Hash Rate - Ep 130 - What IS Bittensor -- Actually? The Latest Thinking

This episode crystallizes the radical economic model of Bittensor, framing it not as an iteration of capitalism but as a new paradigm of "incentivism" that atomizes companies into hyper-competitive, globally sourced goals.

Tired Capitalism, Wired Incentivization

Host Mark Jeffrey introduces the core thesis of Bittensor: a fundamental rethinking of capitalism where companies and employees are replaced by a decentralized system of goals and token-based rewards. This model atomizes traditional corporate structures, creating a global, permissionless "temp pool" where only the best performers are compensated.

This principle mirrors Bitcoin's design, which has no company or employees but incentivizes miners to secure the network. Jeffrey argues this model is broadly applicable, creating a system where a centralized entity cannot compete against an aligned global workforce, much like the internet prevailed over closed services like AOL and CompuServe.

The Age of Excellence Times a Million

Bittensor's structure creates a fiercely competitive environment that Jeffrey calls "the most ferocious implementation of the age of excellence idea." This new dynamic is defined by several key characteristics:

• Hyper-Competition: In many subnets, only the single best and fastest contributor wins the reward, creating a "Highlander" dynamic where "there can be only one."
• Geographic Independence: Miners can be located anywhere on Earth, removing physical constraints and opening the competition to a global talent pool.
• Fluid Workforce: As gig workers, miners can instantly leave a subnet if the incentives are no longer attractive, forcing continuous market-driven evaluation from both subnet owners and workers.

Case Study: The Ridges Subnet

The results of this hyper-competitive model are already producing significant outcomes. Jeffrey highlights the Ridges subnet, which focuses on AI-driven code generation.

• Beating Incumbents: Ridges' backend engine is reportedly outperforming those of centralized competitors valued in the tens of billions of dollars.
• Market Validation Pending: While the underlying technology appears superior, Ridges has not yet released a full-fledged product. Its ability to "cross the chasm" and compete in the open market remains a critical milestone for investors to watch.

How TAO's Staking Model Drives Value

The economic engine of Bittensor is designed to continuously drive value back to its native token, TAO. This is achieved through a universal staking mechanism that underpins all network activity.

• TAO (Bittensor's native token): The core asset required to participate in the network, used for creating subnets, staking to validators, and registering as a miner.
• Staking vs. Spending: Unlike Ethereum or Solana, where tokens are often spent to acquire other assets, the Bittensor model is built around staking. To participate or invest, TAO must be locked up, not spent. Jeffrey notes, "something like 90% of all TAO is staked right now. So it's bricked. It's not liquid."
• Actionable Insight: This fundamental difference in tokenomics creates a powerful supply sink. For investors, this suggests that as network activity and the number of subnets grow, the demand for TAO could increase dramatically against a highly illiquid supply.

Anyone, Anywhere Can Be a VC

Bittensor democratizes the venture capital model by allowing anyone to invest in early-stage subnets, which function like decentralized startups.

• Permissionless Investing: Anyone can buy TAO and stake it with a validator on a promising subnet, effectively becoming an early-stage investor.
• Unprecedented Liquidity: Unlike traditional VC investments, which are locked up for 7-10 years, subnet investments are liquid. An investor can unstake their TAO and exit their position at any time, allowing for constant re-evaluation of a subnet's performance.
• Strategic Implication: This creates a dynamic, real-time market for decentralized projects, where capital allocation is determined by a global pool of participants rather than a small group of VCs. The performance of subnets is under constant, liquid scrutiny.

The Blockchain Pays the Workers

In a radical departure from traditional business models, subnets do not directly pay their workers (miners). Instead, the Bittensor blockchain itself funds the compensation through newly minted tokens.

• The Cantillon Effect: An economic principle where those who receive newly created money first benefit the most. In Bittensor, this new value is distributed directly to the most productive miners based on competitive performance, which Jeffrey calls "the most fair distribution of newly printed money ever."
• Subnet Tokens: Miners are paid in subnet-specific tokens, which are created from newly minted TAO. This means the subnet's operational costs for labor are subsidized by the network's inflation.

What Are Subnet Tokens, Really?

The nature and value of subnet tokens are a central topic of debate. They are not equity, as there is no company to own. Their value is a function of both mimetic association and engineered utility.

• Supporting Token Value: Subnet owners must create mechanisms to ensure their tokens retain value, or else miners will leave. Strategies include:
• Buybacks: Using revenue from products to buy back and burn subnet tokens.
• Utility: Requiring the subnet token for payment to access the subnet's services, creating direct demand.
• Evolutionary Pressure: The need to maintain a valuable token creates immense pressure on subnet owners to build viable business models, ensuring only the fittest survive.

Forced Innovation Through Radical Transparency

Bittensor's design, particularly in high-performing subnets like Ridges, accelerates innovation through a model of forced, open-source collaboration.

• Publishing the "Secret Sauce": When a miner wins a competition, they are required to publish the source code explaining how they achieved their result.
• Quote: "You can't just hoard that secret sauce... You are forced to publish, which is very similar to what Tesla did."
• Network Effects: This forces the entire network of miners to continuously learn from the best performer, copy their methods, and innovate on top of them, creating an exponential rate of improvement across the ecosystem.

The Law of Subnet Stacking

A powerful economic dynamic emerges as subnets begin using the services of other subnets, creating a multiplicative cost-reduction effect. Jeffrey calls this the "Law of Subnet Stacking."

• Subsidized Services: Subnets like Corz and Targon offer AI inference at 1/6th the cost of competitors due to network subsidies.
• Multiplicative Savings: When a subnet like Ridges uses other cost-efficient subnets for its operations (e.g., training, inference, engineering), the savings compound. Stacking three subnets that each offer a 1/6th cost reduction results in a total cost of 1/216th.
• Strategic Implication: Ridges claims its cost structure is 1/250th of its nearest competitor. This creates a powerful economic moat and a natural keiretsu (a cooperative business ecosystem) where Bittensor subnets are incentivized to use each other, driving value internally.

Are Subnet Tokens Just Memecoins?

Revisiting the value of subnet tokens, Jeffrey compares them to modern stocks. While stocks like Tesla's no longer pay dividends and trade heavily on narrative, they are backed by legal frameworks that protect intellectual property.

• A Different Model: Subnet tokens lack this legal protection, but the dynamic is different. Validators don't "own" the miners. Instead, miners are speculators betting that the subnet tokens they earn today will be worth more in the future, similar to early Bitcoin miners.
• Democratized Speculation: This model empowers the most knowledgeable participants—the workers and builders in the trenches—to become the primary speculators on a project's future success, potentially aligning incentives more effectively than the traditional VC model.

A New Economic Engine: Capitalism Squared

This episode concludes that Bittensor represents a new economic primitive—"incentivism." It combines elements of Bitcoin, Ethereum, and capitalism to create a hyper-efficient, globally competitive system for organizing economic activity. This model fundamentally alters the physics of value creation, making it a critical area for investors and researchers to understand.