It has been a phenomenal year for VoIP pioneer and Celsius Network mastermind Alex Mashinsky: he’s successfully launched a blockchain project which has a clear plan, is compliant, and has a well-defined use case, he’s participated some of the most important debates in the industry, and he has grown his business and influence even in the middle of a destructive bear market.
Under these considerations, it made a lot of sense to invite the Ukrainian entrepreneur to a discussion about the most important developments and phenomena in the ever-bourgeoning blockchain industry. During this exclusive Crypto Insider interview, he spoke about some of the most notable events he’s witnessed in 2018, as well as his vision for Celsius.
Attached you will find the first part of the interview in both video and written form. The second part contains a more in-depth analysis of the Celsius Network app, with practical examples given during a process where Vlad deposits some coins into the ecosystem.
Vlad Costea: Hello and welcome to another Crypto Insider interview! I am Vlad and today I’m speaking with Alex Mashinsky, who is the creator of the Celsius Network as well as an innovator in the field of TCP/IP. Hello, Mr. Mashinsky!
Alex Mashinsky: Hi, Vlad. Thanks for having us.
Vlad Costea: So it’s VOIP not TCP/IP, right?
Alex Mashinsky: It’s VOIP, but it uses TCP/IP so yes, it’s part of the protocol.
Vlad Costea: Okay. So… I have so many questions to ask you right now, I’m not sure what I should begin with. But let’s talk about the way I found out about you and your activity. And it was during the Milken Institute debate, which I found fascinating. You debated a representative of the US reserve. I think his name was Macintosh.
Alex Mashinsky: Yes, there were um… there was the founder of Abra which is a wallet company. Yeah, and Nouriel Roubini and we had a representative from the Federal Reserve.
Vlad Costea: Okay, so I noticed during the debate that you’re basically the first crypto socialist I ever discovered. You talk about the policy – you talk about all these issues with the world wealth and you talk about where this redistribution trick through crypto currencies and that to me was an eye opener.
Alex Mashinsky: Well, so I was born in the Ukraine – so, born in communism. Grew up in socialism in Israel. Spent 30 years in the United states. I tried all three systems, you know economic systems that we have. And each one of them has its own set of problems.
Obviously, communism does not work for most people, but the system has tried to create equality for everybody. Socialism is basically saying we have to have a safety net for everybody, right? So we’re going to catch anyone who is falling through the system – you know, has medical problems or anything like that.
And capitalism is a system that’s very good for the 1% but not so good for the 99%. So really, humanity is struggling to come up with an inclusive system that could be acting in the best interest of the 7 1/2 billion people that are living on this planet.
And I view the blockchain powered by crypto currencies as the 4th system. So it’s not that I’m a crypto socialist, it’s more that I think we can take the best ideas from the other 3 systems and create something that is for the people by the people vs people like me that got to immigrate to the US and do several start ups and be successful get to enjoy all the benefits, but most people on the planet don’t have access to these opportunities.
Vlad Costea: Do you find any ideological common ground with Nick Szabo who talks about social scalability?
Alex Mashinsky: Nick is a good friend. He’s based here in New York, as well. I think he is a purist – meaning he believes that Bitcoin is the solution for everything. And, my views – I agree with him at the high level on the ideas but I think that the killer app or the blockchain that is going to enable everything that I just talked about has not yet been invented.
Vlad Costea: Oh, ok. But it was much more about the idea that there are nearly 8 billion people living on this planet and the resources are very limited. He believes that blockchain and Bitcoin are going to enable a fairer and smarter distribution of resources.
Alex Mashinsky: Well, fairer and smarter distribution is definitely the right thing. That, I would not say that we have limited resources. Just to give an idea we, in the US, we throw away a 1/3 of all the food we produce every year. Just throw it away because of expiration date because it wasn’t consumed on time, or because it was not eaten completely or whatever. The modern waste that the West generates, especially the US, is just colossal. We can feed the entire planet with just the waste the US is produces.
Vlad Costea: I’ve watched you debate Nouriel Roubini, who is maybe the most vocal critic of cryptocurrencies and I’ve seen you take on him during the Milken Institute debate and later during the Blockchain Supershow, which was maybe 2 months ago. And I found it fascinating that his views have evolved in time. It’s not like he has these fixed ideas that he maintains. He still says that it’s all a scam and it’s a Ponzi and it’s going to collapse at some point. But he has refined his arguments throughout time, do you think you contributed to this evolution of his?
Alex Mashinsky: Well, Nouriel is a very accomplished economist, and I think he’s a very smart person. But, he lives in this cocoon that the Western world created in which basically we’re all living in an inflationary system. You know, all of the currencies issued by government are designed to be inflationary. And by doing so they are forcing people that make money to put that money to work. And that money has to be deployed into real estate or deployed into the stock market – because if you just put the money into a bank you’re going to lose 2, 3, or 5 percent just for inflation.
And the piece that he doesn’t understand is that the bitcoin and other cryptocurrencies are deflationary – they, by design, they are designed to do the opposite of what the dollar, the yen, or the euro are designed. So, all of these arguments are comparing bitcoin to an inflationary currency. Which is… it’s comparing apples and oranges, right?. So… I always tease Nouriel by saying that he first should buy his first ether or bitcoin and then he can tell us how it works. Because someone that has never used it for commerce or is never invested in it who just sits there and tells how it’s bad or how it’s not going to do what it’s supposed to do is not really the best person to educate us or explain to us why it’s a scam or it’s the best thing on the planet.
So I think the opportunity here, like everything else on the planet, everything could be used for good or bad – and the question is what are we using these crypto currencies for? And today, unfortunately, and I’ve been saying that for several years, we do not have a killer app neither for Bitcoin nor for Ethereum. And without a killer app like voice over IP for example which is a killer app for the internet, you cannot have a scale, you cannot add the billion, two billion, three billion people who are actually using stuff every day like this conversation we’re having was completely like a dream back 20 or 25 years ago. It would cost several dollar a minute to transact – to create a video conversation with voice over any kind of data line and the idea that this could be done for free over great distances and billions of people could be doing it at the same time was completely foreign.
So I think that people with very limited imagination are always leaning towards defending the systems that they know. As an example, I can tell you that if you look back at history, and you look at every currency that has ever been issued, many of them became the reserve currency of the planet and then they disappeared. And one great example is the US dollar. The US dollar started as an illegal coin minted by six colonies against the powers of the United Kingdom. Right? It was illegal. That’s why the British sent an army to the United States to fight the locals and basically stop and tax – and what they wanted to continue taxing them. So this illegal coin became the reserve currency of the planet. And that was completely unconceivable. And the same way this new illegal coin, which we call Bitcoin or Ethereum, or any other crypto currency, in many countries they’re illegal, like in China, could become the next reserve currency of the planet.
Vlad Costea: I think that something we don’t really think about in terms of origin stories, because at some point in our past many of the inventions that we take for granted and we have established as part of our system have been illegal and it took some time for people to embrace them and adopt them as … in the case of money as means of exchange or storing value. But, let’s go back to Nouriel Roubini because I remember during the debate that you offered to give him some coins and she refused but I’m not sure what happened afterwards if he just gave up and said “Okay just send me some coins so I can see how they work”.
Alex Mashinsky: Look, Nouriel gets paid to do his speeches so he doesn’t really care about the industry. He gets paid to show up and say bad things about crypto and he makes a good living out of it, right? So, I don’t think that he is interested or inclined to investigate as to the validity or viability of any of these coins.
Vlad Costea: Okay, that’s the diplomatic answer. Well, I’m going to ask you about the current bear market and if you think there is any logical correlation with the fact that we’re having much more mainstream financial adoption. We hear about all of these ETFs and all these institutions backed which promise to open trading desks. But, at the same time, there is no following in terms of price increase so we have lots of good news in terms of developments and in turns of adoption but nothing to follow up in terms of growing the price.
Alex Mashinsky: Well, so, the problem the industry is having is that you had very quick adoption of retail users during 2016 and 2017. Millions of people showed up from fiat land to crypto land thinking that they could just open an account go in any exchange and buy some coins and become millionaires, right?
And as long as other people showed up and bought coins after them that was true. But when everybody is trying to run to the exits at the same time. What you’re seeing is people – everybody with weak hands basically dumping their coins in the market no matter what the price is and you’re seeing liquidations because of margin. Like on Bitmex and other places where people bought 2 to 1, 3 to 1, 5 to 1, and basically they have to sell or be liquidated because they don’t take action.
All these people are leaving crypto land back to fiat land with empty pockets. And, I think what you’re gonna have left are people that are true believers: people that are looking for this for the long term. And, most institutions that I speak to, and you know Celsius Network works with a lot of institutions, most institutions have not bought a lot of coins. They may have set up an account, they may have even put a few coins in the wallet, but they’ve not really started accumulating assets.
And the people that you’re talking about, like Fidelity or the New York Stock Exchange, or other that announce that they’re going to be trading, they’re all talking about 2019, not really 2018. So, I think there’s going to be a wave of adoption, and all new institutions coming in. But, before that, we’re going to see a flush of all remaining speculators, right?
We have three wavers of adoption so 2008 through 2011 was all anarchists. Then we had second wave, 2011 through 2015, which was mostly libertarians – people who thought they can solve all the world’s problems with Bitcoin or Ethereum.
And the last wave was all speculators. And, the funny thing is that these three groups don’t really talk to each other. They don’t like each other, they don’t work together. So, you cannot have a community. And we have very few women in crypto as well: we have maybe 5%, maybe 7%, women – it’s all men; who are not really here to make the world a better place. They are just here to make some money.
So, I think when you see… when you’re going to have more people join for the right reasons not for the wrong reasons. Again, it’s not going to be the anarchists, it’s not going to be the speculators, but people that actually want to have a financial future: people that think of it as a long term investment. That’s what’s going to continue the rise of the coins. Also, when you’re going to see some serious financial distress in the traditional world, like what you’re seeing right now in Argentina, or in Turkey, or in Venezuela, or in other countries… that’s going to drive adoption of crypto currencies because these people in those countries don’t trust the local government. They can’t get their hands on dollars and the only way for them to actually create value or retain value is by buying cryptocurrency. It’s not that I’m wishing for financial disaster, but I think that financial disaster is going to be the best thing for crypto.
Vlad Costea: You have spoken about waves of adoption, and how different individuals with very varied ideological stand points have adopted Bitcoin at several points in time – now I notice nowadays that you have people like Roger Ver or Eric Voorhees who more or less start to sell out and embrace their corporate mindset. We saw how Shapeshift didn’t have any issues creating a coin of their own and becoming KYC, even though it was against their ethos from the very beginning.
And, then we have Roger here who basically took every chance just to maximize his profits. He was an investor in many startups in crypto but it turns out that his interest was not necessarily to promote Bitcoin as a technology but to be a major stakeholder in one version of Bitcoin which he deems as more valuable for his own interests.
Alex Mashinsky: Yeah, so look… you know what they say: you can fool some of the people some of the time, but you cannot fool all of the people all of the time. And, I think there are many people who are heroes in the crypto world that brought us up to date. Who are not really… who have shown their colors. Most of them, when you dug deeper into why they are doing what they are doing, you found out that they are not there for the community, they are not there to help everybody else.
Just a simple example, an example for example is an exception, right? He is a guy who has always been there for the right reasons. He has always done everything for the community. So, I want to clearly differentiate from everybody else that we talked about, right? But, if you’re looking at the founder of Bitmex, or you’re looking at even the founder of Binance, none of these people are here to help the community – they’re all here just to line their pockets. I urge our viewers to really pay attention to make sure that what people say and what people do are the same thing, because in many cases you will see that what people do contradicts what they say and they’re not here for the long term they’re here just for a quick buck and moving on to the next thing.
Vlad Costea: I noticed that unlike Tone Vays who was one of the debaters in one of the conferences that you attended, you favor and seem to like Ethereum, whereas Tone Vays says it’s a scam: that it’s a pyramid scheme that’s bound to collapse because it had such a big pre mine since its day one and it’s not very decentralized. That’s his argument against it. What do you like so much about Ethereum and what do you think about the competitors: like Tezos and TRON and EOS and Cardano and whatever. I think that I can name five more…
Alex Mashinsky: So look – first, Celsius Network does not pick winners and losers. Our wallet supports a different blockchain and we are planning to support all 20 top blockchains, so we are not shifting the community left or right, up or down, right? Our job is just to enable people to earning interest on their deposits, right? So enable them to earn return on their coins and enable them to get a loan as well as easily transfer coins to each other. These are the services we provide.
We could care less if it’s EOS or if it’s Bitcoin or if it’s Ethereum. But, in the general sense of the community, first there are usually more than one winner. So, I’m not sitting here and saying “Ethereum is the best thing since sliced bread, nothing else will be successful”. I think there is an opportunity for multiple communities to exist. Today the Ethereum community has the most developers, has the most code, has the most working projects that are actually being used for anything – and because of that I view them as having enough gravity to create like an orbit of successful companies around them. So they have over a thousand projects and over ten thousand developers who every day are working to both improve the Ethereum protocols as well as create applications on top of it.
So, I’m not supporting or cheering just one project, I just really like how Ethereum as a foundation created a lot of value for the early adopters: both mining guys as well as people that came in and bought the coins and built the projects on top of Ethereum. I think it’s a model or case study for many many other projects to come after. Celsius Network partnered with Stellar and we work with EOS, so we are here to support the community. We believe that all these efforts are true and pure efforts who are furthering the opportunities on the blockchain and I’m focused on the public blockchain. There’s a lot of efforts by the banks and by insurance companies and by other VCs on the private blockchain which are really not focused on creating a solution for the eight billion people on the planet – they’re just trying to create more profitability for IBM or for JP Morgan or for Microsoft.
Vlad Costea: I think you took a step ahead, because I was about to ask you about the Celsius Network. What it is and how is it different from a traditional bank?
Alex Mashinsky: Right. Well, let me answer that. Because the main thing that we are different… yes, we pay interest, yes we issue cheap loans. But the main thing that makes us different is that we take profit, which we generate through a variety of ways, and we give them back to the community in crypto. Almost every other project that you know – let’s take Binance, for example: when Binance announced that they’re going to make a billion dollars in profit this year, that means that they’re taking money out of their pocket, they’re converting it to fiat, and they’re shipping it outside of our community. They’re not distributing it inside the community in the form of additional coins, understand? They’re like a vacuum cleaner that’s taking value outside of the community. The same thing with Bitmex and the same thing with most other financial projects.
Celcius is the opposite of that – Celsius is saying to the community “let’s get together, let’s pull together all of our resources, create a Proof of Stake implementation, deploy these assets, and whatever comes in… most of it comes in as dollars, most of our borrowers pay us dollars, we then buy coins with them and give them to the community”. So we do the opposite of what Bitmex does or Binance does or everybody else. So, it’s important that your viewers understand that, because when somebody says “Oh, I’m here for the community” ask them “What are you doing for the community?”. How are you helping the community grow and become more prosperous and so on?
Vlad Costea: Okay, but would you say that Celsius is a bank for crypto currencies?
Alex Mashinsky: We are not a bank, no. We are… in most cases banks are… you know, let’s think about what a bank does. So, a bank takes your money, right? It’s only … it will only accept fiat currencies; it does not accept commodities. Then lends it to me, for example, right? It takes your money, pays you almost nothing for it, less than 1%. Turns around, lends it to me on my credit card.
When I use my credit card they charge me 25%. So they keep 24% out of 25%: that means they keep over 90% of the value just being a middle man. All they are is a toll collector. They’re just a middle man in the middle, right? So, when we are upset with Facebook, or we are upset with Google, they don’t take 90% of the value – they maybe take 10 or 20% of the value, you understand?
My point is that, we don’t really… most people in this world don’t understand who is their friend or who is not their friend and who they can trust and who they cannot trust. So, you know, the governments in most countries have given banks a monopoly, a legal monopoly, to do what I just described. And, that’s why they are some of the most profitable companies in the world. Who has the most shiniest, biggest buildings in every city? The banks. How can they afford to have these beautiful buildings? Whose money is it that they are taking away? It’s your money and my money.
So what cryptocurrencies are saying is something very different. Crypto currencies are saying that value can be stored not just in the form of a fiat currency, it could be stored in other forms. And, as long as we create a community that acts in the best interests of the community, the community can pay itself a 5, 6, 7%, which would be 5 times more, and charge half: instead of charging 25%, why not charge them 9%? That’s what Celsius charges. So, we collect 9%, we payout 5 or 6%, and everybody benefits. But, we are not the bank.
Vlad Costea: So, is this an alternative for people who want to store their cryptocurrencies? They can just hold them in their wallets and maybe stay anonymous to some extent, or if they agree with KYC they can basically deposit their cryptocurrencies and earn interest?
Alex Mashinsky: We only want good actors. If you’re not willing to do KYC, there’s a reason why you don’t want to do KYC, then we just decided to not accept you as a member of our community. We want a community of only good actors. And, KYC is one way of figuring out who is a good actor and then who is a bad actor. So, if we have a community of good actors and everybody pulls together their assets, if we have a billion dollars we can earn much more than if we have a million dollars.
So what we’re trying to do, just like big banks make a lot of money from using the capital that is deposited with them to make an earning, but the earnings go to the bank, they don’t go back to the people that deposited the money. We use a lot of deposits to create earnings, just like hedge funds do or just like institutions are not banks, but instead the profits go to the people that gave us the money in the first place – or the value in the first place.
So, it’s a model that is not new: it’s not like we invented a new financial model. We take deposit, we pay interest, we deploy the coins, we only accept coins, we only deploy coins – so we don’t touch fiat currencies, we don’t touch dollars, we don’t touch yen, we don’t touch euros. You cannot buy coins from us.
Vlad Costea: So, right now if I have, let’s say, one Litecoin or one Ethereum, can I just deposit it and earn interest? And what are the rights?
Alex Mashinsky: If you open the app, the app shows you what are the rates. So, let’s do that right now. And here is the Celsius app. You just go to the app store and download the Celsius wallet. And Celsius Network is the full name. And, when you open it it will show you all the different rates that we pay. So, for example, right now, Bitcoin is 3.75%. Litecoin is 4.5%. Ethereum is 4.25%. And these change every week.
The reason they change is when we make more money is we pay out more money, and the rate goes up. When we make less money the whole community makes less money and then the interest rate goes down. So the interest rate goes up and down based on our ability to earn capital. And we have three basic services. You can deposit and earn interest, which we just showed. You can take a loan, so if you have assets and you have bitcoin, but if you sell them you have to pay taxes – with us you can basically take a loan against the asset without paying the tax on your earnings. And the third service is called CelPay which allows you to send coin to any one of your friends. So, I can send Vlad right now, for example… you want Celsius Cel token or bitcoin? What do you prefer? I’ll be more generous with the Celcius Cel token.
Vlad Costea: Okay, whichever you prefer. So, just for the record I downloaded the application before we had this interview and I set up that KYC and everything else and I’m…
Alex Mashinsky: So, I’m gonna send you $50.
Vlad Costea: Oh, that’s generous.
Alex Mashinsky: Very generous, see? Since you’re recording this I’m very generous. So, I don’t need to know your wallet, I don’t need to know if you have bitcoin or ethereum or anything else. I can just basically use social media, in this case I’m just going to use your phone number to send you something, right? Let’s see how long it takes. I’m going to press the button right now, you tell me when you got it.
Vlad Costea: I got it.
Alex Mashinsky: You got it. Where are you physically? Where are you physically, today?
Vlad Costea: I’m in Romania.
Alex Mashinsky: You’re in Romania and I’m in the United States. So, this is the world’s fastest blockchain. Because, unlike with other solutions, where I have to call you first, get your wallet address, then I have to call you again to see if you’re ready for a test, here I can send it to anyone. People that are on the blockchain, people that aren’t on the blockchain… So, we think that this cell-based service really solved the issue of adoption by enabling anyone on the planet to receive or send crypto currencies. Which, today, was not really available. Today, try to do that with someone who is not on the blockchain.
Vlad Costea: This is… so which blockchain is it that you’re using? Is it built on Ethereum?
Alex Mashisnky: So this is using Ethereum, but if you’re sending BTC then it’s using the Bitcoin. And, if you’re sending Ripple it uses Ripple. So, today we support the 8 largest blockchains. But, the Cel-based service enables you to send stuff instantly. Reserve it and give it to the party who receives it when they actually register and open a wallet and then create a wallet for them on XRP for example on BTC or whatever was sent to them. So, right now I send to you the Cel token, that’s an ERC20 token, so when you open your wallet, or you already have it, it creates an ERC20 account for you, and then these $50 dollars are deposited there. And, if you never claim them then the $50 dollars goes back to my wallet a week later.
Vlad Costea: And this…
Alex Mashinsky: So it’s never lost.
Vlad Costea: So, what is the purpose of the ERC20 token in this ecosystem?
Alex Mashinsky: So, our… the Cel token has 4 different utility functions. One of them is the exchange of value between the people that take loans and receive loans and people that make deposits. That’s how we distribute the value between them. So today, it does not have yet the functionality in the wallet – that’s coming up at the end of the year. But, today you can basically use most of the functions of the wallet that I described, without the CEL token.
Vlad Costea: Okay. I see that I received … okay… you can do it. I can confirm that you can do it.
Alex Mashinsky: Sorry, yes.
Vlad Costea: Okay. So, I have received the SMS, the text message, for receiving the money. But, I don’t think this was added to the blockchain yet, because my balance is still 0. So, I guess we will see it in a minute.
Alex Mashinsky: I think it’s because you need to finish your KYC. I think the minute you finish it…
Vlad Costea: Um… I’ve got my confirmation.
Alex Mashinsky: Okay, so then if you refresh your wallet you should see the balance.
Vlad Costea: Let me close it. I’ll open it once again. It takes a while to load. Ok. I enter my pin. It’s still not sent. So I got the text message, just for the record. It says “Congratulations Vlad, your profile…” no, not this one… this one. “Alex has sent you $50 in Cel. Click here to claim it in the Celsius Network”. Oh, so I have to claim it?
Alex Mashinsky: Yes.
Vlad Costea: By opening this link… So, this is the process, actually?
Alex Mashinsky: Yes.
Vlad Costea: I have to claim it. You didn’t tell me. So, I guess… I was the one who wasn’t attentive enough.
Alex Mashinsky: So, I need to take a quick call. Can we do the second half after I’m finished with the call?
Vlad Costea: Yes. Okay, so, “congrats”. I’ve received the $50.
Alex Mashinsky: Perfect. Yes, you’re a rich man now.
Vlad Costea: Oh, yes.
Alex Mashinsky: Alright, so we’ll continue… I’ll call you back in a few minutes, okay?
Vlad Costea: Okay, I’ll be here.
Alex Mashinsky: Thanks. Bye.
Vlad Costea: Bye.