So enthralled have the world’s wholesale banks become with the potential of transacting in multiple markets on blockchain applications provided by Ethereum, Ripple and others that it’s easy to forget about bitcoin where the concept of the distributed ledger originated.
The digital currency that pioneered the shared and immutable ledger of record has been beset by disagreements among its founding technologists over how to improve scalability amid evidence of slowing processing times and debate over the need for higher transaction fees.
Yet bitcoin has shown less volatility in the past 12 months and has grown to a market capitalization of over $6 billion, with an estimated 10 million wallets, maybe 4 million active users worldwide and growing daily transaction volumes.
Frank Schuil, a serial tech entrepreneur set up Safello in July 2013 to be a secure bridge between cryptocurrencies such as bitcoin and the traditional financial world of fiat currencies.
Based in Stockholm, registered with Sweden’s Financial Supervisory Authority and banked by one of the top-four Swedish banks, Safello allows for quick and secure transfer between crypto- and fiat currencies, including Swedish krona, sterling and euros, using Single Euro Payments Area (Sepa) and other established payment mechanisms.
Schuil says: “Our aim has been to connect the pipelines of the fiat and cryptocurrency worlds, which will be an important piece of infrastructure as banks and central banks increasingly come round to a more positive view of the potential for digital cash.”
But that is just the first phase in his vision for a secure connection – the company’s name pronounces it the safe fellow in the market place – between crypto- and fiat currencies.
Schuil says: “The bitcoin market may not have hit the exponential rate of adoption enthusiasts had hoped for back in 2013, partly because of various hacks of exchanges, as well as the fact that regulators are still playing catch up and the banking sector remains hostile. But these are the inevitable obstacles in building a whole new infrastructure.
"If bitcoin is the internet of money, we are still at the dial-up modem phase. There’s a lot of work still to be done on the infrastructure. There are only a few countries where it is easy to transact between bitcoin and national currencies. The real breakthrough will come from leveraging the infrastructure and protocol advancements to the user-experience level. Safello envisions this can be accomplished by creating a transaction browser.”
The vision is to give users links or icons for counterparts with whom they exchange payments, ranging from friends and family to corporations and even governments, with a quick and easy capacity to initiate transfers and check transaction records. It remains to be seen if this can be integrated with existing platforms.
Schuil says: “We hope that it will become easier for users to have fiat currency wallets next to cryptocurrency wallets on the same interface. We will get to providing views of a transaction stream where the user making a payment sees it in his home currency of sterling, the recipient sees it in euros, but the underlying transaction goes through bitcoin.”
Does that make Safello a bank, a payment system or an exchange?
Its home page shows an interesting spread to potential users, inviting them to sell one bitcoin for £278 in mid March, or buy one for £305.
Schuil says: “We are not a bank as we are not a custodian of bitcoins or fiat currency. We are really providing a transaction browser that functions as an interface and user-experience layer to third-party applications.”
For the moment, Schuil will say that Safello’s customers number “in the tens of thousands, conducting millions of dollars equivalent of cryptocurrency related transactions”.
He admits: “Our rate of growth has been somewhat constrained so far by our determination to comply with bank-like regulations and in particular to follow all the anti-money laundering requirements. We hope in the second quarter to launch private testing of the second phase of Safello with a transaction stream. That is not attached to a custodian and so that may open up to a wider audience and bring revenues from connections to payment services.”
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The company was initially funded by two groups of angel investors, one with backgrounds in the bitcoin world, another that made careers at the leading Swedish banks. It has also done a round of convertible funding with one of the larger bitcoin-focused venture-capital investors. It recently raised money through crowdfunding.
“We like the idea of customers and potential users owning part of the company, and were able to raise substantial funds in just one month while also establishing a nice valuation for Safello,” says Schuil.
Schuil points out that the low barrier to entry in the pure technology sector means start-ups and their backers don’t mind seeing mainstream tech ventures fail, as long as they fail fast and without eating too much money. Fintech is a slower and more expensive build because of the higher cost of compliance for any new business hoping to operate at the junction with the conventional banking world.
“Connecting to the core financial system is essential to our business,” says Schuil.
He sees mixed messages. “It is interesting that we were able to enter a commercial relationship on a project with Barclays to build a proof of concept bitcoin payments service, having come through their accelerator, yet Barclays could not open company bank accounts for us.”
Schuil says: “Banks and regulators have to ask themselves how cryptocurrency might impact the established financial system and each bank’s business if it really takes off. While adopting blockchain in house might make banks more efficient, it is still cryptocurrency that has the potential to be profoundly disruptive. If it should achieve global scale, can it be interoperable with the established financial system? The only way to find out is to engage and build bridges to it.”