A Conversation About Bitcoin Exchanges
Virtual currency startups are attracting a lot of media attention and interest from VCs and private equity firms. In October, AlphaPoint, a white-label financial technology platform that powers global digital currency exchanges, received $1.35 million in funding from several investors including Ben Franklin Technology Partners.
Bitcoin’s massive growth has created a need for infrastructure that is scalable and reliable, says AlphaPoint. The company says it's leveraging high-frequency trading expertise from the development of fintech solutions used by UBS and Deutsche bank to deliver a secure solution. The platform can process more than 1 million transactions per second and get up and running in 20 days, according to the latest release. Bitfinex is using the exchange platform in beta phase for buying and selling of Bitcoin and Litecoin.
I caught up with AlphaPoint CEO Vadim Telyatnikov and Bitfinex’s Josh Rossi, VP of Business Development, to discuss the new ecosystem for crypto-currencies and how it differs from, or is similar to, traditional exchanges.
WST: Who is trading on Bitfinex? It sounds as if merchants and Bitcoin payment providers are customers. Our readers include technologists, traders, and others who work at brokerage firms, hedge funds, and asset managers. Is this relevant to them?
Ross: We have a wide variety of users ranging from financial institutions to individuals. Access to liquidity is vital for a growing ecosystem, and I think the most interesting way that we really underpin the Bitcoin economy is by enabling merchants and payment processors to be able to convert easily between Bitcoin and USD. Another interesting use case is exchanges, given that many other exchanges are turning to us to tap into our very deep [order] books. However, I think that professional traders, institutional investors, and algorithmic traders love trading on Bitfinex, because, besides margin trading, we offer some of the more advanced tools that they may have previously used in traditional markets.
WST: Which other Bitcoin exchanges does AlphaPoint provide this technology to?
Telyatnikov: AlphaPoint powers over a dozen exchanges worldwide with exchange customers in Norway, Mexico, Africa, United States, Canada, Czech Republic, Singapore, China, Panama, Belize, and Australia. Clients include Cointrader.net, Canada’s premier Bitcoin exchange and top 10 USD exchange platform; meXBT, the leading exchange in Latin America; BitcoinsNorway, the first exchange in Norway; and Bitt, the first provider of digital currency exchange and merchant processing services to the Caribbean Community [CARICOM]. We offer our technology as a white label also, so some exchanges prefer to not to be named.
WST: Is AlphaPoint running each exchange? Also, are you using the cloud?
Telyatnikov: No, AlphaPoint does not run or operate an exchange. AlphaPoint provides and manages the exchange software, but the operations of the exchange itself are left to the operators such as Bitfinex. As part of the turnkey solution, AlphaPoint does manage hosting, deployment, and security of the infrastructure. We do not use cloud services, due to some security risks associated with the cloud. Typically when a cloud provider is hacked, all of the companies hosted on their infrastructure are also affected. We have a strong focus on security and have chosen to invest in wholly owned hardware and high security hosting locations.
WST: What is different about your platform from what other traditional exchanges run on?
Telyatnikov: Our enterprise-grade solution has been designed to be HFT-ready and broadly scalable at the core. Unlike legacy solutions, our platform is capable of processing nearly 1 million transactions per second while scaling to hundreds of thousands of connected users. The flexibility of the platform allows support for significantly more features than legacy single-vision products. These features include: multiple simultaneous APIs (web-socket, industry standard FIX/FAST, high-performance binary); advanced order types; cross-exchange remarketer that provides additional liquidity to exchanges; and a modular asset system allowing support for any digital currency, fiat currency, or unique contracts such as mining contracts or futures/options.
WST: Do you provide a matching engine to Bitcoin exchanges?
Telyatnikov: Yes, our proprietary matching engine is a key component of our platform. The AlphaPoint Exchange Platform comprises an Order Gateway, Risk Manager, Matching Engine, Market Data Manager, Multi-Protocol Load Balancer, Remarketer, Audit/Report Manager, multiple APIs, multiple user-interfaces, integration with crypto currencies and banking systems, integration with KYC/AML [know your customer/anti-money laundering] providers, and multi-factor security modules.
WST: Are you preparing for mainstream Wall Street to utilize your virtual currency platform?
Telyatnikov: Absolutely, we designed the entire platform with this in mind. Our team has over 30 years of experience building technology systems for Wall Street banks such as UBS, Deutsche Bank, and Merrill Lynch, and we are leveraging this experience to design the exchange. In addition, we are enabling Wall Street order management systems to connect to our platform via industry-standard APIs, effectively bridging the worlds of Wall Street and virtual currencies. Wall Street is able to use their existing trading strategies, tools, and utilities to access Bitfinex liquidity or any other AlphaPoint exchange.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio
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