Investor Highlight: Matthew Walsh, Castle Island Ventures
“I look at blockchain technology as a generational opportunity to participate in the emergence of internet protocols that enable value transfer without intermediaries,” said Matthew Walsh, Partner at Castle Island Ventures. “You can see similarities to the internet but this technology has a more globally disruptive potential. As an entrepreneur and investor in this area, I believe there will be massive new businesses built on this technology and we wanted to be in on the ground floor.”
Castle Island Ventures is a venture capital firm focused exclusively on public blockchains. They invest in infrastructure and application companies that enable these transformative protocols to power services for the masses. We sat down with Matt Walsh to discuss the different perspectives or approaches to blockchain technology, what he reads to better understand digital assets and how he is aligned with ErisX to improve this nascent space (Castle Island Ventures is an investor in ErisX.)
Two Lenses
“I read [Satoshi Nakamoto’s] white paper and didn’t get it right away — some people will say that they read it and it instantly made sense to them, but truthfully not for me,” said Matt. “I had to read up on the history of money, build a better understanding of public/private key cryptography, and understand the roots of the cypherpunk movement before I was able to see the space in its entirety.”
Matt believes there are two lenses through which a person can see the potential of blockchain technology. The first, he said, is the “Money Thesis.”
“People in this camp believe that individuals should have the option to control their own money. Proxies for demand for this market opportunity can be found in the size of the gold, offshore banking, real estate and fine art markets,” said Matt. “We see Bitcoin as a non-sovereign store of value. Why should governments have a monopoly over money?”
Matt believes the second viewpoint, “The Tech Thesis” focuses on the emergence of decentralized applications, and more broadly on an internet that is not controlled by data monopolies like Google and Facebook.
“We will see the emergence of decentralized applications that will enable new business models that are not reliant on centralized platforms that own user data,” he said. “There is tremendous innovation that would be possible if data monopolies had a diminished role in the way that we engage with the internet. Businesses could uniquely position themselves in a way that enables people to freely own their proprietary data and permission it as they see fit.”
A New Technological World
While attending Duke University’s Fuqua School of Business where he graduated with a Masters in Business Administration, Matt says he fell down the proverbial rabbit hole. He credits two books in helping him better understand the digital asset landscape over the past few years.
“Understanding Bitcoin: Cryptography, Engineering and Economics by Pedro Franco was a really good technical overview,” said Matt. “The other book, The Sovereign Individual: Mastering the Transition to the Information Age [by James Dale Davidson and William Rees-Mogg] was written before the invention of Bitcoin. However, it highlights the fact that Bitcoin forces you to question your assumptions. The book foreshadowed Bitcoin in some ways and gave me a deeper understanding of the social dynamics that are driving the adoption of this technology.”
Intrigued by blockchain, Matt took a job with Fidelity Investments, looking at new technologies in 2014.
“We were conducting a scenario planning exercise, and had a list of disruptive technologies and bitcoin was on it…this was before the advent of other cryptocurrencies,” he said. “We were envisioning a new world where these technologies enabled a peer to peer transfer of assets in a frictionless manner, and were tasked with looking at what the company would need to do in order to thrive in this new world.”
After four years of working on the firm’s digital asset/ blockchain efforts, Matt set out to capitalize on what he calls a ‘generational opportunity.’ He launched Castle Island Ventures with his partner Nic Carter in 2018.
Public blockchains are open-source and permissionless systems that do not include third party intervention. Private blockchains, on the other hand, are controlled by third parties.
“You don’t need anyone to give you permission to read or write to the database in a public blockchain,” said Matt. “Public blockchains are where generational companies building exceptional user experiences are going to be built and where developers are spending their time.”
Improving the Digital Asset Space
Castle Island Ventures is also investing in firms that address the challenge of attracting institutional interest to the digital asset space.
“Digital assets will be financialized in new ways but three things are holding the industry back,” he said. “The first is key management in terms of institutional custody as well as in the ability for individuals to hold their own cryptographically secured assets.”
Matt referred to advancements in this space such as Fidelity launching a custody solution and Casa, another Castle Island Venture portfolio company, which provides a personal key system enabling individuals to custody their own coins.
The second impediment he sees is the state of market infrastructure, and he believes that ErisX is addressing this obstacle.
“Exchanges and trading technologies are a market infrastructure category that has been underdeveloped,” he said. “You hear about this in terms of hacks and spoofing and fake volume. No companies associated with these types of narratives would attract the participation of large institutional customers, but this is where ErisX comes in and offers a platform that is built to support the needs of the institutional client. We are excited about that.”
The third impediment Matt believes is holding back institutional investors from the digital asset space is institutional grade data.
“We are actively investing in blockchain market data and network data firms like Coin Metrics and Flipside Crypto, and we believe that this category is a critical enabler for institutional adoption of digital assets,” said Matt.
While educational resources and expert voices may help bring the individual investors in to the digital asset space, Matt believes addressing challenges around key management, market infrastructure as well as institutional-grade data will help with market maturation and institutional interest. In conclusion, Matt compared participation in the crypto markets to Internet users back in 1993.
“Once we develop the infrastructure around digital assets, everyone will have the tools to access this market,” he said. “Remember in 1993 when using the Internet was a hassle for most people but once the browser came along, it became easier. We are eliminating those same barriers to entry in the crypto space now. The landscape will look very different five years from now.”
