Vlad Sapozhnikov: “Big smart money” are coming to blockchain
In 2018, professional traders and investors will join the crypto industry, believes Vlad Sapozhnikov, speaker of Blockchain & Bitcoin Conference Tallinn, Co-Founder and CEO of Deex.exchange. The expert believes that we can expect a real blockchain boom in the future. At the same time, “centralized” Internet companies will not become outdated but will coexist concurrently.
Mr. Sapozhnikov wrote a thesis on the dotcom boom and leads his own decentralized project today. In the interview for the press-service of ВВС Tallinn, he makes forecasts concerning the development of blockchain and cryptocurrency market in 2018 and tells about the most promising blockchain platform of the year – BitShares.
Interviewer: Blockchain & Bitcoin Conference Tallinn (BCT)
Speaker: Vlad Sapozhnikov (V.S.)
BCT: Today, we probably stay on the verge of a blockchain revolution. How soon, in your opinion, can we await the boom of the decentralized Internet technologies? Will they replace common ‘centralized’ Internet marketplaces?
V. S: Blockchain really looks like revolutionizing technology of the future. Still, today we have a lot of hype around the technology, but not too many cases of practical implementation. There are hundreds of ICOs with rocket science ideas and promises to launch sophisticated projects on the blockchain, but I guess 90% of them will fail and disappear soon. Still, there are several solid infrastructural projects with blockchain, bringing the real value to the industry. These projects for sure will survive and be useful for the ecosystem.
The situation with blockchain boom is very similar to dotcom boom, which is familiar to me, because my Master’s thesis was dedicated to such a phenomenon as dotcom companies’ evaluation. That time everyone thought that business was website, and there were thousands of dotcom startups, the capitalization of dotcom market was huge, but the bubble burst, and only the strongest and valuable projects survived. Some things will happen in blockchain industry soon. Real business means product, business processes, cash flows, but not web landing with white paper and high marketing expenses to attract easy money at the ICO. Those blockchain startups, which have value, will survive.
We should bear in mind, that blockchain technology itself will remain forever and will bring value to business and society, but some time must pass. Today not many people do really understand where blockchain is applicable and they try to implement this technology to any business even in real sector, such as factories, farms, real estate, etc. But we should bear in mind, that blockchain as it was invented in its classic form as applicable to bitcoin, was used only as the means of avoiding the problem of double spending of digital asset.
Should we apply blockchain or not to other tasks is the matter of economic reason, perhaps in many cases just ledger computing can be applicable and blockchain is useless. The boom of massive use of blockchain technologies is not here yet and it will come as soon as applications will be more user-friendly and can be used by any person, but not IT geeks. As for competition with centralized marketplaces, I don’t see any serious competition from decentralized projects. Perhaps, it is just a myth and hype that we will ever see decentralized internet, decentralized dropbox, YouTube, Amazon, Google, etc.
On the contrary, centralized giants will probably implement decentralized technologies in their businesses, if they can really ever benefit from it. I do not see any blockchain technology, which can really replace centralized marketplaces. Many blockchain enthusiasts try to build their projects on Ethereum blockchain, but it has problems of scalability and speed. Perhaps, BitShares blockchain will someday be applicable here, as soon as smart contracts functionality will appear. We at DEEX build our ecosystem upon BitShares blockchain and think it is the best blockchain for high loaded transactional systems.
BCT: How do you think, will the crypto exchange community change in 2018? Will the influx of new traders and investors continue or will this wave subside?
V. S: All communities are changing and developing. Now crypto traders are those from crypto enthusiasts, without any skills in economics and finance. There are not too many professional traders with financial background. Professional traders specializing in traditional financial markets, on the contrary, just recently started joining the crypto trading business. We recently made the traditional financial Christmas Party in Moscow (it was the eighth Party) and several crypto traders and crypto funds joined it. Traditional traders showed deep interest in crypto trading business and decided to join crypto trading community next year. So, the market will be more and more professional and competitive and there will be no such a phenomenon as ‘free lunch’. Next year, there will be more traders, they will be more professional and more crypto funds will be founded. One of such crypto funds will be in our DEEX ecosystem.
BCT: Cryptocurrency, in particular, Bitcoin, demonstrated an incredible increase in value in 2017. How do you think, what is the reason for such growth, and how will the events develop in the near future?
V. S: The reasons for such sustainable growth are laying behind the core principle ruling financial markets: fear and greed. This year was the year of great PR and marketing of crypto and blockchain everywhere: even TV programs in prime time started to tell about crypto. In Russia, for example, the President met with Vitalik Buterin. After these events, households, which were unaware of crypto hype yet, started investing lots of money in crypto and even started taking credits in order to invest in crypto. So, ‘new blood’ in the form of ‘stupid money’ was attracted by the crypto market.
In the light of toughening of capital movement, large capitals (including corrupt capitals) were invested in crypto, and this is long-term investment, which will not exit for a long time. The US sanctions imposed upon many developing countries are also the reason for the Bitcoin appreciation: it is known that large deals in oil tankers, weapons, precious metals are settled in bitcoins. Bitcoin futures were launched in the end of this year and this is a good signal for crypto: ‘big smart money’ are coming to the industry.
Some people say: now it is time for the BIG SHORT! Indeed, there are some reasons for this, but there is other side of the medal as well. ‘Big smart money’ need traditional financial regulation and current cryptocurrency exchanges lack such. Trading bitcoin futures is one of the chances for institutional investors to enter the game and perhaps it is the first step towards bitcoin traded ETFs. There are a lot of useless fiat currencies in the world, but not too many good assets to invest in. Crypto is one of such new types of assets.
Some late adopters of crypto think it is a bubble, on the contrary, early crypto birds tell it is not a bubble, it is a pin. The truth is somewhere between. Perhaps, next year Bitcoin will not rise at such extreme rates and will show moderate appreciation, but there are lots of crypto coins which are still undervalued a lot. I think BitShares is one of such coins, that is why we are building DEEX ecosystem upon BitShares blockchain.
BCT: ICO has recently become a substitute for traditional crowdfunding. What do you think is necessary for the successful release and sale of tokens?
V. S: Indeed, ICO is the real revolution in crowdfunding. It opens doors for finance raising in projects which otherwise would have never started, because traditional banking financing is exhausted in many cases and there is too much strict and sometimes useless regulation. The volume of ICOs this year exceeded VC financing. VC financing by its nature is parasitic financing: venture capital is not interested in product itself, but rather prefer to exit after company placement. This has recently happened to several promising ICOs as well: VCs made an agreement with founders about early exit strategy during the coin dump period. In this case, small investors are worse off and this is bad signal for the industry, because the nature of blockchain and crypto is that all investors are equal and there must be no preferences for big investors.
As Vitalik Buterin recently noted: if you see ICO, which makes large discounts for large stakes, for example starting from $500k, then you should avoid such ICO. Successful ICO must be community driven, not large crypto funds driven. First, you need to build strong community, develop MVP and only then issue token and start ICO. This is exactly our strategy in DEEX: we built strong community, all its members are our backers, partners and clients. To be successful, ICO token must be used in the ecosystem of your blockchain business, it must be valuable for community members and must be ‘good money’ inside your project. Token holders must be motivated by economic reasons to hold your tokens and not to sell.
Unfortunately, due to the fact, that ICO investors are not professional financial analysts, they cannot track bad projects and lose their money invested in ICOs, also due to the lack of regulation and responsibility, there were many scam ICOs. Many of those investors are early birds in crypto, so they gained their crypto at low costs, so they cannot value it as ‘real money’ that is why they easily invest in ICOs, hoping to catch at low cost ‘new bitcoin’, ‘new amazon’, ‘new google’.
In fact, there were very few ICOs which brought x’s of profits and on the average simple ‘HODL’ crypto strategy was more beneficial. Those early crypto birds are disappointed in ICOs, now the price of gaining ICO backer is rising, so, unfortunately era of massive crowdfunding is over. Next year will be the year of professional investments, family offices, crypto funds. Such an instrument will be available at the DEEX ecosystem: we will build fully functional ICO platform with decentralized escrow mechanism, such that the backers of the project will vote for further financing of the project step by step according to the roadmap. Our professionals will make due diligence of the best projects, analyze them and then make underwriting and placement. We will make a securitization of portfolio of the best ICOs in the form of separate traded coin.
BCT: Which Internet services, in your opinion, are the most promising for the blockchain implementation?
V. S: Today, there is too much hype around blockchain technologies. Many people simply do not understand the technology itself and its implementation. I believe in those services where the use of blockchain really makes sense, but is not applied just for hype. Among such services are no doubts infrastructural services aimed at maintenance of crypto and blockchain ecosystem: mining of any kinds (PoW or PoS or DPoS), cryptocurrency exchanges, social networks, notary services. Personally, I don’t believe in decentralized dropbox, YouTube or any photo hosting, since centralized services are cheaper, faster and more efficient. Also, I don’t believe in ‘amazon killers’ of any kind claiming to build decentralized universal computing etc.
BCT: Today you are the CEO of Deex.exchange, but this is not your first blockchain project. Tell us about your previous experience. How did you come to this industry, in which projects did you participate earlier?
V. S: I graduated from London School of Economics with BSc Banking and Finance and from the Higher School of Economics with MSc Financial Markets. My thesis was dedicated to dotcom companies’ evaluation and I found a lot of similarities between these markets. Within my job experience, I have worked in e-commerce as a business owner and hired top manager. I stood at the origins of e-top up market in Russia and worked in companies that actually founded this market – Cyberplat and Qiwi. Then I established my own processing company – Predprocessing.com, which specializes in self-service kiosks manufacturing and processing software production.
In 2013, we were the first on the market who manufactured cryptocurrency ATMS and processing software. This was my first blockchain project. Now, our crypto ATMs work in several cities in Russia as well as Spain, Kazakhstan, Ukraine, Belarus, Cyprus, the Netherlands, and some others. In 2017, I was an ambassador of Coinsbank and then Openledger and Blockchain & Bitcoin Conference Tallinnn, several ICOs from Russia. In September 2017, some of our partners who manage solid crypto capitals at centralized exchanges have become worried of the risks carried by centralized exchanges and invited me to run ICO of Deex.exchange and to build efficient and reliable decentralized ecosystem.
BCT: In connection with the growing desire of governments to control cryptocurrencies, which, in your opinion, is the main factor in the coexistence of traditional money and digital assets.
V. S: I have recently found a very interesting idea on the Facebook: blockchain doesn’t need governments, but these two phenomena can coexist. Now governments are trying to regulate blockchain but this looks like oxymoron: no one can control in a centralistic form something that is supposed to become self-controlled p2p phenomenon. Blockchain is intended to make transformation of society and governments but not vice versa. Fiat currency is related to main government power: seigniorage.
Also, fiat currencies are related to high transactional costs. There are times in human history where term money was related not only to fiat paper currencies but was in a form of gold and silver. Also, in transitional and revolutionary historical times, there was such a phenomenon as private money. Digital fiat currencies were supposed to be more convenient for the society because all the standards of money transfers were controlled by governments and large corporations. Cryptocurrencies are some form of private money which people can safely deal p2p without any central authority. Crypto today lacks one important feature of fiat currency: it is not means of payments. Also, its weak point is that its value is tracked by fiat currency which must not be the case soon. I believe in the future people will change their services and competence directly on the blockchain without measuring them in fiat currencies. Traditional money and digital assets will coexist sometime and then as soon the humanity is ready fiat currencies will be forced out by new better ‘money’.
BCT: How did the idea of the decentralized crypto exchange Deex come about? Did you rely on some marketing research or your personal experience when creating the Deex.exchange concept?
V. S: The idea itself is not new or unique at all. If we wish to trade decentralized blockchain powered cryptocurrencies, why we must trade them on centralized exchanges? Crypto traders do understand this fact. Moreover, centralized exchanges have already shown us their disadvantages: they are vulnerable to hack attacks, to regulatory risks and simply to risks of opportunistic behavior of cryptocurrency exchanges administrations: when stakes are too high, there is always temptation for administration to disappear with your funds. Under the light of aggressive sanctions, some traders are banned on large centralized exchanges and lose their funds. So, the demand for reliable, transparent, user-friendly exchange is community driven. Traders simply need it. And we will satisfy their needs and wants. As for relying on some kind of marketing research: the market is new and actually, we are creating it from the very beginning, there are no researches at all yet.
BCT: Today, the blockchain infrastructure is rapidly developing. There are more than 200 large crypto exchanges in the network, at least 10 of which are decentralized. Please, list the main advantages of Deex.exchange and how do you plan to attract users?
V. S: First of all, DEEX is not just one of the cryptocurrency exchanges. The exchange is the core for the whole global decentralized ecosystem upon BitShares blockchain. Other elements are ICO platform, transparent crypto fund, ICO platform with decentralized escrow, decentralized financial messenger. Also, DEEX will host most interesting projects and services and act as Blockchain as a service provider. As for exchange itself, we do not treat centralized exchanges as competitors, many authoritative blockchain specialists claim that 2018 will be the year of DEEX exchanges and I have no doubt that DEEX will lead this trend. The main disadvantages of all decentralized exchanges are poor GUI, lack of marketing activities, lack of liquidity, poor user support. I hope we are able to solve those issues, since we have great experience in payment systems, both in building user interfaces and technical support. As for attracting users, I have already pointed out earlier, that our project is community driven, so there is already a large group of traders interested in our project and will move their capitals from centralized exchanges to DEEX. As soon as we will provide user-friendly infrastructure, more users will be attracted to the system.
BCT: On March 22, you will speak at Blockchain & Bitcoin Conference Tallinn and your company Deex.exchange acts as its General Sponsor. What are your expectations of this event and the goals that you have set for yourself?
V. S: I always participate in all the conferences organized by Smile-Expo from the very beginning of these conferences since 2014. They are all very efficient. Within 2018 DEEX will run its international road show in many countries and will participate in all the events organized by Smile Expo. I expect many useful business contacts, investors, traders who will join DEEX.
BCT: You make the Deex.exchange on the Graphene blockchain. Can you describe its main advantages in comparison to the other blockchains?
V. S: It is the fastest and most productive and efficient blockchain. Also, it is the most undervalued blockchain, which valuation will rise within this year since many blockchain enthusiasts will build their applications on Graphene as well as move towards trading on decentralized exchanges. At the same time, statistics shows that it is the busiest blockchain.
BCT: Now there is a lot of talk about the EOS project. If it is successfully implemented, can you integrate its functionality into your exchange?
V. S: EOS is being developed by the Father of BitShares, so this project is close to us. We hope that EOS will implement what is planned and for sure, we are ready to integrate it.
BCT: What share of the DEEX exchanges market do you plan to have? How fast can this be?
V. S: We hope that within this year our share of BitShares decentralized exchanges will be around 50 percent.
BCT: With the strengthening of control and regulation of government departments over centralized exchanges, the flow of cryptocurrency capital to the DEEX exchange is expected. How do you assess the size of this capital?
V. S: I hope hundreds of millions USD will inflow to our ecosystem. We already have preliminary agreements with group of private traders running crypto fund worth over $120m, that they will move their assets from centralized exchanges to our DEEX.
BCT: How many countries take different positions with respect to the cryptocurrency? Do you plan to make special offers or services for clients from countries with a favorable cryptocurrency environment?
V. S: The situation in crypto is changing very rapidly. If today some jurisdiction is favorable for crypto, tomorrow it will not. The recent examples are: the Czech Republic, Lithuania, Belarus. We are quite flexible in adopting new trends. By the way, because our crypto exchange will be decentralized, we may not worry about jurisdiction, until we start working with fiat gates. We will offer our partners white label system such that they will develop business upon our system in their region.
BCT: Now there are many applied financial and economic blockchain projects, your exchange, or rather the cryptocurrency ecosystem, will be able to integrate them to unite the customers of these projects and improve the overall efficiency of services for them?
V. S: This is absolutely true. The exchange itself is the core of the ecosystem. Other businesses will join our ecosystem and bring more liquidity and profits to our shareholders. We are building B2B2C ecosystem with its core token and other personal tokens used in projects included in DEEX. All those projects contain their customer base. Cooperation of DEEX exchange with such projects will bring a huge synergetic effect to the system.