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Episode 82 The Bitcoin Opportunity


Adam B. Levine (AL) - Host
Jonathan Mohan (JM) LTB correspondent
Paul Vernon (PV) Founder and CEO of Cryptsy exchange
Hayden Gill (HG) Columnist on Chinese issues
Michael Caselle (MC) On the China market from North American Bitcoin Conference
Scott Robinson (SR) Founder of Plug & Play Bitcoin

Today is February 8
2014 and this is Episode 82.

Welcome to Lets Talk Bitcoin, a twice weekly show about the ideas, people and projects
building the digital economy and the future of money. Visit our website at
www.letstalkbitcoin.com for all our past episodes, frequent, original and varied perspectives
and, of course, our Bitcoin addresses where donations are appreciated.

My name is Adam B. Levine and Im the editor-in-chief of the LTB network and today were
looking for opportunity.

Hayden Gill is a columnist with a fairly unique point of view a Westerner familiar
with the subtleties of Eastern culture. Hayden recently submitted a piece called The
China Syndrome. I found it to be a thought provoking Minority Report another
way to push forward
Then, Malcolm Caselle is no stranger to China himself. At the recent North American
Bitcoin conference, Malcolm shared his view of whats happened in China over the
recent months and whats likely to happen moving forward
We wrap todays show with Scott Robinson, a lead at the Plug & Play Tech Center
incubator and more. I caught up with him as they search for their final projects to
invest in for this, their first round of Bitcoin start-up incubation
First, LTB correspondent and Bitcoin NYC organizer, Jonathan Mohan, sat down with
Paul Vernon, the man behind Cryptsy. They talk origins and destinations, priorities
and future development

Enjoy the show! [1:31]


Jonathan Mohan interview with Paul Vernon

JM: Im sitting down with Paul Vernon who is the Founder and CEO of a site I think youre
all familiar with, Cryptsy. Paul, can you tell us what it was like starting it? How did you get
involved with cryptocurrencies? [1:44]

PV: I got involved in 2011 initially. Id heard about Bitcoin and I created a miner; I set up a
miner and started mining it using a graphics card which is something that you could do back
then. I probably mined it for a couple of months and really the return on investment wasnt
very high at that point. They were like $2 and the amount of electricity I was using was
much more than that. I got kind of bored with it after a while and there was really nothing I
could do with Bitcoin at that time. I just shelved it but fortunately, I did not delete my
wallet so I kept those. [2:23]

JM: Theres no story of 7,000 of them existing in a... *2:26+

PV: Yeah, I didnt throw them out. I just turned off the client and that was that. When
2013 came along and all of a sudden I had people telling me Hey, have you heard about
Bitcoin? Its up over $100. I was like Oh, Bitcoin. I remember that. I think I have some of
those. I got back into it. It drugged me back into it. I went home, turned on the Bitcoin
client, waited for it to download two years worth of chain that had been waiting for me to
download and noticed I had some Bitcoin in there. At the time, I said OK, Im going to go
and sell them on MtGox because thats where you go sell your Bitcoin. They had a whole
verification process that took weeks. During this time, I started trading the bitcoin on their
exchange because I couldnt cash out. That got me interested in that. I thought about
mining again but what I realized was that the difficulty was much too high for me to set up
some graphics cards and mine again, at least for Bitcoin. What I heard about was this thing
called Litecoin that everybody was talking about and that you could mine with your GPU.
Since I already had GPU cards, it was easy. I set up a pool and people started using my pool
and before you know it, there were additional alternate cryptocurrencies coming out
Elacoin, Feathercoin. They werent coming out as often as they are now but they were
coming out probably once a week. Every time one would come out, people who were
participating in my pools said Hey, can you create a pool for this or, can you create a pool
for that? I said Sure, why not. Ill create a pool for that. People would mine that and
before you know it, I had about twenty different pools set up. The problem became was
that people had nowhere to... they mined these coins but there was nothing that they could
do with them. They couldnt liquidate them; they couldnt use them to spend money
somewhere, or anything like that. Half the time, these guys were trading these coins
through Google Docs on the Bitcoin Forum. I just thought that was a horrible idea to trade
with people on a forum, that you have no idea really who they are and hope that they give
you back what the agreed price is. I said OK, I have all these users of my pools. Let me
create an interface for them to use to trade the cryptocurrencies that theyve generated on
our pools. Initially, the coins that were listed on Cryptsy were from the pools that I had. I
whipped that up fairly quickly. I think I got the beta version out within three weeks of
Cryptsy and it just kind of took. People liked it and they used it. Before you know it, theres
many more people that ever came to my pools were using Cryptsy and people started
asking for new coins and coins that I didnt have a pool for. I started investigating those and
said OK, we can add that. It just kind of went from there and the rest is history. [5:34]

JM: I actually have a friend who, when he learnt about Bitcoin, his on boarding process was
thats all he did for a month and a half was Bitcoin, Bitcoin, Bitcoin. I told him about Cryptsy
and I showed him that there were like a hundred other altcoins out there and he was like I
cant handle this. It was just consume me. (Laughter) *5:50+

PV: Right. We do have users that probably spend much more time on our site than is
healthy. [5:57]

JM: I like to tell people Hey, you know that thing that goes up and down 20% per day that
we call Bitcoin? Thats the blue-chip stock. I would like to introduce you to this site called
Cryptsy where you can look at where the real volatilities at. [6:10]

PV: Right. Not necessarily volume but definitely volatility. [6:14]

JM: Oh, thats for sure. *6:14+

PV: Yeah. [6:15]

JM: What do you think is the place for altcoins in the eco-system? Do you always think that
Bitcoin is going to be the dog and the altcoin is the tail? [6:24]

PV: Altcoins the place to mine really. I mean, if youre a new miner and you dont want to
buy an ASIC chip, an ASIC miner, invest huge quantities of cash and getting into mining,
altcoins are that place to go to get into cryptocurrencies without having to spend a lot of
money. A coin comes out, the difficulty is low and you can mine with the GPU thats on your
laptop and acquire a few coins that way. Just kind of get into the eco-system. If Cryptsy is
accepting that coin, then you can get into the other coins. You can trade them for Bitcoin
and now, all of a sudden, you have bitcoins and you didnt have to spend any cash for them.

JM: That sort of brings another element into it with, when you get an altcoin and you learn
about it and you bring it onto the exchange, what is that process? How do you determine
this is an altcoin that is ready to be on Cryptsy? This is an altcoin thats not quite there yet,
or this is an altcoin to which I really dont think was made with intent that was pure. How
do you make those distinctions? How do you look into that? [7:32]

PV: I have a couple of guys that help me out. One guy does less of the non-technical stuff.
Hell review the coin and the people involved and another guy is more familiar with the
code, so hell look at the code and make sure that there are no hidden gems or bugs. Some
code versions are known, especially with proof of staking, that there are bugs in it and if you
forked off a certain version of Novacoin, or whatever then there is a known bug. If you
didnt know about it when you created your coin, then youre going to have problems later.
We looked at who created the coin. Are they active? Are they going to continue being
active developing this coin? Was there a huge premine? I prefer no premine but if there
was a premine, whats the purpose of that premine? How is that regulated? Are we just
hoping that they do what they say theyre going to do with this premine or are they actually
doing what the intent is? Whats the algorithm? How many users are asking for this coin?
Is this something that we can integrate easily because there are some coins that have come
out that the integration just isnt as easy as some other coins? We may have a handful of
coins were looking at and these coins are easy to integrate and this coin is not that easy to
integrate. The one thats not easy to integrate is the one that gets put on the back burner.
Not necessarily that we wont integrate it, its just that we have to work around the
technology to get it integrated. [8:59]

JM: I just think that youre in a tremendous position to help the economy in setting
standards and guidelines for what it looks like, what a healthy altcoin looks like, what that
sort of space should be. As were growing into what this cryptocurrency space is going to
become, we really need to understand best practices and guidelines. I mean, I just like
hearing what youre saying. I wish that there was a more self-regulatory body. Like if you
and BTC-e and a couple of others were to come together and say Hey guys, these are the
guidelines to which were not forcing upon the economy but we really think that this would
bring about the most positive effect for the altcoin economy. Its just something I would be
very excited to get behind because I really think that communal coming together, in best
practice setting, is really what we need to grow as a community. [9:46]

PV: Yeah. We really dont disclose internally our discussions for inclusion because we dont
want people to create coins specifically to meet our specifications and then say OK, why
arent you adding my coin. I met all your requirements. Everything is case by case. Every
coin is case by case and its really about the community. The whole of Crypsty is about the
community. If the community is behind the coin and it seems like a fair coin, then it will
probably get added. If its some coin that somebody is just trying to push and it doesnt
really have a lot of community backing then it probably wont be a coin we add. *10:22]

JM: I dont think Ill be trading my Coinye paper wallets over the Cryptsy. *10:25+

PV: Coinye had a lot of PR and had a lot of people who wanted to do it. We had a lot of
users requesting Coinyecoin but the problem is that Im not ready to get into a legal battle
with trademarks. [10:42]

JM: Most certainly. [10:43]

PV: We didnt. We did not add that. Fortunately not because hes true to his word, as far
as protecting his trademarks. Thats not something that we would want to get involved in.

JM: Right. What do you think of the idea of brand or company based altcoins? How excited
are you for that? Where do you think the innovation in altcoins is going to be? [11:04]

PV: I think that thats a good idea. I like purpose, I like coins with purpose something
thats just not a clone of another coin because that gets boring after a while. Why do I want
to use this coin if its just a clone of this other coin? *11:20+

JM: You mean I cant just change the supply parameter and make a totally new coin?

PV: Sure you can and if enough people start using it and its popular enough then yeah, you
can. [11:29]

JM: I think Im starting .1coin and theres only going to be .1coin in circulation. (Laughter)
Lets see how far it goes. [11:35]

PV: Right and one satoshi coin for every block or something like that. I think branded
coins... yeah, especially if there is a product or service attached with that. We have this coin
and we have this service and you can use this coin with this service. Thats a great idea. I
dont have an example off the top of my head but it could be anybody. Any store or any
major online outlet could create a coin and that could be a method of commerce for them.

JM: What do you think in the altcoin spaces something to keep your eye on, or something
that you would like to see have developed in the next year? [12:16]

PV: Wallets that are able to have multiple coins. [12:20]

JM: Multicoin wallet. [12:22]

PV: Yeah, a multicoin wallet would be nice and not necessarily for mining, just so you dont
have fifty different wallets running on your computer. [12:31]

JM: Blockchain.info is the room down there. We should go and yell at them and say Hey,
why dont you integrate with Cryptsy and take more altcoins. [12:36]

PV: Yeah. We have that wallet type of service where you can generate an address and hold
funds at Cryptsy but thats not our core. Thats not our purpose. *12:48+

JM: I have a number of Florincoin on Crypsty and I have a buddy who is one of the core
developers and I said Hey, how do I cold storage this? Is there any easy way to do this?
He was like Well, you do this, this, this and that and I was like Ah, Ill just keep it on
Cryptsy. (Laughter) It kind of is funny that youre turning into the de facto Blockchain.info
for all the other things that arent Bitcoin. *13:09+

PV: Holding them at Crypsty is probably far more safer than holding them anywhere else,
especially on your local computer because so many things can happen to your laptop. You
can spill coffee on your laptop and fry your hard drive. Thats it, right? Unless you can
figure out a way to pull the data out of there or somebody steals your laptop, youre
screwed. [13:32]

JM: I was pretty happy when you talked about the trade key where now you just have your
Cryptsy key and that provides anyone who has an altcoin thats on Cryptsy to just send you
the coin because I actually had the great fortune of having a friend who wanted to pay me
back the $50 he owed me in Nxtcoin, when Nxt just started. Hes like Hey, you know that
$50 is worth like $500 now. (Laughter) Im like Dang it. I wish Id just got... I just didnt
have the time to go install the client and download the blockchain and do all those sorts of
things. [14:00]

PV: Mmmm. Nxtcoin is something that were looking at but its one of those coins that is
not a cookie cutter coin so the technical implementation is something thats going to take a
little more time but its popular and users want it. Its fair and it has premine, of course,
because of how the whole thing works but it has a purpose. I feel comfortable with that
coin. [14:27]

JM: Ive heard the word purpose a number of times - a coin with a purpose. When you say
purpose, what do you mean? Whats an example of a coin with a strong purpose so that we
can sort of understand what you mean when you say purpose? [14:41]

PV: OK, so like premine with a purpose. People premine and then premine with a purpose.
Ill go create a coin and I premine 20% of it and I say Im going to use it for generic things,
not specific things and theres nothing really holding me to perform these actions. Thats an
uncomfortable purpose. Theres nothing holding that guy to his word to say that hes going
to do that that stuff that he says hes going to do. Any purpose that seems uncomfortable
kind of reduces the likelihood that well add that coin. If theres a coin that had a premine
because of an internal process that the premine was basically required in order to facilitate
this process, and the process is automatic, then that was a purpose. Theres a purpose for
that, or if somebody has a wallet and he puts the coins in the wallet and he says OK, Im
using this for this, Im using this for this. This is the bounty for this. This is the bounty for
this and hes actually paying out these bounties as they are occurring, then great I mean,
hes doing the right thing. Thats what Im talking about when Im talking about purpose.

JM: One of the things I was surprised about was... and actually I got it wrong a couple of
times... youre actually based in America. *15:58+

PV: Yes. [15:59]

JM: Youre in Florida and I was like Oh, isnt he the one thats in Siberia, or Romania, or
this or that. No dude, hes in Florida. *16:06+

PV: Siberia is a little cold. (Laughter) I dont want to go there. *16:08+

JM: America has such a harsh regulatory environment that I was frankly surprised that you
were based in Florida. Do you intend to move to another country thats more regulatorily
free? [16:21]

PV: Thats not the intention. I wrestled with this idea of offshore versus onshore when I
was setting up the company and there are pluses and minuses on each. The problem is you
cant run offshore to run away from regulation because the regulations always going to be
there. You cant hide from it so you may as well just face it and you shouldnt use regulation
as your determination to where you want to reside. The determination for forming a US
corporation and being in the US was I wanted to make people comfortable with dealing with
me as a company and to have a reputation and to be the de facto place for a comfortable
and safe environment for trading your cryptocurrency. If that means I have to comply with
regulation, then so be it. I prefer not to file a bunch of paperwork but if I have to, I will. Ill
do whatever is required. Will we move offshore for certain things? We may but it wont be
the purpose because of some regulation, it would be because it would make certain things
easier to do. [17:30]

JM: What do you think Bitcoin should be categorized as? Do you buy into the argument
that the government should make its own category for the cryptocurrency space in light of
the Bitcoin BitLicence hearing thats happening in New York this week? What do you think
the discussion should be when it comes to how the heck do we categorize? [17:49]

PV: I just feel that whatever the discussion is, it just needs to be discussed. Its not really
being discussed. I dont like the fact that we have these broad regulations that were written
twenty years ago, thirty years ago, that were trying to fit Bitcoin into. We need clarification
whichever way it goes, Im not too partial. I dont really care which way it goes. I just want
it discussed and I want it defined. [18:19]

JM: The only thing thats worse than a bad outcome is an unknown because you cant even
plan for it. [18:23]

PV: Right. I dont like unknowns. If we can define it, then we can comply with it. If its
unknown then its going to be unknown whether or not were in compliance, right? I think
its great that theyre pulling out Bitcoin as a topic of discussion as far as creating licences
just for the virtual currency medium and hopefully good stuff comes out of that and other
states follow. What I would really like is to have some kind of one federal licence one
central entity to deal with rather than forty something different states because its kind of a
pain. [19:03]

JM: Where does Cryptsy fit into the landscape of altcoin exchanges? Where do you guys
see yourself in that space and whats your world domination plan? *19:13+

PV: I dont have a world domination plan. [19:15]

JM: Thats what youre supposed to say. (Laughter) *19:19+

PV: There are things I would like to implement and I would like to implement them well.
One of the things that Ive always wanted to do was bring US dollars to the exchange but, of
course, thats difficult, especially being a US company but well get there. What that will
allow is people who want to trade altcoins, itll make it much easier for them to buy
groceries with their altcoins because right now you have to go basically, cash out your
altcoin for Bitcoin or Litecoin, take your Bitcoin to a different exchange to get US dollars, or
whatever currency youre looking for. Its a process. If we could reduce that process for the
folks that are looking to do that stuff, then its going to be of great benefit. There are a lot of
things that we want to do and Im not going to tell or broadcast it out on all of our future
endeavors but basically, everything we do is going to be to enhance the community as a
whole, especially for altcoins. [20:23]

JM: Great. Thank you so much. [20:25]

PV: Youre welcome. Thanks for having me. *20:28+



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AL: The China Syndrome written by Hayden Gill and read by Adam B. Levine

Part One - Practicing quiet diplomacy and winning mainland acceptance of Bitcoin.

The China question is a rhetorical issue of political, military and economic force. Its
amorphous nature changing from a matter of cold war bellicosity to diplomatic
engagement, converting yet again into White House summits and cultural exchanges
followed by massive investments and mutual bonds of financial inter-dependency, climaxed
by strategic competition. It is this situation nearly of a century of revolution and
upheaval of five year plans and great leaps forward, of famine, rapid industrialization and
demands for personal liberty. Its this whirlwind of change from Communist power to
capitalist excitement that makes Chinas leaders pine for the sacredness of stability. To my
fellow supporters of Bitcoin, these events are a primer about modern Chinese history and
the necessity for quiet diplomacy, thus, we should view the Peoples Bank of China
restrictions about the use of Bitcoin as an opportunity to assuage the concerns of mainland
financial institutions and members of the Communist Party of China. We, as users,
merchants and champions of this alternative currency need to transition our actions and
temper our language without polluting our message, so Bitcoin can flourish alongside the
renminbi and yuan. We must practice the art of politics as education, enabling Chinas
leaders to take credit for embracing Bitcoin, while reassuring mainland officials that this
currency will not replace the renminbi. For the quiet diplomacy I propose, is an
acknowledgement of reality as well as an understanding of the symbolism of a nations
paper money - imprinted on every renminbi, dollar, euro, peso and yen upon this
collection of cotton and lint in hues of red, green and yellow, which bear the images of
premiers, presidents and prime ministers. Imprinted on fiat money is a statement of
nationalism that we, the Peoples Republic of China, are great actors on the economic stage.
In other words, dont threaten the stability of the mainland or disrespect her projection
across Asia and the Pacific Rim. Achieving this goal starts with the kind of quiet diplomacy
we can practice through social media, where we modify our language from utopian
prophecies to pragmatic communications. Indeed, the Bitcoin community needs to have its
own version of the three joint communiqus a collective, albeit less official series of
statements from top investors, miners and merchants, that this alternative currency is a
welcome asset for the Peoples Bank of China, both as a means of profit and as a hedge
against inflation. The promise of adding revenue and a Treasury awash in more tax dollars,
thanks to the acceptance and use of bitcoins, is a boon for the mainland and an attractive
addition to Chinas sovereign wealth funds. *24:59+

Part Two Preserving stability and easing acceptance of bitcoins one country, two

The best examples of success of quiet diplomacy regarding Bitcoin, is the one between Hong
Kong and the mainland. Within the former, with its own political system, independent
judiciary and currency, there are also Bitcoin ATM machines, one of which processed $1m in
transactions last month. The placement of more of these machines, as well as the
frequency by which residents and travellers in Hong Kong use these ATMs, confirms two
important points. The first is about political and economic freedom, while the other is a
matter of common sense. Given the level of concern about stability from mainland officials,
there is a flipside to bitcoins. There is no such thing as a little bit of freedom. Its not self-
contained and its not controllable and whatever you release here will reverberate beyond
the expanse of skyline and harbors of Hong Kong. Neither the altitude of Victoria Peak, nor
the high rises of Kowloon Peninsula can enclose an idea, invisible in its presence and viral in
its dissemination. Time, and time alone, will soften the mainlands resistance to the use of
bitcoins. Events can, however, accelerate time, provided the inevitable is not a synonym for
unavoidable chaos. Freedom and liberty have their own constraints by law and by custom
but they garner acceptance as an issue of common sense. Let us, therefore, do our duty and
educate mainland merchants and bankers about the mutually beneficial relationship
between bitcoins and the renminbi. With humility and resolution, let us practice the quiet
diplomacy that mainland deserves and whose citizens expect to receive. We can mute our
trumpets without silencing our triumphal spirits because we can and should defer to the
needs of the Peoples Bank of China, while educating her leaders and guiding her members
towards a source of progress and wealth. Those actions also signify the evolution of the
Bitcoin community from outliers on the fringe to occupants of mainstream credibility. With
the arrival of that milestone, we can rejoice in the Chinese proverb about beauty, creating
harmony in the home so there may be order in the nation and from that order, there may
be peace in the world. Let us cherish that adage. [27:24]


Michael Caselle on the China market from the North American Bitcoin conference

Hi, my name is Malcolm Caselle. Im just going to talk to you a little bit about whats
happening in the China market. I think that there are a lot of interests; a lot of things have
changed over the past six months. A couple of months ago, I was speaking at the Vegas
convention on Bitcoin. Im an investor in one of the exchanges in China. It was a pretty
exciting time because at that time, China was contributing the largest amount to the trade
volume and things have changed a lot. I thought what Id do, since I think its an area of a
lot of interest for folks, would be to talk about whats happening in the China market and
maybe give you a little historical perspective in where things are going. [28:08]

First of all, you guys probably know that, at the beginning of the year, the China contribution
to trade volume was 5% at best, and there was just this intense run-up and overnight
everyone was realizing Wait, the Chinese traders are actually driving the price. Their
preference is, if they thought it was a good day, price went up a lot and if it went down,
same thing. A lot of the reason for that, we believe, was partially because in the Chinese
economy, there are a few places to actually put money. Real estate was a market that got
very, very hot and got shut down, in many ways because the financing... the ability to
basically finance real estate was shut down. The ability to buy multiple properties for
investment got shut down and in a savings account in China, you make almost nothing.
Basically, the average consumer there says Hey, wow! Bitcoin is actually a place for me to
speculate. Thats one contributing factor. The second factor is that its a very technically
savvy... theres a huge technically savvy audience there, so the idea of the complexity
around Bitcoin is not a big deal. Its a very engineering driven society. The third
contributing factor is culturally, the Chinese just love to gamble. In fact, guys who day trade
there, think of it like a job and they call it gambling but theyre like Yeah, thats my job. I
gamble for a living. Its really just like this thing that people do. There are just a lot of
reasons why Bitcoin became acceptable but then the fourth factor, which I think really made
it a perfect storm, was all of the exchanges decided Hey, were not going to charge any
fees. As soon as there was no cost to get in and get out of a position, it just went nuts and
then you saw what happened tons of money started to pour into the market, the price
shot up to $1,200 and well, there were other peaks as well. That really got the attention of
the regulators. [30:18]

The regulators had been looking at this for quite a while and been trying to, I think, decide
internally what to do. There was not a lot of information as to what they were thinking and
what they were planning. As you know, a lot of other markets like Germany, Canada, the US
were all sort of making some statements, some hints as to where they were going and what
they were going to do with it. I think China, internally, was trying to figure out what made
sense externally and also, look and see how other folks were handling it. A couple of things
happened in succession and literally, right after... I was on stage in Vegas and some major,
major things happened. One the government said Well OK, Bitcoin is not a currency. By
doing that, that was actually a good thing in many ways but what they also said was they
said was You cant use it to set pricing, so that means that technically if youre selling
something, you couldnt price it in Bitcoin. The idea that you could actually set like
TigerDirect and Overstock, and so forth, were setting prices, that basically took that option
off the table for China, which for guys who have payment processors, or have a lot of
investments and one of them is in a payment processor, I was kind of hopeful we would be
able to do business in China. That kind of like left the room. [31:44]

Audience question: Why did they do that? [31:45]

MC: Its a good question. Everybody says Why, why, why? Whats the rationale? I mean,
we asked that as well. Very rarely do you get explanation and Ill tell you that whatever
explanation you do get is probably not the one thats the real reason. Theres a lot of
misdirection going on here. This is politics and its big. I mean, youre dealing with big, big
ministries and so forth. We dont really know why but I would say that one of the issues is
currency control in China is very, very sensitive and so the obvious rationale would be Oh,
we dont want something that would compete with the renminbi inside of Chinese borders.
There was a run-up for something called the QQB which was another virtual currency. This
was almost ten years ago and it had trading platforms and it was issued by a private
company and it had a value and people were treating it like money. That got shut down sort
of under the same guise of Hey, you cant price things in this, and you cant trade it like
money and so forth. That isnt exactly what happened here but there was a precedent for
it. A lot of people believe thats really what it comes from. Nobody can say for sure but
thats kind of a lot of peoples theory. *32:56+

The next thing that happened was they said Well, trading Bitcoin, or Bitcoin as a business,
in dealing with it, handling it and so forth, insurance companies, banks, commodity firms
you cant touch that. That was actually good news because they basically created swim
lanes and they said that all these other well established, well financed, large industries
couldnt participate in the Bitcoin eco-system. All the guys in the Bitcoin eco-system were
doing cartwheels because we were like Woohoo! We have like a free rein to go and roll
out our businesses and develop. That was good news. We were like OK, thats not too
bad. That announcement was right before the conference and then, right after the
conference, basically the government came out and heavily dissuaded third party payment
processors from working with Bitcoin exchanges. They didnt outright say Hey, its illegal,
which is another tactic to leave the door open to do things later but my understanding there
was basically a quiet meeting with the payment processors. They got them all in a room and
they were like You need to stop doing business with the exchanges. The next day, all the
payment processors basically said No more. That was bad news because it meant that you
were no longer able to use a payment processor. Think of it like a PayPal, the equivalent of
being able to fund from your bank account and then transfer that money to an exchange.
You were no longer able to do that. That really took a lot of wind out of the sail. The
second thing they said was Banks were no longer going to be able to accept deposits and
withdrawals for Bitcoin exchanges. That was horrible. They said that by the end of January,
all money had to be taken out and you had a period of time to get your money out if you
had it sitting in an exchange and you wanted to deposit it to your bank account. That sent a
chill through the whole eco-system. Its actually quite similar to what happened in the US
around exchanges and banks dealing directly with exchanges. The reason why you can still
use Coinbase in the US is because theyre not actually trading and have an order book the
way a lot of other exchanges do. They have a complicated way of essentially buying ahead
and youre buying out of their inventory, or theyre selling out of their inventory and vice
versa its a subtle difference in the rules that allows them to continue what theyre doing.
Banks, in general in America, if you try to open an exchange, theyre like Hey, we dont
want to touch Bitcoin. You can go to bank, after bank, after bank and theyre pretty much
tell you that. Thats sort of that way now in China. [35:42]

There is an exchange, however, that is breaking the rules and you deposit to a corporate
account. Thats the one on the list here ******** which you can see in the past thirty days,
because theyre the only ones doing this, theyre doing almost all of the volume in China, in
renminbi. Thats pretty much why. There is a lot of speculation that their volume number
isnt real but we can talk about that all day long. Theres a long precedent for folks in China
not really reporting accurate numbers to appear bigger but we do know their volume is
significantly larger than other groups, mainly because they are still accepting bank deposits
and its in a very, very grey area. The company has incredible liability because its
essentially, not allowed. [36:28]

Thats the current eco-system. Basically, youre not allowed to use a third party payment
provider, like a PayPal, to fund your account. Youre not allowed to essentially, deposit into
a bank account technically. How are you going to trade Bitcoin? Thats a big question.
Nobody really knows. They have not outlawed Bitcoin in China. They have not said its
illegal. Of course, you can do person to person transactions like the Localcoins model.
There is no restriction around that that weve seen. Its a pretty uncertain time around how
the eco-system is going to unfold. [37:01]

Let me talk a little bit about other things that happened in history that would give us an idea
of how things might unfold. Typically in China, when something is unregulated, there will be
several players who will operate in this grey zone and then, what happens is once regulation
is determined, the top several players, top handful of players, 123 players will get licences
and either theyll auction off additional ones or theyll just say thats it. Most of the
exchanges believe that as long as they maintain operations and try to follow the rules as
much as they can, eventually, when licencing comes out, theyll be able to operate with a
certain amount of legitimacy. This happened with virtual goods. Virtual goods was very
interesting because, similar to the QQB example I gave you, virtual goods had value to
people. It was a sort of awesomeness from some MMORPG, people were trading and
actually making money off of it. That became very, very big very quickly in China and so
then there was a question of how is this going to regulated? In Korea, they set a very
interesting precedent which is what ended up happening in China as well. The regulator
said If you are a game company, you cannot run your own exchange for these goods. That
was really, really good for the consumers because it meant you couldnt self-deal. In other
words, if you were the creator of a virtual good, the fact that you couldnt run an exchange
meant that you couldnt manipulate price, you couldnt manipulate supply and demand and
so forth. It was good to have it as a third party thing. What was bad, however, was that the
government was increasingly concerned about the impact of these games on society and
how people were getting addicted to it and so forth. Over time, there were regulations that
tried to basically control ages of people who could participate and so forth but eventually,
what happened was licences were issued and the guys who were early ended up getting
those licences and have billion dollar businesses today. [38:55]

What a lot of us believe is that eventually, the government will issue some kind of licencing
and the guys who are players, as long as they play nice and maintain relationships with the
regulators, will ultimately get access to that legitimacy and then be able to do business. In
the meantime, there is still a lot of trading happening in China. You can see, if you look at
the past thirty days, even if you dont believe this number of (??) lets say it was half that,
China still represents a pretty significant contribution to the global trade volume and I think
it will for the foreseeable future. I think that once regulation comes out, were going to see
a much bigger proliferation of ways it can be used. The mining community in China is pretty
massive. Mining has not been regulated in any way, shape or form there. There is some
fear that that could get regulated if mining were suddenly made illegal, that would
definitely be a very challenging place for the Bitcoin community but I dont think that thats
going to happen. Id say the likelihood is pretty low, as far as I can tell. That is part of the
eco-system the mining community there is very strong and there is a lot of believers in
Bitcoin, similar to folks here. [40:12]

Whats happening in the future? Post-regulation I think the market there will be very
exciting. Theres definitely a lot of enthusiasm and a lot of participants still on the trading
side. One of the things that does change things with the regulators is the charging of fees.
The topics change here is not charging fees and so theyre still basically, allowing people to
get in and out of positions, so it drives a tremendous amount of volume. The regulators do
want fees charged because they want a little bit more control over the growth of the
market. Basically, before regulation last month, the market was just growing vertically it
was just insane. Afterwards, its now growing at, I guess, maybe a less aggressive curve but
still growing. I think that ultimately, fees in the market are good because it will sort of keep
things a little bit more orderly. That gives you kind of an overview of the exchange market
there. As I said, third party payments are not happening. Mining is still pretty thriving.
There are a lot of other eco-system plays that I think people are waiting on the sidelines to
see because the exchange side drives things. Ill give you an example if you look at what
happens with ATMs, ATMs cant really work well unless you have access to exchanges and
exchanges are orderly. Until exchanges get worked out, the ATM business would be on
hold. There are a ton of other businesses that work that way. The one input that is working
right now is the voucher system. Thats basically where you would say, buy a card for cash
and then you redeem that card for Bitcoin on an exchange. That is the one input
mechanism that does seem to be working and is considered legal right now. [41:57]

AL: Adam B. Levine here. This question wasnt picked up well by the recording but
basically, the questioner asks for more information about the Chinese exchange that still
does accept yuan deposits, against the guidance. [42:07]

MC: Basically, illegal deposit of funds or if they start to charge fees, I think that therell be a
dramatic reduction in volume in China. I think yeah, it will probably negatively affect price.
I think there are other forces going on that will probably compensate for that, maybe not
immediately but Id say in the near term. I personally, as an investor, Im not worried about
it because weve watched short term declines that pretty quickly recover but I think theres
a likelihood that we could see a big, big reduction in volume which would affect price.

Audience question: How do the zero fee exchanges make money? [42:51]

MC: (Laughter) Well, the fundamental business model in China is called War of Attrition,
especially around net businesses. By charging no fees, the idea is to drive lots of volume,
market share and try and make it back later. Basically, the business model is burn your
investment compo for as long as you can and then see who stays in business the longest.
Thats the model there. *43:16+

Audience question: I guess a follow up. If it was attributed to Bobby Lee in charge of BTC
China, I believe he said that he wanted to start charging fees. If it wasnt him who said it, it
was published that they wanted to charge fees with the feeling that they would be in a
better position to get a licence down the road. Does that argument seem valid to you with
your experience? [43:36]

MC: Oh yeah, yeah absolutely. Its pretty clear that a no-fee environment drives just
incredible speculation and the government agencies dont like that. They like to see it more
controlled. [43:48]

Audience question: Its true that they now charge a fee and Huobi, right now, is not?

MC: Yes. Huobi does not charge fees. There is still a withdrawal fee but thats about it.
Once your money is in, getting in and out of positions costs nothing and thats basically,
where the volume comes from. [44:06]

Audience question: Changing the subject a tiny bit but Bitcoins number one, two might be
Litecoin but what do you think three and four is? [44:17]

MC: If you want to know by market cap, just go on www.coinmarketcap.com and you can
see yourself. [44:21]

Audience question: Just your opinion like what do you think has legs? *44:25+

MC: Legs, yeah. Its a good question. Im probably the worst person to ask about altcoins
because Im pretty negative about them because I think that theyre diluting the Bitcoin
environment. I think for cryptocurrencies to exist, I think that altcoins probably need to go
not that I have anything against altcoins, its just that I think that... Bitcoin is still in a, what I
would say, infancy and so, the issue is Bitcoin needs to be easier to use, there are some
technical issues that have to be addressed, there have got to be tons of on-ramps, tons of
off-ramps and, I think, maybe there is room for one altcoin but, I think, fifty is just ridiculous
and it dilutes the energy of the development community as well as everyone else who is
trying to make Bitcoin mainstream. I think investors are... certainly outsiders look at it and
they see all the altcoins and they are completely freaked out because they are like What is
all of this? Thats one of the things that I think hurts the industry so, I think that for Bitcoin
to survive, there has to be consolidation around cryptocurrencies. I think things have to live
on the blockchain if youre looking at the new (shall we say) protocols. I think the protocols
should be supportive of the existing blockchain because I think its got to be... everyone has
to support one thing for the whole eco-system to work. Thats just my opinion. Ive lived
through when there were a thousand Bluetooth varieties and a thousand wifi varieties and a
thousand port protocols. It works because we have one Bluetooth, weve got one wifi and
weve got one USB, whatever it is. There are some exceptions but basically, consolidation at
this stage is going to be, I think, good for it. Thats just my opinion. *46:19+

Audience question: I have a follow on question to that. I agree with you that altcoins are
somewhat diluting the message of Bitcoin but now theyre talking about BitShares. What
would happen if a significant number of the stock trading on the NASDAQ and the New York
Stock Exchange moved into BitShares and started trading on the exchanges and started
being used for currency? What would that affect be? [46:40]

MC: If you had direct access to Bitcoin through exchanges, I think we would see dramatic
appreciation. [46:47]

Audience question: What I mean is the stocks that are trading there, instead of trading on
the exchange, if they moved into altcoins and started trading on Cryptsy.com, as a BitShare
instead of New York Stock Exchange share. I own a corporation and were in the process of
talking with Invictus and going public cryptographically and having an altcoin that represents
shares in our company. [47:08]

MC: If an altcoin represents a specific company, I dont think thats diluted to the Bitcoin
eco-system because youre backing a particular enterprise but I think a coin for the sake of
being a coin is diluted because I think protocols built on altcoins will dilute the whole eco-
system and I think people wont get it. If you say Oh, that just represents a company,
people I think get. Oh, OK thats a company. Bitcoin should be the only cryptocoin, or at
least the only blockchain cryptocoin. Thank you. (Applause) [47:43]



This is Chris Joseph bringing you news on Nxt the first true second generation
cryptocurrency for February 7
2014. Ive got two things to tell you about today. First, a
development team has been formed and has provided funding for an effort to create Nxt
cash which will implement the Zerocoin algorithm as a layer on top of Nxt. If successful, it
will enable fully anonymous transactions secured by Nxts lightweight proof of stake
blockchain. Second, www.Nxtvote.com has been created to help the Nxt community make
decisions. Its a simple application that uses Nxts secure transactions to ensure that each
Nxt account can only submit one response to a pull. This will tide the community over until
Nxts built-in protocol based voting system feature is finished. For more information, head
to www.Nxtcrypto.org or www.MyNxt.org and stay tuned for more news on Nxt in the next
Lets Talk Bitcoin broadcast. *48:51+


Adam B. Levine interview with Scott Robinson

AL: This morning, were joined on Lets Talk Bitcoin by Scott Robinson, one of the leads at
the Plug & Play Tech Center, Bitcoin accelerator in the Silicon Valley meet-up group. Scott,
thanks for stopping by. How are things? [49:02]

SR: Things are going very well. Thanks for having me again, Adam. [49:05]

AL: Absolutely. The last time we spoke, you had just announced the Bitcoin accelerator
program. Can you bring us up to speed on how thats going? *49:12+

SR: At this point, weve been able to pull together Id say about twenty five different
mentors, each of which will be giving two hours per month over the course of the three
month accelerator program. The first five start-ups that come through, theyll be pretty
intimate and very close knit relationship with each of these people and, of course, some of
these include the likes of Perkins Coie, Lightspeed Ventures, Charles River, Roger Ver,
Andreas Antonopoulos and a number of the other thought leaders in the space. At this
point, weve had a little over forty five applicants and were going to have to drill down to
five over the course of the next two weeks. Its very exciting and were having a lot of
enquiries as to partners for investment. Its definitely a hot space just from the more
traditional investment perspective. Theres lots of work but its very exciting and Im very
energized for this first batch. [50:04]

AL: Lets talk about what kind of the experience is for these because it seems like incubator
programs and accelerator programs really do kind of vary from place to place. It sounds like
youre bringing in lots of outside expertise from the actual Bitcoin space and from the
investment space. What is the purpose of the mentor program and you two hours per
month between a bunch of different start-ups how is something like that going to work?

SR: The first week of each of these months will be somewhat like a boot camp where more
or less like finals, if you will. Really were trying to track the type of people that are early in
their product or their start-up but theyre the type that are going to have to say goodbye to
the girlfriend or wife and say Ive got another fourteen hour day today, similar to what Im
having to do recently. With this kind of one on one slash one on thirty group mentor
session, basically, therell be a specific vertical or expertise thatll be spoken to by one of
these mentors, each of which will then have somewhat of a discussion afterwards so, a
group environment for them to interact and interface with some of these people that have
had well over twenty years experience in their respective vertical or market. I have
basically, tried to one-off every tangible need that a start-up in Bitcoin might have and Ive
tried to take both a traditional start-up paradigm as well as a virtual currency paradigm.
With that being said, we have a number of people that have sold companies and exited with
$700m plus. I think some of the people in the group, if you were to collectively put that
together, theyve easily been able to exit with over $2bn worth of income. Theyre very,
very tried and true when it comes to their expertise and I think, in the long term, this sort of
value of being able to impart their expertise and experiences is unparalleled. Between Bill
Tai from Charles River and, of course, people like Michael Yang, (??) and Ben Davenport, I
think those individuals are going to prove to be very valuable to the start-ups just purely
from what theyve gone through in their own different projects and ventures in the past.

AL: This is going to be a real quick hit interview for Lets Talk Bitcoin but I do have one final
question. For start-ups that are kind of trying to figure out how best to proceed with their
plan, what are the costs of associating with something like your program? Is there any
downside or do they give up anything? [52:18]

SR: We try and offer $25k for 5% of their company. With that $25k comes with office space
and obviously the mentorship sessions and then every other offering that Plug & Play has,
so many corporate relationships which in turn bring deal flow. We have service partners
from all over the Valley, so anything from HR, payroll etc. You also get the community and
at the same time, youll be able to interface with the Silicon Valley Bitcoin meet-up every
Tuesday and that community, in and of itself Id say, is very helpful just primarily because
its got many developers and engineers, people in business and finance. If youre looking to
fundraise and you need some help getting your start-up off the ground and youve been
bootstrapping it for a while, youve got a great idea and maybe youre in stealth, Id highly
encourage you to come to our Angel List website www.angel.co/plug-and-play-bitcoin and
check out who weve got onboard for mentors and then maybe hit the apply button and
well go from there. *53:19+

AL: Scott Robinson, Plug & Play Tech Center and Bitcoin accelerator, thanks for your time.

SR: Thanks Adam. [53:25]



Thanks for listening to Episode 82 of Lets Talk Bitcoin.

Cryptsy was captured by Jon Mohan and edited by Matthew Zipkin
The China Syndrome was written by Hayden Gill, read and produced by Adam B.
China with Malcolm Caselle was captured by Steve Malagodi of Spectacular Sound
and edited by Adam B. Levine
Plug & Play was captured and edited by Adam B. Levine
Music for this episode was provided by General Fuzz and Jared Rubens

Have any questions? Email adam@letstalkbitcoin.com.

Have a good one! [53:57]