How Humans helping each turned a Subverted situation into the birth of a new payment network

May 24, 2016 · 5 min read

Six months ago I got a call that changed me as an entrepreneur.

Her name was Rose. Her three young children were screaming in the background. Rose herself was in shock as her rent was overdue and her family was facing eviction. For twenty minutes I calmly listened as Rose insulted my entire generation, all of technology and humanity in general in a fit of unadulterated frustration. It was worth it because I saw a problem I never knew existed.

In Rose’s profession it was all possible to earn a months rent within a single night. All she needed to do was to post up an advertisement. The problem was she needed bitcoin to do it and buying bitcoin online without a bank account and instantly was nearly impossible even for the most stalwart geeks let alone an unbanked and non technical person with just an old smart phone and $25 of cash in hand.

Bitcoin entered the scene when a sheriff in Illinois decided to make morality a part of his political future and sent a letter to Visa and Mastercard asking them to cease operations with a classifieds ads site called known for their adult ads. Visa and Mastercard caved into pressure and Backpage lost their ability to process any debit or credit cards. Bitcoin was their only option so it became mandatory for their users but bitcoin was nearly impossible to acquire and use for their unbanked non technical user base.

In Fin Tech everyones loves talking about solving the problems of the unbanked in Africa and Asia but no one ever talks about the unbanked in our own back yard. Over 40% of Americans are unbanked and sex workers remain a part of an invisible class within society, shunned by the mainstream and banks alike. As an entrepreneur I had to do what is often the hardest thing there is. I had to listen to the user. This was the first call of many I got from people like Rose and as I listened I was shocked by what I learned. Rose did not have a bank account or laptop and had no desire for either. She just wanted to post her ad, meet a client, get paid, pay her rent and buy diapers. BackPage told her they only took bitcoins now. So she found our number after searching for hours. What could I do for rose?

The problem now is that the merchants could only collect bitcoins, Rose only had cash and no way to turn it to bitcoin. I asked her how she paid for ads with a debit card when she had no bank account. Turns out she simply bought Visa gift cards from the local drugstore with cash and paid that way, so did most of this community. I finally made a connection.

Could we some how turn her gift card code into bitcoins and send them to Backpage? We as a company couldn’t because Visa and Mastercard would quickly shut down our merchant account but an army of our peers could. Imagine if the Transportation Office forbid any taxi in the city from giving Rose a ride, Rose wouldn’t be able to get anywhere but if normal folks all chipped in to help get her around you’d have… Uber. Peers working together to help each other can overcome nearly any limitation in transportation housing and now payments.

So we built a peer to peer marketplace and invited a bunch of folks with bitcoin to sell it to folks like Rose for Visa gift cards. Normal folks laughed at the thought of helping escorts but the bitcoin community thought they were doing “God’s work” as one Redditor put it. Overnight more and more peers joined to help people like Rose out. We called them vendors because they operated like any marketplace would. They simply sold “bitcoin, which is still considered a commodity by the US government.” As the vendor base grew they began offering other ways to pay them. Everything from Amazon gift cards to Walmart, to Western Union to PayPal. It grew until there were over 250 different ways to pay them. Visa and Mastercard were not the only game in town anymore, the people themselves actually rose up to create an entirely new industry.

What was so amazing here, besides the technical aspect was the social dynamics. A invisible and shunned community, sex workers were being helped by another invisible and shunned community, bitcoin people. There was no judgement passed only “How can we help you?”. We just listened to both sides to give them the ease of use and tools they needed to work with each other. The result was astonishing.

Using the power of a peer to peer network and the versatility of the blockchain two communities united to help each other. Merchants saw that losing Visa and Mastercard was not a death sentence but rather a new beginning, one free of chargebacks and fraud. Rose got her bitcoins and posted her ad. Rose paid her rent and bought her diapers. She literally screamed Hallelujah when it first worked and I so did we.

Escorts are only the tip of the approaching iceberg. The gaming industry continues to grow beyond all expectations and legislative pressure has already cost the two biggest NFL fantasy sports companies one of their merchant processors. NFL fantasy sports alone is a 98 billion dollar industry dwarfing even the NFL itself. It is estimated that one in three Americans wagers on fantasy sports. This is a massive community for Mastercard and Visa to pariah but should this trend continue they will be met with open arms.

An even bigger opportunity is now growing in the legal cannabis industry. Already a 14 billion dollar industry many believe it will grow to eclipse the tobacco industry. A major dispensary in Denver grosses over a million dollars a day in cash. They pay BlackWater mercenaries twice a day to haul away the cash to undisclosed safe houses. Banks refuse to deal with them until it is legal on a federal level yet they still need to pay the utility bills for their growing operations and other non cash bills. The opportunity for a peer to peer community to solve this industries problems is massive and the banks will finally be beaten to the punch. How many other opportunities like this are there out there?

Where the swift banking system had failed the people had succeeded in building their own payment logistics network. Any form of value could be absorbed and converted into any other form of value by the people using the financial instruments they had at hand. There were no limits or obstacles anymore, any account that could be shared by another human could be used to move money around the world for another human. The vital link here is the human element.

Bitcoin and other decentralized technologies try to remove the trust and thus the human element as a requirement but as we often see humans need each other no matter what technology may be available. The evolution of a network is more than just a gathering of nodes it is towards the logistics that make it smart enough to make things happen. The bitcoin blockchain is only one component in this. The humans that are driven by altruism, profit or simply the urge to defy the powers that be is the secret sauce that no technology can ever replace.


The Paxful Blog

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