Blogs & Articles: Setting the record straight đ 2 years ago
- Category: Blogs & Articles | Nic Carter on Medium
- Author(s): Nic Carter
- Published: 29th June 2022 20:43
Or: a eulogy for bitcoin maximalism
So yesterday I was the subject of controversy on Bitcoin Twitter over my firm Castle Islandâs investment in Dynamic, a wallet-based sign on company. This was quite surprising to me. I figured that people knew what it was that I did for a living. There is nothing on the face of it thatâs particularly objectionable about this investment. And Iâm not hawking a token. Iâm announcing that we participated in a private VC round of funding.
Iâm going to clear things up here because most of the people piling on were deeply confused about me, my firm, and what I do. And yes, Iâm including some choice words for the self-described Bitcoin maximalists. You asked for it. You got it.
Iâm going to say this up front. If any of the Bitcoiners attacking me had invested even 30 seconds in looking at my firmâs website, any of the papers Iâve written, my personal website, or any of the content Iâve created over the last 5 years, let alone the 330 episodes of my podcast, theyâd know that I donât exclusively focus on Bitcoin stuff. In my content, I focus _a lot_ on Bitcoin, but even then, not exclusively so. So everyone piling onâââevery single oneâââis contrasting the real me, with a fictional, contrived version of me that they made up in their heads. I am not a âBitcoin maximalistâ, I have never been one, I will never be one. So you can abandon that delusion right now.
As I said on Twitter, I donât need these peopleâs approval. My business does not depend on it: Iâve never met a serious entrepreneur that imposes a âtoximaxiâ purity test on VCs. (And if I did, Iâd happily direct them to a Bitcoin-focused VC). Iâve never met an LP that does either. Historically, those LPs that cared about my views have actually worried that I am too Bitcoin-focused. I donât monetize any of my content (beyond a couple ads for the podcast here and there) so Iâm not reliant on an audience for anything. I am not beholden to the Bitcoin maxi tribe in any way. I donât owe them anything. (And I donât care about being invited to bitcoin-only conferences or going to tedious beefsteak dinners.)
People are confused because they wrongly believed I was some kind of full time professional bitcoiner, and more than that, a bitcoin maximalist. Iâm not. Iâve never described myself that way. I always hated the term. Find an instance where I referred to myself that way.
As you should know by now, Iâm not Bitcoinâs self-appointed secretary of energy or head of communications. I am a venture capitalist; I raise money from private individuals and institutions and I invest in startups. I do bitcoin content on the side, because I enjoy it and I feel itâs important to do what I can to educate. Itâs purely mission driven. My Bitcoin content doesnât have that much to do with my firm. Mostly what my firm invests in is early-stage equity in financial infrastructure startups. Most of these companies build on many blockchains.
On Dynamic
Dynamic doesnât have a token. They have a traditional business model. Thereâs no âshitcoinâ here. Everyone using this line of attack is 100%Â wrong.
To answer some of the more inane critiques: we, Castle Island, are not âpartneringâ with a16z. We are coinvesting in a syndicate. This implies about the same level of âpartnershipâ that you and Warren Buffett maintain when you both own Apple stock. VCs coinvesting in a round do not necessarily even talk to each other.
I think Dynamic has the potential to be a great company that exemplifies some of the best parts of the idea that people refer to as web3. Namely, solving log-ins using the built-in public key system that hundreds of millions already use thanks to blockchains. This is an important thing to do; passwords are collapsing back down to public keys anyway. Wallet based sign-on is the closest thing we have to a âkiller appâ in the web3 space. It really is a huge improvement over the default.
And they arenât a âsurveillance technologyâ company either. Wallet-based sign-on is meant to get away from the highly centralized, web2 based sign on where Apple, Google or Microsoft controls your identity and data. This is a good idea, and obviously empowers end users relative to the web2 model overall. In a wallet based authentication world, users can control their identities based on some cryptographic info they themselves custody. Certain companies that need to layer on risk scoring or compliance will have to use various compliance software companies in conjunction with the productâââthatâs how everything works in the real world.
We invest in centralized financial companies that help people use Bitcoin and other digital assetsâââthey all use chainalysis or some other compliance software like that. Does that make those companies or their backers evil? Of course not. Living life as a purist is great but if you actually build anything youâll find you have to make compromises.
About me
From the very start, Iâve been a pluralist when it comes to blockchains. Today, the only âbase layerâ asset that I like from an investment perspective is Bitcoin, because I think itâs monetary and governance qualities are supreme, but that doesnât mean I havenât been interested in other trends in the blockchain space.
The very first thing I ever did publicly in the crypto space was write my masterâs thesis, and *gasp* it was a survey of the top 50 blockchains/protocols from a governance perspective. That was a super informative experience because I learned how weak a lot of these things were. (I noticed for instance, that Bitconnect and Veritaseum were probably scams.) It reinforced my pro-Bitcoin, anti-most everything else slant.
My first project in the crypto space was a student project called Coin Metrics. The objective of Coin Metrics was to compare and contrast the usage of different blockchains against each other. We started by running a few nodes and analyzing the data to try and assess relative valuation. Today, Iâm proud to say CM is one of the largest institutional-focused crypto data companies in the world, employing 90+ people, and has produced some incredible research and made huge amounts of sophisticated blockchain data available for free to anyone. CM helps many financial institution clients understand and build products in the crypto industry. CM covers Bitcoin, other PoW coins, Ethereum, and countless other blockchains. They run full dozens of archival nodes across many many chains. So if itâs somehow surprising to you that I am not doing âbitcoin-only stuffâ, on your conscience be it. Literally from the start Iâve been interested in understanding the space as a whole.
The papers Iâve written also demonstrate my range of interests. Over the years, Iâve written about cryptoasset valuation, cryptodollars/stablecoins, Proof of Reserve, risks embedded in DeFi, Bitcoin energy usage, and more critical work on DeFi. Iâm not Bitcoin-only intellectually, as an investor, or as a founder. Itâs a big wide world out there and Iâm interested in a lot of itâââincluding some non-crypto stuff too! So if you are apparently shocked that my fund invests outside of Bitcoin, thatâs on you. You havenât paid the slightest bit of attention.
On Castle Island
I am one of four general partners at Castle Island. I cofounded the firm with Matt Walsh. I donât unilaterally make decisions. Decisions are made based on a partnership consensus. Weâve been in business since early 2018 and published all out portfolio positions on our website since the start. Before that I worked on a fund at Fidelity that took both Bitcoin and non-Bitcoin positions as well as making venture investments.
We invest primarily in equity for early stage startups. When I talk about these startups, itâs not because I am paid to do soâââquite the contrary, itâs because we have made an investment and by talking about it, we can increase the odds that the startup gets traction, raises more capital, and succeeds.
When Matt and I first raised LP capital in early 2018, it wasnât on the strength of any twitter clout I had at the time. I was pretty unknown. Even after raising 3 funds, virtually none of our LP interest has come through twitter. Sure, going on CNBC and Bloomberg probably helped on the margin, but our LPs came to us through our track record, our demonstrated ability to execute, portfolio outcomes, founder/investor references, and our network. The world is much, much bigger than twitter.
Castle Island invests in a bunch of stuff. We invest in Bitcoin-focused companies like River, Casa, Hoseki, and lightning companies like Mash (some others unannounced). Iâm proud to support these great founders and businesses, and I hope and expect to do more there. We also invest in general crypto-financial infrastructure like exchanges, custodians, lenders, key managers, data and analytics, and brokerages. Most of those businesses straddle many blockchains, because thatâs what their clients want.
The truth is, there arenât enough high quality Bitcoin startups to deploy $100m into in a year (our latest fund is $250m). Thatâs just a fact. I can assure you, as one of the only Bitcoin-focused VCs out there (we were active before any of the Bitcoin-only VC funds emerged), I am an authority on this question. Also, thereâs interesting, and useful things to support, that arenât Bitcoin or Bitcoin startups. I canât justify charging fees to put LP funds in Bitcoin. That would be insane. Thereâs other interesting stuff in the startup worldâââfinancial infra, stablecoins, and a few other themes Iâll mention below.
We also make some investments in NFT infrastructure. NFTs began on Bitcoin, as some of you may know. Theyâre not a âpro Bitcoinâ or âanti Bitcoinâ concept, any more than a theater ticket or a vinyl record is pro or anti Bitcoin. They are just completely distinct. I think NFTs are interesting, and likely to stick around (even if some of the hyped collections are not likely to retain their value) and Iâve written about them before.
We also, more occasionally, invest in âweb3â stuff. That is a bit harder to define, and Iâve been critical of the term before, but the core idea is that there are certain types of internet infrastructure that can be rebuilt in a more flat topology, rather than having 1 or 2 nodes in Silicon Valley control everything. This doesnât mean âputting everything on the blockchain.â In fact, it requires being parsimoniousâââputting as little on chain as possible. So for a web3 social network, you might put the social graphâââthe relationship between usersâââon chain, but not the content itself. That would give people the right to enter and exit, and take their social graph with them, disempowering any would-be bureaucrats creating onerous moderation rules. It changes the social network from the full stack to a mere interface. The big wins here so far are decentralized storage, passwordless logon and wallet-based credentials, and decentralized namespaces (for the purists: Satoshi talked about the idea of BitDNS which inspired Namecoin). This is an interesting space, but thereâs a lot of fluff here, and not a ton of realistic stuff being built. Dynamic is a good example of something real, something useful, and something that is easily doable with current infrastructure.
To be clear: when I talk about these companies, itâs not because Iâm trying to get my followers to âbuy intoâ these businesses. Thatâs not how this works. This is early stage private equity: the only people buying equity in the startups are acquirers or other venture or private equity firms investing in subsequent rounds. Iâm not selling you anything. You may not like what I invest in: thatâs fine. Do what I did: raise your own fund and make a difference that way. Iâll even help you get started as I have done with others.
And if you as a Bitcoiner really believe that equity is a scam, you canât be helped. Iâm going to keep funding companies and pushing the world in a direction that I believe in.
On Bitcoin âMaximalismâ
Iâm not owed any deference, or anything at all, because of my prior work on Bitcoin. What I do think it does, unquestionably, is establish my pro-bitcoin credentials. If you think Iâm a bitcoin grifter tediously building up a reputation in Bitcoin land over five years through countless articles, appearances, podcasts, and tens of millions of capital deployed, all to suddenly turn on Bitcoinâââthatâs the most long term and expensive grift of all time. Also: I donât monetize my audience. You all get my content for free all of the time. I earn a living through my own fund, and Iâm accountable to my LPs alone. This âgriftâ seems to bear a disturbingly close resemblance to âhard workâ.
Iâve never toed the line on standard Bitcoin ideology. Iâve never been intimidated by orthodoxy. For instance, back when s2f hype was at its fullest, I criticized the model with a detailed article. The hardcore maxi crew almost universally worshiped the model. Itâs obvious now that they were blinded by ideology. I knew what would happen: a lot of newbies would be duped by the fantastic promises of the model, would buy in, and would become disillusioned when it failed. By being realistic, I was trying to stave off this outcome. Now that the model has obviously failed (as it was always going to), these people are upset, and lashing out. Maybe reserve your ire for the charlatans that sold you a fake model, rather than the people trying to course correct you back in the day.
I was also an early voice supporting the view that stablecoins and Bitcoin were synergistic, and that stables didnât really pose a threat to Bitcoin. Now this is a popular view among Bitcoiners. It is evidence that Bitcoin ideology isnât really fixed.
I also donât support the idea thatâs pervasive in the Bitcoin community, a la Rothbard, that all banks should be full reserve, and that fractional reserve is fraud. You just need to read some Selgin to know that this is a stupid idea.
I also donât think all âaltcoinsâ are just going to vanish. That seems absurd. I donât think other blockchains are useless. Just look at the data. Thereâs over $100b of stablecoins on other blockchains. They are objectively useful. They are used in real world transactions more than Bitcoin is. To deny this is to deny reality. The fact that people pay fees to use these other blockchains vastly exceeding (by an order of magnitude, in the case of Ethereum) the fees paid to use Bitcoin indicates that thereâs a material, markets-based demand for these alternative blockspaces. Bitcoin maximalists that deny this are denying the markets and evidence-based approach that they claim to venerate.
In short, I depart from conventional wisdom that pervades the Bitcoin community. Iâm not entirely sure what the contemporary definition of maximalist is, but if it means thinking itâs immoral to invest in any non-Bitcoin asset, immoral to invest in startups building on other blockchains, and believing that everything will inevitably collapse back down to Bitcoin, Iâm definitely not that.
On Bitcoin-only companies
We invest in plenty of Bitcoin-only or Bitcoin-focused companies. The good news for founders building Bitcoin firms is that there are a few Bitcoin-focused venture firms out there. If you want your lead to be 100% explicitly Bitcoin aligned, you should consider them. A few names: Stillmark, TVP, and Hivemind, I know the GPs of these firms well, and I can even introduce you if you like. We donât invest exclusively in Bitcoin-only companies. If thatâs a deal breaker for you, no problem! Hit up one of the other VCÂ funds.
Truth is, the vast majority of VC-backed Bitcoin-focused companies have taken capital from VC firms that arenât just Bitcoin-only. You canât really afford to be _that_ picky when you are raising a round. Of course you can prefer that your investors are aligned. We certainly are. But if you want to raise VC, you at some point will run into generalist funds. For this reason, Iâve never encountered a serious founder in the Bitcoin space wanting to raise VC that was completely adamant about raising only from lifelong, hardcore Bitcoiners. Most actual founders and builders are realistic, pragmatic people.
On the twitter mob
Getting piled on absolutely sucks. Especially when itâs by industry colleagues youâve known for 5+ years and have always acted pleasantly towards you. Iâll survive. But I am really most disappointed by the people whom Iâve known for a long while turning on me for a drop of clout. I donât need to name namesâââyou know who you are. Iâve done plenty of their shows and podcasts and had lunch with them, spoken at their conferences. I suppose the self-righteous rush of trampling on someone who strays from orthodoxy is just too appealing.
Iâve seen some honestly disgusting attacks; I can handle a lot, but attacking my family is beyond the pale. Some of you are targeting my dad, because he works at the World Bank. I donât see what that has to do with anything, but to be clear: he likes Bitcoin. Thanks to my relative proximity to the Bank, Iâve had the opportunity to share my views with them on Bitcoin, and hopefully win hearts and minds. The Bank has written some good stuff on the topic. Of the two Bretton Woods orgs, the Bank is definitely more open to Bitcoin. The IMF seems to be openly hostile. But regardless, what my dad does for a living is completely immaterial. If you have a problem with what I do, your quarrel is with me.
Most of the people attacking me are acting confused about non-Bitcoin investments because they mistakenly thought I was a toximaxi and know nothing of my work, views, podcast, or fund. Maybe they did think I was a steak-eating toximaxi who believes every financial asset other than Bitcoin was a scam. I can see how you would get whiplash from that. Truth is, thatâs never been the case. Iâve never been a maximalist, I hate the term, Iâve never described myself that way, and Iâve _always_ been open-minded. The same open-mindedness that brought me to Bitcoin a decade ago has served me well, and Iâm not abandoning it any time soon.
Where to go from here
Itâs clear that thereâs an awful sickness pervading the Bitcoin space. Most Bitcoiners are normal, good people. For the vast majority of them, thereâs no lifestyle associated with owning Bitcoin, as it should be. But thereâs a subset of peopleâââa small, flailing, shrinking groupâââwho are mostly new to Bitcoin, made Bitcoin their entire personality, and became completely emotionally invested in it. They are spoonfed on a diet of the same half dozen thinkers, and suffer from an ideological monoculture. They cannot extricate themselves from their lifestyle/investment, and so when anyone in the tribe or adjacent says anything that remotely contradicts their established dogma (which is inconsistent, morally confused, and indefensible anyway), they go on the attack. Now that theyâve all lost money, and treasured ideas like âwe never draw down below previous cycle highsâ and the halving/stock to flow are discredited, they feel deep within them the intellectual poverty of their thesis. So they lash out.
Everyone in the Bitcoin and crypto industry knows what Iâm talking about. The moral basis of these people is cartoonish; itâs something that might appeal to a toddler. Itâs a dreadful binary: every financial asset other than Bitcoin is a scam; every blockchain other than Bitcoin is a scam, and doomed to fail (even if they are objectively thriving, and charging more for blockspace than Bitcoin); if anything interesting is built anywhere other than Bitcoin, it will inevitably return to Bitcoin (even if this has been false for the last 10 years). Investing your time or effort anywhere other than Bitcoin is misallocation, malinvestment, grifting, or a scam. Iâm cringing even typing these words out; Iâm genuinely embarrassed to be associated with these people.
Ultimately, Bitcoin is not a lifestyle. Bitcoin is not a steak dinner. Bitcoin is not memes and itâs not laser eyes. Bitcoin is a profoundly useful tool. It is impregnated with some ideology, but it is not the ideology that these people profess. The core Bitcoin values have to do with property rights, individual human dignity, self-determination, privacy, autonomy, and monetary predictability. Bitcoin attracts me for that reason, and Iâll keep supporting it with all the resources available to me regardless of how anyone describes me. I am not being âsacrificedâ and I am not âragequittingâ. Iâve been here much longer than virtually all of my critics and I am certain I will outlast them. I can also pretty much guarantee you I will continue to be far more impactful than them.
Their ideology is extremely brittle, and grows more strained by the day. The testable tenets of Bitcoin maximalism as I interpret it are getting bleaker all the time. The S2F model is discredited. The âhalvingâ is moronic. The sidechain thesis did not happen. Liquid did not succeed. Lightning is interesting, but not everything. Bitcoin is not the reserve currency of anything, not even the crypto industry.
Elsewhere: smart contract stuff is interesting, and worthwhile. Rollups and other interesting L2 models are gathering steam. DeFi is worthwhile, and getting more sophisticated, with the rise of undercollateralized lenders. NFTs arenât going away and are getting more creative and useful. Non-monetary applications, like decentralized social graphs, or decentralized domain systems, are gaining traction, and genuinely matter. None of that is getting built on Bitcoin, right now. The critical mass of developers, liquidity, and dev tooling is elsewhere. Ethereum isnât going to vanish, no matter how hard the maxis pray to Gensler. DeFi liquidity isnât going to dry up. Whatâs actually likely to happen is Bitcoin the network and the asset will be decoupled, with Bitcoin settling on other transactional spaces. Thatâs how Bitcoin and DeFi will be harmonized. The maximalists coming at me lack the perspective and depth to even consider something like this. They are intellectually stunted.
I am not pessimistic on Bitcoin. Iâm just interested in the world as it actually is, instead of the world of utopias and pleasant delusions. My case for Bitcoin has always been more robust and resistant to shocks than the case these maxis make, because theirs relies on fantasies like the stock to flow, the inevitable collapse of all altcoins, or hyper bitcoinization. Iâd be upset if I believed in those things too.
Iâve always spurned externally-imposed labels and now is no different. Call me whatever you want. You can keep your laser eyes and beefsteak dinners. Iâll be here, doing my thing.