How a Crypto Billionaire Built an Exchange in Eight Months
Zhao Changpeng’s rise has been extraordinary, even by cryptocurrency’s standards. Binance, the exchange he founded in 2017, turned a $200 million profit in its second quarter of existence, transforming the formerly-obscure founder into an industry titan who claims to be worth $2 billion. How did Binance, a company without a public address and no bank account, become a behemoth in such a short time?
From Crypto Advocate to Exchange Founder
Zhao’s background in computer engineering, coupled with an early career developing trading systems for multiple companies, laid the groundwork for his move into digital currencies. He spent time on digital wallet provider blockchain.info’s payroll before founding Binance in July 2017. The company raised $15 million in an initial coin offering, launched its exchange 11 days later, and has since become extremely popular with crypto traders. At the peak of the 2017 cryptocurrency boom, the site was hosting $11 billion daily in trades.
Low Oversight, Huge Following
Binance has attracted a loyal following for several reasons. Crypto investors consider its trading system to be extremely reliable, and its 0.1% transaction fee is one of the lowest among major exchanges. Binance has also fended off the ubiquitous hacker thefts that have plagued the crypto world, including a “large-scale phishing and stealing attempt” earlier in 2018. They also maintain a sterling reputation for avoiding government oversight – even by the crypto boom’s Wild West standards – that endears them to users who particularly value digital currencies’ potential to replace financial norms. This is partially aided by the fact that Binance does not allow trades for fiat currency; it only facilitates trades between cryptocurrencies, using other exchanges to enable crypto-to-cash deals.
An air of secrecy surrounds the company – Zhao has not revealed the locations of Binance’s offices and servers (which makes it difficult to determine which country’s regulatory laws apply to the company), asks employees to be stingy with details about the operation, and admitted in an interview to looking for creative solutions to avoid “unnecessary” regulation.
Increased Scrutiny
Users are drawn to the exchange because of its desire to avoid government oversight, but that ironically has brought an increasing amount of attention from regulators as cryptocurrency moves into the mainstream. The exchange lists 100-plus coins sharing traits with securities, but with none of the protections that protect investors in regulated exchanges. Anonymity is prioritized to what some might argue is extreme – users can sign up with just an email address and immediately withdraw the equivalent of two Bitcoins, or more than $15,000, raising concerns about money laundering. They also created a referral program offering commission-sharing as enticement – some experts estimate this could effectively make Binance unlicensed securities brokers.
What’s Next for Binance?
Zhao remains undaunted even as securities regulators in Hong Kong warned Binance to cease trading cryptocurrencies that qualify as securities. Inquiries from Japanese officials also forced the exchange to alter plans for a permanent office there. Zhao has stated a desire to work with regulatory officials, defended his company’s approach for selecting coins to list as heavily researched and noted that he asks issuers to provide legal opinions that state the coins are not securities. He has also made recent overtures with the Maltese government, who are situating themselves as a cryptocurrency-friendly hub for Europe, about setting up a crypto-to-cash exchange there – something the prime minister has endorsed. But for all Zhao’s bullishness on digital currencies, it is becoming more and more clear that Binance will need to be comfortable in better-regulated environments.
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Contributor
Sergey Savastiouk, Ph.D. has a degree in Applied Mathematics from Moscow University and has extensive experience as an entrepreneur, investor, manager, and mathematician. His professional expertise is in applied mathematics, mathematical modeling, system and pattern analysis, and software and hardware system integration. He has served as the CEO of several hi-tech start-up companies and nonprofit organizations, which has given him proven capabilities in business strategy for high-tech start-up companies, market assessment, company formation, team building, product development, marketing, and sales. He has published numerous articles in journals and magazines on related fields. As a retail investor, he spent 15 years developing his proprietary trading and quantitative algorithms (now Tickeron’s A.I.), which brought him significant returns in trading the stock market. His current work and goal in founding Tickeron is to bring professional, sophisticated stock market analysis capabilities to retail investors via an easy-to-use interface.
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