Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Radko Albrecht: BitBond, Bitcoin Lending and the Changing World of Finance

Episode Date: July 28, 2014

Radko Albrecht joins us to discuss his startup, the Bitcoin-based peer-to-peer lending platform, BitBond. We dove deeply into why Bitcoin-based peer-to-peer lending is such a compelling proposal. We also talked about a lot of the intricacies such as volatility, reputation and loans pegged to fiat currencies. The final part we discussed raising venture capital for European Bitcoin startups and how Bitcoin will change the financial industry. This episode is hosted by Brian Fabian Crain. Show notes and listening options: epicenter.tv/030

Hello and welcome to Episode 30. Today is July 27th and my name is Brian Fabian Crane. So today is 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 a day. So I actually went back before through our back catalog of old episodes. And the last time we had one guest on, just one guest on was on episode 18. we've always been more people than that. So I think it will be a bit more quiet

and for a bit more time perhaps to go in depth on some topics. So the guest today with me is Rodko Albrecht. I know Rodko, you know, pretty well because he lives in Berlin as well. He's a Bitcoin entrepreneur here and he's very active in the Bitcoin community here. So the business he started is called BitBond. It's a Bitcoin-based peer-to-peer landing platform.

We're going to have lots of time to kind of dive into that today. And it's actually been around for quite a while. So it's sort of in Bitcoin terms, maybe old. And it's a really interesting use case for cryptocurrency. And he's also a board member of the Bundesruvon Bitcoin, which has become now the kind of German affiliate of the Bitcoin Foundation. So how are you doing today, Radka? Yeah, hello.

Thank you very much for having me. I'm doing well. And I'm looking forward to this nice interview. you and 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 a while. And so I'm glad you're joining us today.

And looking forward to our conversation. Yeah, thank you. So perhaps let's get started with Bitbond. Can you tell us, like, how did you originally get started with that? How did you have the idea? So I have been dealing with financial services for quite a while. Before I was aware of Bitcoin. I was working in banking or Deutsche Bank in London in sales and trading.

And after that, I worked as a management consultant and did quite a lot of projects with financial services providers, especially banks. And during that time already, I was thinking about a start-upy-based. up idea in the field of financial services. And that was also the time when I became aware of Bitcoin. And 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

significant number out there already, are purely national. So if you take Lending Club, for example, which is the largest peer-to-peer landing platform that exists today, it's purely based in the United States. Then you've got other platforms like Funding Circle, for example, which is purely based in the UK. Both of these and many others are very successful and have proven that the concept of peer-to-peer lending works very good and has a lot of advantages compared to bank lending. but the only disadvantage it has is that when you do it in purely one market, it is quite difficult to get it started because the number of potential customers that you might have is somewhat limited 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 and maybe markets even were not nearly everybody, has a bank account, this becomes a little more difficult. And that's where Bitcoin actually came in and where I thought that we could give it a kind of innovative approach and try to catch the advantages that peer-to-peer lending has and add to that the advantages that Bitcoin has. Yeah, that sounds like it makes a lot of sense. Where you was kind of, when you heard of Bitcoin, you thought like, oh, this would work great for peer-to-peer lending or is p-to-peer lending something you were thinking about before bitcoin

i was thinking about peer-to-peer lending before bitcoin and i was already thinking back then about internationalizing peer-to-peer lending but i didn't really see how to how to do this in an i would say economic way or in a way so it makes sense for both the borrower the lender and also the platform that actually runs this business. Because if you wanted to do a international peer-to-peer lending platform based on US dollars, for example, the costs of money transfers would be simply too high so that loans would make sense because either interest rates for the borrower would have to be too high or the

returns that the landers get would be simply too low so that it wouldn't be an attractive an attractive product and the other thing that is in 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 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 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, where typically only 20 to 30% of the population have bank accounts, 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 aware that, you know, there are zero peer-to-peer landing platforms, like international peer-to-peer landing platforms, but of course it makes total sense, right? I mean, 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 fee. and I guess the issue becomes even more complicated when you have repayments, right? When you have people pay back maybe every month something to the lenders. I mean, 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 funded by more than just one lender. Because typically a lender that wants to invest a certain amount of money distributes his investments 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. When you disburse the repayment, you disbursed 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 when did you get started? It was about a year ago, a bit more. Is that right? That's correct. So BitBunk went live in July 2013. And of course, we've been working on it a couple of months before that in order to code the platform to design the processes on the platform. And this took us about four months, roughly. And then we went live in July. And how is the development been? So at the beginning, it was quite difficult because

P-to-peer lending is a marketplace. And so you obviously need to balance supply and demand. And at the beginning, when, for example, you have only one or two projects where a borrower wants to borrow something, it's not very attractive for the lender because there is not much choice of different projects. And also the same applies to the borrower when the borrower knows that it's a new platform and there aren't many lenders. It's also not very attractive. So getting a marketplace started is pretty difficult because you need to create market liquidity. And after we went through

this first phase of, I would say, three to four months where it was very tough to get it started and where only very few projects got funded, it improved. And especially in the last three months, I would say, 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 happy with the way how it develops. But at the beginning, it was quite tough to get it to a certain traction. So what worked best in kind of creating that initial marketplace?

Because I think that's a problem so many startups have. Like basically everyone with that model, was there something you tried out that worked really well? So to be honest, we didn't have a particular strategy about this. What we did was we were posting in many forums like Bitcoin talk to make at least the Bitcoin community aware of Bitcoin. And then with a couple of first very small projects, especially projects where people wanted to borrow bitcoins in order to fund the purchase of mining hardware, which also as of today is one of the most important use cases for the borrower to buy mining hardware or to buy mining contracts. And that's how it got started. And after the first projects got funded, we were quite lucky to have a few lenders that became. more active and that stayed with us.

So we had a pretty good 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. But it was critical to get these first, I would say, 10, 15 projects funded. And there was quite some work in order to raise awareness for the platform. And after we had done that, and we were successful in search engine optimization, which is also quite important.

So you can find us under our most relevant keywords like Bitcoin Loan or Bitcoin lending. And then we also had more traffic on our side. And that's when things became a little easier and when things got started. Yeah, I remember because I was, I think in the very early days of BitBond, I also lent some money through the platform. And I think there was like two projects at the time. And I checked again today. And there was, I think, 38 projects listed.

So it's great to see that growth. Yeah, it's absolutely. And I mean, it's still a level when you compare 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 sort of reached a certain threshold where it is attractive enough that when you post an interesting project and you are credit worthy borrower that your probability to get funded is sufficiently high. Cool.

Well, let's talk perhaps a bit about how this exactly works. So I guess as a lender, right, I create an account. I basically put my bitcoins in what is a web wallet. And then I give money to, or I can kind of give money to different or lend money to different loans. That's how it works, no? That's correct. That's correct. So you sign up and that's a fairly easy thing. You have to confirm your email address after you signed up. You have to sign up. And at that very moment, you have a web wallet with Bitbond that you can also use for other things as your web wallet, if you like. And once you have funded your web wallet with Bitbond, then you can use these funds to contribute to loan projects.

And your minimum lending amount per loan is 0.01 Bitcoin. So it's a fairly small amount, which means that when you want to invest one Bitcoin, for example, you can distribute this theoretically over 100 projects. And this is something that's very attractive to somebody who wants to get started with a smaller amount that you can diversify your holding. And this is something that's an investment terms, an attractive feature. because 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 I just came to mind before that I think could be an interesting product for the future was because right now, I guess you'd have to sort of manually go through, 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 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 something that's definitely possible and that we can see at other more mature peer-to-peer lending platforms the first thing that we would like to get started with in the future would be something that we call a bidding agent, which means that you would define 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 risk and return profile. And this is something what we would like to get started with that would make it a little easier for the lender to constantly invest and also reinvest the repayments that you get as a lender and to make it a little more convenient for the lender. Yeah, that sounds like a great thing that 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 only 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 you have 0.3 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, can cancel this auction.

So the borrower can decide until the very last minute whether he or she is happy with the funding status of the project and can cancel it. But typically when over 30% are funded, the project does get started. So the borrower can cancel it even if it's fully funded before the auction time is up? The borrower can cancel it before it is funded. At the moment where the project is fully funded, the borrower cannot cancel it anymore. So only if the auction is still going on and the auction period is 14 days, during that time the borrower can cancel it. But if, for example, the project gets fully funded after five 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 curious if that's something you sort of knew was going to happen in the beginning, which you see a lot of small loans that people want to take out, and they kind of say, oh, you know, this is a 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, 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 lending platforms as well?

on on most more mature lending platforms we do not see this but we see it on other bitcoin based peer-to-peer lending platforms where these reputation loans also exist so it was not exactly a surprise but we didn't expect it to happen to this extent and My personal view on this is that when we as a platform improve the rating that we give to borrow us, that these reputation loans at some point will not be necessary anymore. So that the lender, sorry, the borrower can ask directly for the amount. 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 a phenomenon that exists not only on Bitbon but also on other platforms and that is I would say normal because people 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 Bitcoin platforms and you don't see that on

I don't know Lending Club or other sites? I think one of the reasons is that the minimum loan amount that we have is pretty small in the case of Bitcoin it's 0.1 Bitcoin so that's actually a pretty

small loan amount and of course this also depends which country you're coming from because it makes a difference whether you take a loan of 0.1 Bitcoin in Kenya or in France, obviously, because the purchasing power of this amount of Bitcoin is different in these two countries. But 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 $2,000 or $3,000.

dollars. So that's a significantly higher loan amount, which means that when you wanted to take out a reputation loan through this platform, it would cost you much more money because the amount of interest, obviously, that you need to pay on $2,000 or $3,000 is higher than on a smaller loan. Oh, that's very interesting. So is one of the reasons why you see these much bigger amounts on Lending Club also because they have higher costs for payments? Yes, I'm sure that this is one reason. Because when you run a, I would say, traditional peer-to-peer lending platform, what you have to do is you need to cooperate with a bank

that actually conducts all the payments 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, 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 they are quite expensive. So running a traditional peer-to-peer lending platform creates significant costs 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 an interesting and very tricky topic. And that's, of course, you know, the issue of the exchange rate and deflation.

So 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 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 great project, et cetera. You know, he has $3,400 in monthly income. And the terms would be a repayment at sort of 11.6% interest rate per year and over three years. Now, 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 as 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 Bitcoin outstanding. But that Bitcoin then could be worth, you know, $10,000. which is a much higher amount in dollar terms that, you know, he borrowed today. So I think that's sort of something that, you know, it's 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? Sometimes 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. So it could function as a type of hedge. But I suspect for most

people that's not the case. And 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 longer term loans, right? I mean, in six weeks, okay, but three years, that's a very long time. That's right. So three years is a long time, and there certainly is a exchange trade risk, which applies mainly for the borrower that 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 our opinion is that the exchange rate will probably not go that high, but obviously nobody can prove this. And in order to mitigate the exchange rate risk, we want to implement something that's called a exchange rate pegged loan within the next months. and what this means is that when you take out a loan and the loan is one Bitcoin, for example, 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 what we will do is that the repayments are linked to the exchange rate.

So when the exchange rate goes up, you actually have. have to repay a smaller amount of Bitcoins 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 expressed in a fiat currency, but the payment is still done in Bitcoin, but will fluctuate along with the exchange rate. And this is a product that will be attractive to those who are not hatched in some way or the other against exchange rate fluctuations. And I think this will significantly help to mitigate the problem of exchange rate fluctuations. Also, 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 Mexican pesos, this loan is typically also linked to the US dollar exchange rate. So if you go to a local bank in Mexico and you take out this loan, they will peg it to the US dollar exchange rate because inflation is so high that you have a problem from the banking side that when you're 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 paid out. So this is a model that we see in other countries 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 an absolute ton of sense.

I remember you gave a talk at the Bitcoin meetup here in Berlin that I started last year that was even and that's one of the things like you should do this because it just makes so much sense. Now I'm curious does this apply to both sides? So does that mean

as a lender? I also get back the kind of dollar equivalent of 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, 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 packed 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 be packed loan, then it makes sense also to convert the payment streams instantaneously into your local currency. So both sides will have to make a conscious 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 a, 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 create to basically hitch that on a derivative exchange so that, you know, I can get my bitcoins in Bitcoin terms back and the other guy can pay back in dollars and perhaps one could buy a derivative on an exchange. Is that something you also looked into? Yes, I have been thinking about this. It is theoretically possible.

It has got two problems. At the moment, there are some Bitcoin derivatives, but the markets are not very liquid. That's one thing, but hopefully will be solved in the future. The other issue you have is that this hedge costs you money, obviously, because it's a sort of buying insurance. And you would have to look at it, in a very detailed way what's actually more cost effective buying this insurance so buying a

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

This might change in the future because once we have maybe more liquid, derivatives markets, it might become more attractive to actually buy the insurance directly on a derivatives exchange. But as of today, 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 nascent and not liquid.

But I think that makes a lot of sense. And I especially think the U.S. dollar pegged loans are interesting. That may even then become interesting for people, let's say, who are not Bitcoin holders. But let's say I'm in the US. I just want to invest some money. And I'm like, oh, you know, here's a way I can start giving out

peer-to-peer loans sort of globally. And, you know, perhaps I would take some dollars, buy Bitcoin, then lend them out and I get back the, you know, dollar equivalent plus interest in the future. 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. I absolutely agree because this is a product where you want to have a kind of foreseeable stream of repayments. 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. to 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 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 an asset that's Bitcoin, or 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 payment network,

I'm just looking at my fixed income returns. That's the decision that you need to make as a lender and as an investor. Cool. No, I think that makes a lot of sense. It's very interesting. Now, very briefly, can you talk a little bit about how BitBond compares to other Bitcoin lending platforms? A PTC jam is one that I'm aware of. I suspect I think there may be others.

So how do you compare those? So the pure concept is quite similar, I have to say. But we have one factor where we want to differentiate ourselves. And this is the point where we actually do a. credit assessment of the borrower, which is mandatory on Bitbond. So when a borrower signs up on Bitbond, we check the credit worthiness and we do it manually. So each borrower gets verified manually before he or she can post loan projects on our platform. And this is something which we also seek to improve significantly over time

and where we want to make a claim that 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 they don't 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, 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 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's very interesting. Cool. Now, let's talk a little bit about the topic that I know you've also looked into. and, you know, I think it's a very important topic. It's kind of been, you know, Indian news a lot,

which is the topic of regulation. Now, perhaps let's get started with a bit license thing. You know, I mean, I'm sure you've read about it as well. I know that, you know, you probably have to get a bit license as well, strictly speaking, no, unless you exclude New York lenders, and boroughs. What are your thoughts on this? Are you thinking about this?

Are you thinking of trying to exclude New Yorkers? Or are you think you're just going to go ahead and sort of ignore it? So as far as I know, the bid license is not effective yet. Yeah, it's true. It may change, of course. And of course, obviously this may change. So should it become effective as it is, as it is, drafted now, we actually really might exclude New York users, because I think at the current state,

it's not realistic for us to obtain a bit license. So probably it would be the only way to make this work right now. Maybe in the future, we would then try to get a bit license. depending on how difficult and how lengthy the process actually is. But 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 because they're terrible. But are you currently doing KYC on lenders as well? No, currently we don't do KYC on lenders.

but also the the amount of bitcoins that you can lend is limited and we plan to implement KYC for lenders that want to that want to lend larger amounts than than 10 Bitcoins and we are probably going to implement this and currently we haven't done this because so far there aren't users that are interested to lend more. 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 are there other reasons why are you planning to do that? So there is two things. One is a requirement by law, which today I, I cannot actually say with certainty because we are in a communication with the German financial regulator Barfyn and once we have sort of agreed with Barfyn what is actually the regulatory framework that applies to Bitbon

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

terms. So when the lender is unhappy with the service and wants to post claims, 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're in Germany and sort of being regulated in Germany, have you fault if the

regulatory climate may change here of going offshore? Is that something that's sort of on the back of your mind? We do not want to go offshore. 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 regulations. Yeah, let's hope they turn out. Well, I know the EBA thing, I think a lot of people sort of worried their opinion, although I guess it's still a few years. off to see what exactly comes out of that. And even that is a lot, it looks a lot better, I think,

at least in many ways than the bit licensed stuff. So hopefully there... Yeah, I really hope that the regulators are going to make wise decisions and that they are going to balance the interests that they obviously have in regulating business. and in letting innovation happen.

That's simply the trade-off that the regulators face. And I hope that they are going to make good decisions that takes into account their requirements, which obviously do exist, but that also take into account the reality of running and starting Bitcoin-based businesses. Yeah, absolutely. I think that's going to be hugely important.

thing and it's, you know, I, 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 could have a lot of negative impacts if they're really going to be that stringent. It could slow down the progress of Bitcoin, like, massively. So I absolutely. Absolutely. Absolutely. 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,

who are kind of trying to decentralize a whole web infrastructure and a lot of different things. You know, some of the things they want to decentralize is have like reputation systems. And then something, a service like Bitbond would actually work quite well, I think, in a completely decentralized way. So are you aware of anybody working on, for example, a totally decentralized p-to-peer landing platform? Is it something that you've kind of been thinking about, how that would work, or is it something that's not on your mind?

So 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-packed loans, for example, that we talked about. So once we have implemented a certain, I would say, basic set of funds, features that we want to have. The decentralization is something that 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, but this is just the starting setup, I would say. Once we get to a point where we can automate, 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 at some point in the future. Yes, at least I want to give it a try. because to be honest, 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 processes that are difficult to decentralize, but 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 want to try. and also depends to which extent you can actually bring it. But I think that there is a at least larger extent of 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. But it may look quite different in a year from now, I think. You know, once you start having a lot of these services in place that you can, can build on top of, you know, if you have a decentralized 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. But yeah, but it's interesting. And I think I guess people are working on these kind of things and we'll see how well they work and what comes out of that. Yes. Yes. I'm also very curious to see how

decentralized autonomous organizations will evolve and I'm very curious to see some some startups to give the 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 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 build more complex organizations based on this concept. Yeah, absolutely. So let's talk a little bit to finish this off about,

I know you gave a talk at the inside Bitcoin's 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. Can you briefly share what do you thoughts around that topic? Yes, absolutely. So if you look at the current state of financial services, you have many aspects where things are the way they are because of legacy simply. And one aspect that certainly plays a significant role here is the infrastructure, the technological infrastructure that you need in order to run a significant role. a bank or an insurance company or an asset management company.

And this is typically legacy infrastructure that is very heavy on hardware, that is run on software that's up to 30 years old. And that's simply not been built in a world that 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 at the time when it was built was the best that they had, but that we can vastly improve upon. And Bitcoin offers a great opportunity. And what I think is that once we have startups in financials,

financial services that are built on a technology like Bitcoin that we will see many very interesting developments. And one thing is that market access to financial services 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 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 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 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 the margins the profit margins that the incumbents and financial services make will go down

so I think it will be a tougher world in the financial services sector because as of today many firms like banks insurance companies asset managers make very good margins and i think that this is going to change a little bit in the future yeah absolutely i think that's kind of one of their hopes we have know is that we will be able to build an entirely a new financial system with bitcoin and 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. Access is also a very important aspect because since financial services run on this legacy and expensive infrastructure, they also need to have higher prices than they needed to have if they run on a more cost-effective platform. So when costs go down and prices go down for the consumer, it will also be, these services will be more accessible, not just from the point that you might not 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 in like what parts of the financial system Do you think will be most affected by this? And perhaps we should say first affected by this. I don't know, payments is definitely one that a lot of people thinking about and there's so much activity in that space.

You know, you now work on lending. I know, of course, money transfer, that there's that, which is kind of very related to payments. But are there other areas that you think will be sort of ripe and the first to be affected by this? So I really believe that payments 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 as personal financial management. So today we see a lot of startups that try to vastly improve actually the user interface of bank accounts.

because when you log into your typical online banking interface, 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 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 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, not all banks run the same standard and the same API. So 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 compatible with different banks. When we talk 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 allow you to send and receive bitcoins, but that will allow you to do analysis based on your transactions that will be, 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. of the next fields where we'll see a lot of innovation based on Bitcoin. That's super interesting. I've never thought about this, but I think you're absolutely right. I think that's definitely, it will be very, very interesting because I think I suspect what we might see emerging will be things that are just really, really different from bank accounts.

Like we probably can't really project today what that will look like and, you know, how people will think of money, how people will think of payments, et cetera, and in the counts 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 once adoption is a bit higher. Yeah, right. And I think it's what you just said, that we don't even know what we will see. I totally agree with that. 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 be attractive to the consumer, but some things might emerge that are possible based on Bitcoin. There 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 aware. of the possibilities that is 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 area I would kind of add to the list you've made is, I think, crowdfunding and sort of equity crowdfunding. I think that could be a big one, although there you're going to have big regulatory hurdles to cross,

I think, probably maybe bigger than any other area. Yes, I agree. Probably you will have these hurdles and it's going to be interesting to see whether the platforms that want to enable equity-based crowdfunding in Bitcoin are going to comply with regulation, whether they are going to find a way together with regulators 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 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 cope with, but also with the realities that startups face and that, will not be in the way of innovation. Yeah, I agree. I mean, I totally share your hope. My sort of suspicion is that 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, you know, there's no way to hide this really. I think it's about personal loans and you go offshore. 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 take out like a $2,000 loan on a platform. Plus, you may not actually have to reveal personal information if you have a reputation, right? So I think you'll be able to do this offshore and then 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. So I think it will be more difficult to do this offshore.

But yeah, it's an interesting area. I guess sort of tying into that, there was one thing 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 a financing round. and I know, for example, at the state of, at the coin summit, one of the talks was on the state of Bitcoin report from CoinDesk. And one of the really striking numbers that sort of came out there was that in, I think, quarter two or maybe it was 2014. I don't know, the time frame, but the $200 million had been raised in VC financing. And of those, just five million were in Europe. and basically almost the rest, almost all of the rest was in the US.

So what has your experience been talking with venture capitalists? How do you sort of, what do you use on the climate in Europe to raise money for Bitcoin startups? So what I have seen when talking to venture capitalists is that they have an eye on Bitcoin and on Bitcoin startups. And 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 could happen is that when one of the larger European-based VCs will do a bigger Bitcoin. investment, a bigger deal with a startup, that this might sort of kick it off. Because I know that there is a lot of VCs looking at this field, but it hasn't made the decision yet to invest. And I think that once you have at least one or two of the more renowned 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 wave where we will see more startups in the big. were getting funded.

And I could imagine that maybe over the next one or two years, this might also happen. Because we typically see that these cycles, these investment cycles, where you have social, then you have mobile apps, and now it's Bitcoin, that when it exists in the US, that after a certain amount of time, it also 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. What kind of level of understanding have you encountered in your conversations?

Do you feel like they understand what Bitcoin is, how it works, and what it potentially is, or they're still sort of trying to wrap their head around it? To be honest, it's very mixed. I've spoken to some people 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 it was interesting because

in some conversations I was able to to also to deliver some more knowledge about Bitcoin and then these people actually got more interested. So 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 more detail. But once they give it the chance to talk about it with them and get a better understanding of it, they also 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 also venture capitalists have about Bitcoin, 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 I will see in the next years. I mean, I'm sure that's something that we will see. So, Rodka, thanks so much for joining us today. It was really great to talk with you. It was great to kind of hear a bit

about the insights of BitBond and talk about some related areas. So thanks so much. Yeah, thank you very much. It was a big pleasure talking to you and look forward to seeing you next time in Berlin. Absolutely. Well, I am in Berlin, but I'll see you soon, I'm sure. See you so. 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 want to take out a loan and decide to check out is bitbond.net.

So that's bitbond.net. So, you know, I recommend it. I think it's a, you know, it's like a really great site. And Rodco is a, I know, is a guy who does this like very carefully. who's like, 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, 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 a second episode from Coin Summit on Thursday probably. 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 episode of bitcoin.com slash tips. It's very much appreciated. And you can also leave us an iTunes review, which helps us a lot and helps people a lot find the show. And finally, you can subscribe to a newsletter, which goes out every Friday, and at episode of Bitcoin.com slash newsletter. I know Rodgers has been a subscriber for a long time

because I put his name on it sort of when I started it. So you can do that there. So thanks so much and we'll be up and be up to you back next week.