Setting the record straight

Or: a eulogy for bitcoin maximalism

Nic Carter
15 min readJun 29, 2022

So yesterday I was the subject of controversy on Bitcoin Twitter over my firm Castle Island’s investment in Dynamic, a wallet-based sign on company. This was quite surprising to me. I figured that people knew what it was that I did for a living. There is nothing on the face of it that’s particularly objectionable about this investment. And I’m not hawking a token. I’m announcing that we participated in a private VC round of funding.

I’m going to clear things up here because most of the people piling on were deeply confused about me, my firm, and what I do. And yes, I’m including some choice words for the self-described Bitcoin maximalists. You asked for it. You got it.

I’m going to say this up front. If any of the Bitcoiners attacking me had invested even 30 seconds in looking at my firm’s website, any of the papers I’ve written, my personal website, or any of the content I’ve created over the last 5 years, let alone the 330 episodes of my podcast, they’d know that I don’t exclusively focus on Bitcoin stuff. In my content, I focus _a lot_ on Bitcoin, but even then, not exclusively so. So everyone piling on — every single one — is contrasting the real me, with a fictional, contrived version of me that they made up in their heads. I am not a “Bitcoin maximalist”, I have never been one, I will never be one. So you can abandon that delusion right now.

As I said on Twitter, I don’t need these people’s approval. My business does not depend on it: I’ve never met a serious entrepreneur that imposes a ‘toximaxi’ purity test on VCs. (And if I did, I’d happily direct them to a Bitcoin-focused VC). I’ve never met an LP that does either. Historically, those LPs that cared about my views have actually worried that I am too Bitcoin-focused. I don’t monetize any of my content (beyond a couple ads for the podcast here and there) so I’m not reliant on an audience for anything. I am not beholden to the Bitcoin maxi tribe in any way. I don’t owe them anything. (And I don’t care about being invited to bitcoin-only conferences or going to tedious beefsteak dinners.)

People are confused because they wrongly believed I was some kind of full time professional bitcoiner, and more than that, a bitcoin maximalist. I’m not. I’ve never described myself that way. I always hated the term. Find an instance where I referred to myself that way.

As you should know by now, I’m not Bitcoin’s self-appointed secretary of energy or head of communications. I am a venture capitalist; I raise money from private individuals and institutions and I invest in startups. I do bitcoin content on the side, because I enjoy it and I feel it’s important to do what I can to educate. It’s purely mission driven. My Bitcoin content doesn’t have that much to do with my firm. Mostly what my firm invests in is early-stage equity in financial infrastructure startups. Most of these companies build on many blockchains.

On Dynamic

Dynamic doesn’t have a token. They have a traditional business model. There’s no ‘shitcoin’ here. Everyone using this line of attack is 100% wrong.

To answer some of the more inane critiques: we, Castle Island, are not “partnering” with a16z. We are coinvesting in a syndicate. This implies about the same level of “partnership” that you and Warren Buffett maintain when you both own Apple stock. VCs coinvesting in a round do not necessarily even talk to each other.

I think Dynamic has the potential to be a great company that exemplifies some of the best parts of the idea that people refer to as web3. Namely, solving log-ins using the built-in public key system that hundreds of millions already use thanks to blockchains. This is an important thing to do; passwords are collapsing back down to public keys anyway. Wallet based sign-on is the closest thing we have to a ‘killer app’ in the web3 space. It really is a huge improvement over the default.

And they aren’t a “surveillance technology” company either. Wallet-based sign-on is meant to get away from the highly centralized, web2 based sign on where Apple, Google or Microsoft controls your identity and data. This is a good idea, and obviously empowers end users relative to the web2 model overall. In a wallet based authentication world, users can control their identities based on some cryptographic info they themselves custody. Certain companies that need to layer on risk scoring or compliance will have to use various compliance software companies in conjunction with the product — that’s how everything works in the real world.

We invest in centralized financial companies that help people use Bitcoin and other digital assets — they all use chainalysis or some other compliance software like that. Does that make those companies or their backers evil? Of course not. Living life as a purist is great but if you actually build anything you’ll find you have to make compromises.

About me

From the very start, I’ve been a pluralist when it comes to blockchains. Today, the only ‘base layer’ asset that I like from an investment perspective is Bitcoin, because I think it’s monetary and governance qualities are supreme, but that doesn’t mean I haven’t been interested in other trends in the blockchain space.

The very first thing I ever did publicly in the crypto space was write my master’s thesis, and *gasp* it was a survey of the top 50 blockchains/protocols from a governance perspective. That was a super informative experience because I learned how weak a lot of these things were. (I noticed for instance, that Bitconnect and Veritaseum were probably scams.) It reinforced my pro-Bitcoin, anti-most everything else slant.

My first project in the crypto space was a student project called Coin Metrics. The objective of Coin Metrics was to compare and contrast the usage of different blockchains against each other. We started by running a few nodes and analyzing the data to try and assess relative valuation. Today, I’m proud to say CM is one of the largest institutional-focused crypto data companies in the world, employing 90+ people, and has produced some incredible research and made huge amounts of sophisticated blockchain data available for free to anyone. CM helps many financial institution clients understand and build products in the crypto industry. CM covers Bitcoin, other PoW coins, Ethereum, and countless other blockchains. They run full dozens of archival nodes across many many chains. So if it’s somehow surprising to you that I am not doing ‘bitcoin-only stuff’, on your conscience be it. Literally from the start I’ve been interested in understanding the space as a whole.

The papers I’ve written also demonstrate my range of interests. Over the years, I’ve written about cryptoasset valuation, cryptodollars/stablecoins, Proof of Reserve, risks embedded in DeFi, Bitcoin energy usage, and more critical work on DeFi. I’m not Bitcoin-only intellectually, as an investor, or as a founder. It’s a big wide world out there and I’m interested in a lot of it — including some non-crypto stuff too! So if you are apparently shocked that my fund invests outside of Bitcoin, that’s on you. You haven’t paid the slightest bit of attention.

On Castle Island

I am one of four general partners at Castle Island. I cofounded the firm with Matt Walsh. I don’t unilaterally make decisions. Decisions are made based on a partnership consensus. We’ve been in business since early 2018 and published all out portfolio positions on our website since the start. Before that I worked on a fund at Fidelity that took both Bitcoin and non-Bitcoin positions as well as making venture investments.

We invest primarily in equity for early stage startups. When I talk about these startups, it’s not because I am paid to do so — quite the contrary, it’s because we have made an investment and by talking about it, we can increase the odds that the startup gets traction, raises more capital, and succeeds.

When Matt and I first raised LP capital in early 2018, it wasn’t on the strength of any twitter clout I had at the time. I was pretty unknown. Even after raising 3 funds, virtually none of our LP interest has come through twitter. Sure, going on CNBC and Bloomberg probably helped on the margin, but our LPs came to us through our track record, our demonstrated ability to execute, portfolio outcomes, founder/investor references, and our network. The world is much, much bigger than twitter.

Castle Island invests in a bunch of stuff. We invest in Bitcoin-focused companies like River, Casa, Hoseki, and lightning companies like Mash (some others unannounced). I’m proud to support these great founders and businesses, and I hope and expect to do more there. We also invest in general crypto-financial infrastructure like exchanges, custodians, lenders, key managers, data and analytics, and brokerages. Most of those businesses straddle many blockchains, because that’s what their clients want.

The truth is, there aren’t enough high quality Bitcoin startups to deploy $100m into in a year (our latest fund is $250m). That’s just a fact. I can assure you, as one of the only Bitcoin-focused VCs out there (we were active before any of the Bitcoin-only VC funds emerged), I am an authority on this question. Also, there’s interesting, and useful things to support, that aren’t Bitcoin or Bitcoin startups. I can’t justify charging fees to put LP funds in Bitcoin. That would be insane. There’s other interesting stuff in the startup world — financial infra, stablecoins, and a few other themes I’ll mention below.

We also make some investments in NFT infrastructure. NFTs began on Bitcoin, as some of you may know. They’re not a “pro Bitcoin” or “anti Bitcoin” concept, any more than a theater ticket or a vinyl record is pro or anti Bitcoin. They are just completely distinct. I think NFTs are interesting, and likely to stick around (even if some of the hyped collections are not likely to retain their value) and I’ve written about them before.

We also, more occasionally, invest in ‘web3’ stuff. That is a bit harder to define, and I’ve been critical of the term before, but the core idea is that there are certain types of internet infrastructure that can be rebuilt in a more flat topology, rather than having 1 or 2 nodes in Silicon Valley control everything. This doesn’t mean “putting everything on the blockchain.” In fact, it requires being parsimonious — putting as little on chain as possible. So for a web3 social network, you might put the social graph — the relationship between users — on chain, but not the content itself. That would give people the right to enter and exit, and take their social graph with them, disempowering any would-be bureaucrats creating onerous moderation rules. It changes the social network from the full stack to a mere interface. The big wins here so far are decentralized storage, passwordless logon and wallet-based credentials, and decentralized namespaces (for the purists: Satoshi talked about the idea of BitDNS which inspired Namecoin). This is an interesting space, but there’s a lot of fluff here, and not a ton of realistic stuff being built. Dynamic is a good example of something real, something useful, and something that is easily doable with current infrastructure.

To be clear: when I talk about these companies, it’s not because I’m trying to get my followers to “buy into” these businesses. That’s not how this works. This is early stage private equity: the only people buying equity in the startups are acquirers or other venture or private equity firms investing in subsequent rounds. I’m not selling you anything. You may not like what I invest in: that’s fine. Do what I did: raise your own fund and make a difference that way. I’ll even help you get started as I have done with others.

And if you as a Bitcoiner really believe that equity is a scam, you can’t be helped. I’m going to keep funding companies and pushing the world in a direction that I believe in.

On Bitcoin ‘Maximalism’

I’m not owed any deference, or anything at all, because of my prior work on Bitcoin. What I do think it does, unquestionably, is establish my pro-bitcoin credentials. If you think I’m a bitcoin grifter tediously building up a reputation in Bitcoin land over five years through countless articles, appearances, podcasts, and tens of millions of capital deployed, all to suddenly turn on Bitcoin — that’s the most long term and expensive grift of all time. Also: I don’t monetize my audience. You all get my content for free all of the time. I earn a living through my own fund, and I’m accountable to my LPs alone. This ‘grift’ seems to bear a disturbingly close resemblance to ‘hard work’.

I’ve never toed the line on standard Bitcoin ideology. I’ve never been intimidated by orthodoxy. For instance, back when s2f hype was at its fullest, I criticized the model with a detailed article. The hardcore maxi crew almost universally worshiped the model. It’s obvious now that they were blinded by ideology. I knew what would happen: a lot of newbies would be duped by the fantastic promises of the model, would buy in, and would become disillusioned when it failed. By being realistic, I was trying to stave off this outcome. Now that the model has obviously failed (as it was always going to), these people are upset, and lashing out. Maybe reserve your ire for the charlatans that sold you a fake model, rather than the people trying to course correct you back in the day.

I was also an early voice supporting the view that stablecoins and Bitcoin were synergistic, and that stables didn’t really pose a threat to Bitcoin. Now this is a popular view among Bitcoiners. It is evidence that Bitcoin ideology isn’t really fixed.

I also don’t support the idea that’s pervasive in the Bitcoin community, a la Rothbard, that all banks should be full reserve, and that fractional reserve is fraud. You just need to read some Selgin to know that this is a stupid idea.

I also don’t think all “altcoins” are just going to vanish. That seems absurd. I don’t think other blockchains are useless. Just look at the data. There’s over $100b of stablecoins on other blockchains. They are objectively useful. They are used in real world transactions more than Bitcoin is. To deny this is to deny reality. The fact that people pay fees to use these other blockchains vastly exceeding (by an order of magnitude, in the case of Ethereum) the fees paid to use Bitcoin indicates that there’s a material, markets-based demand for these alternative blockspaces. Bitcoin maximalists that deny this are denying the markets and evidence-based approach that they claim to venerate.

In short, I depart from conventional wisdom that pervades the Bitcoin community. I’m not entirely sure what the contemporary definition of maximalist is, but if it means thinking it’s immoral to invest in any non-Bitcoin asset, immoral to invest in startups building on other blockchains, and believing that everything will inevitably collapse back down to Bitcoin, I’m definitely not that.

On Bitcoin-only companies

We invest in plenty of Bitcoin-only or Bitcoin-focused companies. The good news for founders building Bitcoin firms is that there are a few Bitcoin-focused venture firms out there. If you want your lead to be 100% explicitly Bitcoin aligned, you should consider them. A few names: Stillmark, TVP, and Hivemind, I know the GPs of these firms well, and I can even introduce you if you like. We don’t invest exclusively in Bitcoin-only companies. If that’s a deal breaker for you, no problem! Hit up one of the other VC funds.

Truth is, the vast majority of VC-backed Bitcoin-focused companies have taken capital from VC firms that aren’t just Bitcoin-only. You can’t really afford to be _that_ picky when you are raising a round. Of course you can prefer that your investors are aligned. We certainly are. But if you want to raise VC, you at some point will run into generalist funds. For this reason, I’ve never encountered a serious founder in the Bitcoin space wanting to raise VC that was completely adamant about raising only from lifelong, hardcore Bitcoiners. Most actual founders and builders are realistic, pragmatic people.

On the twitter mob

Getting piled on absolutely sucks. Especially when it’s by industry colleagues you’ve known for 5+ years and have always acted pleasantly towards you. I’ll survive. But I am really most disappointed by the people whom I’ve known for a long while turning on me for a drop of clout. I don’t need to name names — you know who you are. I’ve done plenty of their shows and podcasts and had lunch with them, spoken at their conferences. I suppose the self-righteous rush of trampling on someone who strays from orthodoxy is just too appealing.

I’ve seen some honestly disgusting attacks; I can handle a lot, but attacking my family is beyond the pale. Some of you are targeting my dad, because he works at the World Bank. I don’t see what that has to do with anything, but to be clear: he likes Bitcoin. Thanks to my relative proximity to the Bank, I’ve had the opportunity to share my views with them on Bitcoin, and hopefully win hearts and minds. The Bank has written some good stuff on the topic. Of the two Bretton Woods orgs, the Bank is definitely more open to Bitcoin. The IMF seems to be openly hostile. But regardless, what my dad does for a living is completely immaterial. If you have a problem with what I do, your quarrel is with me.

Most of the people attacking me are acting confused about non-Bitcoin investments because they mistakenly thought I was a toximaxi and know nothing of my work, views, podcast, or fund. Maybe they did think I was a steak-eating toximaxi who believes every financial asset other than Bitcoin was a scam. I can see how you would get whiplash from that. Truth is, that’s never been the case. I’ve never been a maximalist, I hate the term, I’ve never described myself that way, and I’ve _always_ been open-minded. The same open-mindedness that brought me to Bitcoin a decade ago has served me well, and I’m not abandoning it any time soon.

Where to go from here

It’s clear that there’s an awful sickness pervading the Bitcoin space. Most Bitcoiners are normal, good people. For the vast majority of them, there’s no lifestyle associated with owning Bitcoin, as it should be. But there’s a subset of people — a small, flailing, shrinking group — who are mostly new to Bitcoin, made Bitcoin their entire personality, and became completely emotionally invested in it. They are spoonfed on a diet of the same half dozen thinkers, and suffer from an ideological monoculture. They cannot extricate themselves from their lifestyle/investment, and so when anyone in the tribe or adjacent says anything that remotely contradicts their established dogma (which is inconsistent, morally confused, and indefensible anyway), they go on the attack. Now that they’ve all lost money, and treasured ideas like “we never draw down below previous cycle highs” and the halving/stock to flow are discredited, they feel deep within them the intellectual poverty of their thesis. So they lash out.

Everyone in the Bitcoin and crypto industry knows what I’m talking about. The moral basis of these people is cartoonish; it’s something that might appeal to a toddler. It’s a dreadful binary: every financial asset other than Bitcoin is a scam; every blockchain other than Bitcoin is a scam, and doomed to fail (even if they are objectively thriving, and charging more for blockspace than Bitcoin); if anything interesting is built anywhere other than Bitcoin, it will inevitably return to Bitcoin (even if this has been false for the last 10 years). Investing your time or effort anywhere other than Bitcoin is misallocation, malinvestment, grifting, or a scam. I’m cringing even typing these words out; I’m genuinely embarrassed to be associated with these people.

Ultimately, Bitcoin is not a lifestyle. Bitcoin is not a steak dinner. Bitcoin is not memes and it’s not laser eyes. Bitcoin is a profoundly useful tool. It is impregnated with some ideology, but it is not the ideology that these people profess. The core Bitcoin values have to do with property rights, individual human dignity, self-determination, privacy, autonomy, and monetary predictability. Bitcoin attracts me for that reason, and I’ll keep supporting it with all the resources available to me regardless of how anyone describes me. I am not being “sacrificed” and I am not “ragequitting”. I’ve been here much longer than virtually all of my critics and I am certain I will outlast them. I can also pretty much guarantee you I will continue to be far more impactful than them.

Their ideology is extremely brittle, and grows more strained by the day. The testable tenets of Bitcoin maximalism as I interpret it are getting bleaker all the time. The S2F model is discredited. The ‘halving’ is moronic. The sidechain thesis did not happen. Liquid did not succeed. Lightning is interesting, but not everything. Bitcoin is not the reserve currency of anything, not even the crypto industry.

Elsewhere: smart contract stuff is interesting, and worthwhile. Rollups and other interesting L2 models are gathering steam. DeFi is worthwhile, and getting more sophisticated, with the rise of undercollateralized lenders. NFTs aren’t going away and are getting more creative and useful. Non-monetary applications, like decentralized social graphs, or decentralized domain systems, are gaining traction, and genuinely matter. None of that is getting built on Bitcoin, right now. The critical mass of developers, liquidity, and dev tooling is elsewhere. Ethereum isn’t going to vanish, no matter how hard the maxis pray to Gensler. DeFi liquidity isn’t going to dry up. What’s actually likely to happen is Bitcoin the network and the asset will be decoupled, with Bitcoin settling on other transactional spaces. That’s how Bitcoin and DeFi will be harmonized. The maximalists coming at me lack the perspective and depth to even consider something like this. They are intellectually stunted.

I am not pessimistic on Bitcoin. I’m just interested in the world as it actually is, instead of the world of utopias and pleasant delusions. My case for Bitcoin has always been more robust and resistant to shocks than the case these maxis make, because theirs relies on fantasies like the stock to flow, the inevitable collapse of all altcoins, or hyper bitcoinization. I’d be upset if I believed in those things too.

I’ve always spurned externally-imposed labels and now is no different. Call me whatever you want. You can keep your laser eyes and beefsteak dinners. I’ll be here, doing my thing.