The Breakdown - USDT vs Bitcoin in Africa

Episode Date: February 22, 2024

NLW looks at discussion of the preferred currency in developing markets. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Tuesday, February 20th, and today we are talking about questions around Bitcoin. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Hello friends. Well, for the first time since the ETFs launched, there has been a bit of a dust-up from within the Bitcoin industry, and today we're going to talk about all of that. Coinbase has removed support for self-custodied Bitcoin from their merchant platform,

Coinbase Commerce. The service allows merchants to accept crypto payments from their customer's token of choice, which is then automatically converted into USDC. Coinbase head of product, Lauren Dowling, explained the decision in a Twitter thread stating, the new commerce product enforces the details of each payment on-chain, supports hundreds of assets native in ERC-20s across base, Polygon, and Ethereum, and automatically converts payments to USDC on-chain at a guaranteed rate to merchants. Delivering these same capabilities on the Bitcoin blockchain without smart contracts and stable coins was challenging, and we therefore made the difficult decision to remove native Bitcoin and other UTXO support. Customers retain the ability to pay

with UTXO assets like Bitcoin from their Coinbase account, which accounts for a significant portion of the Bitcoin volume we were seeing before making these changes. Since making the change, the results have brought us much closer to executing on our mission, seeing higher conversion rates, less manual effort and glowing feedback from many merchants. Coinbase CEO Brian Armstrong added some further information behind the decision. He explained that the product is currently EVM-based for transactions from self-custodied wallets, and that he hopes to expand it to Bitcoin once Coinbase's lightning integration has been completed. Armstrong wrote, Zooming out, we think paying for stuff online with crypto won't really go mainstream until we get

off layer 1 and reduce transaction fees and confirmation times. So we're trying to accelerate the move toward that world. I think the market for people paying for everyday items on layer 1 will be pretty small, regardless of what chain may be other than Solana. Hopefully it makes more sense through that lens. It may not be what everyone wants, but this is our current approach that we hope will serve the largest number of customers. Now, as you might expect, the decision sparked massive controversy on Bitcoin Twitter. CR-137 writes, Coinbase is often acting as if they are fighting the good fight, but don't be fooled. They aren't. example, Coinbase Commerce no longer supports payments from self-custody wallets or third-party exchanges.

Developer Lyle Pratt writes, Coinbase is doing everything they can to make sure you don't buy or use Bitcoin directly, and instead stay plugged into their shitcoin casino. Crypto Mags writes, Bitcoin companies integrate Bitcoin and Lightning payments seamlessly. Noster has implemented Zaps, Bitcoiners are working on offline BTC transactions, and others are sending BTC via satellites and ham radio. But one of the largest exchanges cannot integrate Bitcoin because it's challenging? Now, a slightly more nuanced take came from Austin Cornell, the head of Crypto at Plaid, who says,

The Coinbase Commerce criticism of requiring a Coinbase account to pay with Bitcoin misses the bigger point. I2 was disappointed at first, but Lauren Dowling lays out the tradeoffs clearly. In order to compete with and ultimately replace fiat payments, crypto payments must be higher converting and at least as easy to use as fiat methods. We should have the open wallet debate only after getting merchant adoption. Coinbase's leading and lightning network support will help later on. Plus, where did all these paper hands come from? Who's spending their Bitcoin in a bull market anyway?

And then, of course, there was Alex Leishman, the CEO at River, who gave certainly the most constructive response, tweeting, you can get upset at Coinbase for not supporting Bitcoin for payment processing, or take the more productive approach and build great products that improve Bitcoin's U.S. If Coinbase is wrong, it means there's a business opportunity here. Look, this is one of those areas where it is completely understandable, where Coinbase is coming from a strict business perspective, and I think you can assume good faith in the explanations

that both Lauren and Brian put forward for this, but as a bitcoiner who wants to see more, not less adoption, it's also fine to be loud about this. Pressure from bitcoins is one of the things that makes people want to integrate lightning and accept Bitcoin as part of a payment stack because it's an indicator of demand and passion in that community. Now, I certainly find myself in the less stressed out about this category,

given that I really don't think many people are trying to spend their Bitcoin via Coinbase Commerce. But, like I said, this is one of those areas where I think that being loud is basically all upside. Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others. Crypto, at its best, represents progress.

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U.S. territory customers by Payward Ventures Inc. PVI, DBA, DBA, Cracken. Now, it does touch on some larger issues as well, which were also being discussed on Twitter. Over the weekend, NFL player turned Bitcoin advocate Russell Okun shared his experience working on Bitcoin adoption in Africa. He wrote, During my time in Africa, while advocating for the Lightning Network, I faced a cold, hard realization. Despite my efforts, I found that more people were interested in dealing with

USDT rather than Bitcoin. They desired USD, even if they were synthetic versions. This generated a ton of response. Matt Carvalho wrote, It's hard to sell savings technology for those who have no money left to save. Stefan Levera said, They don't understand the problem of fiat currency yet. That's why they don't get that Bitcoin is the answer.

To which Russell responded, No, my brother, they do understand fiat, at least more than most Westerners I come in contact with. In many parts of the world, the US dollar is viewed as a simple of stability. Therefore, in the realm of adoption, it's essential to recognize that success isn't solely determined by technological advancements, but also how we frame and position strategy. It seems that more people are interested in dollars existing on Tron,

rather than the concepts of stablecoin tied to Satoshi's. This raises the question, are we playing to win or playing to be right? Are we equipping people with the best tools available? Or are we simply opting for tools that provide us with a sense of moral superiority? When you need to eat today, there's no luxury of waiting. It's tough, a world where USDT is currently solving problems that Bitcoin isn't equipped to address. It's a reality that I'm reluctant to accept and one that I hope won't persist indefinitely. What a sobering thought. My perspective on the Lightning Network proved short-sighted because I mistakenly assumed that Africa required Bitcoin how I wanted it, overlooking the reality revealed by the widespread use of

stablecoins in the region. I need to reassess my perspective on Bitcoin. Who are the individuals or teams developing innovative projects in this space? Now, Nick Carter responded to all of this and said, The mistaken belief that the Global South requires Bitcoin, despite their clear revealed preference for stablecoins, and privileged Westerners must impose it on them is Orange Man's burden. And he clarified many examples not picking on Russell here. Bitcoiners are still deeply, deeply delusional about the prospects for Bitcoin as a medium of exchange. The fact that many millions in emerging markets have adopted blockchain-based assets that are not Bitcoin means Bitcoiners can't lean on the canada of, oh, they just haven't learned how to use a wallet yet. They have,

and they prefer stable coins. For obvious reasons, I shouldn't need to lay out. Now, Nick didn't want to lay out those reasons, but I will lay out some of them. The dollar system at this point has a 60-year history of being the world's most desired stable currency. It is the thing that people in markets around the world, have huddled in back alleys trying to get an exchange, have used for value no matter where they are, and that's not something that's going to just change overnight. Things like Tether aren't some revolutionary force. They're just a thing that people already know and demanded in a simpler to use format. People are by and large creatures of convenience and rationality, not ideology. Using the digital version of what is already the world's most accepted currency, and screw the

world is usually their neighborhood's most accepted currency and most preferred currency, just super makes sense and is obvious. I think the thing that I'd like to point out, though, is that this is not a diminishment of Bitcoin's value. Bitcoin as a hedge against currency debasement, including U.S. dollar debasement, isn't threatened or undermined by people in emerging markets deciding that they want to use tether. All it is is a reflection of different use cases in practice right now. Now, I think this is a good discussion to have, not a bad one, because we should be constantly learning where the things that we hope for and we think run into the reality of the real world. It should help what we inform and what we do. For example, in this case, I don't think that it

means that people should stop working on lightning solutions for these countries. I think that for people who have dealt with financial instability and financial colonialism, having access to a truly non-sovereign, peer-to-peer digital asset like Bitcoin, is immensely valuable, even if it's not going to replace dollarish transactions anytime soon. And interestingly, it does seem to be part of a larger conversation. During a recent appearance on what Bitcoin did, Shinobi, the technical editor at Bitcoin magazine said to host Peter McCormick, there is absolutely a cultural shift happening. I'm at the point where most of the people who would call themselves Maxis or laser eyes, they're just total morons. I think they are people who have read a little cliff notes or a single book like the Bitcoin

standard, and then got this idea in their head that Bitcoin is magical and perfect, and just because there are 21 million coins and nothing else, it will eat the entire world and it will destroy governments and will just have a perfect utopia. That's completely and utterly delusional. If we stop changing Bitcoin right now, there is no way that even 1% of 1% of the planet will be able to afford to actually hold their own keys. Everybody else, it's just pick your custodian, and you won't even have the recourse of self-custody because it's not going to be cost-effective. Now, obviously, in this case, Shinobi is talking about a specific issue here when it comes to self-custody, but I think this broader conversation, that the Bitcoin community is constantly evolving in its understanding

of where Bitcoin fits in the world, or at least when it's at its best, it does, is an important conversation to have. So, like I said, my TLDR in this whole situation is sort of, well, of course people prefer dollars right now. And of course, they prefer an easier to use. version of digital dollars right now. That doesn't mean that all the things that Bitcoiners think about Bitcoin and are excited to share and want to build infrastructure for aren't worth doing. Now, switching gears for just a minute before we get out of here today, I feel like I'm contractually obligated at this point to do just a little bit of an ETF wrap up. Spot Bitcoin ETFs had a monster week last week, recording over $2.2.2 billion in net inflows.

According to the latest coin shares report, crypto funds received a record $2.45 billion in net inflows for the week. The difference was made up by $110 million worth of inflows for the pro-share Bitcoin Futures ETF, as well as smaller flows into international products and funds, which track other crypto assets. Last week saw inflows running at twice the pace of January's ETF launch week, outperforming the launch of the Bitcoin Futures ETF in October 2021 for the first time. Year to date, net inflows for the 10-spot Bitcoin products is now $5.2 billion, with $6.7 billion in assets under management. Year-to-date net inflows for the 10-spot Bitcoin products is now $5.2 billion. CoinShare's head of research, James Butterfell said,

this represents a significant acceleration of net inflows, distributed widely among various providers, indicating an increased interest in spot-based ETFs. According to crypto-quant data, the new ETFs are now seeing volumes equivalent to 40% of the spot Bitcoin market across all centralized crypto exchanges. Taking a look at the individual issuers, BlackRock attracted 1.6 billion worth of inflows for the week, and their product now has 6.2 billion in AUM. The BlackRock product ranked number two in ETF inflows last week, only falling short of SPDR's most popular S&P 500 index fund. Nate Grassy, the president of the ETF store, put some context around this saying, there are more than 330 ETF issuers. BlackRock's Ishare's Bitcoin ETF alone

has brought in more money this year than all but four of these issuers, including Ishares itself. In other words, Ibit has taken in more dollars than nearly every other issuer's entire ETF lineup. And so, friends, that will do it for today's breakdown. One more big thank you, as always to the sponsor of today's show Cracken. Go to Cracken.com and see what Crypto can be. Until next time, be safe and take care of each other. Peace.