Software provider AlphaPoint could very well be the most important Bitcoin company you’ve never heard of. After first making waves with the announcement of US$1.35 million in funding raised via VC firms and angel investors, they followed up by partnering with Bitfinex to run the Hong Kong-based exchange’s back-end technology.
According to AlphaPoint CEO, Vadim Telyatnikov, this is just the start of their mission to become the world’s leading software platform for global Bitcoin exchanges.
- AlphaPoint CEO, Vadim Telyatnikov
Cointelegraph recently caught up with Vadim and he was kind enough to talk about the Bitfinex deal, global regulatory attitudes towards digital currency, the challenges of protecting an online exchange from malicious attackers, and much more. The conversation has been transcribed below:
Cointelegraph: You recently scored a deal to supply the back-end for Bitfinex. Can you talk about that a bit and give some background on what AlphaPoint does?
Vadim Telyatnikov: Starting with what we do, we are a software platform that powers exchanges. What that means is that anybody, anywhere in the world, that either wants to launch their own digital currency exchange or has an existing exchange and is looking for help scaling, can come to us and we can power their back end.
We have over a dozen clients using the platform currently, but Bitfinex is one of them which we announced last week and are extremely excited about. They are the largest exchange worldwide that does conversions between dollars and bitcoins. They count for about one-third of the (Bitcoin market) volume; they’ve actually overtaken Bitstamp, which is now about 20% of the volume.
That’s what we do at the core, provide software platform, and then the second piece is a service that will interconnect all the exchanges for liquidity. So if meXBT is launching in Mexico and has someone that wants to buy Bitcoin, but because they just started they don’t have someone to sell the Bitcoin, we can connect them to Bitcoin Norway, for example, that already has an established exchange and has buyers and sellers to source liquidity.
Typically that’s one of the major problems an exchange has when they’re getting started, it’s this chicken-and-egg problem that you need a bunch of buyers and sellers before you have an efficient business and we solve that instantly by interlinking the exchanges.
CT: What is the full list of exchanges using the AlphaPoint software?
VT: We have over 15 clients globally. We offer our solution as a white label so many of our partners prefer that we stay behind the scenes and do not publicize our relationship.
A partial list of our clients include: Bitfinex, Mexbt, Cointrader.net, bi.tt, and BitcoinsNorway.
CT: Are there regulatory hurdles in connecting global exchanges?
VT: Absolutely. We have to have a process for KYC (Know Your Customer) and an AML (Anti-Money Laundering) policy in place. Those are the main issues, and then it depends on country to country policies. Right now we are being very selective with whom we’re doing a Beta of the service with based on their regions. But as we expand it, broader regulation is a big component because we want to make sure we are doing thing properly by the local jurisdictions that we’re operating in.
CT: What are some regions of the world that have been, in your opinion, welcoming to Bitcoin?
VT: That depends on the period of time. You can take a look at the exchanges that have been most successful in operating: Bitstamp is operating out of Slovenia, Bitfinex is out of Hong Kong; there are also exchanges in China even though China is, not fully supportive of Bitcoin. They haven’t banned Bitcoin altogether so the exchanges there have gained a lot of traction. So I think that the areas where you see a lot of liquidity are, in a way, supportive.
The second part of that is you’re seeing different countries actually start to take very favorable views, at least kind of exploring making it easy for Bitcoin companies to come. Isle of Man is one, which had a conference I actually attended, and was very exciting because it was a lot of folks from the government that put on this conference saying ‘we want to be a hub for digital currency’ and although they’re still working through some of the regulatory pieces on their side, they were looking forward to having companies start to explore setting up there.
I know in Jersey as well, there hasn’t been a full announcement but they’re starting to promote things in a similar way. It’s exciting to see countries start to take such a positive stance, versus others who are maybe allowing it to happen and talking about what the regulations are going to be, but haven’t yet come out and said ‘please digital currency companies come here, we’re going to go above and beyond making sure that it’s easy for your businesses to flourish.’
CT: Would you say that the global environment, as a whole, is positive in the way that governments look at Bitcoin?
VT: I would say neutral, I don’t know that I would say positive. Most governments are still taking slow steps to figure out how they’re going to regulate it and even the places that have spoken positively for it still haven’t formally figured out how they’re going to do that. Positive steps are happening, but things are slow and there’s still a lot of uncertainty.
CT: Your software is designed so that it can be used for any commodity, not just Bitcoin. Why have you chosen to focus on digital currency out of so many options?
VT: I think it’s because we are all very strong believers of the potential of, not just Bitcoin, but the innovation of the Blockchain. I was very young when the internet started out. I built a website for my father in 1994 where he had a wholesale business where he just wanted to list his products online. I thought the internet was very exciting but I was too young to actually be able to partake in and create a business out of it, so this is my chance to be a part of something that has the potential to be even bigger than the internet.
I think a lot of the people at AlphaPoint feel the same way so that’s why we’re focusing on digital currency. We just think that the potential is going to be huge. But the platform is built to support any commodity and can support FX trading as well. We have had some conversations with people that want to use it for those purposes and we’re certainly open to doing that, but it’s just not been our focus in terms of marketing efforts.
CT: Bitcoin is well known as a hackers’ paradise and its short history holds plenty of examples of exchanges that have been brought down by poor security. From what I’ve read you take security extremely seriously, but what is it like handling the back-end for online exchanges in such a notorious industry? Is your system being attacked non-stop?
VT: You are right, we definitely take security very seriously. We have a couple folks within the company dedicated to security and risk issues. We follow the inner procedures that you would expect in terms of keeping wallets secure such as enabling cold-storage, and supporting multi-sig. We’re working with a number of leading experts in security in this space who are advising us and looking at our systems and we’re also working on implementing a bounty program, something a lot of other folks in the space use, to help discover holes that we might’ve missed.
As far as attacks, I wouldn’t say that it’s been anything unreasonable. Actually, it’s been, from what we monitor, relatively low. Now, the Bitfinex announcement is obviously the biggest announcement in terms of exchanges that we’ve done to date, so it’s possible that that might change and we’re keeping a look out on it. But so far we’ve been very successful at watching out and preventing any breaches.
CT: What was the hardest part of convincing an exchange of Bitfinex’s stature to trust you with their back-end software?
VT: I think it took a lot of conversations. A lot of time spent letting them look under the hood, so to speak. You know, the hardest part for them is they are letting us manage and maintain part of their core infrastructure. They are putting a lot of trust in us to do that and it took a long time to build that trust. The conversations started, I want to say, early January. So it’s been a long, on-going process, and we’re obviously very excited that they chose us.
“[T]he interconnecting of Bitcoin exchanges accomplishes that where we can basically route the orders to whoever has the best prices on our platform.”
- Vadim Telyatnikov
CT: How important do you think having exchanges around the world that can share liquidity is to increasing Bitcoin adoption?
VT: I think it’s very important. Our vision is to make it easy for anyone in the world to have access to buy and sell digital currency. Right now it’s still relatively difficult in most of the world. They have centralized exchanges that provide most of the liquidity but it’s very tricky to get funds in and out. You have to send international wires; you have to go through different approval processes. Having exchanges in different locations so that anybody in any country has a local place to go to, to buy and sell is essential.
Then after that’s established, you want to make sure that the people that are buying the bitcoins have access to the best price. And the only way you can accomplish that is if you interconnect all the exchanges. Exchanges, even if they have some buyers and sellers, want to be able to offer the best prices to their customers, and the interconnecting of Bitcoin exchanges accomplishes that where we can basically route the orders to whoever has the best prices on our platform.
CT: What do you think is Bitcoin’s greatest strength?
VT: That’s a good question. It’s two things. One is, at the core, the innovation allows for different entities or computers on the internet that don’t trust each other to work together on financial transactions. I think that’s the core innovation. But the innovation itself is a platform; technology can be a platform, just like TCP/IP was for the internet.
So currency is the application on top of the blockchain but I think we are already seeing other types of use cases that are leveraging the same core technology. This is the Bitcoin 2.0 stuff. For example, there’s Ethereum that’s focused on crypto law and you have things like Mastercoin and sidechains focusing on letting anybody issue their own tokens.
The biggest strength is the technology but the use cases, which haven’t really been fully explored and discovered yet are the most exciting part. It’s what people are going to be building on top of it (Bitcoin) for years or decades to come.
“As we build better applications you will be able to see greater utility [of Bitcoin] and then people will stop focusing on the negatives. “
- Vadim Telyatnikov
CT: What do you think is Bitcoin’s greatest weakness?
VT: The one that’s been talked about in the media the most is the fact that it’s easy to be used for buying drugs, money laundering, things like that. Personally I do think that the illicit use cases and association with Bitcoin has been the greatest weakness, but cash is also used for illegal purposes. Criminals also wear sneakers and use other technologies - that doesn’t make those technologies inherently bad – it’s a perception problem.
So even though the technology can be used for illicit activities, the positives that it can bring to society greatly outweigh the negatives. But if you ask people, especially people that don’t know or don’t understand its true value, that’s one of the things people tend to focus on. As we build better applications you will be able to see greater utility and then people will stop focusing on the negatives.
CT: Like you’re saying, a lot of the issue comes down to education. People don’t understand how Bitcoin works so they focus on headlines about it being used by criminals. And this is happening in developed countries where people are, generally, more educated. Considering AlphaPoint’s vision of having a globally-scaled Bitcoin platform, are you worried about this lack of Bitcoin education? Specifically, do you think that citizens in countries that are not very advanced can be expected to embrace a technology that has proven so hard to grasp for people in more developed nations?
VT: I think it depends on what country. In certain countries, people understand its value better than in the U.S. because it solves certain things that aren’t necessarily a problem in the U.S. You have countries like Argentina where they undergo huge periods of inflation, which essentially makes currency worthless. They aren’t necessarily asking ‘why’ do I need to use Bitcoin, they’re asking ‘how’ because they see what value it can instantly provide them. For them, it’s a great store of value even with the current volatility.
Or you have folks in foreign countries that don’t have access to banking. You have a person maybe in Africa that doesn’t have access to banking that can’t buy anything online because you need a bank account and a credit card. But now you can get Bitcoins and buy stuff using Bitcoins with phones so they now get access to these services. So in certain developing countries there’s actually a solid use case now and people understand its value.
But on the other side of things, you might have areas of the world that don’t have phones or don’t have easy access to power, the Internet, things like that. In that case, there’s not much you can do with digital currency if you don’t have access to those things. In those areas it’s going to take longer to see adoption. Certain infrastructural things have to happen first.
“[We] built an enterprise-grade digital currency platform, one that can process nearly a million transactions per second, which is […] one of the reasons Bitfinex chose to come on to the platform. Bitfinex are preparing for future growth. “
- Vadim Telyatnikov
CT: What was the development process like behind building AlphaPoint’s software?
VT: The two people who primarily built the technology were Joe Ventura and Jack Sallen. They each have over fifteen years of experience in the financial industry. Joe spent a lot of time building software for banks and institutions, especially on the high frequency risk management side. Examples are Merrill Lynch, UBS, and Deutsche Bank. Deutsche Bank still uses a system that he architected today.
Jack was one of the earliest people, if not the first, to do automated trading on the CME (Chicago Mercantile Exchange). He worked on the CME building trading platforms and trading strategies, again, for over fifteen years. He also built trading platforms and strategies on top of the Chicago Board of Trade.
Our tech team then took their knowledge and experience from working in the space and built an enterprise-grade digital currency platform, one that can process nearly a million transactions per second, which is, to answer a prior question, one of the reasons Bitfinex chose to come on to the platform. They (Bitfinex) are preparing for future growth.
But getting back to AlphaPoint itself, the company started in June of 2013 although the founders Joe Ventura and Jack Sallen started working on the platform months prior to that.
CT: Have they talked to you about what their “Aha!” moment was? When they decided they wanted to commit to working on Bitcoin?
VT: From the conversations I’ve had with them, they knew that they could build the software and they knew that was where their strength was. They saw that Bitcoin was just kind of starting to take off, but realized that the current exchanges and the systems that Bitcoin was traded on were not professionally made or designed. Realizing that market inefficiency was the “Aha” moment. They knew how to build an enterprise grade system and they applied it to an industry with a need that they believed was going to grow very, very fast.
At the time you can argue that there was no need for that technology either. But I think, in 2014 and going into 2015, you see more of the types of folks in the industry switch from mainly being hobbyists and enthusiasts, people that want to tinker, to, now, professional institutions that are getting into the space. And that’s what they saw as an opportunity to build technology for. We are now seeing that situation come to fruition.
CT: Down the road, do you think that mainstream banks will look at Bitcoin technology as a source of innovation for security in their own services?
VT: I think it’s certainly possible, but it’s hard to speak for the banks. One thing that I do see with banks is that consumers see them as an entity that’s secure. And that’s why people give banks money, in a lot of cases a lot of money: to store, secure, and protect.
Banks in the future should embrace digital currency because they can leverage their brand and offer security to the everyday consumer. Just like right now how they accept, store, and secure cash, they’ll be able to offer products that accept, store, and secure digital currency as well.
CT: Bitfinex was obviously a huge announcement for AlphaPoint, but it’s never too soon to look ahead. Do you have any other partnerships in the works?
VT: We definitely have a lot of discussions. The only thing I can tease is, well, there’s two things. There’s folks that are looking to do innovative types of exchanges that are digital currency related, but not just digital currency to fiat. And the other types of conversations we’re excited about is that we’re starting to talk to banks and more traditional institutions that are taking a hard look at digital currency. We’re starting to see some early adopters from institutions considering getting into the space in a big way.
CT: What are the questions they have about Bitcoin when they come to you?
VT: Education in general is one. They are looking at us as experts to help educate them on how it can provide value to their customers. It’s probably what we spend the most time talking about. Banks realize that this is a trend that is important for them to be a part of and they are looking at us to help them navigate and come up with an offering for their customers.
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