interviews
Crypto For The Cash Economy
by Daniel Polotsky
January 22, 2020
Daniel Polotsky is the CEO of CoinFlip, the leading Bitcoin ATM Operator in the US.
frank | How did you get into crypto?
DP | It was around 2013 that I found out about Bitcoin for the first time. It kept popping up in news articles. I wanted to buy some after it appeared on my feed for the fifth or sixth time. I thought, "I've read about Bitcoin, it seems like a cool thing, like a cool alternative money investment that's not issued by the government, decentralized, something that's never been done before," so I decided to purchase them.
I went to the first Bitcoin ATM in Chicago, it was at an empanada place called Cassava. I put in cash, received a coin, but I didn't like the process. The bills kept going in and out – it took a really long time to get the bitcoin. I didn't want to do it again when I bought it again. Instead, I went on a site called locabitcoins.com which back in the day, had these listings where you could meet people in person to purchase Bitcoin.
We met at a Starbucks. I'd put down cash and she would send me the Bitcoin. We kind of got to talking and eventually decided even though the Bitcoin ATM I had used back in the day wasn't super user friendly, it's still in theory a better idea than meeting people in person because it's not safe. It's not really scalable. A single person can't meet with 23,000 people a day. There's a limit.
So we decided to work on the ATM thing. I was a sophomore in college, I was 20 years old, I was at Northwestern and I kept working on it. By the time I was 22 and ready to start a full time job, the opportunity at CoinFlip was too good to pass up. We had just under 20 ATMs – that was two, three years ago.
Fast forward to today, we're the largest Bitcoin ATM company in the world by volume, with 420 locations across the United States. Obviously we're growing and I hope to be able to get Bitcoin in the hands of as many people as possible.
This is different from the other conversations we’ve had about Bitcoin so far, in that most people aren’t treating it like a currency but rather a stock, or investment. But a Bitcoin ATM is tangible, immediate, more cash oriented. Do you find that because there's a physical component to what you're doing it's easier to explain to people?
What you were saying about currency versus investment, I don't know if I agree with that. I think Bitcoin can be used as a currency eventually, but in first world countries like the United States, it is still more of an investment or means tool.
I definitely agree that the physical element makes it very easy to explain to somebody. Its familiar. Essentially all you're saying is, "Okay get some cash. You already have a phone number, download a Bitcoin wallet, you're going to put the cash in, you're will see the exchange rates, you're going to input your QR code which is that black and white square, and then you're going to receive the Bitcoin instantly."
That sense of instant gratification and the physical component definitely makes it accessible. Because the ATM is something in a convenience store that you see in real life. They're not just moving imaginary money around.
How do you interact with something like Coinbase?
Coinbase is an online exchange where the exchange actually holds your money. You wire money from your bank, they hold it, and then you trade on the exchange, using the dollars that you have on the account. We don't hold customer accounts.
So for example, we don't have an account where you can deposit money and then hold it and then trade it. You insert the cash, we immediately do a conversion of the Bitcoin and then you receive the Bitcoin, it's on your phone. You own it, we are not the custodians.
You're not a custodian or a wallet at all?
We are working on expanding into a wallet, but no, we are more like a currency exchange. You go to a currency exchange, you get quotes for an exchange rate that tells you, “it's this many euros for this many dollars.” That's more similar to the model I see us as, as opposed to a company with a mechanism that people use to trade and speculate with continuously on.
Other than speed, why would I do this in person and not online?
Not everyone has a bank account. It's 30 million people that can't afford bank accounts, don't trust banks, don't have banks, think banks are inconvenient, or say they don't want to use bank accounts. They might want to use cash. There's a bunch of workers that get paid in cash.
There's a whole cash economy and you can't use cash at Coinbase.
They only take a bank wire transfer or a ACH. So you literally cannot use cash there. It’s a quick, easy and convenient way to use a different payment method to get it.
Does it work in reverse? Can I cash in my cryptocurrency for U.S. Dollars?
It actually does. We have around 30, 40 units where you can do exactly that. You send us the Bitcoin. Once we get network confirmation, you scan your ticket at the ATM and then cash will come out. It does go both ways.
Do you have competitors? Are there other ATM options?
Yes, there are other Bitcoin ATM companies. None of them have the volume and the low fees that we do, but they do exist. Like I said, we're the number one Bitcoin ATM company by volume in the world, but we do have competitors and they tend to be in the United States, but there are probably in the world 5 to 6,000 Bitcoin ATMs.
Are most of them in the U.S?
A pretty big chunk are in the United States. That's typical. The United States is often a leader in emerging technologies because we have systems in place where people are entrepreneurial and whatnot. Plus we have a large cash economy.
What is the sale for the convenience store? Why would they want them?
The convenience store gets the best deal of anyone. I mean, they get a check, our ATMs are really small. They're probably one and a half or two square feet by five feet. So it's really easy to place them inside a convenience store. The convenience store is not going to be able to monetize that square foot any meaningful way other than receiving rent from us, and we also give them the option for a profit share. In addition, we bring in around 1,500 people a year to any given location. So it's absolutely free advertising for them. It's not like you just see a Bitcoin ATM and you use it. You're literally searching for it and then you go to where it is. So we drive traffic specifically to that store and they can always buy something when they are in there, chips, soda, whatever it is. So there's absolutely no drawback for the convenience store.
What excites you about Bitcoin?
The thing I like a lot about Bitcoin is, you know it's deflationary, right? I love Bitcoin because of that. The U.S. dollar loses 1% to 2% of its value per year because of inflation and the government printing more. Bitcoin itself is limited in numbers, so it's a better way to keep your money long term. The blockchain it's built on is fraud proof. It's public, everyone sees it, it's fast. You can send money halfway across the world in 10 to 15 minutes, it's borderless, it's cheap. The average fee to send is probably $2 to $3. What's cool is that there's no one single issuer.
So you can't turn off the coin.
You can't sue Bitcoin. There's no company responsible for Bitcoin. It’s all around the world. It's very resistant to being able to be stopped. It's kind of like digital gold I would say. That's what I like to say about Bitcoin, it combines characteristics of a commodity and a currency. It’s something that's never been done before. And I think it's very important to keep the centralized entities like banks and governments in check. If they ever go haywire, which they have in the past, there has to be some alternative. Some digital alternative that isn't as cumbersome as gold to obtain that the average person can get.
This decentralized economy is what I’m excited about. My goal with CoinFlip is to get Bitcoin into the hands of as many people as possible so that people see what is really so cool about this Bitcoin and why it really is the future.
Not that it's going to replace Fiat currency and replace dollars, but it's an alternative and it's always important to have an alternative.
Is your prediction that this becomes a widely used and accepted form of currency in the US?
Yeah, I could always see it in unstable countries, it could even be the number one currency. In stable countries, it might be number two currency or it could just be used as an investment vehicle. But I do see it as being perhaps the global reserve currency, within 10 to 20 years as people build trust on it. It makes sense for the countries of the world to not want the global reserve currency to be issued by one country. It used to be the pound, now it's the dollar, it makes sense for it to be decentralized and not one entity responsible for it. It makes a lot of sense in my opinion.
If it does go that direction what policy will come form around it or do you think it can exist as free as it is now?
I think it's actually one of the biggest myths that Bitcoin is not regulated. That's what everyone loves to say, but it's not true. Pretty much every applicable brand in the U.S. Government has come up with regulations regarding Bitcoin. The IRS came up with guidance for how to pay taxes on it. The SEC declared it as not a security and also declared guidance on how to determine whether or not projects that are Coinbase, like blockchain-based are securities or not. The CFTC has also regulated Bitcoin as a commodity and FinCEN, which is our regulator, is the financial crimes enforcement network and we're definitely heavily regulated by them. We're treated as a financial institution.
We have anti money laundering in our customer policy, so there are rules for Bitcoin.
It's a great system and I think that it's come far from it's early days. But now I think that you still need some regulation, some basic rules to follow, even if it is a borderless, permissionless system and there are those in place in the United States.
I want to get Bitcoin again into the hands of as many people as possible and lead the financial revolution. I want to place 1,000 ATMs by the end of this year and hopefully 3,000 at the end of the next year. In addition, we're working on having an OTC desk. That would allow us to actually trade Bitcoin and other cryptocurrencies in exchange for wire transfers and vice versa, so that's something I want to expand into. And we're also working on a wallet and an app.
What is the app?
The wallet is the main component of the app but it's basically going to be an easier version of our website. You know, just the main parts, probably the map, customer service, or awards program, and obviously the wallet. So we're going to have our own wallet where people can purchase Bitcoin and that's something that's really cool because it's an additional service we can offer to our customers, an additional way we can communicate with them.
Amazing.
interviews
Impact Investment For The Circular Economy
by Rob Kaplan
January 31, 2019
Rob Kaplan is Founder and CEO of Circulate Capital, an impact-focused investment management firm dedicated to financing innovation, companies, and infrastructure that prevent the flow of plastic waste into the world's ocean while advancing the circular economy.
How do you define a circular economy?
I think a circular economy is one where commodities and resources are managed in perpetuity. So that there is no waste, but instead it's a resource for future innovation and product manufacturing.
In transitioning from a linear system to a circular one – who becomes responsible for the end of life? Especially in a time where goods are globally dispersed.
Well, I think the answer is that everybody's responsible. There's no single entity that is responsible for how it's managed at the end of its life, in my opinion. That's why this is a systems challenge that requires a systems solution.
Part of the challenge you're noting is the aspiration of a circular economy with the reality of where waste exists today. Because, circular economy in many ways is an aspirational concept. Especially within consumable products. It doesn't really exist. As we look to invest in companies that can prevent plastic pollution and instead drive towards more circular opportunities, it is a matter of degree. It's not, we'll get there tomorrow in that perfect ideal. It's more about, we've got a lot of waste that's not being managed appropriately. How do we improve that in a way that can create value for those communities? And also prevent the pollution at the same time.
What do some of those solutions look like in practice for you and the companies you work with?
We've been looking at how to invest in South and Southeast Asia for the last couple years. I'd say most of the opportunity that’s "shovel ready" today is in the waste and recycling sector. They are usually startup recycling companies that are generally the first line of formality. Where they're buying materials from waste pickers as well as municipalities in some cases. And then adding some kind of value to it. We also see a number of recycling facilities. They're a little bit further downstream from the collection aggregation. We have started to see a little bit of reusable and returnable systems, but they're in a very early stage at this time.
When you work with a large multi-national company, such as PepsiCo or Coca-Cola, what does their commitment to this process look like?
They have two different levels of commitment. The first is they are committing to improve their own operations and supply chains. Almost all of our investors have direct commitments about what they're doing to increase the amount of recycled materials they use in packaging and design for recyclability. Then, they are also committing capital to our strategy to allow us to invest in companies that can increase the amount of recycled material available for their use and the use of others.
They are also providing expertise and resources, and network. They are providing essential off-take and the ability to buy the material after it's collected and sorted. That's a big part of the challenge. The market that's available to buy this material. Needing that kind of surety of off-take.
We’ve discussed circular economies from a variety of perspectives and backgrounds. Science, academia, advocacy. You approach it as a business. Why is your work a necessary part of the puzzle?
The particular slice of the problem we are looking at is plastic pollution in Southeast Asia. We quickly realized it was going to take many billions of dollars of capital to build the infrastructure required to really stop the flow of plastic leaking into the environment and the ocean. We started to look at where would that capital come from? And we realized that it's not going to come from necessarily consumers or companies, but really, institutional investors that are financing the future of infrastructure in Asia. The only way to get those folks involved in this space is to show them that it's an investable marketplace. That there is a track record. That there is a pipeline of opportunity. And that you can make money doing this. We want to demonstrate that investing in waste recycling is as boring as investing in roads and bridges, for which there is a lot of capital allocated.
Our approach to this was “How do you turn this from a waste stream and a cost center into a profit center as a way to unlock that capital?”
When you say infrastructure, are you talking landfills, incinerators? What is that infrastructure?
Our focus is certainly on the recycling and reuse side. I think there is a reality that they need to have improved landfills in Southeast Asia too. But we're not particularly able or interested in financing landfills and incinerators are out of our scope.
Has the China recycling ban affected your day to day?
Oh yeah. I mean National Sword basically turned the entire recycling industry upside down globally. In the markets that we're particularly focused on, they were exporting waste to China too. They hadn't invested in their own domestic processing. That has caused big problems for them and has created great opportunities for investors, who are trying to build those companies within those countries, under those infrastructure projects.
I think most of the countries we're working in in Southeast Asia have also started to follow China's lead and stop accepting imported waste. The US and Europe are not contributing as much to ocean plastic these days as we used to. Because the exporting markets have dried up.
I think there's probably a shifting in the future where more of that will go to Africa, right? Because they haven't started those bans. But most of Southeast Asia has already either halted imports or is talking about halting imports.
Does all of this help move the agenda of circular economies further?
Absolutely. It was so cheap. No one had any incentive to invest in domestic circular economy opportunities because if you were in Los Angeles it was cheaper to ship a container of waste to China than it was to Chicago.
That's crazy.
One important point that I've been trying to communicate lately is that there is no silver bullet for these solutions. It's incredibly complex. People really look for elegant, simplified solutions. But a circular economy is complex. We're not going to be able to reduce our way out of this problem just like we're not going to be able to recycle our way out of this problem. You need both and many more solutions. I worry about absolutists that are trying to push agendas rather than really trying to drive environmental progress.
Our approach is very much, how do we deploy capital as much and as quickly as possible to stop this pollution and make triple bottom line in the process of doing it? Rather than, you know, any political perspective or point of view, it's really just the view of the investor that we're looking to bring to the conversation.
All or nothing doesn’t work here.
Yeah. It's really complex. How can anyone say that there's a single solution to something? If it were that easy, we would have figured it out already. And I think we're also starting to see, because of the topic getting so hot and everyone wanting a piece of it, they're all saying, “Well, what's my contribution?"
Right.
My contribution is activism. My contribution is lobbying or my contribution is X, Y, and Z. And so they're all sort of piling on without a really clear theory of change about where they think they're trying to drive the progress.
Has the re-upping of investment from petrochemical companies into the production of plastic affected your work?
Yeah. One of the interesting things about plastics and circular economies is you actually want that feed stock, right? If you start removing feed stock opportunities, like PET plastic, which is what most beverage bottles are made of, for example, that's really problematic from a circular economy and recycling perspective because PET is the most recyclable plastic that we have today. You'd want to see more of that recyclable material out there. Right now it's cheaper to make plastic out of petroleum or natural gas in the US. It could be cheap to make it out of old plastics. That's where I think the big unlock towards the circular economy comes in. How do you tap into those market forces of building massive chemical facilities and use that as your off take for recyclables? That's the opportunity to change the game and that's your supply and your demand.
Are you optimistic that that will start happening?
I think the petrochemical industry is starting to show that they're really interested in that idea. I think it's really complex and hard to do. There's a lot of barriers. But it's not a technology barrier necessarily.
Is it a political barrier?
It's not so much a political barrier, I think but... Why do you think it's a political barrier?
Because of the political and financial incentive to produce and frack natural gas. How do you switch where incentive lies?
Yeah. I think you're right there. Policy is a huge part of that. Especially in the US where natural gas is so cheap thanks to policy incentives and new technology. It's not so much the same thing in some of these emerging markets we're working in, which is where energy is very expensive and most of that additional capacity is coming online.