When we came up with the idea to start SpectroCoin in 2012, we were inspired by the spirit of bitcoin to eliminate a third-party middleman for online payments. Hence, avoiding relying on third parties and focusing on the payment side of virtual currencies have remained our key principles for nearly a decade.
We have already experienced three major cryptocurrency bubbles in 2013, 2017 and recently in 2021. Each of them had a different public sentiment, such as "bitcoin is bad" back in 2013, "bitcoin is bad, but maybe blockchain is good for other things than payments" back in 2017 and "bitcoin is still bad as it is too expensive to conduct payments, but the blockchain is good for finance" recently in 2021. We believe that the original narrative of bitcoin, that "bitcoin and blockchain are built for payments", will become mainstream over the long run, so we are building our products accordingly.
As a result, we have developed several offerings for clients primarily using crypto as a payment method. First, we have built a broad spectrum of fiat deposit and withdrawal methods (14+), including SWIFT and SEPA instant payments for easy transfer to and from bank accounts. Second, Bankera enabled us to develop a unique personal dedicated IBANs solution to allow clients to deposit and withdraw not only from/to bank accounts in their name but also from third parties by eliminating the need for them to use their bank account. Third, SpectroCoin cards issued by Bankera offer the largest transaction limits in the market, and both multiple virtual and plastic cards are available. Fourth, our crypto payment processing solution enables businesses to accept bitcoin, ether, tether and other cryptocurrencies and settle these transactions in fiat to eliminate the exchange rate risk of highly volatile cryptocurrency prices.
Running a crypto business for nearly a decade, we experienced a bunch of disappearances of our competitors and, sadly, partners, who shut down their operations entirely. Some of these cases happened because of failure to meet compliance requirements, while some involved severe business misconduct.
These experiences strengthened our focus on building a resilient business by eliminating dependencies on third parties. In other words, following the spirit of Bitcoin. However, to do so, we needed to avoid dependency on third-party financial institutions, which meant that we must build our own traditional finance business.
As a result, in 2017, we launched Bankera, a fintech spin-off, to focus on traditional payment methods. It aims to provide traditional financial (fiat) services to our clients. It can also be perceived as our fiat node. And as many traditional finance sector players, such as banks, have entered the crypto space over the last five years, we have been moving in the opposite direction to strengthen our fiat infrastructure.
Over this time, we have developed Bankera to offer core payment products such as multicurrency accounts supporting SWIFT and SEPA payments, Visa debit cards (with upcoming support for Apple Pay and Google Pay) issued as a principal member, payments acquiring to accept card payments at online business and all these services reachable via user-friendly web interface, mobile apps (Android and iOS) and APIs for streamline integration into business processes.
For SpectroCoin it meant the introduction of innovative solutions. Firstly, the personal dedicated IBAN allows customers to deposit and withdraw fiat from/to third-party accounts, eliminating the need to use a traditional bank account. Secondly, now SpectroCoin cards are issued by Bankera, which results in higher spending limits and the opportunity to offer virtual cards in addition to plastic cards and soon to support Apple Pay and Google Pay for an even better user experience.
There are many talks that DeFi (decentralized finance) is the future. We support this idea; however, DeFi is a much broader topic than perceived, and it is not only about decentralized exchanges and other on-chain solutions but also about the decentralized ecosystem.
To maintain healthy ecosystem, blockchain must be well decentralized (correct word distributed) in every aspect of its ecosystem, from nodes validating transactions to exchanges allowing people to on-ramp and off-ramp from/to fiat (traditional finance) world. That also included all-over layers in the middle, such as issuers of stablecoins. If at least one of these layers becomes centralized, blockchain instantly loses its key benefit of decentralization.
We see a future for centralized exchanges (CEXs) for two primary purposes. Firstly, decentralized exchanges (DEXs) still have several flaws, such as expensive transactions, impairment loss, risk of front running, and time required to conduct an exchange. Hence, centralized exchanges will continue offering high-frequency trading without impairment or front-running risks. Secondly, centralized exchanges still play a fundamental role in linking fiat and crypto worlds as on-ramp/off-ramp venues.
However, the centralized exchanges layer, like all other layers of blockchain ecosystem must also be decentralized. There should not be one global cryptocurrency exchange, which could crash the crypto ecosystem if it goes out of business. Hence, the healthy ecosystem should contain a large number of independent (different owners, no significant exposure to each other) centralized exchanges focusing on different geographical regions, and types of clients. In this scenario, blockchain should stay as a payment protocol (i.e. clearing system) between them, like the SMTP (simple mail transfer protocol) is a protocol standing between different email service providers.
Prices of cryptocurrencies have dropped significantly during this year. However, it was expected even without crashes of crypto businesses as prices were highly inflated due to extreme levels of leverage, which was caused by the emergence of crypto lending products and a global low-interest rates environment.
As interest rates have started to rise globally, they also raised in the crypto space, and it became more expensive to maintain leveraged (using borrowed funds) positions in crypto and caused a number of traders to close their positions, which caused crypto prices to fall down and eventually created a domino effect. It caused the fall in crypto prices and even wiped entire companies out of business.
While we perceive crypto as a payment channel, we have always expected and advocated for regulation similar to what is applicable to payment service providers. One of the main areas of current financial services regulation is anti-money laundering and counter-terrorist financing prevention, whose principles are universal around the globe.
Actually, exchanges that were built to last, including SpectroCoin, were conducting know-your-customer (KYC) procedures years before it was mandatory by law as KYC protects not only from money laundering but also from fraud (exchange can be sure that the client is depositing from his bank account etc.).
In comparison, today, there are market players who are "advocating" for regulation but still do not meet minimum legal KYC requirements such as real-time identification of their clients and instead asking just for an upload of a selfie and passport, which aren't an acceptable form of remote identity verification in a lot of reputable jurisdictions. Also, their KYC usually ends there; there are no questions about the purpose of opening the account, the source of funds or the business nature, which are the standard KYC questions that have been around in finance for many years.
KYC procedures conducted by the exchange indicate the seriousness of their business. It is the same as an in-depth medical examination before the operation is an indication of a professional doctor. Also, the low ratio of AML specialists versus client base or volumes is another red flag, as it is questionable that some businesses are a thousand times more efficient than their competitors. And as has been seen in the case of FTX, such empty vessels make the most noise.
Over the next two years, we will likely experience another crypto winter or bear market; however, as history has shown, during these periods, the strongest projects are being built. Later, after the upcoming bitcoin halving in 2024, we expect a new crypto bubble to form with prices rising again in 2025 as it happened in the previous cycles, mainly due to supply shock in bitcoin prices (fewer bitcoins are mined, so there is less supply of them, which causes prices to rise).