July 11th, 2013 Ultra Light: Bitcoin
On Thursday, July 11, 2013, OLC attended Ultra Light Startups’ Investor Feedback Forum featuring Bitcoin and Bitcoin startups. Hosts Graham Lawler and Tatiana Bakaeva welcomed panelists Andrew Chang of Liberty City Ventures, John Frankel of ff Venture Capital, Nikhil Kalghatgi of SoftBank Capital, and Matthew Witheiler of Flybridge Capital Partners. There were nine pitches lined up: BTX Trader, Atlas ATS, artaBit, Rightclick, Bex.io, OpenWallet, LeetCoin, Crypto Street and CoinX.
Ilya Subkhankulov of BTX Trader presented first. BTX Trader is a powerful platform to track Bitcoin. He and Divya Thakur come from professional trading backgrounds and built BTX Trader from the ground up with trading in mind. They have a collective eight years in the business. “Our business proposition is to capture exchanges rated through exchanges,” Subkhankulov said. With BTX Trader, users can track Bitcoin quickly and seamlessly.
John Frankel: Do you get paid commission?
Divya Thakur: What we’re looking to do is take a negotiating stance with them. When platforms are sophisticated enough, traders want to use them. It’s free to the end user.
Andrew Chang: What exchanges have you captured so far?
DT: Right now, we’ve captured Mt. Gox—that’s 60 to 70 percent of the market.
Matthew Witheiler: So who’s your target market?
DT: Mostly retail traders. But our main target is people who do block trading.
Nikhil Kalghatgi: Why is it that your product is different than others out there?
DT: We have experience from top three firms that use this technology. We also have algos that work on this. We have only one competitor in the space as well.
MW: I would think about the consumer and change the platform to fit that.
NK: You said that institutional investors gain power over time? What’s happened is that fund managers have been tossed aside. The big question is, “What tools do we use to do high-frequency trading?” You can’t do this on Bitcoin. What you’re building is directed just for professionals. Your customers are exchanges.
Shawn Sloves of Atlas ATS pitched next. Atlas ATS is an exchange and a broker. They’re looking to build a pool of liquidity as well as aggregating exchanges to be a onestop shop. “The US market needs an exchange,” Sloves claimed. “We thought Bitcoin was a good space to get into.” Atlas ATS plans to charge per transaction and through interest. “If we build a market where you provide liquidity, we can improve transactions,” he said. The target markets is retail and buy side traders.
AC: Can you talk more about regulation?
Shawn Sloves: We take on the point of view that we have to comply with regulation with the SEC, FINRA, CFTC... The CFTC has recently released new regulations that have to do with synthetic currency, which is where Bitcoin is located.
JF: Is Bitcoin just one of your trading currencies?
SS: We have multiples, but Bitcoin is one of them.
NK: How big is your company today?
SS: We started four months ago and we’ve built a trading platform for Bitcoin.
JF: Where do you store your Bitcoins?
SS: We store it on our own, but we also have the capability to use wallets and banks as well.
AC: I’d talk more about regulation, if I were you. If you sign with a bank, it’s a huge deal.
MW: On the regulatory side, I’d continue talking with CFTC and other regulatory organizations. This will help you keep your head above water.
artaBit was presented by Ayoub Nacini. artaBit’s goal is to make transfers to Southeast Asia fast, cheap and easy. “Because it’s fast and cheap, we plan to remove the exposure of Bitcoin,” Nacini said. “Neither sender or receiver needs to know that they are using Bitcoin. Indonesia has one of the largest remittances in the area.” He also explained that Western Union nor MoneyGram were competitive in the space because they didn’t make money at sub-$1,000 transfers, but artaBit is able to. “Our cost, even at $1.00, is easy,” Nacini claimed.
NK: What are you doing on the consumer side?
Ayoub Nacini: We’re trying to hide Bitcoin completely. We want to focus on the fact that it’s a transport mechanism. We’re going to have partners and sub-partners all over Indonesia.
MW: So how would I get cash?
AN: You make a deposit through artaBit. Behind the scenes, BitInstant—a partner—would work to convert cash into Bitcoin and send it to a partner in a country of your destination. It can be used through mobile and desktop.
AC: You’re pitching a simple solution, but in a complex way. Giving an example of how it affects the end-user would be helpful.
JF: State that this is an arbitrage spread using Bitcoin.
MW: Building a network is important. I’d think about expanding nationally and internationally.
Andre De Castro of RightClick pitched eCoinCashier, a platform dedicated to making selling Bitcoins easier. “We’re going head-to-head with Bitcoin ATMs,” De Castro said. Basically, eCoinCashier gives users the opportunity to sell their Bitcoins quickly and receive the cash in three ways: Bank account, Paypal or credit/debit cards. “We make selling Bitcoins easy,” De Castro proclaimed. eCoinCashier’s model works on transactional charges (about 2 percent). “We only work with accredited investors and organizations that want to diversify their investments,” he said.
JF: You only sell on your website?
Andre De Castro: We only purchase Bitcoins.
NK: How much reach do you have—who is your target customer?
ADC: We can very quickly convert money and put it into debit cards. We’re not going to go about $1,000. We’re thinking about capping our payout limit for debit and credit at $400 to $500.
MW: The regulatory aspect is a big question mark to me. Just make sure that you have a good handling of that. Don’t try to skirt the law.
JF: Next time, try to simplify your explanation. It was a bit confusing the way you explained it.
Bex.io was presented by Jesse Heaslip. Bex.io is a white label Bitcoin exchange. They leverage regulatory banking relationships and offers exclusive licenses. They hope to launch a global mining pool. “We’re building entrance points in a frictionless way,” Heaslip said. Bex.io removes the complexity of running an exchange and instead, offers security and performance. Their business model is based on transaction fees, but they are experimenting with it. Bex.io is a team of five located in Vancouver, Canada.
AC: How many exchanges are signed up?
Jesse Heaslip: We closed one—a very forward-looking customer.
MW: How do you charge?
JH: We’re charging transaction fees. We’re playing around with the percentage.
NK: What are the three things an exchange looks for?
JH: Well, they look for security—we provide OS-less deployment and no shared tenancy; performance—an architecture optimized for order execution speed; and experience—visually appealing, intuitive design.
NK: Okay, so the bottom line is that exchanges want people using their platforms. If you could add some value services, think about what exchanges want.
OpenWallet is a cash terminal for physical to virtual money. Pitched by Aric Fedida, OpenWallet is a physical ATM-like machine that converts money to Bitcoins. “It allows HTML5 apps to be developed for a machine. The apps are designed to be simple and responsive. It can load Bitcoin to wallet and receives a QR code, which is received via receipt,” Fedida said.
NK: Are you an ATM or a suite of apps?
Aric Fedida: Just a cash collection method. The first location is going to be in Midtown.
JF: Who proves the capital cost for the equipment?
AF: Right now, I do.
AC: What’s the demand for something like this?
AF: Right now, there’s a lot of shops that close and people go home. This is a great way to get traffic and make money. BitInstant would send a customer to the machine and the store makes money.
JF: I think you need to work out the capital cost that you have in mind.
AC: I’d talk a little bit more about distribution.
MW: For me, you should channel people that put ATMs in their stores. Talk with people who sell ATMs.
NK: Have the ability to sell things that people want to use.
LeetCoin, pitched by Kingsley Edwards, wants to facilitate growth of Bitcoins by introducing it to the gaming industry. Players play against each other one games they enjoy playing. “LeetCoin is designed to reward good players by taking money from people that lost the round.” Its customers are gamers and they plan to release their own servers. The Bitcoins are transferred instantly into the gamers’ accounts.
MW: So is this the market illiquid today?
Kingsley Edwards: We’re focusing on Counter Strike first. We’re approaching popular servers so they can push people to our servers.
NK: Are you a prize-winning game or a gambling company?
KE: We are—there’s a difference between skill-based and chance-based wages. Ours is skill-based and it’s legal in 39 states as well as most of Europe and Asia.
MW: I would understand the history of this space before going any further. I’d do the case study and push the assumption that Bitcoin is different. Don’t dismiss the patterns of past companies.
AC: It seems like you’re taking Bitcoin and applying ti to something that just exists. You need more than that.
Crypto Street, an advanced exchange platform for Bitcoin, was pitched by Yaniv Sofer. The platform is all built and ready to launch, but the team at Crypto Street decided to redesign the website, tone down and launch without some regulations in place. “Our minimum launch incorporates Feathercoins, Lightcoins and Bitcoins,” Sofer said. They are targeting people who are interested in Bitcoins, but especially traders. They are planning to launch July 15.
AC: What regulatory steps have you taken so far?
Yaniv Sofer: The biggest issue is fiat currencies. We focused on crypto currencies—we do have compliance for that, but not for fiat currencies yet.
NK: I think you got the general idea. We’re struggling with why people would hold it in just crypto currency. In reality, you’re going to suffer from the inability to get money in.
Megan Burton of CoinX was the final pitch of the evening. “We’re focused on legitimacy, liquidity and compliance,” Burton began. She explained that challenges that many exchanges face are security and the speed of transactions. With CoinX, security is prioritized. It is currently listed on the NYSE and its speed of exchange uses eight mechanisms to get money in and seven to get money out. “We believe that focusing on legitimacy and embracing compliance will help with adoption,” she said.
NK: Why is your platform different?
Megan Burton: We embrace compliance. We’ve reached out to states individually to get compliance and stamps of approval.
MW: Are your partners signed?
MB: Yes. We have three banks signed up, out of 46 that we contacted.
JF: When are you launching?
MB: We were supposed to have launched early this year, but due to the recent regulatory bill, we decided to wait to get approval from all states.
AC: Are you guys self funded?
MB: I’ve been funding it myself.
JF: Sounds like you’ve done all the things you need to do. You just need to get your product our and get to revenue as soon as possible. Credibility is crucial in this business and you’re going about it in the right way.
MW: I’d encourage you to see how you’re going to get early adopters.
NK: One way to be obvious market leaders is to not tell your business to competitors, but in this case, telling how you got there, the obstacles that you had to overcome—you will be the market leader because people will use your business as a model, and that means you’re going to be talked about.