Why remittance startup Bitspark abandoned bitcoin

May 02, 2018 16:37
Remittance startup Bitspark co-founder George Harrap said his firm abandoned bitcoin because of its transaction limitations. Photo: HKEJ, Bloomberg

Established in 2014 in Hong Kong, Bitspark is known as a bitcoin remittance firm that uses the blockchain technology for end-to-end, cross-border payment services in the Asia-Pacific region, including Hong Kong, the Philippines, Indonesia and Australia.

However, Bitspark co-founder George Harrap revealed that the company has abandoned bitcoin and switched to BitShares, which can be used to issue cryptocurrencies with value pegged to a fiat currency. 

Harrap told the Hong Kong Economic Journal in an interview that the company made the move in view of the high and unpredictable fees associated with bitcoin.

He said bitcoin can be replaced by new cryptocurrencies which are “better, faster, cheaper” in the future.

“There is not much point in having bitcoin when there is something else, and if that something else is better, then that something else is going to win,” Harrap said.

Bitspark facilitates the purchase and selling of cryptocurrencies for different money transfer companies from around the world. “We are able to convert their fiat currencies to bitcoin, and then bitcoin to local fiat,” Harrap said.

Money transfer companies have to fund their accounts in Bitspark first, enabling them to buy cryptocurrencies, which could be sent to Bitspark’s foreign partners instantly.

The crypto tokens are then exchanged for fiat currency in the country of destination, transferred to the account of the receiver, and withdrawn from banks or money pick-up points there, Harrap explained.

Since Bitspark cut the complex system and procedure used by traditional remittance agencies, the cross-border money transfer can be done almost instantly, the company said.

Moreover, the service fee it charges users is only about 1 percent of the transaction amount, or only about one-third of the cost of the competition.

Harrap said most of the money transfer companies in the market, including currency exchange shops on the streets, use Western Union or MoneyGram as the cross-border money transfer intermediaries.

However, as these two giants have cornered the market, they collect 80 percent of the service charge, Harrap said, adding that this is the reason why banks and money transfer companies charge high for wire transfers.

He admits that Bitspark is trying to snatch business from these remittance giants. So far the startup has recorded more than 5,000 users, including about 12 money transfer companies.

Bitspark has partneredwith more than 10 cryptocurrency exchanges, enabling the company to establish a good exchange rate for cash-to-crypto and crypto-to-cash transactions.

“We make it a lot easier for [Bitspark] customers to do that," Harrap said. "Otherwise, they have to make 10 accounts [in different exchanges], things would be slow, and they take a lot of risk on bitcoin.”

Bitspark makes money by getting “a bit of the margin on the fixed exchange rate” it provides to users. It also charges money transfer shops using the platform by taking 50 percent of whatever they get from their customers. “So if they charge a dollar [per transaction], then we would take 50 cents,” Harrap said.

Bitcoin limitations

After using bitcoin for many years, the company has learned that using the popular cryptocurrency for money transfer has its limitations. 

Aside from the volatility of bitcoin's market price, its trading network has been overwhelmed in recent years, resulting in long transaction processing time and even frequent delays, Harrap said.

Liquidity is a bigger drawback. In Sri Lanka, Cambodia and other countries with huge remittance demand, the low liquidity of bitcoin makes it difficult for Bitspark's foreign partners to exchange the cryptocurrency into local fiats and complete remittance transactions, he said.

BitShares, on the other hand, allows users to issue crypto-based assets ("bitAssets"), which track real-world market assets like the US dollar.

These assets have at least 200 percent or more of their value backed by the BitShares token, BTS, to which it can be converted at any time, as collateral in a smart contract-based loan managed by the blockchain.

Harrap believes BitShares can address the shortcomings of fierce cryptocurrency price fluctuations, allowing users to avoid the risk of asset devaluation when pricing, paying and holding cryptocurrencies.

With market-pegged and stable "bitAssets", people can settle with one another in their native currency, accessing liquidity in various foreign exchange pairs.

Using the BitShares network, Bitspark will be shooting for swapping abilities with over 180 currencies worldwide. Even if customers want to send money to remote countries, say, countries in Central Asia and Africa, in unpopular currencies, Bitspark can do so, he said.

First and most popular

Harrap said that he got into bitcoin back in 2011. He used to think of it as a currency, but now he believes it will never become a currency because of its trading technology limitations.

"If you want to buy a cup of coffee with a cryptocurrency, you can use other faster, cheaper cryptocurrencies, not bitcoin," Harrap said, adding that it may be better used as an investment.

Bitcoin's only advantage, he said, is that it is the first and most well-known cryptocurrency. “It’s just marketing.”

Harrap said its value depends on whether it can have more functions other than as a store of value. "I could hold Dash for its store of value. You know Dash’s price ran up 50 times in the last two years, the value has increased, so it is a store of value. With Dash, I can do really cheap payment, instant payment, I can do a lot of stuff.”

“I think bitcoin at the moment gets a lot of attraction, as the digital gold, from the financial sector,” he said. “But the financial sector doesn’t know others exist. So once the sector does find that out, maybe bitcoin won’t be such a good store of value anymore.”

It may take a long time, but as various cryptocurrencies emerge, Harrap believes that the market will eventually find that bitcoin is not that “unique” in its position as “store of value”.

Asked whether bitcoin would be replaced by newer crypto tokens as technology continues to advance, Harrap agrees.

“It will eventually get to a point where something else will come along with a lot more features. And it would be like: Why should I use this [bitcoin] which doesn't have all those features when I don’t use that one that does?”

This article appeared in the Hong Kong Economic Journal on April 30

Translation by Ben Ng with additional reporting

[Chinese version 中文版]

– Contact us at [email protected]


Hong Kong Economic Journal