Host - Adam B. Levine [Intro Music Plays] Adam: Coming up on today's show.

Bitcoin, MPESA, Bitcoin, MPESA and Kenya - Courtesy of GenesisBlock.com. What is Microlending, and does it work? Its Not That Simple - Life as the Largest Canadian Exchange with Joseph David, CEO of CAVirtex. 16 Bribes a month Is Corruption just Developing World tipping. Mutually Beneficial Mesh Networking on your Smartphone with Stanislav Shalunov CTO of OpenGarden and the origins of M-Pesa, and what are bitcoins chances in Kenya really? Adam: If you're new to Bitcoin check out letstalkbitcoin.com/learn to be directed to the bitcoin education project. If you like what we're doing please review us on iTunes or your preferred podcast platform. [Music Break] Adam: This helps other find the show but just generally we really appreciate it, we do an hour long show every week and it can be overwhelming to our new listeners. I'm excited to announce a brand new tool to help share the show called, Givepodcast.com. Using your phone just take a screenshot of your podcast player at the time you want to share, email the image to clip@givepodcast.com with the description in the subject and the email address of the friend you'd like to send it to, the service grabs a 10 minute clip of the show starting at the time indicated by the screenshot, hosts it and emails it to your friend in a nice clean format. This is an experiment, please give it a try and tell us what you think. [Music Fades] Adam: Hi, and welcome to letstalkbitcoin a twice weekly show focused on the ideas, projects and people building the new digital economy and the future of money, my name is Adam B. Levine and I'm a writer and speaker who likes to talk about complicated topics in understandable terms. Joining me in our twice weekly search for clarity Andreas M. Antonopoulos is an expert in Distributed systems and decentralized networks. Andreas: Hello Adam: Dr. Stephanie Murphy is a scientist and syndicated radio host. Stephanie: Hello Andreas: The potential of cryptocurrencies such as Bitcoin in Africa is an issue we've talked about on this show quite a bit and in fact I've coined the term, Bitcoin is for the other 6.5 billion and it's something I fell strongly about. Recently, Noel Jones writing for one of our favorite blogs, the genesis block wrote a great piece explaining how specifically Kenya would benefit

immensely from such adoption if only they knew. So, from the article "Africa today has one of the fastest growing mobile phone markets in the world with 20% annual growth and 93% of Kenyan households owning mobile phones. What makes Kenya a particularly unique case for Bitcoin is that it is also a world leader in mobile payment usage. In 2007, Safaricom, one of Kenyas leading telecommunications companies, launched a mobile payment service called MPESA." And that's something we've talked about quite a bit on this show. Back to the article "Today, two thirds of Kenyans use the service and more than 30% of Kenyas GDP flows through it. The benefits to the Kenyan population are astounding as well, with M-PESAs rural adopters often seeing dramatic income increases after adopting the program." What do you guys think about M-PESA Kenya, and the opportunity of Bitcoin in those environments? Stephanie: M-PESA seems to be working pretty well for a lot of people in Kenya, and other parts of Africa and perhaps it's because a lot of people have mobile phones and they're using basically this SMS based mechanism to send small payments around, I think that they've already been used to this concept of using their phones to send money and to send small amounts of money. So, perhaps Bitcoin would be excellent for them, you know microlending is another thing that I think of when I think of the developing world and Bitcoin makes microlending so super easy. It doesn't require these big websites and things to administrate. It's just like you can make a fund, and it's really easy to send payments to people and pay it back. Andreas: When you say microlending, let's actually talk about that for a second. What does that mean in a nutshell. Stephanie: Microlending is basically the issuance of small loans to individuals or groups of borrowers in the developing world. Typically most beneficiaries of microlending are actually women or groups of women that are looking to start their own small businesses, those loans can be backed by. For instance people in the developed world, and there are many different variations and twists on it. Generally considered the first micro lending institution was this bank called Grameen bank. And that was, Muhammad Yunus I wanna say. Got the nobel peace prize for Grammen bank because they were doing these small loans and that's the thing in the developing world because people don't usually have collateral they don't usually have ways to get credit, they don't have a credit history. And so it's really challenging to think about issuing them a loan, but microlending is specifically for those types of borrowers. And as far as having those loans being paid back without credit history or without collatoral, which people often don't have. Lending to groups enables sort of like a social pressure kind of incentive to pay it back, or a group sort of assurance that the loan will be repaid. So, it's really helped a lot of people in the developing world, I mean there's definitely critics of it too, who say things like abusive husbands will use their wives to get credit essentially. Or like if they can't pay it back, sometimes people will commit suicide and things like that. So, it's got a couple of critics but overall I think a lot of people recognize it has actually helped spur economic development in some places in the world were there weren't those options before micro lending came about. Adam: Do you know if anybodies doing this in the bitcoin space yet? Because I mean you're totally right it seems like a very natural venue.

Andreas: I'm involved in micro lending quite a bit, I've used two services, one is more oriented towards peer to peer lending which is more the western or developed world and you can find services like that on lending club and prosper.com etc. In terms of micro lending one of the services I use extensively for a big chunk of my savings is KIVA, K,I,V, A dot org. Stephanie: Me too. Andreas: You'll like this. I've started an effort to persuade KIVA to use Bitcoin and I've sent them a number of emails, I haven't received a response back, I'm trying to create a little petition perhaps on one of those petition sites. To persuade them to start accepting bitcoin. There's some obviously significant advantages to using bitcoin in that environment including the fact that a big chunk of their cost is the aggregation and transfer of the funds overseas with wire transfers and things like that. Stephanie: They have to partner with these local intermediaries basically, KIVA is not peer to peer lending it's basically they broker, as I understand it. And loan that's given by a local bank but is funded or guaranteed by donor's to KIVA. Andreas: Yeah, exactly. It's not exactly about cutting out the intermediaries because these local organizations, many of them charitable organizations as well are responsible for distribution for finding the borrowers for helping the borrowers creating a profile and tell their story and translating their story, etc. But also collecting the payments and being able to keep the system sustainable. Here's one very interesting thing, on lending club I'm mostly lending to Americans, on KIVA I'm mostly lending to people in developing countries who are much poorer. Guess who defaults more? Stephanie: The Americans? Andreas: The default rate on my KIVA loans is about half of the rate on lending club by the way, even the lending club default rate is quite low and still gives me a fantastic return. KIVA, I don't get a return, it gets funneled back into charity. So you don't make money off it. But, it's really interesting the default rate is much lower. That's an impressive testament to the fact that when you give opportunities like this, to people who don't have the opportunities. Together with the peer pressure of community loans and things like that it's actually a very effective way to distribute and get money to where it's needed. Stephanie: Could Ripple be a medium for Bitcoin microlending or, do you guys know of any specific websites that are only for Bicoin microlending at this point and time? Andreas: I've seen at least 3 different sites that do Bitcoin peer to peer lending but I think the big challenge there is the matter of having infrastructure partners that are able to distribute these loans. Which why I'm essentially trying to get KIVA.org to adopt bitcoin. Because they already

have the infrastructure the connections and thousands and thousands of needy borrowers it's much better to convert that. Adam: I'm real curious here, I do not participate in micro lending, Andreas, what type of amounts are you talking about on a per loan basis? When you're talking about KIVA are we talking about 50 bucks, couple hundred dollars, couple thousand dollars? Andreas: The loans range from about 200 dollars to about 3 or 4 thousand dollars, and usually the larger loans involve groups of borrowers. The uses of the loans range, at first you may be a bit surprised, people may think these are kind of investments loans. Like, "help hussein buy a taxi so he can increase his taxi business" or "help Jimmy get a motorcycle so he can distribute cell phones to his customers or whatever." But a lot of it is just plain old consumer loans right? If you think about it consumer loans is just as important in this environment because it creates liquidity. So sometimes it's "help so and so buy a new TV" and that's fine too. Stephanie: Individual lenders or funders can contribute as low as I think $25 increments on KIVA? Andreas: Yeah, I do all of my loans, I have a limit of 25 is the maximum allotted to any one lender and then it's basically crowd sourced, so you have enough people contributing 25 dollars that the loans get funded pretty quickly in fact. Stephanie: So I did some research on this real quick, and I searched for Bitcoin micro lending. There's actually a website called BTCJam.com which is peer to peer bitcoin micro lending. And so basically you can be a borrower or investor the borrowers can define like basically the parameters of the loan, like the interest rate they're willing to pay, there's an optional soft credit check and a peer to peer reputation system that goes along with this. Investors get some perks as well, so that might be something that's coming out, but I'm not aware of it yet. Andreas: I've used it, I unfortunately have some bad news about it. I have used BTCJam and I find that the concept and Stephanie: Did you get your self in a Jam? (laughs) Andreas: I got myself in a bit of a jam, I think the concept is brilliant, I think the execution is not quite there yet. So, my default rate on BTCJam was 75%. Stepahine: Wow Andreas: That compares to 7% on lending club and about 3% on KIVA. Here's the problem it's an anonymous currency, there's a soft credit check as you said, many of the accounts are linked only by meager information. At the same time, here's the problem. When one of those loans went default there was absolutely nothing in terms of recourse. BTCJam didn't even respond to emails. In fact you can't put a negative review against one of the borrowers unless

you have sufficient reviews yourself as a borrower, well I'm not a borrower, I was a lender. I had no reviews against my account so I couldn't essentially put a negative review against the people who had defaulted and they went out and took more loans. So, badly structured. Stephanie: Well, thank you for sharing that experience, I think it's very important for people to know. Andreas: I think I didn't have the great experience because it's very much a beta attempt. And I wish them all the luck in the world if they can learn from those experiences and improve them. I was very much willing to lose that money, I probably put in 3 or 4 bitcoin, not a huge amount just to try it out, I'm not upset about it. And in fact I hope they're able to improve the service because it's a brilliant service that's absolutely needed in Bitcoin. Stephanie: It's like when you make a loan to your cousin, don't loan them anything that you wouldn't consider a gift. Andreas: Well I can always track my cousin down and kick him in the nuts. Stephanie: That's true you can't do that with a bitcoin address. [Music Break] Adam: Joining me this morning is Joseph David, CEO of CAVirtex, a Canadian exchange and you're actually the largest player in the Canadian space these days right? Joseph: Yes, we are the single largest in Canada with 20 million dollars traded since inception, of course a majority of that has been in our second year when Bitcoin really started taking off. But yes, we're the only ones in Canada. Adam: We talk a lot about the regulatory situation in the US, and I had a conversation with Zack from the lamassu Bitcoin vending machine. They're kind of in the same situation where there are different regulations in the United States than there are in Canada. He said it's actually much better in Canada, they're taking a lighter touch with the regulatory side, paint us a picture of what it's like operating an exchange in Canada these days. Joseph: I'm glad you're getting this directly from me because it's a little bit inaccurate when people make comments like that. What really hit us in the media lately has been the article that has been circulating the web where they imply that Canada is a safe haven for Bitcoin exchanges. And the Canadian regulatory authorities don't really view it the same way. And what's really actually happening is FINTRACK the regulatory body in Canada that monitors money transfers of any kinds and deals with anti money laundering regulations as well as KYC Know your customer regulations. They have ruled that Bitcoin is a barter instrument and that Bitcoin exchanges do not have to be registered as a money service business. However, the banks do not take direction from FINTRACK. That's extremely important to understand. When

we operate in Canada we have to satisfy the banking requirements and as far as the banks are concerned and the world is concerned when it comes to Bitcoin, everyone is very new to it, they don't know what it is, it's a big huge grey area. It's a big long story, there's not simple explanations to give them of exactly what a Bitcoin is. So, what they see right away when you look at bitcoin and Canadian dollars being deposited and withdrawn is they just see risk. They just see unknown, and because of that unknown they say no, before the say yes. Basically we have to approach the bank in a proactive stance, we have to approach the bank and build those relationships from the beginning like we have, by saying things like. We have a legal team, we're proactive with regulatory front. We actually want the Canadian government to recognize us and tax us. Please tax us! GST is a big one for example. In Canada we have a Goods and service tax and there's these big long investigations that go on. Does your business need to be registered with the GST. Do you need to pay taxes to the government like a goods and services tax. Instead of waiting for a ruling, we collect it and remit it now! So it's things like that we're doing that's showing the bank that we are serious about being proactive. We're saying no to customers by the way that want to deposit large amounts of cash and bypass all these mechanisms, this is where it gets tricky. Even though FINTRACK says no problem you don't need to follow these rules. We are following them and we're saying no to customers and actually turning customers away that want to bypass the rules and regulations. So, explaining all this to the banks gives us that edge and lets us operate and of course the main reason we're in operation with the banks is because we actually have that money service business license through our investor and business partner TAPE international, so they are a registered money service business, they are collecting our payments and remitting our payments to customers and satisfying all FINTRACK and AMF requirements. Adam: Essentially you're complying with regulations with regulations you don't need to comply to Joseph: That's correct. Adam: Not to satisfy the regulators but to satisfy the banks because otherwise they don't want to do business with you is that right? Joseph: That's exactly what is happening here in Canada. Adam: See that's really interesting because that actually strikes me as almost being a complete, like its' the same situation in the US. I had a conversation with Jared Kenna of trade hill which kind of takes it the other way, they say. Okay since we're so concerned with compliance and that we're so concerned the rules are going to change further out we're turning away customers that have less than 10 thousand dollars that they want to spend on this. So, you're actually taking the opposite approach, and again, their concern isn't the bank but their concern is the regulatory structure where they're concerned the regulations are going to change and become harsher in a later point and in doing so, essentially retroactively make their actions in their past not work. Unless they do this proactive, are you concerned about the regulatory system changing, or is this just about the banks for you?

Joseph: Well again because we're proactive we want the regulatory system to change, we want the regulatory body to be formed in Canada, we have the ambitious goal of being part of that movement, I would like nothing better than to be on the board of directors of the new regulatory agency in Canada that governs and regulates digital currencies. We have a really interesting development on that front if I may tell you about it, this is very groundbreaking stuff in Canada, is the Canadian government has something called the Mint Chip project, and the Mint Chip is actually digital currency in Canada created with a crown corporation, which just means government corporation here in Canada, and run by the Canadian government. Endorsed by the royal Canadian mind, and it's being used as the testing the waters type sample project right now, so it's not just a currency you can buy right now and use in circulation in Canada, they're on the beginning stages of introducing this as a testing digital currency in Canada. So you'll be able to go to any Canadian bank for example and change Canadian dollars into mint chips. And to follow that even further Mint Chips into Bitcoins. Wouldn't that be amazing? Adam: Yeah, when you talk about wanting to be part of the regulatory structure that you're trying to incentivize the creation of basically. In your mind is this an industry group that is self regulating exchanges and self regulating, or is this a government regulatory body that you would want to be a part of, to actually be a part of the government in that way? Joseph: In your first scenario of some kind of self regulating industry group that would eventually merge into a government body. So, I don't know what steps it's going to take. I forsee starting with an industry self regulation group, and then going toward government. But I don't think you can stop the government noticing this. As Bitcoin gets bigger in Canada, and more and more people start using it, the government is going to notice. For example one of my ambitious plans of restarting very shortlier than next month is to sign up every single, or try to sign up every online Canadian merchant that excepts online payments to add a Bitcoin shopping card checkout button to their web page. This I think is the best way to educate the public. Because we have to remember something here about Bitcoin we both know, we're both following this. But I estimate that a large majority of the population doesn't even know what a Bitcoin is, so. There's a lot of people who don't know what's going on in the whole Bitcoin revolution, so the best way I think to get the word out there is to get on that shopping card checkout sites. All these customers that are going on their daily activities of purchasing goods online. See this thing called a Bitcoin checkout, beside Visa, Master Card and Paypal then they see the price difference okay, $100 on Visa, MasterCard and Paypal. $95 on Bitcoin checkout, and then they ask themselves a question, why is it cheaper in Bitcoin and what is a bitcoin? And that's where I think we're going to start spreading like wildfire, that's going to ignite the government a little bit when they start seeing a majority of online Canadian business add this alternate currency for checkout. Adam: You mentioned the Mint Chip earlier in our conversation the Mint Chip is something that popped up a couple of years ago and I wasn't aware it was getting and traction. With the Mint Chip is this a crypto currency or is it just a digital currency? I mean, does it have and of the advantages Bitcoin does?

Joseph: Yes it does, I don't know too much about it but I know enough to know that even if it is a cryptocurrency or digital currency or however they want to do this. It is controlled there is a server somewhere with a balance of Mint Chips on it. You could change the balance very easily, of course you can't do that with Bitcoin. So, it has similarities to Bitcoin in that it can be transmitted digitally online. But I think that's where the similarities end. Adam: Paint me a picture here, what's the winning scenario, you know if you're successful with your ambitious plans, what does the landscape look like in a year or two years? Joseph: The winning scenario is to be officially recognized by the Canadian government to have a license to operate, to require a license to have operation because right now we have a lot of Wild West cowboy type operations that think they could just start a Bitcoin exchange. Open up corporate accounts, don't even worry about money service business licenses. And accept payments through all types of forms. That actually make the industry and make the exchange space in Canada look bad, ideally I'd want an operating environment where a license is required to operate, guidelines have to be followed, government regulations are satisfied when it comes to money in and money out, official recognition and a license would be ideal operating status. Adam: In this winning scenario what this gives you is, the willingness then and the trust of not only banks but of big business to participate in the system and to accept this system because this type of scenario where you have a regulatory structure and a licensing structure lends legitimacy to it in the eyes of the government, is that right? Joseph: It does, and it also makes our banking relationships a lot easier. Another big headline news and big development in Canada here has been the bank shutdown, everyone's focusing on bank shutdowns. The banking network in Canada is very different then in the states, we have 6 major, major banks, then we have credit unions that are part of one major network. But we don't have these private banks and these third party banks like the US does. So in Canda when we started your only choices for major banks are TD, Scotia Bank, Bank of Montreal, CIBC, Royal bank. So I just listed to you some of the major banks. We have HSBC, and ING and other ones, but those 5 ones are pretty much the major banks. So, the thing with those banks were, when we started with them we started accepting cash deposits at those banks. Then those banks started shutting us down one by one. Every single bank I just listed to you had shut us down for cash deposits. Okay? Adam: Right. Joseph: And that's because again of their concern over AML. Not over fraud because you can't commit fraud by depositing cash. And that five minutes later and going to the teller and saying I didn't deposit that cash. So their concern was not the fraud aspect it was the AML aspect and the KYC, know your customer aspect. Now in the US, look at the landscape. It's much much different you have a company like Bitinstant that allows cash deposits across the US at something like 7000 different banks. So that's very surprising and shocking to me that that kind

of activity is allowed in the US. But not allowed in Canada. And the reason it's not allowed in Canada again back to my original point, is Banks think it's big grey area, they don't have an easy answer to cash, so they shut cash down. So the point to my whole statement here is that you don't have to deal with us in Cash, there are other ways to deal with us. The major way right now is online bill payments and direct deposit and direct withdraw to your own Canadian bank account. Now that is something the bank does allow under a money service business license, so that is what we're doing now. We have multiple ways that we're going to increase that. We might even actually get back into cash, but the key message here of course is you need to satisfy regulations on one hand but at the same time you have to educate the banks and not push it too far. They're letting us do online bill payments and direct deposit, direct withdraw but they're cutting us off with cash. Adam: You said AML, anti money laundering right? Joseph: Yeah Adam: The question we keep coming back to with the banks is whether or not it's ignorance you know they just don't understand this and so therefore there's no incentive for them to take it, or fear. Because a lot of people feel like the fundamental technologies and some of the fundamental does and enables sort of obsoletes banking Do you think this is something that's going to change banking and therefore there's resistance to it from that angle, or do you think it's simply a knowledge gap. Joseph: Lets first understand again that the banks back to a questionable fear. The banks don't know what this is, so it's not knowing plus a combination of fear. Banks are very risk averse right? They're extremely risk averse especially here in Canada when we have the government they're called CROWN corporations. Corporations run by the government of Canada. They're under specific mandates to not take on any risky business whatsoever. When you walk into a Canadian bank there's actually a sheet they give you that says if you're this type of business, and they actually list them, don't even bother applying for a bank account. They're really risk averse. It's going to take a lot of time I think to have the banks in Canada to come around and educate on the payment method of cash. But lets not forget here what they're doing, they're already allowing current state, and current state is as long as the money flows through a money service business that is licensed and as long as proper due diligence is performed, and as long as the relationship, the personal relationship they have with me and my legal team and my lawyers and that is all solid and in tact. They allow us to operate. So it's going to take the government of Canada I think to step in and say, you know we're going to recognize the Bitcoin and we're going to give them a license and then I can take that license to the bank, and with this license I can add on cash and I want to add on this and I want to add on that. It's going to take the government and the licensing agencies to make the banks change their minds I think. The Canadian Revenue Agency, CRA did actually rule that any capital gains on Bitcoin transactions must be reported and that is a ruling and we're following that internally as a company and we're answering that to any customer that asks that question.

Adam: It seems like the ability to control and exert regulatory force over cryptocurrency is kind of difficult just because of the way it's built. Outside of these limited exchanges, because you're one of the major exchanges, you are the major exchange left, and there are a few other small ones and you can count them on 2 hands. I'm trying to figure out how possible it is to regulate Bitcoin outside of the exchanges, because the exchanges are the choke points. Joseph: I think it's very possible, I think it's very possible because this actually relates perfectly to the comments I want to make here, this is an extremely important point in any country and that's why I'm very interested in what happened in Italy. I really should read up back on that but from what I remember on what happened, either Italy or France, but I think it was Italy tried to shut down Bitcoin exchanges. Very early in Bitcoin world, were you aware of this? Adam: I was not, no. Joseph: This is just from my memory long ago back in year one, actually probably in month seven of when Bitcoin passed around the 20 bucks area. So the Italian government tried to shut Bitcoin exchanges down, they succeeded, a couple months went by something got appealed, the exchange owners went to the supreme court and appealed the decision. And then that got overturned and they were allowed to operate. That was a long time ago though so things may have changed now. But that brings me to my point, they could very simply and very easily decide that they just want to shut the exchanges down. They can simply phone up the banks and say whoever is doing the bitcoin exchange shut them down. It's illegal, we're going to just make it illegal, the government can do that. That's one avenue the government can go. The second of course is everything we have just been discussing, legalizing it, getting regulated, recognizing it, taxing it. That's avenue 2. But if we just talk about avenue one here for a second. The government can just step in and pull the plug. If that does happen Canadians would have no choice then to go offshore and go deal with different countries, take their money offshore somehow, what would our action plan be? That's something I struggle with every day. Would we take our servers off shore as well and continue with our customer base and try to service Canadians? Well of course we can't do that, the government makes it illegal and the government begins seizing physical locations, that's really how the government could step in here, and that really is a concern for me in the bitcoin space. Not just for Canada but for the world, you have US politicians and senators that are against it and are on record publicly saying this is not good. Bitcoin has an image problem. And that's another thing I want to address is Bitcoin's image problem. And how you can buy drugs and guns and sex and all this stuff with Bitcoins. You can do the same thing with cash by the way. That's what people leave out, is that just like Bitcoin has an image problem it has the exact same issue that cash does that's why to a lot of people I explain that Bitcoin's are like digital cash. That's a very easy explanation of what a Bitcoin is, it's like digital cash. So that's sort of my ongoing concern, the government could just say we're shutting you down. That's where it could go. Adam: You're actually kind of in the mix with this so what do you think the chances are relative, I mean obviously this is totally off the cuff. What do you think the chances are of avenue a vs avenue b?

Joseph: Right now today because we're so early, because we're so early in Bitcoin the evolution is just beginning here. We're very early in it. The chance of avenue A. The government shutting us down I think is very very low. Again, very few people even know we're out there. But as things progress here in the next year as we get the merchant sign ups happening and we start educating business owners about how Bitcoin is really a way better payment method that they've really ever seen. That's when the government might take notice. But, if you want my personal prediction, I really hesitate to give predictions, especially being CEO and everyone being able to go back in time and listening to my comments and saying he's making all these predictions, I'm always cautioned by my advisors not to make predictions but, I may make an exception and make a prediction in this case. What do you think? Adam: I think that if you want to that's fine. The reality of this is, this is such a complicated topic. I think that predictions are just guesses. So you know that's how we treat em. We make predictions all the time. Joseph: Exactly they're just hunches and guesses. I'll give you mine if you want it. So, I think we are going to go to avenue b. I think the governments are going to recognize that we need to be taxed we need to be regulated, that if they try to make it illegal that it'll just create a lot more problems then it'll solve. If one world government steps down and puts the gavel down and says Bitcoins are illegal in this country, other countries may either follow suit, they may have their own rules. So then of course citizens will flock to the other country. But long story short my hunch and my personal guess is that governments aren't going to make it illegal, but are simply going to tax it heavily and try to regulate it heavily. Adam: I'm on record for saying that by the year we're going to see congressional hearings on this within the United States talking about specifically Bitcoin and cryptocurrencies as well. Do you think there's a timeline like that in Canada, or do you think that it's just unpredictable at this point? Joseph: No where near it, I wouldn't even venture to say within the year again, because it's so new, because they hardly know about it, I don't think it's even a topic of conversation, there might be a couple of MLA's in Canada, members of legislative assembly that even know that Bitcoin exists, and we actually contacted them. And their response has been, wow this sounds like a new interesting thing, and then they just take weeks to get their head wrapped around it and don't return our phone calls. It's so new here I don't think it'll happen this year. Adam: Joseph David, CAVertex thank you very much. Joseph: Thank you for the interview. Adam: Letstalkbitcoin is heard each week by thousands of people who are participating in the new digital economy. Our listener base of Bitcoin owners, miners, investors, technologists and merchants are growing fast. We offer a limited number of short advertising slots in each show to

keep our listeners engaged and provide a maximum impact for our sponsors. If you'd like to talk to us about letstalkbitcoin, send us an email to sponsors@letstalkbitcoin.com [AD] Stephanie: If I showed you a website where you could easily purchase electronics from the worlds largest distributor with Bitcoins at 0% markup, would you think it was too good to be true? Good news, it's real and it's at bitcoinstore.com choose from half a million items, save money over Amazon and Newegg. And convert your bitcoins to real world items, you can even buy with privacy, all they need is a shipping address. But, don't take my word for it, see for yourself at bitcoinstore.com [Music Fades] Adam: Lets get back to the article, Despite having a robust mobile payment network with MPESA, Kenya is still subject to a slew of economic issues such as corruption, inflation, and remittance costs. Kenya faces high corruption costing more than $1 billion dollars per year (approximately 3% of GDP), with individual Kenyans paying an estimated 16 bribes per month. M-PESA has not avoided this trend, with 114 cases of fraud in 2011 alone, resulting in millions lost. A protocol like Bitcoin, which removes vulnerability to human corruption, would likely be a welcome entrant into the world of mobile payments. M-PESA is also comes at a cost to its users. With Safaricoms fees ranging from 1-10% for money transfers, users are losing value to a centralized entity with every transaction. On top of that, the Kenyan government recently began taxing M-PESA transfers, which will further increase costs by 10%. Another substantial benefit that bitcoin has over M-PESA is with regards to inflation. Only in the last year has Kenya somewhat stemmed inflation after reaching peak rates above 30% in 2008. Though concerns linger with regards to bitcoins volatility compared to developed market currencies, the relative consistency of bitcoin could be a welcomed change in less stable regions. Andreas: I think there's a dangerous tendency for geeks to try to assume technological solutions to social problems, corruption is not a technology issue it's an institutional and political issue and it occurs because of widespread problems in a society and the lack of institutional control to solve those problems, I've lived in corrupt societies, I know what it's like to pay bribes. And, the problem is that when it becomes so entrenched into the culture it's very difficult to resist even if you want to, you can't get your driver's license even if you can pass the test and can drive well, because the bribe is required. So you know, you have to, you can't get a doctor's appointment unless you bribe the doctor, you can't get your paperwork done unless you bribe the bureaucrat. So, essentially you succumb to this pressure, technology won't change that. You'll just bribe people with Bitcoin and in fact if anything it might make it easier because frictionless commerce means frictionless bribes right? I'm not necessarily convinced that technology is the solution here, but at the same time I think that Bitcoin would be a fantastic fit in many developing countries. Just like M-PESA it offers immediate person to person transactions with very little technology perhaps especially if we can adapt it to using SMS, the standard should be, can it work on a Nokia 2100? A phone from 10 years ago. Because that's really the technology base in these countries.

Adam: 16 bribes per month though per person, I mean that's like. That small? I have no concept of this, I'm California born and raised, this is not something I have any experience with, that's a small amount for a country like this? Andreas: Oh yeah absolutely, 16 bribes a month is nothing, if you go to India it's probably 16 bribes a day, seriously this is the norm for the rest of the world. It's very easy to see things from a different perspective if you're born and raised in the states. This is the norm for the rest of the world, this is what oils the machine, this is how buarocracy works and this is how most people in the developing world who have any measurable authority this is how they get paid, this is their salary. The don't make much getting paid by the government or by the fees they collect so essentially you have this whole shadow economy. It's almost like tipping so the way that tipping works in the US, and most foreigners don't get it. Oh wait you have to pay 20% on top of every payment for this service? Well that's not corruption but in other countries, corruption works in the exact same way. You assume the people are not making much on the government salary and therefore it's normal for them to collect a small extra fee, it's almost like a tip, and it's in the form of a bribe. Stephanie: It's not like a tip, it's not, a tip is way more voluntary than something like a bribe, I mean especially when it's backed my political force and pressure and the authority that these people have to make you pay for it in some way if you don't pay them a bribe. You can't easily just leave a country, especially if you're born in the developing world and go to somewhere where there's not rampant bribery. However, you don't have to eat at a restaurant and pay a server a tip. Adam: Yes that's true except where it's not. Maybe this is different in other parts of the country, but here, most of the time, if you have more than 6 people in your party there is a mandatory tip that is put on your bill, so it might feel like it's voluntary because, hey you get to choose to pay it. But, the option besides that is not paying your bill. So I don't see it as a voluntary thing in that case. Stephanie: Nobody's holding a gun up to your head and saying eat at this restaurant or eat at any restaurant right? You have options for that but, they are holding a gun to your head and saying fill out this paperwork and you're subject to my rules, and you have to give me a bribe as well. Andreas: So I think the only comparison you have with a tip of course, coercion is an issue. But the comparison you have with a tip is that it's embedded in the culture and all economic transactions. And you have to realize that these bribes are not just paid to the police or to the bureaucrat that's approving your application, they're paid to every person involved in any transaction you make. You get your refrigerator repair person to come in, your meat supplier, your ophthalmologist, your kid's teacher, your kid's soccer coach. Whatever, it might be. And they all take bribes and in fact bribes are how you do it. It's almost inevitable because people aren't getting paid any other way. The bottom line here is that wallet is completely corrosive by perverting all of the economic incentives and feedback loops for price and it's also so embedded

in culture you can't really solve it with technology. People have tried certainly there's entire movements in countries like India to fight corruption and it's so difficult. That even the people who want to fight it and are very much against it and are committed to not paying bribes, wears you down eventually. You know, you can't just function in that society without succumbing. Adam: So another thing is of course the fees, there's the 1 to 10% fee that's applied by Safaricom. Which owns the technology and that enabled M-PESA and that enabled M-PESA and basically is M-PESA. In addition to that there's a 10% tax that's been put on these transactions by the Kenyan government and also the Kenyan government routinely inflates their currency because if I'm correct here, M-PESA is not a currency onto itself but it's rather a transmission mechanism and a kind of wallet for the local currency is that right? Andreas: Yeah, that's my understanding. Stephanie: If I understand where you're going with that, Bitcoin would at least provide a technological solution to the issue of inflation. Adam: Well, yeah there's that part of it but actually I'm looking at it from a different perspective. On this show we spend a lot of time focusing on what the US government is going to do about Bitcoin but looking at a situation like Kenya doesn't it seem like the Kenyan government is going to really, really, really, hate Bitcoin. Because it provides competition, it's very difficult for them to tax, again it goes back to the competition thing, because by offering an alternative to a currency that's inflating at a substantial rate it means people are more likely to switch to a currency that's losing value to the currency that's gaining value and is cheaper to use overall? Don't you think there'd be some aggression from the Kenyan government, if a chance like this were made? Andreas: Absolutely I don't think that change would be very easy, there's another issue we've kind of skirted. Which is M-PESA or systems like that could be implemented throughout subsaharan Africa, throughout south east asia. There's certainly a need for them. So why haven't they been? That's an interesting question. Why isn't M-PESA being used more broadly, why aren't similar systems being used more broadly throughout Sub-Saharan Africa and south east asia. And the answer I think is rather instructive here, it has to do with two factors. One is that Safaricom had a very massive deployed base of users and therefore was able to introduce this simultaneously to a volume of users that were sufficient to sustain a parallel economy from the get go. So you have mass adoption at a level that creates simultaneously enough buyers and sellers to launch a market. It's very difficult to do that chicken and egg solution where you simultaneously have enough buyers and sellers within the locality to make the currency viable. And that's one of the reasons why M-PESA hasn't taken off in other countries, or as similar systems haven't taken off despite efforts to do so. And it's also one of the reasons why I think Bitcoin adoption is not that easy or will happen that fast in some of these countries. So there's a lot of pre-requisites that go into Bitcoin adoption. Beyond just hey, it's useful and I can put it on my cell phone.

Adam: It's almost like you need mass awareness before you can even approach the question of adoption because if people don't know about it, then it almost doesn't matter for the initial users because it's not useful to them, just like a language isn't useful if you're the only one that speaks it in your country. Andreas: The network in fact cuts both ways, which is if the network is too small there's no value that's added when you join it, and especially in the case of currency. The value of the currency is only based on the expectation that someone else will be willing to accept it in a transaction, that requires two things. It either requires a mass adoption where you're almost guaranteed that other parties will accept your transaction or it requires you to adopt the currency for reasons other than transacting. And so with Bitcoin what we saw is the first three years the people who adopted Bitcoin were not really into it for transactions per se, or for the value per se, but more for the ideological reasons. And that created sufficient volume and sufficient market growth so then it could start attracting people who are interested in using it as a currency, it's essentially an ideological political movement that turned into a currency. Can't really bootstrap it like that in a developing country, because there are much more programmatic considerations. [Music Plays] [43:02] Stanislav: Good afternoon Stanislav Shalunov, you can call me stats. I'm the CEO of OpenGarden. A few of the things I've done in the past was transport protocol work and QS work at Internet to and the design of a new congestion control in Bittorrent. Which currently is responsible for somewhere about 1 in 6 bytes on the Internet, about 15% maybe. Adam: So you're background is really all about decentralized systems then? Stanislav: Well, you could say that yes. Adam: So how did you find yourself going into mesh networks created my cell phones? Stanislav: I was interested in creating mesh networks before there was the term mesh network, I was interested in making better, but there was not really get a technology that would allow to connect devices in an Ad-hoc manner. In say to seldom one. What you need are devices are heterogeneous wireless capabilities and smart phones are the platform that allows to do that. Adam: When you say heterogenous wireless capabilities, can you explain that? Stanislav: On a phone, you have multiple wireless technologies. You have your 3G or 4G you have WIFI, you have maybe WIFI Direct, Blutooth, you have maybe a FC. And all of these things can be used to interconnect devices and you can be using simultaneously multiple networks at the same time. And that's what allows to build this additional capability that the phone may be on 4G but if there is another phone nearby that's also on it's own carrier's network you might connect them locally using WIFI direct and create new capacity. These are our phones and I am perhaps using my phone less than 1% of the time for data transmission.

Same for you. So when I'm getting something from the internet I can get it fast if I can get it from both exits and more reliably. Adam: You're saying that even though you might be connected in one capacity with one of those technologies, since each phone has multiple communication means and has the ability to use each one independently you can have interconnections that are completely separate from the upstream or downstream to the internet in that case, is that right? Stanislav: Exactly, so what OpenGarden does, we create all sorts of wireless connections we support bluetooth, Wifi direct, we're particularly concerned with the specific underlying technologies. So, we're creating those connections with those devices. Whenever they're nearby, wirelessly, seamlessly for the user. The user don't need to worry about establishing them, the user doesn't need to open the app. Once connected devices will access the internet connectively using whatever internet capacity they together have, this produces better statistical multiplex. This gives everyone faster speed, better coverage. Adam: That's really interesting, have you touched the router space at all, or is it entirely about phones? Stanislav: We leverage existing infrastructure and things that already exist and can be used. We address the mass market. So we want the kind of adoption that successful peer to peer applications have. Not just addressing small audiences of people who are willing to flash a new ROM to their Linksys. But people who can install a mobile app, and there are a lot more people who can install a mobile app. We currently support Android, Windows and Mac. The computers also have ability to use multiple networks at once these days. We have dual WIFI radios in many computers and additionally we have bluetooth. Adam: Lets take a step back for a second, OpenGarden how did this come about? You said you've been interested in mesh networks before they were called mesh networks and before the technology was there to do it. What occurred to insight the creation of opengarden? Stanislav: Micha and I got together about 2010 and the enabling technology for open garden is the smart phone, the computer inside everybody's pocket with multiple radio interfaces that makes OpenGarden possible and interesting. Before the smartphone the density of mobile laptops for example was not sufficient to make a difference for internet access, for other devices. And when you are at home or at the office and you're laptop is on local WIFI, the need for internet access is less Acute. The need for internet access is the most acute the worst your internet connection is. And generally mobile situations travel, being on mobile networks is where your need for better internet access, faster and in more places is the most visible. Adam: So you started in 2010, what has the journey been, are you out in the wild with this right now?

Stanislav: When we started up, we wanted to first test the waters as a minimal viable product. What we did was released an app that simply provided tethering. Just let you turn your phone into a mobile hotspot. We wanted to see what would be the uptake, we didn't do anything to promote this app. And the it required you to root your android phone so it was addressed to a small audience of people capable of rooting their phone and there was no market then. By the time we had the half million we knew that we were onto something. We thought that people want this. So, we started full time work with Greg Hazel and Micha Benoliel. On making this current app. The real OpenGarden mesh network and app. We launched in New York in 2012, the first three weeks we got a hundred thousand downloads, by now the two apps together have more than 2 and a half million downloads. We like to release our software early so that we can see how it behaves in the wild in general development for android is made difficult by the diversity of the android ecosystem. Our software runs on devices that we've never seen and never will, so it's important to have a user base to even develop this software. Adam: You've got two and a half million downloads, what does the use look like, I mean, is this working, is this being used, are there any geographies specifically where it's used or is it more of like an AD-HOC as needed people will get it, and then they'll throw up the temporary net wherever they are. Or is it something people walk around with on their phones and are just using in day to day events. Are we to that point? Stanislav: Particular situation where opengarden today makes probably the biggest difference is tablets. Particularly 7 inch tablets. People on Nexus 7 or a Samsung Galaxy Tab without a 3G connection and a highly portable tablet. Are in a strange position, you have this device, it can go in your coat pocket, it can go if you carry a purse, it's very portable. But it's practically useless without an internet connection, and it doesn't have a 3G modem. And even if it did, it would cost $120 probably extra and you'd need to pay $20 per month to be able to use the internet from it, what OpenGarden does is basically give you the benefit of having a 3G connection on your Tablet for free. Because if you have an android tablet, chances are you also have an android phone, and you probably carry it with you at least as much as you carry your tablet. Adam: The android phone provides the connectivity to the tablet, and you only need to carry one internet connected device to benefit on both. Stanislav: Correct Adam: So, even though this is a mesh network building tool what it's being used for now, is to build little personal, it's not even really mesh, it's more like a wireless tether or something. Stanislav: The experience is far better than using Wireless tethering, the experience of using wireless tethering requires you to take out your phone, go into settings, tap more, go into tethering, turn it on, go to your tablet now, connect to the right network then when you're done remember to turn off the tethering hotspot on your phone otherwise your battery will be dead in two hours. With OpenGarden you use the internet like you usually do. You take your tablet and

you use it for whatever it was you were going to use it, instead of fiddling with settings on your phone. Adam: Does it have an impact on battery life in the same way a wireless tether would? Stanislav: Lower than wireless tethering. Adam: The name OpenGarden, you guys are not an open source software project are you? Stanislav: Our main app is currently not open source, but I see where you. Adam: Well, yeah it was confusing to me when I first started talking to paige about OpenGarden I assumed it was OpenSource. Do you have intentions to make it open source, or is this aimed to be a proprietary platform? Stanislav: Greg and I have created open source software currently used by a quarter billion people in the form of the BitTorrent transport library. Interested in making open source software widely available and successful, we've also created open protocols, several between the two of us, by now standardized. The application OpenGarden is not open source, it's open in the sense of anyone being able to join the network, it's a garden anybody can walk into. Hopefully open windows don't confuse people similarly, and expect them to be able to get the source for the window. But we are interested in open source in general and how we can make open garden more successful using it. We're not yet prepared to discuss anything about our future moves on open source and open garden. Adam: Fair enough, on the show we have a focus on Bitcoin and Cryptocurrencies. Not just Bitcoin but it's cryptocurrencies and kind of the things they enable. And one of the things we've been talking about on and off with regards to mesh networks or Tor nodes, or there's a variety of situations, in your tablet phone scenario. That's one person who's gaining benefit from utilizing one service that would normally be available on one device, on two devices. I see the value of it there. But, with cryptocurrencies and automated contracts basically, you can set it up so that individual nodes that provide internet connection, or service within one of these mesh networks are compensated on a, as used basis. And I'm wondering have you looked into cryptocurrencies and Bitcoin into doing things like this, or is it outside the scope of your project? Stanislav: We are interested in exploring ways to limit free riding on the system. The system is most efficient when it doesn't deny people it's service. It creates the maximum amount of value, that's generally good, that's generally how things should be. If you look at the design of Bittorrent, partly is successful because you can download even before you've uploaded. If there were more steps to using the system then fewer people would benefit from it. The problem to the extent that it exists here is preventing people who perpetually free ride from doing so, and for now the main mechanism by how that is accomplished is by need of physical proximity. If you install OpenGarden to be able to get connectivity from others, you also contribute by nature of the software if you're internet connected at all, so there's a contract of mutual help by virtue of

installing open garden, we've also thought about making credit ecosystem, it might convert to real currency or might not, and whether real currency is a cryptocurrency or another form of distributive currency or dollars is not really the interest in part. Conversion to real currency is however different from simply bite account, and bite account can well be sufficient, so we're not yet sure how we'd approach this problem in the future. Right now in practice we don't have that problem. If you install open garden today nobody will follow you around trying to use your internet constantly. Adam: So if someone wants to get involved with open garden or download the application, do you have a website? Stanislav: Yes, of course, we are available from http://opengarden.com/ and the app is also available in the Google Play store where it's called OpenGarden just like you'd expect. Adam: Do you have any intentions to rolling out to iOS devices or will this be a strictly an android project Stanislav: We don't have current plans that we can disclose about iOS, obviously we're interested in all platforms, not just android and we already have support for two desktop operating systems, but we have to focus our efforts somewhere, and that's where we've chosen to focus for now. Adam: Stas, thank you for your time. Stanislav: Thank you. [Music Cues] AD: Adam: Everyone knows that offline storage is the only safe way to store your Bitcoins, now there's an easy, convenient and secure way to make bitcoin wallets for safe offline storage. With the safe paper wallet kit you get everything you need to print Bitcoin wallets using your own PC, store them in a safe deposit box, your home safe, even your sock drawer, anything's more secure than keeping them online. Get your kit now at safepaperwallet.com. Stephanie: You're listening to letstalkbitcoin the premier audio cast providing news and insights that cover the rapidly evolving world of digital money, our twice weekly shows include analysis of late breaking news, updates on key technical, business and regulatory issues and in depth interviews with the key people driving the new digital economy. Letstalkbitcoin offers sponsors an attractive way to reach a targeted and savvy audience. For more information email sponsors@letstalkbitcoin.com Adam: So to finish up, we return to the genesis block article. Should widescale adoption actually occur within Kenya the effects could be tremendous not just for Kenyans, but for the bitcoin market as well. In 2011, Kenyas GDP climbed over $33B with mobile payments comprising

some $10B of that figure. Bitcoins current transaction volume is roughly $20M per day, or just over $7B per year. If bitcoin were to replace Kenyas mobile transactions, BTC market liquidity would more than double. To date, Kenyas bitcoin adoption has been muted, with approximately 1,300 downloads in a country with 41 million people, but with all the pieces set align over the next few years, it is only a matter of time before Bitcoin and Kenya find one another. So, do we think this is inevitable? Pretty clearly there are advantages here, there are hurdles here, and the conclusion here is this is gonna happen, what do you think about that? Andreas: I doubt it very much, while Kenya is very promising. I've often expressed the fact that there are multiple preconditions for burstly adoption of bitcoin ,you need technology, electricity, you need utility of the currency over local currency. And you also have to not have fear, arrested, or shot for holding Bitcoin. And all of those things really become a big equation where at some point it reaches a tipping point and you have mass adoption. I think it's far more likely that you might see localities within places like Cyprus and Argentina having burstly adoption, where the technology infrastructure is more developed, there's more consistent electricity and it's more compatible with people's adoption of technology in general. So, I don't see Kenya being the first place to do it despite M-PESA. The model I think is right. Stephanie: Did anyone see M-PESA coming out in Kenya? That sounds like something that sort of came out of the blue perhaps, so maybe it could happen in Kenya, I'm not sure. I think it's interesting to think about what would happen if Bitcoin's market liquidity doubled, I mean that's pretty huge and it really puts it in perspective just how many people are transacting and trading bitcoins, or could be potentially in Kenya every day. I think that would increase the value of Bitcoin quite a bit, perhaps enrich people in the developing world if they had gotten them early enough Andreas: I think that's a great suggestion but the actual adoption of M-PESA was anything but organic or grass roots. It was a planned adoption from the carrier that already had 75% of the market of mobile telephony of the country, they were able to essentially turn on a 75% market share into a currency in one move. I think that would be a great model for adoption for other places or even Kenya if some corporation already has an established user base creates a Bitcoin derived currency or bitcoin itself as either a rewards card or an in app currency or an in store currency or a loyalty card or something like that. Then from that basis bootstraps it as a general transactional currency, I think that's a good chance of happening I really don't see how that kind of planned introduction compares to the grassroots of organic adoption we've seen of Bitcoin. Adam: The number I keep looking at is this 93% of Kenyan households owning mobile phones, I think that you're right about it being a planned roll out and about the people who have the ability to implement and roll out something similar in Bitcoin have almost no incentives to do it, and I think that's kind of the core problem we're going to come to in most of these places. Anywhere there's a monopoly on technology like there is here where a vast majority of people are on this same Safaricom network then that basically means that until there's an actual reason to change

that it increases the profitability or offers some advantage to the company rather than the users it's very unlikely it'll actually happen. Andreas: That's the other big advantage for Safaricom is they can charge a transactional fee so why would they go to Bitcoin which would essentially remove their ability to tap into that flow of money? Stephanie: There is potentially a profit incentive for somebody if they can encourage people to adopt this technology that could really work out for them as well, not only would it provide an alternative to M-PESA which sounds kind of monopolistic actually. But it would also increase the market liquidity and therefore I think the value of Bitcoin, so Bitcoiners have an incentive to help this happen whether it's going to Africa and doing some activism or trying to get people interested in it, or make some kind of app that can run on older phones, I'm not exactly sure. But, maybe someone will take up the mantle on that. Adam: Well there are apps that run on older phones, there are a couple of services out there, one of them I believe is phone coin, and there have been a few more that have come out, that basically leverage SMS messaging, text messaging. Stephanie: Coinapult does that too, can send Coin by SMS. Adam: Yeah, exactly so I think you're right if we lived in a perfect world, but because we live in a world, I mean clearly Safaricom doesn't have this monopoly there on these technologies because the government hates them right? They have it because they've partnered with the government and they've enabled them to essentially tax these transactions in a way. It doesn't really matter what you call it, the point is, anytime you go into a situation where there's an entrenched power structure like for example monopolies, be the government, be the technology. You say, hey what you're doing is great, but wouldn't it be better for your customers if you charged them less by using this more efficient technology? I bet you'd get major push back, in some types of cultures there may be violent repercussions for you. So, it's just something to keep in mind, that change is great if it's change that benefits you but a lot of times if it's benefiting you it's at the expense of someone else that's higher up in the food chain and that's not something that's too popular. So there's hope. [Music Plays] Adam: Thanks for tuning into episode 18 of letstalkbitcoin, whether you liked, loved, or hated the show we want to know what you think, please send all listener mail to mail@letstalkbitcoin.com. Content for this episode was provided by Stephanie Murphy, Andreas M. Antonopoulos, Stanislav Shalunov, and Joseph David. Music for this episode was provided my Jared Rubins, for links to his work visit letstalkbitcoin.com/music if you're an open source musician and think your work would fit in well with the show, please email adam@letstalkbitcoin.com if you like what we're doing and want to support us with bitcoin or litecoin donations please visit letstalkbitcoin.com for episode specific addresses. If you have questions you'd like answered on

air, call us at 1-855-WeTalkBitcoin. By the way if you're still listening, you should know that letstalkbitcoin is growing up and I'm quietly looking for potential partners who are on the same page with about truth and media and education, if you like what we're doing, or looking for a project and have skills on the technical or business side of things, you may contact me at adam@letstalkbitcoin.com Stay tuned.