Interview: Jonathan Chester — President of BitWage
OCC: Can you tell us a bit about BitWage?
JC: I’ve created a company in the crypto-space, back in 2013. The idea back then was to have a service that allows companies to pay their employees in crypto (Bitcoin more specifically). Back then, Bitcoin was the only thing being taken seriously. Blockchain existed, but only as a backbone to Bitcoin, and private/permissioned blockchains didn’t exist. Ethereum had not really become a concept either (there was no Ethereum whitepaper published). Over time, things morphed into two different solutions. One that allows people to leverage crypto via international transactions and reduce the time for international transactions. The other is a way for people to receive a portion of their wage in crypto from any employer in the US, EU, and UK.
That product has about 20,000 users on the platform (BitWage). The team has grown from 6 to 12 people in the last 6 months or so. We also have another business line that provides ICO advisory services, InWage. That company has had its first success of a $50 mil raise. Finally, I write for Forbes — Bitcoin and Blockchain related for the entrepreneurship section.
OCC: Big companies IBM, Baidu, Alibaba, Amazon, and others, are flirting with Blockchain technology. What other big company would you say will or might jump out of the Blockchain, and possibly launch an ICO?
JC: I think it’s important to understand what’s going on when people talk about Blockchain with regards to these corporations. We’re talking about different blockchains. Some people call them private blockchains, others call them permission blockchains. It’s important to understand there’s a significant difference from public and permissioned blockchain upon which cryptocurrency lies, such as Bitcoin, ETH, Dash, IOTA.
A lot of these big companies are jumping on the permissioned Blockchain bandwagon. That’s mostly because a lot of these corporations are fascinated by the potential value in digital asset transference; without reliance on a trusted third party, but they don’t like the lack of control in a permissionless or public ledger.
They don’t like the lack of privacy involved in the public chains. They’ve gone to adopt these private permissioned chains to get some of the efficiency involved around no longer needing a third party to transfer digital assets or to track digital processes with a digital asset. But they’ve done it in a way where they can control it, where the information is more private.
A lot of companies have gone into this space. If we look at the top three you mentioned, they don’t really make a big splash anymore. Back in 2015, they had a huge number of partners including Barclays BBA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, World Bank of Scotland, UBS, Bank of America, BNY, etc. This was back in 2015 — the blockchain hype around corporations. Right now, there’s a lot of interest around ICOs. Corporations are a bit afraid and hesitant right now because of the securities regulation risk and the anti-money laundering risk.
What’s becoming more and more popular is crypto trading. What I mean by that is, the examples we see are CBOE (one of the largest exchanges in the world providing regulated futures) providing Bitcoin trading. You see Unicorns like RobinHood in the US and Revolut in Europe offering crypto investment solutions. Bitcoin as an investment tool is becoming much more popular. Corporations are starting to look into this as an option moving forward.
OCC: Do you have a company name in mind that will surprise us with an ICO or with its very own creation of a Blockchain any time soon?
JD: With its own Blockchain or ICO? At this point, it would all be postulation. That’s pretty interesting, right? It would be interesting to see either Reddit or Twitter or Snapchat follow in the footsteps. Facebook is not actually the first social media to do this. There’s an app called Kik, which is a Canadian competitor to Snapchat basically. They did their ICO, and it would be interesting to see all the rumors about Facebook are true. Twitter and Reddit are natural fits because a lot of the crypto world rests on it.
OCC: Why would you say ICO might be better than IPO?
JD: Although we’ve done traditional venture capital fundraiser, the great value of an ICO is the speed to a liquidity event. It is faster to launch an ICO than an IPO. What happens is, when you do this, a couple of things happen.
- There’s more versatility in terms of who can invest, mainly because of the lack of friction involved with using cryptocurrency to do a cross-border transaction when investing into a project.
- The speed to liquidity actually reduces risks for investors, assuming that the company itself is providing proper disclosures and transparency.
It’s actually better for an investor if there is a faster time to liquidity, or liquidity event prior to investing; because instead of doing an all-or-nothing bet, you’re doing a bet where you can buy or sell on smaller gains or losses as opposed to an all-or-nothing bet. This makes it more possible for retail investors to get involved, but also because there’s a lower risk, the value for the company is that they don’t have to pay the premium that an investor might require for a higher risk product.
OCC: We’ve come to the conclusion that ICOs are surrounded by bad press because of weak regulations. How much would you say regulation matters, considering the differences between an IPO and an ICO? ICOs have softer regulation in some countries and stricter rules in others, such as the US?
JD: There’s still regulation involved when it comes to an ICO. The type of ICO matters because there’s a difference between utility and security coins. Security coins fall under a more strict regulatory environment. But depending on what exactly it represents, even that can have different gradients depending on what country you’re in. As far as utility coins are concerned, there tends to be a hype that causes irrational behaviour on behalf of investors to invest in coins, assuming that it will act like a security.
OCC: Would you agree with e-Commerce Giant Alibaba’s Jack Ma that said “Blockchain Is Not a Bubble, Bitcoin Is”?
JD: No. I disagree. I think that Bitcoin is the number one store value that’s ever existed in the world. I consider Bitcoin a competitor to gold. Gold and Bitcoin have similar values in being scarce; not being produced by the government, thus isolated by any sort of geopolitical and economic issues. But it’s much easier to transact than gold. While gold has history, Bitcoin has ease of transactional abilities and storing abilities. I would choose Bitcoin. I make my purchases and investments in Bitcoin, based on the concept that I believe it is a better-stored value than gold, and will eventually compete with gold on the global market as one of the top global stores of value.
Bitcoin only exists because of the immutability and the anti-double spending capabilities rather attributes of the Blockchain. But it is by far, the most secure and well-tested blockchain with over $5 billion transacting a day on the system. I don’t think is a bubble. I actually think that the price will go up. But there are other things going on with the Blockchain. Permissioned environments are going to create efficiencies within corporations that will help reduce cost.
I don’t think that Blockchain in corporations and the cost savings will ever move down to the end consumer. I think that end consumer values happens in the permissionless Blockchain world, where either you derive value from the decentralisation of the product, or on the free riding elements on the server and storage components where the costs of the server and storage are essentially subsidised by the creation of new coins.
OCC: Why do you think cryptocurrency is not accepted in the US?
JD: The thing about Bitcoin — and I’m gonna talk about Bitcoin here — it’s really a substitute for your bank account. It’s actually competition to banks. The promise it has is that you don’t need to have a bank account anymore. You don’t need banks to facilitate transactions and you don’t need banks to do international payments. It’s actually a big threat to their business model because it could potentially significantly reduce their holdings held in the bank.
That means that they’re unable to provide loans. Then there’s the concept, what if a bank held the crypto? If you hold Bitcoin, the question is: can you do a fractional reserve with Bitcoin involved? And how does that work? How does that happen? Will banks be issuing their own tokens backed by Bitcoin? Would that even legal? I think that there’s a lot of interesting questions there and the banks are afraid of what will happen in a world where Bitcoin is so popular that people are holding 10, 20, 50 percent of their funds in Bitcoin instead of cash in their bank accounts.
Banks were trying to figure out how can they get all the advantages of Bitcoin while maintaining their presence? That’s really when banks started to jump on the Blockchain bandwagon. Of course, what they found out was that Blockchain doesn’t really do the things that Bitcoin does, but it provides other benefits. Of course, banks are not gonna go away. People aren’t going to go 100% Bitcoin and dump fiat. But even if people are 10 percent, that’s a 10 percent hit to the reserves in all of the banks; which will significantly alter their business models.
OCC: Would you say the US will strengthen regulation concerning the crypto market?
JD: I think that all governments will eventually regulate. The question is how will they approach the matter. Regulation is good, right? Because in the crypto space there are two options: regulation or banning. The real question is how to do the regulation in a way that protects consumers, reduces the risk of terrorist financing, while still enabling and fostering innovation.
That’s really the question. When it comes to Bitcoin regulation, the US has been doing a very good job on that front. When it comes to ICO regulation, they’re overwhelmed because it grew so fast. There were so many scams involved, and there’s not enough self-regulation of the ICO environment. That’s why it’s taken such a hostile stance. I think that as more self-regulation occurs, people are showing good faith. The government may become a little bit less aggressive in how to treat these technologies. We see a lot of companies not choosing the US for doing ICOs. Because of the regulation they’ll actually go to Europe for that or Singapore or Switzerland.
OCC: What do you think will happen with Blockchain technology 10 years from now?
JD: I think that Bitcoin will become a global store value. I think that ICOs will become a competitive process against IPOs. There two paths surrounding ICOs. The security token path, the competitor to ICOs, and then there’s the utility token path where it becomes the new user incentives, referral mechanism; where people have their own utility tokens, in the same way people have Facebook and Twitter accounts. In the permission Blockchain environment, people are interested to see what’s going on. Eventually, there will be regulation that requires different types of supply chains or organizations to have blockchains where the government condones and can actually regulate those corporations more easily.
Perhaps even governments will be put on blockchains so that they themselves are forced to be more transparent. What that will do is create more accountability on behalf of the government; but also, create stronger reasons and trust in the people, who in some countries that are not in the western world, people will be more willing to pay taxes because of the transparency showing a lack of corruption.
Bitwage:
The most popular international payroll & invoicing system built on top of blockchain. We have 20,000 users and have performed $50MM in transactions. In the US, EU and UK, we allow anyone to receive any percentage of their wage in cryptocurrency from any employer. Outside of the US, EU and UK, we help companies and freelancers exporting services to the US EU and UK to receive their wages across borders faster and cheaper through blockchain without requiring their client to sign up.
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