Michael Peterson and Nicolas Burtey join me to talk about their project showing how a whole town could go bitcoin and lightning native. Listen to this interview talking about how thousands of people are going lightning native to benefit from international remittance and creating bitcoin tourism.
- Stages of development
- Building a Citadel by the sea
- Lightning practicalities
- Teaching Bitcoin
- Rebuilding the Bitcoin for payments narrative
Links:
- Site: BitcoinBeach.com
- Twitter: @Bitcoinbeach
- Twitter: @nicolasburtey
Relevant episodes:
Sponsors:
- Swan Bitcoin
- Hodl Hodl Lend
- Compass Mining
- Unchained Capital (code LIVERA)
- CypherSafe (code LIVERA)
- CoinKite.com (code LIVERA)
Stephan Livera links:
- Show notes and website
- Follow me on Twitter @stephanlivera
- Subscribe to the podcast
- Patreon @stephanlivera
Podcast Transcript:
Stephan Livera:
Michael and Nicolas, welcome to the show.
Michael Peterson:
It’s great to be here.
Nicolas Burtey:
Thank you so much for having us.
Stephan Livera:
So guys, I have been keen to get you on for some time, but we just couldn’t make it happen for a little while. I know you guys have this awesome project going on. Tell us a little bit about yourselves and you know, how you got into Bitcoin and all this stuff.
Michael Peterson:
You want to go first, Nicolas?
Nicolas Burtey:
You can start.
Michael Peterson:
Okay. So this is Mike Peterson. I’ve actually been fascinated by Bitcoin since the early days. I remember reading accounts of it in this new digital currency that was created, that wasn’t controlled by any country or any state. And I was an economics major in school, and I’ve always been kind of fascinated. Why some countries are successful and create wealth while others seem to just stagnate and the people are mired in poverty and no matter how much aid comes in and how much government programs come in. And so to have somebody do something unique and have this currency that wasn’t controlled by the government that grabbed my attention. And as Nicolas will tell you, I’m not a tech person. So it took me like six years to be able to actually like purchase any Bitcoin and hold it myself. But I was definitely fascinated from the early days.
Stephan Livera:
Yeah. And Nicolas, tell us about yourself.
Nicolas Burtey:
Yeah. Hi. I am Nicolas Burtey. So my side, I come more from a tech background, so I went to the, I would say blockchain space in 2017. After I started to understand the economic part I decided to move full-time in the Bitcoin space about two years ago. And now I’m working with Mike on the wallet that he’s deploying.
Stephan Livera:
Awesome. So, yeah, let’s hear a little bit about how this whole project got started. As I say, it’s like trying to build this Citadel by the sea. And as, as my regular listeners know, I’m all about Bitcoin Citadels. So I’m very happy to hear about it. So, let’s hear it from you, Michael, what is this project?
Michael Peterson:
Yeah I’ve been living in El Salvador for probably about seven years before we started this project and we were working on different economic development initiatives and kind of in a parallel path. I was going deeper down the rabbit hole with Bitcoin and more and more fascinated by it. And an opportunity came up with one of the donors that want to support some of the economic and educational programs we were doing and he wanted to invest in them, but he wanted to use Bitcoin. And so he kind of put this challenge out to me of how can you use Bitcoin in real ways? He didn’t want to just kind of convert it to fiat. And so I’d never really thought about actually integrating Bitcoin into that aspect of our life it was kind of two separate things.
Michael Peterson:
And so once I started thinking about it, I got more and more excited and start telling my wife. And she’s like, “You’re crazy. That’s never going to work. You’re never going to be able to start this economy from scratch!” And, but luckily the donor was more excited about it than my wife was at the time. And so he, he gave it the go ahead. Yeah. So we just started from scratch. Initially we were funding kids in afterschool programs. If they were participating in them, if they were cleaning trash from the community or doing other service work, we were paying them in Bitcoin. Then we had to onboard the first store to accept Bitcoin. And from there it grew to more programs within the community and more businesses accepting. Then to this point, now we have about 40 businesses in El Zonte, which is only a town of 3,000. So it’s a pretty small town, but there’s 40 businesses accepting Bitcoin. And I think there’s 80 to a hundred in El Salvador now, and probably have 500 families in the community where we’re at using Bitcoin on a regular basis. And I’d say in El Salvador as a whole it’s probably triple to five times that. It’s kind of been growing exponentially much faster than I actually expected.
Stephan Livera:
Yeah. So your website mentions three phases of growth or stages. Can you tell us a little bit about that?
Michael Peterson:
Yeah. The initial stage was us obviously just trying to introduce it and just getting general usage this is people are creatures of habit. So just getting them to even consider that something else could be money. That was actually the most difficult stage. We thought we would start with adults because we thought well for the younger people, this is going to be too challenging. Let’s start with the adults and then we’ll work our way down. And I should have known better just by the fact that I have to have my kids help me you know, set the DVD player or get a movie playing or anything like that going that I was totally upside down in my thinking because the adults looked at us like, you’re crazy. Like, what do you mean? We’re going to use this magic internet money and we can buy things with it and we have to hold our keys.
Michael Peterson:
And it did not go over very well. And so we kind of not even purposefully, but just at the time we had some programs going on with youth. And so we switched over and we started funding those and they grabbed it right away. I mean, they’re used to using their phones for everything, but them, it just made sense. They do everything on their phone, so why not be able to transfer funds? And then it became this thing, like the other kids that didn’t have it, they wanted to be a part of it because it was, this cool thing to be a part of. And they would actually teach their parents how to. And so that was kind of like the first stage was just getting that initial adoption. And then the second stage was getting tourists and people to come in and use it that are from outside the community.
Michael Peterson:
And so that’s kind of the stage that we’re in right now. And we’re seeing a lot of adoption by the tourists. We’re actually seeing a lot of tourists come in just because they want to be able to spend Bitcoin and be able to use it that are Bitcoiners. And then the final stage is for us to be able to pull back from the funds that we’re injecting and for there to be enough coming in from remittances primarily, but also people working in Bitcoin related companies. And we’re already starting to see a lot of that happen. Strike is employing five — I think it’s five people now in the community and there’s another company and given who’s hired a couple of people and there’s a third company that’s just started. And so, yeah, that’s kind of the final stage is to make it sustainable by us being kind of able to pull back. We want to just be the ones that kind of get the ball rolling and prime the pump, but for it to be real, it has to be real. We can’t be subsidizing it longterm. And so that’s what’s exciting is we’re actually seeing that traction and seeing it look like it will be at the point where we can pull back over the next year.
Stephan Livera:
That’s interesting. So what would it look like then if you were to pull back, as in you think the community would be kind of more self-sustaining in terms of Bitcoin in flowing and people spending it around and trading around for various things?
Michael Peterson:
Yeah. I think right now we’re employing a lot of the people we have we have a decent sized team that are doing stuff in the community, but our goal and what we’ve already been doing is for them to go off our payroll and not being paid by Bitcoin by us,by being paid by private sector companies. And so we, about two months ago, we had a big construction company come in and start paying all of their employees in Bitcoin. And so they’re paying about 40 people in Bitcoin. As I mentioned before, the other Bitcoin focused companies that are hiring local people from El Zonte. So we want to see the majority of wages in El Zonte being paid in Bitcoin. We want to see tourists coming in and spending Bitcoin. And then also we want to see Bitcoiners buying first homes or second homes or vacation homes in the region and having this become just kind of a major Bitcoin hub so that every time they’re in visiting, or if they’re living there, they’re going to be spending Bitcoin on a daily basis.
Michael Peterson:
And so the idea is once we pull back and we’re not injecting Bitcoin into the community, it won’t really matter because there’ll be Bitcoin being infused in all these other ways.
Stephan Livera:
Cool. And so Nicolas, let’s hear a little bit from you, tell us how you got involved and what your part in all of this is.
Nicolas Burtey:
Yeah. So about a year ago, I wanted to start a project on lightning and real world banking with lightning. I was thinking about launching something in the US but I see that it’s actually pretty challenging in the US to use lightning because of the, regulatory and the tax burden. And so I was thinking there might be other places in the world that are maybe more suitable to start like a Bitcoin project. And so I hear about Mike about a year ago, but you know, this is El Zonte project. And I was like, wow, I think it’s a huge opportunity to bootstrap something. And so I reach out and I say, Hey, Mike you know, I’m working on lightning, I see that you’re using some wallet, but you have some challenges. So why don’t we work together on, we can start a local community bank wallet.
Nicolas Burtey:
And so this is what we have been working on since probably last summer. So what we have done is we have launched the bitcoin beach wallet last probably around September last year, this is a wallet that is, maybe we can dive a little bit into it, but it’s a shared custody wallet. So there is a lightning node, but there is also a cold storage where the keys are shared among members of the community. And the way that I’ve gone quite a bit knows there is about a thousand people using the wallet daily mostly on El Zonte, but of course about 5,000 user monthly. Yeah. It’s a very interesting wallet project like when you were there, you feel like you are actually discovering the feature of what the future could be. If people start using lightning for everything, right. And it’s very rewarding to work on this.
Stephan Livera:
Probably the obvious question or point that for many listeners, they’ll be like, well, hang on, aren’t we all about not your keys, not your clients non-custodial and so on. But I think it’s also a useful point for you to spell out. And also from my recent episode with Jack Mallers where we were talking about, you’ve got to appreciate the wealth and income level of the people who may not be able to afford on chain fees for channel opening and having the technical difficulties and dealing with all of that. So do you want to just spell out some of that aspect, how you were thinking about element of it?
Nicolas Burtey:
Yeah. So when you think about lightning wallet, right? You have different type of wallet. You can have your like LND node on your Raspberry Pi the most like self one way, and maybe you will connect to itToR network with your phone, right? If you want to have a little bit better UX and more usability, you can use a word like Breez or Phoenix or Muun, which are like you open the channel on the fly and you can use a phone. You still have some trust assumption with the wallet that you’re using. But it’s a lot easier to use maybe on the all of the spectrum on the custody side, you can use a wallet like a Satoshi or cash app or like something that they take full custody of your phone, right? This is a spectrum that you have, and maybe you have another, like one that will be the oncology model where like you, someone will host via raspberry pi and maybe have like an LND hub.
Nicolas Burtey:
You know, you have a group of fun showing maybe everyone knows this is the main different, like, type of, setup you could have. So here, I believe what we’re doing is we’re creating a new category of wallet. Some things that maybe doesn’t take this much today, the ideas is that we are creating from the user perspective. It’s a custody, wallet in the sense that you open it and you can send money on chain and off chain and like it’s a unified balance and you don’t have to understand what is the technical details behind it. But the interesting aspect behind it is so on the backend, right, we have some fund that is on LND to put our transactions to lightning, but basically what we want is to have most of the funds that are in cold storage.
Nicolas Burtey:
It’s a bit like most exchanges today use a hot wallet where they will put the fund use towards in and deposit. But they want to — or the exchanges want to have the mass majority of their fund in cold storage, because if something were to happen, like the fund will be safe. So from the cold storage, it will be safe. And so we’re thinking along this line, but the idea of the cold storage is you can create like a multisig and here, because it’s a very identified community. We can have different departments or communities that have the signature. So you’re moving a little bit the assumption about the trust because no, you’re not gonna necessarily trust a single entity to maintain the cold storage, but you’re actually putting trust in the community and we need to educate people how to do it and how to work with multisig.
Nicolas Burtey:
But it’s really, we have this idea of a community wallet the fund belong to the community. And maybe I can expand it a bit of why I think this makes sense in, especially in a place like El Zonte. So Mike, tell me if I’m wrong, but I believe the average salary in El Zonte 400, or 500 Euro a month. And so when you like set up, so the on chain fees like if you are like above a hundred sats per byte, like it’s already too much, but you could think, okay, you can have a lightning wallet. But the issue is like, so lighting wallets like when you you have to manage your own channel, even if it’s like a Phoenix or Muun or Breez, you still have to maintain at least one channel and probably like two or three per user.
Nicolas Burtey:
Right. And so this cause this is an onchain transaction for opening and closing. And so it’s as an economy of like 500 euros a month. So the average transaction size we see today is like 20,000 sats, right? It’s like, $10 so average balances is also about the same, it’s a little bit more than that so like, it doesn’t really justify setting up like a lightning channel for this user because the amount being transacted on the very low and maybe today to make sense with the current fee, but assuming there’s a fee increase in the feature, like you would need at some point to be able to pool capital if you want to have a billion users on bitcoin and lightning and this is what you are doing.
Stephan Livera:
And I think that’s an important explanation because I think I’ve seen some discussion on Twitter where it’s kind of been like, “Oh, why are you promoting this custodial thing?” But I think genuinely at the certain people at that wealth or income level, just, there’s no real alternative, right? Because if your income is $500 per month, let’s say, or $300 per month to pay, let’s say a $5 or a $10 on chain fee for channels open and close every time it’s just not feasible. And I think the other way to think about it as well is if you are receiving a small amount on lightning for the first time, and you don’t already have established channels, that first payment might get totally eaten up by, on chain fee. And so just the practicalities of this require, that there are some users who are unfortunately custodial, but it’s at least a community custodial as opposed to putting it out there. And I think the other point that’s interesting as well as this, that it’s still an interoperable Lightning network. So the QR codes that are being scanned are still scannable and payable by anyone in the Lightning network. So can you tell us a little bit what was going on at the start where people just using wallet of Satoshi or bluewallet, and now they’re transitioning more to using this kind of what we might call community custodial Bitcoin beach wallet?
Michael Peterson:
Yeah. So initially when the project started, we were doing all on chain transactions at that time, the transaction costs were only about 25 cents. And so it was still was a little bit of a ding if they were trying to do a $2 transaction, but if they were doing a $10 transaction, it wasn’t the end of the world transaction costs kind of kept ramping up. And we were seeing three, four, $4 transaction cost. And so at that point we knew we had to shift something or else it just was not going to be sustainable. And so initially we went to wallet of Satoshi and mostly because for the user base that we have and the people that we’re working with, just the usability of it is super important. If it’s too complicated, if it’s too complex they’re just not going to use it.
Michael Peterson:
They’ll just use cash. It’s easier. And people are creatures of habit and trying to get them to change their habits. You have to kind of take small steps. And so we we’re happy over all with wallet of Satoshi. There was some challenges when we when we needed support or we needed other things, just because a lot of times we couldn’t get back to the people right away. And so when we have the opportunity to work directly with wallet developers and to have specific features put in the wallet, we kind of jumped at that because a lot of times the people who are developing Bitcoin wallets and who everybody says is going to be using Bitcoin longer term the people at the bottom of the economic rung, those are, they live in totally different worlds. And so what the developers think that people need and what the people actually want are two different things.
Michael Peterson:
And so for us to have the opportunity to work directly with the wallet developers and have them listen to the things that we told them, people are wanting. And then we actually drug Nicolas and his wife and his his infant child down to El Zonte with us. And they spent over a month there and just watching how people were using things. And I think even for him, a lot of things, it was kind of surprising like, “Oh, wow, I never thought people would have that problem. Or I never thought they would use it like this.” And so we’re definitely big believers that people should, as they progress hold their own keys, that they should hold their their phones and preferably in a cold storage. But we also believe that there’s kind of baby steps to get there.
Michael Peterson:
And if we insist that everybody makes that jump right away, we’ll eliminate probably 95% of the people in the world from ever embracing Bitcoin. And so we see right now, even for a lot of the stores, they’re taking transactions into a custodial wallet, but once a week, they move that into their cold storage where they’re holding the keys. And so it’s not one way or the other it’s, Hey, let’s use these products together in the times they make the most sense, but always with the goal longer term for people to go non-custodial.
Stephan Livera:
And I’m also curious, what were some misconceptions that you had before you actually hit the ground and saw people using it in the real world? What were some of the maybe even for you, Nicolas as a developer and kind of thinking about wallets and stuff, what changed when you actually were there on the ground and seeing people use it in real life?
Nicolas Burtey:
A couple of example initially the unit of account was sats because I was like, Hey, we need sats. And actually people wander out, like, you should show how much sats is it. But like people thinking that they want to send $5. then go to some 20,000 sats. And so it was the first thing I’ve done everywhere. Maybe as the sub unit of account in that sense, because otherwise if they cannot send easily $5 to someone or know how much there is fee how much, so it was one of the, yeah, I guess first thing I learned is that like, even if, as a developer, you start to think in sats and like this is one example.
Nicolas Burtey:
Another example is the network connection. You know, we take for granted here in the US or in Europe that you will have like a good internet connection or the time. And here actually, in El Zonte, I saw that sometimes there was a lot of requests that were sent and basically, there was no response to it. And so from the web perspective, you have to challenge your assumption about like if you send the request like you should retry automatically. And it’s something that I really had to be there to see the fact that the wallet was behaving differently. if I were like at home, I know whatever internet connection, or if I was in El Zonte where the internet connection was at most spotty. And so it it’s led to like a challenge of the network that we were using, for instance, because of that, it’s probably some things that really, you need to be in these places to understand this like, but in like a network connection.
Stephan Livera:
Yeah. Mike, anything from your side that you saw that was different to what you thought from when, or, or was it more like you were just spending a lot of time there? So you were already familiar with what the people needed?
Michael Peterson:
I was kind of pleasantly surprised that the volatility wasn’t as big of an issue, as I thought it would be. Obviously when we have big draw downs, like we’ve seen in this last week, you have people that start to freak out a little bit, especially people that are fairly new to using Bitcoin, but the people who we’ve been working with for a year they kinda just like, well, this is just Bitcoin. Like it ran up. And so it’s normal for it have a decent sized pullback. And so they learn how to manage that volatility pretty well, where I need to — I don’t trade. I’m not a trader. I usually I’m disastrous as that. But if I ever did start trading, I would just watch them because they always seem to cash out, like when it’s about to top.
Michael Peterson:
And that’s when they go to cash. And then sure enough, like a day later Bitcoin crashes, I’m like the heck, how did they know? So they’ve they’ve become pretty adept at managing that. And you know, a lot of times if they have something that they need to pay next week and Bitcoin’s run up, they’ll put it into the dollars. Cause they know they have to make a dollar payment, but it hasn’t been this huge anxiety that I was anticipating. So that’s been a pleasant surprise. And it’s, I think like, as Nicolas was saying, seeing though, even though they are using Bitcoin all the time, they still think in dollars. And so I think we’re just creatures of habit. And so those things change slowly over time. I think it’ll probably be five years before they start thinking in sats or pricing in sats, but I think that’s okay, this is going to be a gradual change. And I think El Salvador and El Zonte specifically are going to be way ahead of the curve in the world. And so there’ll be thinking in sats long before people in California are.
Stephan Livera:
Yeah. That’s a really interesting to think about this whole idea of thinking in sats. And also in terms of learning from other people, I’m sure at the start, it must’ve been way harder to get people to change from using physical cash over to using your phone wallet. But now it’s probably more easy for them to just like ask their family or friends “Oh hey, how do you use this wallet thing?” And then they can teach each other a lot more easily. Was that your experience that you saw?
Michael Peterson:
Yeah. I mean, initially we’d go out and we’d have to like talk people into trying it. And you kinda harangue the people that owe you favors or that are family members. And so you get them on first. And so the early days, it was a lot of us having to go out and push on people to start using it. Now it’s the reverse, like people come to them like, “Hey, how do I get into Bitcoin? How can I be able to use this? I see that you can send money to your family across the country or out of the country. So I want to be able to use Bitcoin!” And so it’s actually made it a lot easier once that ball got started rolling, it takes very little effort on our part to keep it growing. And in fact, even if we wanted to stop the growth of Bitcoin in El Salvador, there’s no way we could. I mean, it has its own forward motion now. And so that’s come actually much quicker than I anticipated.
Stephan Livera:
Yeah, that’s cool. And so you also mentioned the hope is that more tourists come along and spend their sats there as well. And I know I’ve seen on Twitter, Jack Mallers came down from Strike, Miles Suter from cash app. And then I saw, Peter McCormack was also down in town. So can you tell us a little bit about what that experience is like for Bitcoiners who are thinking to come and visit?
Michael Peterson:
Yeah, COVID put a little bit of a damper on that. You know, a lot of people were a little bit restricted, but we’ve seen even in the last month as restrictions start to lift people just show up. So it’s been a lot of fun. I’ll just be sitting in a restaurant. Somebody would be like, Hey, are you the Bitcoin beach guy? You know, I just came in from Guatemala or Jamaica or people are coming in from all over. And so and I think we’re just at the initial stages of that. It was just so fun to have Peter and Jack and Miles and Nicolas was when he was there and everybody just goes out to dinner together and you run into other people. And so I could see six months from now it being 10 times that, and our goal is that for people like yourself, for podcasters to come to Bitcoin beach, because they can do a bunch of different interviews with a bunch of different people in one location without having to go anywhere.
Michael Peterson:
And so we actually, as part of the Bitcoin training center, we built a podcast studio into that, for that very thing. And so we think it’ll be the place, especially in Northern winters, from people from Canada or Northern Europe that want to escape the cold, it’ll be the place they go in December, January for people that want to get a little surf vacation in, but also be hanging out with other Bitcoiners for people that are into yoga. And so I think that it’ll just become a natural place that people go knowing that they’ll be able to strike up conversations or have impromptu Bitcoin meetup. And we also have in the beginning stages of talking about hosting a conference in El Zonte and not like a traditional conference where it’s really focused on having 10 different speaking engagements during the day, but something where you had one or two speaking engagements, but just opportunities for people to go and spend Bitcoin and enjoy the community. And so that’s kind of what we’re looking forward to.
Stephan Livera:
Yeah. I mean, I’m obviously still stuck in prison island Australia, but when I can get out, I would love to come and visit. So just to whet the appetite for some listeners, what sort of things can they buy with Bitcoin when they’re in town?
Michael Peterson:
I mean pretty much anything you can buy, you can do your surf lessons in Bitcoin. You can pay for your hotel. You can pay for any of the restaurants you can buy local, like crafts in Bitcoin. You can pay for your transportation in Bitcoin, you can pay for your massage in Bitcoin, your trainer in Bitcoin, your yoga classes in Bitcoin, pretty much everything.
Nicolas Burtey:
If you use the wallet, there is a map on the wallet and you can see all the business accepting Bitcoin and Lightning.
Stephan Livera:
Awesome. And so in terms of I guess getting to the country and getting to El Zonte, what does that look like for people who are interested?
Michael Peterson:
Yeah, it’s pretty easy to just fly into the San Salvador airport. El Zonte is like a 45 minute, maybe an hour drive from there. So if you hit me up on Twitter beforehand, I’ll set you up with a driver that accepts Bitcoin as payment. We have lots of people that come to El Zonte [and stay] there for a couple of days and three months later, they’re still there. So people just need to be aware if they plan on just dropping in, they might not want to leave.
Stephan Livera:
Well, that’s good to see. And also, what’s it been like in terms of education in terms of people learning about Bitcoin and learning how to hold their own keys and do all these things that we talk about, what’s that been like for you guys?
Michael Peterson:
That’s been one of the funnest things we’ve actually had a partnership with a, and I’m blanking on the name of them right now, but there was — it’ll come to me — but anyways, there was a great non-profit that that was doing an educational seminar for all our people. And they did like — I think it was like a series of 10 classes and they went deep. I mean, and the things that, I mean, I was learning all kinds of stuff in these classes and to see the people that are on our team, they were asking questions that a lot of times I didn’t have the answer to. And so we’ve seen people really start to go deep and we found the key is for them to start holding Bitcoin and transacting in it. And then their curiosity it gets the best of them and they dive down.
Michael Peterson:
If you try to focus too much on that upfront, their eyes just kind of glaze over. And they’re like, oh, that’s just sounds too complicated, but blockchain for humanity, that was the organization. I got to make sure I get their name out because they’ve been so wonderful helping us. But yeah, so they put on those organizational or those educational seminars for us. And so yeah, we’re seeing people that are increasing in their knowledge. I think that was one thing that surprised Jack Mallers when he came down and he was, I think just kind of shocked that like, whoa, these people know how to use Bitcoin. They like use it every day and they understand what’s going on behind the scenes. And so I think that’s going to lead to a lot of companies wanting to hire locals from El Zonte to work in their support units or their marketing units or any of those things. They live in Bitcoin. It’s not just something they talk about.
Stephan Livera:
Yeah. That’s great to hear. So what about in terms of people, I guess, storing their stuff, as well as the most people I presume are just using like a phone wallet, right? Like the Bitcoin beach wallet, and then maybe once they want to start, like, let’s say they are able to save up then does that mean they start moving to like an on chain, cold storage wallet or like even a hardware wallet maybe? Or what’s the kind of typical progression there?
Michael Peterson:
Yeah. That’s kind of the typical progression. We’ve actually been the ones bringing down a lot of different hardware wallets. And so we brought down a number of ledgers and some trezors and lately we’ve been at Nicolas’ insistence, we’ve been bringing down Coldcards. So yeah, [it’s] hard for them to buy anywhere else. And so right now we’re kind of the main suppliers of those, but we’re hoping that as the number of Bitcoin users grow that there’ll be businesses that kind of start meeting that market organically.
Stephan Livera:
Yeah. Cool. And I think in some ways there are lessons here that can be maybe applied into other places that might also try and do a similar kind of project. And I guess take some of the lessons from this. And even another example might be trying to operate in a lightning native environment is really cool. And then what are the practical implications of making that work as an example, you might need to periodically flush out some of your Lightning balance and spend that into your hardware wallet as an example. And so I guess that’s something you might have to think about, how do you swap in and out, and I guess Nicolas, you’re thinking about that, how to support that on a back end for them to be able to do that, things like that, right?
Nicolas Burtey:
Yeah. So the wallet accept both on chain and lightning so we need to have a hot wallet that is best for layer one and layer two plus there is a cold storage. So yeah, currently they’re using a trezor and the hot wallet and go to the cold storage on if money needs to be withdrawn from the cold storage then they need to be like a coordinated action from some people in the community to do that. And yes, there is also [a] tool — loop in, loop out that within the hot wallet, if you want to move on it from on chain to off chain, we are using the tool from lightning labs to do it. And I guess there are challenge is like, assuming you want to have a large part in the cold storage, right. How do you manage your liquidity?
Nicolas Burtey:
It’s an interesting aspect because some days it would be a lot of payments. Some days will be less demand. So we need to be fairly active managing the liquidity. But some of the goal working with Mike and the community is to try to develop the software that basically automate most of it. So that one of the things we have in mind is that this wallet is a community wallet, right? But it will be very successful if like, there is a lot of community on the world that [would] duplicate this project and start their own wallet. And so the wallet that we have been building is open source. We are open sourcing this month. And so we want to know other people to use it and like just deploy their own wallet like around the world, right? And especially in developing country, we think it makes a lot of sense. And so, we have four people that have reached out that want to do the same thing in other country. So far we have not been able to create new wallet, but as [the] wallet will be open source and anyone can just jump on it and contribute and fork it, like deploy their own solution wherever they are, we are quite excited about this.
Michael Peterson:
I think too, just the importance for people to see lightning being used in real way. I mean, we have thousands of people that are using lightning payments on a daily basis for daily life. And I hear from Bitcoiners all the time that are like, why would people want to use Bitcoin to buy their coffee or to their tortillas or these small purchases, that’s stupid. What are you guys doing? And I just have to remind people like you’re coming from a very privileged point of view. You have all these other banking tools. The majority of the world doesn’t have these tools. And without Bitcoin, they won’t for decades still. And so Bitcoin in months, can open up networks that would have taken decades otherwise. And so now all these people are able to use mobile payments. They’re not locked out by banks that want certain documentation or income limits. And so I would just encourage Bitcoiners in general to, if you’re not using lightning, get out there and start exploring it because it’s a lot more robust and substantial than people give it credit for.
Stephan Livera:
The other big story, and you mentioned this at the start is, it’s not just the tourism people coming and spending money. It’s also remittance, right? So there might be someone from El Salvador who’s working overseas and sending money home to their family as well. So can you tell us a little bit about that from the local’s perspective?
Michael Peterson:
Yeah. In El Salvador you know, remittances is just a huge part of life, unfortunately, because so many people have left El Salvador and because they feel like they can’t provide for their families there. And so ultimately we want that to change. We don’t want them to be dependent on remittances. We want the Bitcoin economy to grow there, that people are flocking to El Salvador because that’s where the good jobs are. But we’re also realistic that that’s a little ways down the road. And so for now, we want to make sure that the remittances that are being sent into El Salvador are not being taxed by Western Union or MoneyGram or these other companies that handle the remittances right now, if anybody’s ever sent money with any of those companies you know how the fees add up it sounds like, oh, it’s only 5%, but then there’s a $2 fee for this and there’s a dollar fee to receive.
Michael Peterson:
And if you want a receipt, there’s this fee. And so, for a lot of them, especially for smaller transactions, they can pay 10, 20% of what they’re trying to send just in transaction fees. And so we think that Bitcoin is going to turn that on its head because how are they going to be able to compete with this network where people can send it virtually free when they’re using lightning? And it goes straight to their phone, they don’t have to go to anybody’s office. They don’t have to take the bus anywhere. They don’t have to deal with any of the logistical issues. And so right now, Western union and MoneyGram, those companies, they have a little bit of time just because people are creatures of habit. And so people tend to just do the same things that they know how to do, but it only takes one or two people in their circle to start using Bitcoin using lightning payments using an app like Strike before they realize, “Wow, why am I doing this? Why am I driving down to the Western union office when I can just directly from my phone, send this to my mom?” And so I think, I think in a year you’re going to see those companies really hurting. I definitely wouldn’t want to be an equity owner in any companies that are focused on remittances.
Stephan Livera:
And it seems from what I’ve seen as well, and from when I’m talking with Jack Mallers, it seems that Strike is doing really, really well in the country becoming the number one app and things. What’s that been like in terms of what you’re seeing? Are you seeing a lot of people sharing it around with their friends and family?
Michael Peterson:
Yeah. We’re seeing a lot of people sharing Strike around and I think it was the number one app for at least a few weeks, which is crazy [as] was it was beating TikTok and Facebook and all those things. So that was, fun to see. And it’s so great to see people interact between the Strike wallet and the Bitcoin beach wallet or the other Lightning wallets that are out there. The fact that there’s not some closed system, like there is with PayPal or Venmo or something like that. All these applications can work together. People can choose what works best for them, and it’s just making it real to them there. I think us from the more developed world, we take all these things for granted.
Michael Peterson:
It’s like, well, we’ve already had this before that we could send money. So this is kind of cool, but I don’t know if it makes a real difference. For them it’s revolutionary. They’ve never been able to send peer to peer before. They’ve never been able to send directly from across borders for virtually free. And so it’s fun being there and just seeing how excited they are and realizing, and the US and Europe they’re going to get left behind because they’re stuck in this kind of so-so system and the rest of the world is going to embrace Bitcoin, and be leaps ahead of them.
Stephan Livera:
Has there been a bit of a network effect around neighboring towns or areas like people from the other surrounding areas are coming into El Zonte? Is that something you’ve seen as well? Or what’s the experience been like there?
Michael Peterson:
Definitely. The Bitcoin usage is being kind of like spreading outward with El Zonte as the epicenter and we’ve kind of been purposely trying to target those areas also, but we’ve found that it’s a hundred times easier to get stores to start accepting Bitcoin, because they’ve already heard about it. They’re already excited about it. They already want to be accepting Bitcoin. And so it’s been fun seeing the map within the Bitcoin beach wallet. You can kind of watch within the map as these new stores and businesses pop up. And so I joke that it’s more contagious than COVID it’s just kind of spreading across El Salvador. You see these little red dots? Yes.
Stephan Livera:
Super spread that lightning network everywhere!
Michael Peterson:
Super spreader! So you have these red dots popping up all across the map and people we’ve never even talked to people that I haven’t even been to that part of the country. And now they’re accepting lightning payments for a carwash or their little pupusaria. And so yeah, the cat’s out of the bag and I don’t think there’s any stopping Bitcoin in El Salvador at this point.
Stephan Livera:
That’s really cool to hear. And so one other question I wanted to ask is around the number go up factor. Now, people know number go up. It’s not, I’m not necessarily saying this is what we should be out there promoting. I’m just saying, this is the reality. A lot of people come to bitcoin because of number go up. And then that also causes as my friend, Alex Gladstein might say, freedom go up or numbers of people going up, right? Because all the numbers are indexed, if you will, right. Just the price is running up, but that means there’s more mining hashrate. There’s more developer attention. There’s more basically everything. So how are you guys managing that aspect of this? Because Bitcoin, as we all know, it can be extremely strong in it’s up and down swings. How do you deal with that part of it?
Michael Peterson:
So definitely we’ve seen that when Bitcoin’s on a run, there’s more people that are clamoring that they want to get involved that they want to they want to start accepting Bitcoin at their store. They want to know how they can buy more Bitcoin. They want to invest. And so we do try to walk that line. We don’t want to create speculators. We don’t want people that are gonna sell their family property and dump it to Bitcoin as it’s like at a peak. And then they’re going to panic sell when it drops 20% or 50%, like we saw this last week. And so we try to walk that line. We show them, Hey, this is the history. Bitcoin is steadily progressing upwards, but it does have these big draw downs.
Michael Peterson:
So you need to be prepared to ride those out. We encourage people to dollar cost average and to kind of make sure that their position size is appropriate for their risk level. But the reality is when it’s running, that’s when people want to get in. Once it dumps and even if they sell, they’re usually still hooked, then they realize I shouldn’t have sold. And of course then they buy back in higher. But you know, I know I’ve done that in my early days and I think most Bitcoiners have, so that’s just part of the learning curve. So we don’t focus too much on price, but definitely it is a driver. I think it was designed that way purposely, but you don’t have to talk about price because everybody knows what it’s doing. So we let the price speak for itself.
Stephan Livera:
Yeah, of course. And I don’t mean necessarily talking about the price, more dealing with teaching people when it can be so volatile right now, those of us who are long time hardened Bitcoiners we don’t care that much. Right. Because we’re thinking about it in terms of sats, we want to accumulate sats. But for when we’re teaching new people, you have to sort of walk them on that journey. And sometimes you’ve got to hold their hand a little bit because it’s like when somebody is new to Bitcoin and you’re teaching them, if there’s a drop, you you’re getting messages from them all the time. “Oh, what’s this drop. Oh, what is it? is it OK?” And they just, and whether you are in Australia or the USA, or El Zonte, you’re probably feeling that same human emotion that we all feel.
Michael Peterson:
Yeah. No, definitely. But I think that’s part of the experience and we give them that talk upfront, but they don’t really internalize it until they’ve woken up and checked their wallet and seeing that what they had in there is dropped in dollar terms by 30% you kind of have to feel that moment to really understand it. And so then we remind them and when they panic call us, we remember what we talked about, that this is what Bitcoin does. And you said, oh yeah, that’s no problem. You know? I I’m prepared for that. Well, this is that time. And so you’re talking about wanting to buy more who knows it could go down further, but this is a better time to buy than it was a week ago. So if you want to buy more, this would be the time. And so we just kind of continue to walk with them in those circumstances and realize that what they’re feeling is human. We felt that before. And so you kind of have empathy for them in that.
Stephan Livera:
Yeah. That’s the funny thing. And I think this is one of those things I’ve heard financial advisors talk about where they say people often overestimate their risk tolerance or their level of ability to go through a drawdown. And then, you’ve got, Bitcoin is on this other way on the other end of the spectrum. Some people who’ve been through multiple 80% drawdowns and having to deal with that is brutal, but we all learn, right?
Michael Peterson:
Definitely. I think it is good. I mean, I actually liked the drawdowns. I like it. For our program, I like them to have those gut checks and for them to remember what they’re in it for, and you know, that it does allow all this freedom and actually transacting financially. It’s not just number go up. And so I think that the periodic corrections are necessary to not just create a bunch of speculators that go out. And I don’t think anybody in our community is yet, but if it just kept going up, they’d figure out how to leverage it and how to get into one of these a hundred to one leverage positions. And so I like the drawdowns. It keeps people humble and keeps them like, okay, let’s just slowly accumulate over time.
Stephan Livera:
Cool. So can you give us a feel for what’s coming next in the community and with the project?
Michael Peterson:
Nicolas, do you want to speak first about anything in the wallet that we’ve talked about as far as the community banking aspects or any of that, or I don’t know if you’re ready to put that information [in] public or not, but…
Nicolas Burtey:
On the bright side, one of the big feature, I guess that we want to add is a proof of reserve. So that if we want to have all this project, like all around the world and once there is maybe more twist assumptions and if your self-care studying it, I think proof of reserve is really something we we want to add. And so we are planning to do that too for later this year or early next year.
Stephan Livera:
That’s exciting. I’m sure our friend, Nic Carter will be very excited to hear about this idea, proof of reserves. Can you tell us a little bit about what you’re planning to do? How to achieve that or what’s the goal or rather what’s the method?
Nicolas Burtey:
So what is proof of reserve? It’s like [whenever] you have assets and you have liability and want to show that the assets that you have, which it checks so much your liabilities, like the money of the end user of the world. Right. And so to actually prove that you have the UTXO is not very difficult because basically you have for each UTXO, you have private key with it. And basically you can sign a message saying, Hey, okay I have the key for this UTXO So the asset side is somewhat more straightforward on the liability side, the liability side to be clear, the way it could be done is from the wallet, you would have maybe a section where you say verifies that — let’s say I have a hundred thousand sats in my wallet.
Nicolas Burtey:
You want to have a way to check that your hundred thousand sats are counted in the total sum of liability. And basically if many people do this check basically you can check that all the liability are being accounted correctly. Right. And there is a bit of statistical game about like, people need to try to make sure that most of them, or at least a significant portion of their liability are being taking into account into the match between assets and liability. And yeah, I think very few people have worked on this today, very few companies, but I think like this type of project makes a lot of sense because if we want to have this like shared custody wallet popping up all around the world I think as you know, regulator will maybe have a look to this. Like if you can prove that this is a superior type of product compared to the existing banking system, like you can easily get a lot of traction I believe, and maybe not pushback, right? So this is why I think it’s a very important feature to add.
Stephan Livera:
I like the idea and it, to me, it’s another one of those bugbears I’m often talking about, which is full reserve banking versus fractional reserve. And obviously this is a tool that helps people know that, Hey, I’m using a full reserve tool if enough people use it. Right. And in that scenario where maybe not everyone can be an on chain user because of their income or wealth level. Now it sort of gives them a little bit more power back or a little bit more of a surety, assurance back while still being interoperable with the rest of the Bitcoin lightning network, which is all out there. So I think that’s really cool. I’m excited to see that. And I’ve seen some exchanges like Coinfloor have been big on that. They’ve been one of the early ones who’ve been big on that idea. So I guess this is a way to help allow various projects around the world or communities around the world to have their own little community custodial wallet but also offer proof of reserves on that also. So, yeah, that’s cool. Anything from your side, Michael?
Michael Peterson:
A couple of exciting things. One, we have our Bitcoin training center. We call it Hope House and we hold classes there, Bitcoin classes, but also English classes, computer classes, all those sorts of things. And we actually turned the upstairs level into a work-share location because we had companies like Strike coming in and wanting to employ people that were graduating from these programs. And so that’s always the hardest part of a development program is actually to bring real jobs in. And so we’re seeing companies really interested in the people in the community and employing them just because they’re so familiar with Bitcoin. And so we’ve actually already kind of maxed out that and we’re starting to look at building an additional building to use as workspace for companies that want to and kind of employ remote workers in El Zonte.
Michael Peterson:
And so that’s both local workers, but also for ex-pats that want to live in El Zonte and be able to have a shared workspace to be able to work in. And so we’re hopefully going to break ground on that second building in the next couple months. And then we still continue to push forward and are getting surveying done. We have a large tract of land that we’re looking to basically build a Bitcoin community. And so the idea is that this would be a place for Bitcoiners around the world to have vacation homes or to move to El Salvador permanently and to be in a community where they could pay all their expenses in Bitcoin and all their neighbors will be Bitcoiners. And so I’m hoping by the end of the year, we’ll be able to have all the surveying worked out and start releasing lots. But that’s kind of a dream of mine to be able to have this be an enduring project, we need people that are going to continually be injecting Bitcoin into it. And these things you have that network effect, these things build on themselves. And so you get enough core group of Bitcoiners there, then all these other Bitcoiners are attracted to come in. And so we are working on that and it’ll be called Citadel by the Sea. So that’s.
Stephan Livera:
I love it. Yeah, that’s awesome.
Michael Peterson:
That’s where we’re going.
Stephan Livera:
I’m a big fan of the Citadel Mame. And so I’m excited to come down and visit sometime once I can get out of this prison island. But for our listeners out there who want to find you online, where can they find you guys?
Michael Peterson:
For me? The best way is just hit me up on Twitter at @Bitcoin beach. I tried to respond to all my DM. Sometimes I get a little buried, but I’d love to hear from Bitcoiners and anybody looking to come to El Salvador and wanting to visit and needing help with logistics or recommendations please hit me up.
Nicolas Burtey:
For me, it’s also Twitter on @nicolasburtey. For the people that want to check out the code it’s on GitHub at GaloyMoney.
Stephan Livera:
Awesome. Well, thanks very much guys for joining me today.
Nicolas Burtey:
Thanks.
Michael Peterson:
Love it. Thanks for having us.