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 Morley Winograd and Jack MacKenzie
by Morley Winograd & Jack MacKenzie
May 28, 2019
This interview with Morley Winograd and Jack MacKenzie was conducted and condensed by frank news.
Morley Winograd is an author, speaker, Senior Fellow at the University of Southern California, and former Senior Policy Advisor to Vice President Al Gore. He is currently the president and CEO of the Campaign for Free College Tuition.
Jack MacKenzie is Executive Vice President and Market Lead for PSB’s Media & Entertainment Group, based in Los Angeles. MacKenzie is the 2015 recipient of the Market Research Association’s Impact Award for research innovation.
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Morley Winograd: I'm the president and CEO of the Campaign for Free College Tuition. I've been working the issue for about six years, trying to do something about economic mobility for the millennial generation – who I've written three books about.
Jack MacKenzie: I've read all of Morley's books and am on the strategic advisory council for Campaign for Free College. I offer up polling on the issue.
Morley, given your political background, why did free college become your focus?
MW: I've had a long career in business and politics, and my interest in public policy and American democracy's been a lifelong concern. When I turned 70, I retired from the academic world. A friend visited who I've known since high school – we were talking about what to do in our 70's. His argument was that we needed to return to the original motivation for our life's work and figure out what we could do in our 70's that we weren't able to do in our previous age.
Our lifelong issue is American democracy, and how to make it work better. What was keeping it from working better and what were the dangers and threats?
We thought about America in the 21st century and it's economic challenges. Economic mobility became more and more difficult and less and less frequent. The barrier seemed to be the vast value placed on having an education in our new information age economy. And the barrier for that, of course, was the price of getting a higher education. Unless we did something about that price, we weren't going to fundamentally address structural economic inequality in America.
We started talking about making college free. I coauthored a book called, Millennial Momentum, in the chapter on higher education, I came across the The Kalamazoo Promise. In the course of writing that subsection of the chapter, I got carried away at the end and said that some day the Kalamazoo promise should be American's promise – or will be America's promise, and that college would be free for everybody.
I re-raised that in the course of this conversation amongst people for whom that was the furthest thought in their mind. It struck a chord in the group of people we were talking to, who were politicians who had, like us, finished a career in public life and thought the notion of free college would be a very attractive one, but of course impossible, a crazy idea. One of them called me on his way home from the golf course one day, and said, “I figured it out.”
I said, what do you mean you figured it out?
He said, "I figured out how we can make college free." We reconvened everybody and he presented his ideas – half the group quit because they thought it was such a stupid thing to do. Other people in the group, like Sara Goldrick-Rab, said yeah, that's what I've been arguing for. Out of that was born this non-profit of the Campaign For Free College Tuition.
Jack, how did you get involved?
JM: Morley and I go back 15 years. This was a perfect match of both our professional interests and our private interests. I was a journalist for the first half of my career, and a market researcher in the second half. In both of those careers I’ve seen the disintegration of the middle class and the growing disparity of life success that seems to be drawn on educational lines. It didn't used to be that way because we had a different kind of economy and you could have a high school diploma, get a good job in a factory or in a number of manufacturing jobs, and do okay in America. You can't now.
People say it's a good idea but not possible. That's actually the perfect combination, which is, no one says it's a bad idea. They just want to come up with logistical reasons why it wouldn't work – money, process, whatever. People in this country need an education. I believe that 14 or 16 is the new 12 when it comes to the amount of school necessary to compete in this economy, and if that's the case then we ought to make it possible.
How does the organization operate? What are your goals for policy, specifically at the state level?
MW: In the course of our organization's history, we've kept our eye on the goal of making college tuition free, and then tried to figure out different strategies for getting there. Originally we were very focused on the federal government. We were fortunate to have president Obama decide it was a good idea also, and when he announced his idea for how the federal government could support state efforts to make their community colleges free, it became the thing we focused on for almost a year.
We made almost no progress at the federal level, but there were states like Tennessee and Oregon, that were actually going ahead and doing it. We concluded that the most progress we were likely to be able to make over the next few years would be at the state level, and that we could provide resources.
We're a 501C3, we can't do political campaigns, but we can advocate for the idea. There was a crying need for expertise, resources, information at the state level on what Tennessee was doing, what other states were thinking of doing, and what other states had actually done that fell short of the promise, but were still greatly improving college enrollment and affordability.
We decided to devote the rest of the 2016 campaign year to putting together what we called a briefing book. It was initially a policy resource center designed for state leaders. That strategy proved to be our best idea yet because since then, we're up to a dozen states with truly free college programs at some scale and level, and the universality that qualifies them for recognition from us.
The most recent one, which is always surprising to people, although it shouldn't be, is in the state of West Virginia.
The president of the senate, who's their lieutenant governor, was the prime sponsor, the republican governor signed it, and they did so on the strength of the economic development argument and providing more opportunity for West Virginians.
When I tell people that, they say no, no, no, that's not what free college is about. It's about free college for all or some other federal program. We say in reality, the idea that states should make their colleges tuition free is not a democratic idea, it's very much a bipartisan idea. The pioneer was a republican governor in a very conservative Tennessee legislature. The second one was a democratic legislature in Oregon. The governor who inherited the idea is a democrat, but really wasn’t active in making it happen. It's passed in not only red and blue states, but purple states. The Nevada legislature, which became democratic and passed it, was signed by a republican governor, so it's a purple state.
Same is true in Maryland. Democratic legislature, republican governor, easily reelected in blue state Maryland. Made their community colleges tuition free. It doesn't have any partisan perspective, it's something that almost every parent and now most children and students, are recognizing as a necessity, and we have such a hard time convincing people that it's not only a by partisan idea, but enjoys universal popularity. Universal's too strong a word for the way polling is done, but 80% of the population supporting an idea is unheard of.
JM: And that's my job. To give people the political courage and cover that what sounds like a progressive issue as an all American, everyone's in idea.
Why does it “sound progressive”? Who decided that sounds progressive?
MW: Bernie Sanders.
JM: At some point, high schools became free.
MW: 100 years ago.
JW: So we haven't talked about the government providing more education than 12 for 100 years. And in today's lingo, something that the government provides...
MW: Free.
JM: Free, generally is perceived, or at least marked with, the progressive or liberal tag. It's a question of how they spend the money.
Right.
JM: Lower taxes or do we offer free college? But they're not mutually exclusive. Morley's point that in West Virginia, the economic development storyline is what took hold, is just a different way to look at how to spend the state's resources. If you look at it as Johnny gets a free education, that feels like a government hand out. If you look at it like we're going to make Johnny a better member of society…
MW: Pay more taxes.
JM: Pay more taxes. That's an investment, it's not a cost. It’s going to take some time for those numbers to come around. It plays out over the course of years. But, the early return suggests that it's a really smart investment. More kids are getting educated, which means they're getting better jobs, they're probably staying in the state, and contributing to the economy, and not draining the economy, or not sitting unemployed, not sitting in job insecurity because they don't have the skills for the next job and the next job.
MW: A lot of debates at the state level, legitimately so, turn on the question of affordability, not the affordability of college but the affordability of a program that takes away the tuition revenue from the existing system and has the state back fill it. I wrote a piece after looking at some of the research data which continues to grow, thanks to Michelle Miller Adams and Sara Goldrick-Rab, on the impact of free college on employment and economic opportunity.
Because in the long run, if they don't do it, their individual economies will fall so far behind they won't be able to afford the kind of government, lifestyle, society and economic environment they tell their voters they're in favor of.
That's where it's come to, and it's a powerful argument. It's the reason it gets a lot of bipartisan support. Obviously, a lot of the support comes from a traditional, liberal perspective. We need to do right by people and give them opportunity and therefore we have to do this. But it has just as much power as an economic argument on the other side of the political aisle.
Speaking to people's desire to work and participate makes education a big part of that conversation.
MW: It's always been apart of the American conversation. The first major bill in American legislative history was the Northwest Ordinance. It set aside one subsection of a six mile township in all the northwest territories to be devoted to school, you had to have a free one room schoolhouse for every township. Jefferson was saying, without an educated citizenry, democracy won't work.
Education has become elitist in sentiment. Where did that come from?
JM: I think it's a politicized sentiment. It is, at the core of a lot of populism over the years, which is the anti-elites. But we're not talking about making people elite. We're talking about making people job ready. This isn't join the fortune 100, this is get a good job that allows you to pay a mortgage and live with some level of confidence, and have the belief that you can have children, and that you can set something up for them. This is really about keeping a middle class versus the elite class, and what is increasingly the growing disenfranchised.
MW: Some people have come to us saying we can't get this past a republican legislature because they don't think everybody ought to go to college, and they're not convinced college is necessary. It turns out they don't have any children college age. For the most part, anybody with kids understands the necessity of a higher education experience in order for their children to be successful. What they don't understand is how they can possibly afford it, that's why the message of free college breaks through, because it's such a startling message.
I was told by one democrat in one state that will go unmentioned, that I could come in there and talk about making community college more affordable and college more affordable, but I couldn't talk about making them free if I wanted to get republican support. I said well, you know, the name of the organization is the Campaign for Free College Tuition, not the campaign for more affordable college. It's without the message of free, and without its ability to change the culture. People think it's about the money. Money's important, we've got to have the money to pay for it.
You mean I could go to college if I just applied myself? I don't have to worry about how much it costs? The price of college is pretty high even if you make tuition free. We have to deal with those issues as well, but it begins with making tuition free, and then you can talk about everything else.
What messaging works best according to polling?
JW: What's interesting is our research and polling is with people. What Morley has to face is the difference between talking to politicians and how they might frame something either internally within their legislative bodies, or back to their consumers. What we say is, here are the things you can say if you like this idea, here are things you can say to your voters and they will respond to. What works from a messaging standpoint with people is the argument that young people can have a better life if the state does this for them. All the messages that have to do with individual gain work for people.
At the state level, inside the state houses, often times you have to couch the idea and you have to turn that into the economic development question. The economic development question is hard for an individual person sitting at their house because they've got a kid across the table, they're going, can we send you to Pasadena Community College? Can we do that? They don't care that Pasadena may benefit.
Right.
JM: They care that their child could benefit. At that point it goes into the political sphere of making the larger economic development issue.
You don't lose people at “the state should help”?
MW: No.
JM: No. These numbers are incredible. Our company polls on national issues all the time and the idea that anything debated in public discourse right now has 81% support, is incredible.
Perpetuating a debate that you say doesn’t actually exist, by framing this issue as a debate is problematic then. Because your data says there isn't a substantial disagreement on this.
JM: There is not a disagreement.
So, why does it seem like there's a disagreement?
MW: The difference between voters and politicians. If you phrase it in a very ideological way, the state owes everybody a free education, that's going nowhere. If you say students need education in order to be successful, and the state should help by making tuition free, everybody says yeah, that's right, because you're not saying it's a hand out, you're not saying it's a give away, you're not saying it's all about fairness and equality, you're saying hey, this is an economic reality out there and state's ought to do their part.
If on the ideological right, you say there's no such thing as a free lunch, therefore there can't be free college. Somebody's got to pay for it. Well, how does high school work? Now we go back into the murky world of cost versus price.
You will hear many higher education people, particularly those who are involved in the financial aid policy world, say the solution to high price is to make sure poor people get in free, and have the people who can afford to pay the high price, pay for it. That's the most equitable solution. And that's what our entire system is built around – scholarships for the needy, and then everybody else pays. Unfortunately it doesn't quite work for the middle class, because it's unaffordable for the middle class, as well as for students from poor families. The fact of the matter is it doesn't work at all. The system has been tried for 30 years and hasn't done anything about improving college enrollment for minorities or poor students.
The point is that despite its popularity, despite its practical importance, despite its political power, the institutions of existing financial aid which inhabit vast administrative desks in colleges all across the country, and those who support it like the college board, are devoted to making sure faculty don't lose out and don't get the raises they're used to or don't get a job they want. Those forces are very powerful inside the legislative process. They've been working it for 30 years.
JW: One of the challenges, and this is the God's work that Morley and his team are doing, is any state legislature has say 100 to 120 people, and they all have ideas about what's important to them. They went back to their district and campaigned on roads, or infrastructure, it could be all kinds of things. In each of those states you've got to find someone who says, yeah I want to take this on.
MW: Right.
JM: You can't just throw it out there.
MW: You need a champion.
JM: You need a champion, and you need someone who's willing to take some heat.
MW: In California the champion would be somebody you've already interviewed, Ortiz Oakley.
Chancellor Oakley, yeah.
MW: You need to find those, and it's not quite as frustrating as it sounds. It's frustrating to hear the same old debate, the same old arguments, played out.
Stale.
MW: In national media, no reference to research. People putting up theoretical reasons why it can't be done, ignoring the practicality that is has been done and has been successful. That's frustrating. But at the state level, when you find a champion it's too much fun, it's not frustrating at all.
Presidential debates are coming. This will come up in the democratic primaries. If you were to phrase your own debate question about free college, what would it be?
JW: Were you sitting with us at lunch?
I wish.
MW:
JM: A good one.
Jack, would you have the same question?
JM: It's a good one. Because people want their state to administer the program. They trust their state. It's closer.
MW: Education's local. K-12 done by a school board, universities are done by the state, everybody gets that.
JM: The idea of a federal government getting involved in a heavy handed way, brings in all of the mistrust, all of the, “my state's different than their state.” We wanted something that works for a community. The key line there is, the federal government helping states support the programs. The idea that there's a federal solution to communities that are so different is hard to imagine and in today's environment, the idea that something could get passed at a national basis, is hard to fathom. But things get done at the state level all the time.
Every single day, states are accomplishing.