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
In Conversation with INESI
by INESI
February 22, 2019
This interview with Dr. Marla Perez-Lugo and Dr. Cecilio Ortiz Garcia, was conducted and condensed by frank news. Both are faculty at INESI. INESI is the National Institute of Energy and Island Sustainability. It is a multidisciplinary and multi-campus institute of the University of Puerto Rico (INESI) that seeks to insert the university community more effectively into the public energy policy of the country and in the resolution of energy and sustainability problems using as a basis for empirical research and academic knowledge.
Let’s talk about the work you’re doing at INESI.
Dr. Pérez: INESI is the National Institute for Energy and Island Sustainability. It was created in 2014 when we realized that the university was being excluded from the process of developing a new energy policy for Puerto Rico. It was very interesting to us because we have one of the biggest programs in electrical engineering in the nation, and we have expertise in many areas that could contribute to the understanding of what energy issues in Puerto Rico are all about.
We understand them as social technical issues, in the sense that yes, they have a technical component that involves technological development and the physical infrastructure, but also energy issues have a cultural component, and a political component.
We started INESI in trying to insert the University of Puerto Rico into that conversation. We have about 90 affiliates across the 11 campuses of the UPR system. Those affiliates represent more than 23 academic disciplines including psychology, law, electrical engineering, sociology, philosophy, art, natural sciences, and economists. One of our concerns was that most of the resources being included in the conversation were all concentrated in the metropolitan area of San Juan. For us, that was a metaphor for the concentration and the density of decision making in energy policy in general.
What we tried to do was de-concentrate the knowledge being used in decision making by including resources from the other campuses of the UPR system. Since then, we have a standard set approach, to not only the UPR, but also members and sectors of society that are being excluded from those processes. Community based organizations, grass roots movements.
We created the energy stakeholder forum. That includes about 30 organizations across the islands, that at the beginning of this maybe didn't perceive themselves as energy stakeholders. But Maria had a very important function in showing how energy is embedded in all aspects of life.
Dr. Garcia: I want to emphasize that number one, INESI as an institute, is a platform that seeks to interconnect all of the resources Dr. Pérez was mentioning across the 11 campuses of the UPR. It is also a knowledge organization. Before the institute, the way the university was organized, actually created an unequal space for the utilization of resources or knowledge in academia, to impact energy issues in Puerto Rico. By highlighting only the work associated with the technological aspects of energy, like electrical engineering, physics, and maybe economics or law, those become the only areas that can contribute to the transformation of energy issues in Puerto Rico. INESI makes a contribution in terms of energy democracy in Puerto Rico by reframing energy issues in terms of them being not only technical, but like the professor said, socio-technical. We are re-organizing knowledge.
We foster knowledge from outside academia to be mixed with scientific knowledge in order to gain an interdisciplinary view of energy.
Part of the reason this group exists is because you felt left out of the conversation by the government. Has there been a response from the government to your work?
Dr. Pérez: [laughter].
Has that relationship changed?
Dr. Garcia: That's an excellent question.
Dr. Pérez: After Maria, it has gotten worse. When Maria struck, and the electric system collapsed, it would make sense that we were the ones who had a lot to contribute to the rebuilding process, because we knew the system very well.
Dr. Garcia: That was a faulty logic.
Dr. Pérez: Yes, faulty logic. We approached our president, we approached our governor, we approached FEMA, we approached everybody. Systematically the resources in the UPR has been left out from the rebuilding process. What we’ve come to find out is that actors from the outside have been hired. They have been contributing more to the rebuilding process than the people who know the system best, and the people who are going to live with the consequences of that process. We have met universities from the States that have been contracted by our governor's office to do work for hundreds of thousands of dollars that have already been done by UPR resources.
As my colleague here says, it's a manufactured ignorance phenomenon, in which for many reasons, the local government is manufacturing ignorance in terms of the resources and knowledge Puerto Rico has, when talking to outside actors.
Why do you think that is?
Dr. Garcia: It's not that linear. It requires switching frameworks when you talk about governmental resources, or even institutional resources to extreme operating environments after Hurricane Maria in Puerto Rico. It's rather difficult to draw a direct line between the intentional misrepresentation of resources that one has, or does not have, for a particular resource. You are talking about different levels of decision making converging in a particular way, that make it expedient, for certain actors on the ground like the government of Puerto Rico, to behave in a certain way. One of the behaviors we are alleging is happening, is a behavior of not being transparent, with the type of resources you might have available for you to get out of this hole.
When I say, "this hole," you have to look at Maria in the context of Puerto Rico when Maria hit. Puerto Rico was already under certain legislation, and under the fiscal control board series of attacks on our society, and on behalf of US bond holders that are looking to get repaid for their investment. You have a multiplicity of actors, that virtually established a regime where it becomes logical for the Puerto Rican government to act how it acts.
Dr. Pérez:
Our constitution recognizes higher education as a societal investment. That has been an ideological fight between the constitution and the more conservative, or pro-statehood administrations. When the fiscal control board came to power, the first thing they did was to claim power over the UPR, and claim that there was too much money going into the UPR system. So the budget for the UPR has been severely cut. In fact we have experienced a budget cut of more than 50%, and some of the campuses are singled out for closing in the incoming years.
The budget cuts are increasing, and increasing, and increasing, and the tuition cost for the students are increasing as well, but not enough to cover all the UPR expenses. When you have 95% of the research being conducted in Puerto Rico, conducted in the UPR system, you are killing research, and you are killing the resources that have the knowledge to actually contribute to the betterment of Puerto Rican society.
Dr. Garcia: That's an excellent point. Hurricane Maria brought the administration to a fork in the road. "How am I going to use my research? Well I have to manufacture reality, for outsiders in order for me to be aligned with what I've been using as my policy towards the university." It’s a policy of killing. It's a policy of closing. It's a policy of minimizing.
Dr. Pérez: Exactly.
Dr. Garcia: I cannot be highlighting those same resources out in the open, because I left myself open for questions about, "Well wait a second, aren't you killing the University of Puerto Rico?" It gets really complicated. It's in a complex policy environment. And all Maria did was serve as a catalyst for all of these different pathways, the visions of Puerto Rico's reality, to come up to the surface.
What is your mission moving forward?
Dr. Pérez: We connected with municipal governments. Instead of going to the state government, we connected with municipal governments, mostly in the mountain regions that were communities that were basically identified as low reconnection priority. After the collapse of the electrical system, it was said by authorities that communities in the mountains were less likely to be reconnected because it was not cost effective. So we drew our attention to that region. While working with mountain communities, we started assembling an electric oasis, a solar oasis. So people in the town square could recharge small electronics, and store medication in small fridges.
We realized there were more than 20 universities from the States coming to Puerto Rico to do several things. To do humanitarian work. Using the disaster as the classroom in a study abroad course, or doing quick response research, rapid grants, from foundations and other funding sources. We realized that those initiatives, although very well intentioned, were disorganized. They lacked coordination. And because there was nobody looking at the big picture, most of the universities were concentrating their efforts in less than 10 municipalities. We have 78 of them. That is a problem for several reasons. From the humanitarian standpoint, if you saturate some areas with aid, but then neglect other areas, that means not everybody is able to receive the aid you’re bringing from the outside. From the scientific perspective, if you base your science in very few, and selected case studies, your science will be faulty.
We started contacting all these universities, and realized that there were teams from the same universities on the ground that didn't know about each other. We started connecting them. We started organizing virtual workshops to give them the context, and to give them the most updated information about the state of the electrical system, because we mainly focused on electricity and sustainability. After that we focused on allowing them to talk to each other, so they could start collaborating instead of competing for spaces, money, etc. Then we invited them all to Puerto Rico for a three day workshop last June to reflect on their experiences, and identify what was wrong and what was right. What can we learn and extrapolate for future occurrences? In the climate change era, these things are going to occur more often now, and in more severe ways.
What do you think the future looks like?
Dr. Garcia: Unfortunately there's many steps, and they are all going to have to be taken at the same time. There is no recipe book for doing this. But the main thing that stands out, with regards to Puerto Rico being an example for both disaster environments and interventions by federal agencies, by universities, by multiple units of government, is that we have a long way to go in learning how to organize ourselves to do better.
We have to build relations in places we know are prone to these events, so that we do not fall prey to the manufactured ignorance we've been talking to you about.
More directly for universities, even though were are not set up to be first responders, our experience with Maria has shown us that we are. We end up being first responders. We have a responsibility to look at ourselves, to get together and at least discuss what our role is as universities, in post disaster situations. This goes from how we organize our resources, to how we organize our scientific and non-scientific knowledge, and how we provide spaces of collaboration between different discipline.
Is the goal of your stakeholders forum to raise awareness but also to raise a sense of responsibility in this mission?
Dr. Garcia: Absolutely. If I was going to rank them, the stakeholder forum has been our most effective tool in fighting manufactured ignorance. Not only has it served as a sounding board, and a bulletin board for many, many, many groups who have not historically haven't been included in energy decision making, it has also allowed for an honest dialogue and an open dialogue to exist between university resources and civil society. That is very, very powerful. Especially as we aspire to higher levels of energy democracy in Puerto Rico.
We hope the stakeholder forum internally in Puerto Rico keeps on making big strides towards energy democracy in the islands. And we want to experience that with the RISE platform that can bring a better understanding of what energy democracy involves, not only inside the island, but with other localities around the globe.
To reinforce the point – global warming and climate change are global phenomenons. The relationship between human beings and those phenomenons are local. And as local phenomena, we cannot change that, or expect that one recipe is going to fix every local experience. So it's up to us, universities around the world, to embrace this fact, and to develop new relationships between ourselves and our own communities, and share those experiences between other universities and other communities. That exchange, not only of data, and of science, but also of human relationships, and communication, is the only way that we can develop true local resolutions to what are becoming very, very, wicked problems around us. And if INESI can help in attaining that, then we have been successful.