Odd Lots - The Bitcoin VC Who Just Infuriated The Bitcoin World

Episode Date: July 14, 2022

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.See omnystudio.com/listener for privacy information.

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And I'm Tracy Allo. Tracy, I have a question. Have you ever had negative encounters? Sorry. 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?

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 maximalists. 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. Well, as you point out, lots of people have experienced this. There is certainly at a very minimum a, there's a lot of people in like 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, like the inflation narrative is kind of totally blown up. Like, you were right.

Well. And we have high inflation now. Well, because it's not held up well. So, I mean, 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 like, 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. 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 sort of just made up is worth so much. But anyway, we all know what we're, we all know this sort of like these questions, the Bitcoin maxes, what it's like to talk about them on Twitter, all that stuff. That being said, today, we're going to be speaking with a longtime bitciner who has now earned the ire of many of the same. laser eyes plebs that you have. Hey, hey, welcome to the club is all I can say. All right, let's just kick it off. We're going to be speaking with Nick Carter.

He's a general partner in Castle Island Ventures. And Nick, thank you so much for coming on Nodlots. Hello, Joe and Tracy. I'm honored to be here. This is my favorite podcast. I wish it was under more auspicious circumstances. So, Gavin Anderson, Mike Hearn and now Nick Carter, why did you rage quit Bitcoin?

I didn't quit. To be clear, I don't think I deserve that comparison because I didn't try and change Bitcoin in any way. But yeah, I'm... 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, long time investor in Bitcoin related companies, and now a bunch of them hate you. So what do you back up? Like, what do you do and why are they mad at you? Yeah, sure. So I mean, so I, you know, for context,

I co-founded a venture firm that invests in all across the crypto industry. This is actually becomes part of the story later. You know, I identify as a bitcorner. I think Bitcoin is important and good. And my work over the last five years is focused on really advocating for Bitcoin. and 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 boring stuff for the most part, basically making the sort of underlying plumbing work better and connecting crypto to the fiat system and so on. And then that tension finally, they sort of broke in the last couple weeks when the bitcoinsers, 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 pylon began, and then I took the opportunity to clarify, you know, I'm personally a bitcorner, 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 ha-ha, which, you know, I don't, I think people must be extremely bored because I don't see why it's such a big deal, to be honest. I have a ton of questions, but maybe, 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 pylon, happened this

time around. 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, whether, not just Bitcoin stuff for a while now, whether it's defy or stable coins 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, you know, Bitcoin becoming the reserve currency within crypto. Bitcoin serving is a great inflation hedge. Right. The inflation hedge, I mean, it's undeniable that 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 like 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 like,

you guys know that movie like The Wicker Man where, you know, to ensure the good harvest, you've to sort of sacrifice someone, basically. But you've been sacrificed on the altar of crypto games? So if you look at the previous rage quits, like high profile ones, I'm not saying our rage quit, but, you know, my current, 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. Thank you, Nick Carter for your service. So you wrote this article or after, you know, you made the investment.

And it seemed interesting as a sort of, like, related to signing into a various services with your Ethereum wall. 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 Bitcoin 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, there's a lot of Bitcoin and Tracy brought this up

in the beginning. Is it a culture? Is it a technology? You're like, Bitcoin is not your like steak dinners that you like hang around with like your fellow laser eyes. But that being said, like, I think of you as also, to some extent, an advocate for Bitcoin culture. And, like, 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. Bitcoin maxi adjacent, I would say. Do you think,

like you contributed to this idea that in addition to maybe being a money or a technology, that there is also like this sort of like hardline culture associated with owning the coins. Yeah. And I mean, that culture undeniably exists, whether it's, you know, kind of a joke. Like a lot of the stuff you mentioned is like a little silly and you sort of like lean into it. And also because it just sort of perplexes outsiders. And right, that's like kind of the point is to, you know, build up this edifice. It's like sort of not clear if it's ironic or sincere, right?

I mean, it's classic internet culture stuff. Wait, why is that the point, though? Because Bitcoin, like, it's all about the network effect. Why would you want to alienate outsiders? Sorry. Yeah, I mean, 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 coding 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 like, you know, deliberately absurd ideas to maybe give like air cover

to your two maybe more serious ones. So what about the idea that this sort of like hardline 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, where there 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 there, there was this sort of like hardline small block faction that held off the change and seemed to be 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 yeah i i that's a great question i mean i think if you go back to that time and you know really the block size war started a long time ago maybe even earlier than 20 2013 14 was probably the genesis i would actually say a lot of the people that or active participants then are not the same participants now. I would say a lot of the people that are the so-called self-toxies or like self-appointed defenders of the protocol, like those are actually newer Bitcoiners. So like 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 call 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 ham-fisted 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. And whereas, you know, if you know, and so like a lot of people, it's almost like stolen valor a little bit, right? It's like, it's like, you know, someone taking 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 anyway. 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. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report, delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed. Yes, there are other products like this from a variety of news organizations. But they usually rerun their radio newscasts throughout the day.

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Spotify or anywhere you listen. 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. 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. I know. I was still newer to Bitcoin back then. So, yeah, it's. I think a lot of the issue here is definitional because basically Bitcoin maximalism emerged as like an epithet that I think Vitalic Buteran actually coined in a kind of pejorative sense, like saying 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 Bitcoiners started calling themselves maximalists.

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'll define it in two ways. So 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 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 are tokens. They're sort of mostly a 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 for actual 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 the of the hard form, which I would say is pretty venomous, really. Bitcoin is absolutely the only asset, certainly within the cryptosphere 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 all coins as the tax on Bitcoin. They've a really zero-sum mindset. Maybe that's true. Maybe it is zero-sum. But they consider alt-coins as 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 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 a monetary context at all will collapse into Bitcoin when hyper-bitconization occurs. That's, you know, Sablecoins are a waste

of time because all fiatts 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 like the very nature of society itself. So like your time preference and the quality of art and things and food and things like that. Well, I was going to say, because alt-coiners eat seed oils and bit-coiners don't, right? I mean, to be clear, I think there actually is a lot of scientific support for my anti-seed oil view, but we're not going to.

So I actually, I would have a real question about soft form Bitcoin maximalism. And I think you're in a really good position because to answer this. And you're, 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, sign in with a wallet, meaning not setting up an account and not having, I was like, oh my God, this is like really cool. Like, I don't know if it's going to go anywhere. But just like the idea of like being able to click and you're like, you're in the app,

it 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? Like, do you see it? Are people doing it? Does it work? Could you theoretically build like a uniswap type environment? on Bitcoin.

Just to be clear, the uniswap sign, and that's on Ethereum, right? Yeah, yeah, yeah, right. 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 defy, and then there's also the Web 3, 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-Oth. That is doable.

Like if you're cusseting your keys, then you can, it doesn't matter what blockchain it is. You can definitely use that as a login. But defy, the more 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. 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, you know, we invest in plenty of Bitcoin-only startups, like founders that are like, I only want to 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 hardliners, 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 50 times more in sort of blockchain revenue than Bitcoin is. And 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 are, they have a hard time confronting that. 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 as, you know, immutable, timeless store of value kind of idea versus a lot of the experimentation going on on Defi. So Nick, 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 holdback 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.

Yeah, I mean, there's just this attitude, and I think it comes down to design philosophy, right? you know, from the Bitcoin or as engineer mindset, you're very risk-averse. You want to make sure that the program is truly bug-free. You want to 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. You can't have this, you know, 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 in a changes. You don't want changes to be breaking backwards compatibility. with prior implementations, it's very deliberate and, you know, necessarily slow as a consequence.

Bitcoin programming language has this thing called Bitcoin Script, which is very in a fourth, I think, and it's very limited. And actually, most of the sort of, they're called op codes that would have allowed you to do creative things were basically disabled early on because they would have also introduced a lot of bugs. And so that's sort of like the development mindset, whereas Ethereum, you know, we're not. 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 defy exploits, there's dozens and dozens that are above 100 million. It's kind of the way safety regulations are written in blood. Defy programming best practices are written in hacks. But, you know, a lot of Ethereum will argue that was a good tradeoff. 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 hacks and inflation bugs and things like that. And then other protocols were kind of free to experiment, innovate, and 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 defy on Bitcoin.

That's just the reality of it. I don't think it's the end of the world. The 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. 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 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 defy-like or build something that people are actually going to use,

often it ends up being done on something that is, in some senses, 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? 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 probably compare these systems along a number of variables. But, you know, 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 of 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. 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 embrace this layered model with initially sidechains was a big part of the vision. and then with lightning as an 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 arbitrarily large. So, you know, I would say they actually embrace the same philosophy at the end of the day. Hello, I'm Michelle Hussein. And for more than 20 years, I was at the BBC. military withdrawal from Afghanistan. But all the time I was delivering the headlines,

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and they've seen a huge run-up in their stock prices. This will be a place where every weekend you can count on one essential conversation to help make sense of the world. So please join me, listen and subscribe to the Michelle Hussein show from Bloomberg weekend, wherever you get your podcast. You certainly ask interesting questions. 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 U.S. 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 as 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 conduct 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 that my impression was, you know,

is easy for authorities to track the Bitcoin that were being sent as like very public. There was no particularly great way from as far as I could tell to coordinate donations. I think a lot of it just ended up like in the hands of someone and hopefully they got it to the right people. Like it seemed like that was a failure too. And A, I'm curious, like, if you agree and B, if like, okay, it's not a great inflation hedge and right now it's not really cut out for censorship-resistant payments or store a value, like what exactly is the case for it? 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 the tools that were put together were pretty new, and they were very analog. And so it just evidenced 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 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 going to build something, you might as well do it in a tokenized way and get your early liquidity. You know, 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 laws

consideration. You just 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 I'm, you know, I want to 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. has gotten built over the last, 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

have been pretty critical of sort of like VCs in the broader crypto space for having spent the last several years back in Ponzi's games. 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 or Ponzi's basically or things that are Ponzi adjacent or have, I mean, people talk on ironically about. Ponzi-nomics. And 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 will help you with their tokenomics. It's just basically like if you look at the actual mechanics, it's 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 around Terra, a lot of the firms backing Terra, like they actually, you know, some of them got out and some of them didn't. Some of them round-trip 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. Well, there was a certain game that was really popular in the Philippines. And last year, it was like, oh, this is providing an economic lifeline. And we had the founder, I'm talking about Axi on. and it was like, yeah, to buy some NFTs, and then they fought, and then you got more. And still, like, the question was like, yeah, but is the game fun to play?

Is there anything 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, like, you'll play if you're making money, but the game isn't that great. Yeah, it's remarkable. It's really astonishing. And I, you know, I'm not wanting to pile on specific projects aggressively or VCs or anything like that. But AXE was, I 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 AXE or Stepin or Terra, things that ended up having these like genuinely Ponzi-like dynamics. Axi was particularly bad. Because it. 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 token sold off, the game stopped being worth playing. There were some really perverse dynamics in the Axi 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 sharecropping, basically, where the, you know, the locals playing the game earning a couple bucks a day didn't even own the fruits of their lives. labor, basically. They were literally toiling on behalf of Westerners that had the capital to buy the assets to play the game. And the worst part is that, you know, ultimately some of the, some of these like Filipinos, et cetera, like got fully bought in. They were persuaded like,

oh, 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, you've got like Western, it's all very perverse in my view. You have like Western VCs, like waxing lyrical about like the amazing benefits that, you know, Axi is bringing to like 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 like a Ponzi-like system that was like pretty, obviously going to fail because like nobody played the game for any reason other than like 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. 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 Ponziomics.

Like, where are those? Yeah. 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? 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, have heard it a 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 like I call it a revengeist. I don't know if that's how you pronounce 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 Web 3, 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 Ballagy calls them 100x improvement over Fiat, you know, send an international bank wire and then send a stable coin. coin and you'll know what I mean. I think there's clear product market fit there. They are a way to 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 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 the tokens are or should be equity most of the time in a 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, you know, like just some, you know, pay a user.

in equity for contributing some data or something. That would be very challenging to do probably with traditional structures and tools. If you look at yield farming, don't like the name, but that's basically contributing, basically protocol equity to market makers that are providing liquidity. You can imagine a world where Uber is paying its drivers in Uber stock maybe 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 de facto 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 defy protocols and see the cash flow is rolling in in real time. I think that's a big enhancement, a big improvement over. your quarterly disclosures, right? And so, you know, real-time 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 win, 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. 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 ethid identities. Oh, I forget. Yeah, I still haven't really claimed by it. Yeah. 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. Oh, maybe Mike Demeret at Rainwell. I think he, I think he preemptively squatted on our dot Eith so that you

give them to us. So then on the day that we became. It was so that the toxic Bitcoin maximalists wouldn't take them and do something nefarious with them. But anyway, um, we've experimented with that. And I guess my question is, like, 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? The justification would be that you can actually re-architect 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 Web 3 investment. But yeah, I mean, like, I think if you wanted to tell yourself the exciting story, you would say, look, the fan 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. And users kind of stuck in those systems. And they can't, you know, effectively, like, 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. Like 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 Web 3 story is like, we're going to do a kind of a digital form of enclosure where we're going to, you know, put up a fence and you're actually going to be able to have your 40 acres in 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. While it 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 like 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 silos where you're very exposed to what a small handful of people in Silicon Valley think about the world and the way they want to 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. 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 would be worth more.

And you made the point as like, 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. That my understanding is in recent years, many VCs have a, In fact, 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 the idea is that coin goes up in value, and so therefore the equity in 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 like an incentive to like pump the network or pump the coins to the public. And these are like on publicly, 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? 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. And when you're making any equity investment, the most common model is the save for the token warrant.

So even if there is no token, it just gives it 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 going to 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 there's,

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 or smart contracts that the team has built, right? 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 going to go to the token route not to have the corporate equity, you know, kind of fighting against the token holders. And we're going to find there'll be a ton of debates here, especially with some of these larger crypto companies that have both a token and they have equity,

what we're going to find is there will be 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 want to be a token holder 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 yeah it's 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 kind of it's that's the thing you want ownership over the uniswop token has an 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 going to 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 are, or on-chain business models, 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, Micah, has some interesting templates that maybe U.S. regulators could follow. But I think that would be the best outcome, because otherwise it's just

going to be this nasty, drawn out all these sequence of battles between token holders and shareholders. basically the shareholders are going to win and anybody that bought the token thinking that they were getting a claim on the cash flows occurring to the protocol or whatever, they're going to be mistaken in that. So I want to 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 screenshot at 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, like personally insulting. So I guess my question is like, Nick, when it comes to Bitcoin maximalism, like 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 like if this is about creating a network, leaving out half the population seems like a mistake. 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 want to call it. And yeah, the hardliner Bitcoin maxi types are basically homogenous of, 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. Any movement that makes at its heart like certain conspiracy theories about finance or central bankers, like, you know, just a couple of degrees away.

We all know where that goes. Yeah. And like I try to be pretty nice online. I've sort of maybe patchy track record there. Tracy, I think I probably actually, you probably look along the replies. You'll see me. Yes, you have, you have piled on to me. I will just point that out.

Yeah. I do think like. I totally acknowledge that. I don't think I ever said anything too untoward. But yeah, I look, this is why I think it's important to draw a line with, you know, and disassociate myself from, from this community. Not of Bitcoiners. I just think you don't, 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 Kyrgman. I mean, frankly, he probably deserves some of the ire. But, you know, it doesn't have to be, it doesn't have to be this nasty, nasty movement based on ad hominemes. You're not defending Bitcoin from anything. You're just making it look incredibly insular and resistant to outsiders. Now, I think Bitcoin is going to 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 Toxie 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 hardline 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. Nick, I remember years ago, I don't know, maybe like 2019 or something, years ago on TV, I asked you if the having was a 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 Nick, it was great to have you on Odd Lod's a conversation I've wanted to make happen for a long time. So really appreciate you.

Really appreciate you coming on. Thanks, Joe. Thanks, Tracy. Thanks, Nick. I found this conversation very cathartic. The good things about the bear market. All right. Thanks, Nick.

I like that conversation. And, you know, I've always, even during his more maxi period, maxi, I've always thought Nick 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. Well, so I question, here's what I think. 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 Nick'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 going to treat it as something like gold, which to me is much more of a cultural thing, that's about gold's position in society, then you cannot divorce it. from the way people feel about it. This is really well put. I actually, I completely agree. Like, on some level, it's like, why does a Bitcoin have value? Yeah. So it's like on Ethereum or on these other chains, you can actually sort of like explain pretty crisply why it has value.

Like 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. There's no... But why is a Bitcoin, why is it worth something and not nothing? It's 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, like some of the early mythology was like gold doesn't tarnish. Right. And so the ancient said like, oh, this must be a divine metal because it's the unlike everything else that exists on earth, gold doesn't have this sort of, it doesn't degrade over time, it's divine, and something like that. So I do feel like even if you, even just sort of like a reincarnated gold, how do you, how do you separate it from the culture and religion? Right. So I agree. I agree. Like it's hard to know what Bitcoin is if there's no culture. Right. And even today

we talk about, you know, gold bugs, which obviously connotes like a certain point. portion of society in a certain belief system. And because of that, gold still has like a role in traditional financial assets. I also thought Nick's point about like sort of the the Bitcoin laser eyes as kind of, I don't know, maybe LARPing is the right word or stolen valor. We're like there were at one point these sort of like big conflicts with the history of Bitcoin and people are 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 or after a Jamie Diamond is after us, whatever. It's like, no, they probably like, they don't, no, they're not. But that sort of like, they, that they have to maintain that like permanent state of siege mentality to keep. Right. I mean, I would be happy if we could just go, I don't want to 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 the way you look. Well, now we can say that to them. We can call it, say, have fun staying poor. Yeah, now that Bitcoin has lost so much money. This is a cathartic episode. All right. Shall we leave it there?

Let's leave it there. This has been another episode of the Oblots podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allo. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. You can follow our guest, Nick Carter on Twitter. He's Nick double underscore Carter. You can follow our producer, Carmen Rodriguez, at Carmen Armin. And check out all of the Bloomberg Podcasts under the handle at Podcasts. Thanks for listening.