"Crypto Unites the World." A Chat with Binance's CEO
Many people are fascinated by Binance, the world’s largest cryptocurrency exchange. But in Asia, where Binance was once based, it’s nearly impossible to discuss crypto without someone mentioning Binance or its CEO, Changpeng Zhao. People talk about Zhao, commonly known as CZ, with a combination of awe, envy and suspicion. And everyone wants to know: Where exactly is he?
CZ doesn’t love this question. “People still have this really strong concept of where your company is, and where you are,” he says. “A company is a concept. An organization is a concept.” When I ask where he calls home, he says, “I don’t really have any answer to that. Earth?” Meeting in person proves to be challenging, unsurprisingly, so we do a video call while I am in Singapore and CZ is in Taiwan.
You could say that CZ is living the crypto dream. The whole point of cryptocurrency, after all, is that it is decentralized. Take Bitcoin, for example. No central bank backs it, no government can stop it from flowing across borders. Yet even by crypto standards, Binance can seem hard to pin down. Binance is registered in both the Cayman Islands and Malta. But it doesn't have a bank account, and the team is all over the world.
CZ says that people wrongly assume that Binance is “running away” from countries. It's more like the company is diversifying its portfolio of countries in order to mitigate risk. “We are never singularly attached onto one location, one regulatory situation,” CZ says. Binance is opening an office in Malta because the regulatory environment there is favorable toward cryptocurrency, and the government has even opened a dialogue with Binance about how best to regulate the space.
Binance’s diversification strategy has paid off. CZ and his team were originally located in Shanghai. China clamped down on cryptocurrency exchanges in September of last year, but CZ saw the writing on the wall and moved the team and servers out of China shortly before the crackdown. “When we felt China wasn’t welcoming exchanges, we said that’s fine, we will not be there to be a sore in their eye. We will just move out. And that turned out to be a pretty lucky decision.” Luck, if you can call it that, is putting it mildly. Not only did China’s crackdown not cause long-term damage to Binance, the exchange proceeded to enjoy explosive growth. Last October, Binance reported a quarterly profit of US $7.5 million. In its latest quarter reported this April, Binance’s quarterly profit was US $150 million -- a roughly twenty-fold increase.
Binance is a crypto-to-crypto exchange. CZ's decision to not touch fiat currencies like the dollar, euro or Chinese yuan, gives Binance more geographical flexibility. “The more you deal with fiat, the more [authorities] can control you,” CZ said in an interview last year. “The bank will freeze your bank account. They can make the wire transfer slow.”
Today, CZ says Binance’s business is extremely spread out. Its largest market is in North America, which accounts for around 20% of Binance's business. The UK is probably the second largest market, with around 5%, and China is getting smaller. Turkey and India are also very popular, with around 4.5% each.
Binance is also well-known in Japan. In March, a warning from Japan’s Financial Services Agency drew widespread attention. “On March 23, we received a letter from the FSA saying that we give them a proposed solution on how to stop servicing Japanese users by April 6,” CZ said. He says that Binance complied, and is now “in discussion” with Japanese regulators. He adds that media reports that Binance was given some kind of “criminal” warning are completely false.
CZ says that Binance has strict know-your-customer (KYC) procedures including ID verification, criminal history checks and large-transaction reporting. “Our approach can be summarized very simply. We don’t need to reinvent the wheel there. We just do what the banks do.” The issue in Japan is deciding what to do with that KYC information. “If a non-Japanese citizen is in Japan, do you classify them as Japanese users? Or if a Japanese citizen is living in Canada, do you allow that?”
He disputes the idea that Binance is getting “kicked out” of Japan. “We were never in Japan,” he says. “We rented an office in Japan that we never used. We learned about Japan and then we said, well, Japan’s rules about exchanges are a bit too strict, it doesn’t work for us.”
Binance’s approach can be confounding to some in Japan, where the rules are not only strict, they are also relatively clear-cut. Japan has 16 licensed exchanges, all of which have to play by Japanese rules. But CZ says he has no intention of becoming a Japanese exchange.
He notes that Japanese regulated exchanges need to get approval from the Japanese authorities to list new coins, and there is an official “white list” of permissible tokens. “We list hundreds of coins, we list a new coin every other day,” CZ says. He believes that if Binance were to seek an exchange license in Japan, and its international competitors continued to frequently list new coins, Binance would be at a disadvantage. “So we never entered into Japan,” CZ says again. “A lot of news portrayed us in very negative ways, because they don’t understand what we are doing.”
CZ is clearly frustrated by the media. Part of the problem, he says, is that many journalists never had cryptocurrency. “It’s like a car magazine with a journalist that doesn’t have a driver’s license, that has never driven or sat in a car. They are writing about stuff they don’t really understand. They always paint a negative image of Bitcoin, of crypto. Which really drives me crazy.”
The final straw was a Bloomberg piece that painted CZ as a billionaire crypto king that was running into trouble, which CZ saw as a kind of “smear campaign.” CZ had heard that Bloomberg journalists aren't allowed to hold crypto, and he believes this is a big part of the problem. After the Bloomberg article, CZ decided, “I’m not going to accept any interviews from journalists who do not hold crypto. If you hold it and still don’t like it, then fine. But anyone holding it will usually get it.” He admitted that this policy would be rather difficult to enforce.
I bring up the obvious point that journalists who buy crypto might shy away from critical coverage of tokens they hold, or of the crypto industry in general. But CZ has no time for this argument. Conflict of interest is everywhere, he says. “I think the same argument can be applied to, say, if you hold US dollars and you write something negative about the US trade war with China,” he responds. “Everyone owns something they are writing about.”
His position on journalists is emblematic of his larger worldview. Crypto is not a game or a hobby. For him, saying you can’t own coins is like saying you can’t own a house. “We need to promote the freedom of investment,” he says.
CZ puts a lot of emphasis on freedom: of investment, of wealth, and of location. Crypto defies borders. China cracked down on Bitcoin, and Bitcoin came roaring back. Similarly, no one government can stop Binance from doing business.
"If a country doesn't allow us to operate there, Binance will be fine," he says. "That's the beauty of crypto, crypto unites the world. We all live on one earth."
CZ interview part two is coming soon! Stay tuned...