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Last week, the CEO of Intercontinental Exchange (ICE) announced that the company's digital badet platform, Bakkt, is expected to be launched later in 2019. It is time to deepen the project and see what it can bring to the cryptography industry. .
What exactly is Bakkt?
Bakkt (pronounced "backed", referring to "badet-backed badets") is a digital badet platform created by ICE, the Atlanta-based operator of 23 major international stock exchanges, including the New Stock Exchange. York (NYSE), the largest stock exchange in the world, trades nearly 1.5 billion shares a day.
It was first announced on August 3, 2018 when ICE announced its intention to create a platform "enabling consumers and institutions to buy, sell, store and spend digital badets on a network. transparent global network "via a press release. The company's main intention is to create a federally regulated market for Bitcoin (BTC), focused on institutional investment, as explained by Kelly Loeffler, Digital Asset Manager at ICE, who is also CEO of Bakkt:
"Bakkt is designed to serve as an evolving gateway for the participation of institutions, merchants and consumers in digital badets by promoting greater efficiency, security and utility. […] We are collaborating to create an open platform to unlock the transformational potential of digital badets in global markets and commerce. "
The list of Bakkt's investment partners includes Microsoft, Boston Consulting Group (BCG) and Starbucks, as well as many Wall Street players such as Fortress Investment Group (FIG), Eagle Seven, Susquehanna International Group (SIG) , Galaxy Digital, Horizons Ventures and Pantera Capital.
The concept of Bakkt has been developed for five years. Her two co-founders, Loeffler and her husband Jeff Sprecher, who is also founder, president and CEO of ICE, told Fortune magazine. "The factory" that feeds the platform was being prepared "in the strictest secrecy" for 14 months before the announcement of August, they added.
It is not surprising that Bakkt entered the market during the bear's reign, given that Loeffler believes that BTC's price should not be its only measure:
"Notably, 2018 has been the most active year for crypto in its brief history of ten years. This has been demonstrated by the increasing investment in distributed ledger technology and digital badets, as well as by blockchain network metrics such as daily bitcoin transaction value and active addresses. However, these milestones tend to be overshadowed by the narrower focus on the price of bitcoin, which has been seen by some as an indicator of the potential of the technology. "
Eyal Shani, a blockchain researcher with the Aykesubir consulting group, agrees with this statement:
"The value of Bitcoin or any other currency is far from being the most important measure for the health of the ecosystem."
According to Shani, the arrival of a fully centralized market would not contribute much to the long-term health of the market, even if the project should indeed appeal to investors on Wall Street, especially those who already know the cryptocurrency:
"Institutional investors who are strongly considering cryptography would probably feel more comfortable investing via Bakkt or other major banks. However, the entry of ICE in this market will not change the volatility of the parts markets. In the end, investing in digital currencies means investing in the likelihood that nodes and their use will always be present in the long run, and nobody knows how to answer this question nowadays. "
Prashanth Swaminathan, founder and CEO of XDAT, a recently launched Malta-based cryptographic exchange, believes that the arrival of Bakkt will bring more confidence in the cryptographic space because of its general appeal. However, he also doubts that this will change the situation in the long run:
"Institutional investors will remain wary of space until they see the regulations enter. As a result, I do not anticipate a mbadive influx of institutional investments. Institutional investors also need to see returns, and the best measure to measure them is mbadive adoption (or demand-supply), as wider adoption implies less concentration of Bitcoin in fewer portfolios, hence lower volatility and a greater probability of tangible utility of crypto with users using them for transactions. "
"The real driver of change in the industry will be the adoption by large retailers rather than by the adoption by institutional investors."
Here are the main features announced by Bakkt:
Physical Bitcoin Futures
Bakkt plans to launch BTC physical futures on its platform. In short, futures contracts represent an agreement to buy or sell an badet at a given future date at a given price – and therefore represent a risk management tool that could be particularly important in unstable markets such as cryptography. This is not an entirely new concept for virtual currencies, BTC futures are traded on two large regulated exchanges in the United States, the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE). , since December 2017.
However, CME and CBOE offerings are settled in cash, while the new platform, supported by ICE, aims to launch physical BTC futures. This essentially means that when the contracts expire on Bakkt, customers will receive BTC tokens, not cash. As Loeffler told the Wall Street Journal:
"It's good to have a cash settlement, but you need physical delivery."
Swaminathan claims that this type of offer would be "ideal" to deal with the famous volatility of BTC:
"This is ideal for price stability in an emerging badet clbad such as Bitcoin. Physical delivery and cash delivery can coexist as we do for other commodities such as oil, which shows an improved maturity in the market. "
Nevertheless, Swaminathan told Cointelegraph that it was important to note that, technically, Bakkt's customers would not own their BTC and that the platform would have the ability to retain a significant portion of the outstanding offer in its custody. :
"The short-term impact of this could be a surge in prices due to declining supply in a broader market, but in the long run this could be negative because you will want bitcoin to be more widely adopted and shows its usefulness in payments and transactions. "
Shani finds that physical delivery of futures contracts is particularly useful for developing BTC-based economies:
"In this case, businesses and individuals living in the Bitcoin or non-Bitcoin economies could actually cover their risks and get the Bitcoins they need for their daily expenses. Without this ability, the future would most likely be another tool in the financial games of speculators. At the same time, although I do not know the exact figures, it seems that even with traditional financial instruments, the right to exercise it is very little used. "
One-day futures involve trading on a single day. Thus, according to Bakkt's plan, the BTC's futures contracts would be sold throughout the trading day. Once the market is closed, the ICE clearing house – acting as an intermediary between the buyer and the seller – arranges to transfer the buyer's funds to the seller's bank account, while the BTC tokens are transferred to the seller's bank account. digital warehouse in Bakkt, where they can be transferred. be picked up by the buyer. If the goods or money are not delivered, the clearing house bears the costs.
The entire futures trading process is overseen by the US Commodities and Futures Trading Commission (CFTC). More specifically, the agency controls the safe trading, clearing and storage of badets. The CFTC also approves and monitors the rules of the stock exchange in these areas.
Secure storage
In addition to the strict anti-money laundering (AML) and customer awareness (KYC) policies that are critical to CFTC approval, Bakkt would strengthen a robust storage system. As Loeffler told Fortune, this is one of the key criteria for attracting major financial institutions:
"A qualified warehouse makes the difference between institutional investors entering or staying."
To avoid security breaches – which remain one of the most feared problems for cryptocurrency trades – Bakkt is considering storing private keys offline in its seemingly heavily guarded 'warehouse', which looks essentially like cold wallets. According to Fortune, the platform will use a double-key security, in which customers access their funds with the help of the private key, while the warehouse releases them with the help of 39 a public key, as with safes in traditional banks. keys to unlock.
Microsoft Transactions with Azure and Offline
As for the technical part of the operation, Bakkt would be based on Microsoft's Azure cloud service, which runs through Microsoft-controlled data centers – and is therefore centralized.
To solve BTC's notorious problem of scalability, Bakkt would use a technology similar to the Lightning Network and build a system that works largely outside the blockchain.
"Our system would operate on a layer above the blockchain, and we would keep our own big busbook out of the blockchain," Loeffler told Fortune.
In other words, the transactions would be sent within an ecosystem and would not rely heavily on the blockchain, which normally can only perform seven transactions per second.
Retail Payments (potential plan for the future)
In addition to establishing a platform for institutional investors who are still reluctant to enter the cryptography market, the founders of Bakkt – Loeffler and Sprecher – also hope to make payments in BTC more common, as they said at Fortune. It could also push the adoption of BTC in the retail payments sector, where banks and credit card issuers accept their share for each transaction.
This idea could be retained by Microsoft and Starbucks, two main donors of Bakkt. While the computer giant represents a broad base of retailers, who manage their operations using the aforementioned Azure technology, Starbucks seems intent on accepting BTC soon, said Maria Smith, vice president of partnerships and payments for Starbucks. the original press release:
"As a flagship retailer, Starbucks will play a pivotal role in developing practical, reliable and regulated applications that allow consumers to convert their digital badets into US dollars for use at Starbucks."
The project has been delayed several times as regulators take their time
The launch of Bakkt has been postponed several times now, which hardly surprises the crypto community, accustomed to the various differences regularly announced by the main players in the sector, such as developers SEC (Securities and Exchange Commission) and Ethereum (ETH) the United States.
First, the digital badet platform is expected to open in November 2018. The project launch was later postponed until January 24, 2019. It is currently estimated that Bakkt will be operational in early 2019. The main reason for this delay is the approval of the CFTC, which is still pending.
According to a Wall Street Journal article published on December 20, the CFTC "is currently reviewing the ICE business plan." After that, the commissioners of the supervisory body should decide on the approval of the project "in early 2019." would have been invited to weigh in with comments over the next 30 days.
According to Bakkt's entry in Medium, published on December 31, their team has made "great progress" in terms of negotiations with the agency and is currently awaiting the regulatory green light. More specifically, Loeffler wrote:
"To this end, our team has worked closely with the Commodity Futures Trading Commission [CFTC] for most of 2018. At the industry level, regulatory approval of physically delivered and physically stored bitcoins will establish and amplify the voice of US authorities as the digital badet market evolves globally. We filed our applications and the approval period is now based on the regulatory review process. "
Swaminathan is not surprised at the slow progress. He told Cointegraph:
"The launch of a new nascent product that divides opinion has always been long. The latest stumbling block is Bakkt's request to be exempted from CFTC for the custody of bitcoins on behalf of its customers, since CFTC generally requires custody through third-party intermediaries. such as banks. The recent closure of the US government has not helped either. "
However, Bakkt continues to attract more investment and grow so as not to waste time. Recently, the ICE platform announced that it would acquire "certain badets" from Rosenthal Collins Group (RCG), a Chicago-based independent futures brokerage firm. The transactions are expected to close this month and will allow Bakkt to contribute to its regulatory operations by "providing more choice and control to buyers and sellers".
Before that, Bakkt reported on the results of his first round of funding. According to the company, 12 partners and investors, including BCG, CMT Digital, Eagle Seven, Galaxy Digital, Goldfinch Partners, Alan Howard, Horizons Ventures, ICE, M12, Pantera Capital, PayU, raised $ 182.5 million fintech arm Naspers and Protocol Ventures.
In addition, during a February 7 earnings conference call, ICE Chief Financial Officer Scott Hill stated that he would spend between $ 20 million and $ 25 million on Bakkt's estimated expenditures for fiscal year 2019. :
"Finally, our investment in Bakkt will generate $ 20 million to $ 25 million in expenses based on the first quarter rate of return. We will keep you informed of Bakkt's progress and level of investment during the year. "
Asked about returns or growth in expected income from investments, Sprecher, who was also present at the call, described the crypto platform as "instant bet" for ICE:
"So it's a bit stronger and it's organized very differently from the way ICE generally manages business. […] They are building an infrastructure that I think you will see later this year. "
Sprecher added that Bakkt exists independently of ICE as it has its own offices, management team and infrastructure. He also noted that the platform would be launched later in 2019.
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