I actually agree on most of the Monero vs Bitcoin points.
As I previously wrote, I am not particularly bullish on any community, but I’d be more bullish on a community that has a single goal and some courage than a community that is pulling in ten different directions.
In terms of perimeter leverage: Banks, brokers, ETFs, futures venues, app stores, and custodians can mediate BTC.
That yields paperization, KYC funnels, blacklistable endpoints, and tax visibility.
Monero's endpoints are harder to mediate without banning the rail itself.
BTC looks like opposition while remaining policy-addressable. Monero looks like non-addressable opposition. Privacy-by-default is a political non-starter.
Right now, the Controllers rely on:
- Exchange treatment: On/offs ramped sporadically de-list XMR or confine it to geos with looser rules.
- Liquidity starvation: Starve fiat pipes → starve network effects. Keep it "there", not "everywhere".
Right now, BTC serves as a release valve for risk appetite and as a narrative safety valve ("you can opt out... via a ticker"). It absorbs dissident energy inside surveillable venues.
But, I previously wrote: "At this point, I am more bullish on small, circular economies than any of these projects."
What I've described in the post above of course is extremely unlikely. The base case is what I've described in the post below (the "What made me sell most of my Bitcoin a few months ago" article).
In this article (
What made me sell most of my Bitcoin a few months ago
I am not bearish on Bitcoin's fiat-denominated price. I am bearish on Bitcoin's odds of becoming mass MoE, and I am pricing the coordination tax.
), I wrote about the "Coordination tax" (
What made me sell most of my Bitcoin a few months ago
I am not bearish on Bitcoin's fiat-denominated price. I am bearish on Bitcoin's odds of becoming mass MoE, and I am pricing the coordination tax.
).
TL;DR on Coordination tax in regards to Bitcoin - Three Stacked Systems
- S₀ Protocol: consensus rules, Proof-of-Work, supply.
- S₁ Policy: relay/mempool defaults, mining templates, wallet behaviors.
- S₂ Perimeter: banks, clouds, app stores, ISPs, payment networks, tax law, PR.
Security: S₀ is math; S₁/S₂ are sociotechnical.
Tax: recurring human + legal + distribution cost to keep S₁/S₂ aligned with S₀'s ideals.
Attacker asymmetry: One cheap perimeter tweak (Acceptable Use Policy line, bank heuristic, pool template) can shift millions. Defenders must hold all fronts, all the time.
There's of course much more to it, if interested, check out the article.
As you said - "Monero is far from perfect". The Coordination tax applies to Monero, but mostly in different ways.
The root of the problem is:
1. The Controllers have infinite resources (money printers).
2. You don't have a perfect solution.
3. Your odds of winning are slim to none.
You can have a better solution, but it's not a good enough solution.
Monero has the same Coordination tax, mostly in different places.
When users can choose between sovereignty vs defaults, they default. In a world of defaults and choke points, sovereignty becomes a minority practice and a tail option.
In regards to Monero, S₀ privacy helps — but S₂ punishes: Better on-chain privacy reduces forensic leverage, but increases perimeter hostility: delistings, geofenced wallets, criminalization narratives. Liquidity thins, spreads widen; merchants mostly don't take the onboarding/legal risk.
Distribution choke: App stores and CEXes are the mass market. If they won't distribute, S₀ superiority doesn't compound network effects.
Monero improves the Great Taking hedge (might be worth to get some) if you already live self-custody, but worsens monetization/exit and raises S₂ risk. That's why it stays niche.
Monero is basically Bitcoin with S₀ strengthened (very nuanced) and S₂ enraged.
Mapping S₀ / S₁ / S₂ for Monero
S₀ – Protocol (math / code)
- Design goal: privacy by default. Ring signatures, stealth addresses, confidential amounts. No equivalent of a public UTXO graph you can casually chain-analyst.
(Of course privacy can still be weakened by poor wallet usage or statistical attacks.)
Implication:
- For users: every spend looks like plausible-deniable noise.
- For the Controllers: forensic leverage collapses at S₀; you're forced to work the edges (on/off ramps, endpoints, devices, network metadata).
Compared to BTC:
- Bitcoin S₀ says: "All history is public; privacy = opt-in, fragile, and tool-dependent."
- Monero S₀ says: "You get privacy even if you do nothing extra."
From a control perspective, that's a hostile baseline.
S₁ – Policy / implementation layer
This is wallets, node defaults, mempool/relay rules, mining template norms.
For Monero:
Wallet defaults:
- Privacy is not "a mode" it's the default. There's no "tainted coin" concept at the protocol level.
- But UX, fees, and latency still shape what people actually do (e.g., how many mix-ins, how often they churn, etc.).
Node / relay policy:
- There's no big public drama around "spam vs free market inscriptions" like in BTC, but DoS/spam vectors exist all the same (e.g., bloating chain size, abusing ring structures).
- Changing default relay rules or fee policies can still push certain usage patterns out of economic viability.
Mining / pool layer:
- Monero tries to resist ASIC centralization (RandomX), and encourages CPU mining.
- In practice, hash still clusters: a few large pools matter.
- A pool policy client that deprioritizes certain transaction patterns (even if you can't see amounts/addresses clearly) still influences effective throughput.
Takeaway:
S₁ for Monero is less about taint heuristics (those are hard) and more about spam economics, wallet defaults, and miner incentives. But the coordination tax at S₁ is still real:
- Devs must maintain privacy properties under attack,
- without blowing up performance,
- while trying to keep nodes and wallets usable.
S₂ – Perimeter (the real war zone)
This is where Monero pays the heaviest coordination tax.
Actors:
Exchanges / brokers / payment processors
- Listing = regulatory headache: "privacy coin → AML red flag".
- Result: delistings, geofencing, higher withdrawal fees, restricted markets.
- Liquidity thins, spreads widen, on/off ramps become fragile.
Banks & fiat rails
- Banks see "funds came from a Monero-linked venue/on-chain interaction" → immediate Enhanced Due Diligence or flat rejection.
- Compliance departments don't care about cypherpunk purity; they care about regulatory exposure and examiners.
- Users buy convenience; businesses buy liability shields; politicians buy cheap control.
App stores & wallets
- Apple/Google don't need a law that says "ban Monero"; all they need is: "apps that facilitate privacy coins are high-risk", then shove them down-ranking, slow-roll approvals, or reject updates on vague policy violations.
- That kills distribution — not protocol.
Jurisdictions & law
- Lawmakers don't need to prove "Monero is bad"; they just say "privacy coins raise AML/terrorist finance risk", then require higher reporting, or effectively blacklist them from regulated venues.
- Net effect: Monero is coded as "black market tool" in the legal imagination.
Narrative layer
- The more Monero works as designed (private), the easier it is to frame it as "only criminals need this".
- That framing is enough for risk-averse users and institutions to self-censor.
So:
S₀ privacy directly increases S₂ hostility.
The stronger the math, the stronger the perimeter reaction — because control loses an analytic handle.
How the coordination tax specifically hits Monero
Think of "coordination tax" as: how much continuous cost does it take to keep S₁/S₂ aligned with S₀'s ideals?
For Bitcoin:
- S₀ is "sound money, transparent ledger."
- S₁/S₂ constantly drift towards: "KYC rails, chain analysis, ETF paperization".
- Defenders pay the tax: devs, advocates, wallet authors, node runners.
For Monero:
- S₀ is "private-by-default money."
- S₂ actively resists aligning with that ideal. It's not a drift; it's a counter-force.
Where the tax falls:
1. Access & liquidity
- Every delisting, every geofence, every risk memo raises the friction cost of using Monero for anything outside P2P niches.
- Devs and users must constantly build/maintain P2P marketplaces, DEX bridges, or other workarounds.
2. Legal uncertainty
- People holding or using Monero live with higher perceived regulatory risk than BTC holders, even if they're doing nothing illegal.
- That uncertainty is a tax on adoption: most people opt out before they research.
3. Network effects
- Payments need availability + acceptance + exit.
- If CEXes, payment processors, and merchant Payment-Service-Providers avoid Monero, S₀ superiority doesn't convert into N(users) or N(merchants).
4. Psychological tax
- For a normal person, "I hold BTC at a big broker" feels socially acceptable.
- "I hold Monero" feels (and is portrayed as) suspicious. That emotional framing is deliberate; it's a compliance tool.
So Monero's coordination tax is:
- Lower on "privacy correctness at the protocol layer".
- Much higher on "getting people, institutions, and pipes to align around that privacy".
Why Monero doesn't get banned outright (and why that's worse than it looks)
If S₀ privacy is so antithetical to control, why not just ban it?
1. Channeling "unacceptable" flows
- Leaving a stigmatized but not fully outlawed rail around (like Monero) can serve as a honeypot for high-risk behavior.
- You don't fully see the flows, but you cluster the highest-risk users in one subculture that can be monitored at edges (exchanges, devices, endpoints).
2. Avoiding martyring
- Outright bans create martyrs and push development further underground.
- Containment is cheaper: "it's legal, but good luck cashing out".
3. Policy optics
- Authorities can say, "We're not against privacy, but institutions must follow AML".
- That's enough for banks/exchanges to self-police Monero out of mainstream view without headline bans.
So the equilibrium is:
- Not big enough to matter as money.
- Not small enough to bother exterminating.
- Just stigmatized and throttled.
The Monero vs Bitcoin coordination tax comparison
Bitcoin:
- S₀: transparent, sound money.
- S₁/S₂: drift towards KYC, taint, paperization.
- Coordination tax: on defenders trying to keep self-custody + MoE + fungibility alive.
Endpoint:
- BTC = semi-tolerated SoV / collateral,
- MoE mostly contained, sovereignty a minority niche.
Monero:
- S₀: private money.
- S₁: reasonably aligned with S₀ (default privacy).
- S₂: aggressively anti-aligned: delistings, reputational attack, regulatory chill.
Coordination tax:
- Devs: preserve privacy + performance under adversarial pressure.
- Users: accept liquidity and reputational costs to use it.
Endpoint:
- XMR = permanent gray/black-market niche,
- very strong for some edge cases, crippled for mainstream flows.
Broadly:
- Bitcoin: attacked softly by co-opting / paperization.
- Monero: attacked by containment and starvation of distribution.
A) Incentives > ideals
- Ideals: "Everyone deserves financial privacy."
- Incentives: regulators, banks, app stores, and big venues get no upside from Monero but a lot of regulatory downside.
Revealed preference:
- They don't waste time integrating it at scale.
- They quietly drop it or restrict it.
So even if Monero is technically superior for privacy, the net payoff for large intermediaries is negative. That's enough to keep it niche.
B) Control > fairness
Bitcoin can be surveilled and steered via S₁/S₂ (paperization, KYC, analytics). So it is tolerated and slowly domesticated.
Monero breaks too many control levers at S₀, so control shifts to:
- Access suppression (liquidity, listings),
- Reputational warfare ("only criminals"),
- Legal gray zones ("high risk", no need for specific new law).
From a Controller's view:
- BTC = "Let's fence it in and use it as a supervised asset."
- XMR = "Let's keep it small, suspicious, and peripheral."
C) Stability > truth
Having a large, liquid, truly private global money would complicate tax collection, sanctions, capital controls, and law enforcement.
The system will look to keep global control and stability at all costs. Monero is collateral damage of that choice.
So what does this actually mean?
Monero's coordination ceiling is low. Not because the protocol is weak — but because:
- S₂ actors have strong incentives not to touch it,
- and S₁ actors must work constantly just to keep infrastructure functioning against that headwind.
It improves "hedge quality" only if you already accept S₂ pain.
For someone who already operates in self-custody, P2P, and is comfortable with legal/exit risk, Monero can be a stronger privacy hedge than BTC.
For anyone who needs:
- fiat exits,
- compliant brokers,
- low enforcement risk,
- Monero's S₂ costs dominate its S₀ benefits.
As a mass alternative, Monero is structurally capped.
- Every step that makes Monero more user-friendly to normals (easier on-off ramp, better UX, more listings) triggers a counterstep from the perimeter.
- The more successful it becomes, the more aggressive the containment.
Where this equilibrates
BTC:
- Becomes a mostly-supervised SoV + tradable macro asset (with paper layers and self-custody minority).
- MoE: tolerated in niches, but not allowed to undercut CBDCs/stablecoins.
XMR:
- Remains a voluntary fringe rail for those willing to pay the S₂ coordination tax (liquidity, legality, reputation).
- Too small to bother abolishing, too private to integrate.
From a control perspective, that's perfect:
- The main energy is contained in mapped, surveillable BTC rails + CBDCs/stables.
- The truly private rail exists, stigmatized, throttled, and non-systemic.
So Monero "wins" S₀ so hard that it triggers a permanent S₂ containment response. That's the coordination tax: not on the math, but on access, liquidity, and legitimacy. Bitcoin gets co-opted; Monero gets quarantined.
Ultimately, as you said, there is no perfect solution, which is why I am more inclined to focus more on the things I can control (being more self-sufficient, trying to stay outside the system) and less on competing with adversaries with infinite resources.
Might still be worth to get some as a Great Taking hedge.
More context on the Coordination Tax:
What made me sell most of my Bitcoin a few months ago
I am not bearish on Bitcoin's fiat-denominated price. I am bearish on Bitcoin's odds of becoming mass MoE, and I am pricing the coordination tax.
Let me know if you disagree. You've certainly researched Monero much more than I have (probably ~5-10 hours total), but most of what I've written is not S₀-related.
Every architecture has trade-offs. I've covered 1 in the note below.
View quoted note →
