Since a few years I’ve been discussing a lot with bitcoin advocates, bitcoin developers and people who consider themselves bitcoin users. Among other topics, the one that comes up more often (because I push it into discussions a lot) is the concept of spending bitcoin rather than simply keeping them as a long-term value reserve and fiat economy edge.

I’ve come to the conclusion that spending bitcoin is considered an unpopular opinion at best, stupid at worse, with very very few bitcoin users willing to spend their funds in the real economy (even provided the opportunity to buy them back). This tendency is usually justified by recalling the Gresham Law, whereby the bad money is supposed to be spent before the good money, because economic agents are willing to free themselves from bad store of value and keep the good store of value money in their pockets.

This is rather understandable and makes the tendency of not spending bitcoin a justifiable attitude. At the end of the day, if you buy the idea of the digital gold, you should realize that fiat currency tends to be devalued throughout the decades, whereas store of value assets tend to not be devalued because of various properties.

I’ve no issues with this approach to bitcoin spending. Nonetheless, in my opinion, spending bitcoin is the only way to boost its adoption and make it actually useful. Holding an asset to the moon with your diamond hands is not going to create value in the economy, is not going to make the ecosystem grow. It’s supposedly making your bags a bit larger only if the others out there actually use the asset for its properties, claiming their sovreignty and thus enhancing possible future purchasing power. Still, you don’t have purchasing power if you don’t purchase stuff.

First movers and sats-payable services

The first certified bitcoin purchase dates back in 2010, when a guy called Laszlo Hanyecz arranged an exchange with an another user of the forum BitcoinTalk. At the time Laszlo agreed to pay 10’000 bitcoin in order to get two large Papa John’s pizzas. The other user payed the pizzas for him and received bitcoin in exchange.

Although today almost everyone calls Laszlo crazy and makes jokes about him, probably that purchase is the reason why bitcoin gained some market and technological traction during the following decade.

The first real medium-of-exchange application of bitcoin dates back in 2011, when Ross Ulbricht created the dark market Silk Road, an online hidden service website where buyers and sellers where free to exchange any product. Trades happened almost always in bitcoin, because of its properties of pseudonimity and uncensorability. The website was unfortunately1 shut down a couple of years later, but the genie was finally out of the bottle, the real bitcoin nature of being a global unstoppable digital monetary protocol was finally more widely understood.

Drug dealers and naive users of SilkRoad can be considered a group of early adopters of bitcoin, a group strongly motivated to learn a new technology despite the burdain of tech annoyances. The need for the tool was what drove them to adopt it. And almost all of them learned the details about bitcoin after being somehow forced to use it for their needs. That adoption was certainly supply driven, meaning that the drug dealers were willing to sell products only in exchange for bitcoin, thus if someone was willing to get that drug, the leap to bitcoin adoption was necessary. Sats-payable services generated customers willing to spend the sats. But that worked also on the other way around: customers understood the advantages of not being exposed to possible phisical violence from drug dealers and moved to SilkRoad. If you were an old school drug dealer you would have to open your mind and start selling on SilkRoad, otherwise you would have lost some of your precious customers.

The dynamics of supply-driven or demand-driven sats-payable services can be compared to the classical chicken and egg problem, whereby one phenomenon needs the other one in order to thrive. If merchants are not willing to sell their products for sats, customers have no way to let their sats flow into the economy. On the flip side, if there is no demand for sats-payable products and services, merchants will not be willing to put into the work of learning, adopting the technology and possibly paying fees to get payment-processor like services.

There’s no simple solution to this matter, no globally optimal solution. Possibly some local-optima solutions exist and we should aim to achieve those. I’m not expecting some sort of serendipitous outcome from non-bitcoin friendly merchants whereby they’re going to start accepting bitcoin overnight just because of “the price”, its gold-like nature or other aspects usually bitcoiners riff about. I’m especting bitcoiners to go out there and talk to people, to be willing to spend their sats in the real economy, not exchanging them for fiat currency but directly with services and products. I think that the chicken comes first, the breathing thing shall act. The bitcoiner should make the first move into the real world.

Bitcoiners cannot expect the World “to be catched by Bitcoin”: if you don’t make the stuff there is no stuff. If you don’t act there is no effect. If you don’t start selling your services in exchange for bitcoin, if you are not willing to spend your bitcoin at the grocery store nearby that accepts it…then the World is not going to follow.

Testing, bugs and readyness

Research and development of new products come at multiple costs:

  1. economical cost of paying someone working at the product;
  2. it costs time to the developer(s) working at the producs;
  3. it costs time to the users adopting the product in the initial stage, because initally new raw products could be painful to use, tricky, not intuitive;
  4. it costs (hopefully not too many) sats to the early adopters and users that are actually trying out that product, especially if referring to a wallet prototype.

There may be more aspects that I did not consider, but overall this is how I perceive the costs of new bitcoin products. And they all come bundled together, not separable one from the other.

If there’s no founding, eventually developers will stop building or mantaining. If there’s no time to develop, the product is not marketed. If the product is shipped but no users adopt it, there is no way to test bugs, understand its feasibiliy for the broader market and in the long run things just slow down and eventually devs are not motivated to work, users don’t see improvements in the product. The market spits out the product from its dynamics: the wallet, the app, the service is not in the game anymore, it disappears. With regards to point 4, hopefully the alpha version of the product does not lead to fund losses, but in the end an early adopter shall be willing to risk in order to test and signal bugs, thus the risk of losses must be taken into account.

By going out there and using the wallets, testing node implementations and services users signal to the tech market niche of bitcoin-focused developers that there is demand for these products, that some work is needed. And since bitcoin is a monetary asset, one of the main use cases of it is to be sent back and forth, to be exchanged in various ways. Some merchants need wallets with offline capabilities, some need static invoice creation, some need security features to be sure that employees do not steal the funds. Users have some clear needs too.

How can we possibly make better lightning wallets if nobody is willing to spend some lightning sats? How can we possibly build a better receiver experience if merchants are not going to receive our money?

How can bitcoin-focused companies be sustainable if they’re not able to make a living out of their activity with an healthy business model?

I don’t buy the idea of when we’ll need it we’ll figure that out, because we won’t be ready in the future if we don’t start supporting and working on it now. Spending sats, accepting sats in exchange for our services and being willing to spend them for other’s services and products is the only way to make our industry able to welcome new users, new adoption. Otherwise, there will be no room for sats-payable services in the tomorrow’s economy.

As the saying goes

Rome wasn’t build in a day.

Social networks, tips and lightning integrations

A ton of new projects, proposals and protocols are vividly discussed within the bitcoin development industry and this is fine. Nonetheless, the only real production-ready protocols as of now are:

  • the Bitcoin timechain (aka the blockchain);
  • the Lightning Network protocol.

Despite being both rooted in the Bitcoin base timechain protocol, they have different market fits, the demand for their use is critically different, use cases are pretty distinguishable. Specifically, the properties of the timechain make it worth using for long term storage of funds, for high-amount transactions, but also for non financial applications like timestamping and Proof Of Existence. On the other hand, the Lightning Network protocol is mostly used for microtransactions, recurrent transactions and to embed more elasticity in the programmability of bitcoin spending.

It’s pretty clear that these are different tools and can be employed to solve different problems. Moreover, users are willing to accept different compromises if using these protocols. For example, self custody for onchain funds is usually considered a must-have for an onchain wallet, whereas for lightning wallets it’s widely accepted the custodian-ship compromise.

My intuition - that is also widely confirmed by the products in the market - is that the features of Lightning Network-based wallets and services are clearly well suited for the digital realm of social networks, tipping systems, recurrent payments to services like video or audio streaming. All these appications involve needs that also non-bitconers have, often associated with high-volume and low-amounts transactions that therefore can even justify the lack of self-ownership of the funds from the user endsight.

If you ever tried a custodial lighting wallet like Wallet Of Satoshi, you know that the user experience for custodial lightning wallets is even better than the one provided by traditional fintech companies. And even self-custodial lightning wallets are catching up with this performances, like Phoenix Wallet or Mutiny. This products are market ready, what’s needed is the adoption by the bitcoin-focused user base and, more importantly, what is needed is the integration of lightning features in normie products (aka applications, websites, services aiming at a broader market of users, not the bitcoin-focused one).

My belief is that if bitcoiners are willing to make the sats flow, the incentive to add bitcoin support into services/apps is likely to increase. At the end of the day customer is king and if customer wants this lightning network tips thingy to be added to his/her favourite app, companies will possibly integrate the required features.

My belief is that this step is crucial to make bitcoin actually useful, to transform it into a pop tool and remove the silly belief that “that’s only a speculative asset”.

Marketing, adoption and trust in airplane pilots

My final take on this matter concerns the “marketing aspect” of Bitcoin as a protocol and as a tool. Fortunately there’s no foundation, company, institution or government that it’s in charge for setting up bitcoin marketing campaigns, just like there was no central institution in charge for the marketing campaigns of the TCP/IP stack. The direct consequence of it is that every company integrating the product is phrasing its product communication and marketing at their own terms.

It’s in the interest of every company to narrate the product as easy to use, feature-rich, not dangerous. And it’s in their interest to actually make the product as such. My belief is that even bitcoin users have a role in this marketing battle: they need to be involved in communicating properly the tool, being willing to discuss it, not acting as dumb brainless faith-driven people but as thoughful users of a technologically dense tool.

Bitcoiners are the ultimate marketing strategy for bitcoin adoption: to let everyone else see bitcoin as an easy technology, we must use it. We have to testify that the protocol works by actually using it, by showing to the world that the protocol is not going to break, just like airplane pilots gain passengers’ trust by having thousands active flight hours without crashes.

At the end, bitcoiners are required to provide to the World Proof Of (that It) Works, proving that Bitcoin works and can be useful to a large amount of people worldwide, that anyone can use it at their own terms and accepting tradeoffs as they are more willing to.

For a monetary tool the sublime, most representative proof of usefulness is the act of using it for spending, which usually is also the ultimate proof of ownership.

Making it useful means creating a fertile context for developers to work on real world applications of bitcoin and built on top of the Bitcoin stack, it means stimulating outflows of bitcoin in the real economy.

It also means letting everyone else know that the tool we are laboriously and restlessly working on is ready to be used, it’s easy enough and can be integrated in a wide group of applications. If we manage to deliver this message, I’m persuaded that the value of the countless development hours and resources invested in this ecosystem will be properly acknowledged and finally Bitcoin will be a protocol and a tool used by anyone and not only for anyone.

Bitcoin

  1. I consider it an unfortunate event for the following reasons:

    • the most traded items in SilkRoad were banished books, often religious books;
    • SilkRoad had an internal ethical code whereby murder-related, child-related and violent crimes where prohibited;
    • Ross Ulbricht was sentenced to double life imprisonment for administering the website, which is an exagerated sentence at best;
    • SilkRoad fame of being a good drug-dealing platform was possibly an opportunity to take the drug monopoly out of the Mafia hands. Drug-related crimes are going to exist forever, that was at least an attempt to change the market into a more transparent one.

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