South Africa-based bitcoin software firm Switchless has purchased the largest bitcoin exchange on the continent for an undisclosed sum.
Switchless, which is based in Stellenbosch, snapped up BitX less than a year after the exchange was founded. According to Switchless director Marcus Swanepoel, his company bought the exchange, which is also based in Stellenbosch, for its team in what he described as an "aqui-hire" deal.
BitX’s team consists of three people, one of whom is former Google engineer Timothy Stranex, who co-founded the firm in February. The team brings Switchless’s total staff to eight.
Swanepoel is secretive about the exact nature of his firm's business, other than to say it develops bitcoin software for financial institutions. One of its investors is incubator FireID, which is also based in Stellenbosch.
"It relates to exchange type of software, and ways to keep your bitcoins safe, like wallets," says Swanepoel of his product. "The strategy of the firm is to continue investing in building that out to other financial institutions." BitX says on its website that it is powered by Switchless enterprise bitcoin software.
Given BitX’s position as the best-known exchange for bitcoins in Africa, the firm's trading volume (around 10 BTC each day, according to Swanepoel) is surprisingly low. But Swanepoel puts that down to the unique nature of bitcoin trading in the African market. He said:
"There are a lot of other exchanges going on in Africa that aren't necessarily done online. There are people meeting up in Zimbabwe.
To size the overall market is pretty difficult, and obviously it won't be as big as Germany and the US, because it is just starting up."
While volumes are low at present, Swanepoel believes that it could take off and grow dramatically in a short time period. One thing that may help here is the relatively large number of "un-banked" people on the continent.
"The big problem in Africa is moving money across borders, and we don't see that being solved very quickly, but at least it could be a lot cheaper and more efficient than it is at this stage," Swanepoel said, adding that bitcoin could play a big part in solving the global remittance problem. There are two issues: people moving money within Africa, and foreign workers trying to send money home.
Safaricom’s M-PESA digital cash system has already garnered over 14 million active users, and Switchless hopes that bitcoin will also gain traction in the country because it offers similar advantages.
Many people in Africa don't have a computer connected to broadband Internet. In fact, data aggregated by Credit Suisse suggests that PC penetration per capita in the Middle East and Africa is projected to reach just 7%, compared to 50% in Western Europe.
However, mobile penetration forecasts are far higher, with a 114% projected penetration rate for mobile subscribers in the Middle East and Africa.
When rates exceed 100%, it means that there are more mobile subscriptions than people, which sounds counterintuitive but which is becoming fairly common in many countries, thanks to a combination of more than one device per person, and business-focused, machine-to-machine connections.
Most of these phones will be feature phones, however; smart phone subscription rates will be a measly 9% in the region, compared to 100% in Western Europe.
Those figures include the Middle East. The African continent alone will see a 63% penetration rate for mobile-cellular across the African continent this year, according to the ITU.
Even phones without a data plan can still be used to send mobile cash, however, thanks to SMS-based messaging (such services are already supported in North America). However, BitX isn't catering to this market, and will be unlikely to do so in the short term, said Swanepoel.
"BitX will run as it is right now, although we will have some clients that come into the mobile space at some stage,” he concluded.