Nicolas Burtey is the CEO and co-founder of Galoy, an open source banking platform helping communities of any size adopt Bitcoin.
In our talk, we spoke about Galoy’s latest release called Stablesats, we talked about the future of stablecoins and Bitcoin banks, and Nicolas shared some updates on the latest in El Salvador’s Bitcoin adoption.
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00:00 - Intro
02:13 - What Is Stablesats?
08:03 - Stablesats Risks
16:08 - Asset vs. Contract Stablecoins
20:18 - Why Are Stablecoins Being Built on Lightning Now?
24:02 - Will Galoy Earn Money from Stablesats?
29:24 - Galoy Adoption & Bitcoin Banking
35:25 - What Is The Role of a Bank in the Bitcoin Economy?
53:00 - Bitcoin Adoption in El Salvador
1:08:38 - The Lightning Round
Nicolas Burtey - 00:00:00:
I think it's great. I don't have to have bank accounts. It's like it's instant. That's a great payment system. I really want to have $100 in my wallet for it. I don't want to have 500,000 sats, because I basically cannot afford the volatility of bitcoin. So how Stablesat works is we are basically hedging the volatility of bitcoin. The price risk of bitcoin using the exchange if we take a long enough time frame. I think the real Stablesats is bitcoin. Stablesats will be a revenue driver for Bitcoin Beach. Probably Latin America and Africa are the two places where we see most potential in the short term for our product and generally Lightning. I will say that maybe today there is about 20% of the merchant, no costs, across El Salvador, start to bitcoin are using bitcoin.
Kevin Rooke - 00:00:58:
Nicolas Burtey is the CEO and cofounder of Galoy, an open source banking platform helping communities of any size adopt bitcoin. In our conversation, Nicolas explained Galoy's latest product release called Stablesats. We discussed the future of stable coins on Lightning. We discussed the future of bitcoin banks, and we even got into the latest updates on El Salvador's bitcoin adoption. I've asked Nicolas to send over his Fountain username. It's not quite set up yet, so in the meantime, I have directed his share of today's show splits to the Human Rights Foundation. If you enjoyed this show, the best way you can support it is by sending in sats over the Lightning Network. Use your favorite Podcasting 2.0 app. You get to decide how much this show was worth to you, and I can't wait to see all the sats and comments you guys send in. Just a quick shout out. Today's show is sponsored by Voltage. Voltage is the industry standard and next generation provider for Lightning Network infrastructure. Today's show is also sponsored by Zebedee. That's Zebedee. And Zebedee is your portal into the world of bitcoin gaming. We'll have more from Voltage and Zebedee later in the show. All right, welcome Nicolas, to the show. Thank you for joining me today. I've got a lot of questions for you about Galoy about bitcoin adoption in El Salvador and the latest project you released, Stablesats. Can you start by sharing a bit about what Stablesats is and why it is important for Galoy’s mission?
Nicolas Burtey - 00:02:35:
Sure. First, thanks for having me. So the idea behind Stablesats is to give the optionality for people who want to use Lightning to store their savings into dollar when they don't transact over the Lightning Network. This will come from the experience of having a wallet in El Salvador and talking with the people on the ground. The number one issue is that Lightning is awesome. Everybody can contact about it. I can get on my phone and I can get plugged to the system there with personal information document to start using the bitcoin or Lightning at all. This is a very positive system. Lightning brings this instant settlement, low fee or even zero fee system on top of bitcoin. But now, okay, let's say I'm a small business or even I'm an individual in El Salvador, and typically I may not have extra savings. I'm living paycheck to paycheck. Do I want to use Lightning? In my case, the issue is that my expenses are in dollar, and if I start receiving money over Lightning and my money is stored in bitcoin, if the price of bitcoin drops, then I cannot pay my expenses anymore. And this is an issue? The issue is that if you have an expense in one currency and your assets in another currency, you may not be able to pay your expenses or it is the price change. And so the main idea behind Stablesats is to say, okay, can we work on something such that I can send to a Lightning invoice? Right. I want to pay my invoice online from bitcoin, from my water bill or electricity bill. Lighting is great, right? Like, I don't have to have a bank account. It's like it's instant. That's a great payment system. But I really want to have $100 in my wallet, right? I don't want to have 500,000 sats because I basically cannot afford the volatility of bitcoin. So this is the genesis of Stablesats. Maybe if you want, I can dive into the technical aspect of it. But this is really why we have been working on this project for almost a year, is to enable the use of Lightning, but also have USD, or typically fiat equivalent USD in your wallet when you don't use lightning.
Kevin Rooke - 00:05:57:
I see. So really trying to match if my expenditures are going to be in US. Dollars, I need to have some level of US. Dollars to make sure I can meet my short term obligations. Let's dive into the technicals and the specifics of how this version of a synthetic US dollar works. Can you explain how Stablesats works in the context of the other solutions that people might be aware of today?
Nicolas Burtey - 00:06:27:
So how Stablesats works is we are basically hedging the volatility of bitcoin, the price risk of bitcoin using derivative exchange. And so the way to think about it is if you have bitcoin in a wallet, what will say in the trading space, you're long bitcoin. What does it mean to be long bitcoin? That if the price of bitcoin goes up, you earn a profit in US dollar. If the price of bitcoin goes down, you have a loss in your term to compensate for this profit or this loss. If we go on a derivative exchange and we have a short position, we will have the opposite effect. So if I'm short bitcoin, what does this mean? It means that if the price of bitcoin goes up, I have a loss. But now if the price of bitcoin goes down so the price to us can change in any direction, at the end, you still have the same amount of US.
Kevin Rooke - 00:07:50:
I see. So no matter what, you have your Bitcoin and you're basically just getting insurance on the price changing by having a short position.
Nicolas Burtey - 00:08:00:
Kevin Rooke - 00:08:02:
I see. Now, how does this differ from some of the algorithmic stable coins and some of the products that we've seen in the news in the last month or so, like Terra and things like that falling apart? And what are the breaking points at which a system like this could fall apart? What are those risks? What do they look like for you guys?
Nicolas Burtey - 00:08:27:
So, I think Luna, the whole point of Luna is that it's an algorithmic table coin that doesn't have backing. It's not fully collateralized. There is a point at which there is enough servers the peg breaks, and when the peg breaks that it can go to zero very quickly because there is nothing backing it. Right. In the statistic case where we are constructing this financial product, it's fully collateralized, right. So the price of Bitcoin can be divided by two, divided by four. It will, in every case, be fully collateralized. So it's a very different way of, like, making, I guess, a dollar. There might be some other products maybe you have in mind, like the Fuji Monet. Some people have asked about it today. This is also another way to make a dollar. With a product like Fuji Monet, it's overcollateralized, right. On our side, we collateralized at 100%. We're not overcollateralized. We're not under collateralized with one to one. So for every dollar there is there is an equivalent in Bitcoin with Fuji that you said, okay, let me put twice as much Bitcoin into a wallet. So let me put $2 worth of Bitcoin into a wallet, and for every $2, I can have one dollars in a new USB token. And because I'm overcollateralized, I don't need to use a short position. But the difference is now, if the price goes down 50%, I'm just at a position where I may get liquidated and I need to put more credit on it. Right. So it's a very different system. The benefits of a fusion model is you don't necessarily need to use derivative, but you need to put twice as much as credit. So maybe it's less efficient. So the risk is a bit different. But also putting twice collateral is now you have more collateral at stake. So you have other risks also with this type of system. But it's a different risk, basically, or risk trade off.
Kevin Rooke - 00:11:02:
Right? Yeah. I get the impression that Fuji is very similar to what Maker has built on Ethereum, where you over collateralize and you can create DAI. I want to understand more about the risks of using derivatives, though. What are those risks in your mind? Obviously, I believe there's a partner you're working with. OkayX. What are the risks of obviously having funds in their custody? What are the risks of using these derivatives? And is there a point at which this system could fall apart.
Nicolas Burtey - 00:11:41:
Yeah. So the first thing to in mind is that if you want to reduce risk, you should not try to peg your bitcoin to dollar in any way. Because when you start doing this, typically you will be in a situation where you don't have access to the key anymore. You are assuming some risk. The first way to think about it is like let's think about dollar in a bank account. It's a way to have like fiat traditional and you might say, oh, maybe the safest option to get traditional around. And that may be right. But even in this scenario you have a counterparty risk with the bank. Because if the bank goes under, basically you may be out of luck, right? And you may have to maybe in the US or in Europe you have some insurance and yes, you have some insurance for some amount. But there is something to keep in mind here. It's typically only for which country has this type of insurance. And if you think about maybe money that you keep in banks, like let's think about Greece, like ten years ago, even the government might see there is some controversy. As soon as you have fiat money is a way to think about it. You might think about, okay, maybe there is another way to have US. Equivalent is stablecoin, which is right, but stable coins also have US dollar in the bank account, right? So this banking risk is also here, right? It's maybe not as obvious as someone that use stablecoin day to day, right? They can use it and as long as it keeps working, they don't think about the risk necessarily. But there is also a significant risk with debacle, even the ones that are flat backed. And the risk that you assume is counterparty risk also is like okay, I have my money in some account in some banks, if this bank were to go under, this money can be at risk. In our case, probably the most significant risk is also a counterparty risk is that okay, we're using a derivative exchange and we have a position on this exchange, we have to put collateral on this exchange. And of course, if the exchange also is going under, like you may be at a loss, right? And so this is the most significant risk in creating a safety and contract is you have to have your money in an exchange. There are other ways to think about. There are probably two other things that are relevant when you work with devoted to church. Something called auto delivering events that may happen. The way it works is that sometimes you may be winning like you trade maybe just so in our case it would be. Okay. We have a short position. But if the price of it can go down and if the price of it can go down. We are short it means on the device exchange we're making profits but sometimes the exchange may need to close position because people get liquidated. In that case that will be the trader getting long that may get liquidated. And if you're short, your position may get close even though it's in profits, just because the exchange try to match all those liquidation that needs to happen. It needs to close position basically and your position may be closed. And this is always because the idea that if the position is getting closed then if the price continues to go down, you may not get fully held at this point and you might have a loss in the scenario. So it's one of the other, I guess risk you might want to assume is that you need to monitor for auto delivering events. That doesn't typically happen, but it may happen, especially when in a day where maybe Bitcoin will crash 50% or something. Yeah.
Kevin Rooke - 00:16:08:
Now I want to think about the different approaches to stable coins. You mentioned a bunch of them there. But I kind of group these into two approaches and tell me if I'm wrong, if there's any others. But I think of it as like an asset approach where you have something like tether where there's an asset and it's often dollars in the bank account somewhere and the stablecoin is just a reflection of that. And then there's a contract approach which is variations on either derivatives or over collateralized loans or some other structure. I'm trying to understand among the two, do you think both are going to coexist into the future? I think you may be biased to think that the contract approach is superior, but I want to understand the trade offs there of those two. And what do you think the stablecoin or Stablesats landscape looks like in a decade? Are we going to have a bunch of different variations of synthetic dollars? Are we all going to congregate towards contract approach or the asset approach? How does this all unfold if we.
Nicolas Burtey - 00:17:23:
Take a long enough time frame? I think the real Stablesats is Bitcoin, right. In a world where we are hyper Bitcoin and the price of Bitcoin versus the fiat currency maybe have lower volatility as today, then this is the best asset that you can have. It may become stable. Right. But of course we are looking in a very long time frame. Now if I think about okay, what is the difference between at least an adoption between a stablecoin where it's setback, where it's the line a bank account, or the line in the US treasury versus stables Sats or some other constructs. I think it's a bit different. Maybe the Stablesats of Fijimoni or some other system are maybe more resilient to some expect to what can happen, let's say next month. The US system says we don't really like the stablecoin because maybe it's not helping the dollar. Maybe they would come for a reason for why it's not good for the US government. And in that scenario, maybe there will be a goal would be to reduce the stablecoin backed by assets and they have the power to do so because the sats are ultimately dollar in the bank account and they will have the power to say, like the banks you're regulated, if you want to keep your license, you need to stop banking the stablecoin. The stablecoin are very, I guess, dependent on government. So far, US government is okay with it. But one of the ability of Stablesats, in Fuji for instance, is that you can use some jurisdiction that doesn't have any banking access, right? It can be probably a bitcoin exchange. Think about Collider as a good example. Right. Use Bitcoin only. Even it can be Lightning only and there is no dependency on the traditional system. And so I think this is where this new product shine is that it can really live in a parallel environment that has no dependency on the legacy system.
Kevin Rooke - 00:20:19:
Why are stable coins on Lightning taking off so quickly now, like we've had Lightning for a few years, a lot of the tools to do these have been around for a little while. And I think you had on your site, you referred to a blog post from Arthur Hayes back in 2015 about making synthetic US dollars with derivatives. Why are we now just discovering this and implementing this today with that blog post was seven years ago. Now what has led to the point where we can now accomplish this today? It didn't necessarily unfold the way Arthur had anticipated it would in 2015.
Nicolas Burtey - 00:21:09:
For me, the magic comes when you combine Lightning and this statistic because now you can really transact for day to day payments. So basically you combine the best payment system, which is instant settlement, low fee, and by the way, the instant settlement is critical if you want to hedge, because otherwise if you send the payment on chain but you have a finality that is let's say three blocks and you have to wait for 30 minutes or whatever. And even this time it's very valuable. It really depends on when the next couple of blocks will get mine. It's hard to hedge quickly and accurately because if the payment doesn't go through, when do you edge? And the instant amount of Lightning will make it very straightforward to help when you receive some money from your dollar. It's when you generate an invoice and you have this preimage and you have the alert an instant or maybe step second payment system that allow you to effectively hedge. And it's a key part of this, but I believe it's also because Lightning knows as mature to which you can build this. On top of Lightning, the payment park work, the liquidity is getting there. And so it's possible to think about this and make this galaxy. It's something that we've been working on for many months I think this idea of having hair. We talked to people in the Guam and they all say, yeah, that's great, but I put $50 yesterday, a month ago. I have $40. I can't really use this right? And the idea of having a stable value is here some of the reason why it took some time on our side. Just like we have time. It takes time to build this, right? It takes time to think about all the edge cases and test it. And this is why we've been doing a beta program for many months and we make sure we are thinking about all the edge cases, what could go wrong and we don't want to runs this and make it a Vmdra. And they say, okay, if something goes wrong, we don't care. We're taking a very cautious approach, which also means it takes time to develop the solution.
Kevin Rooke - 00:24:01:
Got it? Okay. Well, actually, first I want to make sure I understand the business model here with Stablesats. Is Deloy going to be earning money from this product? Is this like a complimentary product for users or is it a revenue driver for the business?
Nicolas Burtey - 00:24:22:
Yeah. So maybe to answer this question here, first I can answer how Galoy make money and then how stewardsight can help Galoy to make money. We are developing software to help communities and banks and generally organizations to get on board with Bitcoin and Lightning. We want to be a software company. We don't want to be a custodian. We don't want to own those assets that customers use. The way to think about it in the traditional banking system is maybe the way FISA Jackie operates with banks and maybe you're not familiar with those companies. All of them are trading on the NASDAQ or Stock Exchange. What they do is they develop software for banks. They don't prepare the software. Your local community banks, they say winning a core software. Typically they will not develop this themselves because it's something that takes a lot of time to develop. And so they will see one of those software companies say, hey, we need a convoking system. We want to have a loan product, we want to checking products, maybe international payment products. They pick and choose what they really want. And then the software company typically they have already something on the shelf, they need to configure it and they give it to the bank, right? The business for the bank is on top of the software to operate the compliance and the marketing, the support. But one of the things that a bank typically will not do is like being a software company and develop from square like a core banking system because it takes you to do a software team. And so the way we see ourselves with the company we work with is similar, right? We are a software company and we develop products that are based on Bitcoin and Lightning and then company use it, and we charge them for developing the software for them and making support and developing new features. This is really the way to think about it. Okay, now, how does Stablesats help us financially? So the idea that a company like Bitcoin Beach is running Stablesats, Stablesats will be a revenue driver for Bigon Beach, the company, because it will drive revenue for them. Then we can obviously make revenue. The more revenue they make, the more we can do web sharing or some other construct. But the idea is that the company we're working with obviously need to make money, and service is the one way to make money. Now, we can answer it with the detail, but we can make one answer. And there is basically two main ways. The first one is when you are long, physical bitcoin, short, derivative bitcoin, you are doing something that we also called the cash and carry trade. The cash and carry rate historically earned yield about 6% per year, but the yields vary dramatically whether you're on a bull market or bear market. But if you look over a long time period, you can get yield on the bitcoin. When you do this type of construct, this is one way how bitcoin will connect money. The other way is like, you cannot charge a spread when you buy and sell bitcoin from USD. And so the spread is something that can be configured, but the spread is another way of generating revenue. This is the best way of how Stablesats can help a community that.
Kevin Rooke - 00:28:48:
Makes a lot of sense. So you guys are providing the tools for the communities to operate their own banks, and your revenue comes from their success kind of in some way or another. When they make money, you have the ability to then earn because they're succeeding.
Nicolas Burtey - 00:29:07:
And you mentioned community. I mean, the goal is we are starting to work with new banks and also we're starting to talk with banks. It's basically an organization that want to be plugged to bitcoin. Lightning is a potential customer for us right now.
Kevin Rooke - 00:29:24:
So on your site, it says that communities and institutions around the world are accelerating bitcoin and Lightning adoption using Galoy, an open source banking platform. Can you highlight some of the communities and companies that are using Galoy today? I know Bitcoin Beach is the prominent example, but are there any others? Can you talk about some of the neo banks and banks that you're working with? I'd love to give people a better picture of what the state of Galoy adoption is today among banks and communities around the world.
Nicolas Burtey - 00:30:02:
Yeah. So currently your customer primarily in Latin America beyond the beach wallets. The second wallet that launched using code base is Bitcoin jungle in Costa Rica. There is a third project that is working progress that should be released in a month or two in Panama. So it's a bitcoin bank like it's a new bank. If you are dedicated to Bitcoin in Panama and you can go to Quad IO, I believe they will be releasing their product in a month or two. There are other projects that are building on our stacks that are not public. It takes some months to develop your own wallet system. And it's also the interesting part, it's open source. So we know that some companies start building on top of our system and they don't necessarily need our help. They can do it themselves if they wanted to. But there are other projects in Latin America that are building on our stack that are not public. And yes, there is also some, I guess, ongoing discussion in Africa, which is popular. Latin America and Africa are the two places where we see most potential in the short term for our product and generally Lightning adoption.
Kevin Rooke - 00:31:35:
And are these I know Bitcoin Beach was its own kind of thing that just spun up in El Salvador. It was not a bank before. Onboarding to Bitcoin. I want to understand is the customer you're looking for, is this an existing financial institution or is it like a community that could spawn into financial institution over time? Because I think the idea of communities and companies, those are very different things, right? Like the Bitcoin Beach community is very different from a neo bank in America. So who's the target audience for you guys among those two?
Nicolas Burtey - 00:32:24:
That's a good question. If you think about them, they don't necessarily need the same type of software in the background, even though they will serve different customers and they will have different marketing. And both of them, they will want a collager where they can have for each customer how much they have, how much Bitcoin they send receive. Maybe the difference will be okay. Project in the US. Will have a fiat access to a bank and you will be able to buy and sell Bitcoin from your bank account. Maybe it might be a requirement also like a need, but maybe less so because there is less people with bank accounts. There is a lot of Atmado, so you can also buy Bitcoin with cash. But overall, if you look at the requirements from those at least our hypothesis is that our software can meet of both of them. There is of course, some customization, typically Stablesats assume that, okay, we are creating a scientific dollar. If you're in the US. You might not want to use several sats. You might want to have sats back by dollar in a bank account. But similarly, you might still want to sign and receive money from your dollar account over Lightning like the strike model, right, that you have in the US. But it's also something that we can build with our system. So there will be some differences in how you do the trading, but it's the type of thing that you want to enable and maybe one of the main difference, but this is necessary on our side as a software company is that a project in the US will have a lot more compliance requirements. They will need to get licensing. But as a software company, it's not necessarily a job to get a license and to meet with a realtor. This will be the project themselves will lead that.
Kevin Rooke - 00:34:54:
I hope you're enjoying the show so far. I just want to give a quick shout out to our sponsor, Voltage. Voltage is the industry standard for Lightning Network infrastructure, creating layer two applications and services on top of bitcoin starts with Voltage, where you can spin up nodes, get access to liquidity, optimize your node and much more. Voltage is leading the way as the next generation provider of Lightning Network infrastructure. And if you want to get a free trial and start using Voltage today, you can do so at Voltage Cloud. Now, I want to understand the role of a bank in the bitcoin economy, right? Like if you're operating banking as a service with Galoy, I want to dive into what is going to be different about the way banks are structured in a bitcoin economy versus the Fiat economy today.
Nicolas Burtey - 00:35:49:
Probably the main difference is in bitcoin, you have no one to backstop you as a bank in a traditional banking system. The traditional bank system is really fractional today, at least. What this means is that I think on average it's 4%, right? Like a bank may have 4% on hand because 96%, there's a 25 X in deposit from a customer. Then I can loan $20000. And I'm assuming if I have at some point an issue where there is a mismatch with my liability and my assets, the Fed will help me. Hopefully, it's like in a world where there is not as much Fiat or it's really a bitcoin world hypervisation. I don't think there will be as much landing because expectation will be that bank will be a lot more collateralized. Does it mean that every bitcoin bank will be 100% collateralized? I don't think so. I think many of them would be right and this would be a marketing argument. Say that, hey, look, I'm 100% with the bank and by the way, you don't have necessarily trust me because I'm doing proof of reserve and you can see that every month. I'm sure to my customers that I fully backed and this is my proof of last year. But some people might still want to say, hey, let me give you bitcoin, but I want you to generate some yield on this. I don't think this will disappear. But I think the main thing is that the first thing is if want to avoid what happened in the last few months, we should have some matching in terms of duration. So we should say, okay, maybe I want to generate a loan with bitcoin, but I should probably commit to my bank that I. Will not withdraw this for a year. Right? So I'm giving you bitcoin for a year. Maybe the bank should be responsible to find project where they could give this bitcoin for a year, and after a year the project should give back the bitcoin. Of course, there is some risk here and the bank can be a good intermediary way to by investing in many, many projects, so that if one project fails in 50 projects, there is a limited loss generated by the other project at the end. If you invest in a bank, like in a one year term, you will make money on your bitcoin. But that's it. I think we will not get there also before there is a lot more stability into the price of bitcoin versus fiat currency. Because today, the major part, I believe, of companies or with Hatch funds that will take a Bitcoin loan are the ones I want to short bitcoin. It's like, okay, I get a loan and I'm shorting it. If you want, you go best. And today I don't think there's a lot of usage. I get a loan in bitcoin to invest in something because basically I don't want to pay back in bitcoin because the odd that if the profit of Bitcoin tomorrow go 5x, or next year go 5x, it would be very hard for me to reinforce this loan. Right?
Kevin Rooke - 00:40:01:
Nicolas Burtey - 00:40:01:
So I don't think we're ready at all today to get a lot more to get those type of Bitcoin banking products that is relevant for normal businesses. I think today the only organization that needs this loan for hedge fund to bet and typically have a short position. Let's say there is another project that I think today makes a lot of sense, which is in the landing space with Bitcoin is, okay, I give you my bitcoin as a credit card, I get a fiat loan, right? Okay, I don't want to sell my bitcoin. I'm speculating on the fact that the value of Bitcoin will increase in the future. Therefore, let me give you one bitcoin and I get the tensions under I don't need to sell my bitcoin. Maybe I don't need to pay tax on it or something like that. I think it's a very popular product today. I'm wondering if it's ten years, it will be as much as 20 years, if it will be as significant. But this is my thought about bitcoin working.
Kevin Rooke - 00:41:21:
So you think that maybe over time we get to a point where it's almost normal for bitcoin banks to maybe be under collateralized or to have a fractional reserve and lend out some portion of that at a time when Bitcoin is more stable and we have more clarity around like what customers might be able to generate in terms of yield.
Nicolas Burtey - 00:41:46:
So I believe there will be two types of bitcoin banks. There will be the one that will be fully collateralized and there will be a lot of them and it would be really like okay, I can be fully collateralized if I'm fully collected as a bank, I need to charge you something every month or I need to make money somehow. And so if you will go to a bank that is fully characterized, the bank should make a living somehow. Typically I think it will be okay, I will need to pay you to be my custodian to self keeping my bitcoin. Of course the guarantee will be you do the self custody yourself. Right. But there are reasons for why you want to use a bank. Maybe it's because you need it's almost like insurance.
Kevin Rooke - 00:42:39:
It's almost like you're going to have the option of like would you like no insurance and the risk that maybe something blows up if it's under collateralized or would you like to pay for insurance upfront and have a premium and you're paying and you know you have a monthly expense. It's pretty small but you know you're not going to blow up because you're covered because the banks fully reserved. Right?
Nicolas Burtey - 00:43:02:
The bank doesn't mean something will never go bad, right? Like you can see it can't waste but of course there is a lot less waste if the bank is fully collateralized, they do proof of reserve, they have good security procedures so it could be extra minimal, as minimal as it can be for a bank. But I believe there would be another type of bank that would be probably not fully collateralized and they will do some fractional reserve and then it's okay. Do you choose the bank that do 20% 20% the bitcoin or 50% 90%, 96% like today, right, okay. Pick the yield rewards versus the risk. If you look over the last three months, of course it was that smart to try to pick the highest yield because they are the ones that will go under in a crisis scenario. And the interesting thing also maybe with proof of reserve, if more bank has a proof of reserve, you could go into the bank will tell you how much reserve they have. They could say okay, maybe you can have an account with us, you don't have to pay any fees because we want only 10% of our weather. We loan it to other parties so that it covers the cost for us so that you don't have to pay us every month. It's one way to think about it, right? So it's like okay, I have a free banking service with you, you are extremely saving to how you finance operation and if you want to get more whisky then you could get some years on your bitcoin but then the more yield you want to get, the more risk you may have to lose your bitcoin. So it speaks and shows your risk, right?
Kevin Rooke - 00:45:06:
Yeah. And this is a really interesting question because in the bitcoin space we're given this option in the future where we have fully backed full reserve banks and we have fractional reserve banks right now, we kind of have that option today. We don't have anyone telling us what we have to do. Whereas when you look at, like, insurance in the fiat economy, like one example is like car insurance. You have to have car insurance to drive. You don't have that option. And I wonder, what if that regulation is stripped away? What do you think people will trend towards? Will people migrate towards this fractional reserve system where it looks free, I don't have to pay anything, but on the off chance something goes wrong, you may be locked out of your money, you may lose it all? Or do you think people will migrate towards just naturally migrate towards a fully backed full reserve system? Or do you think regulation comes in and says, hey, listen, this is an important thing we need. Bitcoin is now ten years from now, maybe bitcoin has become such a core part of the financial infrastructure around the world that maybe regulators do step up and say, hey, everyone's got to have some form of insurance here if you're going to go with a fractional reserve bank or something like that.
Nicolas Burtey - 00:46:36:
I mean, the first thing that comes to mind is I don't think insurance in bitcoin banking in the world of use Bitcoin as a primary currency around the world is worth anything because if a bank gets hacked, you will not call the CEO of Bitcoin and say, hey, we need to make this bank for right? So for me, the concept of insurance for Bitcoin, maybe today it exists, right? Because you're talking about, okay, maybe let's have an insurance on a hot wallet and there is $100 million hot wallet. Let's think about the big exchange. They may be claiming that, hey, we're doing insurance on the hot wallet.
Kevin Rooke - 00:47:22:
I'm actually thinking more insurance on the like, maybe I used a bad example there, but I'm thinking like insurance in the fiat world being like car insurance, you have to have it to drive. And then maybe what happens if in the bitcoin economy, the insurance is actually just that you have to pay a fee to the custodian so that they can survive? That's their business model, right? Like in order to support a business model, maybe there has to be some sort of fixed payment because otherwise the business doesn't survive and it has to revert to a fractional reserve system, right? Like if the business isn't making any money anywhere.
Nicolas Burtey - 00:48:04:
That's a good question. It's interesting to see, for instance, how there is a difference between banking in Europe versus banking in the US. If you think about banking in Europe, it's very customary to be able to pay for your account. And the main reason is that regulation on like interchange is a lot more restrictive in Europe than it is in the United States. In Europe, bank doesn't make much money on debit card I think the interchange is kept at 30 basis point. It's very minimal. In the US. Your credit card interstates, like 3%, like 4%, it depends on the product you buy, the category of merchants, but it goes ten times what it will typically be in Europe, I believe. And therefore in Europe, because of regulation, banks have to charge you like, hey, we have to charge you $5.05 years, ten year. And it's because actually the regulation limits how bank can charge you on payment system. If you think about the United States, most of how banks make money today, it's like more fees that are not on account fee every month, but it's more either hidden fees, which is, okay, I'm using my credit card and actually because I'm using my credit card, the merchant is paying my issuing bank every time I do a transaction. I don't see that. Right. Actually I'm paying for it in the form of like the merchants have to increase this price because he's accepting credit cards. So there's a hidden price increase in the product I'm buying. But I'm not necessarily thinking about that. And it's an example where actually the fact that the regulation maybe on retail banking account is more flexible, maybe in the US. To some extent, like the US make it that the bank accounts are mostly free. I don't have to pay monthly fee to get an account. But there is fee somewhere in the system still because the bank went in this way. I don't know if it's a good analogy or if it's a good way to think about it, but I think that's something I like to think about because we also sometimes talk to like depending on where we talk to some potential prospects on our side that will be in the US. Or that will be in Europe, we clearly see that they have different way of thinking about how to charge customer. Right. In Europe, the idea of charging a monthly fee is something that is accepted as a practice. And in the US. It's not accepted as a practice. You have to charge customer in another way.
Kevin Rooke - 00:51:12:
Yeah. And so like in Europe's example, you said it's regulation that is forcing this fee because they've capped the amount you can earn on interchange. Do you think we're going to see some sort of regulation come into place in the bitcoin economy to do something similar.
Nicolas Burtey - 00:51:38:
On bank? It's a good question. I'm not sure definitively the more bitcoin will go, the more and I don't know if that's a good thing necessarily, but I would expect regulation around this probably. Yeah. I think typically what we have seen and that have nothing to do with bitcoin, but what we've seen in the market over the last few months also will have an impact on migration. But I think if you think about the luna, it has nothing to do with bitcoin. It might negatively affect bitcoin actually, because now the regulator that may not understand the difference between those projects that are leverage. Long let's convert, let's see what happened. This is maybe the most cautious approach of the bitcoin development for the regulators and mix it together and just think, oh, it's the same thing, let's add more barrier to it. I don't think that would be a good thing, but that may be more short term. Like if we think about much more longer term, how regulatory we'll think about it in five or ten years? That's a good question. I don't have a strong opinion.
Kevin Rooke - 00:52:58:
Right, okay. I want to talk about El Salvador and Galoy has been on the ground in El Salvador or basically since day one of bitcoin usage there. What is your assessment of bitcoin adoption across the country today and the different ways in which it's being used?
Nicolas Burtey - 00:53:21:
So I think there was a huge, I guess, spike around September, October last year for the main reason that the law was just passed in El Salvador. And also the government really wants people to use bitcoin. And so the way I've been thinking about it is an air drop and everybody that will onboard the tibo wallet will get $30. And so, of course, suddenly you have a couple of million people, they get $30. It's $100 million or something along these lines that get injected into the system in the form of bitcoin. So there is a lot of stimuli to get people adoption over the last six months. This initial pump, I guess I've died off a little bit and also maybe with a lot of first time bitcoin is okay. The bitcoin prices have been dropping quite a bit since last November, which was like two months after the bitcoin law was enacted or was effective. And so we see right now that we have to really start about the education and we explain what becomes beneficial. I will say that maybe today there is about 20% of the merchants, no costs, et cetera, start to add bitcoin, are using bitcoin, which is, I guess, very encouraging to me. If you think, okay, it's not even a year. There is maybe 20%. Like if in four years we have 100% bitcoin, that would be awesome, right? I think that would be a huge success.
Kevin Rooke - 00:55:20:
Now, is that 20% of merchants that are actively accepting bitcoin on either a daily, weekly or monthly basis, or is it 20% that have the ability to accept bitcoin but may not have accepted any?
Nicolas Burtey - 00:55:35:
I think also that have the ability to accept bitcoin or have received bitcoin. But it's possible that it was the last week. Over the last month, there has been less active transaction than if you think six months ago, right, because six months ago was really prepared where I guess traction with air drop. But I think nowadays the merchants that have to accept it, they accept it for the right reasons. It's because they start to understand bitcoin. They understand the difference between bitcoin and the user. They don't really just accept it because, hey, I receive $30, therefore I should open it, right? And I think those merchants are and people using bitcoin today, they really understand bitcoin. This is why they use it, right? And what takes time is really the education. It's like we need to each person not tell them, this is what you show bitcoin. This is the benefits of bitcoin for you. This is the benefits of bitcoin for the country even. This is the benefits of bitcoin. Everyone on the earth was to use it. Me as a person that has been in the three for five years. It really took me, I don't know, two years, something to really get bitcoin right. Initially I was into crypto and then I was distracted and I had to learn about economics. Despite me having a computer science background, it took me more than two years, right? And so if you think about the person, et cetera, that maybe doesn't have any economic background, any CS background, it will take some time to understand bitcoin, right? I think this is expected. But the education program are, I guess, very important, but they're working slowly but surely. I think more and more people understand between etherade and for me, this is a great success. What's happening on the one despite you will see the highlight. I went to a shop and people don't accept bitcoin. Therefore, like, the bitcoin is a failure. I think for me it's a great success.
Kevin Rooke - 00:57:58:
Yeah, there's a lot of that on Twitter. Just like someone takes a picture of one thing, whether it's someone accepting bitcoin or someone not accepting bitcoin, and they conclude that the entire country is on bitcoin now or no one's on bitcoin. And obviously the truth is somewhere in the middle. I want to learn more about what these education campaigns are in El Salvador today. What are you seeing the most success with in helping onboard new people to bitcoin?
Nicolas Burtey - 00:58:29:
So there is anything happening in about education? The governments have created some program. Mi Primer Bitcoin is for instance, organization that is really focused on helping people through meetups and other meeting to understand what bitcoin is. With the bitcoin bitrate, from instance, we have earned section where you can answer something around 21 questions and each time you answer a question, you get a couple of sats to learn about it. This is something we like to expand to have a lot more questions. Like today in high school, I believe there start to be some program about bitcoin, right? And typically it's also something that we've seen in El Zonte, in Bitcoin Beach is that one of the very effective to get the family to understand bitcoin is you start with the younger one, you start with the kids, because for the kids, like transact with wallet, like an app on the phone is very intuitive. And then they will teach their parents how to do it. And this is the most effective way to do it. If you have a program in school and every year you have 10, 20 hours to learn about bitcoin in one, two, three years, and most kids at school will understand bitcoin the next year, all the parents will understand that it takes some years, but yeah, I think it's working. It takes time, but it's not.
Kevin Rooke - 01:00:20:
Right. So it's going to be the youngest generation in El Salvador that is causing the rest of the country to get on board to bitcoin. Is that how you think it'll happen? Like, at first you teach the younger generation how it all works and they spread this message to their family and friends and it kind of proliferates upwards through the generations over time.
Nicolas Burtey - 01:00:44:
Yeah, I think that might be one way. It might be okay in advance. This is our experience. I think there might be other government programs that eventually could be made that also drive adoption, maybe for businesses. If businesses can really start to understand how Lightning may hide them to do, I feel it's another incentive to get more businesses to adopt Lightning. I think there's a lot of different initiatives. Right. It will not be just from one particular program.
Kevin Rooke - 01:01:21:
Right. So you have about 20% of merchants in el Salvador accepting bitcoin. What's the state of bitcoin adoption in terms of saving? So not necessarily tied to merchants, but how many people are actually holding the asset and storing their wealth in it? Are merchants keeping the bitcoin that they earn or are they transferring to dollars?
Nicolas Burtey - 01:01:47:
It's a good question. I don't really know. I would think that today, if you can think about saving, you're in a great position. It means you can plan for the future. You have extra money around. Right. A lot of people don't have this luxury to be able to save necessary for the long term. So a lot of them have to spend the bitcoin they receive to pay for the day to day expenses, which is also why I think Stablesats is a very crucial feature. So I don't know how much significant saving in bitcoin. What I can say is when people in SR start to use bitcoin, they start to think about money and they start to think about saving. It doesn't necessarily translate to they can save right away, but now they understand the concept, because if you live with cash, the concept of saving is even just a vocabulary. The concept is not something that you have in mind when you discover bitcoin. Maybe you don't have the money to save, but at least you can start thinking about it, right. And you see people their minds are shifting just about the idea of saving, which is just having the idea is extremely is great, right, to see the shift.
Kevin Rooke - 01:03:19:
Yeah, absolutely. Now, what about the 80% of merchants that are not using bitcoin today. Are there any themes or common constraints that are holding them back?
Nicolas Burtey - 01:03:35:
I would say it's educational. They don't necessarily see the benefits. Maybe they tried it six months ago and now they see like I've lost a lot of value in this, so why is this beneficial for me? I mean, I would think the main reason is really the education. Because when you start to understand it, I think you want to use it more. Maybe there is a reason. The cheaper wallet that was launched in September. Now there is many iteration, new vendor working on it. But initially also the wallet had issues like you were sending money, the money was not necessarily arriving to the recipient and you have to contact the support or the transactionist. This has also created a bit of a step back because they don't necessarily understand that Chibo is not bitcoin. And this is not because they had an issue with chibo that bitcoin doesn't work. And it's also part of the education. It is the fact that they may have one first experience. If you ask not only some person in El Salvador about bitcoin, their first and only experience with bitcoin was with Chivo and maybe they had issues with it six months ago, at least if they tried six, nine months ago. And also it's something to educate about, right? Like bitcoin and Shiver are different. You can use bitcoin with any wallet. The issue you may have had with Shiva was just because the way it was new and there was, I guess, back to fix, but the specs are being resolved and so the way it is working well, but you can also use a bitcoin bitched for it, right? Bitcoin, which we are working well and you have also this stable size feature in it. But anyway, I think the main answer to your question of why those 80% may not be using bitcoin is just an indication question. It's just related to education.
Kevin Rooke - 01:06:02:
Now, you hosted a conference last year in El Salvador adopting bitcoin. You're doing it again this year. Can you talk to me about the impact that that conference has had and just bringing the bitcoin community together to El Salvador to actually see on the ground what's happening and how bitcoin is being used?
Nicolas Burtey - 01:06:24:
Yeah, so the reason last year I said that we should really make a conference is the law was announced in June, I believe, and active in September. And I was spending my time in San Salvador during those months and I had some meeting with banks and one of the banks was saying, hey, yes, since we are on Zillow, we have many projects are coming to see us. There is this project called Whipper and they are very interesting and they want to work with banks. And I'm like, wait a minute, this is a bitcoin. So of course I want to be working with the bank. This is a value proposition, but Lightning makes bitcoin obsolete. Lightning makes repo. Absolutely. The idea of the conference is to say, hey, we need to educate the local organization about what bitcoin is, about what Lightning is. Like, they don't fall into this trap like, okay, I can work with crypto, you should work with Lightning. This is really why this location to be. And so this is why we decided to make the adopting bitcoin last year. And this year is the same idea continue the education or have people working on Lightning, all the ones who are coming to El CID, or have those developers, entrepreneurs meet the local community, the local organization, make sure the integration continues. We don't deviate on some of the crypto project. It's really also part of the education. It's a key part of what we're doing to educate the rookie organizations.
Kevin Rooke - 01:08:27:
Very cool. All right, I want to get into a segment I do at the end of every show called the Lightning Round. Some rapid fire questions. Are you ready for the Lightning round?
Nicolas Burtey - 01:08:36:
Kevin Rooke - 01:08:38:
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Kevin Rooke - 01:09:11:
What percentage of El Salvador citizens hold bitcoin today?
Nicolas Burtey - 01:09:25:
I guess 10% to 20%.
Kevin Rooke - 01:09:28:
Interesting. What percentage of remittances will be done on Lightning in a decade from now? Globally, in.
Nicolas Burtey - 01:09:46:
Other words, will be obsolete in ten years, 20 years. The reason we exist, in other words, is because there is friction to some payment internationally. Right. If Lightning takes off, we'll be a world that will no longer use.
Kevin Rooke - 01:10:05:
Right. It's just a peer to peer payment at that point.
Nicolas Burtey - 01:10:08:
It's a payment. Right. It's a Lightning payment. And whether I'm paying for coffee at my coffee shop for Lightning or I'm standing on a board, it's the same payment. And so I think remittance would have disappeared from the dictionary.
Kevin Rooke - 01:10:21:
So is that to say that you believe in ten years? We're on a bitcoin standard in a majority of countries around the world.
Nicolas Burtey - 01:10:34:
I think adoption can go fast, especially if you think about developing country, like, say, I think it can go fast in ten years. I don't know if it is in ten years, but I think it will happen fast.
Kevin Rooke - 01:10:48:
Nicolas Burtey - 01:10:48:
Much faster than people anticipate.
Kevin Rooke - 01:10:51:
Are there any books that have meaningfully changed your view of the world?
Nicolas Burtey - 01:11:00:
Many of them. I think the server individual is one book that click for me when I was into the bitcoin orbital at the beginning. So basically my transition from thinking about crypto to thinking about bitcoin is one book I would recommend.
Kevin Rooke - 01:11:20:
Interesting. If you had to put all your wealth into one asset and it couldn't be bitcoin and you had to hold it for ten years, what asset would you choose?
Nicolas Burtey - 01:11:38:
That's a hard one. Probably Index S&P 500.
Kevin Rooke - 01:11:54:
Okay, fair enough. All right, this was great. I really enjoyed this conversation. I'm excited for Stablesats and to see what you guys continue to develop. Again, congratulations on the $4 million raise for Galoy. And where can listeners go to learn more about you and your work?
Nicolas Burtey - 01:12:14:
Yeah, so if you want to learn more about Stablesats, we have created a dedicated website called Stablesats.com. Galoy is galoyioadaptingbitcoin.org the conference on Twitter. I'm Nicolas Burtey. B-U-R-T-E-Y.
Kevin Rooke - 01:12:34:
Awesome. Thanks for your time, and I hope we can do it again soon.
Nicolas Burtey - 01:12:38: