Mt.Gox fallout: Bridgewalker is shutting down

14 Mar 2014

It is with regret that I have to announce, that Bridgewalker is shutting down. Since it was using Mt.Gox as the backend exchange, it was directly affected by Mt.Gox imploding. But there were also a few other factors which played into this decision, which I detail below. Thanks to everyone who supported this project!

All user funds will be returned in full. An update should be available shortly through Google Play which will allow you to submit a Bitcoin address, where you would like to have your funds sent. I will use BitcoinAverage to determine the exchange rate. Please allow a few days for your request to be processed. I will be returning user funds for at least the next 6 months, but would ask you to put in your request soon. Feel free to email me if you have any questions.

"Why did you still use Mt.Gox? You should have seen that coming long ago!" True, and I did to some extend, which is why my losses are manageable. The main reason I never did the switch - and I contemplated it several times - was, that for all its shortcomings, Mt.Gox still was for a long time the only big exchange with a streaming data feed. And I considered it an important feature to keep track of the market very closely, to be able to safely provide competitive currency conversion services - a major cornerstone of the Bridgewalker architecture. So switching to a different exchange would have required quite a bit of extra work and a worse service level as a result. Not the most attractive value proposition, so I decided to instead work on new features and hope that Mt.Gox would get their act together. That optimism was unfortunately misplaced, but I am prepared to deal with the consequences. The losses that did occur I will replace out of my personal funds.

But the Mt.Gox debacle is not the only reason for the shutdown. So far, I have not managed to gain the traction with Bridgewalker that I was hoping for. There are probably many reasons for that, among them certainly, that it is a tough sell to get people to entrust their funds with an unproven startup. And for good reasons! I was always looking for ways to get rid of the requirement of holding user funds, but have so far not found a practical and cost-competitive alternative.

I still believe, that a service like Bridgewalker - providing a way of using Bitcoin only as a payment mechanism, without holding Bitcoin yourself - is something that has a target audience. As we go forward, we will hopefully be able to deploy interesting Bitcoin-based solutions. Solutions like tap-to-pay, metered billing (e.g. WiFi paid by the kb using micropayment channels) and making smallish payments right in the browser, to name just three things that I find very interesting. I am convinced that there will be a group of users, that will want to use these services, but would rather maintain their account in their trusted fiat currency of choice.

And there are good reasons for wanting to keep your funds in fiat:

The often cited volatility of Bitcoin. It is true and will likely remain true for some time to come.
Familiarity with your local currency. You have a feeling for what things cost and a sense of stability, simply because everything around you is priced in that same currency. Your currency might fluctuate on the world markets, but your coffee at Starbucks still costs the same as yesterday - at least on most days.
Easier accounting. This one is especially important for the merchant side. Conducting business relies a lot on proper accounting and even if you are the biggest Bitcoin fan, it might not be worth the trouble, to have to track a foreign currency and deal with things like gains and losses caused by exchange rate changes. Simply pretending that the customer paid you in your local currency and just used Bitcoin as a technical solution to do so, can simplify your bookkeeping and make it easier to get started accepting Bitcoins. (Bridgewalker would have eventually attempted to eat BitPay's lunch. ;-P )
Separating the use of Bitcoin as an investment and the use of Bitcoin as a payment mechanism. Keep your bitcoins in cold storage and keep some fiat in your Bridgewalker account to spend on Bitcoin services, without affecting your Bitcoin holdings. The often requested "buy-as-you-spend" feature of Coinbase follows from the same motivation.

In some ways, it might be, that Bridgewalker was simply too early and Bitcoin-based solutions will need to mature more, before there is a real demand for this type of service. I might try again at a later time. If I do, it will be without an exchange in the background though. It's simply too big of a failure point and also creates all sorts of legal challenges. Maybe projects like Counterparty or Ethereum will be ready by that time, to provide crypto-equivalents of USD and EUR, that track their real-world counter party through some kind of gambling/financial derivatives.

Then the Bridgewalker client could be completely server-less and just use one or several blockchains to provide the same functionality. I would imagine, that the client would maintain a small amount of bitcoins as a buffer, to be able to quickly make transactions. But then move bitcoins from and to the buffer into cryptoUSD or cryptoEUR to keep the purchasing power pegged to those fiat currencies. The question is, whether this can be made cost-competitive, which depends on the amount of market spread, slippage, tracking errors and other sources of friction.

By the way, Bridgewalker is open source, so if you feel like tackling any of this and want to reuse parts of Bridgewalker, feel free to do so!

For the moment, I will be focusing on pure Bitcoin wallets again at Hive. Our Android wallet will be arriving shortly - keep an eye out for it! And who knows, maybe at some point Bridgewalker will be rising from its ashes. ;-) Thanks again for all your support!