What’s Next for CZ? Binance CEO on Getting Hacked, Being Compliant, and His Future
Changpeng Zhao, better known as CZ, is one of the most influential figures in cryptocurrency / blockchain circles. From flipping burgers at McDonald’s to getting his computer science degree at McGill University, to now Founder and CEO of Binance; CZ has built one of the world’s largest cryptocurrency exchanges. In this unreserved 40-minute conversation, CZ reveals how Binance was forced to be compliant, how he views Facebook Libra, and how a recent $40 million dollar hack was a blessing in disguise. He talks about the future of blockchain and cryptocurrency, and his own future at Binance.
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Welcome to Forkast.News, “In Conversation With,” a very special edition. I am Editor-in-Chief, Angie Lau. I am sitting next to Changpeng Zhao, or better known as CZ, CEO and Co-Founder of Binance. So welcome to Forkast.News.
Thank you for having me here.
It is a very interesting space in which we find ourselves. We are here in Taipei at the Asia Blockchain Summit. There are thousands of people here; they are buzzing about it. Now you are one of the most influential and vocal in the space. You are influential; you are vocal. What is it about crypto and blockchain that you see?
I think that is obviously the future. I think basically whatever people felt about the internet in 1995, we are kind of feeling it right now for blockchain. I think the future has so much potential that we do not even understand right now. So people are just sort of imagining what kind of applications we can build with the blockchain technology. It is not a technology that solves every problem, but it is a technology that will significantly improve many of the top problems we have today, especially regarding finance, fundraising, and all of our well-being. It does so many difficult problems. So the future is limitless.
It is limitless, but you see a lot of potential right now in the crypto exchange space. What are you building at Binance as you say?
Sure. We have two parallel tracks. We have the centralized exchange, which is our main business, binance.com, which is one of the world’s largest crypto exchanges. It is easy to use. It is fast. It has very high liquidity, low fees, etcetera, but we do need to hold custody of the funds. So at the same time, we are building a decentralized exchange where we no longer hold custody of the funds at all, so you can plug in your hardware wallet, go to the website, and then start to trade.
When you go to the website, you are actually not trading on the website. The website is just an interface to the blockchain. You are trading on the blockchain, holding your own funds and there is no constant of even an account. So it is just an address trading against another address. It is just the privacy that you control on your device and never leaves the device, not even your laptop. So this way you have full control of your funds and trade very freely.
The DEX is a new project; the liquidity is a little bit low right now. But I do think that is the future. I am spending a lot of my time on both, but the DEX is a community project. I mostly give advice and ideas. I am the ambassador. I am the loud guy who is doing all the talking.
Well, the loud guy that does all the talking that really represents the promise or seize and vocalizes about the promise of blockchain. And you have your critics, including Nouriel Roubini, who very much stated that there is a problem with the industry. He calls you guys ‘snake oil salesmen’ and uses very colorful language. How do you respond to those types of criticisms that are based on issues that are very real, issues like wash-trading, front-running, and pump-and-dump schemes? These are things that have been criticisms and real problems in the industry. How does Binance address those?
Sure. I think in every industry there are issues, so we are not ignoring the issues that exist. We are not in a perfect world. We’re not using perfect technology that has no limitations or no flaws. It is not so much the technology fault. In traditional markets, there is wash-trading, front-running, and other issues. You just got to deal with these issues. The technology is a significant improvement to traditional technologies. To be real, there is a bunch of stuff that I do not really understand to be honest. I don’t know why he comes to conferences like these, spending days of his life just to trash-talk the specific industry that the conference is trying to promote.
So I guess the conference organizers want a different type of opinion. He is kind of an interesting character. But not only that, we got to look at the utility value in this fundamental technology. I said before, it does not solve every problem. It is not perfect, but it is so useful. It is useful enough that you will create a whole new future.
But one of the things about providing liquidity and providing a platform is transparency of the market. How do you have fairness to your investors, to retail investors on the platform, if there is pump-and-dump, if there is front running, and if there is faking of transaction volumes? Those are real issues.
I think basically there are a few different factors. There are exchanges who do very minimal. We actually spend a lot of time fighting with wash-trading from project teams. The project teams want to promote their trading volume to be ranked higher on the exchange, so we actually do a lot of things to fight that. We have a lot of clarity in the data because we can see who is trading on the centralized exchange, so we actually do a lot of work to fight that. Second is that the retail traders are getting smarter, and there are more industry reports about different behaviors. In every report, Binance is reported as the highest real volume exchange by far. Bitwise has a report. Many other organizations issue reports, and we do very well.
So even though this happens in the industry, I would not say it never happens in Binance. It does, but we try very hard to fight it, so we are pretty clean. There is nothing at 100%. The third aspect is that with tax, for example, you can see exactly which accounts are trading. Even though you do not know who they are, it is so much harder to do this wash-trading and to do fake volumes with DEX. With DEX, now you can identify addresses who are trading, which you cannot do in centralized exchanges. So this, I think, will bring a new level of transparency to the industry. You will solve a lot of the older opaque problems that we have.
Does it also solves the regulatory problems of KYC and AML?
No it does not because there is no concept of accounts.
So today if you start any Ethereum DEX, somebody would create a smart contract to trade and would be completely decentralized. So I do not know how that would work yet and I do not know how the regulators would regulate that, but the technology now allows you to just trade with addresses without doing KYC and AML and in a slowly decentralized network that no one controls. So today you can transfer bitcoin from one address to another. Those addresses do not have to go through KYC.
Are you though increasingly finding yourself on the other end of that conversation with regulators? FATF just came out; they want KYC and AML for any transaction of $1,000 U.S. That is a very low threshold yes and that is something that you are required to do by law.
Yeah, actually FATF is not the law. FATF is a guideline advisory organization, which are very influential. I think it is up to the countries to implement them, but I think it is very important to the FATF regulation or other proposals. I do not think they really understand. It is kind of obvious to me that the guys who make those regulations may not understand crypto that well. Today, you can transfer billions of dollars on the bitcoin blockchain without any KYC or AML. No one is in charge. There is no information to share. No one has that information other than the sender. So I do not know how they are going to achieve that.
Just requiring virtual currency service providers to provide the information, it is actually only a very small portion of the transactions that are involved. And when you have that kind of strong limitations on the virtual service providers, what is going to happen is everything is just going to move from the centralized service providers onto completely anonymized, completely decentralized. There is no information. So the end result of that may be is that they actually have less information because they are so strict and they are going to push away all the activity. I think they are not thinking through the secondary effects of the impact of that regulation.
So it would be the equivalent of everybody wanting shoes, but then telling the shoe store that they have to be very restrictive on who they can sell shoes, but meanwhile, that is just one portal to an entire market of people wanting shoes, or bitcoin, or cryptocurrency, or whatever that asset is.
Basically, in theory, I think what FATF are wanting to do is to say any transaction that is over $1,000 U.S., you have to provide KYC but they can only apply that to the centralized service providers. They are ignoring or being sort of blind to 90%. Look at Bitcoin. The transactions on the bitcoin blockchain, you cannot request that information.
Are you forced to be compliant?
Yes, so I think we have many regulator entities that are… my understanding is that every country is going to implement this slightly differently. And none of the countries have came out right away yet. But I think in the next few months or years, there will probably be regulations coming out. We have many exchanges in legal or full-complying jurisdictions and will have to follow whatever the rules are, but that would only push the activity away from our service. It would just push on to the DEX and into real blockchains, and I do not see how those rules will solve that problem.
Where is Binance based today? What are your jurisdictions?
So we have a few fiat exchanges: Jersey, Singapore, Malta, Uganda and a few more coming up. But for binance.com, we are actually not based anywhere.
But you are also launching Binance in America, tell us about that.
So far, we have tried to actively neglect the U.S. market because of the unclear regulations and it is just a tough market to work in.
Yeah, you have told U.S. customers that they will no longer be serviced as of this month.
To be honest, our position is that we have never serviced them. It is just that now that we are launching a US exchange, we are becoming more strict with our checks so now are actually getting stricter and saying strongly we are not going to service them. From our position, we have never serviced them, but we do recognize that the U.S. has a very unique set of regulatory rules in the sense that they actually require foreign businesses to block their own citizens. For example, instead of blocking their own citizens themselves, they require foreign businesses to do that individually. So now the burden is on the foreign businesses. That is fine. We want to be compliant with every regulatory policy, and the U.S. is a big market, so we do want to start to attack it, or at least be active in that market and be able to provide our service.
It is a very mature market. It is a very sophisticated market, you could say, and if you could tap into that liquidity pool what kind of liquidity can you bring into the cryptocurrency market, through Binance America?
Yes, the U.S. is a very mature market and there are already a few good exchanges there. They run quite well. They have relatively large volumes, and user businesses, etcetera. We do see the U.S. as a technology innovator. Silicon Valley, their technology innovation is very strong, but the U.S. regulations are right now unclear. They are hindering the growth of the industry. We hope to provide our services and be able to offer more coins, etcetera. But we will come to limitations, but we will comply with whatever the rules are and play with their rules.
How important do you think then is to provide institutional grade trading platform and technology, not only for Binance America, but globally?
I think for America is especially important because there is a very large proportion of institutional money in the U.S, whereas in the rest of the world the proportion is much smaller. I think the U.S. has that mature institutional money management industry given the mature regulations. For example, if you look at a country like China, nobody believes, nobody trusts anybody to manage their money so even billionaires or multi-millionaires trade themselves, so there are larger retail markets in other places of the world. But we do want to service both.
Just to clarify, the U.S. entity is ran by a separate entity, BAM Trading Services. They have full control over how they want to run it. We are technology providers so we do provide the technology for both retail and institutional trading.
And you just launched Binance Futures. Tell us about what this means for liquidity here, and what kind of products you are going to be providing the market?
So we did a baseline user feedback. A lot of users want to keep their funds in one place so that they can trade market margin and futures contracts. For our future contracts, the contract structure is a little bit different from the other exchanges. So we are not in direct competition with them but we want to be able to provide that service as a comprehensive package to our users.
So the users in your mind are more retail investors?
To be honest, we have both retail and institutional investors now, and the institutional investors are pretty big already, even outside of the U.S.
In terms of creating market and tapping into market and almost creating products that work for them, that work for your retail consumers, this is still a very complicated instrument. We are talking about derivatives; we are talking about futures. How are you thinking about simplifying that and making it understandable for a retail investor?
Number one, there are many great examples to learn from. There are already many evolutions of futures contracts, like the perpetual contracts right now are probably the easiest to understand. That is probably the one we are going to start with first. This way we leverage other people’s education efforts to the industry, so we learn from others. We do intend to keep simplifying the product structure and the user experience as well.
I think the industry is generally pretty familiar with futures contracts. Fortunately for this case, we actually do not have to do a lot of education, where as for example for the DEX you have to do a lot of education. In this case, we are providing a new product based on customer demand, so they already know what they want. They can give us a lot of detail and we already have selected beta testers giving us feedback. So futures will be a little easier actually. Even though systemwise you got to do liquidations, risk-management, etcetera, but the product design itself is very standard.
What do you think of Facebook Libra?
I think I am the inclusive guy. I think in this industry where we promote freedom, we should have the tolerance or the acceptance for anybody to come in, because that is freedom. So, I always welcome any company, any coin to come to our industry, as long as it is not a scam. I do not think Facebook is a scam. I do not think Mark Zuckerberg needs to raise a billion dollars and disappear. He is already way beyond that. The other factor I judge a project by is by number of users, so I think they will have a large number of users.
Yeah, so that is like a couple of hundred times than our entire user base for this industry. So I think the fact that they can bring 100x users into crypto is a great thing.
Do you think the conversation has shifted as a result of Facebook’s announcement of the Libra project?
Oh yeah, absolutely. So now all of a sudden the regulators, especially all the U.S. regulators, are targeting them and then even the international regulators are targeting them because they are so big.
So the heat is off you?
Actually, so far, we have never had any major issues with any regulator so we actually have never been in that position. When there is heat, we back off. We do not try to fight. But if there is one organization in the world that can have a negotiation, have a conversation with a strong position against a regulator, which company would that be? That would be Facebook. And also, I do not want age discriminate, but if Facebook had a traditional leader, they might not be so receptive to crypto, but Zuckerberg is a guy who is very taken technology-driven, and has a technology background, also relatively young, so higher acceptance to new technologies. He obviously likes this crypto-currency technology. Whether he is true crypto or not, that is a debate for the theoretical guys, but I think we are very lucky to have the largest organization the world pushing crypto for us.
Crypto as a digital asset or true decentralization, that’s a debate that will see unfold over the next year. But are you going to be participating with Facebook Libra? Does Binance want to have a business relationship, participate in the governance, participate as a node?
I generally do not comment specifically on our working arrangement with any particular coin project, a company like Facebook, but in general we adopt a very neutral position because are an exchange, we are a liquidity provider, so we want to work with everybody that helps the industry. And we do think that getting users into the space regardless of how decentralized, whether there is one person or 100, we just want to get users in. So I think any project that can help do that, we would generally be very supportive. So as a general stance, I think we will be very supportive.
Which leads me to ask you this question because it was very controversial when you pulled BSV off your exchange. Well, you tell me about it. How did this all come about?
I think everybody I talk to in the industry knows that crack is not Satoshi. That is a clear fraud, so that is lying. So that is very different from Libra, where the company may privacy issues, etcetera. There may be some concerns about that is overpowered.
Do you think that lie undermines the value of BSV?
Absolutely. We cannot tolerate a person that is lying to be Satoshi Nakamoto, the creator of bitcoin. So that is just a pure fraud, and we said, “okay, enough is enough.” And he is suing people, etcetera, so enough is enough. And also, even though I did not do a poll on Twitter, but when I said “enough is enough,” that tweet is the highest liked tweet. It got like 14,000 likes within a day. So basically the community have already voted, they have strongly supported our decision, so it was a very easy decision.
So the decision still feels arbitrary. Is there a process? That is number one. Or is the process really listening to the community and what they want? And/or did you learn that possibly this is not going to be the first nor the last of what is… I am not going to characterize it as a toxic token, but some would say, “How do you, in the future, deal with other toxic tokens?” So what is the process? Is it arbitrary? Is there a process internally? How do you do that?
Yes, we do have a process internally of course. So again, we evaluate the projects constantly, even after the listed and if we see this fraud, if we see there are shenanigans going on, or if we just feel that the project is no longer developing the product and is no longer valuable, we have a list of criteria that we do evaluate on a constant basis. Even though I did not do a poll on Twitter, the community response was very overwhelming clear. So we do listen to the community a little bit, but we do not really discuss our listing and delisting too much with the community because it always causes a debate because for every coin, there are some holders, and for every coin, there are some haters. So it is not so much up to the community’s debate, especially on binance.com. It is binance.com’s decision, but over the long term, Binance’s success depends on keeping the good coins, good projects listed and removing the bad coins. They will be turned over time, and they will continue to be delisted in the future.
There is no doubt, not only are you very influential in the community. One could say, as a result, very powerful as well because of the ability to either list on Binance or not – that really could be make or break for a project, right? How do you personally deal with that kind of criticism? Deal with that kind of perception of power? How do you personally think about it, for yourself?
So I think for me, it is very simple. I don’t have any pressure I don’t have any egos I’m not trying to demonstrate that I can flex my muscles or anything. Actually, I don’t think we have a lot of power to be honest, because if we abuse the power a few times, then we lose that power, and people are going to move to other exchanges. So we continually hold to our ethical standards where we want to find good projects, list them, help them grow, and so that’s very simple. So it’s not so much that we try to use that power. I actually don’t view it as power. We have a responsibility to help the industry grow. There will be some debates because it comes down to a subjective opinion. We list a relatively small number of coins, 150-ish out of a few thousand that exist, or maybe more, that have ever existed.
We do have a short term influence the projects. We give them access to a very large number of users. We increase their liquidity, usually increase the price in the short-term, but in the long-term, the price depends on the project. So there are a lot of cases where, for example, somebody will hold a small coin and they want to list it on Binance. And because we don’t list it, they will say “we’re biased, we’re abusing our power,” but we look at it from a very neutral, raw basis.
There’s a small number of coins listed on Binance.com, and we will continue to increase it, try to increase it. We’re actually actively looking for projects that meets our listing criteria, but understand that also Binance.com a big exchange now. So for a small project to get listed on Binance.com, it would actually cause a lot of fluctuations in the price. It may go like this, and then came down, that’s not good.
So we actually encourage for small cap projects to list on other smaller exchanges first, or on Binance DEX first, and this way we can monitor and see how the price performs on small exchanges. And on the smaller exchanges, the number of users rushing in is smaller and this has less of an impact on the natural price, so there’s a natural price discovery. And when they list on multiple small exchanges, and perform well, we say, “wow great, now we can list it too.” It’s not just listing on small exchanges– the progress of developing products, we look at that through time. So it’s not just about one listing application, no response, we reject it. It’s not like that; you can continue to resubmit every month, show your progress, engage with community, build your product. So even if we don’t list you today, six months later when your Mainnet is live, a bunch of guys are using your chain, we will list it. So we never really reject outright. Sometimes you just have to be patient. So I don’t view us as having a lot of power. We have to list good projects; we actually, for example–
It’s almost like you’re a ratings agency… of projects. Of the quality of projects that you decide to list ultimately, on Binance.com.
Yes, so we have to have an opinion. In this industry, we have to have our own opinions. So yes, it is a subjective opinion, but at the end of the day, if you have millions of users, we have no choice but to list you. You don’t have to talk to us, you don’t have to beg us; if you have millions of users, you are most likely get listed.
How many users do you have right now?
We have, actually I haven’t checked… about 13 or 15 million users, we actually don’t really check the user numbers. For exchanges, the registered user numbers are not as important as the active user numbers.
Active users then, how many do you have?
It varies on a day-to-day basis, from half a million to a million or 2 million every day. So it’s a pretty active user base.
And where are they, from around the world?
Very spread out. Basically, if you take a global GDP chart, that’s kind of our user base. There’s a few abnormal situations, but in general it corresponds to the GDP distribution.
Are you taking a look at nations like North Korea and Iran? Are you thinking geopolitically, whether or not you should be providing liquidity and/or an exchange capability to investors there.
At Binance.com, we are fairly respectful of the US regulators; and we do respect the sanctioned country list, so we don’t service those sanctioned countries, we really don’t have a choice. As a centralized service, we’re open to attack from the regulators so we need to be fully compliant. So we cannot service those guys. But Bitcoin does not distinguish between any of those countries; anybody can use Bitcoin.
In a truly decentralized way. But as you said, it is centralized and you’ve been subject to hacks. Two months later, after the huge hack that happened at Binance, what are the lessons learned? How did you deal with it then? What was your reaction when you found out that it happened, personally and professionally?
Well, personally first, it’s like kind of like… “f—”, right? But you always have this in your mind: that sooner or later you will have an instance that this will happen. There is no 100% security.
Luckily, it was that they found a loophole in our withdrawal process. So it’s not that they hacked our cold wallet. It’s that they found a weakness that they leveraged. So it is very unfortunate, but we got over the amount very quickly. It was a big amount, it was 40 million dollars back then, but that we got over that quickly. That’s equivalent to one of the burns we did in one quarter, so 20% of profit, so it’s okay, it’s basically–
You made whole, you made everybody whole.
We made everybody whole right away. It was very clear.
How important is that?
I think that’s super important. If you look at some of the exchanges that survived hacks, including Bitfinex for example, they make people whole every time. So I think for the exchange credibility point of view, you can have instances, but you have got to do the right thing. So that’s really, really important.
You’ve got to have a track record. You’re establishing that track record right now.
Well yes, we are. Unfortunately. Unintentionally, yes, we are. But also, what was really stressful was we had to make sure that we covered everything so there are no more holes. So, we beefed up our security really, really heavily. We did probably about six months or a year of work in that week. So that was the stressful part, getting all that jammed in and making sure everything was secure.
So given that, I would say it is probably a blessing in disguise. We are now actually much, much more secure than before and probably than almost every other industry player. We are using some really advanced security techniques that would have taken much longer to implement. But because this happened, we dropped everything and the team didn’t have any objections anymore. Because before, if I told them, “Don’t do anything for three months, we’re just going to do this one thing related to security,” well, the business guy is going to complain, everybody is going to complain. But when this happens, stop everything, get this done, just overtime, cram everything. There are no discussions anymore. Some of my team feedback was: before a discussion could take like an hour just to introduce a concept, but now the discussion is two minutes, “we’re gonna do this. Yes, let’s do it.”
So it’s good, actually. It is costly, but it’s not a cost that we could not afford. Fine, it’s not cheap, but we got over that.
So what keeps you up at night now, as CEO of Binance?
Actually, I do sleep quite well at night again. For about a month or so, I was sleeping not so well. But I do sleep pretty well now. I’m no longer involved in the daily operations of the exchange. I spend a lot of my time on the exchange part of the business, just sort of overlooking things, but nothing depends on me, which is a really good. We’ve got a really good team that carry out operations, so I can go to conferences and disappear for hours or days, and things just progress.
Well, you’re doing one very important thing which is representing Binance and the future and the vision. You’re offering in an IEO. Tell us about the IEO – why do you want to provide this market an opportunity to essentially buy a share in Binance?
For me, blockchain fundraising as a general concept is a key killer app, and that’s probably the killer app that we want to focus Binance’s energy on. There’s a few different aspects to it, we want to be able to invest in our industry, invest in startups that will build this industry bigger because we provide liquidity, we have a user base, we are sort of the fundamental…we are the TCP IP level. But we’re not Amazon, we’re not those guys. We do need other projects to build us so we have Binance Labs which invests in them. We have Binance Launchpad which helps them raise money, but in addition to money, the also raise user awareness, brand awareness; the initial user base is really critical.
After Binance Labs we typically list on Binance.com giving them liquidity and more users. That helps with projects tremendously, and if the project does well in those regards, most likely, they are issuing a token on Binance Chain, which increases the utility for Binance Chain.
And the ecosystem then increases of value of Binance.
Of BNB. I’m actually less concerned about the valuation of Binance itself as a traditional company.
But more BB, you’re interested in that?
I think the future is the currency; it’s the BNB value that we want to drive. So we’re building everything for BNB; it’s all about adding more utility to BNB. I think this is the thing we can do really well, we can add a lot of value to projects, we can bring a lot of value to users, and we can bring a lot of value to this industry, which will then make ourselves bigger.
What was the thought process then, offering lottery to those who are interested in the IEO? Explain how you are providing that to the community.
Sure, there are conflicting considerations to design IEOs. We want the total market cap, the total valuation of the product to be low. This way it’s a good investment for the investor so that they have room to grow. We don’t like overly arrogant projects like, “Okay, I’m a $200 million project, I want to raise $1 billion”. Those big projects– when they list, they go down. It hurts investors.
We want to keep the valuation low, so we usually raise $3 to 8 million which is actually a really, really small amount of money considering the user base we have. But everyone wants it– the problem with first come, first served, is that everyone rushes in and our system crashes, nobody can get it. The first few guys get all of it. So you create that kind of issue. Or we can do an even split and say, “Everybody gets a little piece but then everybody gets 10 cents worth of… You have over distribution, and it’s basically like dust. So that’s not good either.
So we have to come somewhere in the middle where we say, “Now let’s do a lottery.” So you have to use some BNB, you have to have some cost, you have to take some risk. And then we do a lot of redraw, so that’s kind of a middle ground. So it’s more of a distribution mechanism optimization– it’s not so much that we designed it like this from the beginning. We saw the problems, and then we had to come up with a solution. That’s the solution we –
Who are the people who are coming up with the solutions? Are they economists, are mathematicians, are they technologists, are the developers, are they everybody above and beyond?
No, we don’t have that kind of specialization yet. It was just a few guys in the office… The second time the system crashed because everyone rushed in, and everybody was unhappy, we actually did the lottery system even for the Binance ICO ourselves. A brand new ICO on a brand new website on Binance.com, two years ago, 2017. We actually did three different systems. The first system we did was a register for allocations, the first 2500 registrations got allocation for the Binance coin. So that got us to 9000 users in one day on a brand new website. So we had that system, the first come first served registration allocation thing.
Then for the second phase of the Binance ICO, we had the lottery. It works slightly differently, but the concept is simple. The details are slightly different because there are no holdings or Binance coins, et cetera. But we had it back then. So this is not a completely new concept we just came up with, we actually don’t need economists to tell us this.
The lottery system exists in traditional financial markets, on the Chinese stock exchanges for IPOS et cetera. So there are a lot of concepts we can copy from different markets. Even the perpetual futures contracts are not inventions from crypto, they existed in Chinese futures markets way before crypto. So you’re going to look around and copy stuff that works.
And that’s the beauty of innovation, which is really iteration of previous systems that work, or learning from those that have failed. So, when you take a look at the history of you, CZ, in blockchain and crypto, how have you evolved? How have you iterated?
I think I’ve evolved quite a bit, and I’m still evolving, I’m still learning. I think overall… For example, before I joined the blockchain industry, I was always working in financial IT, specifically trading systems, exchanges, Bloomberg Tradebook futures, so always in this market. But I was more of a programmer, technologist; I was an entrepreneur, but I was still on the technology side. After coming to this industry, I first went to Blockchian.info to learn more about the crypto stuff. I wasn’t confident enough to just say, “I am going to jump in and do my own exchange right away,” even though the idea was there.
I did join some other exchanges to learn the ropes. It took me awhile to work up to building Binance, and we got really lucky as well; we had the right timing, the right team, the right product and the right market conditions, so we got really lucky there. I think we’re still learning, the market is still changing very quickly, we are still changing very quickly, but luckily I think we’ve got a fundamental base that’s pretty strong now. We’ve got a really strong team. I’m still learning, I’m still evolving.
You’re at the top of the food chain, but as they say it could all go away tomorrow. Where do you think Binance could go, and what do you think you would do if it all went away tomorrow?
I think number one, it could go in the decentralized exchange direction, which we have our own experimental product there, which I think is very competitive. So hopefully that will work, and if that doesn’t work, then we’ll try multiple times to make it work. So we may do it again, if it doesn’t work. I think the decentralization direction is definitely a direction it will go. It will actually move faster if the regulations are more strict, because basically if the regulations are more strict on the centralized exchanges or centralized service providers, all the volume is going to to the decentralized world. We want to be ready for that, so that’s why we’re spending a lot of time building decentralized technologies. Even though now most of revenue business is good here, we want to be prepared for the future.
In a few years I hope to be able to be irrelevant to Binance. I can do anything I want, and then everybody carries on with Binance. I will become relevant; I’ll make a few personal investments here and there, travel the world and maybe, I don’t know, invest in AI, look at some other technology. I’ll find something to do.
You know what’s interesting about blockchain, as you take a look at the incubators and the projects, is the blockchain potential plus other technologies. So back to the cyber security, which you’ve enforced and you’ve made whole. But they’re going to come again. And quantum technology, quantum computing is right around the corner, which would blow cyber security protocols that currently exist out of the water. How are you preparing for that day?
I’m not too worried about that because mathematically, encryption is always much easier than decrypting. So when there are quantum computers, the current encrypting algorithm may not work, but there will be a new algorithm that will be much easier for the quantum computers to encrypt and much harder for them to decrypt. It would just be another encryption algorithm that would be invented. It’s just mathematical formulas. I’m not an expert anymore, but there are far smarter people than me that will figure that out. So, I’m not too worried about it. Mathematically, it’s always harder to pick a lock than to lock it. There will be some mechanism.
I think when there are quantum computers which have very high computational power, we will have much better speed, a much better user experience on, for example, DEX, and we will be able to handle large trading volumes on DEX. So I think it will help decentralization. The more computing power there is, the better.
Three blockchain forecast predictions for 2020?
Prediction is easy without a timeframe attached…
Alright, no timeframe. Three blockchain predictions from CZ.
Sure, two of them are very easy. I forecast there will be a thousand blockchains and a million tokens. So that’s why we are very focused on the token market, and hopefully we will be a big player, we will remain to be a relevant player when that happens. So those are the three predictions.
I only counted two – one more!
Okay, the industry is going to get 1,000 times bigger for sure. And so will the price, I think. I really hate to make price predictions, but I think in general the industry will get much, much bigger.
Bigger, smarter, more talent. And final question for you. China is clamping down on cryptocurrency. They love the technology, but they’re clamping down on even one being able to be a node without government approval. Do you think this kind of environment really hampers innovation?
Actually, I don’t think so. To be honest, it actually invokes innovation to try to fight it, so it actually pushes for more decentralizing innovation and you push for most stealth technologies, so more privacy coins, dark pools, you push everything to be non-traceable. So it actually increases the speed of that, which actually makes the control aspect of it irrelevant. So I actually think what the regulators should do is actually be more open to it. Say “Welcome to the centralized exchange, it has a lot of freedom, low limitations, come and use it”. And in that way they actually have the data that they want, because otherwise they’ll have zero data.
China is really a tough market to regulate because it’s such a big country with such a big population. So they can’t regulate on a case by-case basis. In smaller countries, they can have a very relaxed regulation and look at projects on a case-by-case basis because there’s only a handful of projects they need to look at. In China, there are like, a million projects, so they can’t do that.
So China typically has very tough regulations, which is unavoidable. But China is very pro-technology and innovation, so they will figure something out. If you look at the internet, China is probably the only country that successfully limited the internet very severely, but still had a very thriving internet industry, so that’s super smart.
Whether they can do this for the blockchain space, I’m not sure. I hope they can, but we only see step by step so we’ll just continue to build.
CZ, continue to build. Thank you so much for joining us on Forkast.
Thank you so much.