Bitcoin In the Developing World

Hi everyone, welcome to the show. This is the Stefan Livera podcast, a show about Bitcoin and Austrian economics. Today my guest is Matt Ahlborg. He's a data scientist and he's doing some fascinating work. But firstly, let me introduce the sponsors of the show. So this show is brought to you by Kraken, one of the world's leading Bitcoin exchanges. So if you're looking to buy or sell or trade bitcoins, you've got to check out kraken.com. They've got one of the most liquid exchanges, they're one of the longest standing exchanges, they're renowned for their On security with Kraken Security Labs, they've got Kraken Pro mobile app where you can buy and sell, and basically it's, it's been designed with a beautiful interface, so check out that app, it's available both for iPhone and for Android, so go to kraken dot com to get that. Next up is CipherSafe. So CipherSafe created the product, the Cipher Wheel. So if you've got a Bitcoin hardware wallet or you've just got a seed that you wanna protect, you know, those twelve or twenty-four words, you need to look into having one of these products. you essentially wanna make sure your product is fireproof, waterproof, pet-proof, and tamper-evident. And so the cipher wheel comes in a wheel shape and it protects the words of your seed. And it's got two sides to it, and you can get a padlock matching with it that helps, basically, helps you know if it's been, tampered with and so on, or know if it's been opened. so that's something that you can, purchase as well. That the website for that is cyphersafe dot io. They Add on bits and pieces as well, so if you want, you can buy some casino dice, so that'll help you when you're rolling for entropy to add entropy to your seed as well. So make sure you check them out. Next up is Swan Bitcoin. Now, disclosure, I hold some equity in Swan Bitcoin. I have been helping the team out, I advise on some of the different educational material that Swan Bitcoin are producing. And if you're looking to buy Bitcoin in the US and you wanna do it automated, to buy every week or every month with Swan, this is the place to do it. I think there's a big psychological benefit to you as well, where you don't need to manually buy Bitcoin, you can just connect your US bank account via ACH, Swan Bitcoin will pull the Bitcoin, buy, pull, sorry, pull the fiat, buy Bitcoin, and then send it out into your wallet if you so choose, which is the, obviously the recommended option, not your keys, not your coins, right? So the website for that is swanbitcoin.com. Now, lastly, Unchained Capital, Bitcoin financial services. So, firstly, just go to unchaineddashcapital dot com, check out their blog, they've got incredible material. There's a good, recent post by Drew Bursell, talking about the difficulty adjustment. So, they've got some incredible material there on their website. and then, if you're looking for ways to secure your Bitcoin, look at their vault program. They've got a two or three multi-signature vault program, so you can buy, say, one Trezor and one Ledger and it's all really easily done, whereas if you're trying to do DIY multisig, that can be really t-technical and very difficult, and you might make a mistake where on Chain Capital, they've got a team of professionals helping you do that. Also, Unchained Capital offer loans, so you can put up some Bitcoin and get USD liquidity, and then, basically without having to sell your Bitcoin, you can get some liquidity. So that's also an incredible benefit. So make sure you check them out. The website for that is unchained dash capital dot com. Alright, so let me just bring in my guest 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 s-what he's doing. So, welcome to the show, Matt. Thank you very much. Good to be here. 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, if you could just start with telling us a little bit about yourself, W-uh, the work you're doing as a data scientist.

Sure, yeah. So I, as you said, I'm a data scientist. I, 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, I, dropped out of the program and I decided to attend a data science three-month bootcamp in New York City. it worked out really well for me when I went in Into that boot camp, I, I actually brought in the local bitcoins, dataset and the Paxful dataset. those were my basic, experimental datasets that I was using from project to project in the, in the boot camp. And, so yeah, I, I became a data scientist because I was so interested in how Bitcoin was being used, and I wanted to learn how to, jump into these datasets that I, I knew that were out there. and, and start to analyze them in, in a way that would begin to tell stories about, about how they were actually being used. So, yeah.

Great. And so, how did you first come across some of these stories?

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, don't 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, 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, in these other countries, they don't, necessarily allow those connections all the time. so, yes, I would I was very interested in these, in these datasets, I've been following them for some time. to me, they, they represent, the ultimate test or the best test of, of the value proposition of Bitcoin and, a lot of people in marketing for Bitcoin, try to say that it's 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, it will actually tell you if that, 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, in the, inside of these advertisements, the- publisher of the advertisement oftentimes puts their phone number in, 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, of information, from people where, just the, the Western world or crypto Twitter or whatever you wanna call it, they just really had no idea that this stuff was even happening. And so, yeah.

can you, 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, that you could give?

Sure. So, I think, so in terms of volume, like I said, I mostly watch local bitcoins and Paxful, and, in two thousand, in two thousand and nineteen, I believe Pack-- Local Bitcoins did approximately three billion dollars worth of Bitcoin trading, and I think Paxful was at about, a little over one 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, maybe significantly more than Paxful, but it's in the, I would think less than ten million, so

Awesome. And so, I think these stories are really interesting because it sounds to me like In the Western world, in the developing-- in the developed world, it's sort of, so 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 kind of voucher get-arounds, whereas that is a different story in the developing world, correct?

Yes, absolutely. So one of the, largest points that I, have tried to lay out in, in my articles is the fact that Bitcoin in the developing world, there is of course a, 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 or the traditional banking system isn't serving them, and so- That, that is oftentimes a result of, just lack of modernization of current financial infrastructures, but in other times it, it is a result of explicit, financial oppression where, laws are set in place just to restrict the financial freedom of, 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 the law of their own country, in the pursuit of, of, Being their own individual and, and, and, you know, being in control of their own economic destiny. So,

yeah. 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 wanna work overseas and they wanna 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. Which is sort of story. So would you say that's kind of like a s-good summary then of at least some of the stories that you have been researching?

yeah. So I would say the gift cards, are possibly also a part of the remittance story that is, gift cards can be used for remittance. but, i-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, 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, 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, that I've noticed.

Yeah. Okay, so look, let me, just for the audio listeners, I'm just gonna put up on screen share right now. So if you go to usefultulips dot 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, it sort of, it ebbs and flows with, with what's going on in Venezuela. So can you tell us a little bit about, about that aspect

Sure. Yeah, so the recent article I wrote on the situation in Venezuela, I, 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, is the entire, 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, a nationwide- My blackout. during that time, I lo- I was looking at local bitcoins data, and I noticed that, of course, you, you would see a, a drop in transactions, during that time. yeah, if, if we are guiding the, viewers to 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, I'm sorry?

So right here, I'll, I'll explain this chart here. So,

The, the y-axis is, the number of, transactions per hour. the red hashed line, represents the number of local bitcoins transactions that occur, in Venezuelan bolivars in a given hour, during a normal week. so the red hashed line, it shows peaks during, you know, midday 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, so the red line represents the average, it was, I believe, the sixteen-week, average of previous transactions, and the blue line represents the number of transactions that actually happened during that week. so, and, the, the yellow line represents, the power outage, and I got this data layer from a website which, shows, the-- There, there's a organization called NetBlocks dot org that, 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, the yellow line is, quite high with about five hundred thousand 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 ten percent of the transactions that there normally were on Saturday, vastly lower as well, and this all makes sense because when the, when the power's out, of course, you're gonna see a drop in transactions. What I found out was that, I looked at these other Latin American currencies during that time, and they also had big drop-offs in 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 the Colombian peso, you can see the Friday and Saturday are well below number of transactions that they would normally have, and, this took place in all of these, Latin American currencies as well as the US 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 remittances, which was taking place from, these other countries, they are full of, Venezuela diaspora. About ten percent of the country has fled to these other places over the last, five years ish, 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, has obtained. So, Colombian pesos, for example, if I were a Venezuelan working in Colombia, I would earn, An amount of pesos, I would go to local bitcoins, I would find somebody in Colombia selling bitcoin and who wanted my pesos. I would do that transaction. So then I give them my pesos, I acquire bitcoin. At that point, I would have, 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 Venezuelan 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 member's Venezuelan bank account as long as I gave them Bitcoin. And so when I did the second transaction, that, that essentially completes the remittance process. And so that is the reason why, during the blackout you saw these, dip in 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.

Awesome. And so it's also interesting that, you, 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 isn't necessarily gonna have the time to go do all the trading themselves, so they would go to a middleman trader who's helping them get it to the other side. And Also, well, I guess first of all, i-i-in some of your interviews with these individuals, I presume you were 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"?

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, they are perpetuating or executing informal money transmi-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 aren't, the ones executing the trades. It does go through middlemen on local bitcoins. so yeah, that is their, their, their livelihood and from what I heard, you can, by Venezuelan standards, you can make a, a very decent living. If you are an informal money transmitter on these platforms.

Yeah. 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.

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, 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, and, and even these companies, they If they are brick and mortar establishments inside of the, 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, and oftentimes, the Venezuelan government tries to, say that their con-currency is stronger than it actually is because it helps them in various other, matters of trade and, so yes, the, the, the end result is that, Bitcoin remittance is more, efficient and it saves you more money than traditional, methods, and, and that is, something that is dynamic, The, 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, 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.

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, any of these different factors, and then the, 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?

Absolutely, and, and not only that, but they, they also use, bank accounts in different countries to move money and Huallanet works and things of that nature. So there are many different like tools in their tool chest, and as, as I explained, it is 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. Yep.

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 In, like, sort of be clever and pick out which one is most efficient or cheapest, i-in, based on the conditions at the time, rather than just like being a one-track mind of, "Oh, I only do Bitcoin trading," right?

That's exactly right, and that's why it's a skill, and that's why it's also, it, it also falls to people who generally do have, bank accounts in several different 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, it, you can't just be, 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.

Yeah. 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 m-moving, foreign money moving around aspect on the side of their main job, is that like a typical profile for them?

I've seen the student case several times. I, I saw it in Zimbabwe where it was a, 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 oftentimes 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, and it, it developed into a full-time job, I believe, a-as well. so yes, I, I think that, now it is Local Bitcoins, 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 wanna send money home and they found this cool way to do it and now they're like the, the nexus for their whole community and wherever they live. so yeah, that's basically how it, how it evolves and works. Yeah.

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 want, might wanna 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?

Yeah, so that, that, scenario does play out all the time. I've met people who, they're, 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, 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, he, he was responsible for maybe the majority of the volume for Mexican pesos on local bitcoins for a couple years, and over time, he, he completely transitioned off of local bitcoins, and he has his clientele of people who move money and is known in the community as a, a money exchanger, and so he doesn't, he's not even on local bitcoins anymore. I, I think on local, on these platforms platforms there is a fee of trading, 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, on or off the platform, and it just depends on the, on the preference of the, the clientele that's coming to them, and usually the way it happens is, 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 a Telegram group or something like that, and, the- These traders live off of their reputation, so they're, they're known by people, and these social fabric of these communities, it, it's always like, "Can you, can you vouch for me? " "Oh, yes, I can vouch for this guy because my cousin knows him personally," or, or something like that. It always works out with some sort of personal relationship, where you can, you can kind of trust that connection.

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.

For sure, yeah, that's absolutely. I think, these volumes on, on these exchanges, even though they are trading billions of dollars a year, I still think it's probably, a, a slice of the total peer-to-peer trading that's taking place, and, and the bigger the trade gets, the more likely it is to go off-exchange as well. so the big, big time trades, you know, the average trade size on local bitcoins in many of these economies is anywhere between twenty and eighty dollars, 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, ten 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, I need to offload ten bitcoins, who can, who can meet me?" You know? So, Yeah, I think it's a sliver, a slice of what's actually taking place.

Right. And, I've also seen some different dynamics around things like Well, let's call them gray markets or whatever, but people who are doing, say, you know, those essay writing, things in, say, Kenya, where, let's say, students in the Western world, in, you know, whether they're in the UK or Australia or America, and they're, well, they want somebody else to write their 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, I presume you would have come across that in your research also.

Yeah, and, this spectrum of, of, you know, moral, 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, you buy gift cards with, with that, with that credit card and then you sell those gift cards immediately for Bitcoin, you know, that is very broadly a, an immoral thing that should be punished And not, not be able to-- and those things happen on these exchanges and, things like scams where, you know, cybercrime where, where people, trick other people to send money or they think they're getting a good or service or product or things like that, it's happened to my sister's company a couple weeks ago where, you know, they were right in the middle of the COVID epidemic, and, one of her coworkers got like this random text message, and it, 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 two thousand dollars worth of gift cards, she thought it was She thought she 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, and the scammers made off with two thousand dollars. so that type of stuff is obviously undesirable and, you know, you have to admit that, that, that type of stuff is also happening. It's not all good

Sure, I, I think we've gotta be, honest about these things, right? Like, yeah, that people can use it for bad things. I think it, i-it's, 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-- this also ties into how it's easy to criticize some of the legacy financial institutions, but really the, the reason for those high fees or delays is because they're- Facing a lot of regulatory burden or that, well, 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 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?

Absolutely, broadly considered. that's a huge, huge factor at play, and, it's interesting, I, I, got to know an older gentleman 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, the system collapsed or some, some sc-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, and but now it's just they, they do tend to cause a lot of bureaucratic friction, and, so there, 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.

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 one of-- wh-whatever stablecoin?" Is it a question of education or is it a question of access, or is it just like a mindshare thing? People don't know about it?

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 is better than the current system that is in place. 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 stablecoins and, 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 mine 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 dollars? I'm not sure it is or isn't, that's something that's playing out right now. So yeah.

Yeah, and, the other factor is obviously number go up. Right now, you and I in the Western world, right, 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 wanna 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 are you seeing maybe some of these traders, once they start interacting with Bitcoin, they actually wanna start hodling Bitcoin too? Did you see that as well?

Oh yeah, and I would say I can't think of a single case where that didn't happen, where once somebody became familiar with the technology, they were enamored by the, the cool factor of it and the niftiness of it and the way that You know, it enabled them to do things that they never-- they weren't able to do before. And, and these people in, in highly restrictive economic environments, they understand the value proposition of Bitcoin better than anyone in the world, because they, they were born into these, broken, dysfunctional monetary systems, and so they understand the value of permissionlessness, and, and the value of- fiscal discipline and, and monetary discipline and things of that nature, they understand all of-- you don't have to explain that to them at all. so yeah, in fact, I, 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 wanna share the-- they wanna share their story with the world. They wanna say, "Wow, I could tell my story to this guy who, who's gonna write an article, and he could tell the world about these cool things that I'm doing with Bitcoin." So

Right, and I, I guess the other question I have is, obviously those people who are directly interacting with Bitcoin regularly, they see the value and they wanna hold Bitcoin eventually, right? Now, obviously it might be more difficult for them if you're, 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?

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, e-- most everybody who comes into contact with Bitcoin, there is a novelty about it, there's something interesting about it. I will also say though that there's a big chunk of people People who, in these countries, who, they got burned by Bitcoin once before, where they, they bought, they bought, they thought it was gonna go to the moon and, 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.

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, I forgot, 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, or is it mostly on-chain? Yeah,

so I know, 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, I have seen a couple companies, and in fact, I, been talking very closely with a particular company recently who does use Lightning and, and, they serve developing country users with Lightning infrastructure and, it, it is, I think it, it represents, it addresses a lot of the weaknesses of Bitcoin in that you can instantly transfer, and 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 five, six dollars worth of money, they don't have the money to pay, you know, fifty 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, I'm, I'm, I'm hopeful that it will develop into something more and soon. and, yeah, I'm, I'm trying to honestly work on, on something myself right now that, that kind of involves that. So

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 non-custodial wallet, but the experience is almost like a custodial wallet. Or another one might be Wallet of Satoshi or Blue Wallet or, Breeze Wallet is another one as well. So I guess these, these are examples, but again, it takes time for people to get familiar with it and start to really build up their use Yeah.

And the, the smart companies, they're building, their apps to be backwards compatible, with these older versions because they know that that's a part of the territory that they're working in. you know, I, I've seen several, you know, Silicon Valley type companies where they, 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, and they're- Apps are running, on, you know, two thousand and twelve Android software. So.

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 HoddleHoddle, let's say, although maybe the volume on those in these countries isn't as high. What's been your- More experience on the KYC question.

Yeah, so, generally speaking, when these, these non-KYC exchanges, it's, 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 some- And they weren't 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 there. Generally speaking, mostly on-chain transfers like Bisc, 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, it is very tough, to do. And, you know, what I've seen with, with Bisc, and, and I like the Bisc team, and I think they're, they're, you know, doing great work, but This, in, in my opinion, i-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, when, when Venezuelans hold their money in PayPal, they have no problem with it because the US government doesn't have any problem with, with what they're doing. It's the Venezuelan government that they care about. So, yeah, and, and, in terms of the, the, I think KYC/AML is gonna continue to increase and, and, not only, Not only on the front end where you have to ask this of users before they even do their first trade, which, it's possible that we could head in that direction, which would be awful, but they have to do things on the back end to meet, these regulatory agencies' requirements. They have to have, 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, I, I personally feel like this, this, this will be another beautiful test of Bitcoin. Is it truly decentralized enough to avoid a lot of these issues? we're gonna find out

Right, and I think it's, it's also fair to point out, and I think Ray Youssef, the CEO of Paxful, has spoken about KYC, and I think h-his view is something like it, it helps essentially Paxful obviously not, 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.

And, and going into calling back to, what we were talking about before about like some seriously nefarious use cases, there's no doubt that KYTAML 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 i-- these, all this red tape just to make a, a transaction, but, you know, that's why it does have to be a balance, and, and, you know, Ray and also local bitcoins, both of, both Paxful local bitcoins Coinbase said that adding in this stuff has cleaned up the activity on their platform and made it a safer environment for the good users, the, you know, on the platform. So, I'm not, I'm not trying to shill for the regulatory agencies whatsoever, but, you know, there's, there's a trade-off to everything. So.

Yeah. Also, another really fascinating thing is this concept of all-time high in denominated in a foreign currency. So can you tell us a little bit about that?

Sure, yeah. So, the way that Paxful and Local Bitcoins release their data, they, as of right now, they don't release country level data like, O- honestly, a lot of the time, even know what country their unverified users are in, they, they have IP checks and things of that nature, but that can only go so far. so what 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 highs, and it's a great validation of, of the idea idea of Bitcoin in that, Bitcoin is an extremely attractive use case, or I should say an increasingly attractive use case, in these places that have a high amount of restriction

Right, and as I understand, the typical story that we have seen with all time high in a foreign currency is usually it's an indicator that that government is trying to forcefully- Set the price of their money so lower, so, 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.

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 wanna 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, it's really cool, to have the data and to see it play out like that. And in my Argentina article, I, 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 Bitcoin volume spike when certain things happen in the real world, and it's really, a compelling argument about the proposition of Bitcoin.

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 they've profited from it, they don't really wanna leave, right?

Yeah, definitely. And, you know, the technical literacy of, of people all around the world is 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 gonna get worse from the perspective of these governments. they're, they're-- I like to say that, you know, these governments, they, they build m-walled gardens, in, in their country, monetarily speaking. 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. So.

That's really cool. a-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?

Yeah, so Paxful, I've been bugging them for a couple years. I think I showed up to their off-- 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, 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 the, I'm 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, I can, they told me that, wow, we had no idea that Latin America was, was such a booming market or that Venezuela was the crux of Latin American volume, until we read your articles. 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, 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, I know Alejandro Machado there, pretty well. I've had many conversations with him and we always trade intel on, on the market in Venezuela. And so I just, I did a, an article under there. under their handle, because I think they do good work and, and, yeah, I, I wanted them to have exposure and also, for me to get exposure from, from their, current standing. So, yep.

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 wanna do their own data analysis?

Oh man, yeah, I would say,

start, start, when I learned computer science, I'm not good in the classroom where they're, 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, and, so when I learn, I like to have, real, real problems that I'm working on. So find a data set that you're really interested in. And 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, the boot camps, for people who aren't 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, to study ten, ten, twelve, fifteen hours a day, and you learn really fast that way too. So, yep.

Great. any tips in terms of, pitfalls when assessing Bitcoin data and Bitcoin volume? Are there any tips, on that side for listeners who wanna do their own Bitcoin analysis?

I don't know, there's, there's 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 talk 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,

Awesome. Alright, 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 usefultulips dot org. Matt, is there anywhere else you'd like people to find you online?

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, 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. So

yeah, actually, just one last question while we're here on this, one thing that I find interesting when I was looking- 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 UsefulTrilobes dot org on the combined world page.

Yeah, exactly, and so it kind of tells you that there might be something to Bitcoin outside of speculation. People might be using it for reasons besides speculation, and that's kind of the argument that I try to make.

Fantastic. Alright, well, look, I think that's pretty much it for this one, so thank you again for joining me, Matt. Thank you,

Stefan.

Thanks. and just for listeners, you can subscribe at stephanlivera dot com, and there'll be show notes there, you can get all the links, and I will get a transcript for this up in a couple days. So that's it from us. Thanks, guys, and we'll see you in the citadels.