Bitcoins 2023 Circular economy progress report with Sergej Kotliar

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SPEECH TITLE: Circular economy progress report
SPEAKER: Sergej Kotliar
CONFERENCE: Baltic Honeybadger 2023

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1. Introduction
2. Our Mission
3. The Conceptual Model: Bitcoin as a Tool and a Movement
4. Trends and Metrics in Cryptocurrency Usage
5. Focus on Lightning Network and Challenges
6. Examining the Expansion of the Circular Economy
7. Learning from Other Industries: Insights from VPN Growth
8. Conclusion and Call to Action

Introduction

Thank you, hello everyone. My name is Sergey, I’m the CEO of Bitrefill. Bitrefill is a platform where we sell digital goods for cryptocurrency, like gift cards, phone refills, recently started doing eSIMs, virtual Visa cards etc.

Our own estimation is that we are the largest single merchant that works with cryptocurrency and probably the largest single source of cryptocurrency commerce, and Bitcoin commerce in the world. We do, every month, more than double the number of transactions of the entire BitPay network, which includes some of our competitors. Not to say that we are that big, but nobody has challenged me on this so I guess I’ll keep saying it until they do. Anyway, we sell gift cards.

Our Mission

How many people recognize this meme? So, in the olden days, there was this meme where Neo asks, “what are you trying to say? That one day I can trade my bitcoins for millions?”, and Morpheus says, “No. My dream is that one day you won’t have to.”, and that’s what we’re working on. 

The idea that you shouldn’t have to sell your bitcoins on an exchange, it should just live freely. Because none of this stuff that we’re all talking about works if the network topography is just, “Hey, you buy some bitcoins in an exchange and send them to a wallet and you HODL it for a while and then you send it back to the exchange”. We need there to be an economy, we need bitcoins to circulate from wallet to wallet to wallet to wallet, exchanges to services to whatever. This model is, to me, like a CBDC that’s denominated in a meme coin. I don’t know, people disagree.

Over the past nine years that we’ve been running Bitrefill, which is quite a while, we’ve learned a lot of things in terms of growing and marketing, these sort of things, which is surprisingly hard, and some of these things that I’m going to share with you are things that were a little bit counter-intuitive and took us an embarrassingly long time to figure out for ourselves.

So, I’m thinking sharing these things, you know, will help others to avoid some of the mistakes or to get the learnings faster. And I did this talk or an earlier variant of this talk over a year ago in Prague and it got very popular. So, this is an updated version because I still see people sort of not following along with some of this thinking.

The Conceptual Model: Bitcoin as a Tool and a Movement

The core mental model that I would like to introduce for people to follow along with is the idea that bitcoin is both a tool, it’s a thing, it’s an app, you have it, it lives on your phone, it has buttons, you send, receive, but it’s also a movement.

All of us in this room are here because we’re members of the Bitcoin movement that motivates us to go and travel to Riga. We build a community, friendships, and sort of and all these things because we want bitcoin, the thing, to succeed. And in the beginning, these two circles were one and the same. There were a couple of nerds, they were using this thing called bitcoin and I met up and talked about it and there weren’t so many other people and that was that. But over time, as all of this has grown, very naturally, these things become a little bit disjointed.

We end up in a world where you can be a part of the Bitcoin movement and not necessarily have much of a personal need for using the tool. You can be at a conference and not have a wallet installed and, you know, someone will say Stefan will go say, “But hodling is using”. Well, you know, you can be part of the movement even without hodling very many bitcoins. So no matter how you see the tool and the movement, they overlap, of course, but they are a little bit disjointed. There’s a lot of people that use bitcoin as a tool.

Think about other things that you use as a tool, like if you have a VPN. Do you go to conferences about VPN? Do you argue with people on the internet over VPN?

It’s just a thing and then we have many things, and it’s just a thing. And there’s a lot of people who see bitcoin like that, it’s just a thing. I’m just trying to do whatever it is that I wanted to do. I want to make some transaction, I want to buy something, I want to become rich, I want to do whatever it is, that is passionate users. The reason why I’m talking about this stuff is that I keep seeing a lot of projects marketing a lot to the red circle, because we’re all here and none of the people that are in the green circle, not in the red circle, they’re not here.

Everyone we see when we go to conferences is always in the red circle. We don’t see the people who aren’t passionate about bitcoin and just use it every once in a while. And so, a lot of projects are marketing to the movement and within the movement, some of the people want to use the tool, some of them won’t. But no matter what, you don’t reach the big group of people and the question is, is our vision to eventually have eight billion people going to bitcoin conferences, or is it eventually just going to become part of society and most people are just not going to think about it?

Trends and Metrics in Cryptocurrency Usage

Some data from our metrics to illustrate some of these points. People seem to be interested in this, these are some updated versions.

This is the transaction volume on Bitrefill in the last month. We can see that stable coins, combined stable coins just to be very clear, but combined stable coins, are now the same size as combined Bitcoin and Lightning and at around 31%. Then we have Ethereum at 25% and you have Binance Pay, and then the Legacy coins, which is mostly Litecoin. 

But, it wasn’t always like that.

If you look at a five-year chart of this, five years ago when I was speaking at this conference, we were firmly on the left side here, and Bitcoin was stable at 85% always. And I was making the maximalist argument that, at 85%, why even bother working on any other things? Just reaching 85% with one thing is enough. And then something happened. This was in December 2020 to like May of 2021,. So five months and suddenly there was a lot of stuff. I think there was a little bull spike, but after that, it kind of landed in a new normal. 

In terms of Lightning, Lightning is 4% of the total volume, in Euros on Bitrefill. It’s been kind of stable at that level. If you count it as a percentage of BTC volume, it’s growing steadily, and it’s at 13% of Bitcoin volume.

Focus on Lightning Network and Challenges

We at Bitrefill, for those who don’t know us, we bet big on Lightning since always. We were the first real money Lightning purchases, we built the first Lightning service provider. In order to do that, we had to invent a protocol, it was called LNURL which then took off and became this massive thing with a community of its own. Turbo channels, which are now called zero conf channels and so on.

But for the past years, the most valuable thing that we can do and that we do is marketing this thing and making sure that we reach more people. There’s not so many exciting new technical widgets from us, but there might be. Last time I did this presentation people were like, “What, like Litecoin is bigger than Lightning?” Well, okay, let’s look at the chart again. A year and a half later, yes, Litecoin is still bigger than Lightning, but Lightning is catching up and growing rapidly.

And I think that this is a very important point especially these days when people are kind of like being a little bit naggy about Lightning. Lightning is growing and the fact that people are complaining about it is a good thing because it means that they are trying to use it, they want it to work.

In the past there was no complaining because Lightning was perfect because people weren’t trying to use it. Now they’re trying to use it and find imperfections, flaws, trade-offs, but this is good. Now we know where the holes on the road are, and we can, and the builders in the space can use that feedback as actionable real-world feedback in terms of what to fix and it’s going to continue growing, is what I think.

But all of this brings the interesting question, like who here uses Litecoin? Who here uses on-chain when Lightning is also available? Who here uses Lightning? We have a discrepancy here between the data that we’re observing and the data in this audience, how can we learn about that?

One example is to look at wallet data. The wallet data that we have in the payment flow on Bitrefill, there is a wallet selector so you can optionally make it go away, but you can also click which wallet you have, and then we adapt the user interface if your wallet is old and crappy, we make sure that it still works somewhat, if it’s new and fancy, we give you the cool new stuff and so on.

And then we can use that data to also improve the user interface and draw learnings and around 40% of our users select a wallet. So, not everyone, but still, we can kind of get a directional idea of which wallets people are using and this is not crypto, this is Bitcoin payments, on-chain Bitcoin or Lightning Bitcoin payments.

The crypto payments are all filtered out, and we see that time and time again it’s blockchain.com, Trust Wallet and Exodus are the big ones. Bitcoin Core is a bit of a special case, it’s like a prominently featured button that is a good way to get a good standard Bitcoin experience and there’s a couple of wallets that, for technical reasons, disappear that probably end up in here including the privacy ones.
And then we see the Wallet of Satoshi, Muun wallet, Electrum, Chivo, Phoenix and so on. So, there’s quite a bit of presence of Lightning wallets. We have Electrum which has always been a top 10 wallet in our data, but also half of the selectors picked are multi-coin wallets?

And so before people get like, “I never heard of those and I know a lot of people. I never met anyone that uses those wallets. The data must be wrong!”. Simple exercise, if you haven’t done it before, you can all do it together with me here. Yeah, don’t trust me.

Open your phone, open the app store, or Google Play Store if you’re a pleb and search for bitcoin wallets and then ignore the ads and look at what the algorithms say. This is based on the things that people are installing in the last month or so. You will get a feeling of what the experience of bitcoin is for someone who isn’t part of the community, if you’re someone who isn’t passionate about it, for someone who is, “I just need a bitcoin wallet.”, just like you and I would be, “I just need a VPN, I just need a BitTorrent client.”.

So, what we’re seeing is that the circular economy is growing but it is growing faster than just BTC and suddenly we have stable coins now with a third of the volume. Is that a good thing? Is that a bad thing? Well, that’s beyond the scope of this talk but it’s interesting to observe. Stable coins are a unit of account, obviously the dollar and that makes it a good store value in a lot of cases because many people believe in the dollar and it makes it a good medium of exchange because other people don’t need to be convinced in keeping their payment in something volatile. So, we’re seeing the crypto casinos used to be where you use bitcoin to buy shitcoins and they would cash out back to bitcoin and now that happens with stable coins. Peer-to-peer markets have a lot of stable connectivity, even B2B.

Here’s an interesting metric, for us, in the past year, when the Americans made life harder for our industry, we went out to our suppliers and said, “Hey, can we pay you in crypto?”, Lo and behold, we convinced some of them and now 25% of the gift cards that we sell, we actually bought them with stable coins (last year it was still under 1%). Which is great for a bunch of reasons, but most importantly we don’t need to touch the banking system. 25% of our volume does not, at least at our station, touch the banking system, which is very useful.

Examining the Expansion of the Circular Economy

But this leads us to having some very interesting conversations and very important conversations that we need to be having about the phrase “network effects”.

So, in the olden days, I don’t know exactly when, the main argument for Bitcoin maximalism, was that network effects means that since bitcoin is the biggest one, then eventually everyone looking at doing something with cryptocurrency, bitcoin is going to be the biggest one and the overwhelmingly dominant one. And so, they’re going to choose that and maybe something else, but that’s going to have diminishing returns and eventually, bitcoin emerges as a lingua franca, like a common standard for money.

We don’t see that argument so much anymore, I wonder why, but it is something that now we also have to think about network effects in the other direction. Now, if you choose to be bitcoin-only, you’re targeting like 30% of the market. Is that good? And then are we building a network of our own that then is not interacting with the other networks? And are we strong enough to build network effects within our thing to eventually somehow overtake the other networks? There’s a lot of stuff to think about, I think.

Learning from Other Industries: Insights from VPN Growth

I want to bring up a good inspirational example from the other world, from another industry.

And that’s VPN, which is one of these things, it’s not very exciting. Nobody is excited about VPN, but over a billion people use VPN each month and a third of the internet population. It’s a 40 billion dollar industry. It is a privacy freedom Tech. But that’s not the reason why most people use it, like the billion people, they use it to watch American Netflix or to shop at a store that they otherwise can’t shop in or something like that.

And it’s just been growing, no hype cycles, no excitement, just steady growth every year for 25 years, which is a long time. It just works, the steady growth and then occasional external factors like one country or another turning dystopian and VPN usage spikes in that part of the world. I think that there’s a lot for us in the bitcoin space to learn from how VPN grew.

Conclusion and Call to Action

So a couple of conclusions. I think a big and important point to say is that if we want to grow the circular economy, the feedback here is that community alone does not scale enough. The fact that many people use wallets that we don’t like here in the community is indicative that we need to be doing something that we haven’t been doing. And I think that some of these things are focusing on real jobs to be done for real people that don’t necessarily care or dream about bitcoin. And a little bit less on, “it is cool that you can feed a chicken with Lightning over space.” It is cool, but we also need to get the real flows of money in and out of the system. And for that, we need to build a tech that is boring.

Exciting tech is exciting because it doesn’t work really well yet. Boring tech just works. The iPhone in my pocket, it’s not very exciting anymore because it’s reliable as hell. A big takeaway is that if you’re building something for users of a certain tool, there very well may be a lot of users of yours that aren’t going to conferences. It’s very important to find them and to talk to them and to find out what you can do better. I think I’ll leave it at that. Thank you.

Twitter: @ziggamon
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