Bitspark, a crypto-financial provider for the APAC region providing blockchain powered end to end remittance services has announced it will be switching to the Bitshares blockchain from Bitcoin. Bitspark believes Bitshares decentralized exchange has some clear advantages, particularly for the remittance business.
The new payment method will be rolled out slowly for specific currency pairs so that Bitspark’s remittance users will have access to all of the worlds 180+ currencies within the next 12 months. Existing bitcoin deposits and payment methods will still persist for a time while Bitspark makes the switch.
Below you can read about some of the reasoning behind why the company is making the switch and why it is their belief that decentralized pegged cryptocurrencies are a major step forward in the remittance world.
- Predictability – Bitspark said that for most of this year the prevailing wisdom for elevated Bitcoin network fees has been “just pay more fees” which is not reasonable when there is no predictability or when margins for payments on a $200 transaction can be wiped out on a $3 fee. Using dynamic fees also does not work as a value proposition for users. When a customer does a remittance, trustworthiness is not gained by telling them “one day your fee might be $1 another day it could be $3.” Given this, for many years all Bitcoin remittance companies have pre-funded larger amounts with their liquidity providers which lock in rates and eliminates the risk of slow payments. They can then draw down upon those balances as new payments arrive. This is a sound model and will remain so. However, remittance companies do not want to use upfront capital in pre-funding balances making it important to find an alternative that truly can send $2 across the world for negligible cost without price volatility risk.
- Limitations to accessible currencies – Bitspark says that in their experience, bitcoin remittances make no sense for trading between the major FX pairs, its benefit is for exotic currencies in often developing countries. The reason being spreads on exotic currencies are larger, however, accessing liquidity via traditional methods is difficult with everyone being channeled through a few gatekeepers. Although bitcoin is traded in many places around the world, only a few emerging market currencies are viable for remittance payments due to the partners in place or the payout methods, fees and connectivity available.
- Liquidity is always a consideration – Although there are many components to cryptocurrency remittances, an important factor is liquidity. One needs someone willing to take the other side of a trade in order to transfer money from one location to another via bitcoin (or any other similar crypto) it’s often not a large problem for most cryptocurrency remittance providers as many of the remittance companies have a good list of reliable liquidity providers with capacity far greater than their current need. However, in more exotic markets where there may not be liquidity providers (brokers/exchanges/OTC), bitcoin-based remittances are not possible in that country’s local currency and one either needs to settle in another currency or use traditional methods.
As things stand currently, the Bitspark team believes Bitshares offers the greatest advantages to a remittance company looking to utilize cryptocurrency as a means to send money quicker, cheaper and to more locations. Bitspark will be aiming for 180+ currencies, instant payments, no cost, and zero counterparty risk.
The ability to access the worlds 180+ currencies gets hard past about 30 currencies. Often this requires money transfer providers to open accounts all over the world in different jurisdictions, connect to disparate and often unreliable payment mechanisms which are all intricately different in every country. This leads to it being virtually impossible for a payment provider to connect to everything on their own and instead is forced to connect to the few gatekeepers who do have some semblance of a connection to a payout network.
The gatekeepers in these jurisdictions then need to manage their own liquidity and often settle balances between themselves and others in a common currency, typically USD. This works but it also means there is the additional conversion on their end from the local currency to and from USD which can add a significant cost which is why remittance costs to and from African countries are the highest in the world in that these currencies are often very difficult to access liquidity in and there is usually only one company or bank which has the connection to the local payment mechanism.
The problem to solve is access. Bitshares enables anyone to create a pegged crypto asset and trade it on their decentralized exchange, not only is the asset itself decentralized with no counterparties but also when you trade that asset with others there is no counterparty risk at the exchange level too. This is important for a few reasons. First, there are no counterparties to create the asset which means no risk of bank account closure or bank correspondent account closure which is the biggest issue in remittances globally at the moment. There is also no counterparty risk when trading, which means there is no need to keep money at a centralized exchange or broker which can go down, get hacked, become insolvent or run away with the money.
Creating a pegged asset without needing to trust an intermediary who says they have the money backing it and instead, the money and value backing it is in a smart contract on the blockchain transparent to everyone. With Bitshares, anyone can create a pegged asset for anything, for every currency or commodity opening up possibilities for new companies and markets. The Bitshares blockchain can solve the problem of access as there is no need to hedge USD and rely on a single gatekeeper. Once people can settle between one another in their native currency and with new money transmitter providers they can directly trade/access liquidity in various FX pairs that were virtually non-existent previously.
Cheap and Fast
The Bitshares Blockchain itself is built to scale to 100,000 transactions per second with fees as low as fractions of cents and confirmation times sub 3 seconds. Additionally, the Bitshares blockchain has been fully functioning for 2+ years and has passed its testing stage as a viable blockchain.
Being able to send individual transactions for a low cost quickly can reduce capital outlays as instead of sending a bulk amount of bitcoin to a liquidity provider and drawing down on the balance, payments can be made as and when they come, freeing up capital for other things.
Liquidity Can Be Less Of An Issue
In the Bitcoin world, a willing participant is needed on the other side of a trade to fill the equivalent fiat value when conducting a cross border transfer. This usually means the need to integrate with one or several liquidity providers or manually manage incoming and outgoing payments as well as manage BTC exposure appropriately. At some stage, people are needed with fiat to offload incoming BTC, which in many countries can be quite challenging.
The vital connection to local liquidity is through fiat currency, in order to participate as a market maker in various countries fiat currency is needed to deposit and exchange with which often means the need to actually be in the country to be a market maker since bank accounts will be needed for those local currencies. However, there are not always market makers in every country. For example, it is easy to send someone bitcoin in Myanmar but harder to find more people with Kyat (the local currency) to exchange for BTC, in order to do that the only way to get Kyat into the system is through some centralized entity or gateway and which might not exist.
With decentralized pegged cryptocurrencies issued on Bitshares, anyone can issue the fiat pegged cryptocurrency so long as they have appropriate BTS to lock up in a smart contract as collateral. This is important as it means anyone around the world can participate as a market maker in various global currencies on the fiat side of the trade without the need to have the local fiat currency on hand via a gateway, it can be entirely automated and done digitally.
This means there is one less hurdle for liquidity in new markets and there is also a natural incentive to create more liquidity. If there is a rising demand for a fiat pegged cryptocurrency then it will be trading higher than its real price so it’s possible to make money in creating (locking up BTS collateral) and selling it on the market. This attribute helps improve access to liquidity in any geography or fiat currency in the world.
A Real Decentralised Exchange with Zero Counterparty Risk
As noted, Bitcoin remittance companies and OTC traders rely on a number of intermediaries to ensure they have adequate liquidity to enter and exit bitcoin profitably. It doesn’t matter how reliable, trustworthy or regulated these intermediaries are, it is still a counterparty risk where trust is needed in the process. If there is an issue with any of your intermediaries it can affect business severely. For example, a money transfer operator can lose their bank account simply because banks foresee risk in remittances, not due to any breaches a money transfer operator has actually done. This is unacceptable as global micropayments grow and a need for a trustless system to exchange value becomes more in demand. Bitspark believes the Bitshares DEX is one step closer to making that happen.
There have been many attempts at decentralized exchanges and many are in operation today like Bitsquare, Openbazaar and other altcoins like Waves but none are as well suited to remittance companies as the Bitshares DEX. The Bitshares DEX has been in operation for more than two years with professional trading and charting information in addition to the light client being connected to user wallets directly for voting on blockchain proposals and fiat gateway support. It is one of the most developed DEX which lists hundreds of assets and unlike alternatives, it is fast as all users are trading other IOUs or decentralized tokens, there is no need to wait for settlement.
Of course, another big benefit is that exchange mismanagement like Mt. Gox is eliminated as there is no sole entity in control of funds. Anyone is in complete control of their funds at any given time and they are safeguarded from having to trust various intermediaries.
Bitshares Still Needs Improvements
One of the key areas is governance. Unlike Proof of Work mining, Bitshares uses a delegated proof of stake model whereby 25 ‘Witnesses’ who are elected produce blocks (and get rewarded in BTS), not miners. This has a few benefits like speed and potential decentralization but there are some key additions Bitshares could update to improve governance in this area.
Firstly, for a Witness to be active it needs to get voted in, however, once in the top 25, there is no easy method to track the performance of that Witness. Potentially a Witness could miss blocks and perform poorly and because votes do not decay (and if some accounts are lost or abandoned their votes still count like dead people from the past voting in elections), they will remain in getting paid and doing a bad job. A proposal in the short term could be that votes should decay at some rate forcing users to review a Witnesses performance (perhaps a worker proposal should be to display this performance to everyone within the light wallet) and vote again for the best for and the pool of active Witnesses should be expanded beyond 25.
Another area shared by newer members of the community is the steep learning curve of the UI, out of date docs on bitshares.org and lack of gateways. These are not issues of the protocol but more so opportunities for someone to improve via a worker proposal or for a business to set up a new resource hub for information and a new trading interface.
Keeping in mind inbuilt voting and decentralized exchanged as part of a trustless network is something that seldom few if any other cryptocurrencies have so there is bound to be areas of improvement.
Bitspark said that in time, more viable alternatives will arise and will endeavor to also integrate these options into their product offering, but at the moment they are not ready. MakerDAO and Waves are nowhere as developed/documented and cannot do half of the described above, EOS and OpenANX do not exist yet and other alternatives like Tether are centralized with counterparty risk and don’t fulfill Bitspark’s business requirements.
Other settlement layers like Ripple, Stellar or the defunct Falcon Protocol don’t actually move value and are no different than using a MySQL database… they are cryptocurrencies which may be better than bitcoin for payments but have no liquidity and address none of the above-noted use cases regarding creating decentralized fiat pegged cryptocurrencies, “great for banks but not for remittance providers” says Bitspark.
Next Steps for Bitspark
The company will transition to the Bitshares blockchain for the rest 2017 and will be fully operating in time for Bitspark’s most recent project with the United Nations in Tajikistan where Bitspark will be facilitating domestic and international transfers. Bitspark hopes and believes that the Bitshares blockchain will be able to apply some of its benefits to the context of Tajikistan whereby previously inaccessible exotic currencies such as the Tajik Somoni can be transformed with Bitshares technology and lead to a cheaper, more secure, faster and trustless system of payment.
The Bitspark team finished their update saying:
“We look forward to working with local stakeholders and payment providers for the end to end process and believe that great developments will be brought around by this change. While our first market of Central Asia will be Tajikistan, our aim is to make Bitspark accessible for existing and new partners anywhere in the world.”
“Bitspark’s priority is to enable access to a complete set of currencies with a focus on developing countries and we believe giving access to trade into and out of any currency within seconds for no cost will bring great benefit to local people via economic activity and financial inclusion.”