Bitspark Whitepaper

Tuesday, August 6, 2019
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Bitspark’s Bankless Ecosystem Whitepaper 1 of 14

Contents Introduction • Money Transfers • The War on Cash • In Perspective: Target Markets • The Bankless Alternative Bitspark’s Bankless Ecosystem • Channels • Bitspark Mobile App • Web Platform/API • Decentralised Exchange (DEX) • Vehicles • Stablecoins • International Vaults • Zephyr Bitspark in effect • Cross Border Money Transfers • Same World, Different Benefits • Individual • Business • Crypto Trader Appendix • About Bitspark • Stablecoins 2 of 14

Introduction We live in an age of ultra-high mobility. Advances in transportation and communication technology have led to unprecedented numbers of people travelling, working and doing business across borders. And yet, in such a fast-paced global environment, traditional financial institutions have been remarkably slow to adapt. This becomes particularly apparent when considering cross-border money transfers. Money Transfers There are more than 180 different fiat currencies in circulation, each varying in value, strength and liquidity. Transferring these currencies across borders is expensive, inefficient and often impractical. This is due to the global financial infrastructure which is characterised by tight KYC/ AML regulations, high opacity and a strong dependency on third-party institutions. Transactions become particularly problematic when sending money to developing market economies with weaker currencies where economic and political infrastructure is strained. Trading in and out of exotic currencies is expensive due to low liquidity on the global market, and the consequent need to route exchanges through strong currencies such as USD. Apart from cross-border money transfers constituting an essential function for e-commerce and trade, for millions of migrant workers sending money home in the form of remittances is of critical importance. It is a multi-billion dollar industry that sustains families and developing economies. The World Bank estimates that officially recorded remittances to low- and middle-income countries reached $466 billion in 2017. However, due to high transaction fees charged by banks and companies such as Western Union and Moneygram, a staggering 7.1% ($33 billion) failed to reach recipients.1 The War on Cash The remittance industry is facing a number of imminent and structural challenges including a lack of reliable data on migration and payment flows, increasing KYC/AML compliance costs, and high transaction costs which are still well above the 3% target set by the UN with its Sustainable Development Goals. However, the single biggest threat facing cross-border money transfers today is de-risking. 1 in-2017 3 of 14

De-risking refers to financial institutions exiting relationships with clients who are regarded as posing a high risk i.e. those that predominantly deal in cash. It affects different types of organisations including money transfer businesses, NGOs, NPOs and SMEs. Banks are traditionally resistant to disruption and seem more interested in preserving power than the prospect of financial inclusion. Their continuing disengagement is constraining the future of the remittance industry and money transfers at large. Considering that businesses providing cross-border transactions are in direct competition with banks, de-risking is essentially a way for banks to secure their dominance. Facing these challenges, businesses continue to look for alternative means to serve the cash- economy. That’s because for the world’s 1.7 billion unbanked, the cash network is the only option to send and receive money. The war on cash is a threat to cross-border money transfers, and therefore of major concern for families in developing nations. It is the perfect problem for a crypto-based solution. In Perspective: Target Markets Founded in 2014, Bitspark has been working to build an alternative system to address these challenges and remove dependency on banks. Our journey began when we conducted the world’s first ever cash-in cash-out money transfer using bitcoin and we have since refined our services to support a global network. Bitspark’s solution first and foremost addresses the exclusion of cash-based economies, with a focus on the emerging markets of Asia and Africa. In these regions, more than anywhere else, cash is still the primary means of storing and transacting value. For instance, Indonesia is among the major cash-based economies. In fact, it is the second largest cash-based economy in the world. With a population of 250 million, only 36% of Indonesians have a bank account. Credit cards, debit cards and internet banking are used by 1%, 8% and 5% of the population, respectively. This means that the majority of transfers, both domestic and international, are predominantly cash-based.2 2 4 of 14

These figures correspond to other emerging markets in Asia and Africa where Bitspark is working to serve people and businesses to live and thrive without banks. Bitspark's network serves the Philippines, Indonesia, Nigeria, Ghana, Vietnam and Pakistan since 2015 until now. The Bankless Alternative The parallel financial ecosystem which we have built dramatically decreases the cost of money transfers, increases efficiency and speed, and effectively cuts banks out of the equation. We do this by leveraging blockchain technology and crypto-economics. Specifically, we tokenise existing cash networks using stablecoins as transport vehicles for fiat currency to travel across any border and remittance corridor. Through our ecosystem, any of the world’s 180 fiat currencies can be exchanged and transferred at the lowest possible rate in the most efficient way. As firm proponents of decentralisation, transparency and accessibility, we designed our ecosystem in such a way that it is easy to participate. To take part in a bankless financial future, all you need is a mobile device with internet. That’s how we make financial freedom an inclusive option for everyone. 5 of 14

Bitspark’s Bankless Ecosystem The Bitspark ecosystem is built on the BitShares blockchain and consists of: Channels • Mobile app • Web platform • Decentralised exchange (DEX) Vehicles • Fiat-pegged stablecoins • Inclusion Points : International vaults, Mobile and Shop agents. • Native rewards token Zephyr Each component has its own distinct function as part of the bankless alternative, but they are all interconnected and work in sync, providing different inclusion points servicing individuals, businesses and traders. Ecosystem: Channels Bitspark mobile app Focus: Individuals The mobile app serves as a beginning and end-point in Bitspark’s cash-in, cash-out network serviced by various inclusion points such as vaults, mobile and shop agents. First, it enables individuals to locate their nearest Bitspark-affiliated inclusion point and exchange cash for crypto. Using the app, a sender then transfers the tokenised cash to the receiver. Finally, the receiver finds an inclusion point to convert crypto back to cash. Users get instant access to the world of crypto benefits, without requiring any knowledge of the technology that makes it possible. All they need to know, and they will as soon as they make their first transaction, is that this way cash can be sent across the world in a matter of seconds at a fee that was previously impossible. Bitspark web Focus: Business 6 of 14

Bitspark’s secure web platform enables businesses to execute global transactions and manage funds across currencies. It is also a repository for all customer due diligence information which reduces the labour-intensive paperwork conventionally associated with KYC/AML requirements when customers deposit or withdraw funds. With this platform, businesses can continue to offer cash-based services to their existing customers who have downloaded the mobile app. With a built-in function to instantly exchange cash for any stablecoin at the exchange rate fed by the DEX, all remittance corridors can be serviced. Furthermore, the platform is designed using a familiar workflow and offers simple implementation with both browser-based interface and API integration. Decentralised Exchange (DEX) Focus: Traders SparkDEX is Hong Kong’s first portal to BitShares, the world’s leading decentralised exchange. Purpose built for trading stablecoins, it is the engine that drives liquidity and price discovery across currencies. This is what enables app users and businesses on the platform to transfer funds across borders in a way that is faster, more efficient and cheaper. Crypto traders play a vital role in growing the ecosystem as it is through their participation that the cash-in cash-out network can operate with scale. Ecosystem: Vehicles Stablecoins Cash entering the network is tokenised using stablecoins. This enables customers to conduct their fiat transactions with the speed, efficiency and low cost of cryptocurrency transactions. Bitspark uses trustless, crypto-collateralised stablecoins. Among all forms of cryptocurrencies, trustless stablecoins serve a special function and utility. They are much less volatile than bitcoin or altcoins and as they can be pegged to any of the world’s 180+ fiat currencies, they are highly suitable for money transfers. Inclusion points: international vaults, mobile and shop agents Inclusion points such as international vaults, mobile and shop agents, enable cash to enter and exit Bitspark’s ecosystem. International vaults specifically service businesses as an alternative to 7 of 14

bank accounts for cash deposits. We tokenise these cash deposits which adds liquidity to our entire ecosystem. Mobile and shop agents function in a similar fashion, enabling individuals to convert cash to crypto and vice versa. Zephyr Zephyr (ZEPH) is Bitspark’s native rewards token, designed to incentivise usage and growth of the ecosystem. It is awarded to customers for every transaction, top up, referral and cash- withdrawal. The value of ZEPH is engineered to increase through our buy-back mechanism. Buy- backs take place at random times over the period of 30 days, when we re-invest 25% of all commissions earned across Bitspark’s business. 8 of 14

Bitspark in Effect Cross-border money transfers The advantages of our bankless alternative become apparent in a side-by-side comparison of conventional channels and Bitspark’s money transfer process within the same remittance corridor. Let’s asses this in the context of Sub-Saharan Africa. Sub-Saharan economies are largely cash-based, with around a third of its population unbanked.3 Apart from global remittances, regional remittances are both common and problematic. Generally, there are two options available to transfer money across borders: via banks or through cash-based retail channels such as Western Union. Bank option Transferring money across borders through banks is an incredibly complex and opaque process. The multi-hop model of correspondent banks and currency exchanges causes friction, delay and exorbitant charges. The process is shrouded in mystery and customers have no clear visibility into how their money is moving across borders, when it will arrive and how much it will cost. Retail channel When it comes to retail channels, the main problem with dominant service providers, such as Western Union and MoneyGram, lies not so much in its inefficiency, but in the power they wield as monopolistic middle-men. These companies charge extortionate fees, usually hidden in exchange rates. The Bitspark Alternative In stark contrast, our bankless alternative offers a completely new way of transferring money across borders utilising cutting-edge technologies, inclusive of the existing cash-based economy. The Bitspark ecosystem is both faster than the banking channel and more cost-effective than its retail counterparts. 3 9 of 14

With Nigeria as the main source of remittance inflows for Ghana,4 the Ghana-Nigeria corridor serves as a case in point. For our comparison, we use global average fees for bank transfers and focus on Western Union due to its hold on retail. Example: Sending money from Ghana to Nigeria: Sending by Bank Transfer Sending by a Retail Channel Sending by Bitspark Time: 5-10 Days Time: 1-2 Days Time: Seconds Cost: 11% Cost: 6.5% Cost: 0% 4 10 of 14

Same world, different benefits The Bitspark ecosystem benefits customers differently, depending on their particular purpose and position within the network. Individuals • Channel: Mobile app • Need: Access to affordable money transfers • Problem: Financial exclusion; high costs of exotic currency pairings • Solution: Cash-friendly mobile service to transact stablecoins pegged to any fiat currency Businesses • Channel: Web platform • Need: Providing reliable and efficient cash-inclusive service to their customers • Problem: De-risking undermines operations; currency exchange structures slow down processes and yield unnecessary costs • Solution: Independence from banks; the tools to serve as a cash-in cash-out inclusion point with access to a liquid market for all 180+ fiat currencies; the ability to offer reliable service at competitive rates Crypto Traders • Channel: Decentralised exchange • Need: Access to a safe trading environment irrespective of currency pairings • Problem: Exchanges are not open to all fiat currencies; Centralised exchanges lack security, transparency and pose a counter-party risk; • Solution: A reliable decentralised exchange purpose built for trading stablecoins, with a path to the cash-in cash-out network. Zephyr Holders • Channel: Decentralised exchange • Need: The ability to trade in and out of Zephyr against other cryptocurrencies or fiat. • Problem: The majority of DEXs do not accommodate fiat currencies, let alone the cash economy. 11 of 14

• Solution: A decentralised exchange that enables Zephyr holders to benefit from Bitspark’s global cash-in cash-out network. 12 of 14

Appendix About Bitspark Founded in 2014, Bitspark is a Hong Kong based fintech company that offers a financial system that doesn't depend on banks by helping individuals and businesses exchange and convert cash to cryptocurrency. We conducted the world’s first cash-in cash-out money transfer using bitcoin and have since refined our services to support a global network. In recent years our network has expanded to cover eight countries in the Asia Pacific and African regions including Hong Kong, Malaysia, Philippines, Indonesia, Vietnam, Ghana and Nigeria. We have formed a number of important partnerships and gained recognition at home and internationally. Bitspark has participated in a number of reputable programmes: - 2014: Cyberport Incubation Program backed by the Hong Kong government - 2015: Accenture Fintech Innovation Lab APAC - 2016: SixThirty Fintech Accelerator USA - 2017: The UNDP for financial inclusion projects in Tajikistan In the financial space, Bitspark has been recognised by Goldman Sachs, Citibank, KPMG and Nikkei and has received coverage by noted publications such as Forbes, SCMP, RT News, New York Times, The Australian, Coindesk and many more. 13 of 14

Stablecoins Best understood as price stable cryptocurrencies, stablecoins are highly suitable for cross- border money transfers. They are robust in terms of their ability to accommodate reasonable fluctuations and float on an open market. Stablecoins are either fiat collateralised and trusted or crypto collateralised and trustless. Fiat collateralised • With this form of stablecoin, each token is collateralised by an equal amount of fiat currency, usually held by a central custodian. Holders of these tokens are guaranteed to redeem their token at any point for the value in fiat. • The downside of this type of stablecoin is it that poses a counter-party risk: it requires a trader’s good faith in third-parties with regard to the presence of sufficient collateral that backs the stablecoin in question. Crypto collateralised • Crypto collateralised coins are backed up by reserves of another cryptocurrency. This makes it possible to create decentralised and more trustworthy stablecoins. To counteract the volatility of the reserve crypto pool, the stablecoins are often over-collateralised to absorb major price fluctuations. • Trustless stablecoins form the core of Bitspark’s ecosystem. Specifically, we use BitAssets which are backed up by 200% of BitShares’ native token, using smart contracts. 14 of 14