Week of 5.17.20 - Issue #28
Hi friends,
Welcome to the 28th edition of the ₿it Economy! Feedback and suggestions are very welcome, especially from the new folks. Every 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 in the topic, please do forward this along, send them to archive, or have them subscribe here.
-Rob
TLDR
Another wild week in Bitcoin which saw Iran's President order a new approach to digital asset mining and the annual celebration of Laszlo's 10,000 BTC purchase of two pizza. But it was one story that really caught my attention, and not for the reasons many would think. Earlier this week, Canadian ecommerce giant Shopify announced it has partnered with CoinPayments to offer its merchants further ways to accept digital assets. Many Bitcoin oriented individuals wouldn't an eye to this, yet I felt it was a great opportunity to explain why the company needs Bitcoin to take it to the next level. Per usual, check out the content below and you'll find Fed Chairman Jerome Powell doubling down on previous comments that the U.S. will print its way out of this economic slump as well as warning on the dangers of KYC. And finally, this week's company profile is on Fold — a company that frequent readers should be well aware of.
Why Shopify Should Bet On Bitcoin
Shopify is best known for its ecommerce platform that has enabled over one million businesses (e.g., Tesla and Sephora) to create online stores. The platform allows the creation of third-party apps and plugins that have helped create a robust developer community. And now it has expanded its partnership with CoinPayments, a payment processing platform that allows all merchants to accept digital assets.
“The combination of Shopify and CoinPayments is unstoppable in the payments industry. By bringing our easy-to-use global crypto payments platform together with Shopify’s extensive merchant base, we look forward to delivering a seamless process for anyone looking to do business using cryptocurrencies. As leaders in e-commerce and crypto payments, our combined expertise reflects the future of business transactions”
— CoinPayments CEO Jason Butcher.
Well Jason does have one thing going for him — Bitcoin. Below, I state my thoughts and reasons as to why Shopify should take a page out of Square's book and bet on Bitcoin. But before I do that, let's talk about their current business model and Amazon.
How does Shopify make money?
Shopify has a charitable method of making money: the more successful their merchants become, the more revenue Shopify earns. This is possible due to a duel-pronged approach — merchant solutions and subscription solutions. Merchants solutions include transaction fees and are tied tightly to the merchant's success; when merchants sell more, the company benefits too. To use Shopify, a subscription fee is required — there are several options to choose from, with the lowest tier costing $29/month.
As for financials, growth has been incredible with its top-line increasing at a compound of 65% annual growth rate (CAGR) since 2015, and its merchant solutions segment growing at a rate of 76% CAGR.
One of the benefits of the COVID-19 pandemic has been the accelerated adoption of ecommerce by consumers. With stay-at-home orders and remote work becoming more prevalent, Shopify is in a position to assist more merchants transition to online sales. In Q1, Shopify's total revenue was $470 million, a 47% increase in total revenue from the comparable quarter in 2019.
Amazon Struggles
Over the last few years, Amazon has received a questionable reputation when it comes to working with merchants — from reports of the company using sales data to create competing products or numerous counterfeit ones. But most importantly, Amazon keeps a stranglehold on all consumer data, thus inhibiting the very companies that need it. Though done by design, it puts a strain on merchants for a brand's digital future cannot be built without knowing who the customers are.
As a seller you are faced with a tough decision — sell at the largest mall that millions of customers visit every day or open a standalone store that will not see as much traffic. However, the first will cost you an arm and a leg while giving you very little control over the process. Though Amazon's reach is the greatest, it is often at the expense of its merchants. Its unprecedented growth has seen it evolve into a marketplace and less of a traditional retailer. This change, has left sellers unhappy with the current setup. The high fees and inconsistent rule enforcement cracks are beginning to show.
Shopify's Time to Shine
Shopify does not operate its own marketplace, therefore it does not have its own private labels to compete with merchants. It has drastically lowered the barrier to entry leading to a huge boom in ecommerce and a bunch of new entrepreneurs being able to work for their own dream, instead of working for someone else's dream. The platform allows brands to have a direct relationship with their customers. So why would a platform that has increased ~134% since April 1st want to focus on Bitcoin?
Enter Bitcoin
A few years ago in 2013, when the price of bitcoin was $340, Shopify announced it would add a bitcoin payment option for its sellers. At that time, the Canadian company had about 7% of the customer base it does now. Since then, the company has been rather flexible on its digital asset payment processors — BitPay, Coinbase Commerce, and CoinPayments to name a few. Yet, due to their expansive product listings, none are able to solely focus on improving user's experience with Bitcoin.
This was true until August 2019, when Shopify announced a partnership with OpenNode, a payment processor that facilitates Bitcoin payments for individuals and businesses. The Shopify plug-in allows merchants that use the platform to accept Bitcoin payments through the Lightning Network.
“Other payment processors have failed to provide a smooth experience for both the customers and the businesses using them and we intend to improve the overall experience” - OpenNode CEO Afnan Rahman
Another project that offers Shopify merchants a way to accept Bitcoin is BTCPay Server — an open-source, peer-to-peer payment processor for Bitcoin where users can self-host their own server and effectively process their own payments. It is a non-custodial and charges no fees for its use. The project was designed around providing merchants with a method for accepting Bitcoin payments without intermediaries and a focus on privacy, security, and censorship-resistance. Thanks to some crafty developers, BTCPay Server can now be used all over the world with Shopify.
Perks of Bitcoin Use
Whether Shopify believes in the ideas behind Bitcoin from a philosophical perspective or they just want to avoid chargebacks, there are plenty of benefits to be had from allowing their merchant’s customers to pay for their goods or services via the Bitcoin network.
Privacy — Information is only shared between customer and seller only, which is almost impossible to achieve with credit or debit cards. Merchants can worry less about potential data breaches or storing PPI.
Cut Costs — Accepting Bitcoin payments is cheaper for everyone involved and creates a better experience for the consumer. Accepting Bitcoin payments is cheaper on your side. Credit cards and payment processors charge 2-3% which can really add up depending on your volume of sales. With more money in the pocket, merchants are more likely to take on more risk and expand product offerings.
International Payments — If your company has been avoiding acceptance of international payments because of costly cross-border fees of transactions, accepting Bitcoin as a method of payment offers a solution to your problem.
Promotes Bitcoin Adoption — A being a Bitcoin merchant, you keep the bitcoin you earn while simultaneously becoming a part of a new emerging economy. Therefore, merchants help spread a positive message about self-sovereign, censorship-resistant money. This is more important today than ever before, as individual freedoms around the globe are being rolled back in the name of contact tracing and various other surveillance practices.
ClosedLoop — Bitcoin is attractive because it's a purely digital currency, and has been in high demand. Thus in a move to set itself apart from other ecommerce companies, The opportunity to create closed-loop payment models, or value exchanges between consumers and merchants, with a non-sovereign, censorship-resistant digital currency is mouth-watering. Bitcoin removes regulatory barriers and allows merchants to launch products all around the world since they are all using the same currency. And remember, Shopify does better when its merchants do better. Everyone should be able to participate in the digital economy and no merchant should be left out due to extreme cost.
Shopify's Role
In spite of these valuable benefits, most merchants struggle with the idea of accepting something they do not understand. Shopify is aware that poor customer experiences spread like wildfire and can eventually kill a business especially as a commerce platform. That is why they put customer support at the forefront of everything they do.
Shopify is well-known to its merchants but is not a household name to shoppers. As the company continues to grow, it's role in educating merchants on the value of Bitcoin can have a momentous impact as it continues to jockey for market share with Amazon.
The company recently launched a mobile app, Shop, which aggregates all of their favorite merchants in one place with features that embrace what today's consumers love best:
Scroll — Hybrid between Amazon & Instagram
Follow — Follow companies as you would influencers
Buy — One-click purchase
In an era marred by data breach headlines, why not align your brand with the sovereign nature of Bitcoin. Further promotion of the digital asset via channels like BTCPay Server and OpenNode offers its merchants a leg up on their respective competition.
What's at stake? A chance to carve out a spot in a $3T-plus industry with one major player. Capturing any part of this market showcases the power of the company. And while a regulatory-cloud hangs over most of big tech, those who act swiftly can take their place. With a push for more bitcoin adoption, Shopify can bridge the gaps in online shopping that will see it end up on top.
News 📰
S1: BlockFi Hack
What is it? - Digital asset lender BlockFi alerted clients on Tuesday of a data breach that occurred on May 14. The breach lasted for over an hour before the root cause of the unauthorized intrusion was found and stopped. However, the hacker accessed confidential data such as names, dates of birth, postal addresses and activity histories but was unable to withdraw user funds or access other sensitive account information including bank account details, Social Security and tax identification numbers. Per the incident report, the breach was due to a SIM card swap attack on a BlockFi employee's phone number.
Bonus - Check out this video on SIM swapping.
Why it Matters? - While the data breach did not necessarily expose any sensitive information (e.g., Social Security Number or Home Address) it does bring to light the pressing dangers of KYC/AML regulation. This information is available for the taking as attackers fervently search for ways to gain access. The linkability of real-world identities to digital asset addresses makes it extremely easy to use publicly available information against someone. With enough data points, an attacker can use a site as simple as people finder that host publicly available data to discover the residences of their targets within minutes.
Since 2001 and the introduction of the Patriot Act, AML/KYC regulation has created larger barriers that not only institutions needed to comply with but also affected the main street. The major focal point of this is the data management issue. It is what allows and forces the collection of this sensitive data and is now mandated across all U.S. and European exchanges.
THE major focal point of this data management/breach issue. It is the crux of the issue. It is what allows and forces the collection of this sensitive data. It is now mandated across all U.S. exchanges, that there needs to be some kind of KYC/AML information on every end-user if they are planning on using an American crypto exchange. Even if an individual chooses to deposit $5, there must be AML/KYC information on this person.
History tells us, that this will happen again. We know there are attacks launched against these exchanges daily. These centralized services are not impenetrable and it is only a matter of time until there is another breach.
Final Take - People should be their biggest protectors of their own data.
S2: Bitcoin Mining Difficulty Drops by 6% in the First Adjustment Since Halving
What is it? - Bitcoin's mining difficulty underwent its 313th difficulty adjustment on Tuesday — its first since last week's halving, dropping the figure by 6%. The current difficulty is 15.22 trillion (T) compared to its all-time high of 16.53 T recorded in late March. This drop also marks the sixteenth largest in bitcoin's history.
Following the halving, the total transaction fees paid to Bitcoin miners have approached 160 BTC, a significant jump from previous levels of 30 BTC at the end of April. This figure accounts for approximately 17% of miner's daily revenue.
Why It Matters? - The drop in network difficulty theoretically favors miners that we’re able to remain mining after the digital assets quadrennial halving. With less competition from the miners that got shaken out, the remaining miners stand to benefit from a newly improved chance of being awarded freshly-minted bitcoin. The drop in hash rate also has the block generation slowing down. On Sunday, miners only mined 95 blocks. In the previous decade, there have been only 8 such days when the network mined sub-100 blocks. At the time of writing, we are approximately 18.5% behind schedule.
Bonus — Check out a previous in-depth analysis of the difficulty adjustment.
Final Take - Bitcoin's increase in transaction fees may strain users, but the incentive it provides is vital to the security of the network.
Market Watch💸
What I'm Reading 📕
What I'm Listening To 🔊
What I'm Watching 📺
Project Announcements 📢
Project Spotlight 🔦
Fold
Stage of Funding:
Fold raised a $2.5 million seed round from investors including Craft Ventures, CoinShares, and Slow Ventures.
Business Model:
Fold is a mobile application that allows users to purchase gift cards from its participating merchants using bitcoin, credit, or debit cards. Users who pay with by fiat receive anywhere from 3.5% - 8% in bitcoin back while those who use the lightning network earn upwards of 20%. The team has been involved with Bitcoin cashback rewards since the earliest days of the Lightning Network, starting LN.PIZZA — a service that allowed anyone to order Dominos Pizza using Bitcoin with a LN payment.
The company recently partnered with Visa with plans to offer a Bitcoin reward credit card in the near future. For more, check out Issue #22.
Audience:
Fold is bringing bitcoin mainstream. Therefore it is for the average joe, the Bitcoin curious and the Bitcoin maximalist. The company works with some of the most popular retailers and restaurants in the U.S.. Notable participants include:
Amazon
Uber
Starbucks
Dunkin
Nike
The app is designed so that when users pay with Fold, their payment details, personal data, and transaction history stay private, ensuring that consumer data is safe from advertisers and attackers alike.
Media:
Final Quote 🗣️
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Have a great week! See you next Sunday.
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