2013-08-07 Bitcoin Startup ArtaBit Working On Cheaper Alternative To WU

[patricktim]

http://spectrum.ieee.org/tech-talk/computing/networks/bitcoin-startup-artabit-working-on-inexpensive-alternative-to-western-union

Every summer job I ever held before I turned twenty was in or around a kitchen. I did it all—scrubbed dishes, garnished dishes, grilled, baked, waited and frialated. And during that time, I worked closely with many Central and South Americans, all of whom shared one thing in common. Every week or every month, they all sent a fraction of their wages back to the families they had left behind. Some dared to send cash in the mail, but most passed it through a money transfer service like MoneyGram or Western Union.  Economists package all these messy human details into one clean phrase: remittance market. It's the business that makes money by moving money and, as is usually the case, the middleman walks away with a plate full of trimmings.

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[2_Thumbs_Up]

I would really like to see something like this take off. There is a hidden but very real problem with this though.

Who is going to buy the bitcoins in the recieving country? If there is a heavy inflow of bitcoins from one geographic area to another it will start to cause a difference in the price between the two areas. In functioning markets, some people will see this opportunity to make a profit through arbitrage, however the very reason that remittance is so expensive to some countries is that their markets aren't functioning properly. So unless there is a steady outflow of bitcoins in the recieving country I'm afraid remittance actually won't get much cheaper with bitcoins, only that the fee will become hidden in the exchange rate.

[BCB]

Ayoub Nacirin is a member of our BitcoinNYC start up.  He's one of the good guys.  Everyone trying to run a legitimate bitcoin business is the US is struggling with regulations. If he can figure that part I believe he one to make it happen.

If you want to learn more about bitcoin regulation and compliance requirements in the US there is a Virtual Currencies Conference being held by the National Money Transmitters Association in New York City August 14th.  There will be some high level current and former regulators in attendance and it will be an opportunity for bitcoin businesses to interact with them in person.  I highly reccomend it.

http://nmta.us/site/1
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[2_Thumbs_Up]

I think you miss my point. I'm sure his heart is in the right place, and my issue has nothing to do with US regulations.

The problem here is that remittance markets are to a large extent one-directional. This means that unless you have a steady outflow of bitcoins in the recieving country, sooner or later you will have an over-supply of bitcoins which will be reflected in its price. This is a market phonomena, not caused by US regulations. It's what happens when a good flows in one direction only.

So even if you can undercut all the competition in fees, what are you supposed to do once the exchange rate of bitcoins in the recieving country is 10% lower than in the US, essentially adding a 10% fee from the perspective of the customers?

A functioning market would arbitrage away the difference in the exchange rate, but often, the very reason remittance is so expensive is because the recieving country doesn't have good banking infrastructure in place, meaning arbitragers will have a hard time to do this. The only way to avoid this is if the recieving country has a domestic market for bitcoins that makes them flow out of the country to the same extent they are flowing into it. This is out of the remittance company's control.

[BCB]

I agree.

If you are familiar with the M-pesa history in Kenya, they encountered the same problem.  Family members in the cities were remitting funds to their villages and the villages were running out of funds to distribute.  M-Pesa agents were charges with carrying bundles of money to these vendors to replenish their supplies.  As the use of M-Pesa grew and the digital currency was used for payments of goods and services this problem did diminish.  I'm not certain of the current situation.

The solution seems to lie is keeping the economy within the digital currency.  That may be a longer time coming.