On Thursday, June 21st, Slovenian Blockchain Association in partnership with Bitstamp hosted a crypto enthusiasts event in Ljubljana - BTC City's Crystal Palace. Nejc Kodrič, a co-founder and CEO of Bitstamp was one of the main guests. He gave a relaxed and very interesting interview touching the topics about Bitstamp, crypto exchanges, future of the crypto industry, ICO's and more, so I decided to translate it from Slovene to share it with broader audience.

Hosted by Blaž Bregar.

It opens with some local Slovene puns which I will skip.

The growth of Bitstamp scaled with a lightspeed. How were you able to find a balance between the traffic growth, keeping the focus on user experience and remaining credible to the regulators as well as public to trust you their funds and their trades?

As far as the regulations and laws are going, there is a limited maneuvering space. We have a department to take care of that. It acts as an autonomous function. As far as the user experience is going, you can only try. Most of the time we are trying to enhance the user experience, raise the quality of support, lower the waiting times but sometimes this becomes very hard as it was the case during the end of the last year... There are a lot of adaptations on the fly and improvisations, after all, there are no guidelines, books, precedents on how to manage a crypto exchange. When we launched the exchange with Damijan (Merlak) back in 2011, we drank some beer and said "go for it" but this was the approach you could have 7 years ago and today the situation is much more serious. Beer comes after the work. There are lots of improvisations. If you have good intentions, what our company is doing, it's not scifi, it's an exchange as any other exchange so we are adopting the practices from the existing world and we are translating it to a crypto industry.

From drinking a beer in the garage to drinking the beer after the work and a huge growth in between, how do you (personally) see the success of this business story? Your personal experiences, advices to anyone who is thinking about doing similar things? How did your daily interests and activities change?

It's awesome! I mean everything is a big rollercoaster. The whole crypto industry is running in cycles. The cycle as we saw it last year we already saw a couple of years back in 2013, 2014... There are intense times when you are thinking "not again" 3 times per day and there are times when you are focusing on the company, strengthening the infrastructure, planing, working on a roadmap, so it is a stabilized process. I always compare being a CEO of a crypto exchange to driving in the dark with your lights on, you can see 4-5 meters infront of you, everything else is dark and you are hoping for the best... You are trying to find the balance between regulatory compliance and having a good user experience. This fine line is very hard to nail.

You mentioned thinking "not again" through out a day... not long ago Bitstamp got hacked. You probably wake up in the morning and have no idea how you will survive the day. How did you manage to (successfully) resolve the problem?

Well, we didn't say "not again" because it happened for the first time. It was a tad different vocabulary then. We made a very quick preliminary overview of the situation and said "ok, we have some reserves"... Our system was designed to separate a hot wallet and cold storage in the first place. System worked as designed, only the hot wallet was emptied. F*** it. Banks are being robbed, postal offices are being robbed, intrusions are happening, no system is 100 % bullet proof... But it is very important how you react after such thing happens. We made a plan and investigated (it is still ongoing)... The bad thing was 4 days of downtime for users, I appologize for that, it was a bad user experience as a consequence... The thing is, there is no insurance company which would offer a meaningful premium for our business model. What ever happens, it's always the exchange covering the losses on their own. How the exchange has set their mechanisms, who runs through them, what are the plans in case of such an event... There are exchanges without any regulations located in certain juristictions and if such a thing happens with such exchange, it is a much higher risk for a user. On the other hand there are exchanges which have regulations and security reviews, they are located in juristictions with laws so they are safter for users. This is also a part of our model - be a safe counterparty for crypto industry.

The global crypto exchanges ecosystem is (roughly) divided into crypto/fiat and crypto/crypto exchanges. Plus decentralized exchanges. How do you see a current role of Bitstamp in this rapidly evolving ecosystem? From the exchange being a gateway for small investors to more popular exchanges?

We are strategically positioned to offer a crypto/fiat exchange. Our services are to offer a price discovery mechanism for the biggest cryptocurriencies against fiat pairs. It has its advantages as well as disadvantages. If you are offering a fiat/crypto pairings, you require access to bank accounts. It means you need to have a certain policy since half of the business depends on institutional partners who have their doubts. Our view is to build a bridge between the crypto world and existing finances... Crypto/crypto only exchanges don't have this compliance and they are often located in offshore juristictions where laws are roughly defined. It is great for them, they have a good business model and they can list anything they want. If we want to list something, we must do our homework. We must check out the technology and we must be able to do transaction monitoring, which means Monero, for example, is sadly unsuitable for us... Our position is to check the technology we are implementing. We can't just implement some BitConnect so that we can earn something... Okay, that's an extreme example... Meanwhile our competition has such freedom so they can offer it. I believe users needs are to be able to access as many things as possible to trade them. How much of it is trading, how much it is gambling, everyone has their own opinion about it, but I think not everything should be available for trading because this industry has evolved into a very extreme direction. Especially in the recent times with a rise of ICO's. We definitely can't throw them all in the same basket, there are certainly legit projects which we would be happy to list on the exchange (Bitstamp) but many of these projects get lost in the flood of user unfriendly investment opportunities... I'm not excluding a chance of ever listing some projects, we have some plans, but personaly I think in the near future we will see a consolidation of the industry. What we see today will not be what we will see in a year from now. Sooner or later the projects will need to deliver a product if they will want for their tokens to preserve the value otherwise everything will gravitate towards zero. 

By "consolidation" do you mean a model which has shown a couple of months ago by Coinbase when they acquired Paradex, Cipher Browser...? Do you see the exchanges being positioned as a full service companies for trading and Dapp usage or do you see some technology in ICO projects being built so other bigger companies can integrate and adapt it?

Earlier I forgot to mention the decentralized exchanges which I think will play a very big role in the future. There might be one thing which is still a bit unclear. How to decentralize fiat. Also, the performance of high frequency trading is not there yet. At least not Ethereum based. If CryptoKitties can disrupt the Ethereum network, that's not exactly a platform suitable for decentralized exchanges. However, Lightning Network is very promising. Atomic Swaps overall look very interesting. I think this will be a crucial part of the industry. ICO hypes are passing by, there are some regulatory enforcements, but not really. I think here the regulation will be crystal clear. Decentralized exchanges might become useful as platforms for initial price discovery mechanism of ICO tokens. If the technology will develop, it will add some value and volume, and this is a good thing for centralized exchanges to see it and list that token.

What's your opinion on "stable coins" (Tether)? Do you see them as a mechanism which will play an important role in the ecosystem?

A good question! There has been a growth in stable coin projects lately. Personally I'm following to 3 such projects. Companies developing the projects set it up in the right way, not like Tether did it... There are companies which use blockchain technology in order to issue coins with primary goal to transfer the value and not to use volatility and profit. I prefer using a term "synthetic currencies" rather than stable coins. Companies are developing synthetic currencies in the proper regulatory enviroment which will be backed by certain assets - gold, equity, real estates... Perhaps these syntethic currencies will enable a development of decentralized exchanges. If you have a decentralized exchange and a certain cryptocurrency paired with another cryptocurrency, you still have to buy it somehow in the first place. Besides, we know that as Bitcoin price is moving, everything else follows. I think development of the syntethic currencies will bring a change here and I'm definitely following to the projects.

Following to crypto innovations and technology where do you personally see the biggest potential or hype at the moment?

Personally I'm interested in Lightning Network. I think it's the technology which will be a basis or a platform for further business models which we can't yet interpret since we didn't have a technology which would in reality enable costless micro transactions so far. For a long time we were saying Bitcoin offers micro transactions but in reality it doesn't. Lightning Network will make it possible. It's still in early stages, way less developed as people want to believe, though. If you are reading Reddit and Twitter, LN is basically around the corner. It's not exactly true but the moment is right, the direction is right.

So I don't have to ask your opinion about Bitcoin vs Bitcoin Cash.

Okay, to give a politically correct answer... Yeah, that's a hard one... Why Bitcoin Cash came in the first place? Personally I think it was more of a political fork rather than a technological one. I'm a fan of offchain scaling. This is my personal opinion and it doesn't represent Bitstamp. 

*He then proceeded to explain a difference between block scaling and offchain scaling*

Bitstamp was the first to support the update and implement SegWit which is a prerequisition for Lightning Network.

I believe crypto is an instrument of investment democracy. We discovered something that cannot be centralized. Power to the people. But many institutions are joining in. What does it mean for the market development (and price)? Where is that leading us if we take a look a couple of months into the future?

Another consequence of Bitstamp development is that new users we are getting since 2017 are way different than the users we were getting earlier. Users who represent majority of the trading volume are big investment funds, high frequency traders, market makers. They are users who fly in, have a personal meeting with us, it takes a month or two for them to open an account and then they take up for tens of millions of volume. But these are not the users who would push the price in certain direction. These are the volatility traders. Companies with 20, 30 years of trading experience and now they decided to join the crypto trading. These users are very selective in which exchange they will use. They require an exchange with limited risk, guaranteed uptime, etc. These are the users who do not push the price upwards. If Goldman-Sachs says we will trade crypto, it won't push the price upwards because of them. These are not the users to throw in half a billion of USD. These are the users who will be creating the market and lower the volatility... This whole raly we've witnessed last year was media narrated in my opinion. You were not able to open a newspaper or a web page without reading about crypto this, crypto that... That's what brought in the masses of people who said "ok, I'll buy some Bitcoins (or anything else) as well!"... With more existant traditional traders joining in the volatiliy will majorly decrease in the future. It won't influence the trend direction at all though.

Hearing all this, it reminded me of your blogs (Bitstamp). I see you are making some efforts into educating people about basics of trading. I find that very positive, especially for this rapid growth of users.

That's the second trait we've noticed especially in the last year. This whole trend was... Do we know what FOMO is? FOMO means Fear Of Missing Out. It's a term. It happened in the second half of the last year. Why did all cryptocurrencies gain in value? Because of FOMO! The prices went up and everyone said "I have to buy in today because tomorrow the price will be 5% higher!"... What we noticed was a profile of users in last year who were inexperienced. They were users who never traded Forex, securities etc. before. But crypto. Need to trade that! There is nothing wrong with that thinking but... I have my own explanation why did it come to that. If you are trading some securities, futures contracts... bonds... You will be a good trader if you will understand the subject well. Meanwhile, crypto industry is so abstract that we have this crypto, it is volatile a bit and it sounds good so I will buy some! We wanted to put in some effort to create guides and give users information, to educate them, to make them understand what the concepts are. We started publishing market TA to educate users a bit and make them invest their time into it. Everyone can become a successful trader if they invest time into it but if you are doing it out of boredom, there is too high risk for the user... The whole philosophy of our company is to make possible for users to create value and charge them fee for it. We don't want to offer users to trade BitConnect or something like that. Well, they would probably earn well but in the end the thing will gravitate towards zero and we do not want that for our users. That's why we would like to educate our users for them to get better at trading. Today you are trading cryptocurrencies and tomorrow you can start trading securities, mechanics are the same, afterall. That's the point of our tutorials.

What is your personal point on view on ICO scene? Is there any ICO or blockchain project which convinced you to become their believer?

I have a very unpopular opinion about ICO's. At least about majority of them. I don't want to generalize and point out anyone but vast majority of the projects financed through ICO were made just because it was the right time. Another common thing is we have a certain cap and projects are taking let's say 30% of the funds for themselves. Why? If somebody launched ICO, what gives them the right to take these 30% after the ICO was completed? This is a totally missguided incentive in my opinion. When we launched our company with Damijan we started from scratch. We were motivated, and we were motivated because we had nothing. We had to work to create something. If you launch an ICO and you say you are successful because you raised millions in a couple of minutes, okay, congratulations, but where is the product? If we are being honest in this industry... Many projects got funded through ICO and probably they will create something but this is not a game. These are the funds of people who trusted you. I mean some projects are promissing but some projects are driving Lambos and such stuff... I think this is a missguided point and that's why I have a critical opinion about it. Because a lot of these projects were made just because it was the right timing. Just because they rode the FOMO.

If we take a look into the future of Bitstamp. You have plans about further expansion. What is your vision?

Definitely the primary goal is to make the user experience better. We are working on user interface, new app, cosmetic fixes. As for the business model itself, we plan to add new cryptocurrencies. I won't mention which, because, you know... There is a certain advantage when a new cryptocurrency comes if you are the first to list it. We are not stupid. If you are the first to list let's say "XYZ" coin, you will have a bigger market share. But our philosophy is not to run a sprint but rather run a marathon. If there is a cryptocurrency with certain potential, there is still a long period of value creation so we don't have to be the first and we don't have to risk or offer our users something with high risk. We will definitely add other cryptocurrencies, especially in this period of consolidation. Projects which won't gravitate towards zero will definitely be interesting for the future. Those are the projects which will be candidates to list them. 

Last question of the day. Do you often drive through Bitcoin roundabout in Kranj? 

(Bitcoin roundabout was built in March 2018 and it was supported by Bitstamp and 3fs.)

*Nejc laughs* I made a couple of circles.