The beginning of the week saw several articles appear covering the launch of Bitcoin exchange Coinfloor. This is not only exciting for Bitcoin based companies, but also for those who are looking to hold money outside of the banking system.
Many in the gold investment world are skeptical of Bitcoin, this is understandable given it is frequently referred to as ‘sound money’ but is made by man and is virtual. However gold fans should look at it as just another alternative to fiat money and a protest against central banks.
Next week trading will begin on London’s hottest new Bitcoin exchange, Coinfloor.
Setting itself apart from the many other Bitcoin exchanges on offer Coinfloor employs a “sophisticated algorithmic rounding engine for fee calculation,” which will make it attractive to high-frequency and professional traders. The exchange will also be accessible to small-businesses looking to transact in the virtual currency and first-time traders.
But what is really grabbing the media’s attention is that the UK-based company prides itself on offering an exchange that operates within regulatory boundaries despite not being regulated.
Bitcoin based companies are not regulated because Bitcoin use is not widespread enough, but authorities have stated that they are monitoring all developments in the market. The Financial Conduct Authority (FCA) has explicitly stated that Coinfloor does not need to be regulated.
Despite this the founders’ commitment to rigorous KYC and AML checks is what attracted the investment from Passion Capital and others. Previously other Bitcoin exchanges have been shut down because of non-existent or weak procedures.
By embracing both electronic and manual checks on account holders Coinfloor will be ready for both the UK FCA and HMRC should they decide to look further into the market. This aside, the readiness they have shown to carry out these checks are likely to provide reassurance to investors who are perhaps more familiar with mainstream investment processes rather than crypto-currencies.
Door closed to US clients
The company has also made the conscious decision to only offer accounts to UK and European investors and not those in the US. This is on account of the fact that legality surrounding Bitcoin is ‘fuzzy,’ as Mark Lamb, Coinfloor founder, states, “legally it is not safe to open up to US customers in the beginning.”
The decision by Coinfloor to open up in the UK, rather than the US, is yet another example of finance and technology start-ups embracing London as the place to grow forward-thinking businesses.
This latest venture is one of many in recent times that show Bitcoin’s move from the underground cyber-world into the mainstream. Previous to this announcement the biggest news for Bitcoin was that the Winklevoss twins plan to launch their own Bitcoin ETF.
A major issue for start-up Bitcoin-centric companies is not just regulation but also who they will bank with. As someone who works in another alternative currency space, precious metals, I am aware of the paranoia within banks that account-holding companies are money-laundering outfits.
Much of the press surrounding Coinfloor mentions the several banking agreements are in place. I cannot comment on this but have heard anecdotally that this was still up in the air a few weeks ago. One wonders if any concessions have had to be made in order to organise bank accounts.
How has this been accepted by the Bitcoin Community?
The Bitcoin debate is one that has split into many factions. For one, governments hold concerns that it is a convenient money laundering tool whilst mainstream investors are concerned about the lack of regulation surrounding the currency.
For first-movers in this space and those who managed to mine Bitcoin efficiently in the early days, these are reasons to own Bitcoin – it is out of government control and it is a self-regulating currency.
Already forums are accusing the Coinfloor founders of providing ‘honeypots’ to the authorities in terms of storing ID of Bitcoin holders. Many also believe competing Bitcoin exchanges such as Bittylicious, Local Bitcoins or BTC-e have done a better job of innovating around regulatory issues rather than pandering to them.
However, in order for the virtual currency to move into the mainstream these key issues must be overcome. To ask new investors to understand why government shouldn’t have any control over a currency or why self-regulation is a good idea is perhaps a leap too far and instead the Bitcoin community must work to meet these concerns.
This is where Coinfloor is trying to make its mark.