EFP 145: Building A Business With Bitcoin

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If we’re being honest, Joe and I didn’t think much of bitcoin when we first heard about it.

We figured it was cool for the anarchists and bleeding-edge tech guys to talk about, but because we didn’t see a real business advantage for us we didn’t pay it much mind.

But that’s really changed for us in the last 12 months or so. Not only is it a viable (preferred?) method for buying and selling websites and online businesses, it’s an excellent way to pay contractors and distributed teams.

Why Bitcoin Just Works for Business Building

Gone are the days where it was difficult to buy/sell bitcoin. Today, you can operate in “bitcoin” without ever feeling like you’re switching out of USD or whatever currency you usually deal with.

In this episode, Joe and I get into how bitcoin is becoming a viable options for our industry and talk to Jonathan Chester of BitWage.com to discuss how his business is revolutionizing the way we pay distributed/remote teams.

If you dig this show, please do stop by and give us a review on iTunes. It goes a long way towards helping us build an audience and we’ll really appreciate it!

Check Out This Week’s Episode:

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Topics Discussed This Week:

How we’ve used bitcoin for buying/selling websites

Paying contractors and remove employees

Transferring funds out of tightly held economies (Vietnam, India, etc.)

Paying sellers anonymously

Mentions:

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“Bitcoin has the ability to send payments across borders instantly and nearly for free.” – Jonathan – Tweet This!

“The longer you can go without raising money, the better off you’re gonna be.” – Justin – Tweet This!

“Good marketing with good web development is a deadly combination.” – Joe – Tweet This!

Are you currently using bitcoin in your business? Have any thoughts on how it can even better be applied in our industry? Leave us a comment – we’d love to hear from you.

Justin: We’ve recently become interested in Bitcoin for a business perspective and now take Bitcoin for business purchases. In today’s episode, we talk to Johnathan Chester from Bitwage.com about how he’s building a business off the back of Bitcoin and what that might mean for the larger business community.

You can find the show notes and all links discussed in this episode at Empireflippers.com/Bitcoin.

Alright. Let’s see this.

Speaker 2: Sick of listening to entrepreneurial advice from guys with day jobs? Want to hear about the real successes and failures that come with building an online empire? You are not alone. From San Diego to Tokyo, New York to Bangkok, join thousands of entrepreneurs and investors who are prioritizing wealth and personal freedom over the oppression of an office cubicle.

Check out the Empire podcast. And now your host, Justin and Joe.

Justin: Well, Joe and I didn’t think much of Bitcoin when we first heard about it. We now see it as a viable tool we can use in our business and we’ve decided to accept Bitcoin and actually pay out sellers in Bitcoin as well. We’ve done a couple of deals like that already.

Joe: Yeah. So, I first heard of Bitcoin … I thought it was like this thing that only shady people on the internet use or political sort of people interested in that sort of anarchist lifestyle or something like that. And then, I started playing around with it personally because I wanted to gamble online and as an American, it’s definitely tough to do that. But then I really saw the value in Bitcoin in the ability to move money around the world pretty much fee free. And that’s pretty cool. Without any central authority backing that up … and relies on reliable trustworthy transactions that can be verified.

So, now that I know a lot more about Bitcoin, there’s a lot more appeal to it then just the shadowy corners of the internet. It actually has some business use and for us, I think it’s very applicable.

Justin: Yeah. I know when Bitcoin was coming out, they had Silk Road and all these people were buying cocaine and trying to get people murdered with Bitcoin. I was like, “I don’t know about this stuff. I don’t know what’s going on with this Bitcoin thing.” But yeah, I think there is value and I think that still not a lot of people are taking it but it’s become easier and easier to actually transfer your money to Bitcoin and we end up finding out about Bitwage.com and it’s a company run by Johnathan and others that allows you to basically get paid in Bitcoin, allows you to pay contractors in Bitcoin. As an employee, you can actually give an accounting number and a routing number to your employer. You get paid in Bitcoin or some split between USD and Bitcoin and they don’t even know about it.

So, this is kind of a new frontier we’re getting into. I thought it’d be fun to have someone on the show that knows a bit more about Bitcoin than we do. So, I was happy to have Johnathan on.

What do you think, buddy?

Joe: The first reason why I discovered Bitwage was to pay some contractors with Bitcoin easily, so this way I wouldn’t have to buy the coin and go through all the whole process. Bitwage takes care of it all for you.

But then I realized that we could also pay out sellers using Bitwage very easily as well. So, those sellers were interested in being paid out via Bitcoin. This method allows me to kind of do an instant transfer to their account, their wallet.

Justin: All right buddy, enough about Bitcoin. We’re going to get into that in the heart of the episode. Let’s talk about our featured listing of the week. What you got for us?

Joe: We’re talking about listing [00:03:09] four, zero, three, one, zero. This is an e-commerce site in the accessories niche. It does custom jewelry. It’s really, really cool custom jewelry. It has a pretty good history of success with decent numbers and it’s making just under 1000 dollars a month net. And we have it listed for 21,600 dollars.

So, the reason why I like this is anyone who’s looking to get into the drop ship or e-commerce game and doesn’t want to spend an arm and a leg, this is a great kind of entry level business to get your hands around. It doesn’t require a heck of a lot of work just taking most of the orders and saying them to the manufacturer, then they can directly drop ship to the customers.

Justin: Hey! Quick question man. Why are we talking monthly revenue at a thousand bucks and expenses only 80 dollars on this one? So, we’re saying the net profits really high but what about cost of goods? Isn’t that factored into this?

Joe: Yeah. That’s a great question Justin. So, when they gave us their PNL, they had everything already factored in. So, that’s why you’re not seeing a lot of costs of goods sold there, what not. They’re sending that directly over to the manufacturer.

Justin: Cool. And then I can take a look in the PNL and anybody who pays a deposit can dig into that and actually start looking at the costs and everything.

Joe: That’s correct.

Justin: Cool, man. All right buddy, let’s get into the heart of this week’s episode.

Speaker 2: Now for the heart of this week’s episode.

Justin: All right, Johnathan, before we even get into this, I should say straight up that I’m not a Bitcoin guy. I’m not one of those Bitcoin fanatics, freaks, like, “Oh my God. I want to drive Bitcoin home. I want to promote Bitcoin and …” a Bitcoin enthusiast. That’s not really me. I’m more of a business guy that’s interested in some of the opportunities I think Bitcoin really provides businesses.

And so, that’s one of the reasons I wanted to have you on is you run Bitwage.com and it’s something we’ve been looking at in terms of being able to pay remote employees and potentially transfer money between website and business buyers and sellers. I thought that was kind of interesting.

So, if you could, just kind of briefly give me your pitch, kind of what your company does and what you guys are all about.

Johnathan: Sure. So, we’re making international payroll better. The average costs of sending payments across borders is eight percent, and I’ll get into why that is later, and can take anywhere between three and five days for the funds to get there. Sometimes it takes longer because your funds actually get lost in the process. It’s a very antiquated financial system.

And so, what we’re doing is we’re doing away with all that. Right? We can bring the costs down to under one percent, enable same day or next day payments, and insert transparency into the entire process so the employers, the employees, the freelancers all have more control over the entire process.

And we do that by leveraging Bitcoin and Bitcoin’s blockchain which is the public ledger that Bitcoin resides upon and enabling local currency conversions on both sides. So, it almost feels like you don’t have to deal with Bitcoin or you weren’t even touching Bitcoin or the blockchain on either side. You’re just getting the benefits.

Justin: So, for people listening to this, the whole blockchain thing, explain that a little bit in the intro so they kind of have some understanding but … ultimately, what you guys are doing is instead of having to transfer money bank to bank and try to get it through all these different financial institutions and losing currency on FOREX or a foreign conversions, you’re cutting out some of that costs and you’re cutting out some of that time so that you can easily transfer the money from here to there and not even worry about the fact that it’s necessarily Bitcoin.

This is important to us because, I was telling you before the show, we have … we’ve done, I’d say more than a thousand different transactions but we’re doing it a dozen to two dozen deals a month and a lot of times we’re paying people in kind of odd countries, Nigeria or Pakistan. And it can be really difficult to get the money there. We had a guy in Pakistan, took him weeks to get his money and I think a solution like this would solve that in that they’re going to get their money a lot faster and they’re going to pay a lot less to get it.

You guys work pretty specifically with the Philippines which I think is pretty interesting, too. What’s a connection to the Philippines? Why was that a target market that you focused on?

Johnathan: Sure. Well, first off, our first employee, Paul Hogas, is Filipino. So, we have sort of that connection from a cultural standpoint but also the Philippines happens to be one of the top four countries receiving remittances as well as one of the top four countries just receiving payments, outsource payments, from companies either from the US or Europe or other places in Asia. And so, it was a natural fit for our solution as our first place to interact with and start sending payments. And since we’ve released, it’s been one of our top three countries that have been receiving payments through our system.

We also have countries receiving payments through our system where people don’t have the funds convert immediately into a local currency and that typically happens in places where there isn’t as much liquidity, perhaps, in those areas.

For instance, we pay people in South Africa, in Argentina, and in Saudi Arabia.

Justin: Yes. So, that’s kind of interesting. I like the fact that you’re focused on the Philippines. I actually had dinner with the guy … started coins.ph. He came down to [inaudible 00:08:30] and met up with Joe and I, and that’s a company that we’re using right now. My girlfriend and I are using and then some of our employees are using as well. So that’s pretty interesting and they’re great. I know that you guys work with them and you integrate with them. So that’s pretty cool.

Let’s … Johnathan, let me back out a little bit though because I want to hear a little bit more about your journey and what got you into entrepreneurship and why this is a problem that you think is worth solving.

So, how did you get started? What was your path to this company?

Johnathan: Sure. So, before working in Bitwage, I was actually working at Oracle and I was doing enterprise sales. And I’d done a lot of various trainings from their database to five [inaudible 00:09:10] product, which is people soft. I ultimately landed in their open source support division where I was leading sales in Iowa and Kansas. And while I was there, I was just really interested in figuring out what are the new trends in the world, what’s the new technology, what’s going to sort of be the next big thing. And as I was going through my research, I ran into a Ted talk … it said something … it was called something along the lines of “The future of currency, Tide, Sweat, and Bitcoin.”

And it was fascinating. At the time, I didn’t really know what Bitcoin was but I sure as hell knew what Tide and Sweat were and I thought how could these things be currency. But after watching a video, I came out with a new knowledge of what Bitcoin was and how it had the ability to send payments across borders instantly and nearly for free, which had a lot of economic implications and efficiency implications as well as the socio economic aspect that it could be used to pay people who are UN-banked or pay people who have troubles with the current financial system because of the fact that it is a peer to peer technology instead of moving between five or six different intermediaries through this complicated corresponding banking solution.

So, I decided to delve deeper into it. I spent about a month doing nothing but researching, researching, researching. And eventually, I became one of those crazy, fanatic, Bitcoin guys that you mentioned earlier that you’re not.

And I was that guy at Oracle, the Bitcoin guy. And I was always telling people, “You got to try this out. It’s going to be big. It’s going to be huge.” And this happened right before the big price spike to over a thousand dollars.

Justin: Yeah.

Johnathan: And as the price was going up, I just sort of pointed my finger like, “Told you so.” And of course, people bought at a thousand dollars and they were a little bit unhappy about six months later when the price dropped below 400.

Justin: Oh God.

Johnathan: So …

Justin: You were that guy. You were that guy and I was like, “You need to buy Bitcoin. It is going through the roof. It’s going to 10,000.” And then they’re like, “Oh, man. You’re crushing me dude. You’re crushing me.”

Johnathan: Yep, yep, yep. But luckily, I’m still friends with these people. [inaudible 00:11:23].

So, there happened to be another sort of crazy Bitcoin guy on the technical side at Oracle and we were introduced by a mutual friend. And so we got together and we were trying to figure out, “What can we do with this new technology that we have … that’s at our disposal?” And we were looking at all the different ways that people were using the Bitcoin technology and we noticed that no one really using it in a payroll context. Right? And we thought, if Bitcoin is going to be the future, it’s going to be used in the payroll context.

And so, we started to work on this. We finally released our first version of our solution in July of 2014.

Justin: Were you still working at the time? So you were a corporate sales guy at Oracle and you and another buddy that were going to do this … did you just quit your jobs or was this kind of a side project?

Johnathan: So, it was a side project from November until June. So, we were just working on it and … It was actually really funny because we were trying to figure out “How do we start getting some notice.”

Justin: Customers … traction. Yeah, yeah.

Johnathan: Yeah, traction. I mean, we didn’t even have a product at this point but we wanted to start building the brand anyways.

So, the first thing that we did was we went around and there’s a company that basically allows companies to accept Bitcoin … and the reason why companies like that is because you reduce the fees from credit cards. That’s like three percent plus 50 cents to under one percent.

Justin: Yep.

Johnathan: Or at one percent. And we just went to directories of these things and started calling people and saying, “Would you want to use this technology for payroll?”

And we ended up coming up with this survey that said that 40 percent of companies that accept Bitcoin are open to the idea and that got a lot of press coverage. And that was our first time … our names being out there like Bitwage does this survey and people are trying to figure out, “What’s Bitwage?” And we get all these hits to our website.

Then, the next thing that we did was we decided that a good way to get our name out there was just to post job listings. Right? So, we went around posting job listings and going to job fairs and people got excited. Right? For … “we don’t know what this company is, but they’re in the Bitcoin industry and they’re hiring which must mean that they’ve raised some money and they’re-

Joe: They’re getting big.

Justin: Yeah. They’re getting big. Right? Yeah.

Johnathan: Yeah. Exactly.

So, we got hundreds of resumes from doing this and just more notice like getting in more press pieces and that sort of how we started building up a little bit of hype. And then once we released our first product, it got picked up by Y Combinator and the reason why it got picked up is … So, I ended up writing the press release and it was this small piece about what we offered and then a bigger piece on what is sort of the greater implications of it. And the two things that we saw that you could leverage Bitcoin payroll for is international payroll which is sort of the direction we ultimately started moving in but also real time payroll which is a way for you to be able to pay people at any … instantly, and then even be able to do it on a real time basis, so pay them every day at extremely low costs or be able to have it be automated in a way where when someone does a project or rent a certain amount of code or does a certain amount of phone calls, they have a bonus that’s automatically paid out.

And so, just sort of describing the potential of the technology, it got posted on Y Combinator and we got 10,000 hits in a single day. Right? Or in like four or five days. And that really helped to push us forward and I’d say that it was in …

So, in July, we released our first product which was just a pure employer Bitcoin payroll solution and I guess the problem that we had there was with that solution, it’s really hard to have people grasp the idea that, “Oh, they’re going to get local currency out on the other end.” And then when you’re trying to convince these big companies like Overstock, or Microsoft, you end up converting them and you only get a small portion their employees that they end up paying.

Justin: Because they might get confused about too. Right? They’re thinking like … the employers are like, “Well, I’m not sure that I just want to get paid in Bitcoin,” and they don’t understand that that can be converted to local currency. And that large organization … like, “Well, I’m not sure we want to pay our people in Bitcoin and what are the tax implications for us?” And it sounds messy. Right?

And so, these are all problems you realized you had to solve when you started talking to potentially larger clients and started bringing on clients of your own and they have these questions.

Johnathan: Yep. Exactly. Exactly.

And so, what we set out to do is essentially make this process extremely clean, put like a nice little bow wrapper on top of it so that for the company, it almost just feels like you’re doing a domestic transaction. Right? You’re just sending an ACH to a US bank account. No problem. And then magically, on the other end, the employees receive their payments same day or the day after funds have successfully been transferred to that US bank account that you sent to and it happens faster, easier, cheaper.

Justin: Let me back it up a little bit. Yeah. There’s a lot to unpack. But when you were starting off the business, obviously, press releases and trying to get traction with media and media related publications, I get that. Everyone does that. Right? And that’s … that’s a challenge in the [inaudible 00:16:48] of trying to get your name out there. But what I thought was really interesting is you going and putting these jobs out there and getting people to actually apply. I mean aside from the fact that you’re getting some interest and getting the word out with these potential employees and telling them about what you do but you’re also at a convention or in a place where there are all these other employers that you can then go booth to booth and discuss with and you have access to them because you’re a vendor or you’re looking to hire their … So, I think that’s pretty … that’s a neat trick, man. That was a interesting move.

Okay. So, you started doing all this. You got some traction. You got 10,000 hits. You got a lot of visits and I think your content is interesting and does it feel to you a little bit that you’re kind of in the wild west here? I mean that’s what a lot of entrepreneurs want. They’re like, “God, if I could just go back to the early days of blah, blah, blah, I would just absolutely crush it.” And aren’t you kind of in that position now with Bitcoin?

Johnathan: Yeah. So, Bitcoin definitely does feel like the wild, wild west in that there isn’t a lot of regulation around Bitcoin. There’s regulation around sending money across borders or sending money from one person to another but on Bitcoin specifically, there’s actually no regulations.

So, what ends up happening is you have sort of like two separate paths that companies are moving down. Right? And so there’s the path where people are voluntarily following sort of this money movement regulation that hasn’t had enough time to build in the Bitcoin aspects yet and then there’s the people who are actively going against it. Right?

Justin: The rebels.

Johnathan: The rebels. Yeah. Exactly. The anarchists. They might not call themselves that but that’s sort of that they’d be labeled.

Justin: What a messy movement when you’ve got that split, right? Because the guys on the one hand that want the regulation are like, “Look guys. No, no, no. Stop with the anarchy stuff. You need to come over here or they’re not going to let us do it. It’s just not going to happen if we don’t go along with some regulation.” And the other guys are like, “What are you talking about? This is a chance to break free from that regulation. Why the hell would you want to add regulation to Bitcoin.”

So I can see the dilemma there. Which side of the coin do you fall on and what’s your kind of reasoning for it?

Johnathan: Sure. So, in terms of the consumer protection aspect and the anti money laundering aspect, we’re very pro regulation. There have been some really big upsets that have happened in the industry and I think that’s very important to be able to protect people’s funds and insure them that you’re having a very strong and compliant system. I’d say the main thing is that some of these regulations do go a little bit overboard.

For instance, in order to get money transmission licenses in all 50 states, you’re looking at somewhere between three and seven million dollars just to get the licenses.

Justin: And who’s going to pay that?

Johnathan: That would be the cost of the startup. Right? And so, it actually acts as a very large barrier to entry for a lot of startups out there. And so what we do-

Justin: It’s challenging. Right? It’s challenging for any business.

Johnathan: It’s a huge challenge. And so, what we do … So, we’re actually in a very special niche in that … in that we’re a payroll provider of sorts and as a payroll provider, you actually … you basically fall under certain exemptions. From the federal level, there’s the financial criminal enforcement network and they have exemptions for payment processors and payroll providers fall under a sub category of payment processors. You don’t have to follow on a federal level and then on a state by state level, like for instance, in California, they have assembly bill 786 which spells out exemptions for payroll provider companies.

Justin: Just to kind of like … because that’s a little over my head. So, basically the regulation is much more strict for people who are looking to transfer the funds but because you’re a payroll provider, you’re outside of those exemptions. You have other regulations you guys would have to follow but it’s not nearly as strict for your very strict niche.

Now, you as setting up a business, you’re going to continue down that path but you’re probably … there’s going to be some crossover. Right? And so you’re probably end up pushing that line to some degree.

Johnathan: Yeah. We’ll definitely end up pushing that line especially as we continue to move from the payroll scope to company dispersments in general. And so, as you do that, you sort of … you push the envelope a little bit and we’re working with some very good lawyers. We’ve had council from lawyers at like Pillsbury and Paul Hastings and Perkins Coie and so from our perspective, it’s like we’re going to work on this niche as long as we can and as we grow and we start gaining momentum and have more capitol, we’ll go out and get the licenses so we can push into some of these other categories of payments.

Justin: So, Johnathan, tell me a little bit about what type of company you see this becoming. Are you going to be the bootstrapped, we own everything company? Do you absolutely require funding? Are you going to go out and raise VC money? Is this going to be a lifestyle business for you as you kind of just continue on and a nice living and kind of grow at 30 percent a year? What’s your kind of plan for the company? Where are you guys at in terms of goals and approach to business?

Johnathan: Sure. So, we’re definitely going to be pushing this as a high growth company. Right? We’re currently bootstrapped as of now and we’ve been feeling like we wanted to stay bootstrapped as we continue to define our market and to really perfect our solution. But once we really have drilled down into that, our goal is to sort of go to the BC say, the venture capitalists and say, “Hey. We’ve got our product market fit down really well. We know how to just have explosive growth. Here’s one or two examples of how we did it before. All we need is some money to increase the sales force and also bring on support coders and compliance people to deal with the growth.” So …

Justin: I like the fact that you’re starting it off bootstrapped. I think that you’re determining your product and what your customers want and who your customers are first and you’re not going to come in and try to, “Hey. Let’s get some money and we’ll see what we’re going to be.” But you’re going to have an actual business that’s running and hopefully profitable or at least break even with your … re dumping your cash flow back into the business. So that would be I think a good position to be in and the longer you can go without raising that money, the better off you’re going to be. And there’s going to be … I think for your business, there’s going to be some point where you just have to bring in that extra capitol to grow the way you’re going to need to but in the meantime, if you don’t need it, don’t take it. Right?

So, yeah. I think … so, it’s kind of a hybrid model. I think that’s kind of interesting. Let me ask you about this. One of my concerns being a Bitcoin newb is I know about the Mount Gox stuff. I know that people had money that was nice and secure and they had it in there nice little online wallet and it all went away. So, when I’m thinking about that, I’m looking at companies like Coinbase. I have an account with Coinbase and I know they’ve raised a gazillion dollars and are probably a bit safer than some other companies, so I’m scared to go with a startup like yours. Right? Where … in fact, I asked a buddy of mine about your company. I said, “Look. It’s kind of interesting. What questions do you have or anything you want to cover?” And he said, “Look. I think it’s kind of interesting, too.” He said, “You can use it to … You’re just using Bitcoin to do the transactions but you might be faster and cheaper but understand that you … if everything went to shit, you may lose two weeks payroll.” Right?

So … and that’s kind of the concern. That’s kind of the question. How do you answer that as a startup that’s bootstrapped that doesn’t have a gazillion dollars in the bank?

Johnathan: Sure. So, part of what happened with Mount Gox … it’s a slightly different issue. Right? Because the issue with Mount Gox is that first of all, it was run by a guy who was running a company called Magic the Gathering Online Exchange. Right?

Justin: Yep.

Johnathan: And he just happened to start accepting Bitcoin and allowed people to trade Bitcoin alongside Magic cards and became this huge thing. So this guy didn’t necessarily have full intentions to be running a giant exchange. It just kind of happened.

So, but despite that, what he was doing is he was holding all of his customers funds. Right? I mean he was taking full custody of your Bitcoins or your dollars and so at any point and time, someone comes over and they try to hack and they get access to the system, they can just drain everything. Right?

And our system is not like that. We’re not holding on to this massive mountian of Bitcoins. Right? It starts off with us having … with us receiving dollars and on the dollar side, it’s extremely secure. Right? You can actually pull money out of other people’s bank accounts so from that perspective, anything that’s held in the bank is actually extremely secure. It’s got FDIC insurance and all that stuff.

And so what ends up happening is we actually send those funds to our partner exchanges. Right now, the three that we typically work with are Coinbase … who you know already with over a hundred million dollars in investment. There’s also Circle which received 50 million dollars of investment by … from Goldman Sachs and then there is Genesis which is sort of the branch arm of a pretty big company already called Second Market.

So, we source our funds from there and what happens from there is one of two things, either we’ll send out directly from the exchange or we have it sent to our cold wallets and those cold wallets disperse within seconds. Right?

Justin: Yeah.

Johnathan: So there is a little bit of a risk at that moment when the funds go into our cold wallets and then pay out and I could tell you all the different security measures we go through to make sure that that’s okay but I think the best thing to say is that we also make sure that we have enough funds in our bank accounts to cover any point and time the amount of funds that are in our cold wallets.

Justin: So most of the time my Bitcoins or my cash is being held by Coinbase and there’s a shorter period of time where it’s going through your cold wallets and going to whoever and that’s the time that it is at risk and as you guys get bigger and grow, that risk will become smaller but …

Okay. So that’s interesting. I was looking at your fee structure and this is something that Joe was really interested in, too. And effectively, you guys are still in beta and you have zero fees. I mean there are zero fees to convert, zero fees to pay, it’s just zero fees across the board and funny enough, but that’s … for a business guy, that’s a concern of mine. Right? Because if you’re not charging fees today in beta, my guess is you’re going to charge fees later and one of the problems that any business guys or companies have is that it’s a pain in the ass to switch. Right? It’s always a pain in the ass to switch. So if I switch to you, how do I know you’re just not going to gouge me in fees later?

Johnathan: Sure. Sure. Well, actually. We do make money currently and then that is through our exchange rate. So, I guess technically it’s not considered a fee. It’s considered a spread and we have … but if you actually look at the exchange rates and you’re comparing that to the interbank rates or your comparing that to other sources, right, it’s typically within one percent of the interbank rate which is the rate that banks get from each other and then it’s cheaper than all the others. Right?

So, in the Philippines, on average your just in exchange rates, you see three and a half percent from PayPal, three and a half percent from Western Union and eight percent from the banks built on top of that.

Justin: It’s absolutely … so, just a quick side note. I was … my girlfriend is Philippina and we were in Vietnam and she went to go pull some money out and I think to pull out 20 dollars on exchange rate and fees and everything, it was like 15 dollars she paid to get her 20 dollars. Ridiculous.

Johnathan: Yep.

Justin: Ridiculous amount of money. So …

Johnathan: Absolutely.

Justin: Not even doable. Right? It’s insane.

Johnathan: So, like I was saying … right. We actually are making money off of the exchange rate right now and part of that has to do with the fact that by leveraging Bitcoin, we can often get better than the interbank rates ourselves. So, the amount that we typically make on each transaction when we convert into local currency on the other end, we’ll make somewhere between 75 basis points and three percent on every transaction. But to you, it feels like you’re getting a great deal because you are getting the cheapest thing that you can possibly get out there.

Justin: What am I normally paying on FOREX? So, if I’m sending money from the US to the Philippines, I may pay a wire fee … a transfer fee or something. I may pay whatever other kind of fee but what am I paying in FOREX if I’m sending a thousand dollars let’s say?

Johnathan: It really depends on who you use. They all sort of just choose their own and they gouge you for that. But if you’re going through the bank, you’re going to lose eight to twelve percent on that easy. If you’re going through Western Union and PayPal, you’re going to get better foreign exchange rates. Those, I typically see between the three and five percent range but then I think PayPal in addition to that charges another percentage and I think Western Union charges flat fees on top of that.

Justin: Yep, yep.

Johnathan: So you end up getting killed on all of it. From our side, you end up getting on average within one percent of the interbank rate. So it’s dramatic savings compared to all that and in addition to that, you’re actually able to receive your funds extremely fast. Right? Like next day or same day. And the funny thing is that there are services out there that will say that they’re doing that but the big difference between what we’re doing and what they’re doing is what they have is float in the Philippines. So you give that dollars in the US and then they take out money … float in the Philippines and then at a different point in time, they actually refill that versus what we’re doing is we’re actually sending the funds to the Philippines. Right? So, we don’t have that cost of capitol that they have to bear which also allows us to have our fees cheaper than them.

Justin: So, banks are the worst on FOREX exchanges in general. We’re generally speaking here. I’m not going to hold you to it. No one is suing you. Banks are the worst. Maybe PayPal or something like that is second best. We use, I think right now, RemitHome or Remitly. We use one of those which is like a remittance service which sends money to the Philippines and it’s actually great. The exchange rate is fantastic. You have to ask Joe exactly what it is but he loves it. The thing is it takes like a week. So, we’re stuck waiting about a week to get the money over which isn’t ideal.

So, we’d pay a bit with you on the forum exchange. Are you transparent about that? Do you say exactly how much is being lost in the … sending the money in the transaction. Is that very clear?

Johnathan: So if you go to Bitwage.com, on the top right of the website you will see our exchange rates and we’re just completely transparent on what the exchange rates are at any point in time.

Justin: Cool. So someone could comparison shop. They can see exactly if I sent this much, this is how much I would get on the other end and they see it clearly. What assurances will I have that you’re not going to just gouge me on charging fees or transfer fees or whatever when you come out of beta?

Johnathan: Yeah. So, we’ve been experimenting or we’ve been playing around with different models for this and part of our mission is to really get people more of their money back. Right? I think it’s absolutely crazy what’s going on with the banks and PayPal and all these other systems where you’re just completely getting gouged.

Justin: People hate PayPal. There’s just no way around that. They like the luxury of saying they act like a bank when they want to and then when it comes down to it, they say, “Nope. Not a bank. I can screw you.” So, yeah. Our audience, I’m sure, has been … either had PayPal horror stories themselves or have read or talked to other people who’ve had them so that’s … there’s no love lost here. We’re not PayPal fans.

Johnathan: And so, what we’ve been thinking about is … it would either be a very low flat fee or per recipient payment plus I guess you could pay for more if you want a same day instead of a next day type situation.

Justin: Yeah. Yeah, yeah. You want to pay for speed. That makes sense. Yep, yep.

Johnathan: But then, we’ve also been experimenting and thinking maybe we could have a licensed model where if you … using us regularly, you can pay just a monthly fee and have unlimited payments through us. I’m not entirely sure which one people would be more interested in.

Justin: Yeah. The more they use you, the less they’re going to pay on a … when you break it down, on a per transaction. Right? Because you’re making your money on the FOREX anyways so higher volume is good for you and you’d be willing to reward them with lower fees.

Johnathan: Yeah. Exactly.

Justin: Cool. Okay. So I got how we can use this. It seems like a good option for if you got a remote team, if you got contractors in the Philippines, if you got contractors even in the US, you can pay them via the system. You can set it up for your own company.

One of the things that I want our listeners to know about, which I thought was interesting, is that you can set it up to where you get paid and you can split it up. So let’s say I want to get paid 50 percent cash, 50 percent Bitcoin or 20 percent Bitcoin, 80 percent cash. And I can set it up in a way to where my employer doesn’t even know. Is that right?

Johnathan: Yep, yep. So, we have a lot of users currently using our system this way in that people in the US still actually receive 60, 70, 80 percent of their wages in the dollars and the rest in Bitcoin or in gold or in silver. We also offer that. You can actually get paid a solution called diversified payroll where you can split up your wages into part dollar, part euro, part Chinese yuan, part gold, part silver-

Justin: Part goat.

Johnathan: Part goat. Yeah. One day. That’s the next one that we’re adding on there.

Justin: Tortoise shells, whatever.

Johnathan: Mammoth hide, I think … they’ve found some new mammoths and you get paid in it now. No.

And so, we have a lot of people who are getting paid that way and there’s sort of two reasons why people do this, one is of a more speculative investment nature. They believe that Bitcoin is this really powerful tool. If you look at remittances as a whole, it’s just a whole remittance industry which we actually don’t touch. We touch a different movement of funds but there’s 500 billion dollars that move every year in the remittance industry. And if Bitcoin were to be able to power that entire system, the value of Bitcoin would grow almost 100 X [inaudible 00:35:20] dollars.

Justin: That’s one of the things I love about … and we’re getting pretty detailed on … I’m not sure how much our listeners know about this, but with the Philippines, you talked about all the remittances and one thing if people don’t know this, they should, is that the Philippines exports a ton of people. Like a ton of people leave the Philippines and you’ll see the Filipinos working in hotels. You’ll see them working in restaurants and bars. You’ll see them working in hospitals all around the world. And one of the reasons they do that is because the low income in the Philippines and what they often do is they’ll go and make their money and they normally have family’s back in the Philippines and they send money.

So you got all these workers abroad that are trying to send this money back home and they’re getting gouged on that … sending it home. So that’s a real problem and I think you can answer this maybe better than I can, but I’m pretty sure they’re even taxed on that. So they’re being taxed on this money they’re sending back to the Philippines and it’s a real issue so this may be a great way to kind of get around that and for them to keep more of the money that they’re making abroad and give to their families which I think is a really interesting option.

Johnathan: Yeah. So, there is definitely a lot of money that gets taken out. Right? Especially when you’re doing these low volume amounts. When we send something like 50 million dollars across borders, you can negotiate for better prices with the banks and get interbank rates but when you’re sending 20 dollars or 15 dollars or a hundred dollars, they’re going to kill you on that especially if you’re doing something like on the ground Western Union … a non online Western Union payment. You go in. You’re trying to send 50 bucks. They’re going to charge you five bucks on your end, five bucks on the other end. They’re going to take five percent in the middle and so you end up paying over twenty percent.

Justin: Ridiculous rate. Yeah. This is actually great for … a lot of online businesses use contractors or part time people or virtual assistants and they are sending a hundred 50 bucks there, 300 dollars there, 250 there and so they’re all these sort of smaller transactions that when you’re getting hit with fees and stuff, it can be aggressively miserably. So it’s not so fantastic.

Cool. Okay. So, I got that. Let’s talk a little bit about kind of bring it back to home in terms of Empire Flippers and I know that Joe talked to you a little bit about kind of the value of being able, for us to be able to pay out sellers and be able to accept Bitcoin via buyers and this isn’t really talked about a lot but we talked about it at the beginning of the show is that, we do accept Bitcoin for both deposits and people looking for more information on the site and ultimately if they want to buy the site, they can buy it from us in Bitcoins. So, how could we use your service to both pay out our sellers or maybe even accept the money from buyers and why would we use this over Coinbase for example?

Johnathan: Sure. So, the way that you would be able to use us, right, is actually in automated way for people on the other site to receive their payments in a faster fashion. So, one thing that people could use … let’s say that they were in the Philippines or they were in Brazil, and we actually do local payments into Brazil as well, as the Bitcoins come in, they would hit an account and that account would automatically convert those Bitcoins into the local currency of Filipino pesos, Brazilian real. But the users don’t even have to pay with Bitcoins. Right? The user can pay with dollars. The user pays with dollars, same thing happens except for in Brazil and in the Philippines, you get your money way faster and at a much lower cost.

But then there’s also the use case of someone getting paid in Brazil or someone getting paid in Argentina or someone getting paid in Saudi Arabia … where it’s actually-

Justin: We have the [inaudible 00:39:02] … we’ll have a seller, let’s say it’s either an ex pat or a local that’s in Vietnam and we need to pay them out 70 thousand dollars. And they do want to use that in local currency so what would be the solution for someone like that? How would this work for them?

Johnathan: Yeah. Sure. So, right now we have this cloud savings account so when someone pays, you actually get your funds and it’s held in this cloud savings account and then you can choose for it to be held in dollars, in euros, in gold, and silver. There’s basically 19 different currencies or precious metals that you could choose from. And so, the way that it pays out of there is you can pay out through Bitcoin. You can work with your local exchanges to get local currency but then in addition to that, we have a debit card as well which you could use to pay out into local currency.

Justin: Cool. I hate the local exchange, just me personally. I don’t want to go meet up with some dude and bust out my laptop and have him pay me cash and I’m trying to send him Bitcoin. I … that’s just … that’s awkward and weird to me but I love the idea of having a debit card that I can then go around and use.

Can I actually pull money out directly at an atm or can I only use it as like a credit card or whatever at restaurants?

Johnathan: Yeah. You can pull out money at an atm. You can use it at a restaurant. I mean you can do whatever, wherever Visa is accepted. That’s where you can use this card.

Justin: Cool. And that can only be, I think, received outside the US. It can be used in the US but you can only receive those outside the US so that’d be a great option for anyone that’s outside the US. Right?

Johnathan: Yeah. So it’s 170 different countries that these cards can be shipped to and so there’s actually two big countries it’s not currently mailed into and that would be the US and India but other than that, you can basically send these things anywhere and use them at anytime.

There was one caveat, I guess, to this, to the card that is worth noting and it’s that you have to actually fill up the card from the cloud savings account. So right now, we’re building in a button that just allows you to easily press the button and boom it fills up the card. But as of right now, I guess, it’s a slightly [crosstalk 00:41:02]

Justin: So I have to login, transfer the money to the card, and then I can pull the money out.

Johnathan: Yeah. Exactly.

Justin: So, you mentioned India really quick. So, I got a interesting scenario that we’re … We have an investor for our investor program that came out of India and so he was having trouble getting the money out. They got serious capitol controls in place in India. Would this be a way to get around those capitol controls?

Johnathan: So what we could do … and we’re actually already starting to do this with a couple other customers is we have a very similar relationship with an exchange in India like we do with the Philippines. It’s just not coded into our system yet. So the way that you pay people in the Philippines, you can actually do the same exact thing in India. You know a part of exchange over there is a company called Uno coin which has had VC backing, US VC backing. That’s the most legitimate exchange out there. So by using our method, it becomes extremely easy, extremely fast, and of course, low cost to set it out there so you wouldn’t have as many issues trying to get your money out because there are a lot of issues and it comes to money going through India and this sort of will make that process have a lot less hassle.

Justin: Yeah. There are certain countries that just make it kind of difficult to take their money out of … I mean Vietnam is one of them. China can be difficult and India seems to have some issues too especially when you’re talking about larger sums, five, six, seven figures, it seems to be more of an issue. So anyway that’s … this is really fascinating man.

So I got to admit, I’m still not … I’m not a Bitcoin fanboy. I’m not going to be running around trying to get everyone convinced to jump on the Bitcoin bandwagon but I like it. It’s really interesting and I do think that I see some wild west things that are interesting from an entrepreneurial’s perspective. I see that you guys are kind of … put this in the best way, can you daunt your way into kind of … you’re like there’s no one else doing payroll. This is ridiculous. Someone needs to do payroll with Bitcoin. Maybe it’s us and so you started doing it. I think that’s pretty interesting. And it’s fascinating.

So, really, I see the best uses for your company … and I talked to Joe about this, I think we’re going to get setup with you guys and get off the RemitHome, Remitly, whatever soon because us putting our remote team, right? We can track everything that way. They get paid awfully quickly instead of waiting a week, which they have to wait right now, I think 24 hours or 48 hour period, they’ll be getting paid. That’s a lot faster. We’re paying just a little bit in FOREX, less than we pay with a bank or with PayPal or whatever.

I think there’s also an opportunity for us to both receive money from buyers and then payout sellers via Bitcoin which ultimately turns into local currency for them to use and we have paid out sellers that I mentioned before in Nigeria or Pakistan or … it’s really, really difficult for them to receive money. The banks are all kinds of … terrorist worries and whatever and it’s just really hard to get them money for legitimate business and so I think there’s a real value in that we pay less and it gets done faster.

Johnathan, anything I’m missing, man? What … Is there anything else you want to add about kind of what you guys do that you think our listeners might appreciate and find interesting?

Johnathan: Besides the international payroll aspects … So, I guess a really cool point is that for people who have distributed teams where they’re paying people in so many different countries and you got to use five, six, or seven different systems out there, really because of the tools that we’re leveraging, it makes it not just faster, not just lower cost but more accessible in that you can use this system to pay out a fully distributed team across the world and you do that with the click of a button. Right? That’s really, I think, a really cool handy thing that isn’t out there or offered yet.

Justin: Yeah. And for spending money. A lot of times our team wants to go out and spend seven dollars and they don’t want to pay five dollars in fees and FOREX to do it. Right? It’s just … it’s ridiculous. So, it seems like a much better option.

If anyone wants to check out your company, obviously they can go over to Bitwage.com, where else do you hang out, man? You hang out on Twitter, Facebook? Where can people reach out to you if they have any questions?

Johnathan: Yeah. So, we’re extremely active on Twitter so reach out to us there, Facebook. We’ve got a blog, blog.Bitwage.com so there’s a lot of good information on there and yeah. Just check us out. Our website www.Bitwage.com.

Justin: Awesome, Johnathan. Just thanks so much for coming on the show man. Appreciate it.

Johnathan: Yeah. Thank you. Thank you for having us here Justin.

Speaker 2: You’ve been listening to the Empire podcast. Now some news and updates.

Justin: All right Joe, so it’s been a while man. Let’s do some news and updates. First thought, man, I’m applying for this entrepreneurial Spanish visa both for me and my girlfriend. This is a new thing I heard about over on the tropical NBA podcast and our buddies over there were talking about it. But, basically there’s a girl who can help you get set up with an entrepreneurial visa in Spain and it has this interesting add on where if you’re Filipino, after two years, you can apply for dual citizenship and since my girlfriend’s Filipina, it’s possible for her to get Spanish citizenship which really kind of opens up the countries that she can easily go to and easily get visas to. So, I think that’s kind of interesting.

It also … there’s no in out problems in Shingin so I can go for more than 90 days, stay there as long as I’d like. I’d have permanent residency in Spain. It also helps me with permanent residency outside the US and a whole bunch of things so I’ve just applied for this. I don’t know how everything is going to go down but I’m looking forward to getting permanent residency in Spain. I thought it’d be kind of interesting.

Joe: Yeah. I think the really cool thing, more than any of the other things you mentioned is you can travel the rest of Europe basically indefinitely. Is that correct?

Justin: Yeah. So you can stay in Europe for the entire year. You can cross borders no problem so a lot of other Americans, they go there. They have this strict in out rule like you can only be there for 90 days out of 180 days. I wouldn’t have that problem. So I think that’s pretty interesting.

Joe: Yeah. That makes it extremely valuable.

Justin: The other thing is, I am just finishing up a semi vacation. Joe’s been worried about me checking in but I took about a … little over a three week trip. My mother came out to Southeast Asia and we did the whole thing. We did Bali, Singapore, Kuala Lumpur, Vietnam, Cambodia even and ended up in Thailand and just had a blast. It was fun to take someone that’s not really as familiar with Asia to all the places that we stop in pretty regularly and do that kind of a trip. And I’m doing all this crazy travel like this three days here, three days there travel, and Joe’s been busy getting settled down in Manila, right?

Joe: Yeah. So I’m settled in working hard putting in the long hours, the long weeks so good to have you back buddy.

Justin: Yeah. You get a little stressed out about me traveling so much. Well I know you got a lease, too. You’re going to be in Manila for quite a bit and for anyone who is familiar with Manila or who isn’t, it’s … it can be kind of a rough town but there is a part called Fort Bonifocia that is really nice that is really nice. It’s like you walk down the street, you feel like you’re in a place like San Diego or something. It’s pricy but it’s a really nice place to stay and you’ve got a great apartment. I’m actually in Manila with you right now. Got a great apartment over there overlooking the Burgos circle. It’s really nice. So I’m really happy for you. I think it would be a great spot where we can get some real business done.

Joe: Yeah. I’m excited about it too. Spending at least the next year here and Manila’s an easy place to travel from as well. So, I’m sure I’ll be in Thailand and other countries for short trips but it’s nice to have my hub back.

Justin: So, I saw an interesting article over on quiet life broke ridge and the article was talking about, can we please stop selling easy money. So I liked the title. I thought that was interesting and they’ve got some really good honesty in the article. They talk about a deal they made with a buyer that went bad and just some of the other deals that they’ve done but they go on to say, “People shouldn’t talk about kind of the lifestyle and sitting by the pool and working on your site or whatever,” and I just … I don’t agree with that. I think it is pretty interesting. I think that buying sites and flipping sites and buying and selling sites and building your empire can be presented as job replacement income because it does do that. I know people that have replaced their jobs and have taken off and started traveling the world based on that income and so I think it is something interesting to talk about but I’m not sure where they’re coming from there.

Joe: Yeah. No. I agree. I mean especially for people that are interested in lifestyle businesses. I think this is a great jumping off spot like the site of the week we talked about this week, that’s a perfect kind of site that someone can buy without having to spend everything they’ve saved in their life and make … maybe not a livable wage but definitely can pay most of the expenses with the net income every month.

So, these businesses are out there.

Justin: I don’t know where you’re living man, thousand bucks a month [inaudible 00:49:20] that much but if you got three or four of those, yes. I think you’re in a good spot.

Joe: Yeah. What I meant was it’s a good start. It gets you half or a third of the way there rather than you having to spend just out of your savings. So, there are those businesses out there. There are those properties out there and I think it is something to talk about especially on the lower end.

Justin: All right man, let’s do some listener shouts. First one up, we got Adam Brown. He said, “Empire Flippers, what’s more important, web development or marketing, when it comes to online businesses? Trying to decide on a new career path.”

Joe, I’m going to let you run with that. What do you think, man? What’s more important, web development or marketing?

Joe: Unfortunately, I have to say marketing.

Justin: Well, that’s … see that’s an interesting … I’m going to have to … let’s untangle that a bit. So you said, “Unfortunately.” Right? So where does that come from? Like why is it unfortunate?

Joe: Well because although I sometimes hate marketing, it’s absolutely critical and I think if you don’t have that skill well developed in your business plan and in running your business, you’re just not going to be successful. If you’re the most … you’re the best web developer in the world and you go into business, you have a good high chance of failure whereas if you’re the best marketer in the world, you’re almost guaranteed to be successful.

Justin: Yeah. It’s interesting. I think as an entrepreneur, marketing is probably more important. You can hire the web developers. I think though, over all, like you Joe, I prefer the builders. Right? The web development guys are the ones that are building interesting things and I think their adding a lot of value whereas just marketing gimmicks and stuff and tactics, that just seems kind of cheap. It doesn’t feel like there’s a ton being added. Right?

I read an article recently. It was talking about an advertiser and he wrote long form sales copy and helped come up with jingles and that kind of thing. And he looked back on his life sadly. He was like, “What did I really do with my life?” And I was thinking about that. I was like yeah, that is kind of interesting like what did you do other than to come up with these jingles that people would remember for years. It’s not really … it’s not like a lasting impact and so I kind of agree with you from an entrepreneurs perspective, you need to be able to market your business. There’s nothing sadder than a builder who knows how to build really cool stuff that can’t get it sold. Right? Who can’t sell that stuff. That’s just a really sad situation. So I think entrepreneurs need to be good at marketing.

And at the same time, I think you need both skills. I think you at least need to understand the development side. You need to be able to work well with builders. But yeah, trying to be that builder without any kind of ability to market or get sales or build lead funnels or anything like that, I think you’re going to be in trouble. You’re going to be stuck working for an entrepreneur who does know that stuff.

Joe: Yeah. I think that’s very true. And when put in combination, good marketing with good web development, it doesn’t even have to be the best but just decent, solid marketing skills and solid web development skills. It’s a deadly combination and any niche you choose to attack, you’ll most likely be successful.

Justin: You got mentioned recently, Joe, on a blog post. It was an interesting cautionary tale over at Marketever.com on things that you can do to get your Amazon affiliate account banned. So I’m guessing they reached out to you about that and one of the things you mentioned was not to mention price in the content of your Amazon sites. Is that right?

Joe: Yeah. So, unless you tie in directly to the Amazon API, there are some plugins, WordPress plugins that’ll do that for you and pull out the price but there are definitely some ways to get your Amazon account banned and that’s one of them.

Another one is the obscuring the links completely. There are some general rules about it like if you put the tag in it and you use the link that way but if you use link shortners, that will also get your accoUunt banned. So there’s a number of ways and the best way to do is to read up on the terms of service and contact Amazon directly if you’re not sure because the worst thing you would do, take a shortcut, and get your account banned and then not be able to make money from your site.

Justin: Cool, man. So I’ll link to that in the show notes if anyone wants to check it out.

That’s it for episode 145 of the Empire podcast. Thanks for sticking with us. We’ll be back next week with another show. You can find the show notes for this episode and more at EmpireFlippers.com/Bitcoin and make sure to follow us on Twitter at Empire Flippers.

See you next week.

Joe: Bye-bye everybody.

Speaker 2: Hope you enjoyed this episode of the Empire podcast with Justin and Joe. Hit up EmpireFlippers.com for more. That’s EmpireFlippers.com.

Thanks for listening.