0:00You can keep the the house of cards alive for a while, but at, you know, at one point it's going to crumble. And the 0:07thing about Bitcoin is that it's not a debt-based system. So, you don't have that liability. The Colombian peso 0:13dropped 25% against the US dollar. A lot of his family members were panicking.0:19That essentially means that their savings are getting devalued. There was a huge desire to move into dollars and 0:26move into Bitcoin. It gets me fired up about what we're working on because you don't have to be thinking about those 0:31things all the time. You could dynamically switch from one currency to the other and accept whatever currency 0:36it is that you desire. Hand someone what looks like an email address and get paid to it immediately without any delays, 0:44without any chargebacks at very low fees. And it it gives me hope.The Importance of Bitcoin as a Medium of Exchange0:59Welcome to Medium of Exchange, the podcast where we spotlight business owners building on a Bitcoin standard.1:04We explore real stories, practical insights, and why this monetary shift matters more than ever. Today's guest is 1:12a powerhouse on building the new rails, the the new foundational layer of 1:17technology that will empower the scalability of Bitcoin on the Lightning Network. We're going to be getting into 1:23what it really takes to turn Bitcoin from digital gold to a true medium of exchange. Jesse Schrader is an engineer 1:30turned entrepreneur and the co-founder and CEO of Amboss, a lightning network 1:36infrastructure provider on a mission to scale Bitcoin payments all around the world. Jesse, it is an honor to have you 1:42on Medium of Exchange. Thank you for joining me, my friend. Jason, it's an absolute pleasure. Thanks for having me on. You are on a mission 1:50to scale Bitcoin payments to the world and turn Bitcoin into a medium of 1:56exchange. What I named this podcast $2 trillion asset, but nobody takes Bitcoin 2:01is is what people say. Why is that mission so important to you, Jesse? And what what sparked it for you personally?2:07Uh really what it came down to was I got super into Bitcoin um after seeing some 2:13of the dark side of payments uh in a class action lawsuit temp job that I had 2:20um where I was basically providing information on class action lawsuits. Uh so I saw like Wells Fargo stuff. I saw 2:27uh Citizens Bank. Um really I I saw people kind of reorganizing debit card 2:32transactions and all about overdraft fees. So that was like the darker side. Um, and then as I learned more about 2:40Bitcoin, that's when I was filled with hope about what what a money could be 2:46and what a banking system could be that doesn't involve kind of backroom deals 2:51that are adversarial to customers. Um, but then I tried to make a payment with 2:57Bitcoin and that was a really terrible experience. Um, I I would love to see a 3:04much better payment experience for Bitcoin. And that's what pushed me in the direction of working on the Lightning Network because the payment 3:10experience on Lightning is actually phenomenal because you have this instant settlement, very lowcost transactions 3:18that are private, you know, by design. So, it doesn't take 10 minutes and it's 3:23not expensive. Uh, for our listeners, like what's a sentence or two? What is Lightning? Is it Bitcoin? Was it has it 3:30different? Yeah, Bitcoin is uh really in Lightning, it's in a different 3:36structure. So, you take your Bitcoin, you create a new structure with it that 3:42you can kind of think of it like a joint account. Uh one person has some Bitcoin, it's in a joint account with another 3:48person. They don't need to trust each other and both can exit at any point. But while that joint account is open, 3:55which we call a payment channel in Lightning, while that is open, you can make payments back and forth like a side 4:02ledger to Bitcoin. So all in all, to make a payment, um, instead of having to Understanding the Lightning Network4:08communicate that payment to the entire world, which is what an onchain Bitcoin transaction is, really on Lightning, 4:15you're just talking to the other person that's kind of your counterparty in this joint account structure. So really that 4:22means that I'm talking to one person to make a payment happen instead of the rest of the world. Uh which means it's 4:27more private. Uh you have instant finality. Uh it's a phenomenal structure 4:33for you know what payment should be. So so lightning is really what's going to allow for the scalability of 4:40running uh you know bitcoin transactions the medium of exchange being able to buy goods and services. And one of the 4:47things that you told me one time is that, you know, we're in the middle of this AI boom. You know, the world is is 4:54fundamentally changing uh with AI and and you said that the AIs are going to 5:00be transacting transacting in Bitcoin. Why why do you believe that? Well, let's think about Chat GBT. um Chad GBT takes 5:08uh you know a $20 a month payment and so they they bill that monthly but they are 5:16you know the actually receiving the money much after their expenses because you know their expenses come in the form 5:23of compute which is used to train the models. So, it's already been spent. The 5:28money has left the building. It's paid for compute. And now there's a delay in 5:33actually getting that money once they've released the product and now it's at the end of the month that they're getting 5:39that, you know, $20 a month. But like if you're just going to deal with one model 5:46on, you know, let's let's like look into the future a bit and see that there an 5:52AI boom has happened. Well, now you're going to have specialty models that are trained on specific things. It's not 5:58just going to be one model that is, you know, the the end of all knowledge, the the summation of all of that. Really, 6:05you're going to have experts. Um, and the way to deal with that is not on a The Future of AI and Bitcoin Transactions6:11billing cycle, um, not on a trusted payment system, but really on an instant 6:16settlement system where you can do micro payments because then you don't have to introduce this trust between the payer 6:23and the pay and the payment network in between. So that's why lightning is 6:29actually a perfect fit for this application where you can have AI to AI payments even uh you don't even need to 6:36be a person in order to participate. Uh you can just have instant settlement um and it's completely trustless payments 6:43with instant finality. So I can pay per query that I'm doing to an AI model. And 6:49that is like one of those key foundational elements to really unlock this AI boom so we can have, you know, 6:56machines paying each other. Uh we can comfortably use our models and people aren't strapped for cash or having cash 7:03flow issues uh like when they're when they're interacting with this economy. It seems like the world is accelerating, 7:08technology is accelerating. Uh but at the same time, legacy systems stick around 7:15uh over time. How long do you think it's going to take to transition? I mean, think think uh 7:20think like Visa, for example. They uh are almost 70 years old. They've been 7:28around for a while. Um hopefully it doesn't take 70 years for for uh for 7:33Lightning to become the the number one uh facilitator of payments, but but what is what does that look like for you?7:39What what are you thinking? Yeah. Uh, and that's actually something that I would love to talk to you about 7:45um and ask you about is like the stickiness of payment systems, but overall I think we've been stuck in this 7:52system that doesn't work for businesses at the end of the day because it's got chargeback risk. Um, it's got high fees, 7:59but overall what we're seeing right now is that the Genius Act just passed and 8:05we're seeing an explosion of stable coins being issued. Basically, everyone is issuing their own stable coin because 8:11they've seen Tether and the success of that. They've seen USDC and circles IPO 8:17like both like incredibly successful businesses. Um, and now we're going to 8:24see a boom in stable coins and not all of them are going to work out. Uh but one thing that's going to happen is like 8:31each of them have their own blockchain and it's going to introduce this big problem which is the interoperability 8:38because one blockchain doesn't pay the other blockchain in a very neat and tidy way. But lightning actually does give us 8:44a possibility to actually move that onto the lightning network where you can 8:50actually have this interoperability and that's going to be one of those key pieces because the rest of the world is The Rise of Stablecoins and Interoperability8:56going to move into stable coins. Uh they're going to skip over the legacy 9:01payment processors if they don't already have that in place. I mean, if you look at Southeast Asia, for example, like 9:07their like card networks aren't ubiquitous, but what they do have is like QR code based payments. And so, 9:14that is something that they're already familiar with. And so, that's going to be a natural transition point where, you 9:20know, Southeast Asia is probably going to be uh much more inclined to use stable coins or use an electronic 9:27payment system that doesn't that skips over this like credit card system that we have. And I think that's going to be 9:34where the adoption is. And on talking about stable coins a bit, uh the US is 9:41extremely incentivized to start pushing stable coin adoption for the rest of the world because they buy US treasuries 9:47because that is what backs the stable coins. Yeah. So you think stable coins could 9:52converge onto the lightning network for interoperability? Yeah, I I think we're going to see huge 9:58boom in stable coins, but uh interoperability is the key word. You know, lightning enables essentially 10:05inflight currency exchange. A payment can start as one currency and end as 10:10another. And Bitcoin is actually the common language in between there because you you have a a token without an 10:17issuer. Whereas for all the stable coins, you do have a trusted issuer um that needs to undergo audits on a 10:24recurring basis in order to remain trusted. I speaking of stable coins and tether specifically, I found it 10:31absolutely fascinating when I found out that they are outperforming Open AI in terms of or 10:38sorry, their OpenAI I think is the number one um like highest revenue um or 10:45forget the stat, but basically Tether is is just behind OpenAI in terms of um something but then they're number one in 10:51the world for profitability. like they are the most profitable company like and it's not a household name you know at 10:58this point open a chatbt is a household name uh folks here in the states we have the dollar so so no one knows what 11:05tether is um you know we've got the dollar as a native currency and we're not trying to flee our native currency 11:11to get to the dollar we already have the dollar um Visa's name comes from the 11:17from uh uh universal acceptance okay universal acceptance is where that the 11:22name Visa comes from and this idea that anyone anywhere could transact seamlessly. Um, but do you think that 11:30the lightning network could be the like realization of that dream without the 11:35gatekeepers like the foundational layer of money itself as opposed to a uh you know controlled centralized uh payment Stablecoins: A Double-Edged Sword11:42rail? I think Bitcoin as as a whole actually has that quality uh because 11:48anyone can use Bitcoin. Um really where the lightning network comes in is scaling scaling those qualities and 11:56maintaining the decentralization of Bitcoin. So like that's that's the key piece. Um and that's really where 12:02Lightning fits in like can can you add a privacy layer? Can you um enhance the 12:07speed of transactions? Can you increase the scalability so that the world can transact over this network? Um I I think 12:15that's like overall I think Bitcoin has solved many of these things. stable coins address some of these like open 12:22access um but you know Bitcoin is is the least uh requires the least amount of 12:27trust and then lightning is just a nice way to scale all of that activity. What 12:33are your thoughts on stable coins? I mean I I think of it as a uh as someone 12:39who has studied uh monetary history and and sound money and Austrian economics 12:45um I think of it as like a debt-based fiat token. Uh but for 12:50but I live in a place of financial privilege and there's a lot of folks in the world that don't. There's a lot of folks in the world that need dollars. Uh 12:57what is your take on stable coins? One of my favorite quotes is Greg Foss uh saying that the US dollar is the fastest 13:05horse in the glue factory. Um it's it's essentially the best currency around for 13:11the rest of the world. Um what is a glue factory? Explain what that is. So bit Okay. uh is a little bit dark, 13:18but but basically uh you make glue from like bones. Uh so like animal bones. So 13:25basically saying the the fastest horse well the speed of the horse doesn't really matter. It's really the fact that 13:30it's in a glue factory means well basically okay it's going to turn into glue. Um yeah so a little little dark 13:38but uh it's a powerful image because we all know about the US debt crisis. We 13:45know about the debt crises of currencies around the world and we know that they're in trouble and you know the you 13:51can keep the the house of cards alive for a while but at you know at one point 13:56it's going to crumble. Um and the thing about Bitcoin is that it's not a debt 14:02based system. So you don't have that liability and you're holding this this token that is actually backed by energy 14:08and backed by computers that actually do these computations that help secure the 14:14network and control the issuance of you know new currency. So like when it when 14:20it comes to stable coins um you are introducing an issuer and it's not as good as something without an issuer but 14:27what it does actually answer is removing the volatility of of the currency. Um 14:34you know versus what people actually have expenses in. And you know, when you have a mismatch of the value of the 14:40currency you're taking in and the val value of the currency that you're paying out, well, that's going to cause a cash 14:46flow problem, which could be a absolute business killer. Um, and that's not The Role of Stablecoins in the U.S.14:52something that people want to deal with. So really matching up your expense currency and your income currency is 14:57important, but when it comes to long-term savings and investment, like I I think you and I have both arrived at 15:04the same conclusion that we actually want to be holding Bitcoin uh for the long term because it doesn't have this 15:10whole liability of potentially being devalued by a massive debt spiral.15:17So it's a good point. So maybe stable coins are a good intermediary as we're transitioning from the dollar to 15:24bitcoin. Um you know bitcoin it is not as stable as the dollar. Um it 15:33it it may go up 10% today. It may go down 10% uh or more. And um that's a big 15:41deal for some short-term payment situations. Do you see stable coins 15:47becoming popular here in the United States or I mean obviously there's a 15:52massive use case for them in lots of other countries. Uh but what about here 15:57in the United States? I think there's there's a major opportunity here because there's a lot of unbanked people in the 16:05United States and you know like if you've spent any time in a public 16:10library um especially on the on the West Coast um and you see how many homeless 16:15people are essentially using the library as like their computer resource um like 16:21I can't imagine any of those folks actually walking into a bank branch setting up a bank account and you know 16:28getting all of their you know payments needs taken care of. Uh because we know 16:34that the banking system is exclusionary. Uh but when it comes to digital money 16:41well you don't really need to you know be be a person with full you know 16:46identity documentation. You don't need to have a permanent address really. You need to show up and show the proof of 16:52payment. Um, and I think that's where stable coins fit in the United States. Um, where we've got like a a massive Merchant Adoption of Bitcoin and Stablecoins16:59like inequality problem. Uh, there's a few people with incredible banking access um in the United States, but a 17:07lot of people don't get access to that system. Um, and I think there is opportunity with stable coins to address 17:14that need. Um, but then the then the question, you know, for me is like all 17:19are all of those systems interoperable? are they prepared to scale? Um will we have like a million, you know, 17:26blockchain issues um and interoperability and bridge problems? Uh 17:31but yeah, really I I think it should be based all around Bitcoin. I haven't really thought about it that way that 17:38stable coins could be a really big value ad for the unbanked and and underbanked 17:46population. But then of course they need a place to to put that money to to buy 17:52goods and services. They need a merchant to accept that form of money. And that's where we're a bit early. Yeah, we're 17:58we're super early. I mean, the Genius Act just passed and uh we do know that, 18:03you know, merchant adoption of stable coins and Bitcoin has been much slower than expected, especially in the US. But 18:10it is much more widespread internationally. you know, where I was, you know, we did take a team trip down Challenges for Small Business Owners18:17to Argentina. Um, and, you know, they they had a, you know, Bitcoin accepted here, like in the store window. We took 18:23a bike tour as a as a team. Um, and I was like, I could pay Bitcoin here. Um, 18:29and he was like, yeah. And he sent me an address and it was a Tether on Tron address. So, the the education is like 18:37not all there for like understanding what type of address it is. Uh but you know, Tether is widely accepted outside 18:44of the US. Yeah. So, you know, we talked you you mentioned the underbanked and and and uh 18:51the unbanked merchants though. Stable coins could and obviously Bitcoin as 18:57well could be uh pretty significant value ad. Really any like modern payment 19:02rail that's not the legacy uh Visa, Mastercard, Discover, American Express.19:09I get calls all the time. I run a payment processing company, have done so 19:15for the last 15 years, and I have all kinds of merchants that I serve uh all across the country. And they get 19:23chargebacks. They are not allowed to process certain19:28size transactions. They're not allowed to process certain transactions in general. um they're not allowed to 19:36process some foreign transactions. They're not allowed to do it at an affordable rate. There's all kinds of 19:43extractive intermediaries that are uh taking, you know, fees. If you have 3% 19:49margins, you have 0% margins because you can only keep 97% of your money because 19:55Visa is going to take 3% of it, right? And one of the big frustrations that I 20:00get is that you're not if you if you accept money which at this point if you 20:08for certain industries you are you you are forced to accept the card brands.20:15You have no alternative if you are we live in a digital money 20:21era. Co accelerated that. uh smartphones accelerated that and and it's tough for 20:29a merchant because they have really no alternative and then if you accept money 20:37you may or may not get to keep the money. That's the crazy thing because you have several months as a consumer to 20:43issue a charge back and that is a really powerful tool for fraud prevention for The Benefits of Lightning Network for Merchants20:49consumers. It's really really great. In fact, last week I saw transactions 20:56uh coming from Costco and Instacart and and I immediately approved it cuz I 21:02thought it was my wife and then it turns out it wasn't. And uh and so I was able to get the money back. It was great.21:09Here's the problem for merchants though. Sometimes consumers take advantage of those merchants and it's it's fraud. But 21:18on the other side, that the merchant is the one that's getting swindled. So, do 21:23stable coins, sorry for my rant. I I get I get passionate about the small business owner community. I've worked with them for a very long time. Do 21:29stable coins and Bitcoin Lightning, do they both solve this problem? Uh what 21:35would you suggest if you're a small business owner? Um and and you know, 21:40where where should one go from here if you're currently accepting just the regular card brands?21:46Yeah, if you're accepting the card brands right now, uh then that means that you're exposed to chargeback risks, 21:53um that you're paying a very high rate for payment processing. Um but you are 21:59getting rid of the liability that you know, accepting cash has for your business. You know, you don't have a 22:05whole stockpile of cash and you're tapping into consumers that increasingly aren't even carrying cash anymore. Um, 22:12so like it's totally understandable to to be accepting cards, but what it 22:18actually what the opportunity is ahead is that you could actually move to the 22:24Lightning Network and be able to accept stable coins over those rails and 22:30essentially unlock the ability to have instant finality. So as soon as a 22:36customer pays you, the money is immediately available for spending. uh you don't have to wait for payment The Emotional Toll of Chargebacks22:42processing and you're not carrying the risk of a chargeback where that money gets ripped away from your account 22:49because essentially there's no pull mechanism to pull money from your account as a merchant. So that's like 22:56the really important piece um in locking faster payments uh improving your 23:02margins because you're paying less in those payment processing fees and really just unlocking a better user experience.23:09Yeah. Uh, one thing we've seen because it it takes a couple days to get funded, 23:14uh, on these, you know, legacy rails. And one thing we've seen is, hey, we'll we'll give you your money instantly, but 23:22we're going to take another 1%. So now you can only accept, you know, uh, 96% 23:27of your money, uh, you know, receive 96% of your money because we're going to take 4% now.23:34But the payment finality piece is still not there. you can still get rugpulled. Uh Jesse, I know you wanted to ask me 23:41some questions. What um m now that we're kind of talking about merchants and 23:46chargebacks and payment finality, all these things. Uh where uh where do you 23:51want to go from here? I maybe we'll flip the script a little bit and and uh maybe 23:56you can you can uh be host for a second. This this is great, Jason. I I I love that 24:01you're an expert on the traditional payment rails and then I can be the expert on the on the lightning side, 24:07the past and the future. Yeah. I I would Thank you. Um I would really love to know what's happening to 24:13the adoption of cash. Like why is cash gone away? Why are people moving to all 24:19digital payments? For someone who is experiencing homelessness, for example, 24:25they are very likely still living in the moment. They're they don't 24:31have a lot of access to uh you know, technology and computers and a decent 24:36chunk of them have smartphones. I have a lot of experience working um in homelessness with my previous uh 24:42company. But beyond that, uh, as you begin to go up in the socioeconomic 24:48ladder, uh, it very quickly becomes a digital world. And 24:55I think there's a, you know, a obviously a divide between credit cards and debit 25:02cards. Uh, one is you don't need the money today, the other you do. Uh, so 25:09for some folks, you're not necessarily trying to get those points. You're you're trying to stay within budget and 25:16and keep it simple and and the debit networks work just fine. On a merchant side, uh, Visa card's a Visa card and 25:24there may be different interchange fees. Uh, certain uh, processors charge a different rate 25:32for debit versus credit. The interchange is kind of the wholesale rate, but you know these big fintech companies, Square 25:38and Stripe, you get no discount if a customer pays with debit card and the there's a lower interchange rate. They 25:44just have fatter margins. They just make more money on that transaction. Uh but 25:50it it is increasingly convenient for consumers to to pay with a digital form 25:56of money. I don't carry any cash. None of my friends really carry any cash. I was biking uh across the country uh as 26:05part of my honeymoon and we got to this little town and they they it was a it 26:11was a cashonly town basically. Well, we didn't have any cash and you know we're like the the big city young digital 26:18money folks and and we roll in and and they're like well welcome you know to this little town. Uh we we're we're cash 26:25only and we're on a bicycle and we had just biked up a mountain pass. We were 26:34exhausted. It was windy. We're on a tandem bike. We're like doing these 26:39switchbacks almost going to fall over on you know down the mountain or you go to 26:45the other side almost blown into a car. It it was treacherous. And these were 26:51really kind people and they let us have a bowl of soup for free on the house. Uh but it was this really challenging 26:59moment where I I was reminded that we're just not quite there yet in a fully 27:06digitized economy. Uh there are some communities that are cash only. Um but 27:12uh but the the the number is only going up just like Bitcoin adoption is only going up. uh the the the the transition 27:20from a cash economy to uh you know currently it's it's it's the the major 27:26card brands predominantly but digital money is is uh is the future.27:31It's just a reality. Yeah. And uh one thing I was curious about is like when a merchant actually 27:37gets the bill from the payment processor like where does that like how does it 27:42that fee actually stack up? Like who's getting what money? Um and how much are they paying? Well, there's a few 27:48different pricing models. There's uh what's called Interchange Plus, which is like a wholesale rate plus a a flat 27:53markup. So, think of it like, you know, if you go into a uh a bar and they're 27:59like, "Yeah, we've got cans of beer." Like, our wholesale rate is 80 cents and then we just tack on another 20 cents 28:05and it's a dollar. I mean, that'd be pretty cheap beer, but you get the point where it's it's a it's a flat it's a 28:12wholesale rate. So imagine if they're like we we just add on 20 cents to every 28:17beer. So this one the wholesale rate is 80 cents. This other one is $120. So in that case it'd be $1.40. And and so 28:24that's a that's a common pricing model. There's also the flat rate model which 28:30you see a lot with the fintech, Silicon Valley based businesses like Square, Stripe, uh, PayPal, I think in it, 28:37QuickBooks does it this way, uh, where it's a flat rate plus a transaction fee.28:44And what they're basically doing is aggregating all their merchants and and then making The Limitations of Traditional Payment Systems28:52sure that they have margin. And that's is this is why Square changed their pricing model during COVID because the 28:58coffee shops they were charging under under their cost and they were losing 29:03money on every transaction and because they didn't have a transaction fee. So they were charging 2.6% and so then they 29:10or sorry they were charging 2.75% with no trans fee. So then they had to change 2.6 six plus 10 cents a 29:16transaction fee. Because if you let's say you charge you you run a $1 transaction in this extreme example and 29:24you have um you know 2.5 cents for 2 and a half% and then you have like a 10-centent transaction fee. Well, now 29:30you're looking at 12.5% of every transaction. 12.5% of that 29:36transaction goes just to fees, right? the opposite of lightning where micro payments are great 29:42actually on that like why why can't you do a micro payment on traditional payment rails uh why isn't that possible 29:50well I don't run Visa I don't know why they um don't lower their transaction 29:57fees a lot of it has to do with risk and fraud and uh and just these are legacy 30:04systems that were built a long long time ago and they're making billions of dollars 30:09in revenue. They make a lot of money. And there's a lot of intermediaries, too. So, there's the card issuer, uh, 30:16the card brand, there's there's like an acquirer, there's like the the credit 30:22card processor, for example. So, they're taking on the risk for a merchant. And 30:27this is why they this is why merchants have to go through underwriting. So, if a merchant uh only has $1,000 in their bank account 30:36and they run a $10,000 transaction and the card holder calls their bank and says, "Hey, I never got my product or 30:42service. I want my money back." And then it basically goes into escrow. Let's say the the card brand issue the card brand 30:50sides on the the card holder, then the merchant goes belly up because the 30:56merchant only has $1,000. Maybe they already spent the $10,000. Well, well, 31:01um they owe $9,000, but they don't have the the the n they know owe an additional $9,000 on top of what they 31:07have and they don't have that. In this case, the card uh the payment processor 31:12takes on that risk and therefore they're out $9,000. Well, there's not that much 31:18margin in in, you know, moving money. Uh and so really a lot of it a lot of what 31:24you're paying for is liability and and and management of risk. And this 31:30is also part of the problem. Chargebacks are greater for consumers, but it it 31:35issues it creates significant fees because the31:41um you know these centralized parties31:47are very cognizant of what merchants they want to take on, what merchants they want to say no thanks. And it 31:54becomes very challenging for the merchant in certain industries. If you're a dentist, you're good to go. If 32:00you're a coffee shop, you're good to go. There's lots of industries though that it's either not easy or virtually 32:07impossible to get approved. Uh, and you have to go through these high-risisk processors and and all these these 32:13additional hoops and you have to jump through and and and and 32:19barriers to entry uh where there's limits and and and all kinds of things and that that can create a lot of 32:25friction for the merchant as well. you know, uh, in college I was actually living in Humbult County, California, 32:31which was like actually a marijuana capital of the world really. Um, and 32:36there was so much like marijuana grown there and uh, there was a lot of 32:42dispensaries there in town. And I learned that they weren't accepted by 32:47the card networks, you know, because marijuana is federally illegal, but it was legal in this in the state or, you The Need for Innovation in Payment Processing32:54know, became legal. And those folks essentially weren't able to do payment processing. And I was asking a couple of 33:01questions, you know, to some of my friends that actually worked at the at the dispensary. And they told me that 33:06they got paid monthly completely in cash, which means that the 20some 33:13employees at that dispensary, you know, like they actually had that amount of cash on hand at one time. And 33:22I'm just thinking about the risk that those businesses are taking on because they don't have a digital payment 33:28system. and that puts them at risk for armed robbery. Uh that, you know, could 33:33put all of their funds at risk. But I don't know what what kind of options do 33:39those people have. Um can we can we offer them something uh either through 33:44the traditional payment rails or through Bitcoin payment rails? I think what you're building, Jesse, is 33:51really really important for the freedom to transact. These legacy payment rails 33:58are not eager to begin to take on new34:03industries that are taboo industries that are not34:10really clear, cleancut. The government's good to go. We've given its blessing. Uh we we we are happy that 34:18this industry exists. They make plenty of money. They process like the world's money. were trillions 34:25of dollars worth of of transaction volume. And so they're not eager to 34:31begin uh to accept those kinds of merchants and and and you know they it 34:38takes time for the Overton window to shift and for a industry like the 34:46cannabis industry to be accepted. So that's why it's really important for 34:52builders like you to keep building to allow for the freedom to transact if 34:57you're a merchant as well as a consumer. What about e e-commerce? Um I I know like you know like my company Ambos got 35:06got set up for uh payment processing online and um I was quite surprised at 35:13the fees that were charged. Um, why is it that e-commerce has to pay a higher rate uh than kind of like brick and 35:20mortar? Because of fraud, because of last week what happened with my credit card. It's much easier for a card to get stolen and 35:28then uh buy goods and services online than a physical credit card because the 35:34you have the the EMV chip and it it's much harder to duplicate. Now 35:41that the, you know, we used to swipe and now we now we dip, we insert the chip. When that transition happened, you know, 35:48it took me a while to upgrade all the terminals. But it's way harder now to 35:53just copy and paste a physical credit card with an EMV chip. But on the internet, 35:59you just steal the data, sell the data, you have a spreadsheet, you start running 36:06transactions. Uh, one of the big problems that we see with stolen credit 36:11cards is card testing. We have to be really careful with my online merchants, 36:16particularly for lower transaction sizes, because these these fraudsters will take a database of stolen credit 36:24cards and they'll run they'll write a script and they'll run $10 transactions 36:30over and over and over again, one after another. And if you're not really careful with the way you set up your website, then you might wake up the next 36:37morning and you have thousands of declined transactions and maybe maybe a 36:42hundred or or or 300 of those 10,000 were approved. The majority will be 36:47declined. But now you're you're faced with transaction fees on all the declined cards and potential chargebacks on all the approved cards because those 36:53are all stolen credit card transactions. And then what the fraudster will do now that they have the two or 30 hundred 36:59good ones is that's when they'll go and buy Apple products or some expensive 37:05item quickly because they know the card is good and and they are ready to start 37:12making real transactions. Wow. Um tell me about the what's the chargeback 37:17experience for a merchant like what what actually what happens um what what 37:23what's the process they have have to go through um help me understand and be 37:29able to empathize with the merchant that has experienced a chargeback. Yeah. The process is an emotional roller coaster 37:34is what it is. You you feel for me, I just feel so much empathy for 37:41these folks because I've seen the tears in their eyes and I've heard them get 37:46choked up over it because they've put these are small business owners. They've they've they've put their time, their 37:53energy, they've paid their employees, they've paid their vendors, they've put in the work, legitimate work. These are 38:01just good just people trying to provide a good service, good product. I've had 38:07calls with merchants, $4,000 rugpulled, $3,000 rugpulled, $5,000 38:15rugpulled. It literally just comes right out of their bank account. Now, it gets held in 38:21escrow and the card brands, of course, we've won a lot of chargebacks and the merchant gets their money back, but it's 38:29kind of like a lawsuit. I mean, it's still a massive cost no matter what, even if you get your money back. And 38:35there's no, it's not like, oh, you had to file a bunch of paperwork and pay your employees to hunt down the 38:42transaction and explain that it was a legitimate transaction. Provide a signed receipt. Provide a signed invoice.38:49Explain that the work was done. Provide the photos that the work was done. And 38:56you had to pay your employee for all of that. You had to stop what you were doing. you have you have a loss of opportunity cost and then you just get 39:03your money back. You just get to keep the money that you had already earned and that's if you win.39:09That's if you win. American Express is brutal for merchants. Now, not only are their fees are higher, they frequently The Future of Payments with Open Source Technology39:17will just side with the card holder, which is great if you're a card holder, but 39:22this is another reason why a lot of merchants just won't even take or maybe they've started to take American Express 39:28because the the card that card brand in particular has really come down in their fees and they're beginning to become 39:33more and more in line with the other major card brands, but then as soon as you start getting chargebacks, it's like 39:39it's so frustrating. And so many of them just won't even take the card brand anymore. Wow. So, okay, we've got an 39:46understanding of kind of the costs that are involved, the fraud, and the chargeback experience. Um, why is it so 39:54difficult for uh these card networks or payment processings like systems to 40:01evolve um and to keep up with technology? And do you think that there's an advantage for like 40:08open-source technology to really move things forward? I want to say I want to go back before I answer that. I want to say one more 40:14thing about chargebacks that I just thought of. You're going to laugh. One of the value ads, Jesse, that we 40:20provide is that we we don't require a40:25fax machine. So many payment processors I'm not joking, Jesse. I'm not even 40:30kidding. So sorry, so many payment processors, they they snail mail the 40:37charge back to the merchant. And the only way that you can provide a rebuttal 40:44and get to keep the money that you've already earned is by faxing the chargeback department. Your rebuttal.40:51You fill out physical paperwork and you have to send it through fax and they will not receive it any other way. That's very common.40:58So, so this is like I've had so many conversations with merchants and I'm like, "Oh, we have an online portal where you can actually upload your 41:05documentation, upload your signed receipt. Uh, you can you can type your 41:11reply and hit submit and they're like, "Sold, done." Like, that sounds so much 41:16easier. Sign me up. Thank you for bringing these people into the latest century. Um, 41:24so, so, but I'm still onboarding merchants from paper checks to credit cards. So, this is, you know, your 41:32question was, why is it so hard for change? I think is kind of, if I were to 41:37just make it super succinct, change is really hard. Many, 41:44many businesses are run by boomers who have been doing this for decades.41:51And I I mentioned Bitcoin to a merchant recently and she said, "Honey, we're 41:58lucky we even take credit cards. We ain't interested in Bitcoin." And and 42:03that I think sums it up. It's just it works just, you know, enough. And so I 42:10think that whatever solutions are built over the coming years, whatever 42:16solutions are provided to merchants over the coming years, they have to be incredibly simple. And I don't just mean 42:22simple to set up or simple to sign up. I mean incredibly simple to use. If the 42:30owner has to train their employees, some of these folks have been doing the same 42:35thing for two or three decades. And you know, during COVID, my kids were 42:44not allowed to go to school anymore. They were on a computer. I have I have I 42:50at the time I had two kids on the computer. One of them had a young teacher who 42:57immediately knew what to do. good to go. The other one had a teacher who had been 43:04doing this for 30 years and she was an incredible teacher, great teacher, really, really had a lot of experience, 43:11but it was an absolute nightmare when it came to teaching through a computer. She 43:16had never taught through a computer before. She had been doing the same thing for 30 years and never done it on a computer.43:22And it was so bad that she was she would actually teach the kids the wrong thing.43:29There were times when the image was was mirrored in reverse 43:34and and my my wife like this is when she like pulled the plug. She's like, "Okay, 43:39we're homeschooling now." uh because she taught something that was actually the 43:44opposite of what it was supposed to be because the the way the image was displayed and it was she had no idea and 43:51the kids were trying to explain that she was wrong but she she's like no I'm the teacher you know she's the person of 43:56authority here and uh and and so it's just tough when when 44:02you've been doing the same thing for a very long time and uh and it's tough for for for 44:08younger folks too at times Because small businesses are you wear many hats 44:14whether you're the owner or not. The smaller the organization, the more hats you wear.44:20And as a result, they're so frequently overwhelmed. Um the call to action on my 44:27website is not sign up for payment processing. It is not save money on payment 44:33processing. It is not uh you know issue submit your chargebacks digitally 44:39instead of through a fax machine. The call to action button is end your stress 44:44now. That's the button you have to click if you want to sign up for my payment processing company. It's end your stress 44:51now because that is the primary value ad. At the end of the day, everything is 44:57downstream from that. Reducing fees, making it easier if you do get a charge 45:03back. A lot of merchants don't get chargebacks. It's amazing. Some of them do, though. It's really frustrating. Uh the the ability to get approved, the 45:09ability to run a large transaction that you're trying to, you know, you you get this in incredible new opportunity. Your 45:18saleseople have been working so hard. You finally get the customer to say yes, and now your payment processor won't 45:24allow the transaction. I've had so many of those calls. So many of those calls. And I understand where 45:29the payment processor is coming from because they're taking on the liability. If the merchant goes belly up, then they're on the hook for 10,000, 50,000, 45:37100,000, whatever the number is. It's a big deal. It's a lot of money. But I also understand with the merchant, 45:43they're just trying to just accept money. It's not that hard from the merchant standpoint.45:49Um, god o open source, it has to be designed incredibly well. To answer your 45:55question, it has to be designed. So I really really value the open-source 46:03movement. I also understand where merchants are coming from and a lot of times the open source tech is not stupid 46:11simple uh in my experience and and it just needs to be stupid simple because 46:18they're again they're overwhelmed, they're stressed out and they just need it to work. And the reason I bring that 46:23up about the open- source piece um is because I've realized that the payment 46:28processing systems really have not innovated. You mentioned fax machines, 46:34you know, being a critical piece of technology for dealing with chargebacks and I'm I'm just seeing that these 46:41systems are old. They're antiquated and it's it's overdue for an update. But 46:46those updates haven't happened. you know, payments haven't moved into the internet age. And the reason I bring up Hope for the Future of Payments46:53open source is because it gives me a lot of hope about, you know, the ability for these systems to evolve and to keep up 47:00with the times. Um, and kind of and and still maintain some backwards 47:06compatibility so that you can help with the switching costs that I think are involved that really prevent people from 47:13actually making a change to a better technology. Yeah. if they can be developed faster, 47:19if you can iterate faster and you have a global movement of of developers who are 47:26who are moving this project forward. Um, it could be really valuable for the 47:32merchant for sure. Man, Jason, it's like awesome to get your insights on these like Trady payments side. Um, and I I I 47:40hope I can al offer some hope for the future about like what payments could be. Um, 47:47yeah. What's the hope, man? What can payments be? With the stuff that we're working on, it 47:52essentially means that you'll be able to receive whatever currency you want and you'll have 47:59instant settlement. Uh, so it's send whatever currency that you want to pay 48:05in and the merchant can be able to receive whatever currency that they want to get paid in. um which provides an 48:12incredible opportunity because that means that you have in-flight currency exchange that's paying good rates that 48:20has instant settlement that doesn't include all the fraud. Um and you've 48:25you're also set up for the future because we have things like um lightning 48:30address. So you can essentially just hand someone an what looks like an email 48:36address and get paid to it um immediately uh you know without any delays without 48:43any chargebacks at very low fees. And it it gives me hope. Um, if I could share 48:49one piece about being here in Costa Rica is they actually have a system called Sinay, which you can think of like Venmo 48:56for Costa Rica and anybody with a Costa Rican phone number can be able to access 49:02this payment system. Um, and it really is incredible because all the merchant has to do is post their phone number and 49:10you can pay to it. And Bull Bitcoin has actually created an integration. So I 49:16can pay Bitcoin here and pay to any merchant that accept accepts Sinay which 49:23basically that means that I can completely live on Bitcoin here um in Costa Rica. So like what an incredible 49:32innovation that's very low tech. Um, and it does give me hope for the future because, you know, Bitcoin and the 49:38Lightning Network actually map into these systems and help help them stay interoperable. every pretty much every 49:44time I I get on this podcast, I just get more bullish on on I get more bullish 49:51not just on number go up and and price appreciation, but I I get bullish on 49:56the opportunity for impact that we have in the world in 50:03and innovation not just for shiny object's sake but to really improve lives in in a meaningful way. It it is 50:10an incredible opportunity and that the the burden of that opportunity um is is 50:16not lost on me. Um you know as like a VC backed company um thankfully I have 50:23investors that you know aren't pushing me and telling me what to do. Um they're 50:28asking me you know basically where where do you want to be? Who do you want to 50:33serve? Like like what kind of dreams do you want to make real? Um, and that's 50:40it's it's quite it's quite a burden to actually carry that, but it also gives me a lot of hope and a lot of 50:46flexibility. Um, because there's a lot of trust there uh to be able to deliver some incredible products for the future 50:54um and set us on a good path that is more hopeful um with with Bitcoin.51:00Jesse, what does that mean for you as a founder building something that is not just cool 51:09tech? To me, it sounds like, and I think this is the case for a lot of Bitcoiners, to me, it 51:16sounds like you that there's a deep meaning and purpose and and reason for 51:23what you're doing. And it's it's not just cool, it's it's important and maybe 51:30like necessary and and you mentioned carrying the weight of that. What does that mean to you and and why is it so 51:37important to you? Well, uh one one thing is uh you know starting a company you have to battle 51:43through all your imposttor syndrome about actually you know am I the right person to do this? Um, and I I actually 51:51had to ask some of my investors like why did you why did you invest in us? Um, 51:57and the reason that they came back with kind of surprised me is that like we actually have a good sense of empathy um 52:03to be able to figure out and empathize with the problems that people are experiencing and then devise solutions 52:11to go fix that. You know, that's where the engineering kicks in. Um, and my 52:16co-founder Tony uh he's he's from Colombia and um52:23what I've learned is that the Colombian banking system is actually atrocious. Um 52:28we actually went to go set up a bank account while I was there visiting him and you literally had to go to a bank 52:35branch and pull a number and wait for, you know, an hour just to talk to someone behind, you know, a a plexiglass