Bitcoin is one of the buzz words in the tech world at the moment as supporters and critics debate the merits and drawbacks of the digital currency. To find out more HumanIPO caught up with the founders of South Africa’s first rand-to-Bitcoin exchange platform.
Nicholas Pilkington and Timothy Stranex launched BitX earlier this year in a bid to promote the rand-to-Bitcoin exchange and are seeing increasing numbers of visitors and dealers.
The pair have also set up a Bitcoin forum for South Africans who are passionate about the digital currency.
HumanIPO: Explain a little bit about yourselves, how you came to set up bitx.co.za and when was it launched?
We are two programmers. Nick has just finished a PhD in machine learning at Cambridge. Timothy has been working in the software industry for a while.
When we first heard about Bitcoin, it sounded like a fad or some kind of get-rich-quick scheme, but it didn’t seem to go away and it sounded interesting so we looked into it more deeply.
It turns out to be a very cleverly-designed system and we got quite excited with the possibilities. It is a substantial improvement over the current financial infrastructure at the most basic level: transferring money from one person to another.
But there is a problem in getting Bitcoins in the first place. There are already large markets for Bitcoin in USD and EUR.
However, there wasn’t any easy way to trade them in South Africa. So we decided to build a local market platform for Bitcoin in rand. BitX was launched earlier this year and the response has been amazing so far.
How does the platform work?
BitX is a market where you can trade between rand and Bitcoin. You can think of it as similar to a stock exchange, except with only one stock.
Traders can place bids to buy or sell Bitcoin at a price of their choosing. When two traders place matching buy and sell orders, the orders are executed and a trade occurs. We then handle the exchange of the rand and Bitcoin between the traders.
How has activity on the platform grown since you launched?
The platform is still very young, but we have seen steady growth since we launched.
There are a number of traders who use the platform very frequently. We expect this growth to accelerate as Bitcoin becomes more accepted and understood in South Africa.
We are continually working on making the platform easier to use while keeping it secure and robust. The feedback we have received from the community has been excellent.
What interests you about Bitcoin?
Bitcoin transactions are much faster and cheaper than normal transfers through a bank: transactions are cleared in ten minutes. For comparison, a transfer from FNB to Standard Bank takes two working days.
The fees are lower too. FNB charges ZAR7 for a transfer while the Bitcoin transaction fee is ZAR0.7. That’s 300 times faster and 10 times cheaper.
Another great thing about Bitcoin is that you can keep control of them yourself. It’s similar to gold in this respect. Nobody can take them from you without your consent and they can’t be devalued by a central bank.
We think of Bitcoin as something between “Cash 2.0” and “Krugerrand 2.0”.
What is the potential for Bitcoin in SA and Africa?
Firstly, Bitcoin is a major improvement for everywhere in the world. As it becomes adopted more widely overseas, for example by online merchants, we will need to use it here in South Africa to simply to keep up.
But beyond that, it has some a good advantages for us here too.
It makes it easier for South African merchants to sell products to overseas customers without having to deal with credit cards and paying the high fees and fraud costs associated with them.
So it will help South African companies to be more competitive on the global scene. We’ve already seen the first South African companies accepting Bitcoin for payment, as reported by HumanIPO, which is very exciting.
For Africa more widely, Bitcoin has a lot of utility where governments are unstable, physical security is a problem, or proper banking infrastructure is just not available.
Micropayments are very common in Africa where people want to transfer small amounts of money quickly and securely. This is currently done with banking applications running on feature phones.
This could be a perfect application for Bitcoin. However, it is easier said than done because it will be quite difficult for people in poorer countries to get Bitcoin in the first place.
Will Bitcoin’s fluctuating value eventually steady? Or will that always be the nature of Bitcoin?
We expect it’ll continue to fluctuate in the short term because the market is still small enough that it’s sensitive to media coverage and can be moved by large investors. However, it’ll become more stable over time as more professionals get involved and the market trading volume grows.
To give some idea of the scales involved, the daily trading volume between USD and Bitcoin on the largest exchange is about US$5 million per day.
By comparison, the daily trading volume on the global currency markets is more like US$4 trillion. So Bitcoin is still several orders of magnitude smaller.
If Bitcoin becomes more popular in South Africa, do you expect the government to start looking at trying to regulate it or make it illegal?
It’s inevitable that the government will try to regulate it. This is already starting to happen elsewhere such as by FinCEN in the US and the tax authority in Canada. Some level of regulation is good because uncertain legal standing is a big thing holding back Bitcoin adoption.
However, we can only hope that the government will take the time to analyse and understand it properly, recognise the advantages it provides, and regulate it in a forward-thinking way with a goal of improving the world and not simply trying to preserve the status quo.
An example of how it should not be regulated: The US apparently wants BitcoinATM to put up US$25 million for insurance. That kind of down payment makes it almost impossible for a new company to get started and is not really necessary for the volumes involved at this point.
An example of a regulation that does makes sense: Some basic rules to prevent money laundering.
Simply declaring it as illegal would be a copout and we don’t think people will accept that.
What are your thoughts on the Bitcoin ATM? If they were to become popular, is there a worry they could negate the need for exchange platforms such as yours?
It’ll be great if the Bitcoin ATM becomes popular. There is definitely room for both ATMs and an exchange. The two systems would complement each other really well since ATMs will need a market behind them to operate efficiently.
In terms of whether the Bitcoin ATM will actually be successful, we’re not so sure.
The good aspect is that it’ll be very easy for people to get started with Bitcoin because an ATM is such a familiar device. However, we suspect it won’t provide the same level of service that people expect from normal ATMs because the backend infrastructure for Bitcoin in South Africa just isn’t at the same level yet.
Also, society seems to be moving away from physical cash and toward online banking instead. That said, we hope we’re wrong and they are successful.