Regulating the XRP TipBot
With almost 60k unique accounts in the XRP TipBot database, a little under 700k tips processed and close to 2MM XRP tipped, I believe I can rightfully say my hobby project got a bit out of hand 🎉
While some other crypto-communities witnessed their TipBots go out of service because of limited usage or creators fearing for regulation, the usage of the XRP TipBot increased. The XRP community embraced the XRP TipBot big time, celebrating positivity and generosity.
I'm proud beyond words to see how generous the XRP community members are. How people send some of their XRP across the world in seconds to help others out, sponsor charities and show their appreciation.
The XRP TipBot was never to become a business. No fees, no revenue: just some of my time and some donations to keep the servers spinning.
I didn't implement some (much requested) features to make sure the TipBot would stay a hobby project. Imagine deposits and withdrawals in fiat, tips with notes & higher tip limits allowing a use case for payments and remittance, etc. — amazing features, but they could/would slowly spin the XRP TipBot into a business.
I felt pretty comfortable operating the XRP TipBot as a hobby project. Even while usage increased and the amount of XRP in custody stacked up. I'm living in The Netherlands, and crypto regulation wasn't a thing (just yet). Of course I always knew things would change at some point.
Then at the 3rd of July this year, the Dutch government announced things were about to change for crypto businesses / projects.
2020: Mandatory registration
In the Netherlands, the DNB “The Dutch Bank” is entrusted with the supervision and regulation of entities involved in moving money. If you want to get a e-money license, start a bank, start a currency exchange business, etc. you'll have to get a license from the DNB. They are tasked with license issuance, audits, investigations in case of suspected wrongdoing, etc.
Countries in the European Union are obliged to comply with new AMLD5 rules starting January 10th 2020, as they need to tighten up their processes to prevent money laundering and the financing of terrorism.
The Dutch government decided to task the DNB with the supervision and regulation of crypto businesses as well. While the Dutch government did not yet pass the bill on crypto regulation, it is without a doubt this will happen within a few months.
Last week, at the 8th of November 2019, the DNB organized a seminar for crypto businesses to brief them on what's about to happen. I was invited for the seminar, and gladly visited the event. It was well organized, clear and answered most of my questions.
The DNB explained they won't be issuing licenses for crypto businesses, but there will be a mandatory, paid registration. Crypto businesses will be vetted, as will their directors. This will be on a per-company, per-directory basis, respecting the nature and the extent of the company and it's business. After successful registration, crypto companies will be periodically audited.
Crypto businesses are to establish rules risk profiles, and get to know their customer (KYC) well enough to assign a risk profile. All transactions will have to be continuously monitored to improve and possibly reassign these risk profiles. Suspicious transactions will have to be reported to the (Dutch) Financial Intelligence Unit.
One thing is sure: the 'Wild West' days of cryptocurrency are ending.
— and I believe this is a good thing.
While regulation may create new barriers to entry the world of programmable money, I believe the only way to get through this phase of development and adoption is to gain lots of trust and credibility from the general public.
Companies, founders and developers can now show they in this for the long run, leading the way.
I fully intend to comply with the Dutch law and soon to be implemented crypto regulation. I see this as an opportunity to learn, professionalize, and take things to the next level.
While I'm at it, I believe this is a great opportunity to converge some other projects like XRParrot into one amazing XRP-focussed platform. Keywords are fun and usability: the key factors that contributed to the success of the XRP TipBot and XRParrot.
(XRParrot, my service for European customers to turn (limited amounts of) fiat into XRP, runs separated from the XRP TipBot as I didn't want to mix my hobby project with a business, even though XRParrot is not focussed at generating any profits)
A glimpse of the future
KYC & AML: Onboarding, deposits & withdrawals
I intend to keep the TipBot easily accessible, but there will be some changes adding a few steps before one can start using the XRP TipBot.
Right now, all you need to get started with the TipBot is a Twitter, Reddit or Discord account and some balance that may even already be available to you because another user already tipped you.
No point beating around the bush here: there will be mandatory KYC to start using the XRP TipBot. However, KYC will be part of a even bigger change: XRP TipBot accounts. Users will have to register one XRP TipBot account, linking their social media accounts to their one XRP TipBot account.
This will mean you can link your Twitter, Reddit and Discord profiles (even a multitude of them) to one XRP TipBot account, sharing one TipBot balance.
Depending on the user risk profile (based on the amount of XRP flowing in and out of the account) KYC will be as minimal as possible, up to a full exchange like KYC process. While I still have to get up to speed about the minimum KYC requirements, phone and email verification will definitely be part of setting up your XRP TipBot account. This will also bring mandatory (two factor) withdrawal confirmations, one of the things I wanted to add for a long time.
A new workflow for tips to unregistered users
The ability to send XRP to Twitter, Reddit and Discord users, even before they registered a XRP TipBot account, contributed greatly to the user base growth.
The soon to be passed law in The Netherlands requires businesses to know their customers. Tips sent to not-yet-registered social media handles will be parked and locked in the account of the sender, waiting to be claimed by the person tipped. The amount of XRP parked & locked will be transferred to the beneficiary once registered and KYC'd.
(I'm considering adding an expiration (eg. two years) on parked & locked tips.)
As you may have noticed I started this blog by talking about my (beloved) XRP TipBot hobby project, then to move on writing about regulation & crypto businesses. If I'm going to take the XRP TipBot alive & to the next level, compliant with regulations, I don't think I can call it a hobby project anymore. It will require lots of work, hiring a lawyer, getting vetted by the regulator, getting a contact with a KYC provider, scanning transactions for AML risk, etc.
So. Let's take the existing XRP TipBot features. Improve them. Add a great, user friendly user interface. Turn it into a business. Add features like higher tip amounts, transaction descriptions, fiat conversion...
I feel the name “XRP TipBot” doesn't quite cover this new platform I'm describing.
I don't have any inspiration for a good name for the “regulated XRP TipBot V2” platform, but I'm pretty sure, with the help of the XRP community, I'll be able to find a good name that:
- covers the features of the new platform
- is attractive to new (potentially: crypto unaware) users
- works in other cultures as well (where “tips” aren't a thing)
- is appealing to the existing user base as well
Monetizing the XRP TipBot
Last but not least (I'm pretty sure the XRP TipBot is going to lose a few users here 😭)... Monetization. Until now I was able to keep the XRP TIpBot running based on donations. All I had to cover were the hosting costs. No need to cover my time, as any hobby will consume spare time (and you can imagine the amount of positive energy a well-received project like the XRP TipBot gives).
With what's about to happen, it will be impossible for me to operate the XRP TipBot without covering some great expenses, up front, repetitive and on a per-user basis (KYC). The Dutch regulator (DNB) already disclosed the registration of a crypto business will also mean a fee will be charged, and audits will cost money. I won't be able to do this all by myself: I'll have to hire specialists (like a lawyer & KYC+AML tools).
So... Believe me: I hate to ask for this, but:
Imagine registering your XRP TipBot account, charging a few bucks*. Imagine the platform taking a small fee when making deposits / withdrawals. Would you still be use the XRP TipBot?
The XRP TipBot becoming a “platform to transfer value” (using the XRPL and ILP) focussing on social media integrations, an open ecosystem for developers, a user friendly web & app environment, regulatory compliance, etc.: would a platform like that be viable when relying on (as small as possible) fees? Will the XRP Community be on board? Would the majority of the users be willing to go through a KYC procedure?
Questions I needed answered before investing a lot of time and money into what could be the second generation of the... “XRP TipBot” (?)
As I'm already focussed on the projects we're building at XRPL Labs (and potential spin-offs) I will have to turn the XRP TipBot into a (small) business, breaking even.
I won't be able to turn it into a start up, as I don't have the time, and I firmly believe a project like the TipBot is better off if it is self-sustaining: if the user base is willing to go through KYC, and if they are willing to come up with the (digital) cash to support the platform.
* Charging a few bucks: for new users, the fee could potentially be covered by taking a chunk out of the XRP waiting for the new user, as there may already be parked & locked tips sent by existing users.
Thanks for the cover photo https://unsplash.com/@beatriz_perez!