
Buttercoin is shutting down - dzhao
https://buttercoin.com/#/goodbye
======
Sealy
Given that you are a Y Combinator startup, would you be able to post a Y
Combinator style "Lessons Learned" or "What went wrong" style reflective post.

As a community of budding entrepreneurs, PG often tells us we can learn a lot
more from failure then success.

~~~
Mahn
I second this, but as for what went wrong:

> With the dip in bitcoin interest among Silicon Valley investors, we weren't
> able to generate enough venture capital interest to continue funding
> Buttercoin.

It sounds like they didn't/wouldn't have enough traction to be cash flow
positive on their own, and couldn't attract enough investors money to keep the
lights on otherwise. Of course there's probably a more interesting story to it
than that.

~~~
IkmoIkmo
I'm not sure the dip in interest from SV investors was really it. It's
certainly true that investors won't throw money at bitcoin as easily as they
would have in 2013-2014 when growth rates were off the charts. The past year
or so has been slow for bitcoin from a consumer growth pov.

But that doesn't mean interest really dipped in absolute numbers, it's just
different. Thing is, in 2013 the average quarter raised about $25m. In 2014
that went up to about $70m.

But guess what happened this quarter in 2015? Over $200m.

The difference is that in the past 2 years we saw lots of smaller seed/series
a funding, lots of $1m, $5m, and a few $15-30m here and there. This quarter we
saw a ton of <$2m, a single $15m, and two giant (for bitcoin) $75m and $120m
investments. In other words we're already seeing some 'winners' and investors
consolidating around those companies, and a lot of low-risk experimental seed
rounds.

Buttercoin was never one of those winners. And in the exchange market, it's
really hard to suddenly become one, when another company like Coinbase exists
that's present in multiple markets, has engineers from places like Facebook
and Airbnb, finance guys from Goldman Sachs, VPs from Paypal, $100m in funding
and domination in various bitcoin product categories.

Especially when running an exchange, which is sort of a commodity. Branding
etc aren't big differentiators. So let's look at what an exchange needs:

Bitcoin Exchanges need liquidity (uphill battle as a late-comer)

They need to allow buyers & sellers to easily move fiat money on and off the
platform (uphill battle to convince a US bank to service you)

They need to comply with all the regulations (difficult for any money
transmitter, as you need licenses in all but two states. Very hard to be a
startup when you face $1-5m in legal costs to get licensed. Plus, states are
coming out with Bitcoin regulations that double the regulatory load as they
don't replace, but add to existing money transmitter regulations)

They need good security (this one ought to be a possibility for startups. But
it's not easy, it slows you down and increases your costs to have expertise
checking every part of your software. The old bitcoin companies could fall
down and learn and iterate. The new startups have to get it right from day
one.)

Buttercoin came a bit too late to the game, in a world with large existing
exchanges, launched in one of the most difficult regulatory environments etc.

Beyond that, running a bitcoin exchange isn't very profitable at the moment
unless 1) You're one of the big guys. 2) You're spending nothing on security,
fancy ui, new products, customer service etc and run a 2-man show, where every
dollar you earn is pretty much income. Problem is, becoming 1 can't be done
anymore without 2, and doing 2 can't be done without large investments, and
investors have no interest in backing Buttercoin over say Coinbase or Circle.

So Bitstamp is one of the larger exchanges in the world and has about 5k
bitcoins in daily value. At a 0.25% fee (both to seller and buyer), they take
half a percent on their volume. That's a little over $2m in yearly revenue.
Now imagine that Coinbase has 60 employees, if you consider that the cost per
employee (salary + office, equipment, training etc) in SF is $150k, that kind
of budget just doesn't fly. Even with some investment your burn rate is too
high.

I think Buttercoin must have had around 10 employees, $1.6m funding, less than
$500k annual revenue and limited traction. Looking forward to what they'll do
next because Buttercoin worked well and was a nice product, it must have been
a good team.

~~~
sanswork
The thing is you can't treat those two deals like they are the new norm which
is what has been happening in the bitcoin community with all the posts about
"on track for a $1b year".

Once you subtract those two 'unicorns' we have ~$30m in investments for q1. If
you extrapolate that out(which we really can't since we have no idea which way
the trend is going but we will because) we end up with all other deals for
2015 raising about the same as 21 inc.

Realistically we have to wait a few more months to see where things are going
but I think people in /r/bitcoin are definitely playing off the comment too
easily. It's not like buttercoin didn't have a lot of connections with
investors to poll for information on their beliefs.

------
Animats
Running an honest Bitcoin exchange isn't very profitable. Some exchanges don't
charge commissions, so all rates are low. Coinbase doesn't charge customers
commissions until they do $1m a year in business, which few do.

~~~
sanswork
They have a spread though so they don't need to charge an explicit commission
to be profitable.

~~~
kissickas
Exactly. Coinbase takes your money but doesn't buy BTC for several days, so if
the price goes down, they pocket the difference. If the price goes up, they
will often cancel your order. It goes without saying that bitcoins are
volatile so this isn't such a rare occurrence.

[https://www.google.com/search?q=coinbase+scam](https://www.google.com/search?q=coinbase+scam)

~~~
Buge
That's not what sanswork was saying. sanswork was saying that the buy price is
higher than the sell price, so coinbase makes money off the price difference.

I don't think they intentionally cancel transactions as a way to make profit.
You can see reports of them cancelling transactions when the price goes down
as well but still refunding the full previous amount.

I also have an instant account so I can immediately get my funds with no
chance of cancelling.

~~~
kissickas
Thanks for the clarification. That's what I get for starting a comment with
the equivalent of "This."

As to the accusation you can see is thrown around all over the place, that is
possible, but my interest-free loan to them of several thousand dollars left a
sour taste in my mouth regardless and it wouldn't be hard for them to make
some money off of the capital, in BTC or not.

------
bdcravens
Was there a previous announcement? 4 days seems awfully short. (granted, it's
fairly trivial to setup a local wallet or an address on Blockchain.info, but
still)

------
zodiakzz
I thought the standard procedure to shutdown a Bitcoin exchange was to get
"hacked"? ;)

~~~
Everhusk
So much respect for the Buttercoin team for this. The Bitcoin community really
needs more honest people like them.

~~~
cLeEOGPw
It doesn't, apparently.

------
film42
This is awful! I just want to give a shoutout to the Buttercoin team. They
really nailed the serive. I remember signing up and thinking, "well, I'll just
look," but by the time it came to transfer money, it was so easy, I just had
to continue. Everything after that followed a similar pattern. Even the order
form was well done. I'll miss you guys!

Btw, their matching engine is on GitHub and it's a good read!

~~~
joeyspn
> Btw, their matching engine is on GitHub and it's a good read!

But it hasn't been updated in 2 years... They could definitely open source
parts of their _current_ stack if they want to help bitcoin, maybe seeking a
"Docker effect". It would be an AWESOME farewell. Bitpay knows how important
this is, they are opensourcing a lot of cool stuff...

Edit: I've just realised they open sourced a newer matching engine built with
scala (I was looking at the old node-based)

[https://github.com/buttercoin/engine](https://github.com/buttercoin/engine)

------
Mahn
Only tangentially related, but, provided the founders know what they are
doing, is there any kind of bitcoin startup that can eventually become cash
flow positive on its own today? Because I've been thinking a lot about bitcoin
startups and it seems to me that barring a massive stroke of luck, with the
adoption that there is today, one could only survive if backed by hopeful
investors. Namely I can't picture bootstrapping an exchange, a payment
processor or an ATM provider. Then again you could argue than "get lucky or go
home" applies to any kind of startup, but to me it looks like it's specially
harder in the case of bitcoin.

~~~
IkmoIkmo
Not in the US.

South America, Africa, a few Asian markets, yeah quite likely. But you'll need
to be scrappy, low-cost. i.e. it might mean having you and 3 others working in
someone's living room and manually processing money.

But in the US, nah I doubt it, it's really hard. I wrote a bit about some of
the issues if you're late to the came, Ctrl F my name in this thread if you'd
like. In short, there's a huge regulatory burden, very difficult to get a bank
relationship, competition is pretty fierce while volume isn't exploding, you
need quite a few employees to succeed, and that means you need a certain
amount of revenue to break even, and you can only get that if you capture
10-30% of the market, a market with the likes of Coinbase ($100m+ investment).

Things completely change when bitcoin is in a hype cycle. Exchanges make money
on volume, and trading volume when the price is volatile is so much larger.
Late 2013 trading volumes were about 20x what they average today.

Add to that the price being 4x what it is today, and you essentially know that
total exchange revenue in late 2013 was close to 100x what it averages today.
That's such a gigantic difference, it's like the number of internet users
drops by 99% and we wonder if internet companies can stay alive, or new ones
thrive.

That doesn't say all that much about bitcoin's future in general by the way.
Usage, transactions numbers & volume, wallets, payments, those are all up
compared to 2013. But exchanges need fiat-bitcoin and bitcoin-altcoin
transaction volume and a big part of that volume was speculation. The
speculative trading has disappeared for a large part, or quieted down, while
use of bitcoin has grown. (not explosively, but still quite significantly)

~~~
Mahn
> South America, Africa, a few Asian markets, yeah quite likely.

Today? Isn't the demand in those markets for bitcoin even lower than what it
is in the US? I understand it is speculated bitcoin has a better chance of
penetrating those markets, but _currently_ , if one were to open an african
bitcoin exchange, I don't think one would see enough volume to become cash
flow positive in a very long time.

~~~
IkmoIkmo
Thing is, there's potentially a bigger use case in these markets. Plus these
markets are underserved. Plus the cost basis for employment like customer
service and manual money processing is a bit better. And lastly, the
regulatory burden is often lighter. In the US to get money transmitter
licenses in all states is already a few million, and much more in surety bonds
(which you can pay for yourself for many millions, or buy, but very few
companies want to offer a surety bond to a bitcoin company right now, and
virtually nobody to new startups)

I mean I agree, it's true that the US/Europe are the large markets. But there
are so many exchanges serving this market that a new exchange can barely get
customers/volume, and therefore it's hard to be cash flow positive. And you're
competing for financial services with modern banking, Paypal, Stripe,
Creditcards etc. And you're competing with the dollar, a stable currency.

But in various African markets, there's no modern payment system and volatile
high-inflation currencies. In those markets a bitcoin exchange, linked to say
a dollar-pegging service like Bitreserve, is an interesting use case. And
there's few other exchanges competing for those customers.

If I want to send money to family in France, it's literally free from the
Netherlands. Bitcoin isn't super useful for this kind of transaction. But
sending money back to say family in the Phillipines can often cost me 5% or
so, while bitcoin exchanges in the Phillipines allow me to buy bitcoin here
for 0% or near 0%, send it there for near 0% costs, and sell it there for
1-2%. Bitcoin actually undercuts banks in many countries outside the OECD. In
OECD countries like the US or Europe, bitcoin is less useful.

And there already are exchanges in South America, Africa, Asia btw, which are
doing fine. But it's definitely not a goldmine, don't get me wrong. It's just
that you can hardly start a new exchange and compete in Europe or the US
anymore, while other continents aren't easy either, it's comparatively easier
to become cash flow positive.

------
binoyxj
Had so much expectations seeing the backer list, when I joined late last year.
It seems most VCs are being less futuristic by playing it safe or am I missing
something? "dip in bitcoin interest among Silicon Valley investors".

------
bshimmin
Bad luck if you happen to be on a week's holiday when they made this
announcement...

~~~
300bps
Yeah what does this mean?

 _Be sure to move your bitcoins to another service and remove your dollar
balances by Friday April 10th at 11PM._

~~~
frostmatthew
Two lines later it states: _Bitcoin balances in Buttercoin after April 10th
will be converted to USD and sent to the bank linked to your account._

~~~
pors
You can have Bitcoin at Buttercoin while not having a linked bank account. I
transferred a very small account from another wallet to Buttercoin.

------
zmanian
Without another speculative bubble, running a bitcoin exchange is likely to be
a terrible business. Competing with Coinbase in that terrible business in that
terrible business is potentially disastrous.

~~~
2pasc
What made competing with Coinbase so hard? the fact that Coinbase was so well
funded?

~~~
zmanian
I suspect that the VC industry has pretty much anointed Coinbase as the
defacto north american exchange winner.

Given how little actual consumer interest there is in Bitcoin at the moment.
This is probably what matters.

~~~
tlb
It'd be great for investors if they could just anoint winners. But in
practice, consumers decide and investors follow.

~~~
tim333
It's hard to compete with a similar company if they have a load more money
than you. Take Uber. Maybe you build a better taxi app but they have $5bn
raised and you don't. Then they can subsidise, run at a loss, spend loads on
ads and so on.

~~~
JohnTHaller
... make fake orders to competitors and try to steal their drivers, etc.

------
allenhai
I had so much hope for buttercoin, its kind of sad when you look at the team
section of the website.

~~~
mathattack
In what sense? In the sense that it's sad that real people lose jobs, or
specific to them?

Seems like they had top notch investors. I wonder what went wrong.

~~~
13
> _With the dip in bitcoin interest among Silicon Valley investors, we weren
> 't able to generate enough venture capital interest to continue funding
> Buttercoin._

It doesn't seem too much of a stretch to think that a lot of companies hedged
their investors money in Bitcoin and hemorrhaged investment when the bubble
burst, leading to colder responses when other companies later went back asking
for more. That would seem to fit with stories like this.

~~~
notsony
Investment in Bitcoin related companies increased in 2014 to almost $1bn, from
around $300m in 2013... not sure what went wrong at Buttercoin but interest in
cryptocurrencies in general has never been higher.

~~~
sanswork
Where did you get the 1bn figure from? Coindesk puts it at closer to $400m for
2014.

[http://www.coindesk.com/venture-capital-funding-bitcoin-
star...](http://www.coindesk.com/venture-capital-funding-bitcoin-startups-
triples-2014/)

We're at around $200m for 2015 with 95% of that between 21 and Coinbase.

~~~
sanswork
Just an update actual number is 83% not 95%.

------
mu_killnine
Interesting to see Buttercoin come full circle. I recall seeing them start as
an open-source project on Reddit with a handful of folks.

[http://www.reddit.com/r/buttercoin](http://www.reddit.com/r/buttercoin)

------
rebelidealist
They got google ventures amongst many other investors. Now they are shutting
down just 3 months after launch? Hopefully they have funds left to do
something else.

------
bitJericho
There's always
[http://bitcoinsexchange.itmustbetrue.com/](http://bitcoinsexchange.itmustbetrue.com/)

------
maaaats
I can't read the page, because I don't have a "modern browser". What kind of
20th century crap is that?

~~~
adventured
Out of curiosity I fired up IE to see what they were blocking. I'm not sure I
can think of a good reason to block IE 10 (7 and 8 I can understand, 9 is
barely tolerable), I've never run into a major problem with that version
compared to Firefox or Chrome.

~~~
dheera
In 99% of cases there's no reason to blanket block any particular browser. If
you have features that cannot be implemented (e.g. vector graphics, WebGL),
I'd say that directly to the user, i.e. "Sorry, this website requires a WebGL-
enabled browser such as X, Y, or Z." This should be based on JavaScript
feature detection targeting the specific feature you're looking for, and not
the web browser version number. If it's just text and CSS there's no reason
why you can't at least display _something_. It may not look correct in IE <=8
but at least the user will see something intelligible in most cases.

~~~
ChainsawSurgery
Eh, this is a little bit of a tangent because there's no reason to block users
ever I feel (and in this particular case blocking IE 10+ is stupid), but
honestly? It's rarely worth the time to go through and make sure your site
works on older browsers. Or that it degrades gracefully.

Yeah, if my site uses canvas, I should probably have a fallback for IE8. But
in practice, and I _know_ I'm not alone here: Unless I see that IE8 makes up a
significant part of my site's traffic, fuck it.

There are already enough vendor issues between the _latest versions_ of the
big 4 (Chrome/FF/Safari/IE), spending more time going through old versions of
those 4 will drive you bonkers.

It's rarely worth it and spending any amount of time catering to those users
is almost assuredly not a good use of your time.

