We are going to talk about the second promise of bitcoin, which is to be a free, inclusive and instant worldwide payment network. A very important things to consider – we talked about Bitcoins’ first promise-which was its store of value, Okay? We did a deep dive. Right now, we’re going to check out the second promise of bitcoin, which is the payment network.
So, this is something that is easy for us in the first world to take for granted. We have bank, we have credit cards, we have PayPal, we have Venmo, we have cash, we have payment networks coming out of our ears. There are so many ways to transact with people.
But in the third world, Bitcoin is an absolute game changer. There are four billion people living under total totalitarian ruling this world and around about the same number four billion people who are unbanked. They have no access to um bank accounts whatsoever, they don’t have credit cards – they don’t have them.
There is the only way they transact; it is in cash at the marketplace. They are completely locked out of all the financial services here that we take for granted.
There’s another 1.3 billion people living in double or triple digits inflation. That kind of ties more into the store of value thing from the from the last section but there’s just people desperately need a place to hide from inflation to protect themselves from the ravishes of inflation.
Bitcoin is a way to enter the 21st century the digital economy. How can they buy products online? Can you even imagine not being able to buy courses online? I buy a lot of courses online to teach myself certain things and if I was in the third world, I couldn’t buy a course online. I just couldn’t do it.
It’s crazy they’re missing out on all this incredible education. So, something to point out – bitcoin adoption has surged 880 percent in just the last year.
For very good reasons, this payment network has really exploded this last year, so let’s go back and understand this a little bit better as we saw in part one. I think it’s part one or part two the history of bitcoin, we found out that in 2017 through 2017 through 2020 this this second promise that of a payment network didn’t really come to fruition.
It kind of got broken a little bit while they were building something called the lightning network. We will talk about that in a little bit so the payment network -the adoption by people using the payment network has really not taken place until just this last year and then it has absolutely exploded.
Let’s go through a little bit here so we the let’s go through the three words I use to describe the payment network that bitcoin promises to be. It promises to be inclusive. It is very important to understand there is no KYC, there is no AML (that’s know your customer anti-money laundering things) you must have to sign up.
Anybody with a computer, a phone or an iPad -you just get your hands on any electrical device, and you can you have access to a bank in your pocket. You have access to not just banking facilities, but to superior banking facilities.
You have ways to pay anybody anywhere in the world instantly for free very powerful stuff and it’s just it just brings such an enormous amount of efficiency to billions upon billions of people.
India for example, never really had dial-up internet it just skipped straight over it. By the time dial-up internet was about ready to launch in India – they had cell phones and they just did broadband. So, they went straight to it. They skipped straight over it and went straight to broadband.
Because the west the first world was developing so fast – by the time they were ready to implement our hand-me-downs of dial-up they just went straight to, and they skipped this whole thing. So, the entire developing world in my opinion is just going to skip over the entire banking system that we all know and use in the first world they’re just going to go straight to bitcoin and the lightning network.
And that’s what I mean- it’s what it means for the world’s efficiency. It’s what it means for lifting billions of people out of poverty. It is a mind-blowing thought, it is really powerful.
So what’s next here? Emerging markets are leading the way and this is really important to understand, where bitcoin has a divide in the first world. I don’t need payment networks. I’ve got them coming out of my ears and I value my Bitcoin – they are precious to me. I don’t want to spend them.
I i don’t want to spend them so I don’t. It doesn’t matter if Starbucks or Walmart starts accepting bitcoin – for me, it doesn’t matter. Some other people here in this country, it absolutely does matter to them and it’s a good thing. I want to see it more readily available but to be honest, I don’t care.
The first promise the store of value is all that I care about. For me, it’s Gresham’s law, really. Gresham’s law is that “bad money chases out good”. The fiat money is the bad money and I want to get that out of my hands as fast as possible.
I’ll pay for everything with my fiat currency- I’ll use a credit card or even get rewards, all right? My bitcoin…that’s my good money. I don’t want to spend that, right? In the emerging markets, it’s in the absolute opposite truth.
They are craving a payments rail. they’re craving a bank account they are craving a store of value they need all this stuff to just get them into the 21st century. And so, what we’re seeing is that in the developing world, the payment network is really leading the way in terms of peer-to-peer.
So, in the first world, the vast majority of bitcoin transactions is that you wire money to a big company like a kraken or a coin base or something like, then you buy your Bitcoin, and you take your Bitcoin, and you stick it in storage.
It’s just like putting gold in your safe or something like that – you just now hold bitcoin as a place to store your value. And it’s going up quickly so it’s a great investment. That’s what happens in the first world.
In the developing world they need it to transact, so what they’re doing is, since they don’t have the bank accounts to tie into Kraken and Coinbase they do peer-to-peer transactions.
There might be one person in the whole village who travels four hours by bus to go and get some bitcoin from someone in the city. Maybe he’s the only guy in the village with a bank account or something like that and he gets the Bitcoin, and he comes back to the village, and he now does peer-to-peer trade.
The people in the village come up and hand him a few bits of paper or give him some bananas or whatever and there he’s handing out Bitcoin.
It is a peer-to-peer exchange in Africa. Peer-to-peer exchange in Africa is even bigger than peer-to-peer exchange here in the United States. We are seeing an interesting world. In the developing world you’re getting this bottom-up approach. It is the people who are unbanked- the people who are hungry and are craving first world banking features.
They’re just scooping it up and almost every week- there are stories of people- villagers being rescued- in Cuba, in Vietnam, in Nigeria. Suddenly, the economy grinded to a halt, the currency was in hyperinflation or high inflation they couldn’t get their hands on any useful money.
Suddenly you know one little one person; the village has a family member somewhere and they send $ 500 worth of Bitcoin to this person in the village. Suddenly bitcoin starts circulating around this village and this the economy, within this village just kind of takes off.
So, this is happening right now at an incredible rate because again- I don’t want to repeat myself from the history of bitcoin section, but the payment rail network was a little bit of a letdown the last few years.
While they were building lightning network (so let’s get into lightning network and understanding what that is i should mention Vietnam, Nigeria, Argentina, Venezuela… the list goes on of emerging markets.
These emerging markets are rapidly growing (with bitcoin) so I think it’s time to introduce the Lightning Network. The Lightning Network is bitcoin’s scaling solution. Here is a really interesting concept, bitcoin is kind of simple, you know? Which is a very good thing and I liken it to the internet.
The internet was a very simple concept. It is a TCP/IP protocol which allows packets of information to go back and forth between computers. That is all. That is all it does – that’s the internet.
But then people come along with layer two solutions and now they will build email on top of that. They will build websites on top of that. They will build search engines on top of that, and they will build social media on top of that.
It is the layer two, three or four solutions that really give power to this incredible invention called the internet. Bitcoin, I think is very much like that it has an enormous amount of power just in and of itself (much more so than TCP/IP had) but at its core it is relatively simple.
So, what’s happening on top of that is layer two solutions. We are now at that point in the development where the layer two solutions are really coming through thick and fast in a lot of different ways.
I think the most important one is the Lightning Network. Now, the Lightning Network makes Bitcoin as a utility function is even better than the bitcoin core protocol.
It is faster. It is cheaper. It is free, absolutely free. It doesn’t cost anything whatsoever to send any amount of money. That includes micro pennies, for example. We will talk about that in a minute.
So, it’s free and it’s instant and its worldwide. Oh – and it scales at several orders of magnitude higher than MasterCard and Visa -combined.
So, the Bitcoin Lightning Network can handle pretty much every single transaction on the planet. That is how powerful the Lightning Network is. It is the bitcoin scaling solution. It is instant, universal and free. Its capacity is orders of magnitude larger than Visa and Mastercard.
You can see again between 2017 to 2020, the Lightning Network was still being developed. Here, we see since this graph only goes back to January. You can see the scaling solution here. It is just going vertical. It is growing so fast, that every single every single leap up takes less days and money.
Bitcoin is pouring into the Lightning Network. Here in the first world, I’m like “eh, whatever.” But for the developing world- it is just so valuable to them. I expect this to absolutely explode over the next few years.
So, what does it allow? What kind of problems does it solve, right? So again, we’re going to put our investor hat on (or even our entrepreneur hat)- if we invest in a business or starting a business. What problem are we solving and for how many people are we solving it?
Let’s understand that- let’s look at one small little niche. So, we have already talked about the fact that there’s billions of people who just don’t have access to banking and all the things that can that can mean. Let’s look at one little, tiny thing of what that means- the remittance business.
The remittance business is a multi-multi-billion-dollar business, I think. El Salvador for example, I think 25 percent of their GDP is remittance. if you don’t know what remittance is, remittance is when maybe you have friends or family living in the first world, they make money and they send money back to the people who are still living in the old country.
In this case it was in El Salvador. So, 25 percent of El Salvador’s GDP is by people living outside of El Salvador sending money back to family and loved ones. That is what remittance is and here’s how remittance has worked until bitcoin was invented.
You used to have to go to Western Union. Someone here- let’s say America- would go and earn money and then they would go down to Western Union.
It is a nice clean office (that’s what you probably think of) and it is pretty safe, you’re in America. You give them some money and Western Union sends the money and then the person at the other end can go and pick up the money. For that family member it was sent to, they’ve got to go to a Western Union office.
First of all in those countries very often it is like a two or three or four hour bus ride to get to a city to find a Western Union office. And then when you get there- there are gangs all around. They know that people walk in there and walk out with money. The people are getting robbed left and right.
So you travel for hours to get there and then when you’re in there because it’s so expensive to manage all of the security and all of the issues in that country; some the Western Union fees take between eight and thirty percent.
Now, these remittances are very often a hundred dollars two hundred dollars. It’s the guy cleaning or mowing your lawns. It is the guy or gal just doing these simple labor tasks. They’ve just left El Salvador-they might not even speak the language- they make a little bit of money, and they want to send back some to their wife or their kids or their mom or their dad or whoever.
So, they send back about a hundred dollars. Western Union takes thirty dollars. They say that’s the cost of doing business in those countries. It is extremely expensive. Western Union takes thirty bucks from that hundred dollars, right? Only seventy dollars gets to its recipient.
Then the recipient leaves the western union office and are getting robbed by gunpoint by a gang, then they’re going to get back on the bus, go for two or three hours back to the village. Maybe with some money, maybe not. This is how the remittance industry the world over has worked for decades.
Now, with bitcoin what happens is the worker here in the US- he has an account here, with an app.
Let’s say you use the in-strike app but has his credit card hooked in or maybe he just has a bank account connected to it. Whatever he does, he connects to the bitcoin app and boom he buys bitcoin instantly and free. Without losing it, without leaving his home.
He then sends it via the Lightning Network to his friend. He sends it to their cell phone in El Salvador. They send it to their loved one, instantly and free. The person in El Salvador now gets it. They never had to leave their house. They didn’t have to catch any buses. They were right there in the house, and they have bitcoin now.
The next step here is, in the relatively immature bitcoin world, he may have to convert this back into currency in order to spend it. But maybe he chooses to offer a service and be that service for everyone in the village. “Hey, you know, once a week I’ll go, I’ll go to the city and I’ll go to the bank and I’ll pull the money back and then I can be a broker for everybody in there.”
But that is short-term thinking. What really is going to happen is that there’s more and more people do that in the village. The merchants, the people with the food & cups, the people at the grocery store, they’re just going to accept the bitcoin as payment right there in their wallet.
Remember what are they going to do- they’re living in a place with double triple digit inflation- when they get it aren’t they going to convert it straight back into bitcoin, anyway? If they’re smart, they would. Maybe they don’t have the knowledge and education to do it yet, but that knowledge and education is filtering into these emerging markets at an exponential rate.
I’m thoroughly convinced that although we use it in the first world just as a store of value, what we will see in the third world is since they are used to their currencies collapsing every five to ten years, they’re going to cling to it like with both fists and the merchants are going to accept it.
The people when you send it into remittance, they’re not going to try and change it back into the local garbage currency that is running through triple digit inflation. They are just going to keep it. And they are going to spend it right there at the store.
They are going to spend Bitcoin at the merchant. The store owner, they are going to leave it in bitcoin until one day they’re going to sell it. But if soon the entire economy is just going to be Bitcoin- everyone is going to have it. Everyone is going to use it and that’s going to be the currency of that village. Village by village all around the world that is what’s going to happen.
It is probably worthwhile to share the fact that this is already happening. There is a great documentary made about this concept. A gentleman by the name of Jack Maller, he created an app called “Strike”. It was specifically designed to service these exact people.
He actually went down and lived in a village in El Salvador. He went and found a place he nicknamed it “Bitcoin beach” and he went around educating people all over this little village about how Bitcoin works. He offered to be a broker for people. He trained people how to do it and now that village just operates on Bitcoin.
It was so successful it was the village in El Salvador. It was so successful, and it got so much media attention that the president of El Salvador got wind of it and took notice. He realized how much it could help his people and in an unbelievable twist (I thought we were about five years away maybe ten years away from this happening) the president of El Salvador they have passed a law that bitcoin is now legal tender in El Salvador.
They have mandated- I’m not a big fan of this part but they have mandated that every single store owner in the country has to accept bitcoin as payment. I can’t believe this. I really thought we were about five to ten years away from it.
Bitcoin is just going into an absolute hockey stick now. Every single graph I look at is like, this graph is going off the charts.
I know people think about “oh my god I wish I had bought bitcoin when it was pennies. I must be late now; Bitcoin is $50,000 per bitcoin”.
I am telling you now- I believe we are still very early.
We are going to cover this more- we’re going to get into the investment thesis of bitcoin next. We are going to talk about what is the adoption curve? Who is adopting bitcoin?
I have just mentioned the countries, but I will go through all the different sectors that we want to keep your eyes on. Because Bitcoin isn’t just like taking over one little niche. It is literally taking over dozens of niches in dozens of directions in dozens of countries.
Bitcoin is just an animal that is just going all over the world, and you are so early. We are going to understand just how early you are in coming across Bitcoin and thinking about whether you’re going to invest in it.