Helping banks easily spin up their own Bitcoin exchange
Buttercoin is a platform that allows any bank to spin up their own Bitcoin exchange. Designed to handle the ballooning transaction volume that has strained existing Bitcoin exchanges, Buttercoin is modeled on the architecture of LMAX, with its matched quality of execution, speed and thorough process transparency.
Cedric Dahl CEO @ Buttercoin
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The growth of digital currency, which enables trading outside of the control of central banks and international borders, is exceeding all expectations. Bitcoin, the industry standard cryptocurrency, is the most traceable and transparent form of payment in history and carries “a lot of advantages,” says Buttercoin co-founder and CTO Bennett Hoffman. But high volumes cause cracks in the system, even big problems like April’s massive crash of major exchanges Mt. Gox and Bitstamp. Hoffman and co-founder Cedric Dahl see an opening in the $500 billion remittance market for a solution that addresses concerns about technology, compliance and liquidity.
Hoffman and Dahl have developed a high-performance trading engine designed to remove the risk inherent in Bitcoin. In the spring, leading Bitcoin exchange Mt. Gox crashed—overwhelmed by of an increase of activity. Buttercoin’s solution: a high-volume trading engine inspired by LMAX that sequences trades in its order book. Their white-label product effectively makes Buttercoin a service provider. Hoffman and Dahl plan to partner with existing regulatory institutions to shield themselves from compliance issues and regulatory overhang, which puts Buttercoin in a prime position to impact the evolving growth of the Bitcoin ecosystem.
Part of something big
Buttercoin’s Dahl and Hoffman met at Microsoft four years ago and left to start a boutique web analytics firm. They made enough money in their first start-up venture to retire in their early 20s. But analytics wasn’t their passion, so they decided to take time off to travel the world.
The duo ended up making “People in Motion,” a documentary about Parkour and freerunning that was broadcast on cable and shown on several airlines. Next, they built their own technology incubator—Nerd Tribe—and started a hacker house in Austin, Texas. Dahl and Hoffman worked hardware projects before zeroing in on the rise of Bitcoin. The cryptocurrency crash in April led the team to Y Combinator.
“From where I sit today, Bitcoin seems to me like one of those once-in-a-generation things,” Hoffman says. “I think digital currencies will reshape the world.”
The future of exchange
While being part of a “once-in-a-generation thing” was what initially intrigued the team, the brains behind Buttercoin are not just looking to be at the nexus of Bitcoin. Dahl and Hoffman are looking to build a robust compliance platform. This will position them to secure their company’s future and to propel Bitcoin forward. By building a service provider platform that strategically partners with market-makers and regulatory institutions in various countries, Buttercoin can shield itself from regulatory exposure and build on solid footing.
Current Bitcoin users frequently encounter global compliance issues. With Buttercoin, it’s about plugging into a bank account. Users can set up an exchange anywhere in the world; Dahl and Hoffman plan to be up and operating in six new countries over the next nine months starting with India, where they’ll work with local transfer businesses to ensure compliance. In return for securing licensing with regulators, local exchangers get 50% of Buttercoin’s fees. It’s a model that transmittance companies and market makers are eager to embrace.
So far, Buttercoin’s clientele are remittance businesses that are already sponsoring their own exchanges. Because they have all the transmission licenses in place, they see Buttercoin as an affordable, streamlined alternative to Western Union (which charges 10%) and an additional source of revenue. It’s a “provider as a service” model; Buttercoin secures all the Bitcoins in its multilayer vault system—all the exchangers have to do is integrate their treasury account with Buttercoin.
Proving the thesis
Given Bitcoin’s dominance and its reputation for accountability, law enforcement and liquidity advantages, governments around the world will eventually jump into this new, more efficient exchange system. Buttercoin hopes to be an important player in the burgeoning space.
“We’re positioning ourselves similarly to how Yahoo or Google did in the ‘90s,” Hoffman says. “We’re able to see how this ecosystem develops at a very intimate level and find the next AdWords to build on top of Bitcoin.”
While Buttercoin’s 10-person team of developers, quants and economists doesn’t necessarily know where the biggest opportunities will come from, they are optimistic about the path ahead.
“This remittance thing is sort of the first proof that our thesis is accurate,” Hoffman says. “It was something that emerged from our ability to view participants and players in this market and see what their needs were.”
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