Sebastian Sonntag, the new CEO of LocalBitcoins, and Mika Impola, software developer at LocalBitcoins, explain why the peer-to-peer bitcoin trading company has a new CEO, why it stopped cash trades and what kind of response they’ve received from the community about it. They describe how the service works, how it has changed over time, the range of payment options available amongst sellers on the site, and how peer-to-peer trading differs from country to country. Plus, we cover why it suspended buying in Iran, how regulation is changing the site in general, how it handles forks and what Sonntag’s plans are for the company.
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Episode links:
LocalBitcoins: https://localbitcoins.com/
LocalBitcoins blog: https://localbitcoins.com/blog/
LocalBitcoins names a new CEO: https://localbitcoins.com/blog/localbitcoins-names-a-new-ceo/
LocalBitcoins stops cash trades: https://www.coindesk.com/localbitcoins-removes-cash-for-crypto-trading-option
New Finnish AML regulations: https://localbitcoins.com/blog/aml-features-update/
LocalBitcoins’ new ID verification system: https://localbitcoins.com/blog/id-verification-update/
LocalBitcoins trading volume across countries: https://coin.dance/volume/localbitcoins
LocalBitcoins trading in Venezuela: https://coin.dance/volume/localbitcoins/VES/BTC
LocalBitcoins suspends buying in Iran: https://www.coindesk.com/localbitcoins-bans-bitcoin-buying-in-iran-in-blow-to-rising-crypto-commerce
Bitcoin Cash hard fork decision: https://localbitcoins.com/blog/bitcoin-bcash/
Bitcoin Maven: https://www.latimes.com/business/la-fi-bitcoin-sentencing-20180709-story.html
Hack on LocalBitcoins forums: https://www.coindesk.com/localbitcoins-reveals-security-breach-with-some-crypto-wallets-affected
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Transcript:
Laura Shin:
Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host, Laura Shin. In case you haven’t heard, I have another crypto podcast called Unconfirmed. It’s shorter, newsier, and comes out Fridays. If you haven’t yet, go subscribe now wherever you get your podcasts. Also, find out what I think are the top stories in crypto by signing up for my weekly newsletter at unchainedpodcast.com.
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Laura Shin:
My guests today are Sebastian Sonntag, the new CEO of LocalBitcoins and Mika Impola, software developer at LocalBitcoins. Welcome, Sebastian and Mika.
Sebastian Sonntag:
Hello. Nice to see you, Laura.
Laura Shin:
Most listeners have probably heard of LocalBitcoins, but they may not be fully aware of what it does or how it works. Sebastian, can you describe LocalBitcoins?
Sebastian Sonntag:
Yeah. So, LocalBitcoins, in a sense, of course, it’s a place where people can trade with Bitcoin. So, they can buy, and they can sell bitcoins, but LocalBitcoins in core is that it’s from people to people and of course, it’s a bit different than exchange. So, our idea is that it’s similar to Craigslist, but especially the users probably know pretty well. So, it’s kind of a place for Bitcoin people to meet to and create an advertisement that I want to buy bitcoin, I want to sell bitcoin, but that is basically what LocalBitcoins is about.
Laura Shin:
And Mika, can you walk me through one example of how a buyer and a seller transact on the platform?
Mika Impola:
Yeah. So, the buyer…let’s say that I want to buy bitcoins, and so, I go to the LocalBitcoins site and create an account to our service, and with that account, I get this Bitcoin wallet as part of this account, and with this Bitcoin wallet, I can transfer bitcoins in and out. So, after that, I can search for advertisements on LocalBitcoins.com and when I find suitable advertisement. Let’s say, for example, that I want to use SWIFT to settle the payment for the bitcoins. So, I will search for advertisements that advertise selling of the bitcoins with SWIFT payment. So, after I have found a suitable advertisement from the site, I will start trade by replying to that advertisement, and what happens then, is that the amount of bitcoins that I am about to buy will go to our escrow wallet and then we are now doing the payment with SWIFT. I will make the transfer to the seller of the bitcoins using the SWIFT network, and once we both, me as a buyer and the seller of the bitcoins, agree that the SWIFT payment is done, we both mark the payment and the trade as done, and at that point, the LocalBitcoins.com service escrow wallet releases the bitcoins to me, to my LocalBitcoins account wallet where I can then withdraw them if needed.
Laura Shin:
And so, you named SWIFT as one example of ways in which buyers can pay, but what are…and…I was going to say what are all the ways in which buyers can pay, but obviously, you don’t need to list every single one, but just give some examples of the full range.
Sebastian Sonntag:
Yeah. Well, SWIFT, Alipay M-Pesa, it really doesn’t matter what is the, like, settlement type. I mean, if users have some unknown or new payment method in their local area, they can also agree to use that one. So, we don’t, in a sense, limit the other part of the trade.
Laura Shin:
So, it’s just whatever the seller is willing to accept.
Mika Impola:
Yeah. Well, mostly. Of course, there are some aspects there which we are limiting there because of the safety of the users and so on, but it’s pretty much open for the users to decide how they exchange the other currency, not the bitcoin, but the other currency.
Laura Shin:
And what would be an example of a way that’s unsafe to pay with?
Sebastian Sonntag:
Yeah. So, the cash trades was actually disabled during the spring, and there was actually, kind of a whole lot of news, especially from our competitors, noticing that we have removed the cash trades from them. There were actually small discussion in the company if we should keep it and how people will see it, but then again, it was very limited how many people were still using it. So, we really didn’t see it as important anymore, but it was also that there are problems with the cash trades, because, when you are using escrow service, the whole idea is that you don’t completely trust the other party. If you would trust completely the other party, then you don’t need the escrow service. You can transfer bitcoins directly wallet-to-wallet, but when you need the escrow service, there is not complete trust between the parties, and of course, if you have to meet the person face-to-face to trade the cash, it’s a real problem and a safety issue, but then it’s also really hard to prove that the cash has been traded. What if the other party says that, I did transfer the cash, the other party says, no, it did not happen? So, there is really hard way to prove these kind of cases.
Laura Shin:
So, essentially, it was kind of because it would be, like, difficult to resolve disputes that, that was kind of removed as one of the options?
Sebastian Sonntag:
Yeah. That was actually one of the reasons. There was also regulation passed. It was not really happening in the regulation at that time, but the main reason was that it was the safety and the dispute it caused of course, but then, again, kind of the benefits and use was very limited. Actually, Mika has some numbers also related to how popular the cash trades was.
Laura Shin:
Mika, what percentage of transactions were cash trades?
Mika Impola:
When we eventually decided to stop supporting cash trades on our platform, the amount of revenue that was generated from the cash trades was less than half percent of the company’s revenue. So, it was just this really small branch that we kind of, like, decided to cut down. I mean, there is no justification for the overhead of the service. So…
Laura Shin:
And was it more popular though in certain geographies, like, in a particular country for instance? Might it be, you know, I don’t know, like 20 percent of the transactions there, even if it was only half a percent of your revenue, overall?
Sebastian Sonntag:
There wasn’t a clear market area or anything like that where it was used more than in other places. It was more like where we had users anyway that were always couple of cash traders also there. So, it wasn’t like…it was quite steadily spread amongst the markets.
Laura Shin:
Okay.
Sebastian Sonntag:
We were like a percent, but you know, these cash trades and all…it’s a really confusing topic to me. I mean, when I’m out there in the wide encountering other Bitcoiners, and they learn that I work for the LocalBitcoins, we usually start talking about LocalBitcoins and many times they talk about this thing that people meet in some places, and they exchange cash for bitcoins and that’s really, like, confusing for me because I don’t see LocalBitcoins doing that. I mean, we haven’t do…that is not what LocalBitcoins does. Well, it’s not completely true. Yes, you can do also that, but people who does that is so small percentage of our users, that you could also think of it as nonexisting, but I do understand where this all is coming from. I mean, in the summer of 2013, the majority of our traders were cash traders, but already in the end of 2013, cash traders were only one-third of the customer base, and when we come to the year 2016, the number of cash traders was, like, less than five percent of our users. So, we might be considered as platform where cash trades were done a long time ago, but I mean…well, long time ago…In a Bitcoin world, three years is a very long time, I think.
Laura Shin:
That is definitely true.
Sebastian Sonntag:
But I mean, there comes a time to every company to, like, streamline the business and concentrate to the core of the business, and when you have something that is used, like, or is generating less than a half percent of the company revenue and you are in this streamlining mode, those things just, like, get cut off.
Mika Impola:
Yeah. I also vote for that, because, of course, the company mission is to bring Bitcoin to every city of the world or allow everybody on the planet to trade with bitcoin. So, in that picture, the cash trades is not important. It’s the other methods that really matters.
Laura Shin:
Yeah. I mean, I think probably some of the anger that you kind of experienced from some of the users or the coiners about this, is that I think there are people who view your service as somewhat political, at least in concept. The idea of allowing people to trade peer-to-peer typically means, you know, more anonymously, and under certain jurisdictions where perhaps people don’t have very much financial freedom, that could be a very, very important service, and so, you know, for them, I think that they view this as, like, an important kind of…it’s almost, like, for them a political stance or something, but in a way, maybe, I feel like the passion that they feel about that is sort of similar to just in general where you notice in politics that there tends to be some people who feel passionately about one thing, and then, the majority of the population, unfortunately, doesn’t, even if it’s kind of a worthy stance, and so…yeah, I think that’s what I’m hearing, you know, when you talk about the disconnect between what your users are saying, and then, how you see things from the business perspective.
Sebastian Sonntag:
And also, of course, what we have noticed is that it might be that in developing countries, what are kind of the core things that people are needing there in case of Bitcoin is bit different than in the rest of the world.
So, for example, the cash trades, I understand this that there is the idealistic way of viewing it, but if you are in developing countries and you kind of want to, for example, save money and save it from the inflation. I don’t know if they consider cash option or not. It’s more important that there is the option, to kind of save yourself from the hyperinflation, for example.
Laura Shin:
But that’s actually why I was asking about whether or not cash trades were more popular in certain geographies, because in some of the developing countries, are there kind of like…are there enough options for payments for people? Do you know what I’m saying? Like in certain geographies, is it the case where cash is one of the main ways that people transact, and if so, you know, is that kind of preventing people in that country from getting access to Bitcoin?
Sebastian Sonntag:
Yeah, that is actually a really interesting question. Of course, like I said, and actually Mika mentioned, that, of course, we based our decision on data and we were looking that it’s going down and even though there were more people from everywhere in the world coming in site, they were using less cash trades, but that is really interesting question. Of course, there might be that there is huge market out there who are only able to use cash trades and that this…I really feel that’s really important because if there is that kind of user group, there should be a Bitcoin service for them as well.
Mika Impola:
Yeah. I would like to argue that, if we consider those countries which are experiencing hyperinflation, they don’t like to use cash because you have to use so big piles of cash. It’s easier to use some kind of bank transfer or mobile money, and also, what we see in developing countries is that they are, in many ways, leapfrogging to mobile money and mobile minutes and all these apps that you can use from your phone, and people are actually using those kind of payment methods instead of cash.
Laura Shin:
Yeah. That makes sense.
Sebastian Sonntag:
Yeah, but it is a really interesting topic, and of course, if I understood correctly, there is the UN is making research on this, but of course, there is this kind of societies and research organization also researching, because I have to admit that me or the company, of course, we are not really the specialists to understand how in developing countries people are behaving. So, of course, if we would understand a bit better how they are using Bitcoin, and how they kind of wish to use the Bitcoin in future, of course, that is also our mission that we could give them a service, but it’s really hard, of course, to really know how people in different markets and different areas are using.
Laura Shin:
Yeah, and I actually think one other kind of difficulty in trying to do this research is that, I imagine when people are not under duress, that then, of course, they’re happy to use these different services, but if you look at what happened in Hong Kong recently with the protest there, as you know, a lot of Hong Kongers were using cash to pay for their subway tickets to go to the protests rather than using any sort of payment method that could be identified back to them, and so, you know, these…like, instead of just generally looking at, you know, like, developing countries or something, it would need to be maybe more specific, like, geographies that are undergoing some kind of political upheaval where they don’t feel comfortable transacting with their identities. Something like that. So, I understand it would need to be something where you would need to be in kind of in the right place at the right time to get the full picture.
Sebastian Sonntag:
Yeah, it’s exactly like that. Yeah.
Laura Shin:
Yeah, but I think that is why there’s some pushback on this, because I think some people who like the idea of peer-to-peer trading of LocalBitcoins then understand that if it’s not offered, the cash transactions, then in times of duress, then people won’t have that option.
So, actually, let’s just go back, though, to the very beginning of how LocalBitcoins got founded.
Mika Impola:
I think the founder of the company, Jeremias, saw or tried to, like, find ways to buy bitcoin or sell bitcoin and kind of, like, didn’t find any good services, and so, he decided to create this Craigslist-type of place where you can advertise buying or selling and thus the first person of the LocalBitcoins was created, and it was really, like, done in a few weeks or something like that, and in the beginning of LocalBitcoins, there was no way of creating any revenue, and it was maybe in half year after the beginning or one year after the beginning that escrow service was introduced, and with the escrow service, the company was able to generate revenue as we charge like one percent of the amount of escrowed bitcoins during the trade and basically that’s the basis of the company that we still are running providing the advertisement space and providing the escrow asset service when users are making the trade.
Laura Shin:
And you charge that fee to the seller, right?
Mika Impola:
Yes.
Laura Shin:
Okay, and…so, are there any other services that you have begun to offer over time or is that really, you know, just kind of your bread and butter, and that’s the main way that LocalBitcoins makes its revenue?
Mika Impola:
There has been, like, LocalBitcoins ATMs at some point, and we had this invoicing service at some point, and maybe there are others that I am not that well aware of, but we are kind of like being focusing on streamlining and to the main product and trying to do it as good as we can.
Laura Shin:
And how has usage and reach of your platform changed over time?
Sebastian Sonntag:
Yeah. So, we did actually check the volumes. So, how much there is transaction ongoing on the platform, and this is probably really interesting for the listeners as well. So, there are public sources where you can compare different exchanges and trading points and services like LocalBitcoins, Coin Dance, and there we considered, of course, before 2017 the market was much smaller, but it was growing steadily, and of course 2017, the growth was insane during that year, but the interesting part, at least to my eye, is that, of course, there was the price surge ended like, was it 17,000 dollars per bitcoin. Then it did drop down, but the volume of LocalBitcoins has been…it has remained pretty much the same as average of 2017 and that is insane, and Mikal actually noticed something really interesting about if the bitcoin price remains. So, if, Mikal, you can share it.
Mika Impola:
Yeah. So, I mean, I think that we have this steady growth. We have had this steady growth from the beginning of the company, and it just seems to be growing and growing and…but one thing that affects the speed of the growth is that if the bitcoin price is moving, we seem to have more growth. So, when the bitcoin price is coming down, we have a little bit more growth and when the bitcoin price is going up, we have a lot more growth. When the bitcoin price stays somewhat stable, we still have a growth, but it’s not that big when the price is actually moving a lot of. So, basically what you…you could say that we are growing with the bitcoin.
Laura Shin:
Yeah. That makes sense. Obviously, being kind of like an onramp, you know, as the price grows that reflects more people coming into the system. So, and you know, obviously, we’ve been talking about kind of the way the platform has changed over time and Sebastian, so why did LocalBitcoins change its CEO at this time? Previously, the CEOs were, you know, it was Jeremias, the founder, and then also I think Nicholas, I guess is his brother.
Sebastian Sonntag:
Yeah.
Laura Shin:
And so, you’re kind of like the first sort of outside CEO. So, why did that change happen?
Sebastian Sonntag:
Yeah. So, the background story, Jeremias and Nicholas, they founded the company, and Jeremias was CEO until 2016 or 2017, around that time, and since then, the CEO has been Nicholas, and now, actually already last year, Nicholas has been talking that he is more interested kind of the vision where the Bitcoin market is going, where Bitcoin is going. Of course, the company, it has really grown and a huge one. It’s not anymore kind of a start-up mode. There are kind of lot of positions, lot of Human Resource management and whatever, and Nicholas says that he is more interested to deal with the Bitcoin, understand that part. It was actually the same story with Jeremias, what he has been saying. So, they are interested kind of the big picture and not really maintain the Human Resources and stuff like that. That is one thing, and of course it’s also that when you have a pair of fresh eyes, of course, you get the different view of the company. So, new person, it’s easy to notice if there are kind of position that needs to be filled out, if they are kind of lacking something, if some people are stressed out because they have too much to do, if there are some people who don’t have enough to do. So, of course, it’s easier for somebody new to come and help that firm.
Laura Shin:
Sebastian, you recently started as CEO. What were you doing before, and how did you get into Bitcoin and come to LocalBitcoins?
Sebastian Sonntag:
Yeah. Actually, I have a PhD in technology way back in the years. I was already interested in Bitcoin already 2012 or something. I was mining bitcoin myself, but then I got more interested after technical career to business side, and I went for the business management, and I founded a couple of companies, and then I’ve been in the past 3-4 years in the management of different companies. Also board members in different in different Finnish companies, but I have been following the Bitcoin, and especially the LocalBitcoins, closely because LocalBitcoins is the biggest Bitcoin company, in Finland that is, and of course, early on I was not as interested when it was in gray areas specifically companies, but now with the regulation is coming, finally the companies are turning from the gray area to white area. So, of course, it’s also easier for me to business manage to come these kinds of companies who are going to be really official companies, and what else is there to say. I really think that Bitcoin, of course, itself is really interesting. It seems to be helping people around the world, and LocalBitcoins itself is certainly a really interesting company. It’s the, how do you say, missionary or settler of the area. So, it’s really bringing kind of Bitcoin to those people who don’t have access yet.
Laura Shin:
And Mika, what about you? How did you come to work at LocalBitcoins?
Mika Impola:
Yeah. So, I think I found Bitcoin first time around year 2012 and in the beginning of…it was this on and off thing for me. I would spend some time studying it and then forgetting it a for a while and so on, and I did some mining. I traded a little, made a trading port, and that didn’t work and got some outgoings and so on, and lost bitcoins to scammers and hackers just by my own mistakes. So, basic stuff, stuff the normal mistakes, and the process of learning Bitcoin and figuring out what it actually is by experimenting with it. I think it was in the beginning of 2015 that I, like, finally decided to get into Bitcoin and pursue carrier in Bitcoin, and I started by getting some ATMs and trying to find locations to then manage. It didn’t go anywhere, but I made some friends, and quite soon after that, I ended up working for LocalBitcoins’ own ATM project and well, that project, the company decided, like, to concentrate to the main product and the ATM project was, like, shut down, but I stayed around and started working and helping on the website and coding and mostly maintaining our server and Bitcoin infrastructure is what I’ve been doing ever since.
Laura Shin:
And actually, just to go back to earlier when we were kind of discussing the philosophical stance or the political stance, and you talked about how they really wanted to do the peer-to-peer trades. So, why was it that they didn’t think, oh, you know, why don’t we just pull this liquidity and create kind of a more typical exchange? Like, what’s the reason for that?
Sebastian Sonntag:
Yeah. So, the mission actually, is a pretty old one, this that to bring Bitcoin to every city of the world, and of course, they really feel why they are in Bitcoin…at least of course, this is my view what they have for Bitcoin. They might have a different story. So, take a bit of salt hearing me saying what they wanted, but of course the mission was early on to bring Bitcoin to every city of the world, and of course, if there is an exchange, like there are a lot of exchanges. It really makes sense of course that the price, kind of sell and buy price is close to each other. Of course, the transaction costs are low, but then the problem is that there is usually only one way to buy it. You buy directly from the exchange and so on, and if you go in different areas, different markets, the problem is with financial inclusion. So, we already mentioned, for example, that if you are Venezuelan or … well, actually, I have to admit that for example for my parents, even in Finland, it might be a bit hard for them to kind of buy something from the stock exchanges, but then exchanging with people-to-people is a lot easier, especially in a few core areas like Venezuela. It seems that it’s easier for people to trade each other than to go with the stock markets, and it’s probably due to how the…not bitcoin currency, but the other currency is involved.
Laura Shin:
All right. So, in a moment, we’re going to discuss some other kind of news issues with LocalBitcoins, such as stopping services in Iran and some of the changes to its platform, but first a quick word from the sponsors who make this show possible.
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Laura Shin:
Back to my conversation with Sebastian Sonntag and Mika Impola. So, we were just talking about kind of why the founders wanted to do peer-to-peer exchanges and I just also wondered, do you know from the users perspective, like the buyers and the sellers, why they chose to do trades this way rather than on an exchange?
Sebastian Sonntag:
Yeah. I don’t really know the reason. I don’t know if we have done studies on the reason and probably it differs from the market and from people-to-people, and to be honest, I don’t know if it’s our place to really ask people. Of course, if we want to develop the service forward, of course, we have to bit understand better why and how the service is being used, but we have not really studied that too well, and of course, we mentioned that the background with the founders of the company, and what they had this interest it was really early on when they founded, they were really kind of…really early adopters with Bitcoin and with the company. So, of course during that time, there were no exchanges and they found their position with this peer-to-peer trading, and of course, because they are and there are a lot of competition with Bitcoin exchanges, it doesn’t really make sense to try to turn LocalBitcoins yet another exchange.
Laura Shin:
And back in May, I had Vera Xavier, LocalBitcoins’ Community Manager and Elena Tonoyan, Chief Customer Success Officer on my other podcast, Unconfirmed, and at that time, they told me that they were seeing about 40,000-50,000 trades a day and about maybe a half million active users every month. What are the usage numbers now?
Mika Impola:
Yeah, they have stayed pretty much the same. I mean, like I earlier said that seems like we grow with the bitcoin, so I think the bitcoin price has also stayed pretty much the same.
Sebastian Sonntag:
Yeah.
Mika Impola:
Same. So, that’s why the growth of the users is not that much from the May.
Laura Shin:
Yeah. Also, it’s a short period of time, and what’s the breakdown between developed and developing countries?
Sebastian Sonntag:
Yeah. It seems when we were checking what currencies people are using for the…kind of when they are trading the money. We have noticed that it might be a bit more users in developing countries than in the…
Laura Shin:
Oh, interesting.
Sebastian Sonntag:
Yeah.
Laura Shin:
And when you say that, are you talking about number of transactions as opposed to the amount of the transactions, or just number of users?
Sebastian Sonntag:
I was actually…yeah, it’s a volume. So, not number but really kind of how many bitcoins is exchanged.
Laura Shin:
Oh, wow. Okay. Well, that’s actually pretty remarkable, because then, you know, you would expect that in developing countries, the amount of bitcoin is higher per capita, simply because they’re probably wealthier countries, but if in the developing countries, they’re kind of exceeding the amount, you know, not just from a number of transactions perspective, but from the BTC amount, then that means that there’s pretty significant trading on your platform in developing countries.
Sebastian Sonntag:
Yeah, and I would guess that one reason is due to this exchange because of course it’s possible and it’s easy to use them in the developed countries, but of course, if you are in a developing country, it’s a bit more hard to use exchange. That might be one reason.
Laura Shin:
Right. Right.
Mika Impola:
Also, I would like to make a point, maybe to the earlier question, also that is related to this, why we have users so much in the developing countries is that I imagine that in developing countries, you don’t necessarily have, for example, a bank account, so to speak, but you have maybe some mobile payments method like M-Pesa or something like that, that you use on your phone and there isn’t really exchanges providing, like, on and off ramps from that mobile payment method. So, if you want to get bitcoins, you have to have that bank account that you don’t have. So, you need to use us, because through us you can find someone who is using the same mobile payment method and thus, you have, like, this direct route to transfer your value from that mobile payment method directly to bitcoins and wherever you want to go from there. So…
Laura Shin:
Yeah. Yeah. I guess what is probably very appealing about LocalBitcoins is that it’s pretty…I don’t want to say customizable to your local geography, but what I mean is it’s very flexible. So, you know, if you’re in one country, and you have this particular way where you keep your money, then, you know, instead of being limited to whatever few payout options and exchange offers, you can just keep browsing, you know, this kind of Craigslist site to find somebody else who will accept your payment option.
One other thing I definitely want to urge the listeners to do, is in the show notes, I’ll put a link to the charts of LocalBitcoins trading, broken out by country, because when I looked at this, I just…it was so fascinating. There are certain trends that you see and then there is just, like, certain outliers where you know, whatever was going on with trading in that country was just particular to what was going on in that country, and what I mean by that, is that the charts basically show trading volume, you know, by country over time, and so, there are a few trends I noticed, where these tend to be stable economies and essentially the trading was all fairly low volume for quite a long time and then a spike in trading at the end of 2017, early 2018, and then a drop back down to fairly low levels. Kind of…and for people who want to look this up, like Switzerland, Norway, New Zealand, they all kind of exhibited that sort of chart, and then there was another type of pattern I noticed amongst somewhat probably, I guess, what you would call troubled economies where the volume just sort of somewhat steadily goes up. Like, for instance, Argentina, Mexico, Venezuela, but then, you know, aside from those trends, there are just a whole bunch of charts that really don’t look like any of the others and it was just really fascinating to see that. So, there’s no question to this, unless you guys have a comment on that, but I was so fascinated when I was looking at these charts, and actually, the one other comment I wanted to make, was that the US has a very fascinating chart, because it just shows so much more trading than any of the other charts, which, you know, I guess kind of reflects that the US has the biggest market, at least for peer to peer trading of bitcoin, but anyway, do you guys have any comments about these charts?
Mika Impola:
Well, yeah. I also encourage people to go and look those charts and maybe like once a week, go and see what’s happening there, because you can actually get this feeling that you saw this little spike in some of the charts, and then, you start wondering what is going on in this country, and you Google and then you find out. It’s, like, you can little bit predict the news from those charts, also.
Laura Shin:
Do you remember any particular news events, you know, that you noticed via looking at the chart?
Mika Impola:
Yeah. I mean…
Sebastian Sonntag:
Well, I actually noticed that, of course, I was already interested in LocalBitcoins, and we already had these interviews ongoing and so on, but there was this Venezuela, and of course, there were a lot and lot of news ongoing about the Venezuela, and in the same time, I could see from the Coin Dance that, hey, there’s more and more transaction ongoing in Venezuela. So, at least for me, this was a really astonishing moment. Kind of that it can really help people in that area.
Laura Shin:
But I have a question about the Venezuela one, which I saw the New York Times reporter who covers crypto Tweeted about this, because, since the chart is denominated in Venezuela and bolivares, then obviously the value of that is decreasing. So, is it…does the chart reflect actual increase in trading volume, or is it simply reflecting that it takes more bolivares to buy a bitcoin than it used to? Do you know what I’m saying?
Mika Impola:
Yes, but if we are still talking about the Coin Dance service, you can actually switch the denomination to BTC from the right upper corner of the chart. So, it’s of course, gets a little bit difficult then. You need to remember what was the price of the bitcoin back then and so on, but we do provide…Coin Dance is using our public ABI to create these charts. So, if there are some ways to improve them, you are welcome to try out and get the data for yourself and try to figure out how to present it more nicely.
Sebastian Sonntag:
Yeah. One thing about this, of course, it’s also really interesting what we have been following, is that how the bitcoin, itself, behaves nowadays to turbulence on the world markets, and it’s really interesting. Of course, there’s also news from the big economic magazines as well, that it’s interesting that the bitcoin has started to act a bit like gold or kind of this kind of metal that keeps the price and it’s really interesting, because we have on the history 2017, and even before, learned that the bitcoin is a really volatile and whatever, and now, it starts to work a bit more like gold, which is probably not the most volatile asset you can get.
Laura Shin:
Wait, I’m sorry, you’re talking about gold?
Sebastian Sonntag:
Yeah.
Laura Shin:
Yeah. Well…
Sebastian Sonntag:
And that is probably the reason why, for example in Venezuela, so if you kind of want to retain the value of whatever, for example, salary you are getting and it might be…I don’t really…because that is the problem, that we don’t really do studies that why Venezuelans are using, but it’s just my hunch, that it might be a reason that it’s because there’s hyperinflation. So, you need some way to kind of retain the value of your salary and so on, and Bitcoin might be an easy way to do that.
Laura Shin:
Yeah. I remember, I think it was Vera in the last podcast I did, she was saying that some of the activity you’re seeing from Venezuela is Venezuelans trading bolivares into USD via Bitcoin and then when they need the money, using Bitcoin to trade it back to bolivares, and actually what I did just now, I just looked up the BTC volume of trading in Venezuela, and it did spike quite high earlier this year in, like, March roughly it looks like, or maybe February, but it’s back down now, frankly, actually. So, that’s kind of interesting. I wonder what’s going on there. Oh, oh, I know. It’s because the coin price has gone up.
Okay. Okay. So, actually let’s move on to some other kind of changes that have been going on in your business. You know, LocalBitcoins obviously stopped offering services in Iran as well, which I mean, I don’t know, you know, to my mind and I think a lot of people who watch the crypto space, that sort of feels like there’s kind of been a lot of changes at LocalBitcoins recently with stopping cash services, now stopping services in Iran, you know, bringing in this new CEO. So, what happened with the Iran service and how does that kind of fit into whatever new trajectory LocalBitcoins is on?
Sebastian Sonntag:
Yeah. About the…well, the CEO process didn’t really reflect this, but a lot of these changes that has happened is there is a push from the regulation. Of course, finally…well, finally, but anyway, the governments are seeing Bitcoin, and of course, they are acting, they are pushing the regulation and so on, and for example, Iran, we are using a lot of US services for different purposes, and now, because Iran is on the list, the other companies, US companies who we are buying services, they were stating that we cannot continue doing business if we do business in Iran, and even though, of course, we didn’t use the services in Iran but only that we were giving a service in Iran was enough for them to be afraid, and of course, now we had to choose between two evils. If we continue supporting, for example, Iran, or there is a possibility that we have to shut down the whole service, and of course, if our mission is to bring Bitcoin to every city of the world, putting Iran down is not really serving that mission, but if we have to turn the whole service down, that is even worse scenario. So, we had to chose between two evils, and of course, the regulation is happening and also, we are regulated, and we will go under regulation.
Laura Shin:
Yeah, and it’s a new Finish regulation that comes into effect in November, right?
Sebastian Sonntag:
Yeah.
Laura Shin:
And I know on the platform, you are now implementing some changes to meet that regulation. How does that affect the users?
Sebastian Sonntag:
Yeah. So, most notably are this, know your customer, and that’s why there will be tiers. We have already announced that there will be tiers, and of course, depending that the tier, we have to know a bit more about the customer. Of course, one would argue it’s only because of the regulation, but then again, if you read the ruling or the reasoning behind this regulation is that the better the companies know their customer, the better they are able to secure the funds. So, it kind of make sense also customer-wise but of course it’s really annoyance for the customers.
Laura Shin:
And the history of crypto, obviously, is littered with exchanged hacks. LocalBitcoins is a little bit different, but LocalBitcoins did suffer a hack on its forums that enabled the hackers to post some phishing links, but because you, you know, manage these wallets for people, is that also a form of honeypot. Is that something where a hacker could obtain a number of bitcoins at once?
Mika Impola:
Yeah. So, if you are…I don’t know, I’m not going to go into details about the forum thing, just say that I think running a Bitcoin business is little bit different than running any other webservice as there is money involved, and thus, we seem to be under constant attacks from hackers. So, it’s been, well, how to say interesting in a way and also very stressful us being a target, so to say, and yes, we are a custodial service. We held some of the bitcoins of our customers, and unfortunately, that’s how we need to operate to operate this way, but we are, let’s say, taking a really big measures to make sure that our customers’ funds are safe.
Laura Shin:
So, I guess what I’m asking is, it sounds like, obviously, there’s a way where individual people can be compromised, but then, it sounds like, from what you were saying, there is also a way where LocalBitcoins can be compromised, and that then exposes all of the users’ funds. Is that correct?
Mika Impola:
Yes. You are correct that the easiest way to get hacked on LocalBitcoins is by making mistake on yourself, like, as a user, and most of the hackers seems to, like, target the users themselves more than the actual service and to fight that, we, of course, educate our users, and I think we have many, many, many systems in place to like catch those kind of operators and trying to protect our customers, but like any other exchange, we are also holding customer funds and thus…well, yeah.
Laura Shin:
So, you’re doing that not only during the period of escrow, but then also if people keep their bitcoins in their LocalBitcoins wallet. Is that what you’re saying?
Mika Impola:
Yes.
Laura Shin:
Oh, okay. So, I think I didn’t fully understand how it was set up. All right, so one other question I wanted to ask about, was for the Bitcoin Cash fork, at that time, LocalBitcoins made this decision to convert that money into bitcoins for the users, and then they simply added that money to the user’s balance and subtracted a little fee for doing that, but then, it also said it would not in the future support any airdrops or forks. So, obviously since that time, there’s definitely been other forks and airdrops. I don’t even know if I could count, but if LocalBitcoins isn’t giving that money to its users, are you guys just leaving it sitting there, unused, or are you accessing it, or what are you doing with that money?
Mika Impola:
We are not using it, but I mean…
Sebastian Sonntag:
Yeah, by the way, about these forks of course, sort of being a CEO here, what forks there have been actually since the Bitcoin Cash?
Laura Shin:
Oh, sorry. You know what I was thinking of was, before the Bitcoin Cash fork. So, you’re right. If it was converted, then that’s no longer associated with Bitcoin, but I was thinking of Bitcoin Gold at least….
Male Speaker:
Yeah. Yeah. Yeah, because it would be bitcoin, yeah. Yeah, because Bitcoin Cash was, if I understood correctly, it was exchanged to bitcoin for the users.
Laura Shin:
Exactly. Right. Right. Right, but so what happens to, you know, for instance, Bitcoin Gold, or something which happened afterward?
Mika Impola:
Well, I think we have made it clear that we don’t…this was a one-time thing that we decided to, like, credit the users for the money from the fork, and we don’t plan on doing it in the future, and we haven’t done it after that then. It’s…yeah. I think there’s no more to say about it.
Laura Shin:
Okay, but you’re also not accessing the funds, so, they’re just sort of sitting there?
Mika Impola:
Yeah, we are not accessing the funds. It’s easy to check if you don’t believe me, but yeah.
Laura Shin:
Okay, and people can’t withdraw them themselves, I guess. So, will LocalBitcoins just always stay with bitcoin or would you ever consider adding any of the other crypto assets?
Sebastian Sonntag:
Yeah, if I now recall correctly, we are supporting some. What is the payment method we actually supporting? Of course, not with the escrow but as a payment method we are supporting something, but the stance is, at the moment, that the bitcoin is the leading crypto currency pack and that’s why we are also using it, because of course, supporting other crypto currency is a cost for us and our mission is being this new markets, which is they are probably not speculating on crypto as much as they are using it for other purposes. So, at least the current stance, is that we stay with bitcoin.
Laura Shin:
And Sebastian, as the new CEO, what plans do you have for LocalBitcoins?
Sebastian Sonntag:
Yeah. So, because our mission is to provide Bitcoin trading for every city of the world, every people on the planet, and like we have actually stated, this has been a thoroughly interesting interview, because we have been discussing that we really need to understand the needs of the people who are using Bitcoin and it really varies on different markets, and of course this is kind of studying what are the needs for different customers, different markets, different people for Bitcoins and then we try to serve those, so that the more people on the world can access and trade bitcoins.
Laura Shin:
All right, and I also wanted to ask about how you guys are based in Helsinki. What is the Bitcoin or overall crypto scene? What is that like in Finland?
Mika Impola:
Well, I could point out one thing that seems general people seems to forget is that the second developer on Bitcoin after Satoshi, or with Satoshi, was a guy using the handle Sirius, which is also known as Martti Malmi, who is from Finland in Helsinki. Martti Malmi doesn’t seem to be active in the scene anymore, but as far as I know, he still owns the bitcoin.org and bitcointalk.org domains, and as far as I know, there were from 2012-2013, there were active Bitcoin meetups in Helsinki, and there are still active ones in month, I think. We have Bitcoin meetup here and there are people there so we are a small country, but we have been in Bitcoin for a long time, I think and if you have been interested in Bitcoin, you can always find someone to share your Bitcoin enthusiasm here in Finland.
Laura Shin:
Great. Well, thank you both so much for coming on Unchained.
Sebastian Sonntag:
Okay. Thank you.
Mika Impola:
Thank you.
Laura Shin:
Thanks, so much for joining us today. To learn more about LocalBitcoins, check out the show notes inside your podcast player. If you’re not yet subscribed to my other podcast, Unconfirmed, which is shorter and a bit newsier, be sure to check that out. Also, find out what I think are the top crypto stories each week by signing up for my email newsletter at Unchainedpodcast.com. Unchained is produced by me, Laura Shin, with help from Fractal Recording, Anthony Yoon, Daniel Nuss, Rich Stroffolino, and Josh Durham. Thanks for listening.
