EB30 – Radko Albrecht: BitBond, Bitcoin Lending and the Changing World of Finance

Transcript

[Music] Hello and welcome to episode of Bitcoin episode 30. Today is July 27th and my name is Brian Fabian and Crane. So today's a bit of an unusual episode because Sebastian is on vacation. So he's down somewhere in Albania at a wedding and today's show is going to be without him. The other thing that's a bit unusual is that we have just one guest today. So I actually went back before uh through our back catalog of old episodes and the last time we had one guest on just one guest on was on episode 18. Otherwise we've always been more people than that. So I think it'll be a bit more quiet and with a bit more time perhaps to go you know in depth on

some topics. So the guest today with me is Roco Alrech. You I know Roco uh you know pretty well because he lives in Berlin as well. He's a you know Bitcoin entrepreneur here and he's very active in um Bitcoin community here. So he's the business he started is called Bitbond. It's um Bitcoin based peerto-peer lending platform and we're going to have lots of time to kind of dive into that today and it's it's actually been around for quite a while. So it's sort of in in Bitcoin terms maybe old and uh it's a really interesting use case for cryptocurrency. and he's also a board member of the Bunism Bitcoin which has become now the the kind of German affiliate of the Bitcoin Foundation. So,

how are you doing today, Roco? Yeah, hello. Thank you very much for having me. I'm doing well and I'm looking forward uh to this nice uh interview and uh to your next episode of Epicenter Bitcoin. Yeah, absolutely. It's great to have you. I mean, I've been kind of wanting to have you on for for a while and so I'm I'm glad to be joining us today. I'm looking forward to our conversation. Yeah, thank you. So, perhaps let's get started with Bitbond. Um, can you tell us like how how did you originally get started with that? How did you have the idea?

So I have been um dealing with uh financial services for quite a while even before um I uh I was aware of Bitcoin. Um I was uh working in banking for Deutsche Bank in London in sales and trading and after that I worked as a management consultant and um uh did quite a lot of um projects with financial services providers especially banks and during that time already I was um thinking about a startup idea in the field of financial services and that was also the time when I became aware of

Bitcoin and um when I saw that I thought that Bitcoin is a perfect tool to create a global peer-to-peer lending marketplace because so far all peer-to-peer lending platforms that exist and there are quite uh significant number out there already are purely national. So if you take Lending Club for example, which is the largest peer-to-peer lending platform that exists today, um it's purely based in the United States. Then you've got other platforms like Funding Circle, for example, uh which is purely based in the UK. Both of these and many others are very successful and um have proven that

the concept of peer-to-peer lending works very good and has a lot of advantages compared to bank lending. But um the only disadvantage it has is that when you do it in purely one market um it is quite difficult to get it started uh because uh the number of potential customers that you might have is somewhat limit to the to that country and the UK and the United States are quite large countries where this problem is not really significant. But if you look at smaller markets uh and maybe markets even where not nearly everybody has a bank account, this becomes a little more difficult. And that's um where Bitcoin actually came in and where

I thought that uh we could give it a kind of innovative approach and and try to uh catch the advantages that peer-to-peer lending has and add to that the advantages that Bitcoin has. Yeah, that sounds like uh it makes a lot of sense. Were were you was kind of when you heard of Bitcoin, you thought like, oh, uh this would work great for peer-to-peer lending or is peer-to-peer lending something you were thinking about before Bitcoin? I was thinking about peer-to-peer lending before Bitcoin. Uh, and I was already thinking back then about internationalizing peer-to-peer lending, but I didn't really see how to uh how to do this in an I would say economic way or in a way

so it makes sense for uh both the borrower, the lender and also the platform that actually runs this business. Um because if if you wanted to do a international peer-to-peer lending platform based on US dollars for example um the costs of money transfers would be simply too high um uh so that loans would make sense because either interest rates for the borrower would have to be too high or the the returns that the lenders get would be simply too low so that it wouldn't be an attractive um an attractive product. And uh the other thing that is an disadvantage if

you did a international peer-to-peer lending platform based on US dollars is that it will also take too long. Imagine you want to transfer money um from the United States to a European country. It takes a couple of days and that's simply too long in order to make an attractive lending product. So these are two very important factors where um the fiat currency world does not really make a international peer-to-peer lending platform workable. And then the other aspect is when you want to go into emerging markets uh where typically only 20 to 30% of the population have bank accounts uh this also becomes a problem

because if people don't have a bank account they cannot participate in peer-to-peer lending and this is also another aspect where bitcoin comes in and where bitcoin brings big advantages. I wasn't even uh aware that you know there are zero peer-to-peer lending platforms um like international peer-to-peer lending platforms but of course it makes total sense right I mean if you if you charge 12% a year or something like that in interest and then you have to pay I don't know 7% or 8% in transaction fees and I guess the issue becomes even more complicated when you have uh repayments right when you have uh people pay back maybe every month

something to the lenders. I mean that that just creates so many transactions that it would be completely impossible now. Exactly. And what you also have is that if you have one loan for example typically this loan is uh funded by more than just one lender because typically a lender that wants to invest a certain amount of money distributes his investments over over many many loans. So typically one loan has I don't know maybe 10 or 20 lenders. So it's exactly like you just said it. Um when you disperse the the repayment you disperse it actually to many different parties to

have very many very small transactions and that's exactly the point where simply it isn't economical to do it in a fiat world. Cool. So uh when did you get started? It was uh about a year ago or a bit more. Is that right? That's correct. So um Bitbond went live in July 2013 and of course we've been working on it a couple of months uh before that. Um in order to code the platform to to design the processes on the platform and um this took us about uh 4 months roughly and then we went live in July. And uh how is how has the development been?

So at the beginning it was quite difficult um because peer-to-peer lending is a marketplace and uh so you obviously need to balance supply and demand and at the beginning um when uh for example you uh have only one or two projects where borrower wants to borrow um something it's not very attractive for the lender um because there is not much choice of different projects and um also the same applies to the borrower when the borrower knows that it's a new platform and um there aren't many lenders, it's also not very attractive.

So getting a marketplace started is is pretty difficult because uh you need to create market liquidity and um after we went through this first phase of I would say 3 to 4 months where it was very tough to get it started and where only very few projects got funded um it improved and especially in the last 3 months I would say um I'm very happy with the development where each month over 30 loans got funded and this figure is growing. So at the current level, I'm I'm happy with the way how it develops, but at the beginning it was quite tough to to get it to a um I would say to a certain traction. So what worked best in

kind of creating that initial marketplace cuz I think that's a problem so many startups have know like basically everyone with that model. Was there something you tried out that worked really well? Um so to be honest we didn't have a particular strategy about this. Um what we did was uh we were posting in in many forums like Bitcoin talk to to make at least the Bitcoin community aware of Bitbond. And then we had a couple of first very small projects um especially projects where people wanted to borrow bitcoins in order to fund uh the purchase of mining hardware which also as of today is one of the most important use cases uh for the borrower to buy

mining hardware or to buy mining contracts. And um that's how it got started. And after the first projects got funded, um we were quite lucky to have uh a few lenders that um that became more active and um that stayed with us. So we we had a pretty good um uh customer retention on the lender side, which is very important because then you sort of build up a customer base and don't have to acquire new customers on the lender side for every project. And then it became a little easier over time. Uh but it it was critical to get these first I would say 10 15 projects funded and that was quite

some work in order to in order to raise awareness for the platform and after we had done that and um we were successful in in search engine optimization which is also quite important. So you can find us under uh our most relevant keywords like Bitcoin loan or Bitcoin lending. Um then we also had more traffic on our side and um that's when things became a little easier and when things got started. Yeah, I remember cuz I I was uh I think among or in the very early days of Bitbond I I also uh lend some money through the platform and I think there was like two projects at a time and you know I checked again today and there was I think 38 projects listed. So it's uh

you know it's great to see that growth. Yeah, it's um absolutely and I mean it's still a level uh when you compared to other more mature peer-to-peer lending platforms where we certainly have still a lot of room for improvement and a lot of room for growth and obviously we want to grow further and also the product becomes more attractive the more market liquidity you have. But I think that it's fair to say that we have um sort of reached a certain threshold where it it is attractive enough that when you post an interesting project and you are creditw worthy borrower that your probability to get funded is sufficiently high. Cool. Um well let's talk perhaps about how this exactly

works. So I guess as a lender right I create an account. I basically uh put my bitcoins in what is a web wallet and then I uh I give money to or I can kind of give money to different or lend money to different uh loans. That's how it works. No, that's correct. That's correct. So, you sign up and that's um a fairly easy thing. Um, you have to confirm your email address after you signed up and at that very moment you have a web wallet with Bitbond um that you can also use for other things as your web wallet if you like. And um once you have funded uh your web wallet with Bitbond, then you

can use these funds to um to contribute to loan projects. And your minimum uh your minimum lending amount per loan is 0.01 bitcoin. So it's a fairly small amount which means that when you um want to invest one bitcoin for example you can distribute this theoretically over 100 projects. And um that is this is something that's very attractive um to somebody who wants to get started with a smaller amount um that you can diversify your holding and this is something that's um uh in investment terms uh uh an attractive feature because um

typically in the investment world you want to have a certain diversification in your portfolio and that's exactly what you can create here as a lender. Yeah absolutely. Actually, one thing that just came to mind before um that I think could be an interesting product for the future was because right right now I guess you'd have to sort of manually go through uh you know all the projects and sort of bid a certain amount for that. But it would be cool if you know you sort of offered like a what do you call it like a collateralized or a sort of a collected loan that takes shares of all the projects and you know you can just do that and then you automatically invest in the different projects

right that's uh something that's definitely possible and uh that uh we can see at other more mature peer-to-peer lending platforms. The first thing that we would like to get started with um in the future would be something that we call a bidding agent. Which means that you would define um a certain risk and return profile that fits your preferences and then this bidding agent places bids on projects that creates a portfolio that matches your desired uh risk and return profile.

And this is something what we would like to get started with. Um that would make it a little easier for the lender to constantly um invest and also reinvest the repayments that you get as a lender and to to make it a little more convenient for the lender. Yeah, that sounds like a great thing that you know would essentially accomplish something really similar. Now, is it a similar model like for example Kickstarter where you have to reach a certain threshold for the loan to actually be paid out or you know if somebody wants to raise one bitcoin and they only raise or only uh maybe half of the loan you know you can find lenders for

it does it still take place? So yes there is a threshold and this threshold is at 30%. So when you want to borrow one bitcoin for instance and um you have.3 bitcoins or more funded then this project actually gets started. However the borrower at any point in time during the listing period which we call an auction uh can cancel this auction. So the borrower can decide until the very last minute whether he or she is is happy with the funding status of the project and can cancel it. Um but typically um when over 30% are funded

the project does get started. So uh the borrower can cancel it even if it's fully funded before the the auction time is up. the borrower can cancel it before it is funded. At the moment where um the the um the project is fully funded, the borrower cannot cancel it anymore. Um so only if the auction is still going on and the auction period is 14 days, um during that time the borrower can cancel it. But if for example the project gets fully funded after 5 days, then the borrower cannot cancel it anymore. then it simply gets started. Cool. Well, I want to talk

briefly about one thing that I've noticed a lot on your platform, which I think is pretty interesting. I'm I'm curious if that's something you sort of, you know, knew was going to happen in the beginning, which you see a lot of small loans uh that people want to take out and they kind of say, "Oh, you know, this is a, you know, six week loan, a pretty high interest rate, but a small amount." And it's like, oh, I'm going to pay this back really quickly and this is just to build, you know, my reputation on the system because if I want to take out a bigger loan down the line, you know, if people see, oh, there's been five projects and I paid them all back in full and on time, you know, that's going to help me get a much better interest rate. Is that something you,

you know, expect it to happen? Do you see that on other um lending platforms as well? Um, on on most more mature lending platforms, we do not see this. Um, but we see it on other Bitcoin based peer-to-peer lending platforms uh where these reputation loans also exist. Um, uh, so it it was not exactly a surprise, but we didn't expect it um to um to happen to this extent. And uh my personal uh my personal view on this is that um when we as a platform improve they the rating that we give to

borrowers um that these reputation loans at some point will not be necessary anymore. um so that the lender sorry the borrower can ask directly for the amount amount um they actually want to borrow right away without having to take out one or two reputation loans. So this is where we actually want it to go because then the process will also be faster for the borrower. But right now it's it's a phenomenon that exists not only on Bitbond but also on other platforms and that um is I would say normal because people uh want to show that they are credit worthy and that they can actually repay their loans. I mean it actually

makes a lot of sense to me. So, I'm curious, why do you think that's specific to um Bitcoin platforms and you don't see that on, I don't know, Lending Club or other sites. I I think one of the reasons is that the minimum loan amount that we have is pretty small. Um in in the case of Bitbond, it's.1 Bitcoin. So, that's actually a pretty small loan amount. And uh also of course this also depends which country you're coming from because it makes a difference whether uh you take a loan of.1 bitcoin in Kenya or in France. Uh obviously because the purchasing power

of this amount of bitcoin is different in these two countries. Um but uh generally it is possible on bitcoin based peer-to-peer lending platforms to take out these smaller loans. while the minimum loan amount on Lending Club for example I think is $2 or $3,000. So that's a significantly higher loan amount which means that when you wanted to take out a reputation loan through this platform um it would cost you much more money because the amount of interest obviously that you need to pay on $2 or $3,000 is higher than uh on a smaller loan. Oh that that's very interesting. So is one of the reasons why you see these much bigger amounts on Lending Club also because they have a

higher costs for payments. Yes, I'm sure that this is one reason. Um because when you run a I would say traditional peer-to-peer lending platform, what you have to do is you you need to uh cooperate with a bank that actually conducts all the payment transactions for you. So you as a platform, you do the administration of the loans, but the actual payments that run in the background are conducted by a bank. And that's normal because um typically when you start a peer-to-peer lending platform, you don't want to build your own bank on top of which you do the payment transactions. So you need

to purchase these services and um they are quite expensive. So running a traditional peer-to-peer lending platform uh creates significant costs on on your infrastructure side which in the Bitcoin world are much much less. Okay. Yeah, that makes total sense. So let's talk about one thing that I've sort of thought a lot about in the context of Bitcoin lending and that I think is a is an interesting and very tricky topic and that's of course you know the the issue of uh the exchange rate and deflation.

So I I just kind of want to briefly explain why I think that can be an issue. So, for example, when I went on the site today, I saw that uh one of the projects was some guy in Iowa who wanted to take out a loan of 2.2 bitcoins to put some solar panels on his house. So, you know, it seems like a a great project, etc. You know, he has a $3,400 in monthly income and uh the terms would be a repayment at sort of 11.6% 6% interest rate per year and over three years. Now the the tricky thing I think here is right so let's just assume that Bitcoin

is going to be a huge you know this sort of lifts up to its potential is going to be the success we expect it to be. Now then we may see that in two years down the line perhaps the exchange rate could be $10,000 per bitcoin or something like that. Now, of course, if he's paid back half of it, then, you know, maybe he has like one one bitcoin outstanding, but that bitcoin then could be worth, you know, $10,000. Um, which is a much higher amount in dollar terms that, you know, he borrowed today. So, I I think that's sort of something that, you know, is not unlikely to happen. And then if it happens, it happens sort of across the

board. And maybe sometimes people are aware of that, right? Sometime some people taking out loans will probably think like oh I know that risk and it's something that you know I'm sort of happy to take let's say I think that would for example make sense if let's say you work in the Bitcoin space and you know that if the Bitcoin price goes up a lot okay I have to pay back a bigger loan amount but then also you know my career is going to be doing super well and I'm going to be okay with that. Um, so it could function as a type of hedge, but um, but I suspect for most people that's not the case. And I I'm sort of worried that perhaps a lot of people aren't quite aware of the risk

they are taking when they take out these loans in Bitcoin, especially longerterm loans, right? I mean, if it's 6 weeks, okay, but 3 years, that's a very long time. That's right. Um so 3 years is a long time and there certainly is a exchange rate risk uh which which applies uh mainly for the borrower that um has this risk especially in that case where the borrower converts the loan to a local currency and then has a income stream in a local currency but then needs to repay Bitcoin. So, um, our opinion is that the exchange rate will

probably not go that high, but obviously nobody can prove this. Um, and in order to mitigate the exchange rate risk, we want to implement something that's called a exchange rate pegged loan uh within the next months. And what this means is that when you take out a loan uh and the loan is one bitcoin for example uh then you take out this loan because you probably want to convert it to local currency and that's exactly the amount of purchasing power that you actually want to borrow and um what what we will do is that the repayments uh are linked to the exchange rate. So when the

exchange rate goes up, you actually have to repay a smaller amount of bitcoins um because we will look at the payment streams and what they are actually worth in dollars or in euros for example. So actually we have a constant value um expressed in a fiat currency um but the payment is still done in bitcoin but will uh fluctuate along with the exchange rate. And this is a product that um that will be attractive to those who are not hedged in some way or the other against exchange rate fluctuations. And um uh I think this

will significantly help to mitigate the problem of exchange rate fluctuations. Also this um this this might sound as an unusual thing for people who live in Europe or northern America but this is something which we actually see in countries where you have very high inflation rates. So in Mexico for example if you take out a loan in in Mexican pesos this loan is typically also linked to the US dollar exchange rate. So if you go to a local bank in in Mexico and you take out this loan, they will peg it to the US dollar exchange rate because the inflation is so high that um you have a problem from the

banking side that when you get the repayments after one or two years of the loan that they are worth much less compared to the point in time when the loan was uh paid out. So this is a model that we see in other countries um where you often have the reverse problem that you have a high inflation and that we can also apply to Bitcoin loans. Yeah, I think this makes a absolute ton of sense. I remember you gave a talk at the Bitcoin meetup here in Berlin that I started uh last year that was even and that's one of the thing was like you should do this cuz it it just makes so much sense. Now I'm curious, does this apply to both sides? So,

uh does that mean as a as a lender I also get back the the kind of uh dollar equivalent of uh my loan or do you have someone else who steps in and kind of takes that exchange rate risk? No. So both sides the borrower and the lender uh make a conscious decision for this type of product. So you will have as a borrower the option to select which type of loan you would like to have pure Bitcoin loan or a Bitcoin loan that's pegged to the exchange rate. And then the lender also will see on the listing whether it's a pure loan or a pegged loan. and they

will have to decide because if you lend out and they and be packed blown then it makes sense also to convert the payment streams instantaneously into your local currency. Um so both sides will have to make a cons decision which type of product they actually want. Okay. Okay. So essentially as a lender that sort of means like you're going to sell I mean you can think of it as in like I'm going to sell my one bitcoin now. I'm going to lend it out and I'm going to sort of get, you know, the US dollar equivalent plus interest at future points in time, although paid in Bitcoin. Exactly. So, it's Yeah, that's interesting. I think another way to do

this, I don't know if you've looked into that, but that could be really interesting is if you know, let's say I lent a bitcoin and I want to get back bitcoin, but the borrower wants to pay back. sort of the dollar equivalent. You know, maybe there would be a way to uh create to basically uh hedge that on a derivative exchange so that you know I I can get my bitcoins in bitcoin terms back and the other guy can pay back in dollars and perhaps one could buy um a derivative uh on an exchange. Is that something you also looked into?

Um yes I have been thinking about this. Um it is theoretically possible. Um it has got two problems at the moment and there are some Bitcoin derivatives but the markets are not very liquid. Um that's one thing that but hopefully will be solved in the future. Um the other issue you have is that um this hedge costs uh you money obviously because it's a sort of buying insurance and um it you you would have to look at it uh in a very detailed way what's actually um more cost effective buying this

insurance. So buying a derivative contract that hedges you against exchange rate fluctuations or do it over the packed loan which actually is also a a certain type of hedge where um the costs might be smaller because the cost that you have is your um cost to convert Bitcoin to local currency. So you typically have an exchange fee that you need to pay when you when you go to a exchange or um uh or or a marketplace where you can buy and sell bitcoins. And my view on this is that at the current state um exchanging bitcoins constantly into local currency is cheaper than

actually buying a hedge. This might change in the future. uh this might change in the future because once we have maybe uh more liquid derivatives markets uh it might become more attractive to actually buy the insurance directly on an derivatives exchange but as of today um it it wouldn't be very cost effective. Yeah. No, that makes total sense and I also think this is maybe something down the line right because at the moment I guess the derivatives exchanges are sort of like totally nent and not liquid. So um but uh I I think that makes a lot of sense and I especially think that the the the US dollar packed loans are interesting that may even then become interesting for people let's say who are

not Bitcoin holders but uh let's say I'm in US I just want to invest some money and I'm like oh you know here's a way I can start giving out um peer-to-peer loans sort of globally and you know perhaps I would take some dollars, buy bitcoins, then lend them out and I get back the, you know, dollar equivalent plus interest in the future. I I don't know how your returns would compare to lending club or if this is something that will make sense, but perhaps that would be an option as well. Um, I absolutely agree um because this is a product where you want to have uh where you have want to have a kind of foreseeable stream of repayments. uh

that's why actually investments into loans are also called fixed income investments. So you have to make a decision whether you actually want to uh invest in Bitcoin as an asset and believe in a future price increase of Bitcoin itself or whether you want to have a more constant and a more foreseeable return which is in the range of 10% per year and uh not care too much about exchange rate fluctuations. So it's an investment decision that you need to take in the first place. Do I want to invest in a asset that's Bitcoin or do I want to invest in a fixed income asset that happens to be paid out in Bitcoin but where I do not actually care

about the underlying uh payment network. I'm just looking at my at my fixed income returns. That's the decision that you need to make as a lender and as an investor. Cool. That's that's uh No, I think that that makes a lot of sense. Very interesting. Now, um, very briefly, can you talk a little bit about how Bit Bond compares to other Bitcoin lending platforms? I know BTC Jam is one that I'm aware of. I I suspect I think there may be others. Um, so how how do you compare those? So, um, the the the pure concept is is quite similar, I have to say. Uh but we have one um factor where where we want to differentiate ourselves

and this is um the point where we actually do a credit assessment of the borrower which is um which is mandatory on bit bond. So when a borrower signs up on bit bond we check the creditworthiness and we do it manually. So each borrower gets verified manually before uh he or she can post loan projects on our platform. And um this is something which we also uh seek to improve significantly over time and where we where we want to um make a claim that uh we as a platform doing

this credit assessment so well that we can say with a certain probability what your returns in a diversified loan portfolio are going to be. the other peer-to-peer Bitcoin lending platforms that exist also do a credit assessment, but um they don't uh link the interest rate that the borrower needs to pay to this credit assessment. So with Bitbond when the borrower gets an A rating for example um he cannot choose the interest rate that he wants to pay but we determine this interest rate based on the rating and we do this because we want to

um deliver foreseeable returns on a loan portfolio at Bitbond whereas at the other platforms the borrowers can choose the interest rate themselves and that's our main differentiating factor compared to the other platforms. Okay. No, that that's very interesting. Cool. Now, let's talk a little bit about a topic that I I know you've also looked into and you know, I think it's a very important topic. It's kind of been know in the news a lot, which is the topic of regulation. Now, um perhaps let's get started with the bit license thing. You know, I mean, I'm sure you've uh read about it as well. I know

that, you know, you you probably have to get a bit licensed as well, strictly speaking. No, unless you exclude New York lenders and borrowers. What are your thoughts on this? Are you um are you thinking about this? Are you thinking of exclude trying to exclude New Yorkers or are do you think you're just going to go ahead and sort of ignore it? So um as far as I know the bit license is not effective yet. That's yeah it's true. It may change of course. So it's and of course obviously this may change. So should it become effective as it is um as it is drafted now um we actually really might exclude New York

um New York users uh because I think at the current state uh it's not realistic for us to obtain a bit license um so probably it it would be the only way to to make this work right Now, um maybe in the future, uh we would then try to get a bit license, um depending on how how difficult and and how lengthy the process actually is. But um at the current state, it probably wouldn't be realistic for us to obtain a bit license. Yeah, I totally agree. Also, unattractive just if you look at their terms cuz they're uh terrible. But um are you currently doing KYC on lenders

as well? No, currently we don't do KYC on lenders. Um but also the um the amount of bitcoins that you can lend is limited. And um we plan to implement KYC for lenders that want to uh that want to lend larger amounts than uh than uh 10 bitcoins. And uh we are probably going to implement this. Um, currently we uh we haven't done this because so far um there aren't users that are interested to lend more. Uh we have a large lender base that typically lends smaller

amounts but at some point we will probably implement this. Is that something you are required by law to do that when it's above a certain amount or or are there other reasons why you're planning to do that? So there is two things. One is a requirement by law which uh today I uh um I cannot actually say with uh with certainty because we are in a communication with the German financial regulator Baffin and um once we have um sort of um uh agreed with Baffin what is actually the regulatory

framework that applies to Bitbond. we will know whether we are required to do KYC for the lender or not. So this is something that is in in the process of of um of being determined. Um but also at at at some point when you have a lender that wants to lend large amounts, it um it it is very good to actually know with um with high certainty who this person actually is in case there are um there are some some uh differences on on on on certain uh terms. So when the lender is is is unhappy with with the service and um and

um wants to post claims uh it would be important for us to actually know who this person is when we talk of larger amounts. Okay, cool. Interesting. And in I guess a sort of a general question has it also I know you currently in Germany and sort of being regulated in Germany. Have you fought if the you know regulatory climate may change here of going offshore? Is that something that's sort of on the back of your mind? Um we don't not we do not want to go offshore. um if the regulatory framework would be so demanding and so

difficult for a startup that it's not realistic to operate under this regulatory framework, we would probably think about it, but currently we do not want to go offshore and we want to comply with the German um regulations. Yeah, let's hope let's hope they turn out well. Well, I know the the EBA thing I think a lot of people sort of worried that their opinion although I guess it's still a few years off to see what exactly comes out of that. Um and and even that is a lot looks a lot better I think at least in many ways than the bit license stuff. So hopefully the yeah I really hope that the regulators are

going to make wise decisions and um that they are going to balance the interests that they obviously have in in um in regulating businesses and in in letting innovation happen. um that's simply the the trade-off that the regulators face and I hope that they are going to make good decisions that that takes into account their requirements which obviously do exist but that also take into account um the the reality of of running uh and starting Bitcoin based businesses. Yeah, absolutely. Yeah, I think that's that's going to be a hugely

important thing. And it's, you know, I I'm I personally think this is not going to, you know, it's not going to make or break Bitcoin even if they have a horrific regulations, but it could, of course, have huge consequences in that like it makes it much harder to get funding. It could force businesses like you to go offshore. It it could have a lot of negative impacts if if they're really going to be that stringent. could slow down uh the progress of Bitcoin like massively. So I absolutely absolutely agree. Yeah. One more thing, I don't know if you thought about this.

It's probably a bit off, but one thing that I think is quite interesting if you look at projects like especially Ethereum uh who are kind of trying to decentralize a whole web infrastructure and a lot of different things. uh you know some of the things they they want to decentralize is have like reputation systems and then something a service like uh like Bitbond would actually work uh quite well I think in a completely decentralized way. So are you are you aware of anybody working on for example a a totally decentralized P2P learning platform? Is it something that you've um kind of been thinking about how that

would work or is is it something that's not on your mind? So, um I am not aware as of today that somebody is working on a totally decentralized peer-to-peer lending platform, but it's something that's at least in theory very attractive to me and it's something that I hope we can be working on maybe in the next one or two years when we have implemented a lot of functionalities on our platform that we want to implement.

like these exchange rate pack loans for example that we talked about. So once we have implemented um a certain I would say basic set of features that we want to have the decentralization is something that um I personally would very much like to work on. I think it requires a much higher degree of automation compared to what we have today because a lot of processes are manual. Um, but this is just the starting setup. I would say once we get to a point where we can automize, I would say nearly all the processes that run on Bitbond and that run in the background that the customer

might not even see. I think we can start moving to a at least more decentralized organization compared to what we have today. Oh, that's interesting. So you're actually thinking that this is a direction that you might want to take Bitbond itself in in at some point in the future? Yes, at least I want to give it a try because to be honest um before we have not tried it. I'm not sure whether it will be possible to do it fully decentralized. I think there might be some uh processes that are difficult to decentralize but um I I I like the concept and I think before you won't try it you simply won't know and I think it

is something that we at least uh want to try and also depends to which extent you can actually bring it um but I think that there is a a at least larger extent and on decentralization possible compared to what we have today. Yeah, absolutely. I mean, I think this is something today that would probably be not possible to do. Um, but it may look quite different in a a year from now. I think you know once you start having a lot of these services in place that you can build on top of, you know, if you have the central, you know, reputation systems, things like that that you can kind of leverage. But I mean, I certainly agree. I think it may be

challenging to fully decentralize it. Um but yeah, but it's it's interesting and I I think I guess people are working on on these kind of things and we will see how well they work and what comes out of that. Yes. Yes. Um I'm also very curious to see um uh how uh decentralized autonomous uh organizations will evolve and uh I'm very curious to see some some startups to give this setup a try and I hope that we will also be able to learn from them and I think somebody just needs to get it started with maybe a smaller project that is um that doesn't involve so many different processes. in

the background and maybe we can take this as a starting point then and learn from it and also um build more complex organizations based on this concept. Yeah, absolutely. So let's talk a little bit kind of to um you know finish this off about I know you gave a talk at the inside bitcoins conference on kind of financial services in general and what the effect may be on financial services or that bitcoin will have on financial services. Um can you briefly share what your thoughts are on that topic?

Yes absolutely. So um if if you look at the current state of financial services um you you have many aspects where things are the way they are because of legacy simply and um one aspect that certainly plays a significant role here is the infrastructure the technological infrastructure that you need in order to run a bank or a insurance company or an asset management company. And this is typically legacy infrastructure that um is very heavy on hardware uh that uh is run on software that's uh up to 30 years

old and that's simply not been built in a world that um assumes that everybody has an internet connection and that we have cloud computing and that we have Bitcoin. So these services today run with a infrastructure that um at the time when it was built was uh the best that they had but um that we can vastly improve upon and Bitcoin offers a great opportunity and what I think is that once we have startups uh in financial services that are built on a technology like Bitcoin that uh we will see many

very interesting developments. And one thing is that market access to financial services uh becomes much easier because the infrastructure that you need when you run based on Bitcoin is simply more cost effective and more programmable and much better suited for the internet compared to hardware that these companies run today. So once we have easier access to um to these markets, I think that we are going to see more competition and I personally am a big believer in competition because on the one hand it might force um the existing

incumbents to improve on their services to become more cost effective and to think about redesigning their infrastructure that they run. So that's one thing. The other thing is that um that we will see more competition and therefore we will have more choice for the customer which I also think is a great benefit. And the next thing that it might bring is that um the margins the profit margins that the incumbents in in financial services make will go down. So I think it will be a tougher world in the financial services sector because as of today uh many firms like banks, insurance companies, asset managers um make very good margins and

uh I think that this is going to change a little bit in the future. Yeah, absolutely. I think that's kind of uh one of the hopes we have know is that we will be able to build an entirely uh new financial system with Bitcoin and and that that could be a tremendous tremendous I think not not least in what you've mentioned it's just in terms of access in terms of like kind of anyone can participate and there won't be these barriers. Exactly. Um access is also a very uh important aspect because uh since since um financial services run on this legacy and expensive infrastructure they also

need to have higher prices then they needed to have if they run on a more cost effective platform. So when um costs go down and prices go down for the consumer um it will also be um these services will be more accessible um not just from uh from the point that you might not uh need a bank account but also because these services will be cheaper and more people will be able to afford them. Absolutely. So, you know, I guess one, so I'm kind of interested like what what parts of the financial um system do you think will be most affected by this and sort of first

perhaps we should say first affected by this? I don't know payments is definitely one that a lot of people thinking about and and there's so much activity in that space. You know, you now work on lending. Uh I know of course money transfer that there's that which you know is kind of very related to payments but uh are there other areas that you think will be sort of um ripe and the first to be affected by this? So um I really believe that payments and and loans will if we talk about financial services will come first and I think what's then also going to come almost hand in hand is personal financial

management. So today we see a lot of startups that try to vastly improve actually the the user interface of bank accounts because when you log into your typical online banking interface um what you see there is a very simple list of transactions that you have made over your bank account and usually that's about it. And today we see a lot of startups that build apps that um have very good and high quality graphical representation of what's going on in your bank account and that also try to add different convenient functionalities on top of your bank account. And this is something where

where um startups work on a lot and where they have a lot of good ideas but where it is also quite difficult to implement it. If you look at Germany for an example, if you want to build an app based on German current accounts um not all banks run the same standard and the same API. So it it's quite difficult to do this. It's possible, but it takes quite a significant amount of work in order to have one app that is um that is compatible with different um banks. When we talk of about the Bitcoin world, I think it will be much easier to create apps in the space of personal financial

management. And that's why I believe that at some point we will not have just simple wallets that um allow you to send and receive bitcoins but that will allow you to do analysis based on your transactions that will be uh that will add functionalities and that will add a large amount of convenience for the consumer. So that's why I think that this is a space where we might not see a lot today but which will probably come one of the next fields uh where we'll see a lot of innovation based on Bitcoin. That's super interesting. I I've never thought about this. Uh but I think you're absolutely right. I think that's definitely will be very very interesting because I I think I suspect

what we might see emerging will be things that are just really really different from bank accounts. like we we probably can't really uh project today what that will look like and you know how people will think of money, how people will think of uh payments etc and and accounts in that context. But I agree I think that's definitely an area that we will probably hopefully maybe we'll see some of those startups switch over to Bitcoin uh once adoption is a bit higher. Yeah. Right. And and I think it's what you just said that we don't even know what we will see. I I totally agree with that and um but that's the great thing because Bitcoin as a technology has so much potential that you can build many different

applications on top of it that I think we will see a lot of experiments. Not all of them might might be attractive to the consumer but but some things might emerge that are possible based on Bitcoin that are simply not doable on top of regular bank accounts. And that's why I believe that we might see some very interesting things there that we might not even think of today. It's the same when the internet got started. Many people were not um uh were not aware of the possibilities that it's going to create in the future. It's such a great platform and I think the same applies to Bitcoin that we are going to see very interesting things that we might not even be able to think of today. Yeah, absolutely. I think one one area I would

kind of add to the the list you've made is I think crowdfunding and sort of equity crowdfunding. I think that could be uh big one although there you're going to have big regulatory hurdles to cross. I think probably maybe bigger than any other area. Yes. Uh I agree probably you have you will have these hurdles and it's going to be interesting to see whether um whether the the platforms that want to uh enable equity based crowdfunding in Bitcoin are going to comply with regulation whether they are going to find a way together with regulators to to get it started or whether they are going to do regulatory

arbitrage and go offshore. I think this is going to be a very interesting development and my personal hope is that um they will find a way together with the regulators so they are not driven to go offshore so that they can comply but with a reasonable regulatory framework which takes into account both the regulatory realities that they need to um that they need to cope with but also with the realities that startups face and um that uh will not uh be in the way of innovation. Yeah, I agree. I I mean I I totally share your hope. I my sort of suspicion is that I I believe or I

expect that the regulatory burden could be so high that it kind of destroys the purpose and that we may see more of an offshore thing. But of course that's difficult because then as a company if you're raising money uh you know there there's there's no way to hide this really. You know I think about personal loans and you go offshore um you know you can't really prevent people from taking out personal loans. It doesn't really make sense for the government to try to start hunting down people who take out like a 2,000 euro loan on a platform. Plus, you may not actually have to reveal personal information if you have a a reputation, right? So, I think you'll be able to do this u

offshore and then there's there will be very little regulators can do. But that's different when you talk about a company that's trying to raise like a million dollars or something because you won't be able to hide that. Exactly. And uh so I think it will be more difficult to do this offshore. Um but yeah it's a interesting area I guess sort of sort of tying into that was one one thing I I forgot to mention but I also want to cover very briefly is that I know you've been sort of in the process or you've been trying to raise uh financing round and I know for example at the the state of at the coin summit one of the talks was um on the the state of Bitcoin report from CoinDesk and one of the

really striking numbers that sort of came out there was that in the I think quarter 2 or maybe it was 2014 I I don't know the time frame but $200 million had been raised in uh in BC financing and of those just 5 million were in Europe and basically almost the rest almost all of the rest was in in the US. So um what has your experience been talking with venture capitalists? How do you sort of um what's what are you views on on the climate in Europe to uh raise money for Bitcoin startups?

So what what I have seen when talking to venture capitalists is that they have an eye on Bitcoin and on Bitcoin startups and um they certainly think about it a lot but so far only very small amount of VC funding went or came from European VCs. So they are in a waiting position. I would say they are looking at a lot of startups but so far they didn't become active. And what what could happen is that when one of the larger Europeanbased VCs will do a bigger Bitcoin investment, a bigger deal with a startup that this might um sort of kick

it off because I know that there is a lot of VCs looking at this field but hasn't made the decision yet to invest. And I think that once you have at least one or two of the more renown and larger VCs doing a deal in Europe, then this might actually kick off a wave. Maybe not as big as we have seen in the US, but at least a a wave where we will see more startups um in the Bitcoin world getting funded. And um I could imagine that maybe over the next one or two years this this might also happen. Um because we typically see that these cycles these investment cycles um where you have um social then you have mobile apps and uh now it's bitcoin that when

it exists in the US that after a certain amount of time it also um becomes a reality in Europe and I think that this is a trajectory that will be quite similar for bitcoin. So once we have seen one, two, maybe three larger deals that it will kick off a wave. Uh what kind of level of understanding have you encountered in your conversations? Do you feel like they they understand what Bitcoin is, how it works, and what it potentially is or they still sort of trying to wrap their head around it? To be honest, it's it's very mixed. Um, I have spoken to some people who who looked at it in quite significant detail and that were very knowledgeable about

Bitcoin, but I've also talked to people who who looked at it and only grasped, I would say, the surface of Bitcoin, but didn't really learn about the whole concept and the whole potential behind it. And uh it was interesting because in in in some conversations I was able to to also um to to deliver some more knowledge about Bitcoin and then these people actually got more interested. So um obviously they have very busy jobs and maybe not always take the time that's required especially for a I would say more advanced technology like Bitcoin to look into it in in more detail. But once um

once and they give it the chance to talk about it with them uh and uh get a better understanding of it, they also um become more interested because they feel that they better understand the potential that's behind it. So I would say it's mixed and I hope that it's going to improve because I am personally convinced that once the knowledge that um also venture capitalists have about Bitcoin um the amount of investments that is going to take place in the space is going to increase. Yeah, absolutely.

I think that's a hope I share as well and I hope that's a development that we'll see in the next years. I mean I'm sure that's something we will see. So um Rokco, thanks so much for for joining us today. It was it was really great to talk with you. It was great to kind of hear a bit about the insights of Bitbond and and talk about uh some related area. So thanks so much. Yeah, thank you very much. It was a big pleasure um uh talking to you and look forward to seeing you next time in Berlin.

Absolutely. Well, I am in Berlin, but uh I'll see you soon, I'm sure. Yeah, see you soon. Now I guess one last thing. If you know, if you're interested in trying out Bitbond, you want to maybe lend some money or if you uh want to take out a loan, then the site to check out is bitbond.net. So that's bitbond.net. So, you know, I I recommend it. I think it's a, you know, it's like a a really great site and Rothkco is always a guy who does this like very carefully who's like um, you know, very conservative in sort of his approach to that which is of course a good thing when it comes to lending that you don't make sort of foolish rash actions that we often see

with Bitcoin startups. Yeah, thank you very much. Yeah. No, absolutely. Thanks so much. So, uh, thanks so much for listening. It was great to have you again this week and we'll be back next week. I think we'll putting out uh a second episode from Coins Summit uh on Thursday probably and then we'll have a regular episode again a week from now. So, thanks so much for listening. If you want to support the show, you can do so by donating and you can do that at epsenter bitcoin.com/tips. It's very much appreciated. And you can also leave us an iTunes review which uh helps us a lot and helps people a lot find the show.

And uh finally, you can subscribe to our newsletter which goes out every Friday. And at bitcoin.com/newsletter. I know Ros has been a subscriber for a long time because I put his name on it sort of when I started it. Um so you can do that there. So thanks so much and we'll be be back next week. Heat. Heat. [Music]