Is the NanoCard bitcoin’s killer app?

NanoCard, Bitcoin, CCEDK

Bitcoin has been derided as a ponzi scheme, decried as a nuisance loved by criminals, and dismissed as a solution without a problem. Now, the NanoCard – the result of a strategic partnership between a series of organisations from the traditional banking sector and FinTech’s bleeding edge – offers real and impressive advantages over the alternatives.

Bitcoin, the intriguing form of internet money that relies on no centralised payment processor, has simultaneously garnered adoration and horror. On the one hand, it offers the chance of low-cost, global transfers of money, independent of any bank or government. On the other, its formative years have been beset with scams, hacks and associations with organised crime on the web’s dark markets, where drugs and other illegal goods can be purchased for bitcoin with some degree of anonymity.

To other critics, bitcoin and the related collection of technologies known as cryptocurrencies represent a useless curiosity. We already have reliable cross-border transfers, and banks offer security that bitcoin doesn’t. If your card gets cloned while you’re on holiday, the bank will usually cover your loss. If your bitcoin wallet is hacked, your coins are gone for good. There’s no one way of reversing the transaction and no one to bail you out. Sure, it’s a neat idea, but what use is it in practice?

Frictionless money

One country that might be able to offer an answer to that question is Greece. At the end of June, when Prime Minister Alexis Tsipras called a surprise referendum on the bailout conditions offered by Eurozone ministers, he implicitly guaranteed a default in all but name. Fearing a run on its banks – which had already been haemorrhaging cash – the government imposed capital controls on Greek citizens. Greeks were limited to withdrawing just €60 per day, assuming they could find an ATM that wasn’t already empty. Finance Minister Yanis Varoufakis is a game theorist by training, and so will appreciate that bank runs are effectively a nation-wide game of Prisoners’ Dilemma. In Greece, no one has much confidence in their fellow captives. The free movement of money works really well, until it doesn’t.

Bitcoin is a truly global currency. It doesn’t simply cross borders: it doesn’t recognise they exist. It’s the ideal way of preparing for capital controls, which is exactly what some enterprising Greeks have been doing. Greece isn’t a huge bitcoin market, but it’s starting to take an interest. Greek registrations on Bitstamp, the leading European exchange, are up 350%. Greece’s own and only exchange, BTCGreece, reported quadrupled demand for bitcoin in June. That fear has been contagious, with significantly higher interest across Europe. As Ronny Boesing, CEO of Danish exchange CCEDK, told Finance Watch, ‘Not only have we seen increased trading in bitcoin from Greece in recent days, but you can actually trace a similar trend in neighbouring countries. They are simply afraid that a similar crisis will hit them, and are thinking ahead with alternative currencies such as bitcoin.’

Shifting money around frictionlessly isn’t a problem confined to Greece or faltering economies, either. In many low-income countries, migrant workers spend upwards of 10 percent of their pay simply to send their own money home to their families. The money transfer businesses have a captive market – and one that’s ripe for disruption.

It’s the decentralised nature of bitcoin that offers much for situations like these. Without a single authority to administrate and intervene, there’s no one to prevent or reverse transactions, which are near-instant, almost free and entirely irrespective of global borders. Of course, bitcoin on its own isn’t a wise solution, as some Cypriots found out when they piled into the digital currency in 2013, as capital controls were imposed on their country. The ensuing bubble promptly burst a few days after the banks opened again, destroying the value of their investment. Aside from volatility, there’s the problem of security, and the awkward reality that few businesses accept bitcoin in its pure form. Fiat is still rather popular – so perhaps it shouldn’t be surprising that the most promising applications come not from the tensions between these two incarnations of money, but through them working together.

Collaboration, not competition

It’s these problems that Boesing has set out to address with the NanoCard and a series of other measures: a partnership of many strands that combines the best features of both fiat and cryptocurrency worlds. Despite the frankly remarkable technology embodied in cryptocurrency platforms, the real breakthrough here has been the forging of relationships between several different and highly disparate companies and organisations, each of which brings a unique piece of the puzzle to the table.

The NanoCard is effectively a bitcoin-supported MasterCard, denominated in both EUR and USD, that is funded by your bitcoin balance as it is spent (rather than being pre-paid). As Boesing comments, ‘It’s like having your savings, checking, and trading accounts in the palm of your hand, accessible from anywhere in the world – with dramatically lower fees than banks and exchanges have ever been able to offer.’ CCEDK is the first and currently only organisation to offer this: the decentralised independence of bitcoin plus the universal acceptance of MasterCard.

This may sound mundane but the implications are profound. The NanoCard is intended to be an effective alternative to the international money transfer system. You can send the card to a family member anywhere in the world, for example, and fund instantly and cheaply it from your PC for them to withdraw cash, pay bills, shop online or eat out. And because it’s powered by bitcoin, no one can tell you how to use your own money. ‘We have combined the strengths of digital currencies pioneered by bitcoin with the universal acceptance of major credit cards,’ says Boesing. ‘In the process, we have eliminated most of the biggest drawbacks of both systems.’

Boesing’s role as CEO of a major exchange gave him a firm foundation to launch this undertaking. The lynch-pin of the whole enterprise is Bit-x, a licensed UK-based forex participant that packs the industry punch to make the NanoCard happen. Between them, Bit-x and CCEDK were able to build the bridge that spans the online world of digital money and the existing infrastructure of traditional card payments. As a forex platform, Bit-x had already diversified into the bitcoin trading space. This, along with their reputation for security and professional, efficient service, made them a natural partner for the job. Managing deposits, withdrawal, order placement and clearing, account activities and more conducted in volume on a daily basis meant that many of the necessary building blocks were already in place. ‘We are extremely proud to have partnered with Bit-x after just a year in business,’ says Boesing. ‘The result is perhaps the world’s first true crypto-debit card. Thanks to Bit-x this will be accepted everywhere.’

Bitcoin 2.0

But a chain is only as strong as its weakest link, and bitcoin alone has a few weak links to choose from. The defining event for bitcoin in 2014 was the collapse of its first exchange, Mt Gox, which took $450 million of the virtual currency with it. Fortunately, cryptocurrency has grown up a lot since then, not just in terms of the technology but also the professionalism of the businesses and the regulatory framework surrounding it, too. Bitcoin is fast leaving its Wild West image behind.

In terms of auditing, exchanges are beginning to realise they can use the blockchain – the same public ledger technology that underpins bitcoin itself – to demonstrate that funds are intact. CCEDK expects to be the first to implement this feature in the coming months. For this building block, Boesing enlisted Cryptonomex, a software development company that specialises in blockchain projects. ‘They will provide the technology that will enable us to become an exchange, bitcoin wallet and vault, all in one. You won’t have to worry about our exchange being hacked or whether it is honest or solvent,’ he explains. ‘Everything about our new accounts will be an open book and you will control the keys to your own funds, even while they are on our exchange.’ Moreover, multi-signature payments mean that funds can be stored safely and only made available for spending when two or more account-holders agree – similar to the idea of a joint bank account and the perfect safeguard for travellers who hold a NanoCard.

The final hurdle – and it’s a big one – is stability. Bitcoin is a notoriously volatile currency and no one, no matter how dire their straits, should presume to use it as a store of value. However, a new generation of pegged assets, built on top of more recent cryptocurrency platforms such as BitShares, is set to address just that issue by linking the value of a digital coin to a real-world currency or commodity. BitShares’ SmartCoins – representing USD, EUR, CNY or even gold and silver – will soon be added as funding options for the NanoCard in the same way that bitcoin already is, to be spent in the real world as fiat at the moment of use.

Brave new world

From its early days as a geeks’ plaything, speculators’ toy and drug-dealers’ currency of choice, bitcoin is starting to gain real traction as a means of transferring value quickly, cheaply and securely. And yet its real future does not lie in some messianic role as an alternative to the traditional financial system, as some bitcoin enthusiasts would have you believe, but in the advantages it offers to forward-thinking banks and payment processors. Competition, after all, will always exist in business. The better service a money-transfer business can offer the more customers they will attract. It’s the fusion of bitcoin, traditional banking and the suite of new blockchain technologies now available that can finally offer the killer application that virtual currency has always tantalisingly promised but never – until now – delivered.

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Published: 16-07-2015 08:48
Author: Alina Kunkevich (CCEDK Team)
Category: Publications / Обзоры
Tags: NanoCard, Bitcoin, CCEDK, Bitcoin 2, Bit-x, blockchain, BitShares

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