Your trusted source for data and analysis on the burgeoning realm of utility use of cryptocurrency in the developing world.
Hello! My name is Matt Ahlborg and I am a data scientist and analyst. In February of this year, I wrote an in-depth article which aggregated trading data from LocalBitcoins.com and paired it with other data sets relating to global socioeconomic and geopolitical circumstances. On the whole, I was able to show that Bitcoin activity on the platform gravitated towards certain geopolitical and socioeconomic environments, and that utility, not speculation, was likely the driving force. The article was cited by the NY Times, The Human Rights Foundation, and CNN to illustrate the potential value proposition of Bitcoin in certain places of the world.
Since publishing the article, I’ve made connections with dozens of users on this platform from all around the world and have interfaced with the companies most active in this space and likewise gained their perspective. Most recently, I’ve been sponsored by dlab, a venture capital accelerator in the blockchain space, to research this topic on a full time basis. Today, I am excited to unveil the first phase of this project with you, the launch of UsefulTulips.org, a website dedicated to studying the mysterious and misunderstood, yet incredibly valuable realm of utility use of cryptocurrencies in the developing world:
UsefulTulips.org, in its current form, can most simply be described as an improvement upon other websites which have posted Peer-to-Peer Bitcoin trading volumes before. Some of the areas that UsefulTulips improves on those websites are:
- Volume across all currencies are shown in USD equivalent values instead of against volatile fiat currencies or Bitcoin. This allows for uniform interpretability of the data across all currencies and prevents misleading distortions of activity when measuring against some currencies such as the Venezuelan Bolivar.
Volume measure in Bolivars:
Volume measured in USD Equivalent:
2. Volumes are now grouped with a regional perspective. Activity on Localbitcoins has been heavily influenced by regional trends and the presentation of data relating to this phenomenon is now shown with that in mind.
3. Charts are now adjustable and allow for viewing of selected date windows and groupings.
4. Additional data layers have been added such as local fiat to US dollar exchange rates as well as the percentage from global spot price at which these local fiats trade against Bitcoin.
In addition to these basic yet impactful improvements, additional data layers and interoperability will be added shortly with the goal of allowing for analysis to be conducted on the potential causal factors on Bitcoin trading volume against certain currencies in certain parts of the world.
Since writing my first article in February, I’ve learned a lot more about the nuances existent within this data set and it has changed my interpretation of the data considerably:
1. Currencies ≠ Countries
In the process of analyzing advertisements on Localbitcoins, I found that a certain few currencies trade in many countries. This is best exemplified by the world’s reserve currency, the US Dollar, which is traded in dozens of countries around the world. In doing preliminary analysis, I estimate about 25% of USD trades conducted on LocalBitcoins are such that both sides of the trade reside outside of the US. Additionally, I suspect that out of the remaining 75%, the majority of those trades have some sense of internationality where one side of the trade resides outside of the USA or where the dollar wallet associated with the trade is intended for use by someone residing outside of the USA. USD trades are usually conducted against online wallets like Paypal, Skrill, Zelle, or others because they are available to citizens of many countries, unlike an official US bank account.
Jurisdictions where the US Dollar trades especially high are Ecuador, Venezuela, Colombia, and Zimbabwe. While this phenomenon happens most with USD, I’ve also observed it with Euros, Russian Rubles, South African Rand, and others — usually by traders residing in respective neighboring countries and who have access to multiple currency systems, likely due to their residentiary status across multiple jurisdictions. A student born Zimbabwe studying in South Africa would be a good example. Unfortunately for the sake of analysis though, LocalBitcoins does not specify the physical locality of each side of a given trade and so it is very hard to distinguish which volumes for a given currency are attributable to which jurisdiction. On the whole though, I still feel this trend is an exception, and that most national currencies largely trade within their own jurisdiction. Many of these transactions may still have some sort of international flavor to them, however: such as remittance, cross-border payments, international freelancing work, or others.
2. LocalBitcoins Volumes are Only a Proxy for Activity
I stated in my previous article that traders oftentimes use LocalBitcoins for the first series of trades with a counter-party for safety or convenience and then may choose to move off of LocalBitcoins afterwards to avoid LocalBitcoins fees or to achieve more anonymity. After speaking with many traders on the platform, I am convinced that is happening quite a lot. As a result, I feel that the volume shown through LocalBitcoins API is only a part of the story and there exists a considerably sized web of trading relationships across social media sites and chat applications of all types which has formed over the years from activity which originally began on LocalBitcoins itself. The level of this activity is impossible to measure and could be anywhere from a significant fraction of the volumes shown through the LocalBitcoins API to several multiples of it.
3. Policy Changes at LocalBitcoins
Recently LocalBitcoins has come under increased regulatory pressure and has added KYC (know your customer) and AML (Anti-Money Laundering) measures of various degrees to its users. In May of this year, it also disallowed the trading of gift cards on the platform, ostensibly due to the fraud risk related to trading in gift cards. Lastly, citing regulatory pressure, it also moved to geo-block Iran from the platform.
While many believe that increased KYC/AML compliance will chase users and volume away from the platform, the issue is nuanced. As I’ve discovered in speaking with people who use the platform regularly, conducting KYC/AML with a company or institution which resides outside of your own jurisdiction can be agreeable so long as the KYC/AML information forwarded to LocalBitcoins does not make its may back to the government of the user who supplied it. In other words, a citizen of Venezuela may not mind submitting their documents to LocalBitcoins in Finland so long as those documents and their trading activity are not shared with the Maduro government back in Venezuela.
Most Recent Data Trends
In the article I wrote in February, I wrote on trends up until the end of 2018. Since then, three quarters have fully passed and the landscape of trading on LocalBitcoins has changed considerably.
Firstly, year to date in 2019, the small country of Venezuela has leapfrogged the Chinese Yuan and the US Dollar in trading volume on LocalBitcoins and is now second only to the Russian Ruble. So far in 2019, 250 Million Dollars worth of Venezuelan Bolivars have been traded on LocalBitcoins.com, already surpassing what was traded in 2018. Keep in mind also that a significant chunk of USD volume is attributable to Venezuela and additionally that, as I will show in a later article, much of all Latin American volume across over a dozen other currencies is also attributable to the crisis in Venezuela:
When looking at global regions, aided by Bitcoin Spring during Q2 of 2019, Latin America posted an all-time high in trading volume, and Eastern Europe and Sub Saharan Africa nearly broke their own records as well. Correspondingly with the dropping Bitcoin price and decreased volume across many larger exchanges, Q3 of 2019 showed most regions dropping in volume. A noteworthy exception though is that Q3 of 2019 was Sub Saharan Africa’s best quarter ever.
As I will show in later articles and with added data layers, while LocalBitcoins volumes are still heavily impacted by Bitcoin price and volume changes globally (suggesting that a significant proportion of activity on LB is still associated with speculation), I will also show that over time, LocalBitcoins volumes are increasingly impacted by geopolitical and socioeconomic developments as well.
This is just the beginning. In the coming weeks and months, I will be adding the ever-growing in Paxful Data set, enhancing the LocalBitcoins data , and adding other data sets which will show exciting trends taking place all around the world. In addition to the data, I will also be bringing forward articles which show specific use cases being employed on the ground in these countries and give qualitative context to these data sets and help the reader understand the primary value proposition that cryptocurrencies are already offering to many people around the world.
Lastly, if you got this far into the article and you are still wondering why the heck the website is called UsefulTulips, you should familiarize yourself with Tulip Mania, a speculative price bubble in the years 1636–1637 which abruptly rose and collapsed because the underlying asset of the market, the tulip bulb, while scarce, had no intrinsic value. Since Bitcoin’s inception over ten years ago, Tulip Mania is a favorite analogy among many skeptics on Wall Street and in the economics realm when speaking on Bitcoin. UsefulTulips.org and the corresponding research that I’ll be doing will attempt to show, in as objective, honest, and balanced way as possible, that there is a lot more to this technology than Tulips.
P.S. Please follow the UsefulTulips project on Medium.com and Twitter. I will be regularly publishing long form analyses on Medium and pithy, topical observations to Twitter. As always, if you have some interesting context on these data sets or questions to the arguments I’ve made, or would like to help in some way, don’t hesitate to reach out to me on Twitter, LinkedIn, or firstname.lastname@example.org.