The world’s oldest cryptocurrency exchange prefers doing business in Luxembourg
A brand new trade has sprung up round cryptocurrency over the previous 12 years. The rising ecosystem contains cryptocurrency exchanges, which operate very similar to inventory market exchanges, with folks shopping for or promoting property on a web site, and the exchange by no means owns the asset – it simply serves an middleman between consumers and sellers.
Bitstamp is the world’s oldest crypto exchange, providing crypto entry to greater than 4 million shoppers in the world, principally retail, but additionally offering entry to five,000 institutional shoppers – together with banks, cost service suppliers, merchants, and household places of work. Bitstamp was not the primary exchange in the world, when it was established in Slovenia in 2011, however it’s the oldest one nonetheless in business – a reminder of how troublesome it’s to remain afloat in such a turbulent market.
To achieve success, a cryptocurrency exchange wants a superb platform with merchandise that entice shoppers, however in addition they want credibility and safety – they usually want good legal professionals to assist navigate the fledgling regulatory framework.
“We have a combination of engineers and product people who understand crypto or fintech,” says Jean-Baptiste Graftieaux, CEO of Bitstamp. “We also have experts in information security area and data protection – these are important for us to be best in class in terms of technology and cyber security. We also need strong customer support people. We have real human beings in our customer support, instead of bots, because customers want to work with real people.”
But one of many smartest strikes the corporate made alongside the best way was to maneuver to Luxembourg, the place it’s now headquartered. Bitstamp now employs greater than 600 folks and has different places of work in Slovenia, the US, Singapore, and the UK. The firm provides crypto entry in the US, the Asia Pacific, and Europe.
Why Luxembourg?
Graftieaux says: “When we seemed across the European area for locations to do business, the one nation with the urge for food to endorse this innovation was Luxembourg. It was nonetheless thought of early days for cryptocurrencies, and there was just about no regulatory framework. This meant that any firm that wished to develop into a longtime exchange needed to go to every of the international locations the place it wished to function and assist the federal government outline laws and licensing.
“Luxembourg is a small country, but very international and very connected. It’s a good place to do business and engage with the local authorities in the sense that everyone knows each other. We worked closely with the government on how to regulate Bitstamp and to figure out what kind of license was required. In the end, we became authorised as a payment institution in Luxembourg in 2016.”
Bitstamp discovered that, past the relative ease of acquiring a license, Luxembourg has many different advantages for firms working in the brand new crypto ecosystem. The inhabitants is very educated and multi-lingual – and the workforce is stuffed with people who find themselves deeply concerned in monetary companies.
Six years later, many challenges stay round licensing. For instance, whereas many kinds of fintech licenses could be passported from one European nation to a different, crypto licensing just isn’t but prepared for this handy mechanism. A very good instance of passporting is when a cost supplier with an applicable license in Luxembourg operates in some other EU nation – and the license from Luxembourg is taken into account legitimate. For this association to work, the establishments in the completely different international locations need to exchange data commonly, which requires some standardisation.
So far, there is no such thing as a uniform and harmonised European framework for crypto property – every nation has its personal method. This implies that whereas Bitstamp can supply entry to crypto property all over the place in Europe, they can’t market their companies regionally with out registering regionally, which is an advanced course of.
“Regulations and licensing are important to our business because they boost our credibility in the market,” says Graftieaux. “We’re looking forward to the day when it’s easier to get licensed in countries around the world.”
That day might not be far off – at the very least in Europe. In June 2022, the EU Council presidency and the EU Parliament reached a provisional settlement on new laws, known as “markets in crypto assets” (MiCA), that can present a regulatory framework for digital finance on the EU degree. The subsequent steps on MiCA are to undergo formal approvals. MiCA is anticipated to have an effect inside two or three years.
But Europe just isn’t the one a part of the world with challenges in the case of licensing. For instance, after Bitstamp obtained its license in Luxembourg, it expanded to the US, the place it wanted to acquire extra then 40 completely different licenses to function in the states the place they wished to market their companies.
Cryptocurrency and the Travel Rule
A cryptocurrency is a digital asset, constructed on blockchain – the blockchain being a public ledger, the place all transactions could be considered. An audit path contains all transactions minus the data that identifies the events concerned.
“You can look at a transaction, but you don’t see all the underlying data on the sender and recipient,” says Graftieaux. “What you see is that there was a transaction of a number of bitcoins from one pockets to a different, or from one tackle to a different. But what you don’t know at the moment is the proprietor of the pockets or tackle.
“Nevertheless, with this address, what’s happening very regularly is that if there is a fraud or an offence committed with a bitcoin address, the law enforcement agencies will reach out to the different crypto players to see if they have clients associated to that specific address – and if so, to share that information. When we get a law enforcement request, we have to comply to protect our license – and we are always happy to oblige.”
The laws are altering to make it simpler to determine folks. This is mirrored in a brand new guideline from the Financial Action Task Force (FATF), known as Travel Rule, which requires the crypto gamers to speak some degree of details about senders and receivers.
This will function very similar to Swift in the normal monetary sector, the place all events concerned can see the recipient and the sender of the cash. These new guidelines will make it tougher for folks to make use of crypto to cover transactions for cash laundering or to commit different offenses.
The way forward for cryptocurrency
In May this 12 months, cryptocurrencies skilled a crash, with $40bn of worth destroyed in one week, in accordance with analysis agency Gartner. Bitcoin, the preferred crypto asset, was down 32% as of the tip of May 2022.
Even although billions of {dollars} had been misplaced in cryptocurrency worth, most trade watchers agree that cryptocurrencies are right here to remain. Gartner predicts that by 2024, at the very least 20% of enormous enterprises will use digital currencies. In a survey of chief monetary officers (CFOs), Gartner discovered that the largest impediment to additional adoption by enterprises is that CFOs think about the worth of cryptocurrencies to be too risky.
Bitstamp performed its personal survey of retail traders and institutional funding decision-makers to learn the way customers suppose the market will develop. In a report launched throughout the first quarter of 2022, Bitstamp indicated that 76% of retail respondents and 82% of institutional respondents count on crypto to develop into mainstream inside 10 years.
While the trade is anticipated to outlive, trade gamers can nonetheless count on to undergo just a few extra rising pains. As is true with any new trade, the crypto market remains to be fragmented, with the sheer quantity and number of digital property inflicting confusion amongst consumers and standing in the best way of wider acceptance. The problem for a cryptocurrency exchange is to pick out, from the 15,000 out there property, those which might be engaging to consumers and sellers. It’s necessary to ensure the property are viable.
“What makes us different is that we do the due diligence before we list an asset on our platform and on the company backing the asset,” says Graftieaux. “We ask around 350 questions to make sure…clients will not be hacked and to make sure it isn’t a case of money laundering or terrorist financing. The companies we select need to have a business plan and liquidity. They need to have a solid technical architecture, with solid security and regular audits. We want to make sure they have money to expand.”
In addition to fragmentation, one other barrier to acceptance of cryptocurrency is the shortage of schooling. People don’t perceive what it’s – and most of those who do get the idea don’t know find out how to choose a foreign money or an exchange. Like many different exchanges, Bitstamp offers a studying centre to assist potential and current prospects stand up to hurry on all issues crypto and blockchain.
A 3rd impediment to vast acceptance is regulation, as mentioned above. Institutional shoppers wish to take care of regulated exchanges. But the regulation just isn’t but in place the place it must be – and the place there may be regulation, it isn’t but mature. For the second, every nation has its personal method.
Despite these obstacles, cryptocurrency already has traction and has modified the best way we do finance. “Crypto started out as a peer-to-peer payment method,” says Graftieaux. “And now, the general monetary market is experiencing a pattern in the direction of this sort of decentralised finance, what we name ‘DeFi.’ Rather than have folks borrow from an enormous establishment, like a financial institution, they lend cash to one another.
“One factor to observe in the close to future is NFTs [non-fungible tokens]. There are already instances the place these are used in the sports activities, music and gaming trade. There is a whole lot of hype proper now. But it is going to be attention-grabbing to see the way it develops in the long run.
“And another trend to watch is the increasingly important role of Metaverse. There is a strong link between Metaverse, gaming and NFT’s now, and there is a lot of investment in that space. We are quite interested on the Bitstamp side to see how the ecosystem will evolve and to see how we are going to participate.”
Many trade analysts agree that there might be a powerful hyperlink between cryptocurrency and Metaverse. According to Gartner: “Cryptocurrencies will underpin Web3 and Metaverse economies based on business models enabled by peer-to-peer decentralised protocols.”
But for now, the market is in a little bit of a crypto winter. According to Graftieaux, the turbulent situations will outcome in a whole lot of consolidation. A couple of very massive gamers will emerge with end-to-end options for crypto funds, NFTs and crypto derivatives. These options might be linked with gaming and the Metaverse.
In the meantime, Luxembourg is an efficient place to hunker down. The small however extremely educated inhabitants makes it simpler to attach with the proper folks; and the multicultural and forward-thinking authorities makes it simpler to interrupt into in a brand new trade – particularly when it includes fintech.
