http://business.financialpost.com/investing/b...rading-on-ts...
Roy Sebag and Josh Crumb started their business with one simple guiding
principle.
"We wanted to be able to go into Tim Horton's and buy a coffee with
gold, with our credit card or debit card," Sebag said in an interview.
"It went from being a hobby of how to do that to this whole
company."
Investors will start to get a better look at their vision on Wednesday, as
shares of BitGold Inc. begin trading on the TSX Venture Exchange. It is the
culmination of several years of hard work by the founders, and is being
backed by George Soros, Sprott Inc., and other big-name financiers. The
company has a valuation of more than $30 million.
BitGold is the first serious financial services platform ever built around
gold. The online service allows users to buy gold, store gold, and pay for
goods and services around the world using gold as the currency. The service
has been active for less than a week but has already signed up thousands of
users.
As its name implies, BitGold takes inspiration from Bitcoin. But there are
a lot of questions about the intrinsic value of bitcoins. While gold has
plenty of non-believers, the metal has been a medium of exchange for thousands
of years.
Sebag and Crumb, who are 29 and 35 respectively, got the idea for BitGold
shortly after the financial crisis in 2008. Sebag was a hedge fund manager at
that time, and the collapse of Lehman Brothers made him alarmed about
counterparty risk. He talked to some mentors about his concerns and they
piqued his interest in gold, which has no counterparty risk.
He never embraced the end-of-the-world ideology so beloved by gold bugs.
But he saw the value of using gold as a currency, and he was surprised there
was no bank fully backed by gold. He teamed up with Crumb (who has a mining
background) around this time, and they got to work creating a financial
platform that would make gold more accessible and an easy medium for
transactions.
Other people have tried to do something like this in the past, but they
were never able to overcome the legal and technical impediments. Sebag and
Crumb worked with lawyers and politicians to offer this service under
Canadian bailment law. They got the world's largest bullion banks to connect
to their platform, and got Brink's Co., a leading storage and security
company, to serve as clearing house for trades. Through Brink's, BitGold can
track whenever gold owned by its customers moves in and out of vaults.
"It is a complicated (structure). But for the user -- and this is the
main thing -- it's just Paypal with gold. It's a nice, clean interface,"
Crumb said.
After users go through an extensive sign-up process at bitgold.com, they
are able to deposit funds and obtain gold stored in vaults in six different
cities around the world. After that they can pay for goods using that gold or
redeem physical gold in 10-gram cubes (worth about US$400). Brink's handles
the transfer of the gold between the two parties. In the next month or two
BitGold plans to launch a debit card that can be used at any ATM or retail
location. That will allow users to buy that Tim Horton's coffee with gold,
just as its founders dreamed.
BitGold has a 1 percent fee to buy gold and a 1 percent fee to redeem it.
Storage is free. The founders argued this is a far more attractive fee
structure than the popular gold exchange-traded funds, which have annual
fees.
Sebag, the chief executive, has been telling the Street that he has a
target of 50,000 customers for BitGold. But his hopes are an order of
magnitude higher than that. Based on the rapid take-up of the platform in the
first few days, he said, it appears to be far more than a niche product for a
small group of users. He noted that hardcore gold bugs make up less than 10
percent of the user base so far.
"I'm seeing friends who signed up sending payments to each
other," Sebag said. "I know they bet on football, and now they're
paying each other."
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