by Kirill Gertman
January 13, 2020
Can you tell me about yourself?
My background is in user experience design and graphic design. At some point I wanted to do more, that led me to my product management career, most of my work has been focused on finance and fintech. Fintech meaning financial technology.
I thought, this is an industry where user experience is pretty bad. Across any kind of application of finance, it sucks for the customer. If I bring my design background and I'm able to improve that experience, I can have a bit more of an impact, and that turned out to be largely true in my subsequent career. I've been in a number of startups. I've also worked in an innovation lab in a bank, and eventually ended up being in crypto, which is I guess why we're talking. There you go.
What part of crypto do you focus on?
Both on consumers and business to business solutions.
I got a job in a company that used to be called Bread wallet – they rebranded to BRD. They have a digital wallet, that allows people to hold their own crypto, primarily Bitcoin, without needing an intermediate.
This is a concept that's very different from what you usually have with your bank. In the financial system most people are used to, the bank is the entity that holds your money. They hold your funds. Obviously they're regulated by the government, but they are the custodians of your money. But Bitcoin – why people think it might be revolutionary – you're able to hold your own money yourself. Be in control of your own funds, which I think is a really interesting concept.
The way it works technically is that every wallet generated on the Bitcoin blockchain has a key. You can think about it as a virtual safe deposit box. Each box has a unique key that fits only that box. Each key is unique, and the person, or the entity, who knows that key, knows that code, can unlock the deposit box, and take the money inside, which makes them the direct owner and puts them in direct control over their funds. No other entity, no other person, without knowing the key, could possibly access your money.
Think about your regular bank account. In various situations a government could freeze your funds. The government can not allow you to move your money to another country. Here this cannot happen.
As long as you know your private key, nobody can prevent you from doing whatever you like with your money.
Why would I choose one wallet over another? How do they differ?
That's a good question. You need to hold Bitcoin somewhere, so you need the wallet. You cannot have Bitcoin or other crypto-currencies without having a wallet, but you're right, there are many different kinds of wallets. I would say the main distinction is that there are wallets that are custodial, and there are wallets that are non-custodial.
What does that mean?
This private key I was talking about before, which is usually represented as a phrase of 12 words – it's literally a sequence of 12 English words that you can memorize, write down, whatever you do with them, but that's your password. Just a really, really long one. Coinbase is probably the biggest one in the States. They store that private key for you, which in effect means they're the same as a bank. They're the custodian of your funds in very much the same way that a bank is.
The other type of solutions are where you store your own key. So you are responsible for storing it in a variety of methods, on paper, or in a digital format, which is what we're doing, memorizing it, which is probably the safest, but also a bit dangerous, because it's 12 words, if you forget one, you're kind of screwed. That lets you have your own keys. Those are the two main distinctions.
If I know nothing about crypto how would I make that distinction?
You can't really have Bitcoin without having a wallet.
But it depends how each company describes themselves. Coinbase doesn't actually put the word wallet on the homepage. There is a wallet within their system, but for the sake of making it simpler, more accessible, they don't explain that to you. All they say is that you can buy Bitcoin from us and we're going to hold it for you. Which works. It does work for a lot of people. It's really simple. You don't get into any of the technical stuff. You just say, "I want to buy 10 bucks, or 50 bucks, or 1000 bucks, whatever it is, worth of Bitcoin and I want you guys to hold it for me, and I'm going to come back periodically and check, what's the price?"
They just handle this all for you, as opposed to for example, BRD, where I used to work. They have to explain this whole concept, it's a little bit more complicated, but the benefit to you is that you are the person in control over your funds.
If Coinbase gets compromised...something could happen to your money. They're really well protected, it's super unlikely, et cetera, et cetera, but theoretically this can happen. A bank has federal insurance. If a bank gets robbed, the federal government's going to give you your money back. Because this is crypto, that's not going to happen. So you're lost, right? You don't have it. The benefit of you having your own key is, again, you're in control. It's virtually impossible to take it away from you. Unless somebody physically takes it away from you, but that's the same as cash essentially.
Other than factors of security and control, are there other benefits to choosing one wallet over another?
It's always the same Bitcoin. Bitcoin is a blockchain, and everything that happens on the Bitcoin blockchain, regardless of the source, whether it comes from Coinbase or BRD, is all the same.
Is your exchange rate the same? Is accessing or moving your money out of each wallet the same?
That's the trick, right? As long as you're moving money within Bitcoin, that's all the same. If you're taking money out, you are selling Bitcoin and you're buying dollars, or yuan, or euro, whatever, that rate is going to be different for every provider.
If you are selling your Bitcoin back to Coinbase, they're going to give you a certain rate. If you take your Bitcoin out of Coinbase, and you sell it on a different exchange, you're going to get a slightly different rate. Theoretically, the company could charge you whatever they want. But there's also a market that averages this out, and so there is an acceptable range within which the fees that you pay for selling Bitcoin and get dollars back, kind of move.
What do you think happens in the future of this space?
The reality of today is that the vast majority of people who have Bitcoin, who are buying or selling Bitcoin, are doing it purely for speculating purposes. First of all, price tends to go up. It started at zero and now it's just under 7,000 bucks, so that's a really nice increase over 10 years, but there are periods of really high volatility where the price changes a lot. In the last couple of days we're down by three or four hundred bucks.
That's quite a bit, and people try to play that. They will try to buy when they think it's cheap, they'll try to sell when it gets more expensive, pure speculation. If that's what you have in mind, then you're just essentially comparing things like, okay, which wallet gives me better fees on buying and selling? Which one is cheaper? Which one is faster?
That's not why I'm in it, and I think that's not what many people who work in this industry are in it for, but that's the reality of today.
Do you think there will be more buy in from average people?
I mentioned this earlier to you, but I think that a lot of the conversations surrounding Bitcoin, or blockchain, or any version of crypto, says this is a chance for people to not be beholden to banks, and to get out from under a financial system that historically marginalizes people, or that keeps people out, or that takes advantage. And in this scenario, specifically when we're talking about a wallet and what they offer, one of the main things that it offers is your own control.
I think you're going to see some more widespread adoption. This is interesting because essentially that really depends on where you are. Where you are and who you are. Because in the United States, let's say North America in general, there's really no good reason for people to use Bitcoin for anything other than speculation. There's no advantages significant enough, over the existing system that makes it worthwhile for people to use – this is not something a lot of people in this industry would say, but I'm generally a practical and fairly blunt person. For Americans, Europeans, First World countries, it's just more convenient to use a normal bank.
It's easy, you're used to it, and that's what they're doing. If you are marginalized or disadvantaged in that, within the first world, Bitcoin still doesn't make a lot of sense to you simply because it's difficult to get it, but it's also difficult for you to use it. Because nobody else is buying and selling it for goods and services, they're only using it for speculation. It's not helping you very much if you have some Bitcoin.
However, if you were in a number of countries today, where we literally see increased demand for Bitcoin, places like Venezuela, like Iran, like North Korea, this makes a lot of sense. In a place where your traditional central banking based system is collapsing, whether because of economic policy, or sanctions – in the case of Iran it's sanctions, in the case of Venezuela it's more internal factors – it doesn't matter why it happened, the fact is that your money is becoming worthless, quickly, in that situation Bitcoin makes a ton of sense, because the government can't take it away from you. The government can't control it. The government can't screw it up.
That means your government, but it also means someone else's government. The United States cannot impose sanctions on Bitcoin, not in any practical way. If you are in Iran and you want to move your money out, or you want to keep your money safe, say from inflation, it makes a lot of sense for you to start to use something like crypto, which we do see happening, we see it happening today.
The main challenges that folks in those places have is how do they get it in the first place? How am I able to acquire Bitcoin? And that's the limiting factor essentially, because a lot of the infrastructure and services that have been built around Bitcoin, around selling dollars, yen, whatever, has been built based on the things that we're used to using like credit cards. That's how Coinbase works, you put your credit card in, you give them 100 bucks, they sell you 99 bucks worth of Bitcoin and they keep a dollar, whatever it says for their fee. If you don't have a credit card, there's no access for you. People end up exchanging it in person for cash which works. But obviously it's just not as efficient, not as quick. You have to know someone personally. It's very complicated. That's the limiting factor.
But whenever they can get their hands on any kind of crypto, primarily Bitcoin, but really any kind of crypto they do, and it's much more useful for them. If you become a refugee, if you’re forced to flee, you don't need to somehow figure out how to get your money out of your bank account. All you need to do is remember your key, escape, and your wealth, if it's in Bitcoin, stays with you. That's great, that has so many benefits that you can imagine right away.
The main pain points are just how do you get it? How do you move your money from the paper currency, or bank statement into Bitcoin, but once you get past that, that becomes really useful. That becomes maybe life saving, but at the very least it provides financial stability in some way. You get to another country and you can recover your funds. You can start a new life essentially, which is great.
That creates a weird situation where there's two extremes and not much in between. You know what I mean?
Yes. We have fairly unlimited access to the internet in the United States, how is Bitcoin used in a regulated country like China?
Since you mentioned China, China is very interesting because it actually does not allow Bitcoin. Bitcoin as a currency is illegal in China, but it doesn't stop people from using it. But they have to circumvent the law there. People still use it.
There's a big underground in China for cryptocurrencies for that specific reason. It's a cat and mouse game. They're trying to ban it, people are actually interested in it, and so they try to find out a bunch of ways to acquire it illegally and store it.
By the way, the flip side is that China is actually really interested in the technology itself. It's like Bitcoin as a currency is not allowed, but blockchain, the tech that makes it possible, China is super interested in from the state level. They're investing a lot into the development of the tech. They just don't want people to use it as a currency. Which is a little weird, but that is what they're doing.
There are many RFPs, that we’re seeing, by various American agencies, intelligence agencies, State Department, a bunch of agencies that are looking for tools that will allow them to track funds over Bitcoin, sort of over the blockchain. There are a couple of these tools already available. Not a lot. They're looking to build more to monitor the movement of Bitcoins. So again, it's kind of like a cat and mouse game. In China, it's just purely because I want to have my funds available to me. In the U.S. it's really more about taxes.
In America, they're just not interested in banning it, they're mostly interested in collecting taxes from it.
What are some misconceptions surrounding Bitocin and blockchain?
One thing people don't understand well, is the fact that Bitcoin transactions are irreversible. Wherever Bitcoin moves from, that's it, it's final, it's done. It can never be undone. Which is very different from how a credit card works. You can always call your bank, you can have a charge back, you can have a refund. Many things you can do. It doesn't work like that with Bitcoin.
It's always, always final, which also means it's impossible to steal, but it's easier to dupe people. It's difficult technically to take it away from you, but if you participate in a transaction where I tell you I'm going to sell you my iPhone, you give me a Bitcoin, and I never give you my iPhone. It's done. There's no recourse for you, which is why there's like a lot of ransomware specifically for Bitcoin because you can't get it back.
Another thing that comes to mind is the anonymity of it. People think that Bitcoin is anonymous. It is not. It's what you would call synonymous. Essentially you have a number that represents you. Which is your wallet address. If a government agency can track that, they know even more about you in your transactions than they normally would, because they can literally see every movement of money from that address. But at the same time, if you can hide it, and there are many ways of doing that, that's a whole separate conversation, you can remain anonymous.
That's the trick.
It's not that it hides your identity, it separates it.
Now you have your name, your social security, whatever, if you use a Bitcoin, you have to have a number, and if a person or government can put these things together…
The assumption is that it's private, but it’s always emphasized that everything is stored and recorded on the blockchain. I realize how valuable that transaction history would be if it were distinguishable.
Well that's the thing, right? The difference between Coinbase or Square cash or a couple of ones versus a wallet like BRD or some others is that a number of these companies collect that information from you at the start. In order to buy Bitcoin from Coinbase, you're going to have to input a bunch of personal information and then it becomes associated with you and becomes stored, and let's say in the kind of mundane scenario, the IRS can look it up and say, "Oh, Tatti bought a bunch of Bitcoin three years ago. She paid $1,000. Now that's worth $50,000 and if you sell it, you're going to owe some taxes on that."