Living the Future
An Interview with Nicolas Dorier
Nicolas is the founder of everyone’s favourite Bitcoin payment processor – BTCPay Server. He’s an open-source developer working for DG Lab in Japan and is adamant on making rent-seeking finance companies obsolete via Bitcoin.
Nicolas discusses with me the difficulties of using Bitcoin in Japan, the tight tax regulations in place restricting Bitcoin adoption and innovation, and how pull payments could solve the Mental Transaction Costs problem in Bitcoin.
Poly: Hi Nicolas, awesome to have you share your story of living on Bitcoin in Japan.
The story of how BTCPay Server was born is still one of the most savage things I’ve witnessed in this space and I’m keen to learn what tools and systems you think we need to build to make it more feasible to fully use Bitcoin as one’s primary savings and payment account.
So to get us started, tell us a little about yourself, your background and how you got into Bitcoin.
DG Lab is a research lab focused on finding use of Bitcoin that businesses sponsoring us can later develop into business. BTCPay Server was created when I was working there and they let me focus on that since then.
Metaco develops custodial solutions for banks. I am the co-founder of the company and I work mainly on Bitcoin or Bitcoin-based altcoins integration to our products.
I didn’t pay any attention to Bitcoin until Mt Gox crashed. I thought Bitcoin was dead because the issuer (which I thought was Mt Gox) was shut down.
I started learning more about Bitcoin to answer the question “If it is dead, why are people still using it?”.
I understood why it is not dead by understanding the technical foundation, then the next question was “why satoshi created it?”. Which brought me to read the libertarian and Austrian Economics books. Down the rabbit hole since then.
Poly: Funny how that works, the Mt Gox bankruptcy in 2014 brought you into Bitcoin. You told me you were living fully on Bitcoin in Japan, what led to the decision to do that? Was there a seminal event that led to you taking the plunge?
Nicolas: Living in Japan but being from France, I was scared my bank would freeze my credit card if I used it. Banks routinely freeze credit cards when you use it “in a suspicious manner” which usually happens the moment you need it the most.
Hence I was committed to not using my card in Japan but I would still use it to buy online, where it is generally safe from being frozen.
Also, by using credit cards I would be losing money due to the spread of the bank, which I could not properly quantify. With Bitcoin I could even sometimes earn a spread of up to 2% by being a market maker with no risk of getting my card blocked.
So while in Japan I lived on Bitcoin but I wasn’t all in, I was dollar cost averaging in. I was also not buying things with Bitcoin in that sense, I was exchanging Bitcoin for cash, as I needed it to pay my bills.
Poly: That’s a great example for using Bitcoin, bank/credit card fees can be exorbitantly high, especially when abroad, plus the risk of them being frozen is real. How about the emotional impact of the decision, others have told me they never felt freer, some continued to worry at the beginning, what were your feelings?
“I was finally convinced that Bitcoin was a superior form of money.”
Nicolas: I was finally convinced that Bitcoin was a superior form of money. You can take it anywhere and live from it. This is not as convenient as cash, which I don’t expect Bitcoin to displace.
But if you own Bitcoin, you can always find a way to convert it to cash if you need it.
This is one thing to hand wave those facts, another to having actually lived them. Living through it convinced me it was indeed true.
Poly: Fully agree on that. Continuing on the personal note, how did your friends and family react? Any funny stories from going all-in? Parents thinking you’ve lost your mind or such?
Nicolas: My family has been supportive and was not upset with me talking about Bitcoin every day. Some of them bought or traded at one point or another.
I never fell victim to a scam and I am not an addicted gambler.
Poly: That’s always good, how about the practicalities of making the switch, what’s the actual process been like? You mentioned you were DCA’ing into Bitcoin.
Nicolas: Yes, a staggered approach, I averaged into Bitcoin with my Euros from France. And since you only need cash when you actually need to spend it, holding any more than needed is wasteful.
In Japan I was acting as a market maker on LocalBitcoins. From time to time people contacted me and I could make a small spread on the sale (2%). The flow was enough to keep enough cash for living. I was also very frugal, and never made a trade of more than the equivalent of 2000 USD at once.
Since then regulations in Japan have become stricter so I don’t know if it is still possible.
Poly: In the end, did you actually close your bank account?
Nicolas: I didn’t close my bank account. Sometimes you still need it to send money to relatives. Though I slowly drain all my money from it into Bitcoin.
“[Japan] regulation now is horrible and has affected the Bitcoin businesses and exchanges harshly.”
Poly: Understand. Japan is known as a high-tax country, how did taxation affect your life on Bitcoin? Do you have to pay taxes for every conversion from Bitcoin to Fiat or how does it affect you?
Nicolas: When I was living on Bitcoin the regulation was not properly set.
Their regulation now is horrible and has affected the Bitcoin businesses and exchanges harshly.
Every time you sell (or convert to another altcoin), you need to pay on the profit of your weighted average holding.
Calculating the weighted average is impossible if you did not keep records of when you got your Bitcoin. And even if you do, calculating it for every sale is too difficult. Also all exchanges in Japan have address reuse.
For those two reasons I never sell, I never trade, I only buy from Japanese exchanges.
If one day their regulation becomes more reasonable and I want to make a big Fiat purchase, I may sell, but until then I hodl. Bad regulation is a big reason for hodling, so we need to thank them to pump up the price.
The regulation hurt exchanges a lot. If we compare it to the 2017 bubble, the volume has decreased a lot. Japan is not a good place for trading anymore.
Poly: It really doesn’t sound like a welcoming place for Bitcoin businesses and traders. I expected Japan to be rather open to Bitcoin as it’s generally a technologically very advanced country.
You said you go cash-only for expenses but are there places/merchants that accept Bitcoin?
“Bitcoin is almost never accepted in retail…[but] gift cards can get you all you need.”
Nicolas: Not really. The only places I saw Bitcoin accepted were the Two Dogs bar in Roppongi and Bic Camera, a big retailer in Japan which charges outrageous spread (through bitFlyer).
Bitcoin is almost never accepted in retail. I think nowadays gift cards can get you all you need though and those are easy to get with Bitcoin.
Poly: Understand, the Two Dogs bar goes on my to-visit list. What about Lightning could that help Bitcoin getting more acceptance? Do you consider Layer 2 the future payment rail of Bitcoin or are skeptic?
Nicolas: I don’t use Lightning that much, as it is in general more expensive than on chain. I am not a skeptic, I think it may come a day where it becomes the standard, but it’s not for now.
I feel it is also focusing on push payments like bitcoin, where Lightning would be more suited for pull payments on micro transactions.
Poly: Pull payments are an interesting topic, let’s come back to that a bit later.
Would you say your lifestyle has changed in any way since you switched? I see some Bitcoiners become more nomadic, travelling a lot, while others try to stay put and huddle down to build their citadels. Where do you fit on that scale?
Nicolas: I was nomadic at the time, now I am settled in Japan with my wife and kid, so the lifestyle changed and I don’t use Bitcoin for my daily life as much as I was doing before. If I build a citadel one day, it is when I will discover a country as safe as Japan, but without the terrible tax regulations.
Poly: You’re always welcome here in Singapore, it fits your requirements perfectly. Us Bitcoiners often talk about Bitcoin being primarily a store of value, has Bitcoin actually become a unit of account for you or do you still go back to EUR/JPY?
“If the USD itself goes into hyperinflation, maybe it will become BTC.”
Nicolas: I use JPY. I think you can’t beat fiat as a unit of account, as it is designed to keep price stable. This can reverse in case of hyperinflation of course. But if it happens, people will likely price in USD. If the USD itself goes into hyperinflation, maybe it will become BTC. Unsure if it will happen in my lifetime.
Poly: Yes, I think that’s the big question, will we see hyperinflation and see the USD lose its status as the world reserve currency? Indeed only time will tell. So do (heavy) retraces in price still affect you?
Nicolas: Well given I can’t sell, the price only affects me when it drops because I want to buy before it goes up again. But that happens only if there is a 20 or 30% drop.
Poly: Nice, always have to buy the dip. Maybe we switch gears a little. You founded BTCPay Server as an open-source tool for merchants to easily accept Bitcoin without having to pay fees to other companies. Being fully open-source, are you being paid directly in Bitcoin? How about the other team members and participants?
I think earning Bitcoin is an important step in developing a Circular Bitcoin Economy so this is very interesting.
Nicolas: I am not paid in Bitcoin. Japan regulation makes it hard.
For the BTCPayServer Foundation, I did not want to hold BTC because it is hard to keep track of the weighted average profit.
I ended up reversing the decision. The reason is that Japan is very bad for making international transfer. Only two contributors get wire transfer, and making two wire transfers takes a total of between 1 and 3 hours of time. For this reason, we accepted Kraken’s grant via BTC and hodl it.
There are approximately 10 contributors receiving money every month, 2 international wire transfers, 1 domestic wire transfer and 7 via BTC.
This may be more painful for the accountant, but if I needed to make 9 international wire transfers it would take more than a whole day at the bank branch to send the money, which is not a good use of my time.
Poly: Wow, wire transfers being such a burden is insane, that’s why we Bitcoin. Many would like to be paid in Bitcoin, so great to see 7 employees/contributors to BTCPay Server being able to.
Do you have any tips on how to convince a client or employer to pay you in Bitcoin? The price fluctuations are tricky and I know some negotiate a Fiat salary that pays in Bitcoin at exchange rate on pay day.
Nicolas: I think it really depends on regulation. My advice is: Put yourself in the shoes of your employer, and do the research about how he can stay clear of problems should he choose to pay you in Bitcoin. How should he account it? Is it even legal? How does he need to report the profit? What does he need for KYC? You need to do his research, and provide him with the relevant links he can check. The main problem is, that while paying somebody in Bitcoin between two individuals is easy, doing so between a business and an individual is hard. The processes are hard and the legal and tax implications are hard.
Poly: So basically, help your employer help yourself – always a good approach. Living on Bitcoin and thereby being your own bank comes with additional risks, can you share some best practices on how you handle security? I’m always keen to learn best practices to optimise my setup and am sure readers feel the same.
“The best is to keep it simple. For long term storage, use a hardware wallet. For short term storage, use a hot wallet.”
Nicolas: The best is to keep it simple. For long term storage, use a hardware wallet. For short term storage, use a hot wallet.
The challenge of hardware wallet is: How do you keep it safe even if your house is burning, or if something happens to you, how do you let your heirs retrieve them?
I think part of the solution requires a good old notary or bank safe.
I can’t advise on specifics on this, I think somebody wrote a book in the community about this.
Poly: Yes, Pamela Morgan wrote the book “Cryptoasset Inheritance Planning” on this topic. What’s your stance on privacy in Bitcoin? When people are acquiring and transacting in Bitcoin, do you recommend CoinJoin, Non-KYC etc. or what do you propose to do to avoid privacy issues?
Nicolas: The best way to avoid privacy issues is to not give your Bitcoin to centralised payment processors. For example, I don’t use bitcoin if the merchant uses Bitpay to accept Bitcoin.
Those centralised payment processors won’t go to jail to protect your money or their customer.
I recommend coinjoin, I recommend staying away from exchanges as much as you realistically can. If you absolutely need an exchange, but that you conjoined your coins, do it small and spread over time, never a big lump sum at once. Adapt depending on the response of the exchange.
The goal is, if they decide to freeze your coin, you should be able to sleep at night.
Poly: Good point on exchanges blacklisting coinjoined addresses, it’s definitely something we still need to overcome. I wonder, do you even have any contact with the traditional finance system any more? Did you manage to get out of any KYC/AML services?
Nicolas: Japan is a cash oriented society, so in theory you can pay for everything with cash. If you need Amazon, you can buy gift cards at the convenience store and use that.
I would say you don’t need a bank account, but because the world is using bank accounts, it is a major pain in the ass to not have one.
In theory DG Lab could pay me in BTC or cash. In practice their processes are not adapted to it and it’s unlikely they would adapt it for a single person.
Poly: OK. So, we covered how well one can live (or not) on Bitcoin for everyday items but what would you do if you want to buy bigger items, say a car or a house? How would you go about financing that outside of legacy finance, any experience?
Nicolas: Renting instead of owning solves this problem.
If you absolutely want to own, then be prepared to pay a tax lawyer and a tax accountant when you buy fiat. Even if you think you did everything by the rules, you probably didn’t and you will need to report in a very specific way.
Poly: Strict Japanese rules strike again. I know we’ve covered quite some ground already but we want to move the space forward and it would be interesting to know which parts of the ecosystem need more work to make living on Bitcoin easier for others to follow.
Nicolas: I think the lack of pull payment is a big UX problem that credit cards solve, but Bitcoin not. I feel that most of the problems nowadays are more related to UX and education than purely technical.
Poly: Can you elaborate on the lack of pull payments and how this could be solved?
“[Pull payments] solve the problem of mental transaction cost highlighted by Nick Szabo.”
Nicolas: It is meant to solve the problem of mental transaction cost highlighted by Nick Szabo. The basic problem it solves is that making a payment involves a mental cost to the user sending it. This user needs to unlock his phone, run the app, scan the QR and send the money. If he is paying a subscription, he also needs to remember doing those steps, shall he forget, the subscription would be cancelled.
The mental cost is even more expensive when you are a company, as all payments in a company need proper accounting on top of it and invoice needs to be issued.
This mental transaction cost makes micro payments impractical. As the mental transaction cost may well be way more expensive than the payment’s value, people instead prefer to aggregate all their payment at once at the end of the month instead of paying as you go. Or use prepaid account, where the payer sends money up front.
For example, if you consume a streaming service and wish to pay by the minute, it is impractical for a user to pull his wallet from his pocket, send a lightning payment and continue watching every few minutes.
The downside of a prepaid account is of course that the merchant can’t give you the money back, and any unspent fund in the account is lost. You also don’t have a proper way, as a payer, to remember all the prepaid accounts you sent funds to.
Another way is to give your credit card to a party and let him draw money; if you ever used Amazon, you did it.
Truth is, if you are not a big company, customers will not trust you with their credit card. This is why Bitcoiners use Patreon to get recurrent funding instead of using bitcoin. The patrons trust Patreon.
Pull payments are a solution to this problem. The idea is that you allow a party to pull the money from you, upon certain limits. As the payer, you don’t have to think about sending money, but you still are in control to stop money flows, unlike credit cards.
Poly: Very interesting and highly contentious topic for Bitcoin, it’ll be interesting where your development leads to.
Now, last but not least, under what circumstances would you recommend others to fully live on Bitcoin, taking into consideration the different life situations people might be in?
Would you do it again?
“The more unsafe the place [you live in] is, the more attractive Bitcoin is”
Nicolas: If you are a nomad, you should live on Bitcoin, this will make your life easier.
If you are not a nomad and have savings, you can use Bitcoin to protect your funds against inflation. I would still say that you should have one or two years of saving in cash before considering saving in Bitcoin. You still might want to dip a toe though to get a feeling on how Bitcoin works.
I think Bitcoin or gold are both great for this.
Just keep in mind that when you buy Gold, you also invest indirectly on how safe the place you store it will be, because you can’t easily move the gold somewhere else. The more unsafe the place is, the more attractive Bitcoin is.
Poly: The definite advantage of Bitcoin over Gold. Awesome, Nicolas this was great!
Tell us, how can readers find you and please go ahead if you want to share anything else with my readers.
Poly: Nice, this was very insightful and fun! Thanks for sharing your experience of living and using Bitcoin in Japan. Keep up the great work at BTCPay Server and maybe give Singapore a look as your future home base.