Matt Ahlborg of UsefulTulips.org joins me on the show to talk about bitcoin use in South America, and Africa. Matt Ahlborg is a researcher and data scientist looking into the use of Bitcoin around the world.
Time zone: Monday 18th May 3pm PT 6pm ET, Tuesday 19th 8am AEST. It will be broadcast on YouTube Live at the link below, and on my twitter periscope @stephanlivera.
Matt Ahlborg links:
- Twitter: @MattAhlborg
- Website: usefultulips.org
- Article: Latin American Bitcoin Trading Follows the Heartbeat of Venezuela
- Article: Paxful is the Most Important Bitcoin Company You Aren’t Paying Attention to
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Stephan Livera links:
- Show notes and website
- Follow me on twitter @stephanlivera
- Subscribe to the podcast
- Patreon @stephanlivera
Podcast Transcript:
Stephan Livera:
All right, so let me just bring in my guests now. Matt is a data scientist. He is doing some incredible work. I had to have a chat with him and talk a little bit about what he’s doing. So welcome to the show, Matt.
Matt Ahlborg:
Thank you very much. Good to be here.
Stephan Livera:
Awesome, man. So look, Matt, I’ve had a chance to look through some of your work. I’ve also listened to your interview with Tales from the Crypt with Marty. So that was also a great interview. So perhaps if you could just start with telling us a little bit about yourself what the work you’re doing as a data scientist.
Matt Ahlborg:
Sure. Yeah. So I as you said, I’m a data scientist. I have somewhat of a background in computer science. I got about halfway through a computer science degree. It wasn’t, I felt it wasn’t going fast enough for me. So I dropped out of the program and I decided to attend a data science three month boot camp in New York city. It worked out really well for me. When I went into that boot camp. I actually brought in the Local Bitcoins dataset and the Paxful dataset. Those were my basic experimental data sets that I was using from project to project in the bootcamp. And so yeah, I became a data scientist because I was so interested in how Bitcoin is being used and I wanted to learn how to jump into these data sets that I knew that were out there and start to analyze them in a way that would begin to tell stories about how they were actually being used. So, yep.
Stephan Livera:
Great. And so how did you first come across some of these stories?
Matt Ahlborg:
Yeah, so basically I’ve been watching Local Bitcoins and Paxful for several years now. They are very interesting exchanges to me because the vast majority of their users come from countries which generally speaking do not have a lot of, they tend to come from a certain class of countries which have particular socioeconomic problems and political problems and things of that nature. They generally don’t have standard banking connections to crypto exchanges in these countries. So in the United States, for example, Coinbase is allowed to directly connect to your bank account. But in these countries, they don’t necessarily allow those connections all the time. So yes, I was very interested in these and these data sets that I’ve been following them for some time. To me they represent the ultimate test or the best test of the value proposition of Bitcoin.
Matt Ahlborg:
And a lot of people in marketing for Bitcoin try to say that going to bank the unbanked and it’s gonna help the little guy. And when you look at the data on these exchanges that it will actually tell you if that is actually taking place or not. So yeah. In addition to the data on the exchanges, I also talk to the traders themselves. So if you go to these websites, you can see the advertisements to trade in different currencies and countries around the world. And inside of these advertisements, the publisher of the advertisement oftentimes puts their phone number in the ad. And so I began kind of texting and opening up communications with these various traders and asking them what people were buying and selling Bitcoin for in those countries. And when I started doing that, I started getting some really amazing you know, gold mines of information from people where just the Western world or Crypto Twitter or whatever you want to call it, just really had no idea that this stuff was even happening. And so, yeah.
Stephan Livera:
Can you give us some indication on the size of this in the developing world? Do you have any kind of rough figures that you could give?
Matt Ahlborg:
Sure. So I think so in terms of volume, like I said, I mostly watch Local Bitcoins and Paxful. And in 2019, I believe Local Bitcoins did approximately $3 billion worth of Bitcoin trading. And I think Paxful was at about a little over a 1 billion. I think Paxful now has about three and a half million users and Local Bitcoins, I’m not sure the exact number, but I believe it’s a little bit more than Paxful, maybe significantly more than Paxful but I would think less than 10 million.
Stephan Livera:
Awesome. And so I think the stories are really interesting because it sounds to me like in the Western world, in the developed world, it’s sort of, the message might be seen more like, Oh, it’s all about HODLing and people are speculating on future adoption. And they’re not necessarily using it for day to day commerce or any sort of some of these kinds of voucher get arounds. Whereas that is a different story in the developing world, correct?
Matt Ahlborg:
Yes, absolutely. So one of the largest points that I have tried to lay out in my articles is the fact that Bitcoin in the developing world there is of course a percentage or a segment of that that is related to speculation. But from what I found talking to traders the chief use case of Bitcoin in these countries is. It is utility use. It’s people who use Bitcoin because the traditional financial system or traditional payment rails with the traditional banking system is not serving them. And so that is oftentimes the result of just lack of modernization of current financial infrastructures. But in other times it is a result of explicit financial oppression where laws are set in place just to restrict the financial freedom of the citizens of these countries. And so they’re turning to Bitcoin to get around these laws essentially. I mean, to be very frank, they are oftentimes breaking a law of their own country in the pursuit of being their own individual and you know, being in control of their own economic destiny. So, yeah.
Stephan Livera:
And as I read the articles, I see probably two main stories one is this kind of diaspora story where let’s say people have left a country and they want to work overseas and they want to send money back home, and then it’s about, okay, how do I use Bitcoin to achieve that? And then the other story is sort of like the using let’s say, gift cards and vouchers sort of story. So would you say that’s kind of like a good summary then, or at least some of the stories that you have been researching?
Matt Ahlborg:
Yes. So I would say the gift cards are possibly also a part of the remittance story that has gift cards can be used for remittance. But it’s a combination of I would say the two primary use cases happening in these developing countries is number one using Bitcoin to transfer value into a country. And that is where people, this diaspora, these migrants who have for example left Venezuela because the traditional system is not serving their needs, they are using Bitcoin to transfer value into Venezuela. And then their families are selling those Bitcoins for actual local currency there. And the second use case that I see is capital flight. And that is moving value out of a country or beyond the reach of the local government. And these things are happening. There are many different flavors of moving value into a country and moving value out of the country. Many different reasons for that. But those are the two primary threads that I’ve noticed.
Stephan Livera:
Okay. So look, let me just for the audio listeners I’m just going to put up on screen share right now. So if you go to usefultulips.org, which is Matt’s website, you can see some of the different articles. So I think it might be interesting as well just to kind of talk through how you you figured out that it ebbs and flows with what’s going on in Venezuela. So can you tell us a little bit about that aspect of it, Matt?
Matt Ahlborg:
Sure. Yeah. So the recent article I wrote on the situation in Venezuela I looked at these very wide sweeping blackouts, which occurred in March of 2019. They also had another massive blackout in late July. The one I focused on was in March because I felt like it caught the country most by surprise. And it would the event in March exposed activity to the greatest degree. So essentially what happened is almost the entire country of Venezuela lost power for several days at a time. They have a single hydroelectric dam, which feeds the majority of the country’s power and there was a malfunction related to that dam and it caused the nationwide blackout. During that time I was looking at Local Bitcoins data. And I noticed that of course you, you would see a drop in transactions during that time. Yeah, if we are guiding the viewers through the article here, I would say if you scroll down to the one more. Yeah. So that final one there yeah, so go up one chart.
Matt Ahlborg:
So right here I’ll explain this chart here. So the Y axis is the number of transactions per hour. The red hash line represents the number of Local Bitcoins transactions that occur in Venezuela Bolivars in a given hour during a normal week. So the red hash line, it shows peaks during, you know, mid day when business is strongest and then valleys during the nighttime. And you can see on the right of the chart on Saturday and Sunday, the average number of hourly transactions drops. And that makes sense because that’s, you know, businesses are closed, people are going to church, et cetera. The blue line shows. So the red line represents the average it was 16 week average at previous transactions and the blue line represents the number of transactions that actually happened during that week.
Matt Ahlborg:
So, and the yellow line represents the power outage and I got this data layer from a website which shows the, there is a organization called netblocks.org. It actively tracks internet connectivity and freedom in various countries around the world. And so they were monitoring the situation in Venezuela. And you can see the yellow line is quite high with about 500,000 active connections during the week. And then all of a sudden it drops down to almost zero. And that is the moment that the blackout started. You can also see at the same exact time the number of transactions on Local Bitcoins drops. On Friday there were you know, about 10% of the transactions that normally were on Saturday vastly lower as well. And this all makes sense because when the power’s out, of course you’re going to see a drop in transactions.
Matt Ahlborg:
What I found out was that I looked at these other Latin American currencies during that time and they also had big drop offs and number of hourly transactions during the time of the blackout in Venezuela. So yeah, if you scroll down, you can see all the other currencies. So this is a Colombian peso, so you can see the Friday and Saturday are well below number of transactions that they normally have. And this took place in all of these Latin American currencies as well as the U.S. Dollar transactions. And so on a very broad level, what this meant is that these other countries were related to the situation in Venezuela somehow. But more specifically what I learned in doing the interviews and with the actual traders on this platform is that these drops in transactions were related to remittance, which was taking place from these other countries.
Matt Ahlborg:
They are full of Venezuelan diaspora, about 10% of the country has fled to these other places over the last five years. And so what they’re doing is they’re fleeing to these countries. They’re earning currency in these other new countries they are then taking their new country currency. They’re going to Local Bitcoins where they find an advertisement where somebody in their new country is willing to purchase or is willing to sell Bitcoin that they already have for the new country currency that that person has obtained. So Colombian pesos. For example, if I were a Venezuelan working in Columbia, I would earn an amount of pesos. I would go to Local Bitcoins. I would find somebody in Columbia selling Bitcoin and who wanted my pesos. I would do that transaction. So then I give them my Peso’s.
Matt Ahlborg:
I acquire Bitcoin at that point, I would have a Bitcoin in my Local Bitcoins wallet. But that’s not the end goal of the remittance process. So the second thing I would do is I would go and I would sell that Bitcoin for Venezuela Bolivars. So I would enter into a second trade where I found somebody inside of Venezuela who did have Venezuelan Bolivars in their bank account and they were willing to send Bolivars in their bank account to my family members, Venezuela and bank account as long as I gave them Bitcoin. And so when I did the second transaction that essentially completes the remittance process. And so that is the reason why during the blackout you saw these dip and transactions across all Latin-American currencies. It’s because that remittance flow that is normally there is now gone. And so that’s the conclusion that I came to.
Stephan Livera:
Awesome. And so it’s also interesting that you kind of need this middleman layer because in order to do that you need the traders who are there operating as that sort of go between because the average worker is not necessarily going to have the time to go do all the trading themselves. So they would go to a middleman trader is helping them get it to the other side. And also well I guess first of all. In some of your interviews with these individuals, I presume you are figuring out from them, okay this is the story, this is how you do it. Were any of them reluctant to give up that information? Was that considered like competitive market information that they didn’t want to give you? Or was that seen as like, well anyone can compete in this market?
Matt Ahlborg:
No, it was definitely in some cases they do protect that information. They, first of all what they’re doing depending on their level of connectivity to Venezuela, their activity could get them into trouble. They are perpetuating or executing informal money transmitter transmission. And that is, you know, against the law. So they’re a little reluctant from that standpoint. But yes, in addition, they’re also reluctant to tell you about everything about their business because that’s how they make their money. These people for the most part, like you said, it is a specialized job to kind of trade on Local Bitcoins and normal people. Generally speaking, normal people are not the ones executing the trades. It does go through middlemen on Local Bitcoins. So yeah, that is their livelihood. And from what I heard, you can by Venezuela standards, you can make a very decent living if you are an informal money transmitter on these platforms.
Stephan Livera:
Yep. And another thing that I find very interesting is it’s cheaper for somebody to cross two foreign currency spreads than to use the traditional payment rails of, say, Western Union and PayPal and so on. Now, in some cases it may be because of bureaucracy and regulation and in others it may just be due to fees.
Matt Ahlborg:
Yeah. So I mean, those are all kind of one and the same. I think part of it is the monopolistic effect that a lot of these remittance companies have. It’s also the fact that traditionally they didn’t really have any other option, you know if you wanted to move money back to your home country, you had to deal with these companies and even these companies, they, if they are a brick and mortar establishment inside of the country, you’re sending money to, they have to abide by the laws of the local country that they’re in, otherwise they’ll be sent out of business. And so they have to honor whatever exchange rate Venezuela says is the official rate. And often times the Venezuelan government tries to say that their currency is stronger than it actually is because it helps them in various other matters of trade.
Matt Ahlborg:
And so yes, the end result is that Bitcoin remittance is more efficient and it saves you more money than traditional methods. And that is something that is dynamic. It changes all the time. I think with Venezuela, it’s been consistently the best method by far for several years now. But in many other countries that I see this happening, it tends to be a function of what the price that Bitcoin trades at in these various economies. And that can change on a daily or weekly or monthly basis. So yeah,
Stephan Livera:
I also find it really interesting that as you mentioned, it’s sort of dynamic based on whether the government is more restrictive or less restrictive at that time. And essentially governments can increase or decrease their level of capital controls, their level of currency controls. Their fix of the, what the currency is pegged at or any of these different factors. And then the traders on the ground have to react to that. Right? Because they have to adapt to that because maybe it’s not that Bitcoin is more efficient in all times at all places obviously. There will be times where maybe it makes more sense for them to use the traditional Fiat payment rails. Correct?
Matt Ahlborg:
Absolutely. And not only that, but they, they also use bank accounts in different countries to move money and hawala networks and things of that nature. So there are many different like tools in their tool chest and as, as I explained, it as a dynamic situation where they do evaluate on a day to day basis, what is the best way that I can move money across the border. Yup.
Stephan Livera:
Right. So I guess if I were to try and characterize it then, if you are playing the role of one of these traders, it’s almost like you need to have access to a range of different options and then on the day basically like sort of be clever and pick out which one is most efficient or cheapest based on the conditions at the time rather than just like being a one track mind of I only do Bitcoin trading. Right?
Matt Ahlborg:
That’s exactly right. And that’s why it’s a skill and that’s why it’s also it also falls to people who generally do have bank accounts in several jurisdictions. So that kind of limits this role to somebody who maybe is a little bit more well-traveled or they have family already existing outside of the country. They can leverage those outside accounts. You can’t just be a, you know, a poor person in Venezuela with very little outside connection. And teach yourself to do this, you kind of have to you have to have those privileges already in place in a lot of cases from what I’ve found.
Stephan Livera:
Yep. And is there any particular, let’s say typical profile, are these people who are, let’s say students and they do it on the side of their study or maybe they work part time and then they do Bitcoin trading and this kind of foreign moving for money moving around aspect on the side of their main job. Is that like a typical profile for them?
Matt Ahlborg:
I’ve seen the student case several times. I saw it in Zimbabwe where it was a person of Zimbabwe and they were studying in South Africa and that gave them the ability to have these multiple accounts and there is a lot of remittance that goes from South Africa to Zimbabwe. And so yes I think a lot of the times in the case of Venezuela, these traders often times are you know, they, they were unemployed and desperate at some point because of their economic situation and they kind of learned the ropes of this informal trade, just kind of on the fly over the years. And it developed into a full time job I believe as well. So yes, I think that now it is Local Bitcoins in generally speaking, like the majority would be full time professional trader types. But yes, they, they probably do start on a part time basis at the beginning. Maybe they start doing it because they themselves need to do it. They want to send money home and they found this cool way to do it and now they’re like the nexus for their whole community and wherever they live. So yeah, that’s basically how it evolves and works. Yep.
Stephan Livera:
That’s really fascinating stuff. And so I’m also curious with some of these platforms, generally the platform say Local Bitcoins or Paxful will want people to keep their trades on the platform. But I’ve heard colloquially a practice is that people try to, once they’ve established a relationship with somebody, they try to take that relationship off the platform because they might want to do it without paying the fee to that platform. But then on the other hand, there is also the reputation aspect and the market making aspect of these online platforms. What’s been your experience in your discussions and just from your research?
Matt Ahlborg:
Yeah, so that scenario does play out all the time. I’ve met people who they were basically, you could say Local Bitcoins kingpins at one point where they controlled you know, like a big chunk of the entire liquidity in a given country. And this was years ago. And then when I, I’m thinking of a particular trader I met in Mexico where he was responsible for maybe the majority of the volume for Mexican pesos on Local Bitcoins for a couple of years. And over time he completely transitioned off of Local Bitcoins and he has his clientele of people who move money and known in the community as a money exchanger. And so he doesn’t even on Local Bitcoins anymore. I think on local, on these platforms there is a fee of trading.
Matt Ahlborg:
So there is an incentive to leave the platform right then and there. In addition to that you know, you increase your privacy if you leave the platform. But I still think a lot of these traders like to be on the platforms because of the nice advertisement for them. And they’ll do trade on or off the platform. And it just depends on the, on the preference of the clientele that’s coming to them. And usually the way it happens is the client will do the first trade or two or three on the exchange and then once they’ve formed a relationship, they will move off to like a WhatsApp group or telegram group or something like that. And these traders live off of their reputation, so they’re known by people and the social fabric of these communities, it’s always like can you vouch for me? Oh yes, I can vouch for this guy because my cousin knows him personally. Something like that. It always works out with some sort of personal relationship where you can kind of trust that connection.
Stephan Livera:
That’s fascinating. And I think it might be an interesting hypothesis then that really what you see on Local Bitcoins or Paxful is actually, it could be underplaying the actual amount of volume going through because people are taking their trade volume off the platform.
Matt Ahlborg:
For sure. Yeah, that’s absolutely. I think, these volumes on these exchanges, even though they are trading billions of dollars a year, I still think it’s probably a slice of the total peer-to-peer trading that’s taking place. And the bigger the trade gets, the more likely it is to go off exchange as well. So the big time trades, you know, the average trade size on Local Bitcoins in many of these economies is anywhere between $20 and $80. Sometimes it’s a couple of hundred dollars. But from what I’ve heard about people who run these, they’re admins of these WhatsApp groups, they say it’s like fairly common for, you know, 10 Bitcoin trades to take place or to be advertised on these WhatsApp groups. Where, you know, somebody will come in and say, Hey, I need to offload 10 Bitcoins who can meet me, you know? So yeah, I think it’s a sliver or a slice of what’s actually taking place.
Stephan Livera:
Right. And I’ve also seen some different dynamics around things like, well, let’s call them gray market or whatever, but people who are doing say, you know, there’s essay writing things in say Kenya where let’s say students in the Western world and you know, whether in the UK or Australia or America and they’re, well, they want somebody else to write the essay for them. And then there are all these students in Kenya who want money and PayPal will not allow that kind of payment through the platform. And so there people are moving into using Bitcoin to do that kind of example. So that’s another sort of interesting story as well. I presume you would have come across that in your research also.
Matt Ahlborg:
Yeah. And this spectrum you know, moral questioning or, you know, moral gray area it is a huge spectrum and some of these use cases I can kind of understand and maybe get behind in a certain sense. And then other use cases are like pretty unquestionably immoral and those are also being executed on these platforms as well. So, you know, things like stealing somebody’s credit card information and then you buy gift cards with that credit card, and then you sell those gift cards immediately for Bitcoin, you know, that is very broadly an immoral thing that should be punished and not be able to. And those things happen on these exchanges. And things like scams where you know cyber crime where people trick other people to send money or they think they’re getting a good or service or a product or things like that.
Matt Ahlborg:
This happened to my sister’s company a couple of weeks ago where, you know, they were right in the middle of the Covid and one of her coworkers got like this random text message. And it was supposedly from the boss and the boss requested that the coworker immediately go to Target and buy some gift cards for clients. And what ended up happening is she bought $2,000 worth of gift cards. She thought it was giving the codes away to her boss. And it all happened so fast that she didn’t realize it was a big scam and the scammers made off with $2,000. So that type of stuff is obviously undesirable and you know, you have to admit that that type of stuff is also happening. It’s not all good.
Stephan Livera:
Sure. I think we’ve gotta be honest about these things, right? Like, yeah, that people can use it for bad things. I think it’s one of those things where people can overplay it or underplay it, right? So some people might overplay the factor and say, Oh, look, everyone in the developing world is using Bitcoin. And that’s, that’s not quite true, right? Like it’s really more like in these certain circumstances, it makes sense for people to use Bitcoin and in others maybe it doesn’t make sense for them. Right. And I think this is also ties into.
Stephan Livera:
how it’s easy to criticize some of the legacy financial institutions, but really the reason for those high fees or delays is because they’re facing a lot of regulatory burden or that will bend. That’s probably the main one. But they also face fraud and chargebacks and so on. And so they’re building in the cost for dealing with the fraud and the chargebacks and all of these other things into their cost. And that’s why if you look at some of the legacy financial institutions, they have quite high fees relative to just the straight Bitcoin transaction cost. But that’s not the only transaction cost. Right.
Matt Ahlborg:
Absolutely. That’s a huge factor at play. And it’s interesting. I got to know an older gentlemen who’s you know, done his time on wall street and he really understands wall street to a large degree and behind every single like arcane law that is out of place in today’s world, those laws came about because the system broke at a certain time where you know the system collapsed or some scammer type wall street person got away with something. And so they put this law into place and now there’s just millions of laws on top of each other. But generally speaking, they were put into place for the right reasons. But now it’s just, they do tend to cause a lot of bureaucratic friction. And so there should be a happy medium between, you know making way for these new financial technologies, but also trying to you know make sure that the payment system is robust and has guarantees and protects people.
Stephan Livera:
Right. Also the question around stablecoins. So hypothetically somebody could say, Hey, why don’t you use, why don’t they just use tether? Why don’t they just use one of these other GUSD or whatever stablecoin? Is it a question of education or is it a question of access? Or is it just like a mind share thing? People don’t know about it?
Matt Ahlborg:
I think it’s a little bit of everything. I think it is true that in a lot of these markets, Bitcoin already has the liquidity the order book depth and people already are familiar with Bitcoin. So if you’re using Bitcoin there’s really not a need to use Tether because even in the case that they’re not holding onto the Bitcoin, for example, if I were doing capital flight out of Venezuela, I was converting my bolivars into US dollars. People are already doing that on Local Bitcoins where they trade away their bolivars for Bitcoin and then they sell their Bitcoin for PayPal dollars or they sell their Bitcoin for Zelle dollars, and there’s a million different online wallets that they can hold dollars in. And those are essentially de facto stablecoins as well. So is Tether bringing something to the table that is better than the current system that is in place?
Matt Ahlborg:
I’m not saying it is or isn’t. I think there’s a lot of great things about you know, the way that you can build smart contracts around stable coins and the way where you can reduce custodial risk, reduce counterparty risk in some cases with stablecoins, those are definitely compelling features. So I think yeah, so it’s a partially mind share partially. You know, I always say that in order for a new technology to start gaining network effects or in order for a new technology to overcome the incumbent network effects of the incumbent system, it has to be a paradigm shift better. And is tether a paradigm shift better than the way that people are already acquiring these dollars? I’m not sure it is or isn’t. That’s something that’s playing out right now. So yeah.
Stephan Livera:
Yeah. And the other factor is obviously number go up right now you and I in the Western world, right? And in Australia, US, UK, Canada, et cetera, many of us buy Bitcoin and we believe it is going up in value and that’s why we want to hold it. Now that may not necessarily be true in the developing world where let’s say you’re living more hand to mouth, you don’t have the potential to save in Bitcoin. To what extent, were you seeing maybe some of these traders, once they start interacting with Bitcoin, they actually want to start HODLing Bitcoin too? Did you see that as well?
Matt Ahlborg:
Oh yeah. And I would say, I can’t think of a single case where it didn’t happen, where once somebody became familiar with the technology, that they were enamored by the cool factor of it and the niftyness of it and the way that, you know it enabled them to do things that they were not able to do before. And these people and in highly restrictive economic environments, they understand the value proposition of bigger and better than anyone in the world because they were born into these broken, dysfunctional monetary systems. And so they understand the value of permissionlessness and the value of fiscal discipline and monetary discipline and things of that nature. They understand all that. You don’t have to explain that to them at all. So yeah in fact, I would say that in many cases when I talk to these traders, they really have nothing to gain by talking to me by revealing this information. The only thing I think in many of the cases that they do talk to me, the only reason they talk to me is because they have this shared love of this cool Bitcoin thing and they want to share, they want to share their story with the world. They want to say like, wow, I could tell my story to this guy who is going to write an article and he could tell the world about these cool things that I’m doing with Bitcoin.
Stephan Livera:
Right. And I guess the other question I have is obviously those people who are directly interacting with Bitcoin regularly, they see the value and they want to hold Bitcoin eventually. Right now obviously it might be more difficult for them if you’re not earning as much, you can’t save as much obviously. But is it also that their counterparties are also getting into the idea of HODLing as well? Like not just using it as a payment rail?
Matt Ahlborg:
Yeah, I think so. I don’t have a direct story about that. But I’m sure it is happening because it seems to happen with, you know, most everybody who comes into contact with Bitcoin, there is a novelty about it. There’s something interesting about that. I will also say though that there’s a big chunk of people who in these countries who they got burned by Bitcoin once before where they bought they thought it was going to go to the moon and then it crashed or they bought Bitcoin and then they threw it into a Ponzi scheme and they got burned that way. Or even if it didn’t directly happen to them, everybody knows somebody who lost money on some sort of scam or you know, something like that. So that definitely turns away a lot of people.
Stephan Livera:
Yeah. The other question I had was around lightning use. So obviously lightning is very early and I have seen some stories where individuals are using it. So there is that Satoshi beach, I forgot the exact name, but essentially there was a group where, where entire towns were just using Wallet of Satoshi, a custodial lightning wallet. Have you seen anything like that? Is it mostly on chain usage?
Matt Ahlborg:
Yeah, so no, I haven’t heard of that specific case. Usually when I hear a story about an entire town, you know, transacting in Bitcoin, like I’m a little bit skeptical. But that’s not to say that maybe it doesn’t, hasn’t happened to a certain degree in a couple of little towns. However aside from that, I have seen a couple of companies and in fact, I’ve been talking very closely with a particular company recently who does use lightning and they serve developing country users with lightning infrastructure. And it represents, it addresses a lot of the weaknesses of Bitcoin in that you can instantly transfer. That’s a huge deal. And the fees are incredibly low and that’s an even bigger deal because on chain transfers are very expensive for people in developing countries who, like I said, they’re moving sometimes $5, $6 worth of money. They don’t have the money to pay, you know, 50 cents for a blockchain fee. So I think lightning is potentially a perfect fit for a lot of these use cases. And yeah, so I’m hopeful that it will develop into something more and soon. And yeah, I’m trying to honestly work on something myself right now that kind of involves that though.
Stephan Livera:
Oh, that’s awesome. Yeah. And I think it’s one of those things where potentially older phones may not be able to use some of the newer lightning wallets. But I think a good example might be something like Phoenix for Android where it is a noncustodial wallet, but the experience is almost like a custodial wallet. Or another one might be Wallet of Satoshi or Blue Wallet or a Breez Wallet is another one as well. So, I guess these are examples, but again, it takes time for people to get familiar with it and start to really build up their usage of it.
Matt Ahlborg:
Yeah. And the smart companies they are building their apps to be backwards compatible with these older versions because they know that’s a part of the territory that they’re working in. You know, I’ve seen several, you know, Silicon Valley type companies where they build a shiny new app that’s only working on the last three versions of Android or whatever, but the smart companies are already taking that into consideration and their apps are running on, you know, 2012 Android software. So, yeah.
Stephan Livera:
Yeah, that’s good to see. Another area I was keen to talk about is KYC versus non KYC. So I know that Local Bitcoins and Paxful do have KYC. But there are other platforms that don’t necessarily use KYC. So things like Bisq or Hodl Hodl let’s say, although maybe the volume on those in these countries is not as high. What’s been your experience on the KYC question?
Matt Ahlborg:
Yeah. So generally speaking, when these these non KYC exchanges, it’s interesting to see that they generally are also more decentralized and they have less custodian. And there’s a reason for that. And it’s because they wouldn’t get away with not doing KYC unless they were decentralized. If they had a centralized company somewhere and they were not doing KYC, they would be in jail. And so the drawback of a lot of these non KYC exchanges is that they have to make the architecture of these applications such that they are non-custodial, they’re generally speaking mostly on chain transfers, like Bisq. And so that it’s very hard to make a user friendly experience around all of these technical features that you have to have to maintain decentralization. So it is very tough to do. And you know, what I’ve seen with, with Bisq and I like the Bisq team and I think they’re you know, doing great work.
Matt Ahlborg:
But this, in my opinion, it’s kind of like it’s a P2P exchange designed for like a nuclear winter, you know, but we’re not in a nuclear winter right now. We’re just kind of in like this mildly very mildly restrictive environment where people can still use custodial wallets and get away with it. Like, for example, as long as you, if you’re using a custodial wallet where your money is custodied in another country, that’s not your own country, that’s just fine for a lot of people. When Venezuelans hold their money in PayPal, they have no problem with it because the U.S. Government doesn’t have any problem with what they’re doing. It’s the Venezuelan government that they care about. So yeah. And, and in terms of, I think KYC AML is going to continue to increase and not only on the front end where you have to ask this of users before they even do the first trade, which it’s possible that we could head in that direction, which would be awful.
Matt Ahlborg:
But they have to do things on the backend to meet these regulatory agencies requirements. They have to set up all this infrastructure to communicate with the banking system about the identity of the traders on their platform and all that other crazy stuff. So I think that’s probably only gonna strengthen because the banks will love to make the Bitcoin experience more inefficient. And so, yeah, I personally feel like this will be another beautiful test of Bitcoin. Is it truly decentralized enough to avoid a lot of these issues? We’re going to find out.
Stephan Livera:
Right. And I think it’s also fair to point out, and I think Ray Youssef of the CEO of Paxful has spoken about KYC and I think his view is something like it helps essentially, Paxful obviously not get shut down and ultimately that enables the company Paxful to serve many more people. And so we have to consider that as well when we’re thinking about, okay, KYC and non KYC and so on. I think it’s one of, yeah.
Matt Ahlborg:
And going into calling back to what were you talking about before about like some seriously nefarious use cases. There’s no doubt that KYC AML reduces that stuff as well. And so that is a good thing. You know, obviously I understand that there’s a lot of problems with the IDs, all this red tape just to make a transaction, but you know, that’s why it does have to be a balance. And you know, Ray and also Local Bitcoins, both Paxful and Local Bitcoins have said that adding in this stuff has cleaned up the activity on their platform and made it a safer environment for the good users you know, on the platform. So I’m not trying to shill for the regulatory agencies whatsoever, but you know there’s a trade off to everything.
Stephan Livera:
Yeah. Also, another really fascinating thing is this concept of all time high denominated in a foreign currency. So can you tell us a little bit about that?
Matt Ahlborg:
Sure. Yeah. So the way that Paxful and Local Bitcoins released their data, they as of right now, they don’t release country-level data. Like honestly, a lot of the time, I don’t know what country their unverified users are in, they have IP checks and things of that nature, but that can only go so far. So the data we do have is what currency what currency was being used in a given trade. And so yeah, right now in peer to peer markets there are specific regions West Africa, East Africa, India, Latin America last year, and they’ve had a strong bump up this year as well. But in these developing markets, in these places with known monetary restrictions, you’re seeing all time heights. And it’s a great validation of the idea of Bitcoin in that it is an extremely attractive use case. Or I should say an increasingly attracted use case in these places that have a high amount of restriction.
Stephan Livera:
Right. And as I understand the typical story that we have seen with all time high in a foreign currencies, usually it’s an indicator that that government is trying to forcefully set the price of their money lower. So what we’re seeing is kind of like the black market, real price for that money is going like even lower so to speak. So then in Bitcoin you can sort of see what the real price is. Sort of like the street price though. It’s not necessarily the real price, but there’s kind of a difference there.
Matt Ahlborg:
That’s a good way to put it. And yes it is true. And I have this measurement on my website where I actually track the percentage. I track how much Bitcoin trades at against various currencies and it is reflective of an unofficial exchange rate or a black market exchange rate or a street exchange rate, whatever you want to call it. It is reflective of that. And so when you see this street exchange rate start diverging from the official exchange rate, it is an indicator that potentially things are falling apart in that country or that they are laying on new restrictions or things of that nature. So yes, it’s really cool to have the data and to see it play out like that. And in my Argentine article, I even lined up volume spikes with particular events related to imposition of new capital controls or economic events and things of that nature. You can actually see the Bitcoin volume spike when certain things happen in the real world and it’s really a compelling argument about the proposition of Bitcoin.
Stephan Livera:
Right. And I think it’s one of those things where the more governments try to clamp down, the more people will just learn about Bitcoin. And then typically once people get into Bitcoin and they’re holding Bitcoin and then they’re profited from it, they don’t really want to leave. Right?
Matt Ahlborg:
Yeah, definitely. And you know, the technical literacy of people all around the world, well, it’s only increasing and their access to the internet is only increasing. So this is something that is not going to go away. And in fact, it’s only going to get worse from the perspective of these governments. I like to say that, you know, these governments, they, they build walled gardens in, in their country, monetarily speaking, and they make all these rules about what people can and can’t do with money in their country and Bitcoin and the internet are just like poking holes in these walls and you know, allowing people to just completely disregard this type of stuff.
Stephan Livera:
That’s really cool. And Matt, I know you’re doing a little bit of work with Paxful and the open money initiative. Can you tell us a little bit about that?
Matt Ahlborg:
Yeah, so Paxful. I’ve been bugging them for a couple of years. I think I showed up to their office. It was I showed up to their office a few years ago. They had no idea who I was and I just, I said, Hey, I’m looking at your data and tell me all about what you guys are doing and all that stuff. But over time they kind of warmed up to me and so they’ve read my articles and they like, they find not only interesting statements about, kind of good marketing for Bitcoin as it were, but I’m also finding interesting like business intelligence for them as a company where I can they told me that, wow, we had no idea that Latin America was such a booming market or that Venezuela was the crux of Latin American volume until we read your article.
Matt Ahlborg:
So they’re giving me a sponsorship to write these articles and I’m also kind of helping them because I’m on the ground with the users, I help them understand the use cases more and such that they can build products that make these use cases and user experiences a lot easier. With open money initiative. I’m not officially a part of the open money initiative. I know Alejandro Machado therepPretty well. I’ve had many conversations with him and we always trade intel on the market in Venezuela. And so I just I did an article under their under their handle because I think they do good work and, and yeah, I wanted them to have exposure and also for me to get exposure from their current standing.
Stephan Livera:
Awesome. also just check now if anyone in the chat has any questions for Matt. And I suppose just while we’re waiting, Matt. Do you have any tips for people who want to do their own data analysis?
Matt Ahlborg:
Oh, man. Yeah, I would say start start. When I learned computer science, I’m not good in the classroom where they’re teaching you these abstract concepts. And when I was in college, you know, I think my semester project was building a fake bank account. And so when I learn, I like to have real problems that I’m working on. So find a data set that you’re really interested in then and start and think of a solution or think of some sort of goal. And the internet is like, you know, everyone complains about the cost of education nowadays, but knowledge is free. So you can go on the internet on YouTube and you can watch every video known to mankind about learning how to do data analysis and so you can truly teach yourself. I would also recommend the boot camps for people who are not like perfectly motivated and I’m not one of those people. When you go to a boot camp, you get a rigorous schedule where they kind of put you in a competitive environment and you, they force you to study 10, 12, 15 hours a day and you learn really fast that way too.
Stephan Livera:
Great. and any tips in terms of pitfalls when assessing Bitcoin data and Bitcoin volume? Are there any tips on that side for listeners who want to do their own Bitcoin analysis?
Matt Ahlborg:
I don’t know. There’s, there’s a millions of pitfalls you can make. You just have to really have the domain knowledge of the space and you have to know you have to be open to the idea that your original answer is totally wrong. And that happens to me routinely where I think something’s happening in this way. And then I talked to somebody and they explain, explain it to me in a way where it was the complete opposite. So I guess just be open to that possibility and yeah.
Stephan Livera:
Awesome. All right, well look, I think that’s just about it. So I’ll just put up on the screen right now just for anyone who’s viewing go to useful tulips.org. Matt, is there anywhere else that you’d like people to find you online?
Matt Ahlborg:
Yeah. So if you go to the website, you can see my medium articles are embedded in the center. And then on the right you can see my Twitter handle. So you can follow me on Twitter. I regularly make tweets there as well. And then on the left hand side is where you can actually go in and look at volume charts in different parts of the world. So yeah, for example, you can see that in, I have a heat map of, you know, if the volumes are increasing or decreasing in certain regions. And then when you scroll down you can actually drill down on particular regions and even particular countries and currencies. So it’s all really cool stuff if you’re like economics student, this is I believe, a treasure trove of interesting stuff.
Stephan Livera:
Yeah. Actually just one last question while we’re here on this. One thing that I find interesting when I was looking through this data earlier as well is most people are used to thinking, Oh, Bitcoin didn’t that thing die back in 2017, but funnily enough, we’re actually seeing more volume now in certain continents than we did back in 2017. So Latin America and Africa actually have much more volume. And you can see that on usefultulips.org on the combined world page.
Matt Ahlborg:
Yeah, exactly. And so it kind of tells you that there might be something to Bitcoin outside of speculation that people might be using it for reasons besides speculation. And that’s kind of the argument that I try to make.
Stephan Livera:
Fantastic. Alright, well look, I think that’s pretty much it for this one. So thank you again for joining me, Matt.
Matt Ahlborg:
Thank you. Stephan.
Stephan Livera:
Thanks. and just for listeners, you can subscribe stephanlivera.com and there’ll be show notes so you can get all the links and I will get a transcript for this up in a couple of days. So that’s it from us. Thanks guys. And we’ll see you in the citadels.