If you've ever interacted with hardcore Bitcoin maximalists you might find some of them, at least, to be... abrasive. And it's not just no-coiners who are the target of their scorn. The real enemies are ex-maxis, who are viewed as apostates. Nic Carter, a co-founder and GP at the VC firm Castle Island Ventures, has been a longtime Bitcoiner. He has been in the sapce for a long time. He is a prolific writer. He has extolled the monetary case for Bitcoin. And he's defended the environmental aspects of mining. But he also recently revealed an investment in a non-Bitcoin crypto company that's made him a persona non-grata in the laser eyes world. On this episode, he talks about the world of Bitcoin maximalists, why he is investing elsewhere, what they get wrong, the toxicity of their culture, and also why in spite of it all, he still considers himself a Bitcoiner. Transcripts have been lightly edited for clarity.
Points of interest in the pod:
Why are people angry at Nic Carter now? — 5:56
Did Nic contribute or participate in Bitcoin culture? — 9:26
Why do Bitcoin maxis seem like they want to alienate people? — 9:57
Has toxic maximalism served Bitcoin well in the past? — 11:29
What is ‘Toxic Bitcoin maximalism’ anyway? — 13:26
Nic Carter’s investment in Dynamic — 19:20
The role of design philosophy in Bitcoin — 22:29
Decentralization in Bitcoin vs. Ethereum — 25:51
On Bitcoin narratives getting blown up — 29:46
Ponzinomics in crypto — 32:04
Does crypto’s potential justify the money flowing into it? — 43:48
Stock-based vs. token-based compensation — 47:14
On identitarianism in Bitcoin maximalism — 52:43
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Joe Weisenthal: (00:10)
Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
Tracy Alloway: (00:15)
And I'm Tracy Alloway.
Joe: (00:16)
Tracy, I have a question. Have you ever had negative encounters?
Tracy: (00:23)
<Laughing> Sorry….
Joe: (00:25)
Have you ever had negative encounters on Twitter with people with laser eyes in their profile? I'm just curious. Have you ever had that, have you ever experienced that?
Tracy: (00:34)
This reminds me of that scene from Mean Girls where they say, ‘have you been personally victimized by Regina George?’ And everyone raises their hand. Yes. Yes, Joe, I have been personally victimized by laser eyes on Twitter and toxic Bitcoin maximalist. Actually it got really bad last year. I was tweeting a lot about Bitcoin and I actually stopped tweeting a lot about Bitcoin because of this, which I think is terrible. But last year I tweeted a chart of Bitcoin falling immediately after the CPI data was released and it came in hotter than expected and people went absolutely nuts. And I mean, I could go through some of the insults because I saved them for posterity, but they would not be suitable for, you know, the classy program that is Odd Lots.
Joe: (01:20)
Well, as you point out, lots of people have experienced this. There is certainly at a very minimum, there are a lot of people in the broader crypto space who really resent the media and how it's portrayed and all this stuff. But there is certainly also a sub faction -- most notably the Bitcoin maxis, the maximalists, the laser eyes, people who only eat steak, people like that -- we've written about them. But, you know, to your point, the inflation narrative is kind of totally blown up, you were right.
Tracy: (01:54)
Well…
Joe: (01:55)
We have high inflation now and Bitcoin is not held up well.
Tracy: (01:58)
So I mean, we, we can just talk about how terrible Bitcoin maxis are for an hour. I would love that, but I think this gets to a really important point about Bitcoin, which is, is it a cultural movement about creating a new type of currency that is outside the power or authority of, you know, traditional figures like governments and central banks? Or is it about the underlying technology actually enabling you to do something different? And I think at the moment you really see crypto split between those two camps.
Joe: (02:31)
Yeah. Is it a technology? Is it a money? Is it a culture? I think, you know, it's hard to separate, there is a Bitcoin culture and maybe that's the reason this thing that’s sort of just made up is worth so much. But anyway, we all know these sort of questions, the Bitcoin maxis, what it's like to talk about them on Twitter, all that stuff. That being said, today we are going to be speaking with a long-time Bitcoiner who has now earned the ire of many of the same laser eyes plebs that you have.
Tracy: (03:04)
Hey, Hey, welcome to the club, is all I can say.
Joe: (03:08)
All right. Let's just kick it off. We are going to be speaking with Nic Carter. He's a general partner in Castle Island Ventures. Nic, thank you so much for coming on Odd Lots.
Nic Carter: (03:19)
Hello, Joe and Tracy, I'm honored to be here. This is my favorite podcast. I wish it was under more auspicious circumstances.
Joe: (03:27)
So Gavin Andresen, Mike Hearn and now Nic Carter, why did you rage quit Bitcoin?
Tracy: (03:36)
<Laughs>
Nic: (03:37)
I didn't quit. And to be clear, I don't think I deserved that comparison because I didn't try and change Bitcoin in any way. But yeah, I’m…
Joe: (03:46)
Well, let's back up because you are, I think, one of the most prominent Bitcoin investors, Bitcoin advocates. I think at one point you yourself may have had laser eyes on your Twitter profile, longtime investor in Bitcoin-related companies, and now a bunch of them hate you. So why don’t you back up? What do you do and why are they mad at you?
Nic: (04:08)
Yeah, sure. So, you know, for context, I co-founded a venture firm that invests in all across the crypto industry -- this actually becomes part of the story later. You know, I identify as a Bitcoiner. I think Bitcoin is important and good. And my work over the last five years is focused on really advocating for Bitcoin and, you know, putting my resources to work, whatever they were, in support of Bitcoin specifically. And then my fund, there was maybe a bit of a contradiction there in the eyes of some, because my fund, which I started with Matt Walsh in 2018, invests all across the crypto industry, primarily sort of crypto financial infrastructure, we call it, which is pretty, you know, boring stuff for the most part, basically making this sort of underlying plumbing work better and connecting crypto to sort of the fiat system and so on.
And then that tension finally sort of broke in the last couple weeks, when the Bitcoiners I guess realized, I don't know, had they never looked at my fund’s website or what? But they kind of realized that I don't exclusively invest in Bitcoin stuff and kind of a pile-on began. And then I took the opportunity to clarify, you know, I'm personally a Bitcoiner, but I'm not like one of the orthodox hardliners. I don't think it's immoral to, you know, invest in other blockchains and that kicked off this enormous sort of brew haha. Which, you know, I think people must be extremely bored because I don't see why it's such a big deal, to be honest.
Tracy: (05:33)
I have a ton of questions, but maybe just to begin with, I would like to get your thoughts on why this happened now, because as you say, you've been investing in a variety of crypto ventures for many years. Why do you think the outpouring of anger, the pile-on, happened this time around?
Nic: (05:56)
Well, yeah, it's a weird one because anyone that really knows me knows that I have made, you know, I've been promoting my views on all kinds of topics, not just Bitcoin stuff, for a while now, whether it's DeFi or stablecoins or anything like that. And so they know that I'm a pluralist. I mean the company I co-founded, Coin Metrics, you know, that's been around since 2017, runs nodes for dozens and dozens of blockchains. So if you knew the smallest thing about me you'd know that I don't just, you know, consider it a sin to build on other blockchains or run other nodes. I think really what happened is, you know, obviously Bitcoin is drawn down from whatever -- $69,000 -- to, I don't know where it is today exactly. $20,000. People want scapegoats. A lot of the sort of core premises of the Bitcoin ideology have been undone, frankly. I think there's been a real collision with reality. Like whether it's the stock to flow model, the halving thesis, these folk economic ideas, for instance, Bitcoin always, you know, the cycle low is always higher than the previous cycle high. You know, a lot of these concepts, or Bitcoin becoming the reserve currency…
Joe: (07:08)
Bitcoin being a great inflation hedge?
Nic: (07:10)
Right, The inflation hedge. I mean it's undeniable that hasn't really occurred. And so a lot of these core premises and ideas were basically falsified or, you know, like significantly challenged by real world events. You know, the cycle was much smaller in magnitude than prior cycles were. And I think people are just really upset and kind of on the hunt for scapegoats. And then I was sort of the perfect one. Previously people have this like perverse, um, you guys know that movie, The Wicker Man, where, you know, to ensure the good harvest, you have to sort of sacrifice someone basically?
Tracy: (07:50)
You’ve been sacrificed on the altar of crypto gains?
Nic: (07:53)
So if you look at the previous rage quits, like high profile ones, I'm not saying I rage quit, but you know, those were sort of historically at the bottoms of previous cycles. And so I think people are actually looking for that, looking for rage quits.
Joe: (08:06)
Thank you, Nic Carter for your service. So you wrote this article or after, you know, you made the investment and it seemed interesting, sort of like related to signing into various services with your Ethereum wallet. And we'll talk about that, because I do think that's interesting stuff. People freaked out at the investment and then you sort of wrote this, again, I know you're still a Bitcoiner or you didn't divorce, but there's sort of like, you know what, there really is this toxic element and you point out it's like, you know, Bitcoin and Tracy brought this up at the beginning, is it a culture? Is it technology. You're like, Bitcoin is not steak dinners that you like hang around with your fellow laser eyes. But that being said, I think of you as, also to some extent, an advocate for Bitcoin culture. And, you know, like you rail against seed oils and you think that something really bad happened in 1971. And I think you're really, you know, lifting weights, not worshiping false meats.
Tracy: (09:11)
Bitcoin maxi adjacent, I would say.
Joe: (09:14)
Do you think you contributed to this idea that in addition to maybe being a money or a technology that there was also this sort of hard line culture associated with owning coins?
Nic: (09:26)
Yeah. I mean that culture undeniably exists, whether it's, you know, kind of a joke, like a lot of the stuff you mentioned is a little silly and you sort of like lean into it and also because it just sort of perplexes outsiders and that’s kind of the point is to, you know, build up this side of this. It's like sort of not clear if it's ironic or sincere, right? I mean its classic internet culture stuff.
Tracy: (09:48)
Why is that? Why is that the point though? Because Bitcoin, it's all about the network effect. Why would you want to alienate outsiders? Sorry.
Nic: (09:57)
Yeah, that's a good question. I think it's easier to unite against like outsider voices, whether it's like mainstream economists or the MSM, right? The dreaded MSM. It's sort of hard to penetrate the culture, right? If there's this veil of irony coating everything, right? It's not clear if they're sincere. And so then from the inside you can sort of like mock these people when they sort of engage with your ideas because it's like, they're not part of the joke. And I would say that's just like a classic defense tactic. And so you sort of embrace, you know, deliberately absurd ideas to maybe give like air cover to maybe more serious ones.
Joe: (10:37)
So what about the idea that this sort of like hard line maxi culture has, at least in the past, served Bitcoin well during periods in which entities were trying to sort of change the code. And of course I'm thinking most prominently about the Block Size War in 2016 and 2017, whether it was a bid by some largely more, I would say more corporate-influenced to change the code, to expand Bitcoin’s throughput to reduce fees. And I think out of that, there was this sort of like hard-line, small block faction that held off the change and seemed to benefit -- or a lot of people think that was the right direction -- but that this idea that this sort of culture is beneficial and necessary, even if in the short term it does repel people.
Nic: (11:29)
Yeah. That's a great question. I mean, I think if you go back to that time and you know, really the Block Size Wars started long time ago, maybe even earlier -- 2013, 2014 was probably the genesis. I would actually say a lot of the people that were active participants then are not the same participants now. I would say a lot of the people that are the so-called, you know, toxic maxis or like self-appointed defenders of the protocol. Like those are actually newer Bitcoiners. So you have to understand this churn. And I would say what they're doing is like, and I said this previously, is they're doing kind of like a sort of cargo cult-like reenactment of conflicts past, but you know, there's no real conflict right now. Nobody's really aggressively trying to change Bitcoin in any sort of hostile way.
And so the Block Size War, like I still, you know, come down on the same side, I would support the small block idea. I think that's basically an engineering discussion. And then there was also a meta discussion about how should Bitcoin be changed. What's the most appropriate way to change Bitcoin? And it's still clear to me that the attempt to add bigger blocks to Bitcoin was pretty hamfisted and definitely very corporate and totally out of step with sort of the actual values of the Bitcoin, the way things had been done beforehand. Whereas, you know, and so like a lot of people, it's almost like stolen valor, a little bit, right? It's like, um, it's like, you know, someone taken to the streets today and like assaulting random people and like claiming lineage to, you know, like their grandfather who fought at Normandy or something like that. Right? It's like they're reenacting the conflict from before, like, you know, going through the same motions, but there's no real conflict today. I mean, nobody's trying to change Bitcoin in any way, so it's not clear what they're defending Bitcoin against. So, you know, I think there's like been a bit of a subtle change there.
Tracy: (13:26)
A really simple question, but what's the difference between, or can you just define toxic Bitcoin maximalism? Because I think one of the things that's been going around about you now that, you know, a lot of people are mad at you, is this tweet from 2018 where you said something to the effect of every Bitcoin maximalist you'd met, had been friendly and approachable and now fast forward to 2022. And it seems like you're saying, oh no, you know, there's a lot of toxicity in the community. So maybe you could just give us a definition of what a toxic Bitcoin maximalist is versus your run of the mill Bitcoin maxi?
Nic: (14:06)
Yeah. That tweet was true in 2018 to be clear, maybe I just hadn't met enough or I'd only met the right ones. But yeah, people were very nice to me and I was still newer to Bitcoin back then. So yeah, I think a lot of the issue here is definitional because basically Bitcoin maximalism emerged as like an epithet that I think Vitalik Buterin actually coined in a kind of pejorative sense, like saying Bitcoin or Bitcoiners were too close-minded and parochial, and that's why he had to make Ethereum. And so a lot of the hatred for the term came from that I believe. And then some people did embrace it though. And so then some big Bitcoiners started calling themselves maximalist. And the debate now is really confused because nobody has their good definition for it. Even though there are people that call themselves this and there's a whole faction that does. And I think they're skating on that, you know, ambiguity a little bit to try and avoid being pinned down in their beliefs.
So I think it's deliberate that they kind of refuse to define it, but I I'll define it in two ways. So the soft form and hard form. So kind of like reminiscent of the EMH. So soft form Bitcoin maximalism and I wouldn't say this is toxic, but I think this one's, you know, pretty justifiable is like, look, Bitcoin is the only blockchain that's kind of worth building on. Blockchain should probably only pertain to moving money around as opposed to non-monetary use cases. Other crypto assets or tokens, they're sort of mostly waste of time and there's definitely a lot of scams out there. Stable coins are probably interesting -- this is sort of more adjacent -- but maybe they should reside on Bitcoin as opposed to other blockchains. And then like, you're probably also pretty skeptical fractional reserve banking if you subscribe to this ideology. And so it's kind of like a more modern form of gold buggery, I would say.
And then you have the hard form, which I would say is pretty venomous, really. Bitcoin is absolutely the only asset, certainly within the crypto sphere that is sort of moral and good to own. And other assets are deeply sinful. And, you know, I'm using religious language because I consider this to be a secular religion. Like, it's a secular religion to me. It's very obvious that it is now. They consider alt coins as a tax on Bitcoin. They have a really zero sum mindset, whether maybe that's true, maybe it is zero sum, but they consider alt coins as like actually a kind of a fiat -- like a retaliation of the central bankers.
And they think the launch conditions are absolutely paramount. So like the origin of the blockchain is very important. And if there's an original sin like you did an ICO or a pre-mine, that can never be undone. And then, they think other blockchains are literal scams and they'll be explicit about this. There's no other worthy place to build anything other than Bitcoin. Anyone building on other blockchains is sort of like being deeply misled, they're being tricked or they're being cynical.
Then there's kind of two competing views within this hard form camp. One is that there's no innovation outside of Bitcoin whatsoever. And that it's all kind of artifice and fraud. And then the other view is that there is some innovation, but it will inevitably collapse back into Bitcoin and anything good that's done anywhere else will collapse. And then there's like all kinds of crazy, crazier stuff, which I'm sure that both of you have encountered, which is like any asset that is used in monetary context at all, will collapse into Bitcoin when hyper Bitcoinization occurs. You know, stable coins are a waste of time because all fiats are going to zero, probably imminently. And then there's like the lunatic fringe stuff like, you know, stock to flow dynamics being extremely important. You can even make models. These people tend to think fractional reserve banking is literally fraud, like literally fraudulent and that, you know, other adjacent stuff like the hardness of the monetary medium that you're using, like influences the very nature of society itself. So like your time preference and the quality of art and things and food and things like that.
Joe: (18:06)
Well, I was gonna say because alt coiners eat seed oils and Bitcoiners don’t right?
Nic: (18:12)
I mean, to be clear, I think there actually is a lot of scientific support for my anti seed oil view…
Joe: (18:18)
So I actually, I wanna have a real question about soft form Bitcoin maximalism. And I think you're in a really good position because to answer this, because you're a pragmatist, but also because you're investor in this space, but like what is the state of building on Bitcoin? And I guess this is something that, you know, the first time I ever like checked out Uniswap and was able to like sign-in with a wallet, meaning not setting up an account. I was like, oh my God, this is like really cool. Like I don't know if it's gonna go anywhere, but just the idea of being able to click and you're like, you're in the app, seemed like extremely cool to me. And I know that your new controversial investment is kind of related to that, but like what is the state of other stuff like building on Bitcoin? Do you see it? Are people doing it? Does it work? Could you theoretically build like a Uniswap type environment on Bitcoin?
Tracy: (19:15)
Be clear the Uniswap sign-in, that's on Ethereum, right?
Joe: (19:18)
Yeah. Right.
Nic: (19:20)
Yeah. I mean, I guess there's two ideas here. One is like DeFi, like the composable infrastructure you would use to do sort of swaps on DeFi and then there's also the Web3 like sign-on with MetaMask. So you definitely couldn't really, I mean you can do wallet-based sign-on on Bitcoin with something like LN Auth that is doable. Like if you're custodying your keys, then you can, it doesn't matter what blockchain it is. You can definitely use that as a log-in. With DeFi, like that's just a whole ecosystem that hasn't emerged on Bitcoin. And I think it'd be really challenging to rebuild all of that kind of from scratch on Bitcoin. A) because like the underlying programming language is very, very limited. And then B) just because the critical mass is on Ethereum and that's kind of five, six years of development and understanding best practices and building out liquidity and things like that.
That's one of the things that, you know, I think it's very valid to be like a Bitcoin-only person. I don't even like the term maximalist. I totally hate it, in fact. But I, you know, we invest in plenty of Bitcoin, only startups like founders that are like, I only wanna focus on Bitcoin. I think this is the biggest problem facing the world right now, you know, fix the money, fix the world. And they're very sincere and we're completely fine with that, right? And they're building custodial tools for Bitcoin or they're building exchanges or brokerages, you know, even like some stuff you could refer to as smart contracts, certainly Lightning has revitalized the developer community in Bitcoin. To answer your question, Joe, there's definitely a lot of enthusiasm there, but you know, Bitcoiners -- and so that's a valid perspective completely, but you know, the hard liners I would say are totally, they have to find a way to dismiss what's happening on other blockchains and dismiss the fact that Ethereum is charging, you know, 50, 100 times more in fees. Is earning, you know, 50 times more in sort of blockchain revenue than Bitcoin is. And the, the critical mass of developers and applications and liquidity and tokens, if you're into that, it really is elsewhere. And that's just a reality that Bitcoiners have to confront. And many of them, they have a hard time confronting that.
Tracy: (21:32)
I think this is kind of the heart of a lot of this disagreement. And Joe, I remember last year you wrote a very, very long and very good piece about this sort of cultural split between Bitcoin and DeFi, and this idea that a lot of Bitcoin supporters or maxis really wanted to preserve the blockchain. They didn't want to tinker with it. You know, don't change anything. It's supposed to be an immutable timeless store of value kind of idea versus a lot of the experimentation going on in DeFi. So Nic, I'm curious for your view here, like why is it that a lot of stuff seems to be built on other types of chains versus Bitcoin? Like what is the hold back for Bitcoin use cases? Because again, you know, you can argue that there are some use cases and people are doing some interesting stuff, but it definitely seems to be less than what people are doing with other types of technology.
Nic: (22:29)
Yeah. I mean, there's just this attitude and I think it comes down to design philosophy, right? You know, from the Bitcoiner’s engineer mindset, you're very risk averse. You wanna make sure that the program is truly bug free. You wanna apply the same standards of like maybe nuclear engineering or the kind of software you'd put in a plane, that really can't fail, because you're dealing with, you know, people's money. That's sort of like the Bitcoin mindset. And that's why Bitcoin itself has this kind of soft fork ideology, where you want everybody to opt into changes. You don't want changes to be breaking backwards compatibility with prior, you know, implementations. It's very deliberate and, you know, necessarily slow as a consequence. Bitcoin programming language has this thing called Bitcoin script, which is a variant of Forth, I think. And it's very limited.
And actually most of the sort of -- they're called op codes -- that would've allowed you to do creative things were basically disabled early on because they would've also introduced a lot of bugs. And so that's sort of like the development mindset, whereas Ethereum, you know, which is really emblematic of sort of like the alternatives. So certainly the smart contract focus ones, they took a deliberately very different attitude, much more aggressive, much more rapid iteration and change making the base layer much more suitable to build, you know, rich applications. And they also paid dearly for that. I mean, it's much more complex overall. They're still trying to move to proof of stake. There have been many, many hacks. I mean, you can just look down the leaderboard of any of these DeFi exploits, there's dozens and dozens that are above a hundred million.
It's kind of the way safety regulations are written in blood. DeFi programming best practices are written in hacks, but you know, a lot of ethereums will argue that was a good trade off. I think there's a synthesis possibility. You know, I think Bitcoin maybe did have the right attitude. They focused on monetary hardness above all else and soundness of the protocol and security and resistance to hot hacks and inflation bugs and things like that. And then other protocols were kind of free to experiment, innovate and, you know, create a substrate that you could use to build interesting kind of composable infrastructures. And you would never have been able to build modern day DeFi on Bitcoin. That's just the reality of it. I don't think it's the end of the world that Bitcoin doesn't have that built in. I don't think it necessarily needs that. But yeah, I think ultimately this whole thing comes down to design philosophy.
Tracy: (25:00)
Yeah. I was going to ask how much of a role does decentralization play in this? Because I've always seen it, when it comes to Bitcoin, as sort of a strength and a weakness. So on, on the one hand, if you're trying to design a censorship resistant currency, you know, something that can sit outside of traditional power structures and be relatively safe, then decentralization makes a lot of sense. But if you're trying to do something, you know, more DeFi like, or build something that people are actually going to use, often it ends up being done on something that is in some sense centralized -- like Ethereum, something that maybe has a leader who can kind of galvanize a support base and lead people in a particular direction. So how do you view that aspect of it?
Nic: (25:51)
Yeah. I mean, I would say it's pretty paramount. Maybe my views have evolved a little bit. I would say it's maybe less of a binary, you know, decentralized versus wholly centralized. And I'd probably compare these systems along a number of variables, but, you know, with running an Ethereum node, if you compare it to other blockchains, it's actually much more doable. Because like ultimately I would say decentralization is really a function of how easy it is to run a node and participate as an equal peer on the network. There's a few blockchains that it's, you know, virtually impossible. And so they sort of maxed out the node size in order to push a lot of data through the network per unit time. And then, you know, other blockchains tried to keep the data overhead low and make it really easy to participate with Bitcoin being emblematic at that. And so there's like a whole whole spectrum.
I think maybe, you know, Bitcoiners, some Bitcoiners would say, you know, Bitcoin made the right decision. The idea is for anybody on earth to be able to run a node, maybe even on their smartphone, maybe even with weak internet connection, you know, clearly there's market demand for an alternative model where you're pushing, you're doing more computation per unit time. Fees are lower because you're pushing more data through the system. And so there's more capacity, but you know, I would say like, you know, just looking at Ethereum, if you compare it to the Bitcoin design philosophy, Bitcoin embraces layered model with -- initially side chains was a big part of the vision -- and then with Lightning as a L2 network, I would say Ethereum culture is kind of downstream and Bitcoin culture, in many ways, they embrace the layered model too. There's many, many different L2s being built on Ethereum. So they also ended up being more pragmatic in understanding that you can't have the nodes be over arbitrarily large. So they, you know, I would say they actually embrace the same philosophy, at the end of the day.
Joe: (27:56)
So, you know, one of the things that you mentioned in the beginning is a lot of like sort of Bitcoin stories or Bitcoin theses have sort of blown up. And the big one in 2022 is that we have the highest inflation in the US in 40 years and Bitcoin has not proved to be particularly robust against that. It sort of has been moving in line with the stock market. Another thing that happened in 2022 that I don't think gets as much attention is that is, you know, and one of my interests personally in Bitcoin is this idea of like censorship resistant money, the idea that I could send you or Tracy some money and no third party could tell us no, which I think like in a time where, you know, cash is going away and more and more commerce that's conducted online, is potentially a very powerful thing.
But the other thing that happened in 2022 is we had the Canadian trucker protests where a bunch of the participants and donors lost access or had money frozen, lost access to their bank accounts. But it didn't seem like, you know, it seemed like, ‘oh, this is a great moment for Bitcoin in theory,’ except that I don't think like Bitcoin was that powerful or my impression was, you know, it was easy for authorities to track the Bitcoin they were being sent, it was like very public. There was no particularly great way -- as far as I could tell -- to coordinate donations. I think a lot of it just ended up like in the hands of someone who, and hopefully they got it to the right people. It seemed like that was a failure too. And A) I'm curious if you agree, and B) like, okay, it's not a great inflation hedge, and right now it's not really cut out for censorship resistant payments or store of value. Like what exactly is the case for it?
Nic: (29:46)
Yeah. That was a sobering moment, I think, the trucker protest for a lot of Bitcoiners, because it basically became clear that there was no platform or application that existed that could facilitate crowdfunding with Bitcoin. And it showed just, and the tools that were put together were pretty new and they were very analog. And so it just [was] evidence to kind of a lack of, I don't know, developer talent or enthusiasm or interest for building these things. Whereas there are good crowdfunding tools in quote unquote ‘crypto’ generally, but for the most part, they don't concern Bitcoin. So maybe that's kind of a great example because it shows there's just less in it for a developer building on Bitcoin. That's kind of part of the crowding out effect. I think that this easy token landscape and here's where I'm, you know, very sympathetic to the views of Bitcoiners, right, is there's a landscape, you know, you look at your opportunity costs and if you're gonna build something, you might as well do it in a tokenized way and get your early liquidity, you know, and you can get your exit or, you know, certainly get some liquidity without bringing a company to IPO and you can raise money more easily, maybe you can raise money directly from retail. Obviously there's like security…
Joe: (31:06)
Yeah. You just, you put the money in a box and more money comes out of the box with crypto. It seems pretty great, but in all seriousness and, you know, I wanna shift focus a little bit to that. You do invest in, you know, that's why we're talking, non-Bitcoin crypto. But it seems to me like so much of what gets built and what has gotten built over the this cycle is de facto, I mean, there have been a lot of Ponzi schemes or things that aren't Ponzi schemes, but the Ponzi economics where mainly the only way they accrue value is by more people buying in. And then at some point it goes down when some people want to sell without actually like any real consumer product. And you know, like you've also been pretty critical of VCs in the broader crypto space for having spent the last several years backing Ponzi schemes.
Nic: (32:04)
Yeah. It's a mess. It's a total mess. I mean, you know, it seems like a lot of the quote unquote ‘financial innovation’ that's occurred in the broader crypto space has been innovation in creating veiled Ponzis basically, or things that are Ponzi adjacent. I mean, people talk on ironically about Ponzinomics and if you look at, if you look at the field of token economics or quote unquote ‘mechanism,’ design people dress these things up in this whole like advisory firms that'll help you with your tokenomics. It's just basically like if you look at the actual mechanics, a lot of it is Ponzi. It's like, how do you juice returns? How do you tinker with the system a little bit to, you know, make the token price go up temporarily? Some of the biggest and, you know, virtually all of the VCs in the industry are investing in this stuff.
Some of them really do believe in the projects. And that's kind of the curious thing is, you know, they'll like, maybe they like convince themselves, like if you look at the Terra discourse, a lot of the firms backing Terra, they actually, you know, some of them got out and some of them didn't, some of them round tripped the position because they started to believe the research they were putting out, where they were kind of justifying the Terra mechanics and thinking like, ‘Hey, maybe this can work.’ But yeah, like, you know, I don't know if I care to list them, but most of the really hyped sort of consumer applications in the crypto space, certainly the ones that involve tokens, a lot of them have very specific Ponzi dynamics, which can be pinpointed. And they're kind of all unwinding now.
Joe: (33:40)
Well, there was a certain game that was really popular in the Philippines last year and it was like, ‘oh, this is providing an economic lifeline.’ And we had the founder on -- I'm talking about Axie. And it was like, yeah, it's like buy some NFTs and then they fought and then you got more and still the question was like, yeah, but is the game fun to play? Is there any point here other than just like trying to win more tokens and now the price has crashed and it seems like usage is way down and you know, it still seems like basically there's not much there, as far as I can tell, beyond the idea that if you play you're making money, but the game isn't that great.
Nic: (34:21)
Yeah. It's remarkable. It's really astonishing. And, you know, I'm not one to pile-on specific projects aggressively or VCs or anything like that, but Axie was, it had some really negative consequences. I mean, it was super hyped and you know some of the best VC or most, you know, reputable venture firms were investing in the likes of Axie or Steppen or Terra, things that ended up having these like genuinely Ponzi-like dynamics. Axie was particularly bad. Because if you looked at where the player base was, it was in the Philippines, Cuba, Venezuela places where, you know, relatively poor population and people had internet connections and then they could, you know, all of a sudden earn by playing this game, but nobody played the game for the sake of the game. They played the game to get the tokens.
And of course, you know, as the tokens sold off the game stopped being worth playing, there were some really perverse dynamics in the Axie situation. I mean, you had a sub theme that developed where basically Westerners would buy the NFTs that would, you know, the characters that would make you eligible to play the game and then kind of like lease them out to, you know, local players in say the Philippines. And this was euphemistically called the ‘scholar program’. In my view it’s kind of like a form of digital share cropping, basically where the locals playing the game areearning a couple bucks a day, didn't even own the fruits of their labor basically. They were literally toiling on behalf of like Westerners that had the capital to buy the assets, to play the game. And the worst part is that, you know, ultimately some of these like Filipinos, etc., like got fully bought in, they were persuaded like, yo, this is a great thing. It's a great investment. This can be my livelihood, quit their jobs in some cases bought the in-game property. And then of course it all kind of collapsed and like the property values cratered.
And so, you know, it's all very perverse in my view, you have Western VCs like waxing lyrical about like the amazing benefits that, you know, Axie is bringing to places, you know, some of the poorer countries in the world. And then like, meanwhile, the whole thing collapses. And a lot of these folks inside poor countries are left holding the bag. And so like not only is this just a Ponzi-like system that was like pretty obviously going to fail because nobody played the game for any reason other than the token dynamics, it had this like nasty sort of like colonial vibe to it. And I think ended up causing a lot of kind of real world damage to people that couldn't really afford it.
Tracy: (37:01)
It is very dystopian, isn't it? Like these people sort of toiling away on their phones in order to get like tokens back to rich people in advanced economies. But just on the topic of use cases that are not related to Ponzinomics, like where are those? Because I think the thing that makes a lot of people suspicious of crypto as a whole is that we've been told now for over a decade that this is life-changing, world-changing technology, but it feels like people are still trying to force a use case. Like if it was so big, it feels like the use cases should come relatively naturally, but they don't seem to. And I think something you said in your own post recently was, you know, that there just aren't enough Bitcoin specific companies for you to invest in as a VC. And it feels like to some extent, like there are a lot of crypto companies out there that are fundraising and asking for money, but there aren't a lot of necessarily good ones. So where are those good use cases, those good companies. And why does it feel like it's taking so long?
Nic: (38:14)
Yeah, I mean, I would carve Bitcoin out here and say, you know, think of it as a latter day, not to like make the pitch to either of you, you've heard it zillion times, but you know, if you think of it as a latter day, kind of improved gold with better auditability qualities and you know, better self custody and it's cheaper to take physical delivery and so on, then you don't really need that much adjacent infrastructure or applications around it. You need ways for people to store it and hold it and transact with it, but that's kind of it. And so, it is naturally constrained sort of the startup environment for Bitcoin. And that's kind of okay, like the Bitcoin movement is more about ideology, as you say, and it's, I call it revanchist. I don't know if that's how you pronounce it, that movement to sort of like take back what we once had so to speak , you know, in terms of trying to find a way to obliquely regain a gold standard. And so that's sort of like the Bitcoin movement and there's maybe not that much to invest in aside from custody and exchanges.
Sort of in the broader crypto space, which I guess has been rebranded to Web3 for reasons unknown to me. There's definitely a few things which are, you know, really, I don't know why we call it that now, but I'll oblige. Like I am a proponent of stable coins. I have been for a long time. I think they offer, I think Balaji calls them a 100X improvement over fiat, you know, send an international bank wire and then send a stable coin. And you'll know what I mean. I think there's clear product market fit there. They are a way to kind of dollarize the world and there's definitely crypto dollarization occurring out there, especially in emerging markets where maybe your local banking system is questionable and your local currencies [are] inflationary or untrustworthy.
So that sector alone, I don't think it needs any justification. It sort of is very useful today. Obviously there have been failures there, but I'm pretty optimistic about the sector. Assuming we can find a way from a regulatory perspective to treat tokens as equity, right? To sort of bite the bullet and acknowledge that tokens are or should be equity most of the time in kind of an explicit way. I would say that would be a significant improvement over kind of the default. Like right now, if I wanted to, you know, start a company and pay someone in equity that would be really difficult to do with, or, you know, like just, you know, pay a user in equity for contributing some data or something. That'd be very challenging to do probably with traditional structures and tools. If you look at yield farming -- I don't like the name -- but that's basically contributing protocol equity to market makers that are providing liquidity.
You could imagine a world where, you know, Uber is paying its drivers in Uber stockmaybe as a kicker on top of their normal salary for every mile driven. And you can maybe figure out a way to do that with, you know, regular old equity. But that's kind of why people like tokens, is one reason. Builders like them because they just give you tons of flexibility in terms of like doling out defacto equity in your thing. So I like that. I also like the transparency you get from, you know, you can go look at any of these DeFi protocols and see the cash flows rolling-in in real time. I think that's a big enhancement, a big improvement, over your quarterly disclosures, right? And so, you know, realtime financial disclosures is really cool. And, you know, I’m very optimistic about that.
The startup in question that, you know, really kicked off the whole hullabaloo was a wallet-based authentication login startup. That's another one, which is an easy one, which is already, you know, doesn't really need any defending because it just works. Because basically if you're using a password, set of passwords, you're probably using a password manager, which means you are custodying your own sort of cryptographic material, this just sort of formalizes that. It means you can, you know, hold your own online identity, self sovereign, and instead of allowing Google or Facebook to own it, or Apple, and then, you know, it's kind of hard to express in words. And I guess there's probably been a bit of a failure among the VCs that have talked about this, but yeah, the ability to log-on with your keys, you know, that to me is like a critical part of flattening the internet topology, of eliminating some of those hierarchies that give Web2 companies so much power, and restoring a measure of power back to the users. So yeah, I actually think that's a, you know, that's another sort of key win here.
Tracy: (42:54)
So I'm actually really into the ease of signing in with that type of wallet and both Joe and I have experimented with this. I can't remember who sent us our names as like ETH identities?
Joe: (43:09)
Oh I forget. Yeah.
Tracy: (43:11)
Yeah. I feel really bad that I've forgotten who… well, whatever it's interesting and I can totally see the use case for that.
Joe: (43:17)
Maybe Mike Demarais? At Rainbow? I think he preemptively squatted on our .eth
so that he could give them to us.
Tracy: (43:26)
Yeah that’s right. It was so that the toxic Bitcoin maximalist wouldn't take them and do something nefarious with them. But anyway, we've experimented with that. And I guess my question is, I can see the use case for that, but does it justify the amount of money that's flowing into the space? Like, is it a big enough market to justify some of the valuations that have been put on this?
Nic: (43:48)
The justification would be that you can actually rearchitect the whole internet and, you know, maybe that's a little bit questionable. Certainly the amounts of money flowing into crypto, Web3, early stage venture in general, private equity, I think we all agree are probably likely to drive returns down just based on sort of like historical norms. And I think that a lot of that has been a rotation. It's just a function of sort of like institutional allocators rotating into those riskier asset classes. You know, I don't know what the right number is in terms of Web3 investment, but yeah, I mean, I think if you wanted to tell yourself the exciting story you would say, look, the FAANG companies are the biggest companies in the world and they've built those valuations on the back of, you know, building these huge data silos -- systems that aren't interoperable, that are hard to leave, that are very sticky.
Users are kind of stuck in those systems and they can't, you know, effectively, to, you know, to take a different analysis. You could say these are like digital fiefdoms, you know, whether it's Twitter, Facebook, TikTok, whatever, the shareholders get all the value. And the users that do all the work, get nothing. They're the serfs, you know toiling away in the fields. They don't even own the fruits of their labor. And so then, the kind of Web3 story is like, we're gonna do kind of a digital form of enclosure where we're gonna, you know, put up a fence and you're actually gonna be able to have your 40 acres and a mule and, you know, really take ownership of the digital value you're creating. And that's a very appealing story. You know, I believe it to a certain extent.
And so part of the tools necessary there, are these like decentralized domain system, like ENS, for instance, that's one, wallet-based sign on tools where you're self custodying the data that's tied to your own identity. The pathway to get there is sort of unclear, I would say as of yet. So maybe it's a timing question, whether now is the right time to deploy a ton of capital against it. But the destination I think is clear, which is taking these very centralized, you know, silos where you're very exposed to what a small handful of people in Silicon Valley think about the world and the way they wanna moderate things. And, you know, completely changing that. Putting the power back in the hands of the users. Maybe the users are actually getting ownership in these platforms, which is commensurate to their contribution. You know, maybe there's a notion of digital property rights, which emerges here. But, yeah, I would say it's still kind of like a bit of an unclear vision overall.
Joe: (46:25)
So when you made your recent investment, one of your points that you made is, you know, this is an equity investment. This is a company I'm buying private shares in it, and hopefully it'll be worth more. And you made the point, this is not about getting access to some token. This company is not launching some new excrement coin that all the — I don't know what I'm allowed to say — my understanding is in recent years, many VCs have, in fact, it seems, my impression, the way it works is, you ostensibly make an investment in a company, but then the company itself has a big Treasury of its own coin. And either, you know, the idea is that coin goes up in value. And so therefore the equity and the company that holds those coins goes up a lot in value.
And then the VCs, or maybe the VCs get a direct allocation of the coins, but then they also have an incentive to like pump the network, or pump the coins to the public. These are like publicly traded stock in many cases, except not regulated. And also I get the impression, there's like a huge gap between what some of these private rounds were and then where they immediately trade once the tokens are listed on Binance or FTX or Coinbase or something like that. What's your view on what happened over the last couple of years? And what's your view on sort of like VCs doing token investments?
Nic: (47:53)
Yeah. I mean, you know, this one in particular, this company in question, I don't believe they have any intention to create a token. But it's very common when you're making any equity investment. The most common model is the safe with the token warrant. So even if there is no token, it just gives the investors the ability to, you know, exercise that option if a token does emerge. And basically, you know, most VCs will pressure their investees into creating a token, even if it's spurious, meritless, has no purpose, right? Because token valuations are just a function of the hype for the most part, that the team is able to generate around it. They're not really grounded in very much.
Now, in some cases, you know, there's kind of actually an interesting tug of war that's gonna develop here between token holders and shareholders. When you have these, you basically have a shadow cap table. So you have, you know, the shareholders in the business and then you have the token holders, and they're not necessarily the same, especially if the token has been trading, or, you know, there's a yield farming program or something like that. It doesn't really make sense to have two cap tables, right? It's like, ‘oh, here's the equity. And here's the junior equity.’ Like why? And then even weirder, if you have a token that's accruing some revenue from the protocol of smart contracts that the team has built, and there's a lot of these things that accrue tons of revenue, right? And so, you know, I think it's smarter to just be a straightforward company with a standard business model, or if you're gonna go to the token route, not to have the corporate equity, you know, kind of fighting against the token holders. And we're gonna find, there'll be a ton of debates here, especially with some of these larger crypto companies that have both the token and they have equity. What we're gonna find is they'll be a fight here. And the shareholders will probably prevail because ultimately the token holders have a claim on nothing, which is kind of the problem with the token, it's pretty perverse, but you don't really have a claim at all. And, you know, when push comes to shove, I wouldn't wanna be a token holder.
Joe: (49:51)
At the moment, like the Uniswap token holders don't really have any either control or claim or anything, but that token has traded a lot. At one point it was really valuable.
Nic: (50:03)
Yeah, Uniswap is the poster child for this, because it's kind of the company that you want. I think it's called Uniswap Labs. That's the the thing you want ownership over. The Uniswap token has, it's not clear what the claim is. There's no real formal claim on anything aside from quote unquote ‘governance,’ which is not even clear that token holders control governance either for that matter. So, yeah, I think what would be a better situation is if maybe we got some legislative development, which said, okay, look, tokens we’re gonna harmonize tokens with securities laws. And you have to do these kinds of disclosures and you can't lie about the disclosures either. Maybe the tokens or on-chain business models are more amenable to real time disclosures too. So maybe it's a boon for those regulators. But you'd have also to tie that to sort of insider trading and asymmetries and things like that. I think actually the European legislation that just came out, MiCA, has some interesting templates that maybe US regulators could follow, but I think that'd be the best outcome because otherwise it's just gonna be this nasty, drawn out all these sequence of battles between token holders and shareholders. And basically the shareholders are gonna win. And anybody that bought the token thinking that they were getting a claim on the, you know, cash flows accruing to the protocol or whatever, they're gonna be mistaken in that.
Tracy: (51:25)
So I wanna go back to Twitter abuse and, you know, I mentioned in the intro that last year, one of my worst experiences with it was this tweet about Bitcoin after the CPI numbers came out. Joe, you also tweeted the same chart on that same day. And I actually, I screenshotted this for posterity, because I'm really into data analysis obviously. So my tweet got 641 replies. Your tweet of the same chart got 27 replies. None of them were ad hominem attacks, nothing sexist, nothing racist or you know, personally insulting. So I guess my question is like Nic, when it comes to Bitcoin maximalism, it feels like a part of it is -- I'm thinking how to characterize it — but you know, it feels like women bear the brunt of a lot of criticism from a lot of Bitcoin bros — and they're almost all guys — can you explain that aspect to us? And like what needs to change in order to bring more women into crypto? Because it does feel to me if this is about creating a network, leaving out half the population seems like a mistake.
Nic: (52:43)
Yeah. And it's very uncomfortable terrain and I don't think many Bitcoiners want to reckon with this, but there is an identitarian element to this whole philosophy, culture, religion, whatever you wanna call it. And yeah, the hard liner Bitcoin maxi types are basically homogenous. You know, they're male, for the most part white, you know, they all kind of think and act the same and, you know, there’s really nasty strains in there. That's just a fact, you know, not just against women, there's a big anti-Semitic strain in there, which is evident if you look under the surface.
Joe: (53:20)
Any movement that makes it its heart like certain conspiracy theories about finance or central bankers., it's just a couple of degrees away — we all, we all know where that goes.
Nic: (53:31)
Yeah. And like, I try to be pretty nice online. I've sort of maybe a patchy track record there.Tracy, I think I probably actually you probably look along the replies, you'll see me.
Joe: (53:41)
Yeah, Tracy’s being nice.
Tracy: (53:41)
Yes. You have. You have piled on to me, I will just point that out.
Nic: (53:46)
I totally acknowledged that. I don't think I ever said anything too untoward, but yeah, look, this is why I think it's important to draw a line with and disassociate myself from this community. Not of Bitcoin, I just think, you know, Bitcoin doesn't have to be a religion. It doesn't have to be a lifestyle. It doesn't have to be something that is hyper emotional and causes you to lash out at anyone, whether it's journalists or, you know, Paul Krugman. I mean, frankly, he probably deserves some of the ire. But it doesn't have to be this nasty, nasty movement based on ad hominems. You're not defending Bitcoin from anything. You're just making it look incredibly insular and resistant to outsiders.
Now I think Bitcoin is gonna be fine, right? Like Bitcoin is a good idea. It kind of works just fine, whether or not there's armies of like cyber hornet, toxic maxis, quote unquote ‘defending’ the protocol or anything like that. Bitcoin's pretty indifferent to that. It's indifferent to sort of me defecting from hard line Bitcoinism, it's indifferent to all that stuff. I think it's just sort of the economics that are ultimately persuasive, but yeah, I don't know. I think this is why I'm trying to defect from like — and to be clear, I never consider myself a maximalist — but yeah, this is why I think it's important for a movement of like call them ‘Bitcoin secularists’ to emerge, rationalists or secularists. People that believe in Bitcoin, but are also open minded. They believe in facts, the world of reality and acknowledge that there's development in other blockchains. That it's not deeply sinful to build elsewhere, to transact elsewhere, right? That you don't need to tie these like fringe beliefs and acts to a monetary and technical project.
Joe: (55:39)
Nic. I remember years ago, I don't know, maybe like 2019 or something, years ago on TV, I asked you if the having was myth or whether it was priced in and you said it was, and you're like, ‘yeah, it doesn't really make any sense.’ And so the early seeds of you going soft were evident even back then, but Nic, it was great to have you on Odd Lots. This is a conversation we’ve wanted to make happen for a long time. So really appreciate you coming on.
Nic: (56:10)
Thanks Joe. Thanks Tracy.
Tracy: (56:12)
Thanks Nic. I found this conversation very cathartic.
Joe: (56:15)
<Laughs>
Nic: (56:16)
I bet.
Joe: (56:18)
There are good things about the bear market. All right, thanks Nic. I liked that conversation. You know, I've always — even during his more maxi period, I've always thought Nic was like a Bitcoin realist as opposed to a religionist, even during the more extreme thing. And I think he is pretty realistic still about like the pluses and minuses of all of it.
Tracy: (56:55)
Well, so I question… Here's what I think. Okay. I think it all boils down to whether or not you think Bitcoin is a technology play or a cultural play. And I do question Nic's statement at the end about Bitcoin doesn't have to be a religion because if it doesn't have these certain connotations attached to it, then all you're left with is the actual technology. And I think there's still a question mark over how useful that actually is. Now, if you're gonna treat it as, you know, something like gold, which to me is much more of a cultural thing. That's about gold's position in society, then like you cannot divorce it from the way people feel about it.
Joe: (57:35)
This is really well put. I actually, I completely agree. Like on some level it's like, why does a Bitcoin have value? So it's like on Ethereum or on these other chains, you can actually sort of like explain pretty crisply why it has value. I can transfer dollar-denominated stable coins very easily to you on Ethereum. And you sort of like pay the Ethereum holders for the service of conducting that transaction for us. There's no faith involved with that. But why is a Bitcoin, why is it worth something and not nothing, is sort of like this really difficult question to answer with respect to Bitcoin. And I do think there's a large faith element and even, and this is something I've always thought interesting, like even gold, why did gold take off? In part, some of the early mythology was like gold doesn't tarnish, and so the ancients said like, oh, this must be a divine metal because it's unlike everything else that exists on earth. Gold, it doesn't degrade over time. It's divine, something like that. So I do feel like, even if it’s just sort of like a reincarnated gold, how do you separate it from the culture and religion?
Tracy: (58:48)
There is a culture that built up around gold.
Joe: (58:50)
So I agree. I agree. Like it's hard to know what Bitcoin is, if there's no culture.
Tracy: (58:56)
Right. And even today we talk about, you know, gold bugs, which obviously connotes like a certain portion of society and a certain belief system. And because of that, gold still has like a role in traditional financial assets.
Joe: (59:11)
I also thought Nic's point about like sort of the Bitcoin laser eyes is kind of, I dunno, maybe Larping is the right word, or stolen valor. There were at one point, these sort of like big conflicts with the history of Bitcoin and people were trying to change the protocol, but that's gone. And you know, now that's not a big thing. People have moved on. If you don't like Bitcoin, you can like build some other chain. And so it feels like there's this desire to continue a state of conflict or perceived threats, like all the central bankers are after us. Jamie Diamond is after us, whatever. It's like, no, they're not. But that sort of like, they have to maintain that like permanent state of seige mentality to keep it going.
Tracy: (59:54)
Right. I mean, I would be happy if we could just go, I don't wanna say go back, but if we could just have a situation where you can have a conversation about the strengths and the weaknesses of Bitcoin, without someone screaming at you, you know, ‘this is FUD’ or ‘have fun staying poor’, or just like insulting you.
Joe: (01:00:13)
Well, now we can say that to them.
Tracy: (01:00:16)
Have fun staying poor?
Joe: (01:00:17)
Yeah. Now that Bitcoin has lost so much money.
Tracy: (01:00:19)
This is a cathartic episode. All right. Should we leave it there?
Joe:
Let's leave it there.
You can follow Nic Carter on Twitter at @nic__carter.