Bitbond, an online bank based in Germany, is using Bitcoin as a proxy to transfer loans across borders. There has been a great deal of news covering technology produced by the creators of Ripple (XRP) for similar institutional purposes, due to its speed of transfer and lower costs, which raises the question: how does Bitbond address these issues of speed and cost?
Radoslav Albrecht is the CEO of Bitbond, a company that serves international clients in countries that lack a strong financial infrastructure. According to Albrecht, “Our mission is to make borrowing and lending globally accessible. Many markets and regions are underserved by banks. In emerging markets, bank account penetration tends to be below 50%. Without a bank account, most people are excluded from formal financial services and can neither get an affordable loan nor invest their money for interest.”
According to an article in Reuters, Bitcoin has been used as collateral for loans, but it has never been used as an intermediary for international currency transfers. In using Bitcoin as an intermediary, Bitbond is able to circumvent the SWIFT system. In this context, A transaction that takes several minutes, or even several hours to occur through the use of Bitcoin is very fast, compared to the several days required using the existing SWIFT platform. With the expansion of Lightning Network, we can expect that the costs associated with such transfers will also be significantly reduced.
Using Bitbond, a lender’s fiat investment will be converted to Bitcoin. The digital currency is picked up in the borrower’s country, where it is then converted to the local fiat currency. The assumption is that the speed of transfer is fast enough such that the potential risk of loss in value due to Bitcoin’s volatility are low.
Most loans on Bitbond are $50,000 or less, funding entrepreneurs around the world, including small business owners and freelancers. The company has 24 employees in 12 countries, with a total volume of $1 million in loans each month. This is a relatively small number, but one can argue that it is enough to show proof of concept with this model. If proved successful, there is no reason why it couldn’t also be applied, using many other cryptocurrencies as intermediaries. In this way, the model may drive volume to the cryptocurrencies used, which would likely result in an increase in value for that coin, and thus a lower risk of losses during the transfer process.
Besides Ripple, and now Bitcoin, Stellar Lumens (XLM) is also being tested for the purpose of international wire transfers. This competition will result in supporters of the various platforms to write better code that results in even lower costs and faster transfers, meaning that consumers will benefit the most.
Bitbond was founded in 2013, and has approximately 100 clients. Additionally, Germany is second to the US in the number of Bitcoin nodes available in the region, making for faster, more reliable transfers. As the company grows, we can expect to see more competitors enter the market, at which point cryptocurrency-backed money transfer companies will compete at the level of such companies as Western Union and Moneygram.