank
for
bitcoin
focused
on
the
Latin
American
market,
just
won
first
place
in
a
hackathon
put
on
at
the
Commons.

“If
you
talk
to
other
builders
in
the
competition,
a
lot
happens
here,”
said
Chavarria.
“There
definitely
is
a
sense
of,
‘I
don’t
need
for
others
to
lose
for
me
to
win.’
There
really
is
a
relationship
and
a
collaboration
for
bitcoin
to
succeed.”

“Right
now
it
feels
like
we’re
all
winning
because
of
the
price,
but
those
of
us
who
have
been
building
in
the
bear
market,
we
know,”
Chavarria
added.

Bear
or
bull
market,
bitcoiners
have
flocked
to
Austin
because
of
a
combination
of
pro-crypto
policies,
abundant,
renewable
energy,
and
an
ever-growing
network
of
some
of
the
brightest
developers
and
miners
on
the
planet.
And
even
in
the
price
doldrums,
they
typically
bring
the
same
level
of
enthusiasm
to
the
conversation
—
though
bitcoin’s
recent
stretch
of
record-breaking

price
moves
has
gone
a
long
way
toward
boosting
morale.

In
March,


bitcoin
hit
multiple,
fresh
all-time
highs,
as
trader
enthusiasm
for
the
digital
asset
sector
soared.
A
lot
of
that
price
run-up
has
to
do
with
the

record
flows
into
the
newly-launched
spot
bitcoin
exchange-traded
funds
in
the
U.S.,
led
by
the
world’s
largest
asset
manager
Blackrock
and
its
$15.5
billion

iShares
Bitcoin
Trust,
which
have
helped
to
solidify
bitcoin’s
place
as
an
asset
class
that’s
here
to
stay.

Collectively,
these
spot
ETFs
have
brought
in
around
$60
billion,
and
in
some
cases,
they
have
been
breaking
records
for
ETF
flows
altogether.

“The
biggest
driver
is
certainly
the
ETF
flows,
which
have
surpassed
the
expectations
of
all
but
the
most
bullish
pundits,”
said
Castle
Island
Venture’s
Nic
Carter
of
bitcoin’s
record
price
moves
this
month.
“And
these
blockbuster
flows
have
materialized
before
the
major
wirehouses,
asset
managers,
and
RIAs
have
actually
approved
the
ETF
for
their
clients.”

Carter
added
that
there
is
also
new
liquidity
coming
into
bitcoin
from
Asian
markets
via
two
main
pathways:
bitcoin’s
version
of
non-fungible
tokens
known
as
ordinals,
as
well
as
bitcoin-issued
coins
called
BRC20
tokens.

In
the
last
20
years,
Austin
has
matured
into
one
of
the
country’s
leading
tech
centers,
a
trend
accelerated
by
the
Covid
pandemic,
which
saw
industry
leaders
migrate
en
masse
from
California.

“Bitcoin
was
founded
in
2009.
A
lot
has
happened
post-financial
crisis.
Austin
was
already
emerging
as
a
tech
center,
and
you
know,
enter
bitcoin,
and
it
just
became
the
logical
home,”
said
Lewis,
who
runs
business
development
at
Zaprite,
a
bitcoin-native
financial
services
firm.

It
helps
that
Texas
is
a
libertarian-friendly
state
that
actively
supports
free
market
policies.
It
has
proven
to
be
a
big
draw
for
a
group
of
people
who
think
of
bitcoin
as
a
way
of
life
—
that
is,
a
monetary
network
that
is
decentralized,
borderless,
and
doesn’t
answer
to
central
banks
or
governments.

Many
hardcore
bitcoiners
ironically
embrace
the
term
maximalist
or
maxi
as
a
way
to
self
describe.
In
Texas,
though
maxis
exist
along
a
professional
spectrum
from
venture
capitalists,
to
miners,
coders,
company
executives,
and
generalist
techies,
the
eclectic
tribe
have
a
few
things
in
common.
Many
are
family-oriented,
patriotic
carnivores
with
an
aversion
to
the
overreach
of
government
and
a
strong
belief
in
the
right
to
bear
arms,
among
multiple
other
personal,
individual
liberties.

Bitcoin’s
eponymous
Austin
lair,
which
is
adorned
with
the
Texas
state
flag
and
bitcoin
memorabilia,
has
adopted
Chatham
House
rules
for
many
of
its
events
to
protect
the
identities
of
those
conversing
within
its
walls.
One
such
meetup
is
the
monthly
BitDevs
(short
for
bitcoin
developers)
gathering,
where
bitcoin
builders,
investors,
and
the
bitcoin
curious
are
all
welcomed,
so
long
as
no
pictures
or
videos
are
taken.

At
these
meetings,
topics
run
the
gamut,
from
detailed
discussions
about
code
to
concerns
that
the
Microsoft-maintained
GitHub
may
pose
a
greater
existential
threat
to
the
bitcoin
network
since
much
of
the
development
work
and
conversations
among
coders
happen
on
that
platform.
At
one
such
gathering,
the
moderator
of
the
two-hour
session
asked
the
room
who
ran
a
bitcoin
node.
More
than
half
of
the
people
in
attendance
raised
their
hands.

After
attending
multiple
Austin
BitDev
meetups
over
the
last
three
years,
a
few
common
conversation
themes
have
emerged,
including
the
focus
on
identifying
threat
vectors
to
the
network
and
brainstorming
workarounds.
Beyond
software,
there
are
also
concerns
over
hardware
vulnerabilities,
given
that
the
ASIC
chip
used
in
bitcoin
mining
rigs
are
manufactured
out
of
China,
a
country
which
has
proven
hostile
to
the
crypto
sector
in
recent
years.

The
Commons
hosted
a
hackathon,
BitDevs,
and
a
one-day
conference
dubbed
the
Bitcoin
Takeover
on
the
sidelines
of
the
annual
South
by
Southwest
tech
festival,
which
put
on
virtually
no
crypto
programming
this
year.

Across
those
multiple
gatherings,
there
was
a
newfound
interest
in
talking
about
the
burgeoning
ecosystem
of
projects
building
on
top
of
bitcoin’s
blockchain,
which
began
to
heat
up
with
the
introduction
of
ordinals
in
Jan.
2023
—
bitcoin’s
version
of
non-fungible
tokens.

One
underrated
driver
of
bitcoin’s
recent
rally
is
new
programming
innovations
that may
allow
it
to
reach
technological
parity
with
ethereum.
These
advancements
involve
beefing
up
the
bitcoin
ecosystem
with
tools
like
smart
contracts,
which
are
programmable
pieces
of
code
that
help
to
eliminate
middlemen
like
banks
and
lawyers
from
transactions.
That
makes
it
easier
for
developers
to
create
products
and
applications
for
consumers.

BitVM,
for
example,
has
a
promising
plan
to
do
just
that.
It
is
ultimately
trying
to
bring
smart
contracts
to
the
bitcoin
network,
which
has
helped
spur
this
renaissance
of
interest
in
layer
two
technology
—
that
is,
the
startups
being
built
on
top
of
bitcoin’s
base
chain.

“I’ve
never
seen
deal
pacing
move
this
aggressively
in
the
bitcoin
space
in
my
entire
career,”
Carter
tells
CNBC.

Indeed,
the
VC
appetite
for
these
layer
two
bitcoin
projects
has
been
picking
up
in
the
last
few
months.

PitchBook
says
that
the
fourth
quarter
of
2023
was
the
first
time
in
almost
two
years
that
deal
value
in
the
crypto
sector
had
increased,
reaching
$1.9
billion
—
up
2.5%
from
the
previous
quarter.

While
still
well
off
the
2021
high
of
$31
billion,
funds
are
building
back
interest,
and
trust,
in
the
space.

Grant
Gilliam
spent
15
years
working
in
private
equity
in
New
York
before
pivoting
to
run
a

bitcoin
VC
fund
called
Ten31.
This
investment
platform,
which
is
focused
exclusively
on
bitcoin,
has
invested
$125
million
of
equity
in
aggregate
since
launching
five
years
ago.
More
than
$100
million
was
deployed
in
the
last
two
years
during
the
bear
market.

“We
invest
across
the
bitcoin
ecosystem
across
every
major
theme,”
Gilliam
told
CNBC.
“Anything
that
is
relevant
to
bitcoin
infrastructure,
we
like
to
say
the
picks
and
shovels
of
companies
building
products
and
services
for
holders
of
bitcoin.”

Gilliam,
who
spent
a
few
years
commuting
from
New
York
to
Austin
every
month
for
the
BitDevs
meetup,
said
that
some
of
the
layer
two
bitcoin
investments
are
more
hype
than
substance,
but
he’s
still
bullish
overall
on
the
deal
space. 

“There’s
been
a
lot
of
L2
hype
lately,
mainly
driven
by
the
ordinals,
and
inscriptions,
developments
or
innovations,
if
you
want
to
call
it
that,”
Gilliam
said.
“There’s
a
lot
of
activity
in
that
right
now,
but
we
haven’t
been
as
focused
on
that.
It’s
our
firm
view
that
the
ordinals
will
prove
to
be
a
passing
fad.”

Gilliam
says
that
Ten31
is
focused
on
basic
building
blocks
of
the
ecosystem,
such
as
companies
that
are
providing
financial
services,
which
could
be
custody
trading
and
lending,
or
projects
that
are
working
to
scale
the
lightning
network.

Lightning,
with
is
the
layer
two
payment
technology
meant
to
realize
bitcoin’s
original
vision
of
being
peer-to-peer
cash
continues
to
struggle
with
the
issue
of
reaching
scale.
Developers
tell
CNBC
that
a
lot
of
engineering
work
remains
to
close
that
gap.

“Number
go
up”
is
a
big
mantra
among
bitcoiners,
but
as
the
community
evolves,
so
too
does
the
thinking
about
the
price
of
the
coin.

“Price
is
really
an
output
of
many
inputs
of
human
beings,
building
tools
to
make
bitcoin
both
more
secure
and
a
greater
utility,”
Lewis
said.
“Price
is
the
best
indicator
of
more
people
coming
to
the
conclusion
that
bitcoin
is
money,
and
it’s
a
better
store
of
value,
so
it
is
very
relevant.”

Every
four
years,
bitcoin
undergoes
a
market
making
event
known
as
the
halving.
It
cuts
the
production
of
new
bitcoin
in
half,
and
it
has
typically
come
before
a
major
run-up
in
the
price
of
bitcoin.

Miners
from
around
the
world
flocked
to
Texas
when
China
banned
the
practice
in
2021,
attracted
by
the
abundant
renewable
energy
and
a
grid
that’s
friendly
to
flexible
buyers
of
power
—
both
ideal
conditions
for
miners.

In
April,
however,
the
profits
for
these
bitcoin
miners
will
be
cut
in
half.

For
some,
it
may
prove
an
Armageddon-level
event.
Others
have
braced
for
impact
by
swapping
out
their
fleet
of
machines
for
more
efficient
rigs.
The
price
run-up
in
bitcoin
has
also
helped
to
give
some
of
these
companies
a
buffer
in
their
profit
margins.

West
Texas
miner
Jamie
McAvity
has
60
megawatts
at
his
mining
site.
It
runs
on
a
part
of
the
grid
that
is
90%
powered
by
a
mix
of
solar
and
wind
power.

“If
you’ve
been
in
for
more
than
one
cycle,
you
have
situated
yourself
in
a
place
where
you
can
resist
the
halving
to
the
best
of
your
ability,”
McAvity
told
CNBC
at
Austin’s
Bitcoin
Commons.

McAvity,
who
previously
worked
for
ten
years
as
a
trader
on
the
floor
of
the
New
York
Mercantile
Exchange,
added
that
ETF
flows
have
helped
to
change
the
pricing
dynamics
for
the
world’s
largest
coin.

“The
spot
ETF
inflows
are
so
massive
that
reducing
the
available
supply
of
newly
mined
bitcoins
from
900
to
450,
is
probably
going
to
be
immaterial
relative
to
that,”
he
said.

“But
who
knows,
the
ETFs
could
cool
off
for
a
while,
and
it’s
hard
for
someone
to
credibly
say
that
a
reduction
in
supply
is
not
going
to
change
the
market
price
equilibrium,
because
that’s
a
fundamental
principle
of
market
economics,”
he
added.

A
ten
minute
walk
west
from
the
Bitcoin
Commons
is
the
Austin
Proper
Hotel,
a
five-star
establishment
where
the
lighting
is
intentionally
dim
to
strike
a
certain
mood.
Here,
the
Boys
Club,
a
popular
and
buzzy,
female-led
organization
which
self-describes
as
a
“social
collective
bringing
new
voices
to
the
new
internet”
put
on
its
own
crypto
conference
on
the
sidelines
of
South
by
Southwest.

The
Boys
Club
caters
to
a
more
blockchain
agnostic
crowd,
where
the
focus
is
less
on
exclusivity
to
one
coin
or
chain
—
and
more
about
borrowing
the
best
features
from
across
the
ecosystem
to
solve
problems
in
the
real
world.

CNBC
caught
up
with
Micha
Benoliel
at
the
one-day
summit.
Benoliel
built
Nodle,
a
decentralized
wireless
network
that’s
now
getting
into
the
business
of
using
the
blockchain
to
battle
AI-powered
deepfakes.

“Blockchain
is
the
only
way
to
make
a
record
that
is
immutable,
and
is
going
to
prove
the
time
at
which
this
photo
has
been
taken,
or
video,
and
also
to
help
you
prove
the
location
and
other
elements
that
are
going
to
reinforce
that
proof,
so
it
creates
a
real
immutable
proof
of
authenticity,”
he
said.

The
one-day
popup
event
gathered
together
more
of
a
web3
crowd
to
talk
about
everything
from
the
latest
trends
in
tokenization
to
the
resurgence
of
on-chain
meme
culture.

Similar
to
other
bull
runs
in
the
price
of
bitcoin,
some
altcoins
have
seen
a
meteoric
rise
alongside
blue
chip
names
in
crypto,
because
they’re
seen
as
a
comparatively
cheaper
buy.

Dogecoin,
a
meme-coin
that
was
started
as
a
joke,
now
has
a
market
cap
of
nearly
$25
billion,
placing
it
in
the
top
ten
most
valuable
cryptocurrencies
on
the
planet.
Boden,
a
coin
named
after
President
Joe
Biden,
saw
a
run-up
of
more
than
800%
in
a
six-hour
window
after
Super
Tuesday,
and
the
newly
popular
DogWifHat
is
collectively
worth
more
than
$2
billion.

Typically,
this
is
the
bellwether
of
a
peak
bubble
moment,
but
analysts
say
that
despite
frothy
conditions,
this
bull
run
is
different
to
past
cycles.

The
price
of
bitcoin
is
cyclical,
and
it
sees
price
run-ups
roughly
every
four
years.
Each
time,
the
price
floor
is
higher.
What’s
also
a
departure
this
time
around
is
the
fact
that
institutional
money
is
here
in
a
way
that
it
hasn’t
been
during
past
bull
runs.

Fundamentals
in
the
crypto
market
are
playing
a
big
role,
as
well.

In
a
note
from
JPMorgan
on
Mar.
15,
analysts
credit


ether,
the
world’s
second-biggest
crypto
token
by
market
cap,
for
being
a
significant
driver
of
crypto’s
recent
gains,
including


Coinbase‘s
stock
price
rise.
Ether
has
rallied
nearly
50%
so
far
this
year,
recently
breaching
the
$4,000
price
level
and
outpacing
bitcoin’s
returns,
before
paring
back
some
gains.

“While
the
focus
of
the
cryptocurrency
marketplace
has
been
the
net
new
money
going
into
U.S.
spot
Bitcoin
ETFs
and
the
positive
impact
on
Bitcoin
token
prices
(here,
the
spot
Bitcoin
ETF
and
its
ultimate
launch
in
January
has
driven
the
cryptoecosystem
over
the
past
several
months),
we
see
impact
of
ETH
appreciation
also
as
particularly
meaningful,”
JPMorgan
wrote.

Regulators
in
the
U.S.
remain
a
universal
concern
for
the
crypto
sector,
especially

amid
reports
of
the
Securities
and
Exchange
Commission
probing
crypto
companies
building
on
the
ethereum
network.

Still,
many
in
the
space,
including
coders
and
investors
remain
optimistic.

Ethereum,
the
blockchain
that
underpins
ether,
underwent
a
major
upgrade
on
Mar.
13
dubbed
Dencun.
Developers
told
CNBC
it
was
expected
to
slash
transaction
fees
by
up
to
90%.
That
is
game-changing
not
just
for
the
end-users,
but
also
for
the
coders
building
apps
on
top
of
ethereum.

Base,
crypto
exchange
Coinbase’s self-built
layer
two
network,
is
ethereum-based
and
allows
developers
to
more
easily
build
decentralized
apps.
Coinbase’s
Base
lead,
Jesse
Pollak,
anticipates
this
will
open
the
door
to
applications
in
both
the
gaming
and
decentralized
social
media
arena
now
that
it
is
no
longer
nearly
as
cost
prohibitive
to
build
these
types
of
programs.

“The
thing
that
is
happening
with
Dencun
is
we’re
going
to
create
a
whole
new
kind
of
storage
on
ethereum
that’s
purpose
built
for
Layer
2s
like
Base,”
Pollak
told
CNBC.

“That
means
that
right
now
we
pay
a
ton
to
ethereum,
and
we’re
going
to
pay
a
lot
less,
which
is
going
to
lower
the
fees
for
everyone.
Because
ethereum
is
basically
going
to
build
a
product
purpose
built
for
us,”
continued
Pollak.

Chris
Dixon,
crypto
chief
at
venture
firm
a16z,
echoed
that
sentiment,
noting
that
part
of
their
portfolio
is
focused
on
these
startups.

“The
core
idea
is
that
if
you
build
a
social
network,
or
a
game
or
a
financial
service,
on
top
of
the
blockchain,
it
has
all
sorts
of
benefits
where
the
money
and
control
flow
out
to
the
users
and
the
creators that
access
the
network,
as
opposed
to
the
companies
that
control
it,”
said
Dixon.
“In
the
same
way
that
steel
was
a
better
way
to
build
bridges
and
buildings
than
wood
was
in
the
Industrial
Revolution,
blockchains
are
a
building
material.”