With Bitcoin’s promise of frictionless transactions, particularly across international borders, it’s inevitable that a team would use the math-based currency to attack the global remittances market.
The World Bank estimates that migrants will send about $515 billion to relatives in developing countries by 2015, which is about 10 times the size of the U.S.’s budget for foreign aid.
The old stand-bys like Western Union can charge around 10 percent for transactions in the market, an amount that Buttercoin co-founders Cedric Dahl and Bennett Hoffman find obscene.
But Bitcoin, which is a pure math-based currency that allows for anonymous and irreversible transactions without the need for a third-party facilitator like a bank, promises transactions at a substantially lower cost.
Buttercoin plans to open in India within the next three months and then to operate in six countries in nine months’ time. Their model is to open a local Bitcoin exchange in each country. When they enter a market, they pair with local money transfer businesses to have legal compliance in the country. But these local partners don’t touch the Bitcoin-to-local currency transactions; they merely get a 50 percent cut of Buttercoin‘s fees in exchange for having the proper licenses and relationships with regulators.
The pair got into Bitcoin after a several year hiatus, during which they built a hacker house in Austin and filmed a documentary on Parkour. They had previously sold an analytics company and while at Microsoft, Dahl managed a $120 million budget and worked on applying analytics to marketing.
But Bitcoin intrigued them.
“We realized somebody had to put the big boy pants on in the space, do the tech right, and be compliant,” Dahl said. “Someone had to remove the existential risk in Bitcoin.”
They initially started with a mining operation called CoinHarvest. (Bitcoin has to be “mined”; people actually have to buy hardware to expend a huge amount of computational power to have a chance of winning some Bitcoin as the currency’s supply expands at a predictable pace.)
But they then started considering opening a white-labeled platform for creating Bitcoin exchanges, before settling on the remittance market. Their product isn’t launched at this time, but they’re planning to release it within the next three months.
To do that, they’ve raised about $1 million from investors including Google Ventures’ Kevin Rose and Chris Hutchins, Floodate, Initialized Capital and Rothenberg Ventures. They brought on an economist in Kevin Zhou, who worked at Standard & Poors, and set aside about half the capital for market-making.