Name: Balancing the Ledger: Binance CEO says BitMEX arrest is a 'wake-up call' for crypto
Uploaded: 2020-10-21
Duration: 16 min 12 s
Description: CZ joins us to talk BitMex arrest, central bank digital currencies, and the pandemic's effect on crypto.

[MUSIC PLAYING] JEN WIECZNER: We are so lucky to be joined by Changpeng Zhao a.k.a. CZ, who's the founder and CEO of Binance. CZ, so great to be with you. Thanks for joining us. CHANGPENG "CZ" ZHAO: Thank you for having me. It's good to be here. JEN WIECZNER: So tell us where you've been these past eight months of the pandemic. How's your quarantine going? CHANGPENG "CZ" ZHAO: Yeah. So I've been just stuck at home for the last eight months. Yeah, so limited travels, but I got a lot more time to do like big chunk stuff, right? Before I was always on the road. And you don't have time to do all the big chunk stuff. And yeah, so there's a lot of conference calls. And yeah, things are going pretty well in general. JEFF ROBERTS: CZ, I'd love to jump in with some crypto questions and start with the big picture. Because we've all been trapped at home, but cryptos is full of action and change as ever. One thing we were talking about before we started the show was central banks. And I'm curious what you think of that initiative by the People's Central Bank of China. And I know Mastercard is doing something. How much do you think this is going to affect the crypto world? And is it a threat or an opportunity? Or just give us the big picture of where central banks and digital currencies are. CHANGPENG "CZ" ZHAO: Sure. I mean, based on my limited understanding, from my perspective, I think anybody who's doing anything blockchain or digital currency-related is good for the industry. Right now the industry is so small, we probably have less than 1% penetration. So having a central bank, launching a digital currency, a blockchain currency is really good for the education purposes if nothing else. So you'll basically legitimize blockchain technologies, legitimize cryptocurrencies. And it gives people the idea that digital currencies and blockchain currencies are totally legitimate. And that there's a central bank issuing currencies. I think we are in a situation where different central banks may have a little bit of a race going on, so with China, US, Japan, a bunch of other countries. So now, there's a little bit of a race going on to see who's going to issue the digital currencies first, and who's going to take over the world with digital currencies. So I think that little bit of a race is probably a good thing for our industry. I think the first iterations of most central bank-issued digital currencies are likely to be more restrictive than having a lot of freedom. But over time they may evolve. So I think having something is better than having nothing. So I always think it's all positive. JEFF ROBERTS: But if they succeed, do you think that's going to be a threat to Bitcoin and the other sort of exciting decentralized currencies? CHANGPENG "CZ" ZHAO: I don't think so for the moment. I think Bitcoin is very different. Even though you can issue many different cryptocurrencies using the blockchain, so you can have the blockchain as the engine behind it. But depend on what kind of rules you set for your digital currency. I would guess very few central bank digital currency is going to have the same freedom as Bitcoin. And most likely, the central banks will still want to reserve the ability to mint additional coins, quantitative easing. There's probably a central authority controlling the issuance or the governance of the currency, which is a central bank. They're unlikely to be a sort of decentralized, as decentralized as Bitcoin. So I think even though they probably will all use blockchain technology, but the fundamental-- there will be some fundamental attributes that are different. And so I don't think in the short term it's going to-- I don't suspect it will affect Bitcoin that much. If there's a government pushing another cryptocurrency that's even more open, more free, have less restrictions than Bitcoin, and faster to use and cheaper to use, then that would threaten Bitcoin. But that's good for the industry. It's just something that's better than Bitcoin and will replace it. So that's the same as HTML5 replacing HTML4. JEN WIECZNER: Yeah. CHANGPENG "CZ" ZHAO: It's not a bad thing. So depending on how they structure it, I don't think the first versions of it will be a big threat to Bitcoin. JEN WIECZNER: Is it a true cryptocurrency though if it's run by a government? JEN WIECZNER: Well, it depends. I think there's many different definitions of it, right? So everybody have a different definition. If you ask a crypto OG, anything that's issued by a central party then that's not decentralized. That's not that's not cryptocurrency. But I think, technically speaking, you can have a central party issuing a currency and still have full governance control over it that's relying on blockchain technologies and encryption technologies with cryptography technologies involved. So is that cryptocurrency or not? I think different people have different-- will probably argue about the semantics and different definitions of it. But I think that's not super important. What's important is what will people use at the end of the day, how much adoption each different currency will get, so how much usage each different type will get. I think there could be centralized versions of cryptocurrencies that will get high adoption. And there could also be decentralized versions that will get a lot of usage. So I think as long as people use it, you will have value. It could be that people will use both types, but just in different scenarios. So we'll have to see. JEN WIECZNER: Yeah. I know Binance has launched stablecoins tied to a number of different world currencies, but not yet in China. I don't believe you have a stablecoin tied to the yuan. Do you think that's coming? Or what are the barriers there? CHANGPENG "CZ" ZHAO: Yeah. No, I don't think we're-- I don't think that's coming anytime soon. So China has a pretty strict controls on capital flight, so for any currencies moving from onshore China to outside of China. I know of a number of people who have talked about different initiatives of doing a stablecoin for the offshore RMB, the CNYH or something like that. So that's the offshore already. That's the money already offshore version. But I think today, given the restrictions on the RMB it's generally quite difficult to do a stable point based on that. But mostly the RMB does not fluctuate too much against the US dollar. So the US dollar stablecoins are still the most popular. And that's most of what we based our stablecoins on. And they're also algorithmic stablecoins. And we have recently issued one by next March. And that's based on algorithms. So that's also getting popular now. JEFF ROBERTS: CZ, I want to talk about regulation for a bit. How did you feel when you saw the BitMEX arrests? Like is this trouble for the industry more broadly, or were they treated fairly, or was that just a one-off example? How did you feel about BitMEX? CHANGPENG "CZ" ZHAO: I was pretty surprised to be very frank. But in these type of situations, without knowing the details, just looking from a third party perspective, it's very difficult to comment. So it's very difficult to know what are the intricate details. Which things were the problems? Which actions triggered which other actions? So it's impossible to comment on that situation. So I think even for the people involved, they may or may not know the full picture on either side. So I think from our perspective, we just want to maintain a very careful and fully compliant structure. So we want to be sure that we recheck our compliance mechanisms. We want to make sure that we don't service any US users. And Binance US service all the US users. So we want to be very sure that we're doing all the compliance checks, and we're not stepping on anybody's toes. So I don't really know what's going on there. But it is a surprise. And it is I guess a wake-up call for the rest of the players to be more cautious, to be fully compliant. And also as the regulations become clear over time, we need to adjust our approaches. So back in 2015 you can probably like do anything because there was no regula-- like no one's talking about classified Bitcoin as something. But I think in 2018 and in the last couple of years, there has been a lot of regulatory guidelines. So we just want to be able to-- we just want to be very respectful to those rules and change our approach so that we're fully compliant. JEFF ROBERTS: Here in the US, there's a lot of talk. This maybe too much regulation. I was talking to Brad Garling-- or Chris Larsen at Ripple. And he was saying Ripple is thinking of actually moving its headquarters because US regulation is so onerous. Where is a more favorable climate right now? I mean, which countries do you think are doing regulation right? In the past, we always talked about Switzerland, but some of the Asian countries? What do you think? Which country do you think has got the best balance between consumer protection and fostering innovation? CHANGPENG "CZ" ZHAO: Yeah. To be honest, that's also a very difficult question. I think the smaller countries typically move faster because they have less government. Basically, if you have a large government, if you look at the US, there's so many different agencies, so many different states, so many like federal agencies, et cetera. Just coordinating, you just have a bigger body to deal with. So things generally move slower. That's not anybody's fault. It's just that if you have a large structure, they turn slower. And also US is very established in terms of traditional financial industry. So there's a lot of rules in the traditional financial industry. So anything new you do, you have to worry about. You have to think about all of those rules. Whereas a smaller country probably will move faster just because they have less people. They have a smaller government. But at the same time, I think just in the world today, this is a very fluid, dynamic space. China's moving. China was slow for a while, but it's moving really fast now. But whether it's moving in the right direction that it takes, I'm not so sure. I'm not saying that they're moving in the wrong direction. But it's just sort of a lot of this-- even the regulations that's coming out, they are kind of experiments. So it's usually what I would expect to see is that the first iterations of most regulations will be overly restrictive. What they're going to do-- What the logical thing to do is basically borrow from the traditional financial industry and use that on crypto. But crypto is different, right? So people can transfer bitcoins on the blockchain without any interference. How do you control that? So I think the first iterations will be more restrictive, will be more likely to be overly restrictive. And over time maybe the competition between different countries may cause people to sort of recalibrate. So I think some of the smaller countries like Singapore are probably going to have an advantage because they can adjust faster. But they also have smaller economies. So the impact will be less. So it depends. So I think US has a very strong advantages in terms of the core foundations of technology innovation. So there's a lot of technology innovators. There's a lot of VCs. The industry there is just a lot bigger. So we can see a lot of the DFI innovation are coming from the US. So things could move faster in the US as well. So it's very hard to see. It's very hard to predict. Yeah. JEN WIECZNER: Yeah. Let's talk a little bit about the markets. I know when the coronavirus was really picking up steam in March, and we saw definitely some big market movements both in stocks as well as cryptocurrency and Bitcoin falling significantly, overall do you think the pandemic, has it been bad for crypto, good for crypto? Where do we stand? CHANGPENG "CZ" ZHAO: To be honest, I think overall the pandemic has been good for crypto. I mean, we did see a sharp drop on March 12 together with the stock market, but after that I think the Bitcoin price dropped to $3,000 on that day or $4,000 on that day. But now it's recovered to $11,000. So and not only that, we see a lot more users coming in. So from the web traffic, from number of users, we're now seeing all-time high traffic, higher than when Bitcoin was at $21,000 or $20,000. So even though the Bitcoin price was higher then, but now there's a lot more users. So I think basically potentially a number of things contributed to this growth. Number one is people staying home, probably getting bored. So anything that's online or virtual gets more attention. So cryptocurrencies, you can basically trade them online, buy them online, and send them online. So that's easy. And also with the other sort of macroeconomies, the changes in the macroeconomy, quantitative easing, printing of money, stimulus packages, all of those things push people more towards crypto. So I think, and also we have the DFI innovation in this year. So DFI really picked up in the summer. And so I think all of those things help the growth. So we are seeing a lot. So I'm not sure if everything's contributed by the pandemic, but we're definitely seeing a very strong growth in the crypto sector now. JEFF ROBERTS: CZ, we're running low on time. But I do want to ask you about a lot of the big projects are launching their mainnets. We're talking about Filecoin and DeFinity and Cosmos and Polkadot are all sort of coming online. Is there's room for all of these projects? Do you see one as doing very well and some that might not succeed? CHANGPENG "CZ" ZHAO: To be honest, I think the majority of them will not succeed by just the rule of, the law of nature. So like most of the innovations will fail. But even if they fail, they may be the-- they may build inspirations for the next iteration of that, which eventually may become successful. So it's very hard to tell which ones are going to be successful like say five years down the road. Which one's going to be alive? Which one's going to be dead? It's very hard to tell. But there's no way to do innovation without a high number of failures. So if we don't try, if we're just going to say, OK, we're only going to do one thing and that thing's going to get guaranteed to be successful, then we're not going to have any innovation. So I think it's just a nat-- it's just the law of nature. So I think we are in a new industry. There's going to be a lot of failures. It's going to be a lot of risks. But I think innovation is going to continue to go. And the projects getting bigger file. Filecoin's pretty big. Polkadot is pretty big. So they're getting bigger and bigger, which is good. But it's highly risky. JEN WIECZNER: Yeah. When you look across the cryptocurrency landscape, what are you most bullish on? CHANGPENG "CZ" ZHAO: So I'm pretty bullish on Binance Smart Chain, which actually didn't come from me. So it's a community-developed blockchain. And that was an additional blockchain to the Binance Chain, which is the original Binance blockchain. So the company developed it. It's really turning out really well. So it has less innovation from a feature perspective, but is one of those things where it's very innovative from a capacity, and speed, and low fee perspective. So for mass adoption, I think the current blockchains are saturated. And you can't really put more transactions online no matter how much more money you throw at it. So for mass adoption, we need scalability. And Binance Smart Chain is one step in that direction. I wouldn't say it will solve all the problems. But it's definitely a promising step. So it's looking really promisingly. And there's a lot of projects on there. I don't really know who is building them, who's running them. But it's a pretty lively environment now. So I'm pretty excited about that. JEN WIECZNER: Well, CZ. I think that's all the time we have. Great catching up with you. Thanks so much for being here. CHANGPENG "CZ" ZHAO: Thank you so much, Jen. And thank you so much, Jeff. Yeah. JEFF ROBERTS: Bye, CZ. CHANGPENG "CZ" ZHAO: Thanks for having me. JEN WIECZNER: For more Balancing the Ledger, go to fortune.com. We'll see you next time. [MUSIC PLAYING] 

Balancing the Ledger: Binance CEO says BitMEX arrest is a 'wake-up call' for crypto

Finance

Changpeng Zhao is this week's guest on Balancing the Ledger.

Binance CEO: BitMEX arrest is a 'wake-up call' for crypto

CZ joins us to talk BitMex arrest, central bank digital currencies, and the pandemic's effect on crypto.