In this article, we will be analysing & evaluating LocalCoinSwap like how a Venture Capital or Start-up incubator program evaluates individual Start-ups.
About
“LocalCoinSwap (LCS) is a decentralised marketplace which allows buyers and sellers to trade directly in any cryptocurrency using any method of payment. LocalCoinSwap provides a safe, uncomplicated and fast peer-to-peer (P2P) trading platform, allowing users to freely exchange without unnecessary verification requirements or waiting times. The platform utilises a secure escrow system that solves the inherent trust issues of online P2P trading. LocalCoinSwap is holding a crowdsale event of LCS Cryptoshares. Cryptoshares are a digital asset which will be used to facilitate distribution of all profits made by the LocalCoinSwap platform, in addition to all profits made by new business ventures under the LocalCoinSwap umbrella. Cryptoshare holders will additionally receive airdrops of new ICO tokens listed on the LocalCoinSwap platform.”
Problem
The LCS team has created a concise overview of the problems that they’re addressing which is excellent. Below are the issues that they have identified in their whitepaper (1):
- Hostile regulation has resulted in the closing of traders’ accounts on exchanges whilst tedious verification procedures have forced users who wish to trade cryptocurrency to release their private information to exchanges.
- Many individuals who are interested in investing in cryptocurrencies have not yet done so either due to a lack of patience because of the many steps that they need to achieve to purchase cryptocurrency, or due to a lack of the technical competence required to complete those steps.
- Cryptocurrency traders who wish to purchase a small to medium altcoin must access both a centralised exchange with a fiat gateway, then a P2P exchange where they trade one of the main cryptocurrencies for the altcoin they desire. This results in far higher fees overall & increased risk to being hacked due using multiple different software.
- A few large exchanges now have a majority market share in the cryptocurrency exchange marketplace and don’t provide a mechanism for investors to share their profits.
The first problem is huge due to the amount of personal information we must give to some exchanges just to be able to trade. To participate in an exchange that has mandatory Know-Your-Customer (KYC) procedures, the investor normally must provide official photo I.D, their personal contact details & even a selfie (2). Once an investor provides this information to an exchange, there is a constant risk of either hackers stealing investors personal data, or the risk of exchanges selling this information to data miners (3).
Problems 2 & 3 are major issues because they ultimately hinder the likelihood of cryptocurrencies becoming widely adopted by society. If owning cryptocurrency requires a certain level of technical know-how & access to a smart device, a significant portion of the world’s population will be simply unable to enter the cryptocurrency space. And if the cryptocurrency space is so fragmented that an investor needs to use multiple exchanges to obtain their desired altcoin, then the process will be too deterring for those who dislike paying high fees or are time poor.
Problem 4 can also be an issue, as major exchanges will accumulate large reserves of cryptocurrency that they may use to influence certain aspects of the market for their personal gain. There are also the lingering disadvantages that occur when there is a ‘Monopolistic Completion’, such as higher fees and inferior products (4).
Solution
The LCS team aims to solve these problems by creating a Cryptocurrency trading platform that implements features which will hopefully solve the four problems above for their user base. These features include:
- The enabling of Peer-to-Peer trading of all digital currencies currently available on the LCS platform. They have indicated that this will also include fiat to cryptocurrency pairings as well (5).
- Allowing users to register onto the LCS without any identity verification being required (6).
- Integrating coin pairings that will benefit the greatest number of users and enabling Cryptoshare holders to vote on whether certain cryptocurrencies should be implemented (7).
- The Cryptoshare system, where LCS Cryptoshare holders will gain their portion of 100% of the profits in proportion to the number of tokens that they hold (8).
Overall, the solution that the LCS team proposes has the potential to address the problems that they have stated. There may however be many unintended consequences of their solution that may limit the growth potential of the LCS platform.
The biggest issue is the potential for Cryptoshares to be considered a security by a government institution. Although the LCS team has stated in the Terms & Conditions that their tokens aren’t recognized by any government entity as a security (9), there will always be a risk that a Government entity may label Cryptoshares as a security due to the promise of regular dividends and voting rights (10). And it is this potential risk that could prevent LCS from being listed on major exchanges in the future along with other consequences if they’re compelled to register with the SEC.
The other potential issue comes with the repercussions that could come from Governments due to the LCS team not requiring identity verification. Recently, the Australian Government has made it a requirement that all Australian cryptocurrency exchanges abide by new anti-money laundering rules which compel these exchanges to identify their customers and to track and report certain transactions (11). Although LCS has registered their company in Hong Kong which is relatively crypto-friendly, there is always the risk that Hong Kong may bow to international pressure and create their own anti-money laundering rules which could cause major difficulties for the LCS team. The lack of KYC may also limit the activities that LCS can do in countries like Australia.
Although these issues could become a problem in the future, the LCS team has a number of highly qualified legal advisors who seem more than capable of preventing any major inconvenience.
Competition
There is currently a lot of competition in the cryptocurrency exchange space with hundreds of competitors all trying to obtain a larger market share (214 are currently listed on coinmarketcap) (12). This competition will make it very difficult for LCS to obtain a meaningful share of the market once they release their trading platform in Q3 2018 (13). To stand out, LCS will need to implement very innovative marketing tactics to convince new and veteran cryptocurrency investors to try out the platform. If they can fully implement their solution, there should be a lot of investors who’re willing to try out the platform upon release.
Market Size
Thankfully, LCS will be entering the burgeoning cryptocurrency market whose total market cap is expected to continue to grow (14). And with over $23 billion dollars currently being traded every 24 hours, LCS will have plenty of opportunities to obtain the trading volume required to operate and expand (15).
Team
The LCS team comprises of individuals who have the skills required to operate a successful exchange, including expertise in economics, program development, legal, marketing & blockchain (16). Overall, the team composition of LCS would provide confidence to investors and is a major plus.
Some of their team members include:
Nathan Worsley (CTO) – Developer of a series of successful trading algorithms based on Triangular Arbitrage between cryptocurrencies. Founder of company as a cryptocurrency investment fund based in Hong Kong: Digital Assets Management Ltd.
Thomas Underwood (CFO) - Experienced financial analyst and business development manager, with roles at major Australian and international private companies. Professional skills are well rounded, within all accounting and financial roles, with proven abilities to create solutions for start-ups and cryptocurrency-related companies.
Daniel Worsley - Experienced in business strategy, operations and quantitative analysis. Successful stock and commodities trader in several financial markets over the last 8 years. Advisor to a Hong Kong based investment firm. Passionate about decentralization and blockchain technologies.
Mr David S. Lee (Legal Advisor) - David worked in investment management in Hong Kong and London before joining the University of Hong Kong. He started his career at Goldman Sachs and has experience in law and in management consulting.
Business Plan
The LCS team have crafted a business plan that contains plenty of detail as to how they will operate the platform. They believe that 80% of revenue will be paid as dividends to Cryptoshare holders, and they will also disclose all expenses in each financial period to provide full transparency to their investors (17). Given the large amounts of revenue that Cryptocurrency exchanges generate, it isn’t unrealistic to think that LCS could have the potential to obtain a profit margin of 5 to 1 (18).
The downside to their business plan is the lack of a publicly available platform until June 2018, and the official launch of the LCS exchange until August 2018 (19). Despite this, I believe that their solution and team will be able to make up for any lost ground from now to release.
Verdict
Despite the potential issues that they may face down the line, I believe that the LCS team has the potential to create an exchange that will obtain a meaningful market share and benefit all LCS Cryptoshare holders due to their strong team & the uniqueness of their solution. I'd give LCS a positive rating.
Disclaimer
The information provided in this piece that relates to LCS was accurate as of the 7th of May 2018. The information within this piece is not financial advice, and individuals should conduct their due diligence before making investment decisions. I am writing this article due to their bounty campaign.
LocalCoinSwap media:
Website: https://www.localcoinswap.com/
Telegram: https://t.me/localcoinswap
My referral link (greatly appreciated if you decide to invest!): https://ico.localcoinswap.com/r/SAG6754
References
- LCS whitepaper page 4 https://www.localcoinswap.com/LocalCoinSwap_whitepaper_v1.0.pdf
- https://www.investopedia.com/terms/k/knowyourclient.asp
- https://www.techworld.com/security/uks-most-infamous-data-breaches-3604586/
- http://www.shareyouressays.com/knowledge/7-main-disadvantage-of-monopolistic-competition/116528
- LCS whitepaper page 5
- LCS whitepaper page 16
- LCS Whitepaper page 16
- LCS whitepaper page 6
- LCS Whitepaper page 30
- https://www.investopedia.com/terms/s/security.asp
- https://cointelegraph.com/news/australia-launches-new-cryptocurrency-exchange-regulations
- https://coinmarketcap.com/exchanges/volume/24-hour/all/
- LCS Whitepaper page 20
- https://cointelegraph.com/news/crypto-experts-predict-2018-bull-run-bitcoin-to-50k-overall-market-cap-to-1-trln
- https://coinmarketcap.com/charts/
- https://www.localcoinswap.com/team.html
- LCS Whitepaper page 14
- https://howmuch.net/articles/crypto-exchanges-revenue
- LCS Whitepaper page 20