The price of bitcoin on Bitstamp has increased to above the level listed on Mt. Gox.
Japan-based exchange Mt. Gox is notorious for showing a much higher USD bitcoin price than its competitors, but this has changed over the past 12 hours.
Mt. Gox then overtook for the next nine hours, but the Bitstamp price has been almost consistently higher since around 14:15 GMT.
Bitstamp CEO Nejc Kodrič described this occurrence as “weird” and suggested it could be to do with the problems his company’s site has experienced over recent days.
“I guess [it’s] because of the banking issues, which caused a backlog of deposits to pile, and they were [then] all processed at once,” he said.
Earlier in the week, Bitstamp experienced problems with the banking software it uses. Kodrič said the issue related to the company’s transaction log.
“We were missing bank transaction log from Friday. Also sending transfers out was disrupted, but it now works,” he explained.
The site was then down for a large part of Tuesday (19th November), due to what Kodrič believed was a DDoS attack. It has since transpired that it was not a DDoS attack, but a “network issue”.
The company has upgraded its server capabilities and ordered additional servers to triple the power of the network, which will be delivered on Monday.
“We have been DDoS-ed today and yesterday. But it did not interrupt our service,” Kodrič told CoinDesk today.
The rise of Bitstamp
Bitstamp has a largely reliable and trusted profile, with founder Kodrič being a publicly available, widely known and vocal member of the bitcoin community.
As well as being a member of the Bitcoin Foundation, he is also a founding member of the recently formed Digital Asset Transfer Authority (DATA), the self-regulating organisation formed by Bitcoin Foundation general counsel Patrick Murck and others.
Bitstamp was created in 2011 by Kodric and Damijan Merlak, trading initially in Slovenia before starting to operate in the UK in April 2013. Kodric said economic and political tensions made Slovenia a difficult place to be an entrepreneur.
The company still banks in Slovenia with Italian-owned bank Unicredit, which Kodric says is largely unaffected by Slovenian politics and is a reliable banking partner that they’ve had no problems with thus far.
After finishing Economics School, Kodrič continued his studies at The Faculty of Organizational Science in Kranj where he studied Organization and Management of Information Systems.
At the age of 19, he dropped out to start his first company, doing IT consultancy and reselling computer hardware. Three years later he discovered bitcoin mining through Damjian Merlak.
The two looked at the possibilities and thought about mining, but since neither of them had a solid technical background in hardware, they both decided that it would be too risky a field to enter, as the pace of technology was moving so fast that they figured they wouldn’t be able to keep up.
Kodrič said he thought about starting a mining pool, before hitting on the idea of building a “second exchange”.
“The only real exchange back then was Mt. Gox, which was not ideal for Europeans since most of us wanted to send money via SEPA but trade in USD because it had better liquidity. We wanted something to appeal to a European audience,” he said.
Bitstamp is focused on the European market, and even though the company itself trades in USD to concentrate liquidity, SEPA transfers cost as little as €0.90, making it an attractive way to get money into the exchange from a European bank account.
In addition, transfers can often take as little as 12 hours to go from the bank to the exchange, making it a relatively quick, convenient and cheap way to buy bitcoins in bulk.
When queried about how Bitstamp is positioned for security in the wild-west of bitcoin exchanges and online wallets, especially in light of the recent spate of thefts, Kodric says he believes insurance companies will see lots of opportunities in future, but at the moment the idea of insurance works against the principles of bitcoin.
He says Bitstamp approached the FCA when incorporating in the UK, asking for advice, but it only responded that bitcoin could not be classed as a currency, and therefore it could not regulate the new exchange.
As a result, Bitstamp has taken steps to self-regulate and says that it follows a set of best practices involving know-your-customer and anti-money-laundering policies, which effectively mean it treats bitcoin as money.
Kodric points out that less than 1% of the company’s bitcoins are kept in a hot wallet, with the remainder in cold storage. However, though he’s quick to point out that the bitcoins stored with Bitstamp are safe, he does note that he believes the point of bitcoin is for people to be their own bank, saying that it is in fact a liability for Bitstamp to keep coins in cold storage.
“We don’t charge for safekeeping bitcoins” he explains, in addition to which he says:
“Bitcoin is truly ‘The People’s money, by the people, of the people and for the people’. I think education is really important. For the first time people have the option to look after their money entirely on their own. They don’t need to rely on any bank or exchange anymore.”
According to Kodric, his company is also working on a mobile platform, so customers will be able to trade on Bitstamp using their smartphones within the next couple of weeks.
His colleagues have also just updated their servers and switched to Incapsula to protect them from DDoS attacks, and last month they did $200m dollars-worth of trade.
Kodric estimates that there are about two million people engaged in the bitcoin economy right now and says the scene is still a very friendly and co-operative place, noting that most of the early adopters are working hard to get their message out to the public.
“If each one of these two million people who currently use bitcoin just tell one friend about it and explain how it works to one person, the size of the economy would double overnight,” he added.
That said, when asked to account for the recent change in price he is philosophical:
“We’re no longer dependent on a single exchange. We see a lot of diversification, with no single point of failure. This boosts investor confidence in the bitcoin economy.”
Like many bitcoin entrepreneurs and market observers, he also believes the demise of Silk Road had a positive impact on investors who felt that the notorious website was giving bitcoin a bad name.
In his eyes, the most important factor affecting the price in recent weeks was the report that Chinese state TV had shown an open-minded and relatively even-handed documentary about bitcoin, which opened Chinese eyes to the potential of the new currency. He says this was one factor that a lot of people missed when accounting for the recent price bubble.
When it comes to bitcoin and the economic crisis, he points out that “people don’t realize the problem, until they see a solution”. “Bitcoin for me, was that solution. I think we are on solid and very fruitful ground,” he added.
When asked what he thinks about the suggestion that bitcoin is the perfect tool for money launderers, he said: “Bitcoin is the worst thing right now to launder money in. Everyone has an extra pair of eyes monitoring them for suspicious activities. We do not want to deal with any suspicious parties.”
In September, Bitstamp started to insist that account holders verify their identity with copies of their passports and an official record of their home address as part of their effort to self-regulate in case the authorities came knocking.
Bitstamp is currently the third largest bitcoin exchange in the world, behind BTC China and Mt. Gox in terms of BTC volume transacted.
Article co-authored by Richard Boase and Emily Spaven.
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