Ryan Berkun, the creator of Coinplan, the cryptocurrency investing and wealth management platform, talked with Finrazor about several common mistaken beliefs related to cryptocurrency, and shared his ideas about the bright future of the crypto industry itself
Myth: Bitcoin is a fad
There are different assumptions about the whole phenomenon of bitcoin — it is called a ‘geek thing’, sometimes it is believed to be a product of a well-designed conspiracy theory, etc. So, what is the primary, justified, reason for its existence? What if it is a fad?
The primary reason for bitcoin’s existence is censorship resistance. It’s the ability to own your own money without anyone denying you of it.
In 2009, when the housing bubble collapsed, bitcoin was being developed in the background by anonymous person (or a group of people) going after the name (or pseudonym) of Satoshi Nakamoto. And the initial premise was to create an additional cash that no one, no single party control.
So, the primary purpose of Bitcoin is to have a censorship resistant money, meaning no one can say ‘No’ to an individual owning [a property]. The spread of Bitcoin [reflects] how we deem money available and all right there.
Then, the secondary use cases is — a lot of people like to promote it — the ability to easily transfer value or money from one part of the world to the next [without all the bureaucracy], and the ability to have a global currency. At least, I believe Bitcoin will be, the [real] global currency. Also, the ability to have a store value that isn’t fluctuating based on political turnover, unlikely we see in Venezuela like now.
The primary purpose of Bitcoin is to be censorship resistant money.
And why won’t it cease to exist? Or what could lead to its disappearance?
So, my answer is going to be, Bitcoin will exist because no one controls it. If one country tries to stop it through regulation, like India has done recently, others will allow it to thrive, like Singapore and Zug in Switzerland.
Myth: Bitcoin has no real value
Bitcoin and cryptocurrencies are said ‘to be not backed by anything, therefore having no intrinsic value’, in comparison with fiat money.
If we take a closer look at dollars, we’ll learn that they ‘represent’ the relevant amount of gold — a fairly valuable item. But we cannot say this about crypto as they relate to the blockchain they exist within, it looks like a closed system. What are cryptocurrencies backed by and what do you think of its’ intrinsic value?
[Here comes even one more myth.] The US dollars are actually not backed by gold. It’s backed by the forfeiting credit of the US government, meaning that how strong the government is, the underlying value that gives support to the US dollar.
But for Bitcoin, the underlying value is not gold, similarly, it is actually:
So, bitcoin is noble, and the intrinsic value of it comes from the blockchain which is a database (or a ledgered information) that is not [something having no connections with the reality], it is owned by a single part and also owned by everyone at the same time. Owning the bitcoin blockchain is similar to have an access to the Internet. If you have an access to Internet, you have an access to everyone else’s hosted websites on the Internet, per se, no country is censoring what websites to go to. So the intrinsic value of Bitcoin comes to:
- that is blockchain,
- the first value proposition of censorship resistance, meaning that I myself own digital currency which is bitcoin, and
- the network effect.
The amount of people that support the network is similar to the number of people that support the US dollar, [but its innovation potential is way more promising].
Likewise for bitcoin, where the backing of a network is distributed globally, also the innovations are coming from the ability to transfer money digitally from one part of the world to another or pay for some items to merchants right from your own money with digital cash — almost like using cash, but digitally.
So to sum it up, the intrinsic value of bitcoin comes from several factors, one being the blockchain technology itself, another — be an initial premise of bitcoin for censorship resistance, and third — be the network of people that support it.
Myth: Bitcoin is a bubble. BTC follows a pyramid scheme
They say that the real value of bitcoin is exaggerated, and some people use it as an unfair tool for making money. Following this scheme, all the hype about the subject just helps to overheat the market and attract new ignorant investors with FOMO, trying to catch the trend. So, what if the supply and demand for BTC is artificial, and BTC a bubble, following a pyramid scheme?
I do believe that this is the case for what we saw in the 1970s: there were a lot of speculative investments from no sophisticated investors that did join [the Stock market bubble] because of hype; and what we have seen in the 2018 market run, that’s far, has been a correction.
Bitcoin was not a bubble and these high swings like we saw in December were not new to the history of Bitcoin, this has happened numerous times in history. The swings of how high and how low it goes has been decreased, meaning that it is becoming more concise as the network itself gets stronger.
So, I think, for investors, everyone should do their own research to understand what is the technology, what is needed before placing an investment and if it is too risky allocate a small degree of their portfolio whether that’s 1 to 3%.
Myth: You can’t buy anything with Bitcoin
My local grocery won’t sell me goods via BTC. Anyway, I’ve heard about the cases when the sell real-estate for cryptocurrencies, but isn’t this a PR & marketing campaign? So, is the adoption of BTC as a payment tool is a matter of time or is this the demonstration that one can’t buy anything with Bitcoin?
I think, the first kind of idea, that it will come with time, [is the case]. Right now there are merchants that are accepting crypto, but Bitcoin is too volatile for most merchants. Anyway, that volatility will only decrease all the time as:
- network is stronger those using/holding bitcoin, but
- the actual market value increases, so manipulation is not that possible in the market.
Bitcoin’s cap right now is at about 200 billion, and that is minuscule when you compare it to other industries [without speaking about countries’ GVA]. For example, it is significantly smaller than the size of Apple, a single company.
Because Bitcoin in terms of its capitalization, it is easy for large investors to manipulate its economy and move the price up and down, but in time it will become less volatile and that will enhance merchants' acceptance.
In addition, there are new technologies being developed on top of the Bitcoin network that will allow merchants to accept cryptocurrency and Bitcoin with almost no delay in transaction time. Except Bitcoin, they want to transact to US dollars, they will be able to do it instantly. One of those platforms is called the Lightning Network, which is a layer on top of Bitcoin that is building instant transactions from the one person to another on the Lightning network using bitcoin. Let’s see how things are with and without it.
If I would like to buy a MacBook from Apple, I will have to get to my Bitcoin wallet, and say ‘I want to send my bitcoin to Apple, the merchant’.
That transaction can take anywhere from 10 minutes to several hours to complete (and if we were speaking of congestion of network in December, that could take half of the day for that transaction to occur). During the transaction the price of bitcoin might fluctuate from 1 to 10% at that time and this was way too high for merchants to be able to accept that risk (ed. comment: since their income figures would be inaccurate as the entire economy is tied to dollars — rent, salaries, etc.)
With Lightning network
Bitcoin will be able [to be transacted or converted immediately].
There is a company called ‘Lightning Lab’ that connects Coinbase to the Lightning network. If I have a coin on this account, and a merchant has a coin on this account [as well], I can then send my Bitcoin to Lightning Lab, they will send Bitcoin through Lightning network to the merchant, and the merchant will get this Bitcoin on the Coinbase account instantly.
There will be no time difference in the scale of transactions sent, thus a transaction of a big sequence of Bitcoin will be instant.
Thoughts on volatility
So, if volatility is a natural ‘side-effect’ of an emerging market, its fact can’t be used to blame and bury the crypto. But if it is possible, it should be finally lessened. What will ‘cure’ volatility?
One [part of the answer is] a larger market cap. A market cap that Bitcoin has, 200 billion, is not extensive… For example, the ETF market alone is at 3.5 trillion dollars under assets.
So, [the first favoring factor] would be simply more money flowing into the Bitcoin ecosystem, and another [factor] would be merchants’ acceptance of cryptocurrencies: the more merchants accept it as a way of currency, the lower the volatility will be.
The more buyers and sellers we have, the quicker we will be able to enjoy it as a mass-market thing, the quicker it will come to a fair market price and maybe that will work the thing to become more consistent.
And one of the ways to make it happen is to talk about the phenomenon of blockchain and cryptocurrencies, explain the features and break down the myths: this helps to get it closer to all the people (— ed. comment).
[We should definitely talk about it], that’s why we are here. When people show people that this is a real technology with real value that solves real-world problems and could be the technology that we will use for the future, [they eventually let it become a part of their (and, thus, our) reality].
Myth: Every ICO will go to zero
They named the 2017 year a year of ICO. But the greater part of ICO fails to make a successful product. It it true that every ICO eventually will go to a zero?
I think that one of the problems of cryptocurrency is that there is a lot of scams out there and investors should very hesitate before investing in ICO.
The reason is that you are not investing in a company but in a function of one the features on a platform or technology.
I think 80% of ICOs were deemed scams in 2017, but of course, they were successful, legitimate products made through it. (Let us not forget that ICO is a method of raising funds, and despite the fact the accessibility and simplicity of investing process have its effects, there is not a direct correlation between ‘ICO’ and the product beneath it. — ed. comment).
ICO investing is very risky, but it can be very lucrative. Some of these projects will become next facebooks, googles, and amazons — but a very few of them. Investors must do their own research when investing into ICOs, [learn not only the perspective of the product itself but how they are going to ‘own’ the business, as well.]
There is one method of tokenization that is coming out [and deserves a better look]. It is called ‘security token offering’, STO.
If Security, the actual coin is backed either a revenue or some type of accutive generating (accutive security tokens can be tied to different features of the business whether it’s revenue or another). Thus you own a part of a real working business. Those coins would be treated as a security by the SEC — similar to investing in Apple stock.
That’s an awesome opportunity for real companies that enlist these tokens, and I have a feeling that many of new startups, who wants to reach their mature size, will be listing as security tokens.
Myth: Crypto is used mostly illegally
The research throughout shows that the majority of bitcoin usages and transactions is not illegal and is not for evading taxes, investors right now don’t have a clear solution for listing taxes for cryptocurrency and it’s not one of the things we in Coinplan are providing, in terms of our platform we offer: we will be offering taxes as part of the ability for investors to understand exactly whether their properties mostly are and how they can manage taxes in the cryptocurrency space, because it’s one of the biggest issues.
People run businesses; business owners apply different technologies; some people violate laws and got arrested. [There isn’t a necessary interconnection between these concepts.] But when things happen, the broad audience just don’t know exactly what reaction to take.
In terms of illegal drug transfers, I can’t speak for the world that large, but that original notion, I think, is died out as Bitcoin is used for destruction of transfer.
There is a lot of good that happens with the ability to own your own money, and we are watching that the ability to send money from, say, America to Australia [without all the governmental structures as third parties], and it doesn’t have to be [necessarily] used for drug smuggling, ‘due to’ one of these [conjunctions] of Bitcoin to be ‘fully’ anonymous.
Myth: Bitcoin is anonymous
Bitcoin is actually not anonymous: the wallet addresses, whether they are not high directed to the individual, can be traced back by algorithms to the actual individual addresses and receivers. Thus, it’s not so safe to do illicit transactions through the Bitcoin network as everyone in the world without knowing it can see ledger transactions and analyze it better, and potentially get back to the criminals conducting that illegal activity.
The research has shown that the majority of crypto usage is not for illicit purposes and that people also want to pay their taxes, they just need more guidance somehow.
Myth: regulation will kill either the idea or usability of cryptocurrencies
Compliance and custody in the cryptocurrency market have been increasing over time. If we look at Coinbase, we will see that they hold cryptocurrency in funds under the same regulation as major financial institutions, in terms of KML and RAC.
But ask me about the source of funds and where will be directed to — I think the gap is here to stay even if cryptocurrency becomes a market that will be regulated over time and has increasingly been so.
If you want to sign up to Coinbase — I think is one of the easiest ways to get and to buy Bitcoin and other cryptocurrencies — you must go through the KYC-process, that helps to prevent money-laundering and terrorist funding methods.
Slowly but surely more regulation is coming, and all this makes cryptocurrency more legitimate and a more mass-market for the future.
At least in the US, they are treating it positively and there is a lot of people at the head of government institutions that are very favourable of cryptocurrency and blockchain technology.
They are moving slowly. Right now no one knows what the regulation will be because there hasn’t been any [comprehensive, final decisions], but regulators (SEC, CFTC, FINRA) are open to innovations, [but besides], they want to be sure that no one gets scammed. [Definitely,] the government wants investors and people in this market don’t get scammed and don’t get into trouble with fraud or protected, the financial status protected.
In terms of regulation specifically on the cryptocurrency, [there was actually some favorable news recently:] the SEC report stated Ethereum to be sufficiently decentralized, so now it will be treated more as a commodity and less as a Security.
The main goal of regulation is to make sure that people are safe, but they also don’t want to cut out innovation. Regulators are open, but they haven’t made big moves yet, and that’s a big grey area for everybody in the cryptocurrency space.
All in all, the core idea of regulation is positive and it will lead to the brighter the future for cryptocurrency and legitimacy for blockchain projects.
Myth: Bitcoin creators to be imprisoned
There are rumors that ‘the CEO of Bitcoin went to jail’, and consequent shadows cast on the whole system...
[Let’s discuss every part of the statement.]
In terms of the Bitcoin creators, it’s kind of unclear, no one knows who they are. [As generally accepted], the creator goes by pseudonym Satoshi Nakamoto; but it could be one person as well as a group of people — the world hasn’t yet identified who it built and where it was built.
In terms of its CEO, it’s an irony that there is a myth because there is no one managing bitcoin from a corporate or organizational level; there is no access or control to committing code, and, in particular, there is no organization [commercially and directly] promoting it. Bitcoin is essentialized and everyone in the world has an access to, there is no central authority holding it.
Silk Road, Ross Ulbricht, Charlie Shrem and their relations to Bitcoin
In terms of ‘the CEO going to jail’, this is all about because of Ross Ulbricht, who created the Silk Road website. Silk Road was a place used to illicit selling of drugs, where Bitcoin was promoted as the preferred method of payment.
(Mr. Ulbricht did go to jail for lifelong — a double-lifelong sentence plus 40 years, namely. Yet, enthusiasts believe that court decision to be too strict, and even vote for his freedom.
Also, Charlie Shrem, a US-based entrepreneur, was accused of running a scheme with Floridian Robert Faiella to sell Bitcoins anonymously to users of the Silk Road website. According to prosecution documents, Faiella ran a business on the Silk Road website under the name BTCKing, where he let users exchange cash for bitcoin anonymously in exchange for a cut. Faiella fulfilled those orders using BitInstant, where Shrem was chief executive and chief compliance officer. As a result, he actually went to jail in 2014 and was let out [in 2016] — ed. comment)
But, [again], bitcoin has no CEO, no company is running it, it is a decentralized protocol that anyone in the world has access to.
Ryan Berkun, the creator of Coinplan
So, a long time ago, during my undergraduate years, I really wanted to create something [fresh and useful]. That time I saw [creating] software in coding and programming as the only way to do so.
In my first semester, I started to teach myself how to code. I was staying up to 3 a.m. learning how to create IT-products. Besides, I would sit on classes at the university [and sometimes find them insufficient] because the professor was going [either] too slow [or] made mistakes which I had already gone over [during my own ‘classes’]. That self-knowledge strategy how to grow up in a programming world was the best way for me to learn as quickly as possible.
Coming back to the summer of my freshman year, my undergraduate day, I launched my first app with my friend. It was called Request. It was an app that allowed you to send song request to the DJ, and we thought we were going to make it big.
We spent a month building the app and we ended up, we went out to different bar owners. Actually, back then, we were 19 at that time so we couldn’t get into the bar itself, but we pitched what we were doing, [and usually managed to meet the bar owners]. Some said they liked it. Then we went all around the town, talking to people, learned how people like it…
We collected so many contacts, organized them and about a week later we reached out all of that bar owners, and — such a disappointment! — few of them responded to us with significant interest.
So we turned on our heads. We knew what to do, needless to say, we kept experimenting in improvising and starting to become Djs ourselves, and DJs in different places to promote our product.
That was where I really learned [what a startup means] — the startup methodology means to figure out who your target customer is and how to really run a business in addition to creating technology.
So, since then I have been building different applications and different projects. Besides, I have been trading in the Warren exchange and Stock market, learning different things: technical analysis, how news influence the price, how to value a company.
In about 20, I began writing algorithms to directly trade on the foreign exchange market. I was able to use a foreign exchange market, where the price to get in was next to nothing (when you put in a dollar to start trading on it), and with these algorithms, I slowly started developing greater expertise. As in the ‘Request’ times, I was bringing other traders involved to use algorithms as if they can really enhance it and make a profit out of it.
Then coming to my junior year, and we decided to be focused on it and give these algorithms to others. That time people started requesting cryptocurrencies and bitcoin, and that’s how we really started to learn about it.
2017 came, and in September we were playing around with cryptocurrency, writing machine learning and AI algorithms to trade Bitcoin and other coins.
When the epiphany of different initiatives and sectors of blockchain started out, that really hit us. We went through weeks of brainstorming every day, staying up all night and examining all possible news about cryptocurrency and blockchain, which could wave out our third parties and change our future. The ecosystem of technology and modern life, as we know it, was being disrupted, we were so excited and we wanted to just get in as involved in the blockchain space as we could. So we started researching every coin out there, every protocol, every platform and began investing.
And this is where we faced first problems of investing in cryptocurrencies: because of the market is too fragmented, it’s very difficult to enter as a newbie. But we saw a direct ability to solve this problem of making cryptocurrency investing in it simpler. We ourselves did not want to see us as traders, we were more building [a tool] [compiling] portfolios. And the ability to build portfolios easily was near impossible at that time.
It took at least an hour and a half hard working to build a decent portfolio, a very time-consuming process. It took pretty much time to connect to different main exchanges like Coinbase, GDAX, Binance, Kucoin, [and keep track of what you are investing in. It would be great to somehow tie all the accounts together on a single platform to let] the user set the coins he wants to portfolio, set the rates once and make it go, really go.
For us it was the major solution, so we decided to give it out to some bar traders and other people online. And we got people interested! Then we started to develop the platform, one of them was arbitrage technics, another one was an integration of our prediction algorithms to the platform.
In about April we decided to have a deep brainstorm. We got really focused on the research of the market, figured out what’s really out there, what is just beginning, and where we can position ourselves best to make cryptocurrency investing as easiest possible for the next 5% in the world that wants to invest here. And what we saw to be promising, was wealth management — that’s a space that hasn’t been explored too often. Right now in the cryptocurrency space there are a lot of products that are focused on only trading. [But trading is demanding, and it isn’t the cure-all], and that’s what we really came up with the Coinplan.
Coinplan is a cryptocurrency wealth-measuring platform that allows users and investors the ability to design their portfolio, track the market, but also to invest in really cool, diversified coin bundles or portfolio of cryptocurrencies. We want to make it as easy, for the next 5% in the world to come into the cryptocurrency market, and really be allocated and diversified almost instantly.
We see ourselves modeling the fintech giant ‘pyramid’ in the financial space that bringing back to the cryptocurrency side. So with our bundles we are offering something unique [yet accessible] — users can connect their Binance accounts, and with a click of a button invest into portfolios and indexes run by thought leaders such as Bloomberg (actually, they’ve just put out the BGCI index, the index of the TOP cryptocurrencies they track). A user on the platform can also directly invest into a Coinbase fund, a Coinbase release, or Chinese index which is an awesome composition of TOP-30 cryptocurrencies that will be updated every month.
So we are really giving our users the ability to have a platform to invest into a diversified bundle of cryptocurrency, diversified, run by thought leaders in the financial space, and with almost no friction.
We are here to make cryptocurrency investment and wealth management as easy as possible, to use it as a catalyst to bring blockchain projects and cryptocurrency to mass-market and scale.