For reference, below are some slides from a presentation we did in Brussels at IMTC:
Some of the key points are summed up in the slide-show however this article will delve deeper into the process of money transfers using Bitspark and cryptocurrencies.
Holding a Balance in Bitspark
In order to send money in Bitspark, you need to hold a balance with us first. Therefore a money transfer agent would need to be able to send money to Bitspark in order to fund their account with us. This happens either via a bank transfer, bitcoin deposit or exchanging cash to cryptocurrency directly.
Bank transfers are the traditional way of a money transfer agent funding their account with a platform provider however it only works if Bitspark has a bank account denominated in their currency usually in the same country. Bitspark does not have bank accounts everywhere so the optimal method for funding your account is via cryptocurrency which is everywhere. Money transfer shops have cash as they receive payments from people or pay out payments to people - the problem to solve is getting the cash to Bitspark in the best way possible assuming Bitspark does not have a bank account in their country or currency.
1.Make every physical money transfer shop a cash to crypto location.
One of the key problems the money transfer industry has is ‘de-risking’ - the process by which money transfer operators are losing their bank accounts. Providing a platform for MTOs to exchange cash to crypto and vice versa enables them to remove their dependence on banks and also get the cash to Bitspark without the need for a local bank in that country.
In the above diagram, we can see the shop may have a balance of either physical cash or a digital balance already in Bitspark. With the balance they have, lets say cash, individuals can approach the shop to exchange their bitcoin (or other digital currency) for cash at the shop - the individual gets the cash and the shop gets the bitcoin. Now that the shop has bitcoin they've instantly funded their account and Bitspark is able to collect their payment to fund their account without the need for a bank. The bitcoin can either be sent somewhere else or exchanged for another currency (e.g. HKD/USD/GBP) for pay out at another Bitspark location. The same can be true for a shop which may have no cash but a large balance in Bitspark, this would be relevant for MTOs in receiver side countries that constantly payout cash and accrue a larger digital balance. In this case, an individual with cash can go to the shop and exchange that for a cryptocurrency which the shop can provide - ensuring the shop gets its float back quickly without the need for a bank. The fall back to this setup is that Bitspark can of course wire funds to the shop in USD if they require it to refloat their balance but all normal caveats apply when dealing with the banking system.
This works only if people are willing to visit the MTOs and exchange their cash or crypto with them. Why would anyone want to do this? Because they’ll make money.
In the above case we have noted MTOs are having issues globally with banking, there are also significant costs involved in maintaining a bank account and banking relationship. Additionally, there are often issues around timing: in most countries banks open at 9am and close at 4pm and if an MTO needs to use the bank to deposit or withdraw cash outside of those hours their business can effectively grind to a halt. When exchanging cash for crypto the MTO can choose to pay a bit extra to incentivise people to visit their shop. For example, a shop which is low on cash, getting new cash to refill their float is very important so they may advertise to the market that they're willing to pay 1% as a bonus for anyone who visits the shop to exchange their cash for crypto. For individuals who are buying crypto with cash they effectively get to buy 1% below market price locking in a 1% profit of which they could then on-sell the crypto elsewhere to realise it. So in this case the incentivisation comes from the shop offering a premium to exchange their cash, this premium may be equivalent or less than the costs of them maintaining a bank account anyway except with none of the overheads and a competitive market to reduce this premium over time (if more people want to make a profit maybe next time they buy at only 0.8% below market, or 0.5%). In the beginning of our switch to Bitshares, Bitspark will subsidise this to establish an active market.
Bitspark also has Zephyr, a rewards token for transacting on the Bitspark network. We will also be offering this as a reward for individuals exchanging money at a Bitspark shop. Zephyr gains value through a percentage of fee income being used to buyback ZEPH from the market, in the cash of a cash to crypto exchange if Bitspark charges a fee for this then a % of that will be used for the ZEPH buybacks.
3.Pegged stable cryptocurrencies
Once the shop has a balance in the Bitspark platform we need to hold that balance denominated in a particular currency. If a shop (receiver side) had Myanmar Kyat (MMK) in cash and was paying that out to customers but receiving HKD as a form of payment (sender side) in their Bitspark account, then that opens an FX risk for the shop. If the value of HKD in their Bitspark account drops relative to the Kyat they're paying out they lose money. So the shop needs to be able to hold a currency in Bitspark that is the same as what they're transacting in, ensuring that they're not open to FX risk. Utilising pegged cryptocurrencies enables Bitspark to operate as if it had bank accounts denominated in every currency in the world in every country without physically needing to be there. Through the use of stablecoins, Bitspark can ensure the MTOs can hold a balance of their native currency - opening the Bitspark system up to the entire world.
‘Stablecoins’ or ‘pegged cryptocurrencies’ are blockchain based cryptocurrencies that maintain a value equivalent to that of the currency they are pegged against. For example, 1 BitUSD (a stablecoin) maintains a value of very close to $1 USD. The great thing about blockchains are that they are permissionless, anyone can use, create and transact with cryptocurrencies wherever you are in the world without anyone's permission and this also means that one can create stablecoins for every national currency in the world very easily. Bitspark uses Bitshares to create and trade stablecoins for all currencies in the world and given the above example, Bitspark would hold a balance for the MTO denominated in BitMMK.
Stablecoins created on Bitshares are crypto-collaterised, meaning that the value backing the coin is denominated in another cryptocurrency ensuring the money backing the value of the coin is transparent to everyone and not owned or controlled by any one entity. If you back the value with money sitting in a bank, there is a lot of trust required in the bank, the company who owns the account, the accounting and the auditing of the money. All of which can fail or be subject to closure / problems at some stage, so backing the value with a cryptocurrency on the blockchain removes the counter-party risk of needing to trust someone being good for the money or not.
Stablecoins are a great innovation and growing in prevalence, Bitspark is choosing the longest running highest volume Decentralised Exchange and Blockchain - Bitshares, given it is the only platform fulfilling the requirements of remittance companies - no other similar options come close to the feature set (Ripple, Stellar, MKR, etc.).
Transacting with Bitspark
Transacting with Bitspark is very easy, in fact MTOs would not notice any difference when comparing the transaction workflow of Bitspark vs their existing systems. Bitspark connects MTOs together to ensure smooth payments between them with settlement occurring in cryptocurrency.
Transacting is as simple as:
The exchange between currencies happens in the Bitspark platform ensuring the direct exchange of currencies at the best rate. Settlement occurs instantly with both parties able to transact in their native currency.
We Want Your Business
The more MTOs who sign up to the Bitspark platform, the more options for payments that become available on the network. Often, money transfer aggregators and platform providers need to do a custom integration with another network in order to add that payment option to their system. For example, if there is some mobile money network in a country, a platform operator from outside that country would need to sign contracts with and integrate the API of the mobile money provider into their system. This is not scalable at all and requires a lot of investment which is precisely why the money transfer infrastructure of the world is so fragmented and exists on ‘payment islands’ with everyone either having their own system or using someone else's.
Bitspark goes about things differently. For an MTO looking to join the Bitspark network, they will often already have their own mechanisms for either receiving money from customers or paying out money to customers. Signing up to the new Bitspark, MTOs will soon be able to input these mechanisms upon sign up for other MTOs in the Bitspark network to be able to route transactions to these various payout methods. So essentially MTOs bring their own payout method and we will send transactions for them to payout without any need for Bitspark to directly integrate these various payout mechanisms.
Bitspark is a platform for licensed money transfer operators whereby Bitspark provides an exchange service for converting national currencies to cryptocurrency and vice versa. These currencies can be deposited and withdrawn in a number of ways however Bitspark is not a remittance platform provider - MTOs must still adhere to the requirements of their local regulations in their specific jurisdiction as they are the licensee. Bitspark provides many of the tools MTOs need to manage their payments and exchanges making it easy for reporting to regulators and is always looking for added features and benefits that reduce the cost and complexity of compliance management for money transfer businesses.
Bitspark makes it easy for money transfer companies to send and receive payments between each other without the need for a bank. Utilising cryptocurrencies, we make those payments done quicker, cheaper and more securely without the counterparty risk of having money in a bank. Bitspark makes it possible to buy and sell exotic currencies around the world and also incentivises MTOs to sign up and join the Bitspark network. As always, we are keen to hear your feedback and comments please feel free to reach out to us on our social media links below!
Bitspark is a bankless money transfer ecosystem that enables businesses and people to cash in and cash out cryptocurrencies across Asia and Africa.