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Slush startups bet on Bitcoin

Out of the roughly 2,600 firms at Finland's biggest startup event Slush this year, more than 150 were in the crypto space.

Pessi Peura, community manager at Finnish crypto firm Prasos.
Image: Yle News

Observers could be forgiven for thinking that Finland, with its history of high tech know-how and sizeable population of computer nerds, might be at the bleeding edge of cryptocurrency. There are a handful of Finnish players in the crypto scene, and Yle News went to this year’s annual startup-investor meet up Slush in Helsinki to find out how they are doing.

Bitcoin is the original and most popular form of the computer-produced money, and it has been rocketing in value since the beginning of the year, but the currency itself is less than a decade old.

Rising values have seen cryptocurrencies gain attention — positive and negative — from governments, banks and regulators as well as the media.

What’s all the hype?

In what could be described as a stereotypical outburst of Finnish modesty, Slush chief operating officer Teemu Laurikainen requested to be referred to as a “crypto hobbyist,” in lieu of “expert” when asked to discuss the topic.

In any case, the Slush COO is cautiously optimistic about the future of crypto and blockchain technologies, and acknowledged that people who want to know how it all works face a major learning curve.

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Slush COO and crypto hobbyist Teemu Laurikainen.
Slush COO and crypto hobbyist Teemu Laurikainen. Image: Yle News

Laurikainen’s definition of "cryptocurrency for dummies" is: "digital assets which can be sent peer-to-peer without a centralised party being involved." It's more complicated than that, but the idea of decentralisation of data is key here.

“The main idea is that trust can be achieved mathematically in a decentralised network without the need for third parties,” Laurikainen said.

In the case of Bitcoin, peer-to-peer means that files, digital funds or other data can be sent from one person to another without intermediary assistance, Laurikainen explained.

By design, bitcoin or other cryptocurrency transactions bypass using the services of traditional financial institutions. Not long ago bank transfers were one of the very few methods people could use to send money around the world without delivering cash by hand.

Blockchain backbone

This technical infrastructure has gained much less attention than the charts showing a near-vertical rise in the value of cryptocurrencies this year. Bitcoin started the year at around a thousand US dollars for one coin, and on Thursday a coin was worth more than 9,000 US dollars. That valuation even prices in a 20 percent drop in value in one day, demonstrating the volatility of crypto investments.

Crypto-enthusiast Laurikainen was pragmatic, echoing many observers’ statements that the currency’s unprecedented growth in value could be a bubble waiting to burst.

He said even if bitcoin is experiencing a short-term bubble, cryptocurrency and blockchain technologies will evolve and revolutionise the world.

Laurikainen likened the new technologies to the internet of 1998, before the internet investment bubble temporarily burst - and eventually evolving into the ubiquitous, essential tool that it has become.

“Long term, the crypto industry is definitely growing, but there might be substantial volatility and over-expectation in the short term,” Laurikainen said.

Bitcoin frenzy

Finnish crypto startups are currently few in number, but Laurikainen said he expects the situation will change.

“We have the potential to be frontrunners, because of Finland’s strong, developing tech scene but I don’t think we are there at the moment,” Laurikainen said.

One local innovator is Helsinki-based LocalBitcoins. The firm maintains an international marketplace for bitcoin traders to exchange crypto funds for cold, hard cash or vice versa — in real life.

Because of its established position in the broader market, LocalBitcoins didn’t have a booth at Slush this year. However, the firm joined forces with Jyväskylä-based cryptocurrency company Prasos to hold a special event about the crypto and blockchain industry on Wednesday.

Bitcoin ATMs

Yle News found Prasos’ community manager Pessi Peura at Slush on Thursday afternoon.

He says Prasos was the first company in Finland to offer a bitcoin ATM, and now has a total of nine of the machines in operation around the country.

Their ATMs — at least for the time being, before regulations are set to change in a couple of years — enable people to buy and sell bitcoin shares anonymously with regular bank notes, Peura said.

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Pessi Peura, community manager at Finnish crypto firm Prasos.
Pessi Peura, community manager at Finnish crypto firm Prasos, at Slush on Thursday. Image: Yle News

The main reason Prasos came to Slush was to rustle up funding from investors. But they do not necessarily need to be deep-pocketed ones. Through a special crowdfunding round, individual investments in the firm begin at just over 500 euros, he said.

“Basically anyone, normal attendees (at Slush) can participate as well,” he said. “Equity in the company is spread quite broadly because it’s crowdfunded.”

With hopes to expand globally, the company is focusing efforts on its bitcoin exchange platform The service enables people to trade bitcoin and on its website the firm claims to have already facilitated a total of more than 100 million euros in bitcoin trades over the past five years.

Peura said he didn’t feel like he was working at a startup but rather at a mature, stable company. His previous work experience includes his own startup and employment at other fledgling firms, and he says Prasos feels quite different.

Bitcoin’s breakthrough

It may be the granddaddy of cryptocurrencies, but bitcoin is still considered volatile and risky for investors by many analysts and regulators.

The Financial Supervisory Authority’s (FSA) senior digitalisation specialist Hanna Heiskanen told Yle News that the agency has received an increasing number of questions from the public and businesses wanting to know more about cryptocurrencies.

Those queries have increased in number this year, says Heiskanen.

Cryptocurrency risks

Last week Finland’s Financial Supervisory Authority (FSA) warned investors about cryptocurrencies and ICOs, saying they are risky, volatile investments.

Heiskanen said there are major differences between investing in cryptocurrencies and making traditional investments, but said the main difference is that they’re not regulated.

“There are also a lot of risks investors should be aware of before investing in them,” Heiskanen said.

In last week’s warning, the authority also said that ICOs (Initial Coin Offerings) could be fraught with danger.

ICOs, are a relatively new way for startups to avoid having to traverse the heavily-regulated capital raising process burgeoning firms face when seeking funding from venture capitalists or financial institutions.

Regulation on the way

When a startup raises capital through an ICO, a new form of cryptocurrency is created. In exchange for traditional funds or other cryptocurrency from investors, these startups hand out so-called “tokens” to investors.

In theory the tokens can be cashed out later but, given the chance of failure that any startup faces, there are risks that the ICO tokens could end up being worthless.

There are other troubling issues surrounding ICOs which have caught the attention of financial regulators around the world. Earlier this autumn, China deemed ICOs illegal and banned companies from raising funds with them outright.

Securities regulators in the US appear to be preparing to take major actions on ICO issuers, according to cryptocurrency news site A former US government lawyer told coindesk that the Securities and Exchange Commission will likely “roll out a sort of ‘assembly line’ of enforcement actions against the nascent industry in the coming years.”

EU lawmakers are also currently hammering out regulations on the use of cryptocurrencies in general.

Regulators tackling decentralised money

Heiskanen said there are major differences between investing in cryptocurrencies and making traditional investments, but said the main difference is that cryptocurrencies are usually not protected through regulation.

“Cryptocurrencies as such are not regulated at the moment, but some ICOs may fall under regulation,” Heiskanen said. The agency’s warning was in part prompted by a similar warning issued by European regulators.

“There are also a lot of risks investors should be aware of before investing in them,” Heiskanen said.

In last week’s warning the FSA said “the terms of an ICO and how it is structured depend on what the new cryptocurrency can be used for. Sometimes it can be used to pay for the issuer’s current or potential future services or products, and sometimes the intended use of the new cryptographic currency is unclear.”

Heiskanen said that the FSA doesn't have hard data about how many people in Finland have already invested in cryptocurrencies, but said their numbers appear to be rising.

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