Much has been written about Bitcoin in the last few days: the demise of Mt.Gox triggered a wave of doubts about the cryptocurrency and the current ways of exchange. However, there are several initiatives trying to improve this situation and today we are interviewing Ximo Guanter, Co-Founder of Coinffeine, a peer-to-peer Bitcoin exchange platform.
What motivated you to start Coinffeine? did you foresee any of the current issues Bitcoin is facing?
We started Coinffeine because we saw current Bitcoin exchanges as the weakest link in the ecosystem. Centralized exchanges are a high value target for hackers, scammers and even governments that aren’t too happy about Bitcoin.
The Mt.Gox insolvency is just the latest scare, but it is not the first one the Bitcoin community faces. BTC-e was hacked a couple of years ago and in the recent China meltdown, BTC China stopped withdraws for several days after regulatory pressure from the Chinese government.
Coinffeine is trying to solve these problems by decentralizing the exchanges through P2P. That way, no single entity is accumulating a large number of bitcoin and euro/dollars deposits which doesn’t make it attractive to hackers and the governments have no central server they can shut down to tamper with the Bitcoin ecosystem.
Do you expect more Mt.Gox-like meltdowns to happen during 2014? Are so many exchanges necessary or will their consolidation start at some point?
After last year’s price surge, the Bitcoin ecosystem has received a lot of investment money which has yet to crystallize as new projects that will support a wide range of financial infrastructure. This means that we are currently in a state where not all the infrastructure that exists is as robust as it should be, so we might see some other projects fail, although not as spectacularly as Mt.Gox.
Having multiple exchanges and multiple wallet services is good for the community, since having any of them fail is not as disruptive as if there’s only one or two exchanges. We might see some consolidation if a respectable and highly backed company emerges and users choose to move their business over there, but the Bitcoin community generally doesn’t tolerate well single points of failure, so I would be surprised if the Bitcoin economy ends up in a handful of companies.
With no regulation and insurance authority, a bailout for Mt.Gox will probably not happen, do you think a centralized organization is needed for Bitcoin users to feel their investments are safe?
Having a central organization is not a requirement for having a good regulatory framework. For example, governments could decide that something similar to FDIC could be compulsory for Bitcoin exchanges, which would have made the Mt.Gox’s insolvency less traumatic.
Keeping your bitcoins safe is always tough. If you store them in your computer you can be a victim of virus designed to steal Bitcoin wallets, or your hard drive might fail and you might lose your money. Keeping them in cold storage (in paper, for example) is not very convenient and not everyone knows how to do this. If you trust a third party to secure your bitcoins you are exposed to bad management like Mt.Gox. It is the same as keeping your money in a bank. If FDIC had not existed when WaMu went bankrupt a lot of people would have lost their money. This is exactly what is happening to Mt.Gox and it is the biggest risk of trusting a third party to keep your bitcoins safe.
I think as the Bitcoin economy grows we will get better and more trustworthy wallets and exchanges. Bitcoin has grown faster than its ecosystem and that is the reason the financial infrastructure around it is not as robust as it should be. Hopefully, next-generation services like Coinffeine will help alleviate this issue.
Do you think Bitcoin will be regulated? What impact would this have to peer-to-peer exchanges like Coinffeine?
Governments around the world have had very different reactions to Bitcoin. Some countries, like Iceland or Russia, have reacted allergically and have chosen to make it as difficult as possible to use bitcoin as a currency. Other, more financially oriented countries like Switzerland or Singapore have openly embraced Bitcoin and are creating regulations which will help businesses deal with bitcoins.
I think the market forces will take care of regulatory pressures by creating a competitive advantage on Bitcoin-friendly governments. If a country chooses to prohibit Bitcoin transactions, then its economy will be missing out on that market and its economy will suffer.
Coinffeine is purely decentralized, so there’s no single server that handles the exchange transactions and we never keep or transmit anyone’s money. That makes it really hard for governments to try to regulate us. Even if they tried and decided to ban automatic P2P Bitcoin exchange transactions, it would probably be as effective as banning the transmission of copyrighted material through BitTorrent.
Image via The Wall Street Journal