Since 2008, a large number of previously financially strong regions of the world such as Japan, most of Western Europe and parts of North America have experienced banking crises and loss of confidence in the traditional, institutional banking structure.
In democratic countries, the governments have been involved in bailouts of failing banks, and there have been unprecedented numbers of home repossessions and commercial bankruptcies as the line of credit runs out of money to support the entire financial system.
Nowadays, new phenomena has crept in, a particularly poignant example being the controversial bail-in of banks in Cyprus which resulted in up to 60% of depositors’ own funds being snatched by two of the country’s largest banks to help pay off the bank’s unserviceable debt, setting a potentially Europe-wide precedent to do this to any Eurozone member in place of government bailouts after the nation’s economy continues to dwindle despite several IMF bailouts.
In Latin America, matters are even more critical, as it is not legal to circumvent the national systems of many countries there, the most famous of all being Argentina, where the Kirchner government banned the use of US dollars and is now busily engaged in trying to force citizens to give them up in place for dubious substitutes which rely on the fragile domestic banking system.
All of these factors have contributed to the rise of virtual currencies which are not subject to issuance and control by central banks, and therefore largely immune from any action taken by worldwide governments.
Mauro Betschart
Founder and CEO, BTC Global
Five years ago, it could be argued that the introduction of a recognized, tradable virtual currency would not be of interest to many companies or individuals, as it would be synonymous with those wishing to circumvent the system to conceal evil deeds, however the tables have turned and now the value of the Bitcoin against any other currency is disproportionately high.
We have seen the Hash Rate rise dramatically since the Cyprus banking crisis, and partnerships with banks in Germany, and the currency being traded on financial markets under the symbol BTC all over America. This begs the question: Will a virtual coin with no physical existence, developed by pseudonymous system developer Satoshi Nakamoto pave the way to an eventual cashless society?
In this week’s Executive Interview, Forex Magnates discusses these facets with BTC Global’s founder and CEO Mauro Betschart.
Please tell us a bit about your professional background and what led you to found BTC Global.
I studied business management and had a website company a few years ago, then I moved into the family business of renewable energy in Uruguay, but it really wasn't my thing. Then an old friend introduced me Bitcoin and its potential. We decided to start doing something with it.
When you established BTC Global, what did you set out to achieve and how did you go about achieving it?
First and foremost we are Bitcoiners, with all the idea of making Bitcoin big, well-known, and used worldwide. We thought about a few products and how to get them to market. Bitcoin should be easy enough for everyone to use around the world, and BTC Global is paving that path. We have a few unreleased products that fit perfectly together to make it happen, but I can't disclose much right now.
Bitcoin has gained huge traction recently. After an initial period where the values remained at around the same levels, the hashrate accelerated exponentially, particularly during the last 3 months. Please elaborate on your perspective on this, and what led to this dynamic?
There are two things that contribute to the hashrate acceleration:
Firstly, it is a numbers game to decide if it is worth the investment in mining hardware. Until now, after two price crashes (the one after the big upswing and the one in recent memory), the value of one Bitcoin always stayed over $50, which indicates that people have decided that $50 is Bitcoin's price floor. At that price, if the numbers fit, and you can make profit–you invest.
Secondly, there are specialized mining products now available for Bitcoin, which also contributes to vast increases the hashrate.
Bitcoin is the first virtual currency to really be able to be taken seriously as an actual worldwide standard method of payment that circumvents governmental and banking situations. After the Cyprus banking crisis, and the possibility that a legal precedent has now been set across Europe for banks to haircut and bail-in private deposits, do you think Bitcoin will be the savior for people living in the Eurozone?
Yes. One of the things motivating us at BTC Global is Bitcoin's ability to divorce people in any jurisdiction from fiat manipulation and abuse. I won't say if Bitcoin will be the cure-all for the world's financial malaise, but it is certainly an incredibly powerful tool.
Do you think the world's banking sector and central banks will initiate a backlash against Bitcoin usage if it takes off, and try to stem the outflow of their own funds into virtual currency? If so, how will they do that?
This is a question we'll need to ask them. I know a lot of banks will be unhappy and will have to make changes to the way they do business to avoid becoming obsolete. I also think that there will be banks that will embrace Bitcoin. The sooner they do, the better for them and their bottom lines.
Values of Bitcoin are extremely high as compared to fiat currency. Is this sustainable, and is there a risk of Bitcoin purchasers losing their money and having no backing of a government-recognized regulatory body to insure against this if the price crashes?
There have been a lot of major devaluations throughout history, especially in Latin America. All of the devaluations so far have happened to government money. A good example is the situation in Argentina right now, whereby most of the people became trapped and had to just stand there while their assets vanished. Bitcoin gives the people the option to opt out and insulate themselves. Most people investing in Bitcoin know that they can "escape" the devaluations and capital controls if they need to.
In which countries are the most Bitcoin transactions for the purchase of goods? Are there figures that show the increase in use on a daily basis by private individuals?
It is hard to be sure where the most Bitcoins are used to purchase goods, but if you go by client downloads Canada is at the top along with the Nordic countries.
When I went to Buenos Aires the other week, I was pleasantly surprised by the amount of places accepting Bitcoins in Argentina. I also know of a few places in Germany and Spain that accept Bitcoins but it's hard to say exactly which country ranks first in use.
Recently Terrahash revised its refund policy and denied a customer a refund even though the customer had registered with the ASIC builder before the changes were made. If a bank did that to its shareholders there would be uproar. What is your opinion on this?
I am not familiar with the Terrahash situation, therefore I will hand you over to our CTO and CSO/IT Vladimir Marchenko who will elaborate further.
Mr Marchenko explained: "I am not familiar with details of Terrahash story and cannot comment about them specifically. However, based on my knowledge and experience of Bitcoin during last few years I must note that unfortunately it is still a wild wild wild west and apparently everything goes."
"It seems that public finds acceptable some practices that are likely to be branded as immoral or even outright illegal in many jurisdictions. This apparently includes promotion of various scams and Ponzi schemes, securities fraud, selling pre-orders (instead of rising equity investments) and using the funds for R&D such as NRE expenses needed to get ASIC production started, among other scenarios."
"In short, Bitcoin economy to date was and still is largely "an amateur hour". Of course, ignoring legal moral and ethical norms is quite a significant competitive "advantage" for some cowboys. However, there is a clear tendency of professionals gradually taking over and pushing out of the market enterprises that are run by children out of their mom's basement. I expect such trend to continue."
Please go into detail about mining, and how you see that evolving. It's a very interesting subject, and in particular to find out where the most miners are, and if they do it full-time. Can it operate as a viable business enterprise?
Mr. Marchenko continued: "It has so happened that I was rather very closely involved with Bitcoin mining earlier. I know for a fact that it is possible to run professional bitcoin mining enterprises, I used to run one of those."
"There is no reason for a business not being able to compete in this marketplace in principle. However, Bitcoin mining is extremely competitive. The Bitcoin Mining businesses have to compete not only with other similar businesses but also with crowd of amateur miners."
"Unlike most other areas, in Bitcoin amateurs en mass are a force to be reckoned with because they can afford to operate while ignoring major costs large operators need to cover. This often includes cost of labor, real estate, red tape, and often even cost of electricity."
"The bitcoin mining marketplace is being developed very rapidly as evidenced by continuous "Bitcoin difficulty" growth and Bitcoin miners switching to new generation of mining equipment every 1-2 years."
"At this point those who invested into successful ASIC projects can reap the rewards on the risk they have taken earlier, but this will not last long. The market is extremely efficient and will compress profit margins to negligible levels in a matter of months."
"I expect that eventually USB powered ASIC based Bitcoin miners will be almost as ubiquitous as USB pen drives and "professional" Bitcoin mining operations will be forced to consolidate in areas with low electricity costs and seek affiliation with manufacturers of Bitcoin mining chips."
"Even then they might have trouble competing with "mom basement" crowd. Having said the above, I still do expect that with Bitcoin maturing there will be space for long term successful professional Bitcoin Mining operations."
It also should be noted that some of those Bitcoin miners who now boast about their incredible profit margins, have invested into Bitcoin ASIC projects (pre-ordered hardware) probably a year ago."
"Some of those projects still have not delivered the hardware and there are scores of disappointing investors/customers. But even those who got lucky and have ASIC rigs in operation and claim decent ROI in USD terms, often still under the water in BTC terms. I.e. many would be much better off if they simply held Bitcoins all this time instead of exchanging Bitcoin for mining ASICs."
"In fact, back in May 2012 I with a group of advisers was researching viability of making large scale investing into development of Bitcoin mining ASIC gear."
"Remember, 1 BTC was worth 5$ then. Our conclusion was that in BTC terms risk/reward for such investment was at most mediocre and we recommended to all stakeholders instead to invest into BTC and folded our ASIC mining project."
"Now with the benefit of hindsight I have no regrets about that decision. Moreover, according to my informal research investment into BTC directly since the inception of Bitcoin was almost always more profitable than investment into Bitcoin Mining. Only during a number of weeks specifically when Bitcoin valued at "bubble" levels investments into bitcoin mining were more profitable than simply holding BTC."
"Based on the above reasoning and experience I would suggest that, unless one knows exactly what he is doing, it is by far easier and more profitable to simply buy and hold Bitcoin long term than mess with bitcoin mining investment."
"I myself have no intention to invest into Bitcoin mining anytime soon. BTC Global also has no any plans to engage into Bitcoin Mining and directly related activities. But of course we do prepare a number of products that we hope will appeal to Bitcoin Miners" concluded Mr. Marchenko, before handing us back to Mr. Betschart.
BTC Global was at the 180-strong MeetUp in Buenos Aires on July 5. Tell us about it, what was being discussed; what the dynamic was like, if any enthusiastic people attended, and whether the MeetUp scene will flourish as a means of forming a whole BTC community. Please elaborate on any discussion aspects/points raised.
The MeetUp was intended for people who already knew about Bitcoin to discuss and talk about different important Bitcoin topics right now, like regulation, alt coins, investments, and so on.
Nevertheless, due to a rather surprising four articles about Bitcoin in local newspapers the Sunday before, over 90 new people signed up in addition to those experienced users, and the MeetUp became more of an introductory class than a discussion.
How will BTC Global evolve as time goes on? Do you see it as becoming a worldwide financial superpower?
I don't think there will necessarily be any *superpower* in the Bitcoin world, because there will be many providers and competition (at least that's our hope). BTC Global will just be the first and biggest all-round Bitcoin services company, likely the Google/Coca-Cola hybrid of the Bitcoin world.
But in terms of the actual currency becoming a worldwide superpower, YES CERTAINLY.
What are your plans for the rest of the year?
Our public plans include being fully compliant in Uruguay, having licensed partners in the US, Europe, and other Latin American countries and having a few of our products out on the street, like the world's fastest trading engine, in order to start building market.
As far as our not-so-public plans are concerned, well, we can't show our all cards just yet!
