How to solve UK Bitcoin Exchange Problem?

[airsheep]

What I'm calling "The UK Bitcoin Exchange Problem" is that currently, there are few options for buying/selling bitcoins for GBP bank transfers in the UK (see various posts on here).

It would be nice (and potentially lucrative!) to solve this problem.

There are a number of marketplaces such as localbitcoins and bitbargain that match individual UK buyers and sellers, but buy-sell spreads are very high (over 10%) and there is some level of risk involved for buyers.

There is the possibility of transferring money in EUR/USD to non-UK exchanges - e.g. bitcoin-24, mt-gox, but that's slow, fairly expensive and introduces currency risk.

Previously there have been several exchanges that accept GBP bank transfers but they all seem to close or stop accepting GBP bank transfers.

This is somewhat surprising since there is a reasonable amount of interest in bitcoins in the UK, and the UK "Faster Payments" system allows bank transfers to be sent in minutes at very low cost.

So why no UK exchanges?

Some folks claim this is because the UK banks are threatened by bitcoin, and rush to shut down accounts used by bitcoin exchanges.

However, I doubt the banks are that paranoid - it seems more likely to me that bitcoin exchanges have their bank accounts frozen due to their accounts showing up as the destination for stolen funds.

For example, if a criminal hijacks a UK bank account (a common problem in the UK) and transfers the stolen money to the bitcoin exchange account, there is a good chance that the banks will flag that exchange account as "potentially dodgy" since it received stolen money, and then freeze it once several transfers like it happen.

So what can be done?

The fundamental problem as I see it is that the bank account used by the exchange to receive funds is a single point of failure - if the banks freeze it, the exchange cannot operate since users cannot deposit or withdraw GBP funds.

The solution then is to move to a decentralized system where the exchange no longer relies on a single bank account.

The trading activity on the exchange - that is, exchanging bitcoins for cleared GBP funds - can still remain mostly centralized.

The bit that needs decentralizing is the conversion of GBP funds in bank accounts to/from cleared GBP funds that can be used on the exchange. This is sometimes called "clearing" - as in a financial "clearing house".

(There has been talk of the Ripple system as a really, really decentralized solution - but that's solving a much bigger and harder problem!).

So here's an idea for the start of a possible, simple solution ...

As normal, users have two balances with the exchange - a bitcoin balance and a GBP cleared funds balance.

However, the exchange is cashless - end-users can only deposit and withdraw funds via "Payment Processors" (which are independent of the exchange).

Suppose jbloggs wants to buy some bitcoins. Here's what happens:

jbloggs registers with the exchange.
jbloggs makes a bank transfer to a Payment Processor.
The Payment Processor instructs the exchange to transfer exchange funds from the Payment Processor's exchange account to jbloggs exchange account.
jbloggs can then buy bitcoins on the exchange.

Later, jbloggs sells bitcoins on the exchange and receives exchange funds in return.
jbloggs then instructs the exchange to transfer exchange funds from his exchange account to the Payment Processor's exchange account.
The Payment Processor makes a bank transfer to jbloggs.

In return for taking on fraud risk and looking after the funds, the Payment Processors take a small commission on all deposits and withdrawals.

In return for providing trading and account management services, the exchange takes a small commission (in bitcoins) on all trades.

I'd be interested to hear people's thoughts on this? Could it work? What would stop it working?

[turboblade]

Explain the link between the payment processors and the exchange. How do they pay one another

[airsheep]

Explain the link between the payment processors and the exchange. How do they pay one another

But do they need to pay each other?

The exchange makes commissions in bitcoins from trades. It can sell bitcoins if it needs fiat money for operational costs.

Provided the exchange trusts the payment processors, it can allow their exchange balance to go negative (as would be needed if the processor has handled more deposits than withdrawals). In the long run, deposits and withdrawals should roughly balance (hopefully!).

If a payment processor's balance with the exchange becomes too negative, they could deposit funds via another payment processor. And similarly if their balance with the exchange becomes too high - they can withdraw via another payment processor. An agreement could be reached where payment processors do charge no or very low commission to other processors. This would also be necessary if a payment processor wants to cease processing payments.

[airsheep]

You can use Ripple to do exactly what you describe.

Yes, I guess so but perhaps I'm not understanding Ripple very well.

It all seems very general and a bit circular.

Let's suppose I have GBP in a bank account. I want to trade them for bitcoins.

I can issue an IOU for my GBP funds via Ripple.

jbloggs can issue an IOU for his bitcoins via Ripple.

That's great, now we can exchange IOUs via Ripple.

I now have jbloggs's IOU for bitcoins, and jbloggs has my IOU for my GBP funds.

So now I have GBP in my bank account (which I've promised to jbloggs via Ripple) and jbloggs has bitcoins (which he's promised to me via Ripple).

But now what do we do? We seem to mostly be back at square one!

[nwbitcoin]

Its too easy for someone to claim this is money laundry - you'll be closed down in a week!

The UK problem isn't so much that its scared of bitcoin, its that its scared of not following processes.  Moving money around in the banking system is not something that small private individuals should do, so when they do, its obviously due to some criminal intent - so they close the account.

In the UK, we either need to appear under the radar, by not appearing at all, or by being so official that we defeat the whole point of bitcoin.

It would seem to me the most sensible real world option in the UK is to buy dollars with your sterling.

At least that way, you are a step closer to your bitcoins, without having to worry any more about UK law, which really is expensive to break!

[MiracleRiver]

Just use www.transferwise.com. Simple, easy, great GBP to USD/EUR rate, low fees. Next day SEPA transfer to MTGOX (if you are verified with MTGOX).

[airsheep]

Just use www.transferwise.com. Simple, easy, great GBP to USD/EUR rate, low fees. Next day SEPA transfer to MTGOX (if you are verified with MTGOX).

Yes, TransferWise does seem rather good for sending money to the EU/US.

I guess they can't really help with selling Bitcoins for GBP though? Or can you withdraw from MTGOX to Transferwise who then send it to the UK somehow?

Besides, it does still seem like we should have a UK exchange - we don't have to wire money to the US to buy things from Amazon, do we? Why should we have to for bitcoins?

[LuckyNumber7]

I am currently using BTC-e as I am trading with BTC and LTC but I literally have no idea how I will retrieve my funds. I have noticed it is getting increasingly difficult for people in the UK to actually get involved in these crypto currency due to the lack of support. Does anyone know the process of how to get funds from MT Gox/BTC-e to a UK bank account?

[nwbitcoin]

I am currently using BTC-e as I am trading with BTC and LTC but I literally have no idea how I will retrieve my funds. I have noticed it is getting increasingly difficult for people in the UK to actually get involved in these crypto currency due to the lack of support. Does anyone know the process of how to get funds from MT Gox/BTC-e to a UK bank account?

I've been using OKPay - its very good! https://t.co/zwePUcktGS - This is a referral link

[LuckyNumber7]

I am currently using BTC-e as I am trading with BTC and LTC but I literally have no idea how I will retrieve my funds. I have noticed it is getting increasingly difficult for people in the UK to actually get involved in these crypto currency due to the lack of support. Does anyone know the process of how to get funds from MT Gox/BTC-e to a UK bank account?

I've been using OKPay - its very good! https://t.co/zwePUcktGS - This is a referral link

I've heard of OKPay, you need to get verified to use any of their services. I noticed you can pay to have the verification process sped up. Do you know how long it takes and how much they charge to convert USD into GBP then to transfer to a UK bank account?

[NABiT]

If you really wanted to deal in GBP you could use https://bitcoin-central.net but the transfers would work out more expensive than taking the transferwise/SEPA/EUR deposit and SEPA/EUR straight to your bank account for withdrawal route

[LuckyNumber7]

If you really wanted to deal in GBP you could use https://bitcoin-central.net but the transfers would work out more expensive than taking the transferwise/SEPA/EUR deposit and SEPA/EUR straight to your bank account for withdrawal route

So it would be easier to send my BTC to MT Gox then convert to Eur, then send that to Transferwise/SEPA/EUR deposit and then SEPA/EUR to my bank account? Such a long process haha!

[NABiT]

Nope

BTC to Bitcoin Central - sell for GBP - withdraw GBP to your bank

Probably cheaper - BTC to Bitcoin Central - sell for EUR - withdraw EUR to your bank

[matthewh3]

You can use Ripple to do exactly what you describe.

Yes, I guess so but perhaps I'm not understanding Ripple very well.

It all seems very general and a bit circular.

Let's suppose I have GBP in a bank account. I want to trade them for bitcoins.

I can issue an IOU for my GBP funds via Ripple.

jbloggs can issue an IOU for his bitcoins via Ripple.

That's great, now we can exchange IOUs via Ripple.

I now have jbloggs's IOU for bitcoins, and jbloggs has my IOU for my GBP funds.

So now I have GBP in my bank account (which I've promised to jbloggs via Ripple) and jbloggs has bitcoins (which he's promised to me via Ripple).

But now what do we do? We seem to mostly be back at square one!

I've got GBP credits on Ripple, I sold some BTC at Bitstamp then used the funds from that to issue GBP Bitstamp IOU credits.  You can use the p2p exchange built into Ripple to trade any gateways (like Bitstamp) IOU's.  As the Gateways IOU's are trusted.  Tho I can't personally send anyone the credit IOU's until the other party gives me trust for at least that amount but you can trade them on its inbuilt exchange easily.

[ex-trader]

You have to be registered with HMRC for Money-Laundering and also likely with the Financial Conduct Authority for money payments. Both require time, effort and credibility. You would also have to esnure you didn't 'promote' bitcoins as that could allow you to fall foul of the rules on the promotion of financial investments.

[airsheep]

Ripple can connect together businesses who each do one thing well. In that way, it's easier for those businesses to be compliant. If you want to buy BTC with GBP, here's how it works (... snipped ...)

Thanks ribuck (and matthewh3), your explanation of how Ripple can facilitate a banking system funds for bitcoin trade is very helpful.

I had contemplated a cash-less exchange, but I hadn't contemplated the possibility of a cash-less and bitcoin-less exchange! It is obvious though once you start breaking down what an exchange really is.

I do hope Ripple (or something like it) takes off, though I wonder if the concept will prove too abstract.

One possible criticism is that Ripple simplifies problems (which is good), but it also multiplies them; instead of my original problem of finding one trustworthy UK bitcoin exchange, with Ripple I now have three problems:

• How to find a trustworthy gbp -> ripple-gbp agent?
• How to find a trustworthy ripple-gbp -> ripple-btc agent?
• How to find a trustworthy ripple-btc -> btc agent?

[matthewh3]

Ripple can connect together businesses who each do one thing well. In that way, it's easier for those businesses to be compliant. If you want to buy BTC with GBP, here's how it works (... snipped ...)

Thanks ribuck (and matthewh3), your explanation of how Ripple can facilitate a banking system funds for bitcoin trade is very helpful.

I had contemplated a cash-less exchange, but I hadn't contemplated the possibility of a cash-less and bitcoin-less exchange! It is obvious though once you start breaking down what an exchange really is.

I do hope Ripple (or something like it) takes off, though I wonder if the concept will prove too abstract.

One possible criticism is that Ripple simplifies problems (which is good), but it also multiplies them; instead of my original problem of finding one trustworthy UK bitcoin exchange, with Ripple I now have three problems:

• How to find a trustworthy gbp -> ripple-gbp agent?
• How to find a trustworthy ripple-gbp -> ripple-btc agent?
• How to find a trustworthy ripple-btc -> btc agent?

Bitstamp is all three that's what the trusted gateways are for and they will be relied upon heavily until Ripple is about as big as PayPal AFAIK and you can call in cash/BTC/whatever debts from trusted peers or trusted local shops for example as your gateways.  

[Francesca]

use GBP to buy bitcoin in UK with domestic bank transfer
https://www.lakebtc.com/deposits/new?currency=gbp&source=uk_bank_transfer

the best price, low spreads


and here is the comparison of exchanges which support GBP trading  http://bittybot.co/uk/uk-bitcoin-exchanges-gbp/

[Submotion]

I'm sure there was one that was set up a few months ago that was baed in the UK.

There's also coinfloor but haven't used it so not sure if its what you're after: https://coinfloor.co.uk/

[gentlemand]

I'm sure there was one that was set up a few months ago that was baed in the UK.

There's also coinfloor but haven't used it so not sure if its what you're after: https://coinfloor.co.uk/

Lazycoins made a fair bit of noise about having UK banking but I haven't heard much else. They all start off saying 'we have banking. No, really' and then it's gone within a few weeks.

Coinfloor's account is in the EU so you have to dick around with wires and so on. You may as well use Kraken or Bitstamp.

I like Lakebtc's idea but those who volunteer to be bankers will be shut down just as quickly as any exchange.