LETS TALK BITCOIN

Episode 74 New Ideas in Bitcoin

Participants:

Adam B. Levine (AL) Host
Michael Dunworth (MD) Co-founder and CEO of snapCard
Ioannis Giannaros (IG) Co-founder and CEO of snapCard
Alex Bourget (AB) Founder of BitCredits.io
Dan Larimer (DL) CEO of Invictus Innovations
Pelle Braendgaard (PD) Creator of Kipochi Wallet
Alan Reiner (AR) Founder and CEO of Armory Wallet
Justus Ranvier (JR) Bitcoin blogger and activist



AL: Today is January 10
th
2014. Welcome to Episode 74 of Lets Talk Bitcoin, a twice weekly
show about the ideas, people and projects building the digital economy and the future of
money. Visit us at www.letstalkbitcoin.com for our guest blog, all our past episodes and, of
course, tipping addresses.

My name is Adam B. Levine and today were talking new ideas for the future and stop gap
solutions that meet our needs currently. My contribution to the Inside Bitcoins event on
December 10
th
2013 was a panel called New Ideas in Bitcoin. I invited the gentlemen who,
together, are behind some of my favorite innovative projects. Alex Bourget of BitCredits,
Dan Larimer of Invictus Innovations, Pelle Braendgaard of Kipochi Wallet, Alan Reiner of
Armory Wallet and Justus Ranvier, with his protocol for a stateless legal system.

Big thanks to MediaBistro for their support for this panel, but before we get there, last week
I sat down with the founders of Boost VC backed start-up Snapcard to talk about life as a
stop gap solution whose mission is to enable anyone to buy anything with Bitcoin.

Enjoy the show! [1:05]


________________________________________________


AL: Bitcoin as an ecommerce solution is sometimes overshadowed by Bitcoin as a political
football. Today, were going to have a conversation about buying things with Bitcoin.
Today, Im joined by Michael Dunworth, co-founder and CEO and Ioannis Giannaros, co-
founder and COO of snapCard which is a start-up out of the Boost incubator that lets you
buy anything online using Bitcoin. Gentlemen, how are you doing today? [1:36]

MD: Good, thanks for having us. We appreciate it. [1:38]

AL: Bitcoin is skyrocketing in value and it seems like its getting easier all the time to spend
it and you have a project that kind of fits into that second category making Bitcoin easier
to spend. Can you tell me what youre doing with snapCard? [1:50]

MD: Yeah, so basically, snapCard is an online service that allows you to shop on any website
using your Bitcoin. We dont require merchant side integration. Users can use it on big
websites like Walmart, Amazon, eBay, Best Buy, Target and all those huge websites. We
facilitate purchases for the users to those websites. [2:14]

AL: OK. We have a sponsor that does giftcards... that sells giftcards for Bitcoin through an
application. We have a sponsor that has a gift registry with Amazon, where you make a
wishlist and then somebody buys that from you. There are a bunch of ways that people are
kind of going about trying to solve this problem. How are you solving this problem? Is this a
browser plug-in or are you actually... you said youre not requiring merchant side
integration, how does that work? [2:40]

MD: Weve done just a JavaScript bookmarklet that installs on any browser so there are no
limitations on browser compatibility. All it does is you can shop normally and just hit the
snapCard button in your bookmarklet and it will bring up and ask you to confirm the
purchase. That gets added to your account and it gets processed on our server side. You
can just shop normally so there are no loop holes or any different situations that youve got
to go through. We process everything for you and ship it to you. Basically, you can just
shop like normal, but you just got a browser-based bookmarklet. [3:18]

AL: This is another one of those stop gap solutions, where because merchants cant be
bothered to accept Bitcoin, this is a way that lets you spend Bitcoin. It sounds like what
youre doing is similar to the old BitSpend project, which was a project, essentially, where
people would find something that they wanted to buy and then copy the URL of the item
that they wanted to buy and then send it in an email to this service, BitSpend, and then they
would spend US dollars and would send you an invoice for the Bitcoin. Are you doing
something similar to that but automated? [3:47]

MD: Yeah, I suppose thats probably a really good analogy. BitSpend did some really great
things and they had a really good support from the community. Weve been trying to do a
really good service like they had, so we are trying to get that support from the Bitcoin
community. We are a stop gap solution, but we feel that stop gap solutions... like we
obviously see the disadvantage for stop gap solutions. In the long term, it is a really good
way for us to help create awareness of Bitcoin. If were doing significant amount of volume
on websites, that gives those websites actual data to understand how much potential... if
were doing... so lets say $20,000 in transactions a day on Amazon or Newegg, having that
metric to say to Newegg Hey, there is $20,000 worth of purchases going through our
account. That is a really good point of sale, I suppose... a way to sell to those companies to
get onboard with Bitcoin and integrate it natively. [4:46]

AL: Youre in the winter session at the Boost VC program, right? *4:49+

MD: Yeah, thats right. Were based in San Mateo, just on the peninsula, in California.
[4:54]

AL: This is a solution thats available now, if people want to try it. Generally, there are
some fees associated with this, relative to the price you would pay if you were just paying in
dollars? Can you talk about the fee structure at all? [5:04]

MD: Yeah. The fees associated with our service it was initially a 2% fee but weve
dropped that down to 1%, as of January 2014. Thats set to be going through January, but
were going to wait and see how that goes and if that continues and gets extended. At the
moment, its a 1% fee for your purchases to go through our website. If you want to use our
service, you dont have to be a US citizen. We service people over 30 different countries,
ranging from Ireland, UK, America, Australia, all across Europe and we charge 1%, which is
probably the most competitive fee structure youll find out there for any services like that.
Weve got full customer support, which is probably one of the things we pride ourselves on
most. We know that, through the Bitcoin community, people are always very conscious
because there are no charge backs, having that consumer confidence knowing that there is
someone there at the company that theyre talking to, thats one of the things we put most
pride in. There is always a really strong support team behind you if you have any problems
with orders. Thats probably one of our things we pride ourselves on most giving you, the
consumer, the confidence to use us. [6:18]

AL: I dont think that you guys are making the claim to have invented this business model.
It seems like this is an advantageous thing for you guys to do now, but Im wondering in the
past... with BitSpend, they were doing good business and it seemed like the business was
going quite well, but then they had a problem with their bank because the bank said OK,
well you have all of this money coming into your account, because they were selling Bitcoin
for dollars so that they could then fund the business that they were doing. The bank said to
them We dont know where this money is coming from so we cant make sure that its not
coming from illegal sources, so therefore you cant have an account here. I assume that this
has been something youve thought about before. Can you share with me your journey on
that? [6:57]

MD: Definitely. That was one of the big red flags when we initially started thinking about
this. Fortunately, wed been banking with Wells Fargo and they have been really
accommodating with us. Obviously, they see all our transactions where they come from,
whether its Coinbase payouts or BitPay and so far, we try and keep our relationship really
transparent with them. There have been no flags raised from their end or any complaints.
If we do have any situations though, the users would be the first ones to know about it.
[7:29]

AL: BitSpend went away for a variety of reasons. Can you kind of give an insight on why
your service isnt going to have that happen to it? *7:36+

MD: We always process the orders immediately. Any of the users funds that are on hand,
we dont actually receive those. Everything we buy is purchased upfront by us, as the
company and then were reimbursed by the user. In the event, the unlikely event, that a
bank account is frozen, which we have an exceptional relationship with our bank and were
very transparent about everything we do which has, so far, been fantastic and weve been
working closely with them. In the event that an account got frozen, there would never be a
problem with the users not receiving refunds or anything like that because that account...
every purchase is made instantly, so the only people who would miss out on that would be
us getting our own money frozen instead of the users not getting their products because
when the users pay us, we buy the products with our own money and then we get the
payment from the users 24 hours later or however long it takes to process. There is sort of
that safety there for the users to know that once theyve placed an order, we have already
ordered the product immediately for them. There is no risk of them having funds frozen or
anything like that. We dont want that to happen but thats just the process we use. *8:49+

AL: If it does, it seems like you have something in place. [8:51]

MD: Exactly, exactly. Were trying to be as precautious as possible because we know users
really get a lot of use out of this service and services like this. We need to make sure we
keep it as honest as possible and we stay around as long as possible to make sure that
everyone benefits from it. Thats why were being very upfront and very straightforward
with all our relationships with the banks and with our users as well trying to keep
everything as transparent as possible. [9:20]

IG: Weve been working with the banks closely and the credit card companies. We use
different sources as well for different transactions. We have been working with them
closely. Its full transparency between us and our business model and our bank, Wells Fargo
and theres full transparency between our credit cards that we do use. There hasnt been
an issue so far and we are going through a lot of transactions per day and the transactional
volume. Weve had conversations in the past where are these transactions coming from?
And there hasnt been an issue. Everything has been going smooth for us so far so were
just excited... were extremely excited to come up to the end of this Boost program and to
just get out there. [10:04]

AL: People are using this system. Whats the biggest purchase that somebody has made
with Bitcoin through your service to date? [10:11]

MD: Thats actually a funny question because the smallest purchase someone has made
was for 2 cents and it was a SIM card on Amazon and, obviously, from our side, we thought
that was pretty funny seeing someone buy something for 2 cents. The largest product
weve had someone buy was a $65,000 Mercedes Benz. That was really cool to be part of
that and the user was just absolutely over the moon. They were thrilled. Weve now got a
really good relationship with that user, obviously. From working together on buying such a
large item and it was just great seeing them... being able to use their Bitcoin to literally buy
almost anything. Thats what we aim to be able to do and its cool being able to get them
these really large items. [10:56]

AL: Who is other party on the... if you dont mind my asking, who is the other party on this
$65,000 transaction? Was this someone just offering it for sale somewhere on the internet,
or did you actually work with a dealership? [11:06]

MD: Originally, they reached out to us on the internet. Theyd been a client of ours whod
bought a bunch of stuff online and then from that, they made a request if they could buy
this car from a dealership in Texas. We called up the dealership and we said Hey, wed like
to do business. Wed like to get one of our users a car. Is it possible to work together? The
dealership was very accommodating and fantastic throughout the whole process.
Obviously, it was something very exciting for us because we are a new start-up. Were still
in the incubator and having something like that to our name is really... gives us good
credibility and it was great to do. Were really happy with that. [11:46]

AL: Sounds very cool. Whats next on the plan for snapCard? [11:50]

MD: Probably one of the largest requests that we get, which weve just had a huge
breakthrough and were going to make a big announcement over the next two weeks, is
going to be in Canada. Well be offering our services to Canada. We get so many requests
for that. Being able to accommodate that... the Canadian people have been so patient with
us, so we just cant wait to release that to them. Weve also got some very big
announcements coming up with merchant side integration which would be both native
integration into peoples websites and offering our services exclusively to some bigger
brand websites that people would probably be familiar with. There is a lot on the horizon.
We have our demo day on February 11
th
, which is the end of the incubator program. Were
just trying to get in some great results and really show our brand and name to be quite
reputable by that time. Were working a thousand hours a day trying to get it done. Its
good, its good. *12:48+

IG: Yeah, its very exciting. Its been a long trek but... [12:51]

MD: Yeah, were getting there, finally. *12:53+

IG: Yeah, its been good. *12:54+

AL: In what youre doing, what has been the greatest barrier to entry that you have
overcome and what do you feel like retains your hold on this? [13:01]

IG: Thats actually a very, very good question. I think that answer is for the whole Bitcoin
community. Its just trust, right? How can people trust us to take this money and not just
run? Thats essentially what Bitcoin companies had been kind of known to do. Trust is the
biggest barrier to entry. Having good customer support which we do provide, having good
investors backing us is something that is going for us and stuff like that. Trust would be the
biggest thing. [13:33]

AL: Michael and Ioannis, if someone wants to learn more about SnapCard, where can they
go to find that out? [13:37]

MD: They can jump online and you can go to www.JoinSnapCard.com. We couldnt afford
the name SnapCard.com so we put it as JoinSnapCard.com. You can jump online and check
it out. Weve got live chat there as well. You can always get support so feel free to reach
out to us. [13:57]

IG: Thank you so much. Were very excited. *13:59+

MD: We appreciate the time, Adam. [14:01]

AL: Michael and Ioannis, thank you very much for your time. (Laughter) Have a great one.
[14:04]


________________________________________


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________________________________________


New Ideas in Bitcoin panel discussion at Inside Bitcoins conference December 10
th
2013


CHAIR: Adam Levine is the editor-in-chief and founder of Lets Talk Bitcoin. Youve
probably listened to his twice weekly radio show. If you dont listen to it, you should be
listening to it. He knows everybody in the space. Hes a person who can introduce you to
people. Lets give him a big round of applause. Hes going to introduce this panel.
(Applause)

AL: Morning everybody. This panel is called New Ideas in Bitcoin and when were talking
about new ideas, a lot of times it feels like, at least this year, maybe it will change next year,
weve been talking about how do we work within the existing system that we have, as far as
regulations and rules are concerned. Ive put together a great panel here and nobody is
going to talk about that. Were not going to talk about whether or not its legal at all.
Simply, were going to talk about the various parts that dont have that hold back, that dont
have the uncertainty of the regulation and, in fact, can be pushed on quite a bit. These are
the people who really are doing that pushing and are making the progress thats going to
make 2014 a huge, huge year for cryptocurrency, broadly speaking. Im very happy to
introduce Alexander Bourget who is a good friend of mine and I know very well, I just cant
pronounce his last name, is the founder of BitCredits.io. BitCredits is basically... when we
have solutions that we use for paying with Bitcoin right now, like the very popular BitPay, all
of those are built on the old model of how we shop on the internet because credit cards
kind of require a multi-step process. BitCredits is one of the first systems, that Ive seen,
that requires no such thing and it does some other innovative things too. Thank you very
much for being here. [17:22]

AB: My pleasure. [17:23]

AL: Next up, we have Dan Larimer. Dan is the CEO of Invictus Innovations. As far as
innovative altcoins are concerned, weve been talking about... Jared mentioned at the end
of his talk that Peercoin and Primecoin... these are all coins that are basically the same as
Bitcoin in their total value proposition and they just differ in the ways they go about
securing the network. Dan Larimer and Invictus Innovations are working on a series of
projects that are nothing like Bitcoin, that utilize some of the similar things to Bitcoin, some
of the similar mechanisms but have a fundamentally different value proposition. I think its
going to be something that were going to be seeing a lot more going into this space. Thank
you very much for joining us to talk about that Daniel. [18:00]

DL: Thank you. [18:00]

AL: Pelle Braendgaard is kind of at the other end of the spectrum where a lot of people are
working trying to make things more and more advanced. His Kipochi wallet is usable on
feature phones and specifically targets the other 6 billion potential Bitcoin adopters, as my
co-host Andreas Antonopoulos likes to say. The work that hes doing really is as close as
weve gotten so far to seeing penetration into those areas where the technology really
hasnt caught up with the western world. Thank you very much for being here to talk about
that. [18:26]

PB: Thanks. [18:27]

AL: Alan is the founder and CEO of, probably, my favorite wallet thats out there. Im super
paranoid about... I love Blockchain and we had them as a sponsor for a while but Im
concerned about the value of Bitcoin on the internet and Im concerned about wallets that
make it so that youre vulnerable to that, even if it is more convenient. Theres no such
thing as a wallet thats totally convenient and also totally secure, and I think that, in the
spectrum, Armory falls, at least to this point, on the very, very secure line and not so much
on the convenience side, but youre trying to change that. In addition, Alan is one of the
most knowledgeable developers in the Bitcoin protocol that Im familiar with, who isnt
working directly on the core development team. Hell be able to talk to us about whats
coming in the future for the protocol, generally speaking. [19:08]

AR: Thank you very much. [19:09]

AL: Finally, Justus Ranvier is an activist in Bitcoin who has a project thats been starting up
over the last couple of months that Im really looking forward to. Bitcoin is so innovative
but one of the things that makes it... its difficult if you want to sign a contract denominated
in Bitcoin, then that contract has to live in a jurisdiction. There has to be a country who has
legal authority over it. What Justus is designing is a system, its not even necessarily a
system, its more like a protocol, where you dont have to have that anymore, where
arbitration or this sort of conflict resolution can be handled in advance and in a stateless
fashion, at a very low cost that includes everybody. Thank you very much for being here to
talk about that. The format of this is I have questions for people but I would like to take
questions from the audience, so were going to go through two questions each. I have a
third for each one. After two questions, were going to start lighting up and well take
questions. We have a limited amount of time for this, so Im going to get right into it.
Starting with Alex Bitcoin and ecommerce are often talked about in the same breath but
the old way of thinking is, again, that shopping cart workflow that weve been talking about
for credit cards. Can you describe why it was that you thought it was important to do
something different than that and how you went about doing it? [20:16]

AB: Lets take a shopping cart and go on a shopping online experience. We have one of the
demos thats actually a Wow! People see that and theyre wowed. When they go to...
theres a page that sells a video and then you go to that page on your browser and the video
says (??) please pay and then you take your phone, you dont touch the keyboard, you dont
create an account, you dont validate your email address, you dont send billing information,
especially for a video send the money and thats it. I would like to see. What we do is we
integrate into that site. You take your phone out, send the money and in your face video
starts. Thats what I wanted to be able to create and bring Bitcoins real time nature to each
website. Instead of having an invoice centric approach, which I really dislike... let me tell
you a story. I was trying to buy something with Bitcoin, clicked on Pay with Bitcoin, was
redirected to another site with a different branding signature and then I sent the money
through, still being shaky a little bit. I didnt see anything happen for a couple of seconds, I
click Back and then I was back to the other site with no context at all, so I was wondering
where my money was and I clicked Pay again and then I was presented another invoice. I
was wondering Wheres my money? How is this tacked together? Should I pay that one?
No context at all. That annoyed me, so I said It would be way better to have that totally
integrated in the site. I went out and built BitCredits, where you can add a JavaScript line to
your website and the forms are built in and you actually deal with credit, so you send the
money to the website and its strengthens the brand. Youre sending money to the actual
website you trust and then you can transact value on that website. You send the money,
you send more money and its all updated in real time in front of you. Were dealing with all
the security and the other aspects. Our goal is really to bring the full capacity, the real time
nature of Bitcoin and all its different aspects, refunds and all these stuff, directly inside the
website and keep the experience very streamlined. I think thats a better way to...
especially since Bitcoin allows that, so why wouldnt we profit from that? [22:24]

AL: BitCredits, essentially, allows customers to have a wallet that is on a store website and
to have credit, right? [22:33]

AB: Somehow. Its not a wallet in the sense that you cant withdraw. We allow websites to
create their own currency, their own way to transact money. We kind of bridge two things
credits, which exist outside of Bitcoin right now like Facebook credits and stuff like that and
Bitcoin. That gives us a powerful mix because we give that to websites and its great for
them for loyalty programs because they have friends that can come to that site, thats left
on the site. You can create coupons or for donations as it doesnt require you to pay $50
like what we see with credit cards, always you need an amount. Now, you can send $15 and
that will give you 5 credits for movies and you consume one, leave it there and consume
another one later on. You kind of lock in your value up there. With the volatility in Bitcoin is
great; somehow like giftcards you send the money and then you lock the value there. Its
not going to be volatile. You have $100 of USD for shoes that you can buy now or later and
thats great for the merchant because now he has the money upfront. A lot of businesses
live on positive cashflows like that. I think its pretty cool. [23:41]

AL: Thank you Alex. Daniel, this conference is about Bitcoin but Bitcoin is, itself, a
cryptocurrency, which is, itself, a larger class of Bitcoin like protocols that use similar
mechanisms to Bitcoin, such as a blockchain but other things they do differently. Youre the
CEO of Invictus Innovations, a company whos already created one such cryptocurrency
called ProtoShares, although definitely not the first. There is something different about
yours. Can you talk to us about ProtoShares? [24:07]

DL: What we do at Invictus is we dont build cryptocurrencies, we build cryptoequities.
These would be decentralized corporations where the stock of the corporation is not like a
legal entity but the stock is the cryptocurrency. We take that metaphor and we allow you to
do dividends and many other business models, implemented on a blockchain. The first
thing we introduce is ProtoShares. If you go to Coinmarketcap.com, there are a ton of coins
and were the only shares. ProtoShares are different than every other cryptocurrency out
there because their value proposition is not derived from their use as money but from the...
what were going to do is were going to honor their position in our future blockchains, our
future decentralized businesses. Its a pretty big one thats our flagship, its BitShares.
Every ProtoShare you get, youre going to be able to import your wallet and end up with a
BitShare. In order to understand the value proposition of ProtoShares, which we launched
in November and it had a market cap as high as $40m a month later, its currently around
$25m. You have to understand what were doing with BitShares its a decentralized bank
and exchange that allows you to lend dollars into existence in the same way that
decentralized banks lend dollars into existence. You can have dollars on deposit that earn
you interest at 5% or more and its a dividend paying equity. Bitcoin, you can trade it and its
value can go up and change over time, but 100% of the profits from the transaction fees are
paid to the employees of Bitcoin, the miners. Were paying it to the shareholders and were
trying to minimize expenses, so its an entirely different metaphor for designing and building
crypto systems. [26:11]

AL: One of the other things that defined the ProtoShares launch was that a lot of things
went wrong and a lot of things... you kind of had a roadmap and a plan of what you thought
was going to happen but it sort of blew up, yet like you said youre still in the top ten
valuations of all the cryptocurrencies that are out there after only a month of being out with
fewer coins in existence than most of the other chains that are out there. What happened?
[26:37]

DL: We learned, very quickly, that setting the initial difficulties, like an IPO price and if you
underestimate it, then youre going to have way too many miners and the network is going
to have to work very hard to catch up. We learned a lot from this experience that it actually
was a very positive development for us. First, as much as you want to try to make sure that
the coins are distributed evenly, we tried to get a CPU only algorithm and things like that.
Theres really no fair way of doing it. People who have access to clouds end up mining it,
things like that and then there are perverse incentives with the mining system where they
actually financially motivate people not to include transactions for... [27:25]

AL: To be more efficient? [27:25]

DL: Yeah, to be more efficient so you dont have the latency because you collect the coins
but youre not providing the service to the network. All of a sudden, you realize that Bitcoin
was successful because it could grow slowly but if you launch something that grows very
quickly, there are a lot of little weaknesses in the Bitcoin network that we exposed in our
launch and we were hoping to improve by adopting more of a proof of stake system in the
future. Its all focused on the goal of minimizing the expenses to the network. Bitcoin has
got a 12% drag every year in new coins being... diluting the existing bitcoins. If you can
eliminate that drag and you can pay dividends, you can change the entire value proposition
for future coins. We learned a lot from the ProtoShares launch and its value, despite these
problems, were still honoring the social contract, so its a way to speculate on the future
value of BitShares and our other products today, while theyre still in development, so thats
unique. [28:19]

AL: At this point, given the experience youve had so far, is this something that you would
recommend to other companies that are looking to get into this space? [28:26]

DL: Its definitely a wonderful marketing technique. Its a new way of crowd-sourcing. We
created this cryptocurrency thats got all this value, we mined a lot of it ourselves but, of
course, nowhere near as much as wed like to have. It created an instant community. We
went from a brand new forum with hardly anyone on it to almost 2,000 people in a month.
People created block explorers, there are several exchanges that listed us and just the
publicity associated with doing this is really amazing. Challenges, figuring out the business
model behind the coin, simply releasing the coin its got to have a purpose and its got to
make business sense to both the users and yourself. I think theres a lot of opportunity for
anyone who wants to create decentralized businesses to launch it this way, or to do a hybrid
approach, where you have a cryptocurrency thats redeemable by a company and its not
that expensive to create your own coin. [29:37]

AL: Thank you Daniel. Pelle, Africa is often identified as an area of potentially explosive
growth for Bitcoin or cryptocurrencies. Why is that? [29:48]

PB: Africa is a continent thats in incredible flux right now. Its a continent thats tired of
the reputation it has, its tired of poverty, its tired of bad government and its tired of aid
agencies, NGOs and all of that. Its a continent thats going out and growing and doing
things for themselves right now. Bitcoin solves a lot of issues because a lot of problems
Africa has had have been based on people saying no. No, you cant have that, you cant do
this, security issues and all kinds of stuff. Bitcoin really helps solve a lot of issues. Africa is
primarily a country of unbanked people. I was in South Africa a couple of weeks ago and I
was surprised, in a place thats developed as rich as South Africa thats still 65% of the
population are unbanked. There are a lot of people looking for solutions, a lot of people
looking for ways that they can send money, receive money, they can store money, they can
buy things and they can sell things. Its a really exciting place to be right now and the
growth is just incredible down there. [31:06]

AL: It seems like each device eco-system is a little bit varied. The problems of someone
trying to get onto Apples platform are very different than someone trying to get onto a
feature phone platform. Can you tell us about the Kipochi wallet that youve created and
some of the challenges of working with that type of audience? [31:22]

PB: Yeah. Unlike many other start-ups here, we are working with really, really old
technology. We use abbreviations like USSD which mostly, youve probably never heard of
but that is a fantastic... its not really fantastic but its there... its a technology that allows
people to interact with online applications via an SMS backbone. Im guessing the
technologys about 15 years old; it may be older. It was really weird looking at it first, but in
Africa, thats what you need to do if you want to get out to everyone. We also have a
mobile web version of our wallet. Basically, I should say what our product does. Our
product, if you are a regular Bitcoiner, you look at our product and youll be Is this it? Yes.
Its it. Its a very, very simple wallet. It integrates with your mobile phone number so you
can receive and send money to phone numbers, which is very important because thats how
people send money today in Africa. We have a very simple mobile web version of it. We
have a USSD version of it, which is this very simple menu based interface. We can actually
offer a SIM tool kit version, which is another technology that most of you probably have
forgotten everything about, but its a technology where you can install an app on the actual
SIM card. We havent had any takers from operators yet on that. One of the problems with
working with these kinds of old fashioned technologies is that you need to work closely with
the mobile phone operators. Thats what were spending most of the time doing right now
educating, reaching out and those kinds of things. Its a slow process but we will get there
and once we start going online properly with these, we will start seeing huge numbers of
uptake. [33:24]

AL: I was pleased to see that you had recently integrated with M-Pesa, which is the very
dominant... and maybe integrated is the wrong word, you can correct me. Id always kind of
viewed them as the primary competitor to what you were trying to do in that space. Am I
wrong about that? [33:41]

PB: Youre absolutely right there; our primary competitor, at least, thats what they think.
After two weeks after launching, we had like a... I call it a ghetto integration with M-Pesa
and they shut us down. (Laughter). Thats alright. We figured that would happen at some
point. Its just a proof of concept that we did. M-Pesa, for those of you who arent aware of
it, is the most successful mobile money system in the world. This is based in Kenya and I
keep hearing varying numbers about the amount of people who use it but its probably
something like 80% of adults... 70-80% of adults have an M-Pesa account. [34:24]

AL: What type of fees? [34:26]

PB: The fees are quite high and theyre growing because the government just added tax to
transaction fees... transaction taxes to it as well. However, its a very old fashioned system
and if youre a developer and you want to integrate with it, its the biggest headache you
could possibly believe. The solutions that people come up with down there really... to
actually create merchant solutions with M-Pesa really speaks to the brilliance of some of the
Kenyan hackers. I mean, they are... talk to me afterwards and Ill come up with some
(laughter) I might tell you some of the stories. Its a quite terrible old system but it won the
network and its everywhere, so you can pay with M-Pesa in a lot of stores in Kenya; you can
send money anywhere. The big problem with M-Pesa and all the other mobile money
systems is that you cant send money to other networks, you cant send money abroad and
you cant receive money from abroad. There are also a lot of other countries in Africa
where theyve tried to emulate the success of M-Pesa but they havent been able to do it
because no one has been able to reach that network effect. Its an interesting thing. All the
operators, they want to follow this model. An interesting thing with the M-Pesa model is
that you dont go to a bank to buy M-Pesa, you go to an agency and some of these agencies
are just basically like a little shack made from sink, painted green, with like a hand painted
M-Pesa logo on. You just go in there and you say I want 100 shilling on my phone. You get
100 shilling sent to you on your phone. You get a text message immediately. The point of
sale system is another feature phone. This is a great system that actually... its a quite
interesting system that works well with Bitcoin. The great thing about M-Pesa is I have zero
problems explaining Bitcoin in Kenya because I just say to people if they ask So what are
you doing? I work with this thing called Bitcoin and they say So whats that? I say Its
just like M-Pesa except it works internationally and its a different currency. Its like OK.
Thats it. (Laughter) There are no questions about it. It works exactly the same way. Weve
been quite successful in reaching out to people. There are some regulatory issues down
there and we are working closely with the Central Bank in Kenya and will be in other
countries as well. I mean, its a lot of fun; its a slow process, in some respects but the great
thing about Africa is that if theres a new technology that comes and it really solves a
problem, people will attack it and adopt it and reinvent it and everything. It will go quickly
once we solve the exchange issue, which is like the major issue for us right now because we
have to really go in and integrate with large, large companies. [37:34]

AL: Thank you Pelle. [37:36]


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AL: Alan, the Bitcoin protocol as described in the Satoshi White paper is actually pretty
different from the Bitcoin that were using today and its not that... its just that its
different. There are things that are possible in the code that havent really been activated
or we havent figured out how to implement yet. Can you talk to us about some of the
more exciting things you see coming? [39:06]

AR: I dont think that what Satoshi wrote in his White paper is really that much different
than what Bitcoin is today. Most of the core concepts are there. Probably his biggest
mistake or mis-projections was having to do with mining. He believed that Bitcoin was to be
made up of a network of people and all of them would have their computer CPU mining and
that everyone in the world would be mining with their CPU. The inflation of the system
would all be going to all the participants at once. Instead, we ended up with this arms race
of mining hardware and ASICs and even before ASICs, GPUS. It became a very specialized
system. That was one thing that wasnt quite what Satoshi had in mind when he created it
but I think most of the other core concepts of Bitcoin are there. His paper was very proof of
concept. It was more kind of looking at what could happen but it didnt describe everything
that Bitcoin is being used for now and what it will be used for. It was pretty clear, by the
way that he designed it, and his subsequent two years in the community helping to develop
it, that he built a whole programming scripting language into the system. Bitcoin is
programmable money and he, very clearly, understood that more than just being able to
move money from one person to another, that you can do really complex things with this.
For instance, a lot of people have heard of multi-signature transactions. This is something
thats not in use right now but Armory, which I develop, is something I hope to innovate,
where you can actually encumber your funds, requiring multiple signatures. You could put
three people, or three devices onto your wallet and then any... you need two signatures
from any one of those... from any of those devices in order to move the funds, which
dramatically increases its security. Thats not something that was really mentioned in the
White paper then, of course, its been a while since I read it, so I dont remember. A lot of
these things were not mentioned the richness of contracts that you can build with the
protocol but were not really there. He, very clearly, had that in mind when he developed
this programmable money system. I think that he didnt know everything that was going to
be built off of it, but he certainly knew how powerful it was when he made it. [41:28]

AL: OK. Lets jump forward then and talk about some of the programmable money
applications that are coming in the next say, year to eighteen months. One of the ones
thats been most interesting to me, because I deal a lot with micro-transactions is the
concept of micro-billing. I dont even know if thats the correct term for it but its a term
thats being used for it. Can you kind of explain to the audience what micro-billing is and
what types of niches it might be used in? [41:51]

AR: One of the issues with the Bitcoin protocol is that... its not really the protocol, theres
kind of an artificial limit on how many transactions can flow through it. Me and a lot of the
developers believe that that will have to be increased at some point to accommodate how
fast Bitcoin is growing, but until then we do... while Bitcoin kind of proposes a method of
being able to do micro-transactions very efficiently, having a billion people executing
thousands of transactions per day to pay 2 cents to view a web page or $1 to pay to watch a
30 second video, the system is not really in a shape to handle that. However, what one of
these advanced contracts concepts that... I dont know if Satoshi ever acknowledged it, or if
it had been devised before he exited the scene, was this idea that you can create a system
where you create a payment but you can replace it later. The payment, basically, its called
Timelock you have 30 days, or whatever time you choose, to replace this payment and
that replacement can happen without touching the blockchain or the network or anything,
and so you can guarantee someone a payment and then you too, off the network, can
mutually agree to change that. Both parties know that the final state of this transaction is
valid and if both parties just suddenly stop responding, the current state of that, the
replacement would go through, which means that you can now charge... you set up one of
these micro-payment channels, theyre calling it, and you can actually bill... say walk into a
coffee shop, sign up with their internet and youll give them maybe a one week Timelock
and for that week, every kB, every mB, every second, whatever you want, every tiny
increment that you pay them, you can simply just replace the payment that you made to
them, giving them more and you dont have to touch the network. Its very, very efficient.
You can do literally a thousand micro-transactions a second. What youre doing is youre
taking these two parties that are engaging in some relationship, youre setting up a channel
and then youre letting them do as many micro-transactions as they want, as fast as they
want. You can do up to like 4bn, before the thing expires. It really opens up the possibility
of... you could sign up with, say The New York Times, I forget which leading Wall Street
journal that charges for their articles... you can just set up a monthly payment and for every
page you read, they could charge you a penny. It makes paper use much easier and those
micro-transactions then become instantaneous and you dont have to wait for the
confirmations. Youre replacing these thousands of transactions that you would do with,
basically, two transactions one at the front and one at the end to finalize it. This is
something that I think BitcoinJ, which is kind of an API that people... developers are building
applications off of. I think they implemented that and its something that the other wallet
developers want to implement because it really does... when youre doing a lot of
transactions between parties that have a relationship and are going to do a lot of
transactions with one another, it really takes a lot of load off the blockchain and it takes this
system of thousands of transactions and converts it to, basically, two and then they can all
happen instantaneously and as many as you want. [45:35]

AL: Thank you Alan. Justus... and we have microphones over here and over here, after Ive
finished questioning Justus here, well be taking questions. If anybody wants to start lining
up, youre welcome to do that now. Justus, one of the good news, bad news features about
Bitcoin is that its neutral and irreversible. That works great when things go well and it
works kind of poorly when they dont. I know that youre working on a solution to this
problem, so can you tell us about this? [46:08]

JR: Yeah. One of the first things that attracted me to Bitcoin when I learned about it was
that it is a currency for the world. Its not specific to any country and it has wide ranging
uses and might even be most useful for people outside the developed world; for people
who dont have traditional economic opportunities. When you start to think about how can
we actually enable all of these people in the developing world to enter a global
decentralized marketplace, you need more than just currency. You need the ability to
create business deals and contracts and beyond that, you need a way to create recourse and
dispute resolution whenever something doesnt go according to plan. Right now, there are
no good solutions for that, so what were working on, myself and a collaboration with some
other people, is a method for writing smart contracts that builds recourse directly into the
contract in the form of bonds. All the parties in a contract lock up money ahead of time,
which is program released by a series of scripts. If the main business deal closes and
everybody is happy with it, everyone gets their bond back, no problem. If there is a dispute
or a problem of some kind; if there are what would be contractual damages in a court, then
the contract, by the virtue of one of the parties issuing a dispute message, now we move to
another stage where some sort of third party arbitration will decide the allocation of the
bond. Were going to have a general API for these contracts so ideally, in as many cases as
possible, you would want that third party arbiter to be an automated software agent but in
the case where you have a dispute, by its nature that requires some sort of human
judgement and intervention, then you would tie that third party arbitration into a mutually
chosen human arbitration company. We have the marketplace for doing business deals and
also a marketplace for people to advertise arbitration companies and tying it all together
into a convenient user interface. [48:21]

AL: Now, why is this something thats better than a solution thats out there right now like
Judge.me thats a centralized solution but it does allow for stateless contracts. *48:31+

JR: One of the things thats so advantageous about Bitcoin is its decentralized nature and
what you get with decentralization is an absence of censorship and prior restraint. Those
are features that no centralized solution, in general, can ever provide because anything
thats tied up into a traditional business model, theyre going to operate in a legal
jurisdiction, theyre going to have rules that they have to follow to stay in business, which
may not be what their customers actually want. I see centralized solutions to these general
business problems as a step backwards. We have a completely free market decentralized
money and all of our solutions we build on top of that, should retain the same
characteristics, without adding central points of failure. [49:20]

AL: Play out the logic for a second. If youre successful with what youre doing, what does
the world look like in five years? [49:26]

JR: Our goal is to create a world... Ill talk about it in two parts. For creators of digital
deliverables in the developed world, we want to make their lives a lot more flexible in terms
of where they can live. The overall goal is if youre operating in a digital realm, it shouldnt
matter where your residence is and your economic opportunity should be the same. For
people who, say, are living in the higher cost of living countries that they might not want to
move there, they may not want to live there inherently but they have to for their own
economic reasons, we want to give you freedom on that end to live wherever you want in
the world and still access the same marketplace. On the other side, we have the people
living in the developing world who do not have access to global markets who are shut out,
they cant get effective entrance into these markets, they cant sell to a US company
because even if theyre capable of doing the work, nobody trusts them. Why would you hire
a programmer from Nigeria when that country has this geographic stigma attached to it
because of email scammers? When you create smart contracts, that are not dependent on
government issued law systems, they cross borders frictionlessly. Now, somebody who is a
good programmer in Nigeria, can ensure their contracts that they sign, in a way that anyone
will trust them, now they do have access to a global customer base, now they can take full
advantage of the economic opportunities that cryptocurrencies bring. [50:55]

AL: Thank you Justus. Well go to our first listener question over here. *51:00+

Q1: Thank, how are you doing? David, very quickly, we are from New York and work closely
with some Wall Street firms and people. We see Bitcoin as being, in the future, tied to
corporate shares in such a way as to create added value within the corporate economic eco-
systems of banking. For your work there and (?? Brigitte Oakley) will talk to you about that
later. Pelle, in terms of Kenya, you have Duncan Goldie-Scots BitPesa coming up there in
Kenya. There is a lot of competition in that space for the Bitcoin market and money transfer
to money remittance etc. Where do you see the rest of the world going with that? You
mentioned that the concept of replicating M-Pesa around the world has been a difficult one.
Really, why is that and where do you see that. Also hotspots around the world that are
catching on in that regard? [52:00]

PB: BitPesas a great company; theyre friends of mine and we have weekly (??) Bitcoin,
crypto and all of that kind of stuff, in Nairobi. BitPesa are doing something quite different
than we are. They are, basically, providing... I know theyre billing themselves as a
remittance company but what theyre really doing is they are an exchange, an alt exchange
for use in Kenya. Were not really doing that. Were more trying to replicate... were trying
to turn Bitcoin into a mobile money system and then integrating with companies like
BitPesa. The other question you had about why mobile money is sometimes difficult to
replicate, basically, payment systems are networks, so for a payment system to take off, like
any other network, there has to be enough people on the network. M-Pesa was able to
grow really quickly and the majority of the adult population had an M-Pesa account very
quickly, so they were able to take off. You get the strange situation where you get other
countries like Tanzania, Uganda, where there may not be one clear winner and people are
using mobile money, its just not quite clear which one is the winner because of that. I
actually see Bitcoin as solving that because Bitcoin is a very large payment network. If
mobile money providers, instead of creating these small little islands, as we call them, they
can join into Bitcoin and then you can send money from Uganda to Rwanda to whatever
between operators and those kinds of things. [53:53]

Q1: Bitcoin is the underlying platform for any service that happens to be... be it M-Pesa, be
it Vodaphone or whatever? [54:01]

PB: Yeah. I see Bitcoin as being TCP/IP for money and thats, basically, all of these different
services can build on top of Bitcoin. [54:09]

Q1: Yeah. OK thanks. [54:11]

Q2: Hello, my name is Sean Wilkinson and Im a casual Bitcoin developer and also Peercoin
web (?) My question is more on the development side and how you guys went about
developing the products and services that youre offering. One thing that Im seeing in the
Bitcoin community is we have all this cool, nice technology, stuff like multi-signature
transactions which is amazing but then you try to explain that to the developer to actually
build and implement that and theyre just like how do I go about this? There are so little
resources to be able to figure it out and be able to actually build that out into a product.
How do you guys go about figuring out the information you need to build out your product
and maybe how can we, in the future, build out resources so the people in this room can
more easily build out products and services for Bitcoin? [55:17]

AR: I think thats still a challenge in this community. Bitcoin, itself, in some ways still has
some soul searching to do in terms of how to market itself, how its going to develop, how
its going to appeal to people and how businesses are going to build themselves around it.
Bitcoin is a fairly complex system, especially at the developer level. I can tell you, from
having started my own business recently and trying to get developers, that you really do
need, when youre having people actually dealing with the Bitcoin protocol, you do really
need people who are very, very skilled and really capable of understanding these deep
concepts and getting into it. I do see that as something that is going to be challenging for
Bitcoin if its this difficult to get developers to build out the infrastructure, then Bitcoin isnt
going to grow as fast as wed hoped. All the information is out there but really, I think, most
of the issue is developer resources. A lot of it is we just dont have enough people who are
that interested in it. Im sure the recent growth of Bitcoin has drawn a lot of attention into
it but there is still a lot (cut off) [56:34]

DL: I just want to say that its been really hard for us to find developers as well, so weve
experienced that. The information is out there and I was able to learn everything. I needed
to do it from the information thats out there but it is hard to find people who have taken
the time to experiment with it and understand the first principles behind cryptocurrencies.
[56:58]

AB: My take on that, obviously, comes from my standpoint with BitCredits.io is that... see
were talking about micro-transaction channels and all these things, if we wanted the users
to use that, would need to be built in the wallet. For example, sending more money each
time to someone after each kB, the actual device would need to encrypt all these things, so
its a heavy requirement on the app side making that thing really difficult. Thats why I think
services like us, and a lot of others of us who are going off blockchain, doing micro-
transactions elsewhere, they can tailor the experience to their particular service. Thats why
Im really proud; our development API makes it very easy for developers to build their own
experience and tailor it to their needs and its all off blockchain where were dealing with
credits and small transactions. Otherwise, I think yeah, the burden goes on the wallet side
and its going to be very difficult to have an experience thats good for all types of services
built into the wallet. [57:54]

AL: Stuart, do we have time for one more or did you say this was the last one? One more?
OK. [58:05]

Q3: I have just have two questions for Pelle. The first is what market share does Kipochi
actually have in Africa, because you mentioned that M-Pesa is currently dominating market
share for that? [58:15]

PB: Right now, Bitcoin is mainly used by enthusiasts down there. To get out to a very broad
audience, you need integration with mobile phone operators, with banks and other kinds of
institutions to get the really wide usage. The actual percentage is tiny. Im not even going
to try and estimate. Its got to grow a lot in the next year. I think weve had some
conversation before where I was talking about Bitcoin time is seven times the speed of
internet time, so this is going to happen really, really quickly and I think probably Bitcoin
time, in Africa, is probably going to be even quicker. There are a lot of things that need to
be in place for it to reach up to a noticeable... to actually show up as a big... yeah... but we
will get there. [59:19]

AL: Thank you very much to everyone on the panel. (Applause) [59:22]


__________________________________________


CREDITS:

Thanks for listening to Episode 74 of Lets Talk Bitcoin.

SnapCard interview was produced by Adam B. Levine, edited by Matthew Zipkin
and featured Adam B. Levine, Michael Dunworth and Ioannis Giannaros

Thanks to MediaBistro for putting on the Inside Bitcoins conference

The New Ideas in Bitcoin panel was recorded live at the event by the Lets Talk
Bitcoin team

Music was provided by Jared Rubens, Calvin Henderson and Matthew Murkowski

Questions or comments? Email Adam@Letstalkbitcoin.com

Have a good one! [59:51]