Freedom Money Ep14

Today on the podcast, we have Taylor Volpe from Split. Welcome to the podcast, Taylor.

Thank you. Thank you for having me.

I just wanted to get started. Everyone's got a unique journey to Bitcoin, so I don't know if you can tell me a bit about how you found Bitcoin.

Well, I heard about Bitcoin, so I pretty much when I graduated college, it was becoming a thing. I didn't, but I wasn't necessarily drawn to it. I had different jobs, different things, and I didn't— it wasn't until, say, a few years ago that I really like dove hard into Bitcoin, understanding it. And I understood the powers of it versus before. To me, it kind of got lumped in with all the other kind of crypto, like, and it was always associated with like making money. But the actual idea behind it being like a peer-to-peer currency, and, um, like a way to protect your, the, you know, the energy that you've, uh, expelled, you know, making money. Um, that was all, that was like a whole nother world to me that I didn't discover until a few years ago. And that was a totally, all the things were just so, just amazing to me. Um, and I, I kick myself because I graduated college in 2010 and so much of this stuff was like, you know, happening right around that time and I totally just I missed it. I missed the, the actual meaning behind it all.

I'm the same. I was heavily involved in foreign exchange markets, trading. Bitcoin was always around. Alternative currency, right up my alley, right in front of me.

Yeah, I was a political science and an economics major in college, and I love game theory. I love behavioral economics. I was like, I read all the Freakonomics books when I was young. And, uh, so much of this is like, how did I miss this? I was so upset by the financial collapse in like 2008 of the mortgage industry and everything. And this was, this was all happening. Uh, I don't know where I was. I don't know what I was thinking, but, um, so I feel like I'm late to the game, but, uh, I, I don't think that's actually true. I think we're still very, very early in this whole thing. So happy to be here now.

I definitely agree, agree with that. So tell me about the company now and the mission.

Yes. So what, what led me actually to like sort of this deep understanding of Bitcoin was, um, me and, uh, my fiancée and I, uh, run a restaurant in Washington, DC. It's a small little cafe. It's called, uh, Mola. All her family is, um, from Panama, so it's all her. She's the chef. She's like the passion behind it. And I— one of the things that drove me crazy was the payment processing fees that we paid. And it was a problem that as your business would scale, the fees would scale with you. There's nothing you could do to ever overcome it. And I just sort of got on this like mission about how could I make a— how can I make— could I come up with a product or just a service really that would at least just help us do away with these fees? And I just researched tons of different technologies. Different ways to do it. And, uh, Bitcoin is obviously— the fees are almost zero. But at the time, that wasn't really, um, it wasn't realistic to think that you could build a product that you could get both sides of a marketplace. You get a bunch of merchants to adopt that, or a bunch of users. Um, this was actually— I think some of these things have changed recently, which is why we are where we are today. But, um, So I ended up when I ended up messing around with a lot of ACH payment type systems, and I was trying to make it so that customers could pay us with their bank accounts in person versus— there was no products that did that. And through that journey and through that process, I obviously went to a lot of fintech conferences, a bunch of different places. I was very interested in blockchain technology and what it could do, but I just didn't think it was like adoption. It wasn't ready for like the market to adopt it. And I actually spoke with a bunch of guys that, um, they ran their own crypto coin nonsense stuff, but they were telling me to do that with the platform that I was building around ACH. And, um, I immediately went back to Bitcoin because I was, I, I was all— I, my understanding of blockchain and everything was Bitcoin, but I just didn't fully deeply understand it at that point. And when I went back and started looking at this stuff, that's when I sort of— everything just like clicked for me. And, um, it dawned on me, this is the solution. And not only that, it's like much deeper than that. It's much deeper than the merchant fees. There's so much to this.

So for the merchant piece, there's so much we can dive into. I'm definitely convinced. The thing that I find so striking is the fees that merchants pay are so significant. And I don't know what they are, order of magnitude, 3 to 5% something, right? It's a big number. And, you know, they're selling a product and their margin may be very small, right, in, uh, retail. Or, and so when we're talking about cutting these fees, it's not insignificant to their margins. It can be a huge increase in the margin of the business by simply reducing the fees that they're paying.

Yeah, it's astronomical actually. So, um, well, we're in food, so that's But any retail space, the margins can be 5 to 30%. Margin is amazing in retail and different types of retail. There's different room there, but you're typically looking at somewhere between 5 and 30% margin on your business. So most processing fees, you're looking at at least 3.5%. So if you're at a 10% margin and you're adding in 3.5% on top of that, you're almost—

you're—

that's a significant increase in your profit. On a, on like a year-to-year basis. And like I said, this scales with you. Like, you can do— you can become this growing business, but that 3.5% grows with you typically. So it's like a problem that you can't really get away from. It's just this tax that just you just have to accept. And one of the amazing things about Bitcoin and L2s really right now at least is that we—

there's a word—

there's a world where that doesn't have to be the case. And those benefits aren't just passed to the owners of a business, that's passed to the consumer. That's more business, that's more utility that we can put back into our products, we can put back in our employees, we can pass back in the form of cost saving. Like, we can just lower our prices if we don't have to pay these types of things. And that's also— I, I say this because I've actually met with like local, um, some local government people about why they should care about this too, is every time you have a transaction in your community, 3.5% of that transaction is being sucked out of your local economy. And in our case, Square, which they're not doing anything wrong, but that's money that if it stayed in our economy and it circulated throughout our economy, the tax revenue would— the implications are very actually large. So it's just better for your entire local economy to cut down on these fees if it's possible.

So I guess I'd like to walk through the technology a bit. So Bitcoin on Bitcoin, uh, you know, we have these 10-minute cycles, settlement, Uh, transaction fees aren't ridiculously low for retail transactions, so these are done on level 2. Is it Lightning?

Yeah, so what our application, we use Spark, which I don't know how familiar you are with Spark. It's pretty, it's relatively new, um, but Spark basically, it's like, uh, you have unilateral exit, um, you can control your funds, you sign, so it's self-custody, but there's a lot, there's some criticism about is it really self-custody? You sign, but the Spark, the operator of the network, also signs, but you— they cannot spend unless you sign on a transaction. And then there is a unilateral exit so that if the network goes away, if the Spark operator disappears, you can go to the main chain. My understanding is the Spark network runs through a Lightning node, and it allows you to have basically the Lightning Network without needing each user in the network to have their own node that they manage. So when you're talking about like a mobile app, it totally makes it like a seamless, easy experience for the consumer that— or for the user that prior to this I did not see anywhere in the marketplace. And this is still— what we're using is a company Breeze, and they're building on LightSpark, and LightSpark manages the Spark Network. But this is all open source software that I think in their mind, once it's like, once they have it like kind of implemented, anyone could start their own Spark network and attract users to it. And there is some like custom— you can customize some of these rules, some of these things a little bit to whatever that network kind of desires. But what this allows you to do is like you don't need to do any of the— you don't need to manage your node, you don't need to worry about liquidity, you don't need to open up or closed channels, and you're able to transact over the Lightning Network. So yeah, I think this— that was one element that I saw where we could actually— everyday user could do this without needing all this background with a Lightning node. And the other aspect I saw was when Square enabled Bitcoin payments on their POS. Those two factors to me immediately changed this whole equation about is it realistic to make a product that a merchant and a consumer can use on a regular basis to transact. So yeah, that's— that we immediately— I was like, I was actually getting a little bit of traction with our ACH products and we were making some headway. We actually built some cool stuff. And as soon as we saw these two things lining up, it was a no-brainer. And we just completely dove into this. And this is about— this was sometime in December that we came to this realization. And last month was the first month that we actually have got rewards, the first like real version of what we were trying to do up and running.

And so it's live now. And yeah, I mean, it's— I guess some of the challenges we were talking about earlier in terms of payments, right, using Bitcoin for payments, using Bitcoin as money, using Bitcoin as collateral and using Bitcoin as the base of the financial system. I think we feel like we're still early in this adoption curve. But can you walk me through what you see in the payment space in terms of how merchants and, you know, clients interact with Bitcoin?

I can tell you, like, locally in D.C., and there's like— D.C. is interesting because there's always politics touches everything, just everything. You just can't escape it here. So one thing that I think is very clear talking to merchants and talking to users— merchants love the idea of not paying fees, obviously. And there were numerous merchants that immediately turned on their Square POS to accept Bitcoin, but then nothing happened. There's— what we're finding is like there's almost no appetite for even like hardcore Bitcoiners. They don't really want to spend their Bitcoin. Unless maybe there's like some substantial, um, discount or like some sort of extra reason to do that. They're not just like inherently looking for Bitcoin. And it's like, that's actually a big challenge. And then getting people that aren't into Bitcoin to adopt Bitcoin, there's actually a lot of curiosity. So in our shop, we have a sign that tells people about Bitcoin, about that we accept Bitcoin. It also points us to our product, which gives you rewards if you use Bitcoin. And there's a lot of curiosity, but there's also a lot of like animosity towards Bitcoin. DC tends to be very like liberal, and there's this idea that this is a right-wing MAGA-associated thing, and that is an immediate turn-off to a lot of like at least our customers where we are. So like there's these, um, people really don't understand a lot of this yet, and And I think once a lot of this starts to sink in and we can get past some of these minor barriers, I think we are going to be well on our way. I think it's like anything, it's going to be like a tipping point. It's going to seem like nothing's happening. We're just spinning our wheels. But then when I think there's going to be a point where it just becomes an obvious way to do business.

So I guess specifically, what's it look like from the merchant's perspective? Is it an app?

Well, from the merchant's perspective, We don't right now, and we plan to based on what merchants' feedback they give us, but right now the merchant brings their own. The merchant's already accepting Bitcoin. We're just on the user side, and we just— the merchant's delivering you like the QR code, like the Lightning invoice. Okay, you're just using our app to fulfill that, um, invoice, and we're just getting rewards by using the app. Exactly. And, uh, so what we do is we— if we We can tell if it's a merchant transaction if we've included the business in our backend. It's not a secret. We use the pub keys. So we have basically a database of merchant pub keys. And if our wallet transacts, pays— basically pays a Lightning invoice, we just compare the pub key to our database. And if the pub key hits the database, then we know, okay, this is a merchant transaction. And we credit that transaction as part of our rewards program.

So Apart from adoption and kind of how, how people think about Bitcoin and maybe the propaganda they're receiving, what are the other challenges that you run into? And I guess from Washington, I'm specifically curious and always kind of curious about the regulatory environment that Bitcoin businesses operate in and how, how those boxes feel.

Yeah, well, there's a lot of, there's just a lot of mystique around Bitcoin. When people open up our app, you have to do the whole— you have to create the wallet and the whole seed phrase, and people are just like, what's going on? And then they're kind of like confused or concerned about that. And then the taxes are a big thing here. Everyone's afraid of if when they spend it, like, making basically all these things like tax reportable events. I personally am very— I don't want to say I'm not afraid of that. Like, I just— if you're doing like spend and replace, if you're buying Bitcoin and you're spending it within a month, uh, my thought is like you're either going to win or lose on such a small level that— and the amount of effort and time that would take for the authorities to go through and figure out that you owe them 12 cents.

AI agents will be doing it, going through. And yeah, you know, I used to be horrified if you had to go through all these transactions because I do spend Bitcoin.

Yeah.

So you, you go through and You're like, wow, you know, but I'm assuming it'll be easier to do.

Yeah. And that's a big fear that people have. One of the things we actually just did based on this, some of the, this was a constant complaint I got. And I realized like, I'm a little less concerned about this than the standard user is, but we actually just added it. We just released it where, you know, you can export all your transactions in a CSV file. And I showed that I did this with an accountant and I was like, hey, if I was your customer and we were doing a Bitcoin tax return and I gave you this CSV file, would that work for you? And they're like, oh yeah, definitely. They're like, we can just run this, this has enough data and information that we can actually just run this through AI if we need any additional information about what the price was or different stuff like that. Um, and I think there's room in— even just thinking about this now, I think there's room for an AI to be actually in that part of the application where the AI could help you log that, um, or reconcile that for you, um, inside the application actually. So I think like there's, there's definitely solutions there, even if, even if we don't get, um, the legislation that we're all hoping for. I think there's definitely solutions that we can make that really easy and like seamless for users. But it's a big fear, it's a big concern. And, um, yeah, I think people are just afraid of Bitcoin that aren't used to this stuff. And I think the more they're exposed to it, the more they see other people doing it, the more they see tangible benefits from from it and the more they just get used to it, the more I think you'll see like that curiosity turn into actual use.

It just, it's so, it's such a valuable technology and the payment space is such a clear application of it. When you look at paying people, sending wires, however you're transacting, those are obviously benefits of programmable money versus the, you know, traditional system. We'll say, um, you know, and it just shows up again with payments. We're talking about this 3.5% fee, and then, you know, 2% of that is kicked back to the user in points or rewards or something else. And, you know, we've built this whole layers and layers of infrastructure, and clearly to do that, right, to create the infrastructure so that merchants can accept payments and that people can pay things. There's a cost and a service that's being provided. And, but it just seems like, you know, technology lowers the cost of everything. And it seems like this 3%, 3% on 50 years, more than 50, and it's been my whole life. You talk to any merchant, right? Just getting bent over on bank fees. So what is it? Like that moves the space to something that is more democratic and accessible and uses the technology to help? Is it just slow adoption continuing, or—

um, I honestly, uh, I think pop culture could actually push this in a big way. I think if this became trendy, and I think that's one of the things about Bitcoin is it's not a company, it's not you know, it's like a movement in a sense, and it's very grassroots, and it's, um, it doesn't spend a lot of time on those types of things, which I actually think is good. I think it keeps it closer to like what it's intended for. But I think if, um, just more everyday, uh, they don't have to be celebrities in the sense of like Hollywood stars or anything like that, but if just more regular people that, that we see like in our news, it could be some levels of politicians If you saw senators, um, and I'm talking about like simple videos of just somebody paying with Bitcoin and then being like, what'd you just do there? Oh, I paid with Bitcoin. What else would I do? Why wouldn't I? And just sort of like demystify the whole thing and just make it seem like, yeah, like, what are you like? What's wrong with you? Why would you not? Um, and I think the more we see that in sort of everyday, um, the more we get, uh, exposed to that as a society, I think it'll just become come. People start— people are very curious about it to begin with, and the more we stoke that curiosity— that's why, like, some of the features that we're always thinking about— we just added a thing where when you— for each transaction you make with a merchant, you can hit a button and it creates this thing. It's called proof of spend, and you can add a photo. So if you go to a place, you take a photo. You know, there's people online, they take photos of themselves or videos of themselves spending Bitcoin as a way to show. You can just hit a button and you— it'll it'll make a post for you. Basically, it's set up mostly to work on X, but it'll work on whatever social media platform. And it's just the thing at the top, it says proof of spend, and then it has a photo of whatever you just uploaded, and then it has the, the amount of Bitcoin you just spent and the date, the time. And then if the— if it's in the notes of the transaction, it says the location that you spent it at. So it's just a way for you to very quickly show people, hey, I'm spending Bitcoin.. And, um, I don't know if it'll catch on or not, but like the more you see, the more your feed is full of that where you just see people spending Bitcoin all the time. Um, because one of the recent things was everybody was saying that nobody spends Bitcoin. I don't know if you're hearing that. Like, I guess Coinbase, when they were talking about, um, the legislature, uh, Coinbase was alleged— it was alleged that, um, representatives from Coinbase were saying that don't worry about the Bitcoin, um, the Minimus bill, no one's spending Bitcoin anyway. So it was— some of these things are sort of like a way to show proof of spend. And I think the more proof of spend we have and the more people that have stature in our society that are partaking in that, I think the quicker we'll see adoption.

I think adoption probably matches the CAGR and historical experience. And I think you can see— I always get the sense that there's people building in the space now things as much as has ever been built in the space historically. I just feel like usability and, you know, everything will improve over time. So yeah, it's an interesting time. So for you, in terms of expanding the product, is it, you know, dealing with new features? Is it geography? How do you branch out from here?

So we're adding an Android version. Hopefully in like a week or two. Maybe that's optimistic, but hopefully in a week or two. And really, it's— I think with us, it's about, uh, you know, it's a— I think Bitcoin is a scary space in general because there is so much— it's so unregulated. So I think you just have to have your face and name out there a lot for people to get comfortable with your product. And you're, um, uh, we're working to open source our stuff very soon as well. That's at the top of our list. And so we want to be vetted, we want to have feedback, we want to have criticism on what we're doing so that we— people, people see what we're about. And then I think it's some not marketing in the form of ads, but, you know, if we had a budget to— like, we're bootstrapping all this, we're doing this all ourselves. If we had a budget to sort of promote ourselves through, what we would spend something like on that is more like events, like with merchants. We would like maybe sponsor, like, people pay with Bitcoin on a certain day, they get like the heavy discount or something more local where we're in person. Um, and then, you know, there's something that could potentially be very big for us right now. We're adding each merchant pub key, pub key by pub key, and then we're listing the merchants in our app. In the next few weeks, we may be able to confidently say that we can credit most merchants all across the United States, and that would open us up from being a local, like, DC sort of rewards-only thing that's trying to get going to where we could open it up to like anyone in the United States could use our app and potentially spend at a Bitcoin merchant, um, and get credited with the reward. Go ahead. This is imminent, like fingers crossed, uh, uh, it's gonna happen depending on the scale of how much information we need to collect will determine how fast we can do it. And how fast we can determine that we don't need to collect more, if that makes sense. So in the infrastructure, how we do the rewards is based on the pub keys. We need to figure out how many pub keys— what we're finding is most merchants are on services, and those services are custodial. And the custodial services are only running 1 to— I'm not sure how many, but I suspect 10 or less pub keys per merchant service. So it's basically, um, if you can identify all the pub keys on these custodial services, then you can almost— you're covering, you know, over 90% of all US merchants that are accepting Bitcoin. So it's just a matter of, um, understanding how they're assigning the pub keys. Is it by region? Is it by country? And then determining how many pub keys they have and just collecting them all and putting them in the database. And then And we're able to say, hey, if you're in the United States and you make a purchase with a merchant, most likely you're going to get rewarded in our app.

Amazing. So yeah, so how does it work, the no-fee model? I have to ask about the business model. So it's no fees to the merchant?

Yes, so there's no one is getting charged right now. And in fact, so the way rewards work is we put Bitcoin— we have a platform wallet and we put each month we put Bitcoin in in that wallet. And we track spend, how much you spend with merchants, and we aggregate that across the whole platform. So if all our users spend $1,000, which is extremely low, but if all our users spend $1,000 in a month and you spend $100, you make up 10% of the spend, you get 10% of the Bitcoin that's in the reward pot. And the— we also, we do an on-ramp. It's through KYC, which It's Stripe, so it's KYC'd, but there's an on-ramp feature where if you buy Bitcoin via our on-ramp, 10% of that spend gets credited the same way. So you get credit for buying Bitcoin and then spending it. How are we ever going to make money? Well, we— I have a lot of different ideas, and there's a lot of products and tools you can build on top of wallets, but referral services is one. Referring people to other companies that that match the ethos, like, uh, borrowing and lending platforms, for example. Exactly. You know, we can refer just as— just if, if we do— if, if our model of rewarding people for buying Bitcoin through an on-ramp is like, say, that became super successful, we could negotiate terms where we could get a piece of the fee with the on-ramp, or even just a flat fee from the— from, um— but to be honest, the real goal of this, like, obviously we want to build a business and we want to make money, like, that's— we'll do that. But the real goal of this was to create a self— like a sustainable system where people could get rewarded for spending Bitcoin and we could push Bitcoin as a currency. And if that project were just to get to the self-sustaining level where we could do a monthly pot and it had, you know, people spending Bitcoin in the real world and merchants not paying fees, I would consider this a massive success. So, um, we are— we want to make money, but, uh, just breaking— just a self-sustaining rewards pot would be, uh, a big victory.

Yeah, no, that's amazing. Um, so what other— what, what's your advice for builders, having been a builder in this space for years now?

Uh, well, so I think you, you just keep, keep building in the, in the world you want Like, we— I started the project a long time ago, and it actually, like I told you, it didn't even start with Bitcoin. It was focused on, and it still is in a large extent focused on— it was about merchant processing fees. And I was passionate about that. I've always been passionate about financial technology, and I'm passionate about Main Street businesses and everyday local economies and people, you know, working hard and keeping what they've earned. And I think in this country, that's that's really challenged these days for a lot of different reasons. And I just kept working on what was a ridiculous problem against pretty ridiculous odds. And as technology and time came by and I learned more, and things like Bitcoin come into your— you know, you discover all these things and you keep going. It still seems like a long shot, but it almost seems like there's like actually a clear path to it now, and it doesn't seem as crazy as it did before. And, um, you don't know what the world's going to look like. I think things are changing really, really fast. So I think you build in the areas that you think things are going to go. And I think Bitcoin is going to be— in 10 years, I think everyone's going to be using it to transact. So start building, um, building for that reality. And in the moment, you may be a little early, you may be looking around like kind of like, I don't know, like there might be more, you know, quicker trendy ways, but If you stay in a space, if you really love or you're passionate about a space and you stay in it, and the more you learn about it and the more you, you see it, and then the more you can be— it's, it's one opportunity to be creative. Like, that's the thing I'm really drawn to. This is a really hard problem. There are, there are a lot of people with a lot of money that are trying really hard to get people to spend Bitcoin, and they're failing very bad, very miserably. So it's not— I think it's a place where creativity is gonna— is the winner, and everybody has equal access to that. You know, you're not gonna be able to buy your way, um, to a solution here. You're gonna have to really understand the consumer, understand the merchants. You're gonna have to spend time on the ground, and then you have to build products that are gonna fail, but then you're gonna learn from those failures. And between, you know, all the people working on this, we're gonna find a solution. We're gonna— we're there, and we're all gonna be spending Bitcoin every day now.

So yeah, no, I agree. I It's hard, uh, hard to go back to fiat money when, when you've adopted Bitcoin. And like, your wife's from Panama, I live in Costa Rica, you know, everything's in US dollars, Costa Rica, you know, I have Canadian bank accounts, and it's like, it's, it's just the paper that come out of this machine every now and then. It's the office. But Bitcoin is money. And yeah, where This has been super interesting. I'm super interested to see where it's in, you know, a year from now things are landed. Can I send people to get in touch with you?

Yeah. So we have, I'm on X or Twitter, whatever, but split-loyalty.com is the website. And we actually have like tell you how many merchant transactions we facilitated, how much money has been spent. And then it also shows you how big our reward pot is for the month, and then how much Bitcoin we've given out over the lifetime. This is only the second month we've been doing it. So, um, and then the app is in the App Store. You have to— if you search Split Rewards, it's like the second or third thing that comes up. And what's cool in there too is you get a live— in the app there's a, there's a section and it tells you, uh, what— where you stand. It's like a live leaderboard— not leaderboard, but it tells you exactly what, how much you spent this month, what, what your percentage, what your percentage is of the spend, and then how much you're projected to, how much Bitcoin you're projected to earn, um, if the month were to end today. And what was really interesting, we do not have that many users, but everybody at the beginning of our first month, people that were using it were like, oh, this is really cool, like, thanks a lot, like, you know, I don't really care about the reward, I just want to use it. And that was true, people were like slowly making transactions, but the last week of the first month, the transactions were jumping. Like, it's like people were, were— I don't even think they realized it, but they were like competing with each other. And like, all the transactions were in the last like 5 to 6 days almost.

And there may be an opportunity there, Taylor, to gamify this, make it like hourly and daily.

Well, I, I, that one of the hope behind doing that, and I think like just that there are people, you know, everyone's wired differently, but like I'm naturally kind of wired that way. Yeah. Where it's like I don't care, but if there's a scoreboard, it's like, well, if someone's keeping track. And it was interesting because everybody, you know, I think most people that were using it were using it almost out of like, like as a friend and, you know, to try it. And it still sucked them into, uh, increased spending as we got closer to that deadline. So, um, yeah, I'm excited to see, um, if we can scale the user base, I'm excited to see how that works out trend-wise. I feel like there's going to be at the end of each month, there's going to be like this rush of sales.

Amazing. Yeah, amazing. Thanks again and good luck with it, and we will definitely be in touch.

Yeah, thank you so much. Yeah, this was really great. Thank you so much for the opportunity and for, uh, the audience. I really appreciate it.

Talk soon.