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
New York City Housing Authority with Polina Bakhteiarov
by Polina Bakhteiarov
May 3, 2018
This interview with Polina Bakhteiarov, the Deputy Director for Real Estate Development at NYCHA [New York City Housing Authority], was conducted and condensed by frank news. It took place April 24, 2018, in New York City.
Can you tell us about yourself and how you found yourself at NYCHA?
I was born in Moscow, Russia, came to the States as a child and grew up in Massachusetts. I ended up going to MIT and doing a five year program where I did double undergraduate degrees in Urban Planning, City Planning and Civil Engineering, and then a master's in City Planning.
I came to MIT wanting to do bioengineering, having no idea what that was. My freshman year was the year after Katrina, and I was walking down the hallway at school one evening, and this flier caught my eye. It was a discussion about recovery and resilience in New Orleans post Katrina, hosted by a professor named J. Philip Thompson. I was like, wow! I had been interested in what happened, what was going on in New Orleans at the time and wanted to go down there, but my mother was like, “no, you're not going anywhere”, I was 17. So I went to this forum to see what it was all about.
Phil ended up being my adviser and longtime mentor. He just got elected Deputy Mayor for strategic policy initiatives across the street. So we're looking to partner in a new way at this new stage of the game.
Tell us about NHYCA.
New York City New York City Housing Authority, NYCHA, we call it the acronym, is a huge organization, about 10,000-11,000 employees. We're technically part of the city of New York government, but we're also federal, so we’re in this strange purgatory of being funded by the Feds, but then reliant on City Hall.
NYCHA is the largest residential landlord in North America. We have about 2,000-2,500 buildings, and about 2,500 acres of land that comprises around 320 developments of various sizes. Small developments can be a walk up, then the largest development is Queensbridge, which has 3,000-4,000 units and about 7,000 people who live there. The scale is vast. We also corner about 8 percent of the rental market in NYC. We have a lot of untapped power which is very interesting for me because my I'm starting to get into the area of public asset management, and public finance, and how we can better leverage our public assets to generate additional income. Not just within the NYCHA world, but in government in general.
It's really started to pique my interest, especially because of the federal conversation, for better or worse, around infrastructure. Regardless of the motives, and even the mechanics of that conversation, there is still a legitimate point around the fact that we don't leverage our public assets, bridges, roads, airports convention centers etc.
How you would like to leverage NYCHA's assests?
One of the ways we do it now is through our infill program. We have two programs. We have what we call "100 Percent Affordable Program", and then we have the, "NYCHA Next Generation Action Neighborhoods Program", or the "50/50" program. In both of those programs we identify underutilized or vacant land within our development campuses for a new construction project. On the 100 percent affordable side, we build a building and all the units are up to 165 percent AMI [area median income], so there's different levels of affordability there.
On the 50/50 side, same concept. Identify a plot of land that’s developable, and when we construct a building, 50 percent of the units are affordable, and 50 percent are market rate. We take the revenue from the deal and reinvest a portion into the development on which the new building has been constructed, and then the other portion goes to the highest need development. The ones in the worst conditions, and in need of investment in systems, grounds etc.
That's like putting our toe in the water. Taking the intrinsic value of our developments and figuring out how to extract that value, and then reinvest it back in.
In order to be truly able to put any type of dent into that huge number, that keeps on rising, we have to get creative.
Is the 50/50 housing model working?
We have not actually constructed the building yet. That was rolled out in 2015 under the Next Gen NYCHA strategic plan, which is a 10 year initiative. The mayor is very aggressive in his housing goals, and he wanted to pilot this new structure, and this new framework.
What were the main points of anger towards the 50/50 idea?
The biggest fear is gentrification. You're bringing folks who can afford a market rate apartment in some of the hottest neighborhoods in New York City (Upper East Side, Prospect Heights, Williamsburg, Lower East Side). So gentrification is the biggest issue. The fear of rising rents and displacement, although that still bleeds into the new construction side, because residents oftentimes see a new building as an indicator that change is coming and folks are going to be pushed out.
The other issue is the destruction with the construction. The destruction of folks daily lives and how the new building will impact the lay out of the development, the neighborhood, what these new folks coming to live there bring. The cultural implications. There are a lot of considerations we're working through with residents in that process.
We're trying to continue to expand our thinking. One of the areas that we are now exploring preliminarily is selling air rights because it would really, really change the game for us.
How does that work, and how do you go about getting that approved?
A couple of things. One is the federal process. We have to figure out if HUD will allow us to do this, because it is still a transaction. We've been talking with with HUD about how to do that. It seems like everyone is fairly excited about it. Residents like that strategy because there's no construction, it doesn't disturb their daily lives. Politically, I think that it could really be a win for both the legislative and executive branch because again, it's really a cash cow for NYCHA with a very minimal administrative burden.
Do you anticipate backlash with that program, because you would in essence be throwing an issue onto another person? The idea of changing the New York City Landscape, the idea of environmental impact? The buildings you sell to, exceeding what they should be exceeding.
The buyer of the rights would only be able to use them to the extent that the zoning for their parcel, or parcels, allows. They would still have to go through every process on the city and state level with regard to environmental review. Every other type of testing that needs to get done in order for them to pull their permit. They would not be able to bypass any of that.
Okay, got it.
I want to talk about what I do, which is on the preservation side of things.
Sure!
The purpose of our team is to structure public-private partnerships in order to preserve public housing in the long term. The main tool that we use is Rental Assistance Demonstration. It's an Obama administration initiative that began around 2011, and is really a way to open up new avenues of capital, coming into a development that's prohibited within the public housing framework.
What RAD allows us to do is switch the funding for public housing developments from public housing, what we call Section 9, to Section 8 housing choice vouchers.
What that allows us to do, is go to the markets and bring in additional capital for that development, which was previously prohibited from us.
Our program focuses, once we get that financing package, on three pillars. The first one is a very substantial rehabilitation of the development under the federal guidelines. We have to address the 20 year capital needs of that development. We also switched the management to a private property management company which allows for streamlined property management, and also allows residents to revisit the conversation around house rules, which is something that NYCHA used to enforce very strictly back in the day. Over the past couple of decades it's really deteriorated. A lot of residents, in the forms that I've engaged with them, complain that there are no standards for how these communities are supposed to function. The last piece is around social services delivery. With the conversion we also bring in an onsite social services provider to really increase the services that folks are receiving in the development, tailored to the needs of that particular community.
Where does this work fit in under the larger umbrella of “planning”?
The great thing about planning is that it can be defined in so many different ways. For me, I see us focused on the housing aspect of planning. We are definitely very implementation focused. We obviously rely on planning studies and analyses that are done by our colleagues at the Department of City Planning, housing preservation, and development, and even internally have folks that do planning oriented analyses. But we're really focused on the implementation. We're looking at how we choose the developments that go through the Section 8 conversions.
We do look at it from a planning lens. We're looking at neighborhood context. One of the things that I've been looking to to add to that particular planning process, for our preservation pipeline, is that particular piece. When we first started the pipeline planning for RAD, it was really based off of financial feasibility. What we were doing was taking developments that were in some local proximity to each other geographically, and figuring out how to make them work financially. Because we're bundling developments together, we're not doing one at a time in order to get efficiencies. That's a great baseline, but there are other factors that we have to take into account when we do this planning.
There's also the piece around political planning.
What is NYCHA’s ultimate goal?
Our ultimate goal is to dig ourselves out of the $17 billion hole. We've lost our identity as a landlord, because that's really what we are. We house 1 in 14 New Yorkers. We have about 400,000 people in public housing, an additional 200,000-250,000 via the Section 8 program. We really need to get back to that identity, of being a strong landlord.