Trading Crypto P2P – Fast, Secure, Private, Even When Your Government Banned Crypto
In this episode, I meet Nathan Worsley – the Chief Technical Officer at LocalCoinSwap – a P2P cryptocurrency exchange, allowing anyone globally to buy and sell crypto assets directly with each other securely, completely privately, without any KYC using over 250 different payment methods. This is yet another project that is removing financial borders and therefore I had to feature them on the Borderless Crypto podcast. Even if you are in countries which ban crypto, like Venezuela for example, with the LocalCoinSwap platform you can still buy Bitcoin, Ether, Stablecoins and escape your local reality.
In this talk, Nathan shares his story of entering crypto in 2011, how he traded crypto in the early days, how he and his team raised a $12M ICO and everything around LocalCoinSwap and its company challenges. Nathan also shares his investment philosophy, which stands out from what most investors in the space do.
LocalCoinSwap and Nathan’s Contact:
- Nathan – https://twitter.com/NathanWorsley_
- LCS – https://twitter.com/Localcoinswap_
Evangelists who converted Nathan into crypto:
- Satoshi Nakamoto & his Bitcoin White Paper
- Nathan also learned a lot from Gavin Anderson (@gavinandresen)
Nathan recommends reading and following:
- Bitcoin subreddit – https://www.reddit.com/r/Bitcoin/
- BTC subreddit – https://www.reddit.com/r/btc/
- Vitalik Buterin, founder of Ethereum – https://twitter.com/VitalikButerin
- Riccardo Spagni, Project Lead at Monero – https://twitter.com/fluffypony
Full Episode Transcript
(00:02) George Manolov:
This is the Borderless Crypto Podcast.
Hello everyone. I’m your host George Manolov, and in this series; I bring you exceptional entrepreneurs, investors, hustlers and thought leaders from the cryptocurrency and fintech space.
In this episode, I meet Nathan Worsley; the chief technical officer at LocalCoinSwap; a peer to peer cryptocurrency exchange, allowing anyone globally to buy and sell crypto assets directly with each other in a secure, completely private way without any KYC and choosing over 250 different payment methods. This is yet another project that is removing financial borders and therefore I had to feature them on the Borderless Crypto podcast. Even if you’re in countries which banned crypto, like Venezuela for example, with the LocalCoinSwap platform, you can still buy Bitcoin, Ether, Stablecoins and escape your local reality.
In this talk; Nathan shares his story of entering crypto in 2011, how he traded crypto in the early days, how he and his team raised a $12 million ICO and everything around LocalCoinSwap and its company challenges. Nathan also shares his investment philosophy, which stands out from what most investors in the space do.
Please note that anything that I or my guests say in these talks is for informational purposes only and should not be treated as investment advice. And although during daylight I’m part of the team behind the crypto lending platform Nexo, at night when I do these talks I share only my personal thoughts, which in no way represent Nexo’s opinions.
Now it’s time to get the podcast started in three, two, one.
(02:16) George Manolov:
Nathan, before you tell us a little more about LocalCoinSwap, can you just briefly introduce us and tell us about your personal journey in the cryptocurrency space? How did you enter the crypto space?
(02:28) Nathan Worsley:
It was actually quite some time ago in 2011, I was quite ill at the time and I was bedridden for a couple of months. While I was bedridden, I was reading lots of things on the Internet, I was Just reading everything I could get my hands on because I was just bored really. I came across the Bitcoin Whitepaper at the time and it blew my mind because I have an economics degree and always had a lifelong interest in economics. It blew my mind from the perspective of having this idea of a new system of money that didn’t rely on central controls, some kind of central bank or central government to control everything. I just had a feeling that this was going to be something revolutionary. So, I invested, basically, my life savings in it at the time, obviously I’m not driving Lamborghinis or anything like that, it wasn’t much fun at the time, but I’ve invested basically everything I had into it at the time, and I started on a journey in cryptocurrency.
I spent some time looking at how I could get involved in this space. So, the first thing I did was I taught myself to program and I started working as a software developer, and I started working on arbitrage algorithms in particular. Initially, I was programming arbitrage algorithms that would make a profit from the price differentials between different cryptocurrency exchanges, and at the same time, I began trading on peer to peer exchanges. So, for a number of years, I was doing arbitrage algorithms, and as the years went on, it became increasingly difficult to profit from arbitrage; originally you could spend a night running an algorithm and you could make quite a bit of money, you could make over $1,000 in a day of trading quite safely with very little downside.
As the years went on, larger players started to get involved and some of the people coming into the cryptocurrency market had real unfair advantages over average players in the market, like me. Some of the people getting involved in arbitrage trading would have private deals with exchanges where they could have trading opportunities that I would never have access to. Also, the exchanges themselves started taking the profits out of the book before even giving it to other people to trade with.
So, as the years went on, it became more and more difficult to profit, and more and riskier. I’d been looking for some time for something different that I could do in the cryptocurrency space, and in arbitrage trading and peer to peer trading, there’s always this feeling that you’re taking, but you’re not really giving something back; you’re taking money off the market but you’re not really doing anything, and I’d always wanted to build one thing and to provide some kind of service.
I was looking for a while for the right fit and it came to me when I thought about the peer to peer trading that I’d been doing; I’ve been trading primarily on LocalBitcoins and a couple of other sites as well, and it had really become a bit of a nightmare, particularly with the support process, there was really bad support on most of the exchanges I was using and also the exchanges just hadn’t been updated in a long time, I’d been using LocalBitcoins for several years at that point and they just hadn’t been a single update to the site at all, and they just wouldn’t reply to support tickets for weeks, and on top of that, all of the sites that I was using would only handle one cryptocurrency, which was inconvenient. So, it just came to me one day that this was the perfect fit.
(05:53) George Manolov:
I was just thinking, you were saying that you were building these algorithms. Were these algorithms exploiting arbitrage opportunities on peer to peer exchanges such as LocalBitcoins or was it about centralized exchanges?
(06:08) Nathan Worsley:
Primarily, it was centralized exchanges; whenever I do a peer to peer trading, the counterparty trade would always be on a centralized exchange, so if I was selling cryptocurrency on a peer to peer exchange, when I made the sale, at the same time, I would buy on a centralized exchange, so I would always create a price difference between the peer to peer exchange and the centralized exchange, but this type of trading, I wasn’t doing algorithmically, the algorithmic trading was always on the centralized exchanges. So, I would create an algorithm that would take price data from one exchange and the price data from another exchange and I would hold both cryptocurrency and fiat on both exchanges, and whenever a profitable opportunity existed to make simultaneous trades, I would trade simultaneously on both exchanges at the same time. So, the algorithmic trading was focused entirely on centralized exchanges.
(07:01) George Manolov:
And until when did that work? And did it work all the time? I imagine that if you basically just set the right parameters and the right rules, you simply make money all the time.
(07:21) Nathan Worsley:
It feels that way, but actually, there’re lots of risks with arbitrage. When I first started writing algorithms, there was quite a large price difference between exchanges, so there would be exchanges where there would just be huge price differences, it could literally be a $100 per Bitcoin, just massive price differences. You could trade on the exchange and make a huge spread, and that spread was usually big enough to cover the risks that were involved.
But as the years went on, the spreads just became smaller and smaller and smaller. Then, whenever there was a big spread and you started trying to trade it, you’d always found out the reason that there was a spread. There was always a deceptive reason that made it not so profitable. So, the spreads just got smaller and smaller as the years went on, and because of that, risks started to get bigger. So, when you execute a trade on the exchange, the primary risk is the price you think that you’re going to get, you won’t get. You think that there’s an arbitrage profit and you think that by making this market trade you’re going to get a certain price, but for whatever reason, you just don’t get that price when you trade, basically, it’s called slippage. Perhaps when you make the trade, orders well suddenly appear in the books before your trade is executed, or some exchanges just have weird things happen where you make the trade and you just don’t get the price that you think you’re going to get. There’s always a risk with that and obviously, there’s the risk that something could happen with the exchange; exchanges do get hacked from time to time. There’s been a number of notable hacks, and there’s also a risk that while you’re moving funds the price will change a lot. So, while you’re trying to execute the trade, the price will change.
But the hacking, losing funds was never the big risks. The big risk was always that you wouldn’t get the price you thought you would get or while you were executing the trade, the price would change.
(08:56) George Manolov:
Because of slippage.
(08:58) Nathan Worsley:
Slippage is when you’re not getting the price that you think you’re going to get, but just when you’re executing trades for arbitrage, there’s often a delay; it could be a minute or a little bit longer before your trade gets executed. The price could just naturally change during that time, and the arbitrage opportunity that you thought you had might not exist anymore.
(09:17) George Manolov:
Got It. Just to put things in perspective and on a timeline, you first did this algorithmic trading from 2011, until what time?
(09:28) Nathan Worsley:
Until about 2015, that’s when I moved onto doing this full-time. I did continue doing arbitrage trading up until about 2016, then I opted out at that point.
(09:41) George Manolov:
Okay. And then you moved to be trading on peer to peer exchanges, right?
(09:48) Nathan Worsley:
I had been doing a bit of peer to peer trading the entire time. But yeah, peer to peer trading became my primary focus, just as the profit started to decline.
(09:59) George Manolov:
And how do you make money on peer to peer exchanges?
(10:05) Nathan Worsley:
A peer to peer trade is where rather than trading through an order book, you’re trading with another person directly. So for example, say I was a peer to peer trader, I might go onto a peer to peer exchange and advertise that I am buying and selling Bitcoins. You can then go to the same exchange and connect directly with me to buy Bitcoins from me or sell Bitcoins to me. So, you might ask yourself, why would you trade directly with me through a peer to peer exchange when you could trade with a centralized exchange?
The reason for that is because centralized exchanges always have issues with fiat on ramping. So, if I’m advertising services on a peer to peer exchange to trade with you, I can agree that we could trade through cash, we could trade through bank transfer, we could trade through PayPal and we could trade in any country that I’m available in. The options are unlimited.
We have over 160 fiat currencies that we offer on LocalCoinSwap, and we just have a huge amount of payment methods, so we offer hundreds. The advantage of peer to peer trading is that any kind of payment method is available, any kind of fiat currency in any geographical location is available, and that’s something that you’ll never get on a centralized exchange. Whenever you are trying to fiat on-ramp onto a centralized exchange, you’ll always be quite restricted with the banking situation or the geographical situation.
So, because you’re offering your services with more payment methods, more fiat currencies and more locations, you can offer a higher spread for that. So for example, I could offer that I will sell Bitcoin to people using cash and because it’s cash trading, I might charge a margin of 5%, so someone gets the advantage that they can buy cryptocurrency from me with cash, and because they’re doing it with cash, I charged them 5%, then the Bitcoin that I sell to them, I can purchase back from a centralized exchange.
For the person buying from a peer to peer exchange or selling to the peer to peer exchange, the advantages are the high number of payment methods that they can use, the high number of locations and the high number of fiat currencies. And the advantage for the person who is the professional trader on the platform is that they can make a profit from offering these services to other people.
(12:22) George Manolov:
Understood. So, that is why probably because, as you mentioned already, the largest and most famous peer to peer trading platform is probably LocalBitcoins. That is why I imagine these platforms are mostly very popular, and you let us know how it is with LocalCoinSwap, but I’ve heard that for LocalBitcoins, they’re mostly relevant for countries like Argentina & Venezuela where you don’t have such an easy fiat on-ramp access to cryptocurrencies, so people resort to peer to peer trades.
(12:59) Nathan Worsley:
Yeah, that’s absolutely right. A lot of people in very developed countries where they have a good quality of life, a very good banking system and a good financial system are confused when you talk about this stuff, and they’ll say; why would you even need this stuff? Who has problems buying cryptocurrency? Or even if they’re in the highest socioeconomic level, they might say; why do I even need cryptocurrency at all? The bank is perfect, everything that I need the bank does perfectly.
It’s very easy when you live in that kind of situation to not understand how it is for other people around the world. There’re people around the world who are really struggling; they live in countries where the fiat currency, the local currency, is just completely unreliable. Where the local currency can be so volatile that any kind of cryptocurrency is less volatile. They’ll say; you think that the price of Bitcoin is crazy? Look at what happens to the price of the Venezuelan bolivar, which is their local currency, its volatility is crazy compared to any kind of cryptocurrency. So, people in these sorts of environments have a real use case for cryptocurrency. For them, cryptocurrency has real utility, especially if they don’t have access to the banking system; they can’t get a bank account and they can’t get a local currency to get paid in that doesn’t fluctuate and become worthless overnight. These people, cryptocurrency can be a life changer for them. As I was saying before, a lot of people in first world situations just don’t get that.
(14:27) George Manolov:
Then I would imagine that on your platform, in that case, most of the buyers are from such countries with underdeveloped banking infrastructure and underdeveloped crypto exchanges infrastructure, and the sellers of crypto, the market makers so to say, are probably people coming from countries with developed banking ecosystems. Is that a correct assumption or not really?
(14:51) Nathan Worsley:
That is a general trend that we’ve seen, but to be specific though, currently, we don’t have as big of a focus as we want to in the developing world. This is actually something that is a huge focus for us at the moment. Naturally, a lot of the people who are currently trading on the platform are people who invested in the ICO and a lot of those people are primarily in first world countries. So, the biggest focus of the platform over the last couple of months has been reaching out to the developing world and trying to establish a presence there.
If you’ve been following the project, you will have noticed that we’ve recently translated the site into Spanish and Russian. We’ve hired new community managers and new moderators for the trading process who are Spanish speaking and Russian speaking. We’ve been putting out articles in those regions, doing advertising in those regions and also getting people on the ground in those regions to build community support on the ground. Ultimately, what you’re saying is what we want, optimally, we do want our biggest presence to be in those regions of the world, but it’s not at the moment. That’s something that we’re focusing on.
(15:57) George Manolov:
Can you briefly explain how did you come up with LocalCoinSwap? Why is LocalCoinSwap needed since you have been using LocalBitcoins for a very long time, yourself, many people around the world to use it, so why is it needed? And then if you can brief us about the story of your company, how was it born? How did you raise funds? And where are you today?
(16:20) Nathan Worsley:
To answer why is it needed part, when I was peer to peer trading, it became obvious to me that there was a real need for something different. As I said before, I’d been trading for quite some time on LocalBitcoins and I hadn’t seen a single update to the site in years. Whenever I had problems with scammers or people trying to scam me, I’d raise a support ticket and my funds would often be locked up for weeks before I would even get a response. The support was really bad; I was wasn’t getting any help trading on the site, and that was what made me realize that there was a place in the market for something different. If I could create an exchange that had multiple cryptocurrencies and better support process, I could build something that would help people all over the world, I could provide a service and basically create a living for myself in the process. I could do something, instead of arbitrage trading, that would help other people and provide something valuable.
So, I cottoned on and had this idea one night, I was upstairs in my house, I had my workstation and computer downstairs and the light bulb sort of went on in my head. Straight away, I said; I’m going to do this. I headed downstairs, I started programming that night. I think I was up all night coding and I was coding the project by myself for quite a few weeks. I was just coding every day, developing, developing, and I was telling some of my friends and some of the people that I had business relationships with what I was doing.
After I’d been doing this for a couple of weeks, some of the people that I knew, who were involved early on in this project, approached me who were involved early on in this project and basically said; look Nathan, you’re programming quite hard, you want to launch this exchange, but this isn’t something that you can do completely by yourself. You can’t program an entire exchange by yourself and bootstrap it. You need funding for marketing and to get more developers. You basically need help to get this together. Why don’t we get together, run an ICO and make this something real?
I thought about it and it seemed like a good idea. So, we got together and we spent a couple of weeks thinking about what kind of token model we could use, because there were a lot of ICO’s at the time who would just offer a useless utility token, with a vague promise of what it might do in the future, they raise money and then disappear. I was looking at all of these other ICO models and thinking why would people even want this token?
So, we needed to think of something, a token economics model, that had real value for the people who would invest in the ICO, and that’s when we came up with the idea of Crypto share, which is basically like a share, but on the Blockchain. And just like a share, you would get dividends paid from the profits of the exchange. Also just like a share, you would have voting rights in the decisions made about how the exchange should be run.
Once we realized that this was the perfect token economics model for the exchange, we got together and I started writing the white paper. I had a lot of help from the team to write the white paper. It was probably the largest piece of writing I’ve ever done in my entire life and took over a month to complete. After the white paper was complete, we started running the ICO.
We ran the ICO for a number of months finishing in June, I believe last year. We ended up with a total raise of a little over $12 million. We didn’t hit hard cap, which was $20 million, but our soft cap was half a million and we went significantly over that. Even though we didn’t hit hard cap, I’m really proud of how well we did because the timing of our ICO was really bad. We started our ICO the very day that the market started collapsing. I think it was the day that we had that shock drop from about $20,000 with Bitcoin, that shock drop was literally the day that we launched our ICO.
We started our ICO as the market started crashing, the market was just crashing and crashing and crashing the entire way through our ICO. There was not a single period during our ICO where the prices were going up, and people were really disillusioned with cryptocurrency and there was FUD everywhere. It was a total bear market.
So, given the conditions of the market, I actually think that we did really well with the ICO, because even though we didn’t hit hard cap, we got a big raise during a period when the market was just horrible and most other projects were failing.
But anyway, after the ICO finished, we straight away started working on launching the product. We got a much bigger team together, we got more developers, we got marketing people and we launched the exchange on schedule. So, we launched the exchange, we started ticking off the other stuff that was on our roadmap and we got the project launched. Unlike a lot of other projects that just disappeared with the funds, after the ICO was over, we actually used the funds to build the exchange and we ended up launching the exchange in August last year.
We launched the exchange and the exchange has been running ever since then. We’ve been expanding the team, we’ve got a lot of updates and features that we’ve added since then. We’ve added new cryptocurrencies, we’ve had new partnerships, including obviously with Nexo. So, we’ve been developing the exchange as much as we can since then. I guess that covers this side of LocalCoinSwap up to the present moment.
(21:26) George Manolov:
How has the LocalCoinSwap token performed? Have you already distributed dividends?
(21:32) Nathan Worsley:
Yeah, we’ve done our first dividend distribution and we’ve also had several community votes already. Actually, we scheduled our first community vote for voting on how the exchange should be run after the exchange was launched, but we ended up having our first community vote quite early, we had our first vote before the ICO was even over. We’ve had two community votes and we’ve had a dividend distribution. So, we’ve fulfilled all the roadmap landmarks of what we were going to do with the token. But in terms of actual token price, the price obviously hasn’t gone up since we did our ICO, which I guess you could say is the same for most of the other tokens in the market. We haven’t had a token that’s gone crazy sky high like Binance or anything, but that’s never been the token economics model behind our token. Our token has always been valued at the dividends that you receive from holding the tokens and it’s always been dependent on the success of the exchange and that’s something that we’ve always said from day one.
(22:35) George Manolov:
Right. Can you talk a little about the dividend distribution itself? Because you mentioned in our prior talk that you wanted to do it in a completely decentralized way, but then you realized that people are not really ready for such a decentralization yet.
(23:02) Nathan Worsley:
When we were programming the smart contracts that would handle the token, we spent a lot of work programming all these features into the smart contracts to handle dividends and to handle voting. It was actually really complicated stuff. We were really proud of the codebase that we’d put out because, as far as I’m aware, we actually programmed the first dividend distribution smart contract system built into the token itself, we were actually the first people to launch a token that had that feature. When we launched the token, we’ve put a lot of work into the codebase and coming up to the first dividend distribution, we were really excited to do this decentralized blockchain distribution of the dividend tokens. But as the date for the dividends approaches, we just realized that it just wasn’t workable; the people that we were going to give the dividends to were not as a whole going to be able to do what was necessary to interact with the Blockchain and actually claim these dividends.
It was just too big of a technical hurdle. It would involve a little bit of scripting and interacting with a smart contract and it was just not user-friendly at all. So, I ended up having to do an alternative model to distribute the dividends. We ended up doing a much more simple model where we just sent everyone the dividend tokens as a separate token and then we allowed people to just send the tokens to the exchange and claim their dividends on the exchange and then withdraw them from the exchange. Even that turned out to be quite challenging for a lot of our investors, we spent a lot of time on customer support explaining to people how to use wallet software or how to use MetaMask and how to send tokens from one address to the other.
It was a real eye-opener, because these people are not dumb. It’s not that they lack the intelligence or anything like that, it’s just that the Blockchain is complicated, and for people like you and me, we’re involved in cryptocurrency and this stuff seems easy to us only because we’ve done it a lot before. Once you’ve done something with a smart contract, once you’ve played around with Bitcoins and sent funds from one address to another, it seems easy, but it’s not easy, it’s not easy at all. And it’s really opened my eyes to how much work we have to put in to make blockchain accessible to the everyday user. We have to make it as easy to use blockchain as it is to use a banking app. I think that is really the biggest technical hurdle that blockchain has to overcome.
If we can’t make things user-friendly in general, we’re never going to have a decentralized world, and we can’t have a decentralized world until it’s as easy to use a decentralized solution as it is to use a centralized solution. So, going forward, we are going to have some more smart contract based applications involved in the LocalCoinSwap project, but we’re going to try and think hard about what we can do to really make our project a game changer, and making this stuff accessible to the everyday user.
(25:38) George Manolov:
But the LocalCoinSwap platform itself is centralized today, right?
(25:42) Nathan Worsley:
Yeah, I’m definitely not pretending that LocalCoinSwap is entirely decentralized. We run on centralized servers, we have a centralized exchange, we have a company that’s incorporated, we have a structure with staff members and so on, but we do have elements of decentralization. For example, we are decentralizing the profits and we’re distributing the profits to the token holders. We’re decentralizing a lot of the decision making process and allowing the people who hold the tokens to have a say in how the exchanges run.
Going forward, we want to gradually decentralize more and more elements of how we’re doing things. I don’t know if we’ll end up being a DAO, I’m not saying that at all. I would love it if we could, but we’re always going to be looking at how we can introduce more decentralization into what we’re doing.
I think you mentioned earlier in the pre-chat we had that this was something that impressed you about Binance. They were pursuing the same thing, but we’re definitely not a decentralized company, but I would love it if that was an end goal.
(26:39) George Manolov:
My opinion on this is that I really respect your effort, and I respect the efforts of every company, including Binance obviously, which is probably leading by example. I mean some people are just blindly following it, saying that it’s the holy grail or something. I think it definitely has a lot to add to our society in general, but obviously it will take a lot of time and experimentation, and the technology needs to mature, so this is actually feasible, and it’s not just, hey, let’s do something decentralized so that it’s decentralized for the sake of decentralization. It should actually make sense and it should work, and I don’t think that this can happen overnight. It’s normal that this discovery of trial and failure takes some time.
(27:26) Nathan Worsley:
It’s quite interesting that you mentioned that because I have seen a lot of unnecessary decentralization. There’re definitely some things out there that don’t need to be decentralized. I’m a programmer, I often order Uber Eats for dinner for example, I don’t think Uber Eats needs to be decentralized. There’re a lot of things out there that are working well and don’t need to be decentralized. Decentralization has heaps of things that you can add to the world, but not everything needs to be decentralized. I guess that’s something that probably everyone realizes now with the amount of ICO’s that ended up not really going anywhere, there were just people in the hype of the ICO season who are offering a decentralized idea for everything that you can think of. I think Vitalik Buterin has touched on this a few times, I agree with what he says, but there’re a lot of use cases for cryptocurrency, there’re a lot of ways that decentralization can change the world, but not everything needs to be decentralized.
(28:21) George Manolov :
Right. So, how does LocalCoinSwap work in practice? How do people actually trade? How does peer to peer trading actually work? let’s say that I’m somebody from a country with underbanked system or I’m somebody from a well-developed country and I want to play around, I want to sell, I want to maybe look at this as a business; as to sell and trade cryptocurrencies via LocalCoinSwap peer to peer trading platform, so how do I do that?
(28:52) Nathan Worsley:
There’re basically two kinds of people who will use the LocalCoinSwap exchange. The first kind of person is someone who just wants to buy and sell cryptocurrency and they have some kind of obstacle with fiat on ramping that makes it more difficult for them to use a centralized service, perhaps they’re in a country where it’s not that easy to buy cryptocurrency, perhaps they want to use a payment method like bank transfer, cash, PayPal or whatever and that’s not that easy to do elsewhere, it’s a person who just wants to buy or sell cryptocurrency. The other person who uses our exchange is a professional trader, someone who wants to trade to make a profit as a living. That professional trader will go onto our platform and he will create advertisements on the platform; basically offering to buy or sell cryptocurrency at various prices in various locations using different types of payment methods, so the professional trader will go to our platform and set up various ads offering their services and the person who just wants to buy or sell quickly will go to our platform, find an advertisement from the professional trader, respond to that advertisement and enter into a trade. Now obviously, when you’re trading with someone, there’s always a risk.
(30:07) George Manolov:
Okay, how does this trading work, step by step? What’s the risk? Because at some point, I have to transfer my cash, let’s say via PayPal or a bank transfer, then the other person has to transfer the crypto, let’s say Bitcoin or the NEXO token, how does this work so that I don’t get screwed or none of the sides get screwed in the process?
(30:27) Nathan Worsley:
This is basically the use case of trading peer to peer on an exchange versus elsewhere. If we’ll use each other as an example, say we were trading Bitcoin for bank transfer with each other directly, you contact me and we set up a deal, maybe I transfer you the cryptocurrency first and I just have to trust that you’ll send me the money to my bank account, or perhaps you send me the money to my bank account first and then you just have to trust that I’m going to send you the cryptocurrency. We basically have to trust each other not to rip each other off.
The advantage of using a peer to peer exchange to do the trade is that the cryptocurrency is held in escrow until the trade is completed, so if we trade with each other, say Bitcoin for bank transfer through a peer to peer exchange, then while the trade is going on, the cryptocurrency portion of the trade is held in escrow by the exchange. When the trade is opened, I put the cryptocurrency into escrow on the exchange and it’s held in escrow on the exchange. Then you transfer me the fiat currency to my bank account if the money comes in and we’re both happy, and you didn’t rip me off, then I just let the exchange know that everything’s good with the trade and the cryptocurrency gets transferred to you. If there’s some kind of a problem; one of us has tried to scam the other person, the fiat currency has not arrived in my account, then either of us can let the exchange know, hey, there’s a problem here, this person has tried to rip me off and the exchange has the cryptocurrency in escrow, the exchange can then investigate who was right, who ripped whom off and who did what, the exchange can investigate and decide who the cryptocurrency should go to.
So, the advantage of using an exchange for this kind of trade is that the escrow of the exchange protects the traders from being ripped off or defrauded. By using a cryptocurrency escrow system, the exchange can ensure that no fraud occurs during the transfer and that both parties can trade with each other without having a large amount of trust between them.
(32:39) George Manolov:
To assure there’s basically zero chance that you get scammed when trading via LocalCoinSwap.
(32:42) Nathan Worsley:
As long as traders adhere to good trading practices, they don’t get ripped off. Obviously, there’s always the risk that one of the parties does something incorrectly. Basically, you are safe in the trading process as long as you follow the escrow process properly, if for example, we put the cryptocurrency in escrow and then you transfer me the money to my bank account and I don’t wait until it actually arrives in my bank account, but you convince me to release the escrow, then there’s nothing that the peer to peer exchange can do to help you at that point. So, the key to trading peer to peer successfully is to utilize the escrow process properly; you don’t release the escrow until you’ve verified that you’ve been paid properly and you make sure that when you’re doing the payment that it’s been done properly, for example, if you’re doing a bank transfer, then you make sure that the correct name is on the transfer.
There’re certain things that should be done for each payment method to ensure that there’s no risk of fraud. But yeah, there’s not a risk of being scammed as long as you follow the trading steps correctly and you do not release the funds from escrow until you verify that the payment has arrived. Whenever we see a problem occur in a peer to peer trade, it’s always when one of the parties has somehow convinced the other party to release the money from escrow before verifying the payment properly. So, the risk with peer to peer trading is basically not following the escrow process correctly.
(35:09) George Manolov:
That makes sense. If people create a problem for themselves, you cannot help them. I really think your services are adding a huge amount of value to the crypto space and especially to people, as we discussed, in underbanked countries. For example, one of the things which I realized as we were working on our partnership between Nexo and LocalCoinSwap is that, you can be in any African country or Venezuela, and your local currency sucks and your local banking system sucks, basically you don’t have any access to any sort of savings account or anyway where you can actually save money and this money can create value for you, whereas now, with a service like LocalCoinSwap, people anywhere in the world can just go and buy not only Bitcoin, but you also support Stablecoins, right? So, people can get access to the US dollar while being in the most underdeveloped country in the world, as long as they have access to the internet. Then they can use that US dollar, which is in the form of a Stablecoin to earn interest on interest-earning accounts like you have on Nexo, which is truly mind-blowing. This is one of the reasons I called this podcast Borderless Crypto because crypto is really making the financial world truly borderless.
(35:26) Nathan Worsley:
It’s interesting that you talked about Stablecoins, because at the moment there’s not a hell of a lot of peer to peer trading action with Stablecoins, but I believe that it could be something huge in the future because it has so much potential; Stablecoins are stable in value, you get a Stablecoin which is tied to the US dollar, it’s always worth one US dollar. So, this is the perfect use case for a lot of the developing world to actually have peer to peer trading in stablecoins. It’s not a huge market at the moment, but I think that it has so much potential to really help people and it could perhaps be the next big thing.
I think a good example of what you’re talking about regarding how cryptocurrency isn’t that easy to access in a lot of these countries with the current services that are available.
Columbia is a great example; it is a really beautiful country, it’s got a lot of services and it’s got a lot of people who are really interested in cryptocurrency, but almost no one in Columbia can deal with an exchange because their central bank and all of the biggest banks in Colombia recognize which bank accounts are associated with the major exchanges. So, if you have a bank account in Columbia, you can’t send or receive money to virtually any exchange in the world. So, if you’re a Colombian citizen, you cannot get an overseas bank account, you’re basically cut off from sending or receiving fiat currency from any of the exchanges. That’s where a peer to peer exchange at LocalCoinSwap has a real use case, we can help with the fiat on ramping in these countries, where people are just completely blocked from accessing cryptocurrency through any other method.
(36:58) George Manolov:
Colombian don’t have access to centralized traditional exchanges, but they have access to PayPal, right?
(37:06) Nathan Worsley:
Yeah, they have access to PayPal. They can also do bank transfer with other peer to peer exchanges. For example, while the Central Bank of Columbia and all the banks of Columbia might recognize and block all of the accounts that are associated with the big exchanges, like Bitstamp, Kraken,…etc. They don’t know who the peer to peer traders are, you can easily find another peer to peer trader, do a bank transfer directly and you don’t have to worry about the transfer being blocked or shut down by the bank.
(37:37) George Manolov:
These bank transfers are easy to execute when they’re local. But I would imagine that most people in Columbia would buy Bitcoin from people outside of Columbia, and doing international bank transfers is probably very expensive. So, wouldn’t it make more sense for them to use PayPal for example?
(37:57) Nathan Worsley:
PayPal is a very accessible payment method for pretty much everyone in the world to trade peer to peer. The only thing about PayPal is that you do have to be careful using PayPal as a payment method, because PayPal itself is quite unfriendly to cryptocurrency, and if they detect that you are dealing in cryptocurrency, they often issue a chargeback. You can trade with PayPal safely, but there’re specific procedures that you have to follow, for example, making sure that the PayPal transaction is specified as a gift transaction. PayPal is a troublesome payment method for peer to peer trading because of how unfriendly PayPal themselves are to cryptocurrency. But, PayPal trading can be done safely as long as the right procedures are followed.
(38:44) George Manolov:
All right, so as long as you don’t explicitly say, I’m sending this transaction to pay for some crypto that I’m going to receive, you’re going to be fine. Is that the case?
(39:02) Nathan Worsley:
Yeah, exactly. I speak from experience here because I’ve actually had my own PayPal account shut down for cryptocurrency transfers. They said, we’ve discovered that you’ve done cryptocurrency related transfers, we’re freezing your funds. They froze my funds in total for almost a year and that made it really difficult to get them back. I’ve got all the proof of how I obtained this, it’s nothing illegal, I’ve not done anything wrong. It’s not a friendly company to deal with if you’re involved in cryptocurrency. There are some alternative payment providers that are quite good, for example, TransferWise and Western Union are quite reliable. There are a lot of alternatives to PayPal that are available all over the world that are a lot more friendly towards cryptocurrency. They’re available to people in the developing world as well.
(39:39) George Manolov:
Yeah, TransferWise is really great. They’re not creating such problems, I have had the same experience myself. I think you’re doing a really great job and in a very good professional and respectable way. What do you need as a company to grow faster? What is your company challenge? What is your bottleneck? And what do you need to overtake services like LocalBitcoins for example? Because your service is better, we’ve been discussing this and people who have used your platform know that your customer service is at a totally different level from LocalBitcoins. So, what do you think is stopping you from overtaking them and really becoming the king of peer to peer trading?
(40:21) Nathan Worsley:
I think the biggest thing that we need is brand recognition. On the exchange stage, we’re not as well-known as our competition. We find that when people actually start using our service, we have a very good retention rate. Once people come to our platform and they start trading on our platform, they almost always stay on our platform. So, the issue is not that we’re losing customers, the issue is that we need to make people more aware of what we’re doing and more aware that we’re out there. Lots of the people who are trading on, for example, LocalBitcoins or other peer to peer exchanges, just aren’t aware that we exist. So, our biggest challenge as a company is reaching out and making people aware that there’s an alternative and that they can trade on LocalCoinSwap.
As I said before, our primary focus at the moment is doing this in the developing world, and doing this is quite challenging because you can’t easily reach a lot of these people just through advertising on the Internet. It’s not as easy as putting up some internet adverts or paying for some search engine optimization. These people can often be quite challenging just to network with. So, a large focus of our marketing at the moment is reaching out on the ground; actually talking to people, going to events, going to conferences and making people aware that we exist. But yes, brand recognition is our biggest challenge and it’s something that we’re going to have to work really hard on to become a major player.
(41:43) George Manolov:
Yeah, I totally understand this. Maybe in addition to going to these offline events, you can think of some stunts. In the past few days, I came across Richard Branson several times, and I remember that he’s done stuff that sparks people to talk about his products and services. Maybe you can think of something that you do locally here and there, which makes people talk about your service.
(42:10) Nathan Worsley:
Yeah. That’s the kind of thing which requires the right kind of idea. Unfortunately, I don’t have the perfect idea at the moment. But I think the right kind of stuff can be really effective.
(42:19) George Manolov:
It can come up at some point or it can come up by somebody else on your team.
(42:24) Nathan Worsley:
Maybe another light bulb moment, maybe I’ll just be doing my thing, making some dinner or something, and it’ll just come to me, this is the idea, this is the stunt.
(42:32) George Manolov:
In our prior conversation, you mentioned that in order for the crypto payments to become widely used, that the volatility of Bitcoin and cryptocurrencies, in general, is not really helping, can you elaborate a little on that and then share, what is your view on using crypto for payments?
(42:53) Nathan Worsley:
To me, this is the big dichotomy in cryptocurrency, this is the big thing that no one has really solved properly yet because it’s this real issue where currencies that are really deflationary are not very useful for spending. To give you an example, the famous Bitcoin pizza guy, he spent the equivalent of more than $20 million on two slices of pizza, in fact, I think it might’ve even been much higher than $20 million. Now, who in their right mind would ever spend Bitcoin on a pizza if they knew that if they just saved that Bitcoin, it could be worth $20 million in a couple of years time.
When a cryptocurrency skyrockets in value, we all love it. We hold cryptocurrency, we’re into crypto and we love it when the price goes up. But when prices of crypto are skyrocketing, it makes us less likely to spend them and it actually hurts the usefulness of cryptocurrency for spending.
People hate on inflation. They don’t like the inflation of regular currencies, but that inflation encourages us to spend, having that inflation drives spending in the economy and it keeps businesses going. It gets us buying products and services and it stops us from just sticking all of our money in the bank and not spending it. But at the same time, if you don’t have deflation in a cryptocurrency, people won’t use it because the cost of making a cryptocurrency is zero. For instance, if you don’t like Bitcoin, you can just make an alternative to it, it costs you nothing to create a new cryptocurrency. So, to get people using your cryptocurrency and to make your cryptocurrency populate, it has to be deflationary because people will go towards the cryptocurrency that is the most deflationary, where the value of it is rising.
I don’t have a solution to this. I wish I did, but to me, this is a huge economic problem that cryptocurrency needs to solve to become a world currency. We need to find some way to balance this issue of needing a deflationary cryptocurrency to become popular, but somehow making it useful for spending. This is in the infancy stages of cryptocurrency. It’s not so much a problem at the moment, but if we want to get serious about having a world economy where the entire world is functioning with cryptocurrency instead of our regular fiat currency, we’re going to have to solve that, but we don’t have a solution at the moment. This is what I see as being a big problem that’s approaching.
I’ve been thinking in this respect as well, and so far my thought on this is the following; you cannot get everything all at once, and you can’t get all the benefits. The space has to evolve and the currency has to evolve itself. Maybe, the first use case of crypto is the store of value function of Bitcoin, but it’s not really a store of value even today because it’s very volatile. So, in order for Bitcoin to reach a real status of a store of value asset, we need it to go through this volatility and we need to go through this transition of more people realizing its features and characteristics so more people enter with real big capital. We will have these tribulations, it’ll go up, it’ll go down, it’ll go up a lot, it’ll go down a lot, then it will go up even more and after a certain period of years when it establishes itself as a store of value, for example when it reaches a similar type of store of value asset as gold is, then maybe this transition into having crypto or Bitcoin as a method of payments using the solutions like lightning network. I just think that we can get one at a time feature and benefit from crypto instead of just all of it at once.
I definitely agree with you there. Even though I see this as a huge problem that we’re going to have to find a way to solve. I don’t necessarily think that we have to solve it right now. I think that right now we have to focus on the technical issues, such as lightning network and having really effective quick decentralized payment solutions where we can actually do a transfer quickly with low fees and make it secure. Those are the things that we’re working on at the moment, and maybe once we solve them, then the next wave of geniuses can come along and deal with the problems that will be the most important problems then.
Stablecoins are a step in the right direction. Maybe an interim solution could be a rise in the popularity of Stablecoins where we utilize something like lightning network, but we may have Stablecoins that work on a Bitcoin blockchain or on another blockchain, then we could have a stable version of fiat currency that’s handled quickly on the blockchain. Maybe that could be an interim solution before we figure out this inflation – deflation issue.
(47:53) George Manolov:
Yeah, I never actually thought of this. It’d be curious, the building of Stablecoins on the Bitcoin Blockchain. Technically that is feasible, right?
(48:03) Nathan Worsley:
It’s been done in a way with Tether; Tether is an Omni Token, and Omni Tokens work on the Bitcoin Blockchain. So, the Tether Blockchain is actually the same as the Bitcoin Blockchain. When you send a Bitcoin transaction, you can send a comment with the transaction so the way that Tether works is that the transaction is actually a Bitcoin transaction, but the transfer of the Tether token occurs in the comments of the Bitcoin transaction.
I’m not saying that I’m a huge Tether fan; tether has people love it while other people hate it. But from a technical perspective, Tether is really interesting because that’s actually a token that’s working on the Bitcoin Blockchain itself. So, this has actually been done in a way, I’m not sure how it would work with lightning, I think lightning might destroy the ability to use Tether or perhaps it could be adapted somehow for the lightning network. But this idea of having Bitcoin-based tokens is actually working already for some time with Tether, but not many people are actually aware of that.
(49:04) George Manolov:
Yeah, I wasn’t. I want to enter in a few final questions. First of all, I’m always curious to find out of people I talk to, what is their strategy with investments in Bitcoin? So, can you share a little about what is your personal investment strategy, so to say? What do you do with your crypto? Do you trade it? Do you increase your exposition? Do you decrease it? What’s your approach?
(49:28) Nathan Worsley:
I’m not an investor who uses technical analysis at all. I have a degree in economics, I’ve done a lot of studies in finance and I’ve never seen mini viable strategies that involve technical analysis. So, I don’t do any kind of like reading, writing, drawing lines on charts or anything like that. Maybe there’re some people who can make it work, but I’ve never found an effective strategy so far for technical analysis. The kind of investing that I do is fundamental investing where I invest in technology that I really believe in and I also invest in projects where I think the project itself has merit.
So, if I’m looking at a new crypto project, I’ll look at it from a business finance perspective. I’ll look at like who’s behind the project. How long do I think they’ll stick with the project? How much success have they had in the past? Do the financials of the project add up? Is there something dodgy about it? Verifying that I can have trust in them. I look at the project as a company first and foremost, then I look at the technology, I ask myself, is this potentially a groundbreaking technology? What is the competition, if there’s no competition, why there’s no competition? Is it because it’s a bad idea or just because no one’s thought of it before? I look at if there’s no competition, how easy would it be for there to be a competition? Maybe if it’s a small project, they have a great idea, but then I think, but if this idea takes off, a larger project could easily implement it and just take it over really quickly. I look at all these kinds of technical factors and ask myself if I think that it could be a major project in the future.
If I’m happy with the legitimacy of the project as a company, I’m happy with it from a business finance perspective and I’m happy with it from a technology perspective, then I’m inclined to invest. But when I do invest, I usually try and invest in a contrary way to the rest of the market. I believe in value investing, so my philosophy of investing is always to invest in something where I think the value of it doesn’t reflect it’s true value; the price that I would have to pay at the moment doesn’t reflect how much that thing is actually worth.
This is actually really difficult to do in cryptocurrency. If I’m investing in a traditional company, I can say, the company share pays this much dividends, the company owns this property and these assets, I think it should be worth this much, but it’s worthless, so I’m going to buy it. With cryptocurrency, it’s a different kind of asset class. It’s really difficult to do that. So, when I’m buying in particular, I try and buy when I think that emotions have artificially pushed the price lower than it should be.
You could say that my investing strategy consists of three things. First of all, I find the project by looking at the business finance of the project and the technology potential, then I look for a time to buy when there’s enough fear in the market that the price of the project is lower than what it should be. And if I’m in a situation where all three of those events align, where it’s got good business finance, it’s got good technology and the price is low because people are scared rather than it actually being low because of a bad reason, then I buy.
(52:40) George Manolov:
You’re describing here your thought process about micro or low cap altcoins, correct?
(52:53) Nathan Worsley:
No, I do apply this to regular cryptocurrencies. I wasn’t an ICO investor in Ethereum, but I did invest in Ethereum relatively early on for this reason, and I invested in Monero quite early on for this reason too. I don’t invest in a lot of projects, I don’t buy a project every week, I’ll probably make in cryptocurrency maybe one investment every two to three months, but I’ve generally had a decent track record with buying just because I’m so cautious. If I won’t just buy on a whim, if I do some research on a project or cryptocurrency and I really, really feel like this is a great investment, even if I’m so excited, I still won’t buy it until I’ve had some time to think about at least three or four times, and I’ve had some time to talk to other people about it.
I like to talk to people who have really different opinions to me before I buy. I’m lucky enough to have a lot of friends in this space who have really different philosophies about cryptocurrency. So, I’ll make sure that I keep speaking to people before I buy until I find at least one person who has a different opinion to me. And it’s only when I’ve had a few times to think about it myself, and I’ve had some contrary opinions to my own that I’ll even consider investing in a project. I guess you could say I’m not a day trader, I’m maybe a quarterly trader, I trade four to five, maybe six times a year. So, the opposite of a technical analysis day trade when it comes to buying and selling crypto.
At the same time, I’m also not a hodl to the ground type of person; if I’m investing in a project and something terrible happens, I’ll sell, I’m not the kind of person who will be left holding the bag hoping that it will go up again. If I’m invested in a project, you don’t get everything right, often everything seems right, but you invest in a bad project. If I’m invested in a bad project and it becomes obvious to me that I’ve made a bad investment, I’ll sell. Even if I made a loss, I’ll sell and get out and just hold my money until I find something else to invest in. I won’t hold something to zero just because I felt good when I brought it in the first place. So, you could distill my investing strategy in that way; very careful to get in, but quite quick to get out if something terrible happens.
(55:05) George Manolov:
Do you actively look for such projects, more or less, or do they just show up in your mind space in a way when you come across them or some other people recommend them to you?
(55:17) Nathan Worsley:
I do look for projects, not necessarily to invest. I don’t look for projects to invest, but I usually look for projects because I’m excited about what’s coming out technologically. So, I follow a lot of cryptocurrency forums, I follow a lot of cryptocurrency news sites and I also follow a lot of developers on places like GitHub or on their social media. I see a lot of developers in this space and I see what they’re working on, I look at all the news that’s coming out from the different crypto news organizations and what all the buzz is about in various forums. That’s how things come to my attention. But, I’m not looking for projects to invest in, I’m generally looking for cool technology that’s coming out.
(55:57) George Manolov:
Here comes a question which I also asked a lot to my guests, which is; what are some people, forums or places that you follow today that you believe that we should follow or listen to because maybe we can learn from them or maybe we can come across potential interesting investment opportunities
(56:16) Nathan Worsley:
In terms of forums, Reddit can be quite a good place to get information on cryptocurrency and the reason for that is not because people on Reddit are correct, it’s because people on Reddit have such different opinions. For example, you can follow the people from the Reddit Bitcoin forum, and they all hate everyone from the Reddit BTC forum, and you can follow the Reddit BTC forum and they all hate people from the Reddit Bitcoin forum. So, I don’t recommend looking at any one source on Reddit, but I recommend following a lot of crypto subreddits on Reddit that have very different opinions and hate each other. By looking at all of the different forums that have all these different competing opinions, you can make your own mind up.
I would definitely say when it comes to forums, it’s important not to get stuck on any one source of information. It’s important to look at sources of information that disagree with each other, you can read both sides of the argument and make your mind up yourself. Sometimes, I’ll get two forums that completely disagree with each other, sometimes I’ll see stuff that I agree with from one and sometimes I’ll see stuff that I agree with from the other. But by seeing both sides of that argument each time, I get a much more comprehensive opinion.
In terms of people specifically to follow, everyone follows Vitalik Buterin, but I’m a huge fan of his, I think he’s a genius, probably created something that could change the world. I follow everything that he puts out and the announcement that he makes. The guys behind Monero are probably pretty useful to follow. Generally, a lot of the people who are major players in the industry, like CZ and the people behind the major exchanges, are also useful people to follow just so you can stay abreast of the biggest issues in cryptocurrency.
I think it’s very important to be clued into the major players in crypto, so you don’t miss out on anything. It’s not just missing out on opportunities, but also you don’t want to miss out on finding out about something terrible happening so you know how to react to it. You don’t want to be the last person to find out that some crypto you’ve invested in is doing a main net swap and you didn’t know and now your tokens are worthless. You got to make sure that you broadly follow all the big players in crypto so that you can get all the important stuff when it happens.
(58:57) George Manolov:
Okay. I have a final question, in the beginning of the conversation, you mentioned that you came across the Bitcoin Whitepaper very early in your life and this is what made you enter the space, but other than the whitepaper, was there another person in particular who converted you to the cryptocurrency religion, so to say? Was there somebody who recommended you the bitcoin whitepaper? Is there someone who you would consider an evangelist because he or she helped you realize the potential of cryptocurrencies?
(59:17) Nathan Worsley:
That’s actually a really good question. I don’t want to say Satoshi Nakamoto because it seems that it’s that obvious answer that everyone would say, but he wrote the whitepaper and for some time afterward I was following his forum posts, he was quite revolutionary. Gavin Anderson as well, he’s not so popular anymore, but at the start, he did a lot of great work for Bitcoin. Vitalik Buterin of course, I find him really inspirational to follow. I think Vitalik has 100% of his heart in the right place, 100% believes in cryptocurrency and decentralization, and 100% wants to change the world and has no selfish motive or selfish interest. He’s someone that I find very inspirational but he wasn’t around at the very start. At the very start, I probably don’t have a good answer other than Satoshi Nakamoto, but currently, Vitalik Buterin is one of the people that I respect the most in this space.
(01:00:10) George Manolov:
Okay, great, Nathan! It was a pleasure talking to you and I really keep fingers crossed that LocalCoinSwap keeps growing, keeps reaching more individuals and keeps spreading borderless cryptocurrencies across the globe at a faster pace.
(01:00:25) Nathan Worsley:
Thanks, George. I had a really great chat with you.
(01:00:28) George Manolov:
A couple of things before you take off. First, if you enjoyed this episode, be generous and share it with your best friends. They deserve it, they will appreciate it and they will be grateful to you.
Second, I named this podcast Borderless Crypto because I have been fascinated by the speed with which crypto has been breaking financial borders, just like the Internet empowered us to communicate and share information with anyone anywhere, 24/7/365. Crypto is empowering people of any country to transact freely, to invest in all sorts of assets and to access capital to grow their economic status.
I’m super pumped to be part of this financial transformation. That is why I’m doing this podcast, to spread awareness about crypto and to accelerate the removal of economic borders. If like me, you want to see a borderless financial world, help me spread the word about crypto even faster by spending one minute to rate this podcast, write a review and subscribe, so that more people learn about crypto and in this way, together with you, we accelerate crypto adoption.
Finally, if you have any suggestions, feedback, or anything you want to tell me, send me a message on my Twitter handle “@BorderlessBTC”. Thanks for tuning in and I’ll see you again soon.