Image from BitInstant
The field of cryptocurrency is almost inseparable from the high-profile currency known as Bitcoin. While not the only digital money of its kind, it is known easily as the most popular.
But it isn’t enough to have a solid currency that people know for it to be truly successful, it must be functional. Sure, it can be exchanged between holders. But it must also be able to be exchanged for other currencies on a platform people can use.
Exchange platforms are popular for stocks and governmental currencies, which means they are also popular for crypto. And while there are some exchange platforms that are still going strong, others have fallen by the wayside. This is the case for BitInstant.
Even going to the once-bustling exchange platform’s former website simply brings up a page on how to buy cryptocurrencies.
Today, we’ll take a look at this platform’s history, including its founding, its successes, and what ultimately led to its downfall.
The Origins: How Did BitInstant Get Started?
When you look up information about it on Crunchbase, it is like staring into the pages of history. It gives a glimpse into an exchange platform that used to be, where payments were once processed for various Bitcoin exchanges and for a variety of merchants.
It was back in 2011 that Gareth Nelson and Charlie Shrem had an idea. With the rising popularity of Bitcoin and cryptocurrencies in general, there was a growing demand for compatible technologies. People wanted platforms they could use to exchange Bitcoin on, and this is exactly what these two men aimed to create.
The company set up the system to allow people to purchase Bitcoins through hundreds of thousands of stores including the likes of leading retailers like Walgreens and Walmart. Essentially, given Bitcoins rise from an asset to a currency with its increasing public approval, BitInstant helped people convert their US dollars into Bitcoin.
The service immediately gained a lot of attention – as it should, given the hype around cryptocurrencies and Bitcoin in particular. Such a revolutionary technology had the potential to change the world. Privatized money, free from a central controller, meant people could potentially enjoy unprecedented levels of financial freedom. However, there was a lot of work to be done.
At one point, as the platform grew, they accounted for nearly a third of all Bitcoin transactions. At one point, they even received investment capital from Roger Ver.
By 2013, the price of Bitcoin was rising rapidly. Some people had believed this was simply due to the buzz around the new technology. Others credited the controversy around a decentralized money to fueling the speculative flame. But it is hard to deny that having a reliable exchange may have also increased peoples’ willingness to flock to Bitcoin and try their luck with this growing cryptocurrency.
The Progress: How the Service Gained Ground
There was a lot of buzz around BitInstant, and the people behind it were perhaps unprepared to deal with the full scope of the demand.
In 2013, when the buzz around crypto was really getting hit, BitInstant announced they’d be integrating with Jumio, an online payment company. Jumio’s Netverify software solved one of the Bitcoin exchange’s biggest issues – verifying the identity of customers.
The service made it possible to get a little more security in terms of trading, which opened the service up to those who were perhaps a bit skeptical around the entire crypto culture. Yet as the service ballooned with progress quickly, there was a problem – they were also facing hardships. Perhaps collapsing beneath the weight of their own success, BitInstant began to
experience some significant problems.
In July of the same year, they adopted Netverify, they released a statement saying they had temporarily restricted transactions in certain states. This move made some people uneasy about the service’s future. Nonetheless, their statement said that they believed the measures were serving the interests of both the service and the greater Bitcoin community.
The criticisms began pouring in, with customers noting delays in their processing times. In some cases, it was hours, in others, it as days. The complaints had the team stressing out and working around the clock to resolve backlogged tickets – the once forward-moving service was now stuck in neutral as the issues they faced seemed to overwhelm the relatively small team.
The Downfall: Controversy and Problems Topple the Platform
Shortly after the company had announced they were suspending some states’ service access, a bigger announcement followed – they said they would be temporarily suspending all services. The announcement which came in July of 2013, would be the beginning of the end for the service.
They said they were stopping in an effort to improve coding. Based on the complaints that had been coming in, there were some trends they noticed. It seemed that there was a lot of things they should’ve done beforehand that they didn’t – such as expanding their resources in terms of support and troubleshooting specialists.
And of course, there was the controversy regarding cryptocurrencies untracked nature – in early 2014, Shrem was arrested and charged with conspiracy to sell a million in Bitcoin to users on the Silk Road – a dark web network designed to enable the buying and selling of illegal drugs.
In some ways, the Silk Road represented an alternative to state-mandated controls over drugs. In the eyes of some, governments have banned drugs to stop dangerous people from wreaking havoc on otherwise peaceful communities. But for others, the failed war on drugs creates more crime than it stopped.
For the former group, Silk Road was a way to circumvent the law and put peaceful people in danger. For others, it was a way to circumvent the law to protect people and take drug dealing to a safe, trustworthy platform and off America’s streets.
But in either case, the war on drugs is big business for government – and by allegedly being involved in interfering with it, Shrem had been one of the few people who dared to mess with the elite’s payroll. The BitInstant website was soon taken down, and the service had become a thing of the past.
Whether their intention was to become involved with the Silk Road or whether it was simply a lapse of judgment, the service had sustained a marred reputation at least in the eyes of those who viewed government regulators as a source of protection rather than a group seeking their own profit.
And regardless of the public’s views, it would be hard for Shrem to continue working on the service from a jail cell. Some may even assume the move was a conspiracy to take down the platform and enable traditional financial services to maintain their monopoly. But in any case, there are many things that were learned from this interesting experiment.
The Legacy: What We Learned from BitInstant
For some people, BitInstant was a questionable service to begin with. It was something people didn’t ully understand and many viewed as a shady dealing in one way or another. But there was also a group of people who used the service faithfully and even got introduced to crypto through this platform.
The service showed how capitalizing on market trends can help a platform take off quickly. Strong demand can create big opportunities, but it can also present some problems. BitInstant could, in some ways, be looked at as a service that grew too fast for its own good.
Given the questions regarding the crypto trend, it was understandable that people would respond quickly to a reliable platform. But the overwhelming demand may have been too much for the service to handle. And because the financial freedom that came with crypto posed a threat to some traditional institutions and power structures, it was inevitable that BitInstant could run into trouble.
While there are a lot of things to be learned in terms of what not to do (get ahead of one’s self) there are also lessons about what to do to succeed in the crypto field. The field is a tricky one, but BitInstant had the right idea of integrating Bitcoin into exchanges that used mainstream stores and governmental currencies.
The best way for this type of service to succeed is to ease into it slowly and to make sure to be
prepared for the inevitable rush of customers once the service proves viable.