7 ms·

Buttercoin is shutting down

140 points by dzhao 12y ago

allenhai 12y ago
I had so much hope for buttercoin, its kind of sad when you look at the team section of the website.
- mathattack 12y ago
  In what sense? In the sense that it's sad that real people lose jobs, or specific to them? Seems like they had top notch investors. I wonder what went wrong.
  - TylerE 12y ago
    Maybe the buttcoiners are right?
  - 13 12y ago
    > With the dip in bitcoin interest among Silicon Valley investors, we weren't able to generate enough venture capital interest to continue funding Buttercoin. It doesn't seem too much of a stretch to think that a lot of companies hedged their investors money in Bitcoin and hemorrhaged investment when the bubble burst, leading to colder responses when other companies later went back asking for more. That would seem to fit with stories like this.
    - waterlesscloud 12y ago
      They had zero profile in the bitcoin community. Essentially a non-entity. So I can't imagine they had that all-important growth graph investors need to see.
    - notsony 12y ago
      Investment in Bitcoin related companies increased in 2014 to almost $1bn, from around $300m in 2013... not sure what went wrong at Buttercoin but interest in cryptocurrencies in general has never been higher.
      - sanswork 12y ago
        Where did you get the 1bn figure from? Coindesk puts it at closer to $400m for 2014. http://www.coindesk.com/venture-capital-funding-bitcoin-startups-triples-2014/ http://www.coindesk.com/venture-capital-funding-bitcoin-star... We're at around $200m for 2015 with 95% of that between 21 and Coinbase.
        sanswork 12y ago
        Just an update actual number is 83% not 95%.
zmanian 12y ago
Without another speculative bubble, running a bitcoin exchange is likely to be a terrible business. Competing with Coinbase in that terrible business in that terrible business is potentially disastrous.
- 2pasc 12y ago
  What made competing with Coinbase so hard? the fact that Coinbase was so well funded?
  - zmanian 12y ago
    I suspect that the VC industry has pretty much anointed Coinbase as the defacto north american exchange winner. Given how little actual consumer interest there is in Bitcoin at the moment. This is probably what matters.
    - tlb 12y ago
      It'd be great for investors if they could just anoint winners. But in practice, consumers decide and investors follow.
      - minimaxir 12y ago
        One of the tenets of competitive advantage is the ability of a business's competitors to enter the market. Running a Bitcoin startups has extremely high fixed costs that cannot be mitigated (contrast with typical startups with mostly variable costs); if VCs aren't giving them funding, as is apparently the case with Buttercoin, then there's no way they can even create a reasonable Bitcoin service, especially one that could compete against Coinbase and its mountain of funding.
      - tim333 12y ago
        It's hard to compete with a similar company if they have a load more money than you. Take Uber. Maybe you build a better taxi app but they have $5bn raised and you don't. Then they can subsidise, run at a loss, spend loads on ads and so on.
bdcravens 12y ago
Was there a previous announcement? 4 days seems awfully short. (granted, it's fairly trivial to setup a local wallet or an address on Blockchain.info, but still)
binoyxj 12y ago
Had so much expectations seeing the backer list, when I joined late last year. It seems most VCs are being less futuristic by playing it safe or am I missing something? "dip in bitcoin interest among Silicon Valley investors".
film42 12y ago
This is awful! I just want to give a shoutout to the Buttercoin team. They really nailed the serive. I remember signing up and thinking, "well, I'll just look," but by the time it came to transfer money, it was so easy, I just had to continue. Everything after that followed a similar pattern. Even the order form was well done. I'll miss you guys! Btw, their matching engine is on GitHub and it's a good read!
- joeyspn 12y ago
  > Btw, their matching engine is on GitHub and it's a good read! But it hasn't been updated in 2 years... They could definitely open source parts of their current stack if they want to help bitcoin, maybe seeking a "Docker effect". It would be an AWESOME farewell. Bitpay knows how important this is, they are opensourcing a lot of cool stuff... Edit: I've just realised they open sourced a newer matching engine built with scala (I was looking at the old node-based) https://github.com/buttercoin/engine https://github.com/buttercoin/engine
maaaats 12y ago
I can't read the page, because I don't have a "modern browser". What kind of 20th century crap is that?
- adventured 12y ago
  Out of curiosity I fired up IE to see what they were blocking. I'm not sure I can think of a good reason to block IE 10 (7 and 8 I can understand, 9 is barely tolerable), I've never run into a major problem with that version compared to Firefox or Chrome.
  - thisone 12y ago
    some people believe that showing support for anything below the latest release of IE is detrimental to the entire industry.
    - ZenoArrow 12y ago
      Perhaps, however in this case it just seems to be blanket block on IE. I'm using the most recent release of IE on Windows Phone (AFAIK) and it's still blocking me. Furthermore, I can understand warning people, but blocking them completely seems a step too far.
      - Buge 12y ago
        Yep, they block IE 11 on Windows 8.1.
  - dheera 12y ago
    In 99% of cases there's no reason to blanket block any particular browser. If you have features that cannot be implemented (e.g. vector graphics, WebGL), I'd say that directly to the user, i.e. "Sorry, this website requires a WebGL-enabled browser such as X, Y, or Z." This should be based on JavaScript feature detection targeting the specific feature you're looking for, and not the web browser version number. If it's just text and CSS there's no reason why you can't at least display something. It may not look correct in IE <=8 but at least the user will see something intelligible in most cases.
Animats 12y ago
Running an honest Bitcoin exchange isn't very profitable. Some exchanges don't charge commissions, so all rates are low. Coinbase doesn't charge customers commissions until they do $1m a year in business, which few do.
- sanswork 12y ago
  They have a spread though so they don't need to charge an explicit commission to be profitable.
  - kissickas 12y ago
    Exactly. Coinbase takes your money but doesn't buy BTC for several days, so if the price goes down, they pocket the difference. If the price goes up, they will often cancel your order. It goes without saying that bitcoins are volatile so this isn't such a rare occurrence. https://www.google.com/search?q=coinbase+scam https://www.google.com/search?q=coinbase+scam
    - Buge 12y ago
      That's not what sanswork was saying. sanswork was saying that the buy price is higher than the sell price, so coinbase makes money off the price difference. I don't think they intentionally cancel transactions as a way to make profit. You can see reports of them cancelling transactions when the price goes down as well but still refunding the full previous amount. I also have an instant account so I can immediately get my funds with no chance of cancelling.
      - kissickas 12y ago
        Thanks for the clarification. That's what I get for starting a comment with the equivalent of "This." As to the accusation you can see is thrown around all over the place, that is possible, but my interest-free loan to them of several thousand dollars left a sour taste in my mouth regardless and it wouldn't be hard for them to make some money off of the capital, in BTC or not.
    - 12y ago
rebelidealist 12y ago
They got google ventures amongst many other investors. Now they are shutting down just 3 months after launch? Hopefully they have funds left to do something else.
zodiakzz 12y ago
I thought the standard procedure to shutdown a Bitcoin exchange was to get "hacked"? ;)
- jessaustin 12y ago
  Yeah, it's as if there should be a Bitcoin equivalent to the Ibrahim Prize. You're eligible if you shut down an exchange without your customers losing their money. b^)
- Everhusk 12y ago
  So much respect for the Buttercoin team for this. The Bitcoin community really needs more honest people like them.
  - cLeEOGPw 12y ago
    It doesn't, apparently.
- irascible 12y ago
  Your comment is iN violation of the hn policy against gratuitous sarcasm and cynicism wrt emerging technologies. /cs
bitJericho 12y ago
There's always http://bitcoinsexchange.itmustbetrue.com/ http://bitcoinsexchange.itmustbetrue.com/
bshimmin 12y ago
Bad luck if you happen to be on a week's holiday when they made this announcement...
- 300bps 12y ago
  Yeah what does this mean? Be sure to move your bitcoins to another service and remove your dollar balances by Friday April 10th at 11PM.
  - frostmatthew 12y ago
    Two lines later it states: Bitcoin balances in Buttercoin after April 10th will be converted to USD and sent to the bank linked to your account.
    - pors 12y ago
      You can have Bitcoin at Buttercoin while not having a linked bank account. I transferred a very small account from another wallet to Buttercoin.
mu_killnine 12y ago
Interesting to see Buttercoin come full circle. I recall seeing them start as an open-source project on Reddit with a handful of folks. http://www.reddit.com/r/buttercoin http://www.reddit.com/r/buttercoin
Sealy 12y ago
Given that you are a Y Combinator startup, would you be able to post a Y Combinator style "Lessons Learned" or "What went wrong" style reflective post. As a community of budding entrepreneurs, PG often tells us we can learn a lot more from failure then success.
- Mahn 12y ago
  I second this, but as for what went wrong: > With the dip in bitcoin interest among Silicon Valley investors, we weren't able to generate enough venture capital interest to continue funding Buttercoin. It sounds like they didn't/wouldn't have enough traction to be cash flow positive on their own, and couldn't attract enough investors money to keep the lights on otherwise. Of course there's probably a more interesting story to it than that.
  - nawitus 12y ago
    Apparently there's no dip in general bitcoin interest: https://www.reddit.com/r/Bitcoin/comments/31lmo7/buttercoin_is_closing/cq2sdjk https://www.reddit.com/r/Bitcoin/comments/31lmo7/buttercoin_...
    - sanswork 12y ago
      The total for Q1 is $229m. Of that 83% is in 2 deals(Coinbase and 21 inc), 89% is in 3 deals(add in KnC) for $206m. Deals are about the same 24 in Q1 2015 vs 30 in Q4 2014 though half the deals for Q1 2015 are for less than $1m with 5 of them being $100k or less.
  - deleted 12y ago
    [deleted]
  - IkmoIkmo 12y ago
    I'm not sure the dip in interest from SV investors was really it. It's certainly true that investors won't throw money at bitcoin as easily as they would have in 2013-2014 when growth rates were off the charts. The past year or so has been slow for bitcoin from a consumer growth pov. But that doesn't mean interest really dipped in absolute numbers, it's just different. Thing is, in 2013 the average quarter raised about $25m. In 2014 that went up to about $70m. But guess what happened this quarter in 2015? Over $200m. The difference is that in the past 2 years we saw lots of smaller seed/series a funding, lots of $1m, $5m, and a few $15-30m here and there. This quarter we saw a ton of <$2m, a single $15m, and two giant (for bitcoin) $75m and $120m investments. In other words we're already seeing some 'winners' and investors consolidating around those companies, and a lot of low-risk experimental seed rounds. Buttercoin was never one of those winners. And in the exchange market, it's really hard to suddenly become one, when another company like Coinbase exists that's present in multiple markets, has engineers from places like Facebook and Airbnb, finance guys from Goldman Sachs, VPs from Paypal, $100m in funding and domination in various bitcoin product categories. Especially when running an exchange, which is sort of a commodity. Branding etc aren't big differentiators. So let's look at what an exchange needs: Bitcoin Exchanges need liquidity (uphill battle as a late-comer) They need to allow buyers & sellers to easily move fiat money on and off the platform (uphill battle to convince a US bank to service you) They need to comply with all the regulations (difficult for any money transmitter, as you need licenses in all but two states. Very hard to be a startup when you face $1-5m in legal costs to get licensed. Plus, states are coming out with Bitcoin regulations that double the regulatory load as they don't replace, but add to existing money transmitter regulations) They need good security (this one ought to be a possibility for startups. But it's not easy, it slows you down and increases your costs to have expertise checking every part of your software. The old bitcoin companies could fall down and learn and iterate. The new startups have to get it right from day one.) Buttercoin came a bit too late to the game, in a world with large existing exchanges, launched in one of the most difficult regulatory environments etc. Beyond that, running a bitcoin exchange isn't very profitable at the moment unless 1) You're one of the big guys. 2) You're spending nothing on security, fancy ui, new products, customer service etc and run a 2-man show, where every dollar you earn is pretty much income. Problem is, becoming 1 can't be done anymore without 2, and doing 2 can't be done without large investments, and investors have no interest in backing Buttercoin over say Coinbase or Circle. So Bitstamp is one of the larger exchanges in the world and has about 5k bitcoins in daily value. At a 0.25% fee (both to seller and buyer), they take half a percent on their volume. That's a little over $2m in yearly revenue. Now imagine that Coinbase has 60 employees, if you consider that the cost per employee (salary + office, equipment, training etc) in SF is $150k, that kind of budget just doesn't fly. Even with some investment your burn rate is too high. I think Buttercoin must have had around 10 employees, $1.6m funding, less than $500k annual revenue and limited traction. Looking forward to what they'll do next because Buttercoin worked well and was a nice product, it must have been a good team.
Mahn 12y ago
Only tangentially related, but, provided the founders know what they are doing, is there any kind of bitcoin startup that can eventually become cash flow positive on its own today? Because I've been thinking a lot about bitcoin startups and it seems to me that barring a massive stroke of luck, with the adoption that there is today, one could only survive if backed by hopeful investors. Namely I can't picture bootstrapping an exchange, a payment processor or an ATM provider. Then again you could argue than "get lucky or go home" applies to any kind of startup, but to me it looks like it's specially harder in the case of bitcoin.
- IkmoIkmo 12y ago
  Not in the US. South America, Africa, a few Asian markets, yeah quite likely. But you'll need to be scrappy, low-cost. i.e. it might mean having you and 3 others working in someone's living room and manually processing money. But in the US, nah I doubt it, it's really hard. I wrote a bit about some of the issues if you're late to the came, Ctrl F my name in this thread if you'd like. In short, there's a huge regulatory burden, very difficult to get a bank relationship, competition is pretty fierce while volume isn't exploding, you need quite a few employees to succeed, and that means you need a certain amount of revenue to break even, and you can only get that if you capture 10-30% of the market, a market with the likes of Coinbase ($100m+ investment). Things completely change when bitcoin is in a hype cycle. Exchanges make money on volume, and trading volume when the price is volatile is so much larger. Late 2013 trading volumes were about 20x what they average today. Add to that the price being 4x what it is today, and you essentially know that total exchange revenue in late 2013 was close to 100x what it averages today. That's such a gigantic difference, it's like the number of internet users drops by 99% and we wonder if internet companies can stay alive, or new ones thrive. That doesn't say all that much about bitcoin's future in general by the way. Usage, transactions numbers & volume, wallets, payments, those are all up compared to 2013. But exchanges need fiat-bitcoin and bitcoin-altcoin transaction volume and a big part of that volume was speculation. The speculative trading has disappeared for a large part, or quieted down, while use of bitcoin has grown. (not explosively, but still quite significantly)
  - Mahn 12y ago

140 points by dzhao 12y ago

allenhai 12y ago

I had so much hope for buttercoin, its kind of sad when you look at the team section of the website.

mathattack 12y ago
In what sense? In the sense that it's sad that real people lose jobs, or specific to them? Seems like they had top notch investors. I wonder what went wrong.
- TylerE 12y ago
  Maybe the buttcoiners are right?
- 13 12y ago
  > With the dip in bitcoin interest among Silicon Valley investors, we weren't able to generate enough venture capital interest to continue funding Buttercoin. It doesn't seem too much of a stretch to think that a lot of companies hedged their investors money in Bitcoin and hemorrhaged investment when the bubble burst, leading to colder responses when other companies later went back asking for more. That would seem to fit with stories like this.
  - waterlesscloud 12y ago
    They had zero profile in the bitcoin community. Essentially a non-entity. So I can't imagine they had that all-important growth graph investors need to see.
  - notsony 12y ago
    Investment in Bitcoin related companies increased in 2014 to almost $1bn, from around $300m in 2013... not sure what went wrong at Buttercoin but interest in cryptocurrencies in general has never been higher.
    - sanswork 12y ago
      Where did you get the 1bn figure from? Coindesk puts it at closer to $400m for 2014. http://www.coindesk.com/venture-capital-funding-bitcoin-startups-triples-2014/ http://www.coindesk.com/venture-capital-funding-bitcoin-star... We're at around $200m for 2015 with 95% of that between 21 and Coinbase.
      - sanswork 12y ago
        Just an update actual number is 83% not 95%.

zmanian 12y ago

Without another speculative bubble, running a bitcoin exchange is likely to be a terrible business. Competing with Coinbase in that terrible business in that terrible business is potentially disastrous.

2pasc 12y ago
What made competing with Coinbase so hard? the fact that Coinbase was so well funded?
- zmanian 12y ago
  I suspect that the VC industry has pretty much anointed Coinbase as the defacto north american exchange winner. Given how little actual consumer interest there is in Bitcoin at the moment. This is probably what matters.
  - tlb 12y ago
    It'd be great for investors if they could just anoint winners. But in practice, consumers decide and investors follow.
    - minimaxir 12y ago
      One of the tenets of competitive advantage is the ability of a business's competitors to enter the market. Running a Bitcoin startups has extremely high fixed costs that cannot be mitigated (contrast with typical startups with mostly variable costs); if VCs aren't giving them funding, as is apparently the case with Buttercoin, then there's no way they can even create a reasonable Bitcoin service, especially one that could compete against Coinbase and its mountain of funding.
    - tim333 12y ago
      It's hard to compete with a similar company if they have a load more money than you. Take Uber. Maybe you build a better taxi app but they have $5bn raised and you don't. Then they can subsidise, run at a loss, spend loads on ads and so on.

bdcravens 12y ago

Was there a previous announcement? 4 days seems awfully short. (granted, it's fairly trivial to setup a local wallet or an address on Blockchain.info, but still)

binoyxj 12y ago

Had so much expectations seeing the backer list, when I joined late last year. It seems most VCs are being less futuristic by playing it safe or am I missing something? "dip in bitcoin interest among Silicon Valley investors".

film42 12y ago

This is awful! I just want to give a shoutout to the Buttercoin team. They really nailed the serive. I remember signing up and thinking, "well, I'll just look," but by the time it came to transfer money, it was so easy, I just had to continue. Everything after that followed a similar pattern. Even the order form was well done. I'll miss you guys! Btw, their matching engine is on GitHub and it's a good read!

joeyspn 12y ago
> Btw, their matching engine is on GitHub and it's a good read! But it hasn't been updated in 2 years... They could definitely open source parts of their current stack if they want to help bitcoin, maybe seeking a "Docker effect". It would be an AWESOME farewell. Bitpay knows how important this is, they are opensourcing a lot of cool stuff... Edit: I've just realised they open sourced a newer matching engine built with scala (I was looking at the old node-based) https://github.com/buttercoin/engine https://github.com/buttercoin/engine

maaaats 12y ago

I can't read the page, because I don't have a "modern browser". What kind of 20th century crap is that?

adventured 12y ago
Out of curiosity I fired up IE to see what they were blocking. I'm not sure I can think of a good reason to block IE 10 (7 and 8 I can understand, 9 is barely tolerable), I've never run into a major problem with that version compared to Firefox or Chrome.
- thisone 12y ago
  some people believe that showing support for anything below the latest release of IE is detrimental to the entire industry.
  - ZenoArrow 12y ago
    Perhaps, however in this case it just seems to be blanket block on IE. I'm using the most recent release of IE on Windows Phone (AFAIK) and it's still blocking me. Furthermore, I can understand warning people, but blocking them completely seems a step too far.
    - Buge 12y ago
      Yep, they block IE 11 on Windows 8.1.
- dheera 12y ago
  In 99% of cases there's no reason to blanket block any particular browser. If you have features that cannot be implemented (e.g. vector graphics, WebGL), I'd say that directly to the user, i.e. "Sorry, this website requires a WebGL-enabled browser such as X, Y, or Z." This should be based on JavaScript feature detection targeting the specific feature you're looking for, and not the web browser version number. If it's just text and CSS there's no reason why you can't at least display something. It may not look correct in IE <=8 but at least the user will see something intelligible in most cases.

Animats 12y ago

Running an honest Bitcoin exchange isn't very profitable. Some exchanges don't charge commissions, so all rates are low. Coinbase doesn't charge customers commissions until they do $1m a year in business, which few do.

sanswork 12y ago
They have a spread though so they don't need to charge an explicit commission to be profitable.
- kissickas 12y ago
  Exactly. Coinbase takes your money but doesn't buy BTC for several days, so if the price goes down, they pocket the difference. If the price goes up, they will often cancel your order. It goes without saying that bitcoins are volatile so this isn't such a rare occurrence. https://www.google.com/search?q=coinbase+scam https://www.google.com/search?q=coinbase+scam
  - Buge 12y ago
    That's not what sanswork was saying. sanswork was saying that the buy price is higher than the sell price, so coinbase makes money off the price difference. I don't think they intentionally cancel transactions as a way to make profit. You can see reports of them cancelling transactions when the price goes down as well but still refunding the full previous amount. I also have an instant account so I can immediately get my funds with no chance of cancelling.
    - kissickas 12y ago
      Thanks for the clarification. That's what I get for starting a comment with the equivalent of "This." As to the accusation you can see is thrown around all over the place, that is possible, but my interest-free loan to them of several thousand dollars left a sour taste in my mouth regardless and it wouldn't be hard for them to make some money off of the capital, in BTC or not.
  - 12y ago

rebelidealist 12y ago

They got google ventures amongst many other investors. Now they are shutting down just 3 months after launch? Hopefully they have funds left to do something else.

zodiakzz 12y ago

I thought the standard procedure to shutdown a Bitcoin exchange was to get "hacked"? ;)

jessaustin 12y ago
Yeah, it's as if there should be a Bitcoin equivalent to the Ibrahim Prize. You're eligible if you shut down an exchange without your customers losing their money. b^)
Everhusk 12y ago
So much respect for the Buttercoin team for this. The Bitcoin community really needs more honest people like them.
- cLeEOGPw 12y ago
  It doesn't, apparently.
irascible 12y ago
Your comment is iN violation of the hn policy against gratuitous sarcasm and cynicism wrt emerging technologies. /cs

bitJericho 12y ago

There's always http://bitcoinsexchange.itmustbetrue.com/ http://bitcoinsexchange.itmustbetrue.com/

bshimmin 12y ago

Bad luck if you happen to be on a week's holiday when they made this announcement...

300bps 12y ago
Yeah what does this mean? Be sure to move your bitcoins to another service and remove your dollar balances by Friday April 10th at 11PM.
- frostmatthew 12y ago
  Two lines later it states: Bitcoin balances in Buttercoin after April 10th will be converted to USD and sent to the bank linked to your account.
  - pors 12y ago
    You can have Bitcoin at Buttercoin while not having a linked bank account. I transferred a very small account from another wallet to Buttercoin.

mu_killnine 12y ago

Interesting to see Buttercoin come full circle. I recall seeing them start as an open-source project on Reddit with a handful of folks. http://www.reddit.com/r/buttercoin http://www.reddit.com/r/buttercoin

Sealy 12y ago

Given that you are a Y Combinator startup, would you be able to post a Y Combinator style "Lessons Learned" or "What went wrong" style reflective post. As a community of budding entrepreneurs, PG often tells us we can learn a lot more from failure then success.

Mahn 12y ago
I second this, but as for what went wrong: > With the dip in bitcoin interest among Silicon Valley investors, we weren't able to generate enough venture capital interest to continue funding Buttercoin. It sounds like they didn't/wouldn't have enough traction to be cash flow positive on their own, and couldn't attract enough investors money to keep the lights on otherwise. Of course there's probably a more interesting story to it than that.
- nawitus 12y ago
  Apparently there's no dip in general bitcoin interest: https://www.reddit.com/r/Bitcoin/comments/31lmo7/buttercoin_is_closing/cq2sdjk https://www.reddit.com/r/Bitcoin/comments/31lmo7/buttercoin_...
  - sanswork 12y ago
    The total for Q1 is $229m. Of that 83% is in 2 deals(Coinbase and 21 inc), 89% is in 3 deals(add in KnC) for $206m. Deals are about the same 24 in Q1 2015 vs 30 in Q4 2014 though half the deals for Q1 2015 are for less than $1m with 5 of them being $100k or less.
- deleted 12y ago
  [deleted]
- IkmoIkmo 12y ago
  I'm not sure the dip in interest from SV investors was really it. It's certainly true that investors won't throw money at bitcoin as easily as they would have in 2013-2014 when growth rates were off the charts. The past year or so has been slow for bitcoin from a consumer growth pov. But that doesn't mean interest really dipped in absolute numbers, it's just different. Thing is, in 2013 the average quarter raised about $25m. In 2014 that went up to about $70m. But guess what happened this quarter in 2015? Over $200m. The difference is that in the past 2 years we saw lots of smaller seed/series a funding, lots of $1m, $5m, and a few $15-30m here and there. This quarter we saw a ton of <$2m, a single $15m, and two giant (for bitcoin) $75m and $120m investments. In other words we're already seeing some 'winners' and investors consolidating around those companies, and a lot of low-risk experimental seed rounds. Buttercoin was never one of those winners. And in the exchange market, it's really hard to suddenly become one, when another company like Coinbase exists that's present in multiple markets, has engineers from places like Facebook and Airbnb, finance guys from Goldman Sachs, VPs from Paypal, $100m in funding and domination in various bitcoin product categories. Especially when running an exchange, which is sort of a commodity. Branding etc aren't big differentiators. So let's look at what an exchange needs: Bitcoin Exchanges need liquidity (uphill battle as a late-comer) They need to allow buyers & sellers to easily move fiat money on and off the platform (uphill battle to convince a US bank to service you) They need to comply with all the regulations (difficult for any money transmitter, as you need licenses in all but two states. Very hard to be a startup when you face $1-5m in legal costs to get licensed. Plus, states are coming out with Bitcoin regulations that double the regulatory load as they don't replace, but add to existing money transmitter regulations) They need good security (this one ought to be a possibility for startups. But it's not easy, it slows you down and increases your costs to have expertise checking every part of your software. The old bitcoin companies could fall down and learn and iterate. The new startups have to get it right from day one.) Buttercoin came a bit too late to the game, in a world with large existing exchanges, launched in one of the most difficult regulatory environments etc. Beyond that, running a bitcoin exchange isn't very profitable at the moment unless 1) You're one of the big guys. 2) You're spending nothing on security, fancy ui, new products, customer service etc and run a 2-man show, where every dollar you earn is pretty much income. Problem is, becoming 1 can't be done anymore without 2, and doing 2 can't be done without large investments, and investors have no interest in backing Buttercoin over say Coinbase or Circle. So Bitstamp is one of the larger exchanges in the world and has about 5k bitcoins in daily value. At a 0.25% fee (both to seller and buyer), they take half a percent on their volume. That's a little over $2m in yearly revenue. Now imagine that Coinbase has 60 employees, if you consider that the cost per employee (salary + office, equipment, training etc) in SF is $150k, that kind of budget just doesn't fly. Even with some investment your burn rate is too high. I think Buttercoin must have had around 10 employees, $1.6m funding, less than $500k annual revenue and limited traction. Looking forward to what they'll do next because Buttercoin worked well and was a nice product, it must have been a good team.

Mahn 12y ago

Only tangentially related, but, provided the founders know what they are doing, is there any kind of bitcoin startup that can eventually become cash flow positive on its own today? Because I've been thinking a lot about bitcoin startups and it seems to me that barring a massive stroke of luck, with the adoption that there is today, one could only survive if backed by hopeful investors. Namely I can't picture bootstrapping an exchange, a payment processor or an ATM provider. Then again you could argue than "get lucky or go home" applies to any kind of startup, but to me it looks like it's specially harder in the case of bitcoin.

IkmoIkmo 12y ago
Not in the US. South America, Africa, a few Asian markets, yeah quite likely. But you'll need to be scrappy, low-cost. i.e. it might mean having you and 3 others working in someone's living room and manually processing money. But in the US, nah I doubt it, it's really hard. I wrote a bit about some of the issues if you're late to the came, Ctrl F my name in this thread if you'd like. In short, there's a huge regulatory burden, very difficult to get a bank relationship, competition is pretty fierce while volume isn't exploding, you need quite a few employees to succeed, and that means you need a certain amount of revenue to break even, and you can only get that if you capture 10-30% of the market, a market with the likes of Coinbase ($100m+ investment). Things completely change when bitcoin is in a hype cycle. Exchanges make money on volume, and trading volume when the price is volatile is so much larger. Late 2013 trading volumes were about 20x what they average today. Add to that the price being 4x what it is today, and you essentially know that total exchange revenue in late 2013 was close to 100x what it averages today. That's such a gigantic difference, it's like the number of internet users drops by 99% and we wonder if internet companies can stay alive, or new ones thrive. That doesn't say all that much about bitcoin's future in general by the way. Usage, transactions numbers & volume, wallets, payments, those are all up compared to 2013. But exchanges need fiat-bitcoin and bitcoin-altcoin transaction volume and a big part of that volume was speculation. The speculative trading has disappeared for a large part, or quieted down, while use of bitcoin has grown. (not explosively, but still quite significantly)
- Mahn 12y ago