Even however kraken is based ter the US and facilitates exchanges inbetween a number of different cryptocurrencies, its customer colchoneta is decidedly euro-driven.
Te fact, according to BitcoinAverage, Losbreken has overheen 50% of the EUR/BTC market. That makes it the largest player ter that trading pair.
Due to regulatory issues ter the US (which has 50 different states with 50 different ideas about money transmission), kraken leans on its European banking partnership with Germany-based Fidor.
Even with that geographic leaned, being San Francisco-based has had benefits for kraken, and, ter March, the company closed a $5m Series A funding round from Hummingbird Ventures.
CoinDesk sat down with Losbreken CEO Jesse Powell to talk about the challenges of running a cryptocurrency exchange te terms of banking, regulation and how decisions are made for adding altcoins.
Influence of Mt. Gox
While some may associate the name kraken with spiced rum or perhaps its monstrous fictional namesake, Powell says that he had possessed the domain kraken.com for years, having designs on using the name for something. However, he didn’t know exactly what it would be.
Ter the beginning, kraken’s parent company, Payward, wasgoed programma to provide a bitcoin wallet service, like Coinbase.
Powell’s practice ter 2011, however, helping out Mt. Gox with its early problems ter Japan, a story that he details here, motivated him to build a sturdy cryptocurrency exchange.
“Wij’ll very likely never get back to doing the Payward wallet,” he said. “[Wij’ll] most likely just concentrate on kraken. Wij’re attempting to rebrand everything to just kraken.”
The kraken office space.
Do one thing and do it well has become the strategy for kraken, said Powell:
“Wij’d choose just to be laser focused on being the best exchange and let other people overeenkomst with payments inbetween people.”
FinCEN and kraken’s concentrate
Powell’s journey to Tokyo ter order to help Mt. Gox bounce back from security intrusion that severely affected bitcoin influenced kraken’s budge to into the exchange business. Since the company wasgoed primarily formed te 2011, however, regulatory issues have shifted. According to Powell:
“Wij when commenced, it wasn’t clear that it would be a problem to operate ter the United States. Wij didn’t think exchanging wasgoed money transmission, until the FinCEN guidance ter March 2013.”
kraken’s exchange toneel debuted te early 2013. For many months, users could only trade with ‘play’ money. But the strategy helped the company work out bugs te the system early on. By the time of its official launch last September, kraken had better skill about running a sturdy exchange:
“Wij wished to find the problems before losing existente money. It wasgoed significant to us to have a truly lengthy test phase.”
kraken presently makes all of its money on exchange fees, which means it is dependent on the price and volume of coins traded te order to profit.
The top five EUR/BTC exchanges. Source: BitcoinAverage
Powell said, however, that the startup is looking at other ways to make money, adding:
“Wij’re exploring some other ideas for revenue. Obviously wij’re serving a dual purpose for many users, people are using us like a bankgebouw. A lotsbestemming of people just waterput their money ter and leave it there.”
kraken’s concentrate on European markets is based on problematic regulatory compliance issues within the US.
Venture caudal ter Europe is lagging, making Losbreken’s position interesting. Source: CoinDesk Q1 Report
The exchange only does business ter a handful of US states because of the different compliance requirements from state to state. “People te some states may miss out on an chance to get into bitcoin,” if something isn’t done to ease the rules, said Powell.
At this point, there toevluchthaven’t bot any issues that have cropped up against exchanges or wallets te the United States. “There’s bot no enforcement act yet, whatsoever, spil far spil I’m aware, against any of the exchanges,” he explained.
However, that could switch if states take activity against an exchange or a wallet provider:
“The laws are consumer protection laws. But until [people begin complaining,] they just don’t care.”
The thickest problem, however, comes ter the form of banking for startups that want to get involved te bitcoin.
“Even if you are not getting enforced against by the regulators or even if you have your licences, it does not assure you a handelsbank account. The banks are the thickest hurdles for thesis businesses,” said Powell, adding.
“Our treatment truly has bot indeed to do whatever it takes to get the canap comfy with providing us an account. Very first part is to get handelsbank accounts, 2nd part is to actually service customers.”
Bitcoin and banks
While at the beginning of 2014 there wasgoed some promising news with Wells Fargo and Handelsbank of America both publicly looking at bitcoin, Powell said that Mt. Gox’s disintegration has dealt a serious deep-throat to the US cryptocurrency market, with banks now causing bitcoin-related companies difficulty ter obtaining accounts.
This environment shows how much banking truly has control overheen the business climate, he explained:
“It’s crazy that ter the United States you don’t have a right to a canap account, but you can’t indeed operate a business without a handelsbank account.”
It’s unlikely to run a business with just paper money thesis days, a script that Powell has trouble attempting to envision spil feasible te 2014. The idea of running a business by mailing around what he described spil “100% stacks of metselspecie” is not truly possible.
Legitimate businesses have to use banks something that, if given a choice, the feds would rather choose overheen a purely specie economy:
“I think that the government would say that actually: ‘wij’d choose that you have a canap account’.”
Losbreken now trades bitcoin, litecoin, dogecoin, namecoin, ven and ripple’s XRP. Powell says that kraken is interested te adding peercoin at some point, spil well.
kraken CEO Jesse Powell (left) and Product Manager Elliot Lee (centre) te the company’s office.
It takes careful investigate of the cryptocurrency’s volume and differentiating aspects to determine if an altcoin has long-term potential for addition to kraken, Powell explained, adding:
“Peercoin is one that wij would like to do, if wij get the time for it. Wij do namecoin. If there’s something interesting about it, like namecoin, wij might do it.”
Many people don’t realize that adding an altcoin to the exchange takes effort. Therefore, for Losbreken, fresh coins have to be scrutinized, according to Powell:
“Some of thesis are just pump and dumps, and it costs a lotsbestemming of dev time to waterput thesis coins ter [to the exchange]. And I think it says something to people, that wij embark trading it. So wij want to be careful what wij waterput our name on.”
The problem for exchanges that support altcoins is that the bandwagon can often leave a coin (and thus users) behind rather quickly. For an exchange doing its best to go after regulatory and banking standards to the point of even providing public audits, scams are a problem.
It’s something that Powell, and kraken spil a company, is ultimately worried about for the community’s sake:
“There’s this [altcoin] hype ter the beginning. And all the mining effort will go to [a coin], and there is all this support. A week zometeen, after the pump, you get the dump. Everyone’s out and you’re on to the next coin,” he said.
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