Hello, and welcome to The ₿it Economy! I’m Rob, and each week I write a blurb about something I learned that’s broadly Bitcoin related. If you have thoughts, I'd love to hear from you. My goal is to shed a tidbit of info that I believe will get you thinking about the digital world around you. If you know anyone who would be interested, please do forward this along, send them to the archive, or have them subscribe here 👇
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TL;DR
This week revolves around rumors that payments direct sales of bitcoin at some point this year and its impact on the ecosystem. In other news, the Venezuelan government is experimenting with BTCPay Server while the NYDFS is welcoming feedback on the BitLicense. Also, I am working on a project that gives users the ability to synthesize thoughts and would appreciate you all taking 5 minutes out of your day to fill out this survey. Thank you and enjoy!
PayPal Changes Stance on Bitcoin
Key Takeaways:
After years of bashing Bitcoin, PayPal plans to support the buying and selling of digital assets in 2020.
Longtime competitor Cash App’s recent bitcoin revenue stats are hard to ignore.
It appears that adding digital assets becoming a “me too” feature for fintech startups.
The move gives ~350M users access to purchase digital assets like bitcoin.
It is likely that PayPal will not let users take control of their private keys and self-custody.
Despite no self-custody, Bitcoin has become too big to ignore.
Background
It all started with the Monday morning headline:
Fintech giant PayPal plans to roll out direct sales of cryptocurrency to its 325 million users, according to three people familiar with the matter. — Ian Allison
PayPal and assumedly its P2P payments subsidiary Venmo are ready to take the plunge into digital assets. What remains to be seen is which or how many digital assets will be available to retail for purchase. But before I delve into that, let’s talk about how we got here.
What Drove This?
From being the new cool kid on the block to a major industry force, the global fintech industry has undergone colossal and rapid changes that have changed the way that consumers purchase, consume and invest.
Gone are the times when users had to visit bank branches for medial tasks such as transferring money. Now companies seek to bring that experience directly to consumers. How? Through digital, and more specifically mobile wallets. Like every disruptive technology, they have experienced their fair share of skepticism but their rise can be attributed to the increased need for on-the-go commerce. With popular companies, such as Apple and Google — the rise of digital wallets should come as no surprise. The US market alone is set to swell from an estimated $662.3 billion in 2019 to $1.3 trillion in 2023 and companies are seeking out alternative revenue streams to capture it.
Square Flexed
Square — Jack Dorsey's P2P payments provider has proven implementing Bitcoin can be a success. Since 2018, customers have purchased over $955 million in bitcoin via Cash App through the first quarter of 2020, 129% more than the same period in 2019. Given its mainstream customer base, the industry often looks to data square publishes about Bitcoin adoption.
Square showed it was possible to monetize a P2P application beyond previous expectations. Rather than listening to price-sensitive merchants, they had the foresight to build its business model around solving friction in the exchange of money. They found that secret to achieving revenue growth and profitability lies in effectively cross-selling other products in the ecosystem. Send money to your friends, colleagues and family while buying your next fractional Bitcoin, all by a few taps within the same app.
Ultimately, PayPal was left with two choices — support Bitcoin or become the next blockbuster. So as any competitor would, they swallowed the big red pill, walked back on some statements and are now actively building out a team.
Why is this significant?
PayPal and Venmo combined account for $800 billion in annual payments volume and by offering Bitcoin directly on its platform it would be an incredible boost to not only the digital asset ecosystem but their own bottom lines. Even if 1% of its ~350 million users were to discover Bitcoin on their platform, that would already represent more than 3 million users. That sounds like a small number but it would actually account for ~6% of the total Bitcoin users now.
Questions Remain
Well, one more thing I should point out is the elephant in the room — key management. It is still unknown whether PayPal/Venmo will mimic Robinhood where users cannot move their bitcoin of the exchange or that of Square, which allows users to self-custody. For those who might be confused, if you were to purchase bitcoin on Robinhood or Revolut, you are actually buying exposure to the asset rather than the physical bitcoin. This is important because if your bitcoin is stored in a wallet where you don’t have the private keys, is it really yours?
Bitcoin was created in response to a money and banking system that centralizes power away from the individual. With this in mind, handing over control of your funds to a third party goes against the ethos that the ecosystem was built on.
What's next?
Since the Bitcoin whitepaper was published, technologists and entrepreneurs have dreamed of disrupting payments with digital assets. The ingredients are there to create products that are free of the maladies that plague current solutions. And in an era where smartphones are ubiquitous and consumers are willing to pay for convenience, people are increasingly relying on digital wallets. So despite the possibility that PayPal may withhold keys, the opportunity shows that Bitcoin is something gatekeepers can no longer ignore. And with that I want to close with what Bill Harrison, former CEO of PayPal said only two years ago about Bitcoin:
"Bitcoin is the greatest scam in history".
Well, it looks like times are changing.
News 📰
S1: Venezuela Regime Uses BTCPayServer
What is it? - This week, the Venezuela regime appeared to be testing its ability to accept Bitcoin as a payment for the issuance of passports and other official paperwork for citizens who reside outside the country.
To do so, the Service for Identification, Migration and Foreigners (SAIME), employed the use of BTCPay Server. Though the service has since been removed, it shows that the country is searching for ways to circumnavigate the traditional global financial system, which they play little part in.
Why it Matters? - Bitcoin is censorship resistant money. Because they live under authoritarianism, Venezuelans have no way to reform the policies that have destroyed their economy. They can’t hold their rulers accountable through free and fair elections or campaign for change without fear of reprisal. This has brought a lot of political scrutiny and sanctions from world powers — further crippling the nation.
US sanctions have left Venezuela isolated from the global financial system. That’s led President Nicolas Maduro’s regime to look for new ways to move money around the world. The value of Bitcoin is an emerging front in the economic war between Washington and Caracas. Transactions are difficult to trace and could allow the government to make international payments while bypassing the American restrictions on banks.
As the Venezuela government becomes the first nation to show official respect to Bitcoin, I believe Jimmy Song summed it up the best:
Final Take - Venezuela is in a unique position to take advantage of the coming geopolitical Bitcoin power struggle.
Bonus - Shopify Should Bet on Bitcoin with BTCPay Server
S2: BitLicense Changes
What is it? - The New York Department of Financial Services proposed new licensing rules that would make it easier for companies to work with digital assets in the state. The regulatory body proposed the following plans to:
Streamline the licensing application process — startups have one of two choices: head over to a SUNY school and build out an innovative idea or seek out an already licensed firm and ask them to sponsor you.
A new coin listing process — Basically lets licensed entities self-certify digital assets they don't already offer so long as three companies have already self-certified it. After, the asset is placed on a green list where other entities are permitted to offer services.
Updates to the FAQ page
For those asking wtf a BitLicense is...well it is a license issued by the NYDFS to companies engaged in the following activities:
Receiving Virtual Currency for transmission or transmitting Virtual Currency;
Storing, holding, or maintaining custody or control of Virtual Currency on behalf of others;
Buying and selling Virtual Currency as a customer business;
Performing exchange services as a customer business; or
Controlling, administering, or issuing a Virtual Currency.
And for those who want to send strongly worded feedback check out this link.
Bonus - Firms that have obtained the coveted BitLicense:
Why It Matters? - The New York BitLicense has been a topic of controversy since first proposed in July 2014. Since it was introduced in the state of New York in 2014, only 25 licenses have been granted. It is so wild that several leading exchanges block users from North Korea, Afghanistan, Iran and... the lovely state of New York. Proponents of digital assets argue that the BitLicense is onerous and intrusive, and unfairly targets small companies and startups. So yes the proposed changes would no doubt be welcomed by the community, but are they enough?
The short answer — no. A large part of the ethos surrounding Bitcoin is a desire for privacy and freedom from intrusive government regulation, and many advocates feel that complying with this license is a betrayal to their fundamental values.
And why should a company jump through hoops to get this license when it can seek refuge in digital asset-friendly confines of Wyoming. The "Equal Rights State" certainly stays true to its name after the introduction of Special Purpose Depository Institutions (SPDIs) or reserve banks that can act as a digital asset custodian. The benefit of these SPDI’s allow banks to open branches in New York and carry out their business without the need for the coveted BitLicense. The NY law exempts national banking institutions from acquiring a BitLicense which means most certainly a state-chartered bank (such as Wyoming’s SPDIs) would be exempt from acquiring the license before setting up a business.
Final Take - Though there exists no uniformity with respect to how businesses that deal in Bitcoin are treated among states, legislation must not stifle innovation or the country faces further horizontal innovation.
Bonus -My comment on Filecoin listing.
Market Watch 💸
What I'm Reading 📕
Senates New Anti-Encryption Bill is Even Worse Than EARN IT, and That's Saying Something
Venezuela Government is Using BTCPay Server to Accept Bitcoin Payments
What I'm Listening To 🔊
Senates New Anti-Encryption Bill is Even Worse Than EARN IT, and That's Saying Something
Venezuela Government is Using BTCPay Server to Accept Bitcoin Payments
What I'm Watching 📺
Project Announcements 📢
Project Spotlight 🔦
Samourai
Founded in 2015, Samourai is a group of activists who have dedicated their lives to creating software that Silicon Valley will never build. They pride themselves on building products that regulators will never allow and VC's will never invest in.
Stage of Funding:
The founding team of Samouri Wallet received a $100,000 investment from Cypherpunk Holdings in June of 2019. Cypherpunk Holdings enables LPs to invest in bitcoin and privacy technology.
Business Model:
The Bitcoin privacy-focused firm has five consumer-facing products:
Samourai Wallet — a mobile software wallet that has a strong focus and emphasis on user privacy. It features the following: dynamic transfer fees, private transactions, Tor & VPN support, SegWit Support, BIP47, Ricochet, SMS Commands, and node connection.
Sentinel Watch Only — A "watching wallet" that does not allow users to spend from it but rather receive and keep track of your Bitcoin.
Whirlpool — Allows users to properly remove the taint from their Bitcoin balances accordingly. The team employs three liquidity pools to support the cycling of coins through Whirlpool. Users can choose their own pool depending on the number of coins to be cycled and the number of outputs required. Check out further stats here.
Dojo — a self-hosted Docker-based suite of software that privately and securely powers all Samourai products without reliance on their servers.
nodl Dojo — a high-performance plug and play full node perfectly tuned to prove strong privacy with Samourai built-in at the core
In addition to these products, the team launched OXTResearch in January 2020 with the aim to provide high-quality analysis on the bitcoin network. To date, they have produced some outstanding reports that include an update on the PlusToken scam and a case study on JoinMarket.
Audience:
To be frank, these products are not for the bitcoin beginner but should be experimented with as one gains more comfort when interacting with the network. The focus is clearly on privacy and as the team themselves are an anonymous group of privacy advocates. As for their research, it may seem intimidating at first but the team does a great job diving into the granular details of the Bitcoin network.
Media:
Final Quote
Thanks for reading. Send me tips, stories I’ve missed, or comment below. And if you liked this piece, you can sign up here for more issues of the Bit Economy, a newsletter on something bitcoin related. Be on the lookout in the coming weeks for some changes to the format of the newsletter.
Until then, have a great week! See you next Sunday.