Meet Australia's Bitcoin bankers

If you’re going to start a business with a big mission, give it a big name. Bitcoin exchange Independent Reserve nailed it with a title that sounds like it comes with the Reserve Bank’s tick of approval.

Institutional players in the world of Bitcoin have not had a great track record. Last year the largest exchange, Mount Gox, went into administration and several thousand Bitcoin owners saw their combined holdings of US$450 million vanish.

Adam Tepper insists his exchange, which he claims is the leading proponent in Australia despite only launching in October, is different. Instead of holding onto Bitcoins for their owners, like Mount Gox did, Independent Reserve matches buyers with sellers.

Although Tepper is an IT guy, his executive team has 50 years of collective experience in investment banking. It has been working closely with PricewaterhouseCoopers, one of the ‘big four’ accounting firms that audits the exchange’s records. (Tepper claims it’s the only exchange in the world that subjects itself to this rigour. We couldn’t verify the claim.)

“We wanted to show that we were doing things the correct way that any financial institution would do them around the world,” Tepper says. 

Independent Reserve benefitted from a recent ruling by the Australian Taxation Office that ordered exchanges to pay GST on fees or commissions levied by exchanges. This hurt other exchanges that bought Bitcoins on behalf of others and onsold them for a small commission. Open-market exchanges such as the Independent were not affected by the ATO ruling.

Tepper and CTO Adrian Przelozny have 15-year IT careers, each in developing business-critical application for a financial institution and broadcast media. Much of the technology behind the Independent Reserve was familiar from previous systems the pair built in their software consultancy Asia-Australia Technology, which they ran together for 10 years.

The system is based on Amazon Web Services and distributed across several servers in multiple data centres with failover servers.

AWS “has made it very easy to manage the security remotely”, Tepper says. An on-premise solution would have cost $250,000 plus maintenance, he estimates.

Tepper and Przelozny conducted several months of load testing on AWS and demonstrated that it could handle hundred of trades per second – far above existing volumes of a dozen trades per minute.

“We can configure the CPU for each server and we can get more trades by splitting it into a larger number of servers,” Tepper says. The testing showed where bottlenecks would emerge at scale and they figured out the steps required to remove them.The platform behind Independent Reserve also has a robust API, Tepper says, which allows investors to arbitrage against other exchanges. A lot of exchanges in the US and Europe have similar APIs, which makes it easy to buy and sell to take advantage of the different rates.

In the future, the Reserve might have mobile apps or other features that use the API.

So how does this exchange work? Buyers and sellers can find each other on the exchange to convert Bitcoins to and from regular currencies. Australian users can pay through BPAY while international customers must use the SWIFT banking network.

Why did two IT guys tackle a virtual currency? The opportunity was too good to pass up, Tepper says.

“We saw that Bitcoin had a lot of potential. The industry was fairly young and immature in 2013, there was really no strong currency exchange. We thought that if we could build a really strong platform in Australia, we could grow into other countries,” Tepper says. 

Bitcoin remains a highly volatile currency. It is worth about US$300 at time of writing down from a high of US$1250 in 2013.