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
Money Alone Is Not Enough
by Michelle Miller-Adams
May 10, 2019
This interview with Michelle Miller-Adams, a professor and senior researcher at the Upjohn Institute, was conducted and condensed by frank news.
Part One of this conversation is available here.
When you look at and consider all of your research over the years, what is your ideal version of 'free college' programs? And how do you push what you know and what you're curious about to the forefront of our national conversation around college affordability?
As we enter another presidential primary, what would you like the conversation to look like? What do you think the most critical debate around this issue should be?
That is another great question, and actually, I'm about to start thinking seriously about it, because I'm about to write a book on this topic.
While I hope the ideas in my book will influence the national discourse, I'm not holding my breath for a national program, because I just think that politically, it's a really tough lift. If you look at the history of policy innovation in our country, this is exactly how it happens. Things get pioneered at the local level, and then they spread to other local communities, and then they may jump up to the states, and then maybe eventually, they'll find their way into federal policy. I just think that even though all the Democrats are talking about this, once they get in power, and depending who winds up in the Congress, a nationwide free-college program is not a surefire outcome.
That being said, we had a proposal in 2015 from President Obama that made a great deal of sense. To me, it's still the gold standard model out there for triangulating all of those various needs. It was called America's College Promise – no legislation was ever introduced but the policy proposal was out there. It was a federal-state partnership that would make community colleges tuition free. If states opted to participate–- and there were performance requirements if they did – the federal government would foot most of the bill. And importantly, it was designed to be a first dollar program.
That leads me to your question. I especially value programs that have universal eligibility. Basically, in programs like these, everybody can take a crack at it.
In a perfect world, which we don't live in, a first dollar program is far preferable to a last dollar program, because it has that better equity impact, where low-income students also get new money, and then they can use their Pell Grants to pay part of the way of their living expenses. If you do a universal program, and you focus it on community colleges, as Obama's program did and as Tennessee and Rhode Island do – whether first- or last-dollar – you are doing some de facto targeting. You are targeting low and moderate-income students, because honestly, Tatti, do you know many wealthy students who went to community college?
Very few.
Right. There may be a few, but that might just be the price you pay. If an affluent student is headed toward an elite or even semi-elite four-year institution, they're probably not going to make the decision to go to community college to get their $2,000 a year scholarship. On the other hand, students who weren't necessarily going anywhere, or those at the margin who are stressed in terms of finances, may decide to go to community college, and students on a four-year track may decide to start at the community college and cut their costs dramatically. Students do that all the time. I teach at a large state university, and we have plenty of students who started at a community college because it's cheaper – and then transfer to the four-year school to get their bachelor's.
Two other things are really important. One powerful lesson that we have learned over the years is that simplicity is your ally in these programs. With complex programs there's just too much confusion around the messaging. New York State has a program called the Excelsior Scholarship, and it's really innovative in one sense, which is that it allows students to go to public four-year institutions, as well as two-year community colleges, which is great. However, there is so much fine print that very few students actually qualify for the scholarship.
The simpler the better. If you can say it in a couple sentences, that's a good sign. But the other important element is this question of support. Thinking seriously about what kinds of resources are needed all along that educational continuum to help students, particularly those who haven't been successful in school, access higher ed, be successful in getting there, staying there and completing is really important.
Tennessee Promise has a mentorship program, and while the mentorship component is not as intensive as it was for the predecessor local program, it marks a recognition of the value of mentorship in helping students be successful in higher ed. Tennessee also has an adult free community college program called Tennessee Reconnect, and even that has a support structure built in. It doesn't come out of public money. It comes out of the philanthropic sector. There are a lot of ways to do this, but it's important to recognize that the money by itself is not going to change your outcomes that much.
As a short digression, I've been really busy, so I haven't been very active on Twitter, but I do want to respond to Pete Buttigieg's response…
He was pretty negative about free college. He basically said there's this huge college wage premium, where people with college degrees get paid a lot more than people who don't, and that's absolutely true. And he doesn’t like the idea of people without college degrees subsidizing those who are going to get the college wage premium. I think he misses the boat on this. The point of Promise programs is to bring those people who aren’t headed for college – whether because of confusion about the process or lack of financial resources – into the process so they can go on and get some of that college wage premium. Right?
Another presidential candidate, Elizabeth Warren, has come out with a number of big equity-based policy ideas and one of the latest is her plan for tuition-free college and student loan debt relief. Her ideas are bold and not always fully practical, but this one had an important element, which is that if we're going to make public colleges and universities tuition free, we had better also address the student loan burden. One of the challenges of free college is that if you come up with a national program, you still have all these people walking around with this huge student loan debt. So there's a real equity challenge there, if you aren't going to do something about the people who already got indebted, then it's sort of just a generational unfairness.
We're having that discussion in Michigan. Our new governor, just this week, introduced legislation for three tuition-free college initiatives, one for community colleges, one for four-year publics and one for adults, closely modeled on Tennessee, but there's no component that deals with the student debt situation, and the legislation. Because we have this very Republican Congress it's probably not going to go very far, but we'll see.
It’s a fascinating aspect of the free-college movement. A lot of money is being committed to support free-college initiatives without a lot of evidence about what they do and don’t accomplish. I know that because we sit here at ground zero of trying to generate some of that evidence, and there are many, many, many things we do not know. This is not a heavily researched, proven model where we really understand what we're doing.