“Every new invention is misunderstood in early stage.”
Jian Zhang of FCoin founder told Fred Wang, founder of Mars Finance
Time: June 25, 20:00 - 23:00 Beijing Time
Groups: Mars 3.0 wechat group
Jian Zhang: Mr. Zhang’s story with crypto currency began from 2013. In 2014, he developed the blockchain information query website, qukuai.com, and Bitcoin wallet "Quick Wallet". In the same year, Zhang Jian joined the Huobi, and later became its CTO, established the Huobi Crypto Currency and Blockchain Research Center. He resigned from Huobi and founded Bo Chen Technology. In the second half of 2016, then in March 2018, he co-founded Singer Capital. In May, he launched the FCoin Crypto Currency Trading Platform, and is exploring and practicing the direction of the autonomous community development of the crypto currency trading platform. He is also the author of two books: Blockchain: Defining the Future of Finance and Economics_Fintech: Restructuring the Future of Finance Ecology.
Fred Wang: Founder of Mars Finance, chairman of Linekong (HK. 8267), and founder of Consensus Lab, the founding partner of Geek Founders
Fred Wang: First, let’s take a look at his experience: His story with crypto currency began from 2013. In 2014, he developed the blockchain information query website, qukuai.com, and Bitcoin wallet “Quick Wallet.” In the same year, Zhang Jian joined the Huobi, and later became its CTO, established the Huobi Crypto Currency and Blockchain Research Center. He resigned from Huobi and founded Bo Chen Technology. In the second half of 2016, then in March 2018, he co-founded Singer Capital. In May, he launched the FCoin Crypto Currency Trading Platform, and is exploring and practicing the direction of the autonomous community development of the crypto currency trading platform. He is also the author of two books: Blockchain: Defining the Future of Finance and Economics_Fintech: Restructuring the Future of Finance Ecology.
Fred: Since June 21, there has been lot of news about you and FCoin on the internet. How are you doing these days? Do you feel that you are famous? You have received a lot of praises and won many supporters, such as BiQun Xue and Chandler Bao. I heard that Chandler Bao has been thrown out of many WeChat groups for advertising your project. On the other hand, Changpeng Zhao, the founder of Binance, is a very low-key person. He never gives interviews, even during the big accident of Binance. The spokeswoman of Binance is Yi He. However, Changpeng Zhao departed from his normal behavior this time. He wrote many articles attacking FCoin. Before asking the first question, I would like to list the“Seven Sins”of FCoin from other media outlets as follows:
1. Wash-trading (according to a report)
2. Ponzi scheme (from a well-known economist)
3. Market disruptors (an exchange entrepreneur)
4. High price ICO. It is not only a covert act of ICO, but also a high price ICO. (Changpeng Zhao)
5. Dealer. You only care about dividends. But the exchange is more concerned about your capital. (Changpeng Zhao) The implication here is that you are profiteering from individual investors.
6. Stock drawing. If there is no fee income for an exchange, the profit model is only based on the rise of the cryptocurrency issued by the exchange. It cannot survive if the cryptocurrency issued by the exchange is not able to rise. (Changpeng Zhao)
7. For the cryptocurrency issued by the exchange, it always is defeated by itself. (Cryptocurrency Tendencies Madman)
I think that Changpeng Zhao sees through you. For the “Seven Sins” mentioned above, which do you agree, and which do you not?
Jian Zhang: This is actually pretty easy to answer. I am very busy. I didn’t even have time to see if it became popular because we grew too fast. I didn’t even have time to eat and sleep for a very long time.
I do not agree with any of the criticism mentioned above. Not a single one of them. Let me refute.
First of all, the accusation of wash trading is a light criticism. Most of the critics don’t understand our mechanism. The essence of “transaction is mining” is that we return FCion Token (shares in an exchange center) with transaction fees, making traders the owner of the exchange center, which is the fundamental purpose of the design. Mining will generate huge number of transactions, but these are real user transactions, not false transaction records on the platform. As I have to return 80 percent (sometimes 100 percent) of my revenue to FT owners. If we falsify, where do we get the money? Our mechanism guards against any activities of falsification. We only generate real user transactions. If you understand how Bitcoin works, you know what mining is. If you are stuck with the notion that we falsify transaction records, then you can also understand Bitcoin mining machines as falsifying transaction records.
With respect to the accusations of pyramid selling, currency manipulation, and being a stock maker -- I won’t be answering these questions directly. You can refer to the notion and history of Bitcoin, and see how many people have been wronged this way. Are there still people who think Bitcoin is pyramid selling? If so, you are not rejecting FCoin, you are actually denying the economic value of the cryptocurrency in general.
With respect to the accusation that we are a market disruptor and that the 100 percent revenue return model will not sustain -- this is actually a subtle criticism. My answer to this accusation is, 1) we are not returning 100 percent of our revenue to investors. The exchange center will take 20 percent of the revenue and spend it on R&D and operation, so the system is highly sustainable; and 2) the full refund of transaction fee is because of our FT issuance method. It may take some time explaining to people who don’t understand how the token economy works.
The accusation of high ICO is the most funny and ridiculous. First of all, Binance grew from an ICO, some people must be out of their mind when criticizing the high ICO of others while raising no money by themselves. Second of all, it’s wrong in the first place for some people to calculate our market value using the total amount of FCoin Token yet to be issued by us. Those unissued FT cannot be regarded as transaction, nor can they be a part of any distribution of dividend. They actually don’t exist until after issued. Therefore, the miscalculation is just wrong. In no cryptocurrency exchange center is market value calculated this way. Lastly, our valuation is actually very low, given our transaction amount, dividend ratio, number of active traders and growth rate.
Fred: There are no FCoin transaction volumes that can be found on CoinMarketCap. The transaction volumes of FCoin can be speculated base on only the dividend mechanism mentioned in the White Paper and the dividend amount officially announced by your company. However, the rise of FCoin transactions is crazy. On June 15, the transaction volume of FCoin reached 30.7 billion Yuan, which exceeded the sum of OKB (9.7 billion Yuan), BNB (9.2 billion Yuan), and HT (5.4 billion Yuan). Is this data really credible? Is it intentional for you to release this data? Jian Zhang: Data itself can’t be falsified, because we are distributing transaction fees, which are actual real money. FT owners who receive our dividend all understand what this means. And with the constant development of our website, we will gradually achieve full asset transparency. By then anyone will be able to verify the truthfulness of our data.
The mechanism determines that it can’t be falsified. Each and every link must be true and correct, otherwise it won’t work.
This is actually what most people don’t understand.
Why is your data notcollected by some third-party statistical agencies such as CoinMarketCap, Feixiaohao, and Tokenclub?
Jian Zhang: As FCoin develops rapidly, our core-team is also operating to its utmost extent, which is why we are invested very limitedly in channels and markets.
CoinMarketCap is in and of itself a very slow website, it’s quite mysterious and I think you all know it. I know one of its founders, but we don’t have time to talk. They seem to have some of our data and they might enter the exchange center pretty soon. I also know people from TokenClub, but don’t have time to communicate. Bear in mind that it’s only been a month since we officially released on May 21. It’s all because it’s happening so fast.
Fred: Because of the mechanism of refund and dividends, there should be a large number of quantified trading lots in these volumes. What do you think about it? Could you kindly disclose the percentage of quantified trading lots in your total volume?
Jian Zhang: We didn’t calculate the ratio of quantitative transactions. We are concentrated on dealing with the pressure coming from our growth speed. But we have noticed that all the transaction types are growing rapidly. The eco-system of the community is being diversified.
Fred: A user can obtain refunds by inviting friends to join the project according to “The Initiative of Expansion of Mining Revenues” of FCoin. The refund percentages, which is calculated by the designed algorithm, are 50, 20, 10, and 5 percent. Base on your latest announcement, the current refund percentage is 10 percent. The fewer refunds your offer, the fewer users you get. Users will leave if you cannot offer more benefit. Therefore, what will you do to enhance the transaction volumes in the future?
Jian Zhang: We don’t need to worry about this question. A mature market is one where capital follows profit, despite even a small profit. I mentioned in my previous answer that the ecosystem of the community is being diversified. Because of liquidity and depth, all sorts of currencies are willing to trade on FCoin. The mechanism I designed, even when we are distributing a referral fee of zero percent, we won’t affect transaction of the majority of traders. Because the refund of 100 percent of the transaction fee takes time, and the process itself is quite appealing. Fred: The trading mechanism of the traditional exchanges is relatively mature.
Although it hasn’t been innovative for a while, it has many users. You created a brand-new trading mechanism: Assets transparent and open, revenues returned to users. For users, the transaction is the payment cost, but now is the profit. How did you think of such a mechanism? And why did you want to innovate in this particular area?
First is the notion of a “public heart.” I often tell people privately that without a “public heart” you will never succeed in public chain. You may garner some quick wins but it won’t be sustainable. Exchange center itself ends up becoming the most “centric” body in a blockchain system, vowing to “decentralize.” We are hurting our own credibility if we have too much inside trading or randomly harvest traders’ profit. That’s why I say a “public heart” is of great importance.
Second, it’s my deep understanding of Bitcoin. My own book about blockchain has affected the life of many. In my book, I said Bitcoin and blockchain are genius inventions. You won’t be able to understand FCoin if you don’t have a perfect and in-depth understanding of the Bitcoin mechanism, and if you don’t understand how or why it succeeded.
In my book I used the profit cycling model to explain why Bitcoin could succeed. Third of all, is my deep reflection about the token economy. I have mentioned this in multiple occasions and I won’t delve into details here.
Fred: A section in the FCoin White Paper, which sounded like a revolutionary declaration, stateed that FCoin is NOT a company in the traditional sense -- in fact it is making a quantum leap in evolving from being a mere digital asset trading platform to being a “community.” The FCoin community is an open and transparent token-based organization in which the FCoin Token (FT), issued by FCoin, represents the overall ownership of FCoin community.
In short, I think you established an exchange in the way of Tokenomics. The traditional exchanges are centralized and profitable, but FCoin has pioneered the “Trans-Fee Mining” model, in which more than half of the platform’s total FTs will be rewarded to the community’s users (so called Miners in your perspective). In my opinion, your idea seems to be in line with Satoshi Nakamoto. I just realized that many exchanges in the blockchain industry are actually operated in the traditional centralized mode. To be working against centralization is probably the reason why FCoin is able to grow rapidly.
I noticed that you are not frequently interviewed by the media. When it comes to the concept of FCoin, you said that it is the greatest innovation after the Bitcoin. Moreover, you also said that people will be surprised if he or she understands you. Could you please talk about the “surprise” and “greatness” of your vision?
Jian Zhang: Let me quickly answer this question. I opened my Twitter account a couple of days ago and disclosed the core mechanisms of FT.
Now about the core mechanism of FT:
The essence of FT is to use the idea of the token economy to make a change in the practice of production relations.
Transform producer-consumer relationships, or change the relationship between service providers and users. Turn the two from the opposite side of the spectrum of interests into a unified relationship. This may be the first time in the history of mankind promoting the large-scale practice of evolving of the corporate system to the community system.
The second core mechanism of FT is that it’s a perfect example of Tokenomics in the future, it can even be regarded as BTC 2.0. Unlike digital coins, FT, as a token, not only supports the profit-cycling-model but also the profit-return-model, which most other digital currencies can’t do. FT has a clearly-defined dividend distribution method, and that’s why I think FT is opening a new chapter of crypto economy.
FT is also a portal to digital currency investment, because on FCoin we have only the best quality of coins, and as long as you hold FT you will be able to receive all types of coins traded on FCoin. It’s super easy even for starters without any knowledge.
Fred: When did you began having this idea? How many people were involved in the beginning? Who proposed this idea first?
Jian Zhang: This idea was started with a “public heart”, and it started with the principles of Bitcoin, and got consolidated with improved understanding of the token economy. I introduced FCoin during the bull market of cryptocurrency, and it was merely a coincidence. At the very beginning it was all about transparency, then it extended to mechanism innovations and model designs. The overall design model was only finalized when FCoin was about to go online. We didn’t expect to coincide with the bull market of cryptocurrency. But we weren’t quite sure whether we were on a rising path. Last year it was mainly myself, but I was inspired a lot from conversations with my friends and partners.
Fred: Why did you establish an exchange in the way of the Tokenomics mode? Because of the bear market? If the cryptocurrency industry enters the bull market, everyone, including rookies, can make money, does this model work?
Jian Zhang: I introduced FCoin during the bull market of cryptocurrency, and it was merely a coincidence. At the very beginning it was all about transparency, then it extended to mechanism innovations and model designs. The overall design model was only finalized when FCoin was about to go online. We didn’t expect to coincide with the bull market of cryptocurrency. But we weren’t quite sure whether we were on a rising path. Last year it was mainly myself, but I was inspired a lot from conversations with my friends and partners.
Fred: Binance rose in a very short period of time, and so did FCoin. Why is the industry changing so fast? The roles of challengers and defenders change so fast. It is like a quick heavyweight boxing match. When you had just won a match, another challenger comes on stage immediately after. How do you feel about having just gone through these two role-changes in just one month?
Jian Zhang: I don’t have a concept of time. I am always pushed forward by things. But what I do feel most strongly is that time doesn’t stop and there is no where else but ahead.
Fred: Right now, FCoin has become a game-changer of the cryptocurrency exchange industry. “The Big Three”——Binance， OKEx， and Huobi——begin dealing with you. Binance and OKEx adopted the franchise model, while Huobi started the so called “eco-dividends.” Did you ever think it would become like what it is today?
Jian Zhang: Yes I think this is the regression of exchange centers to Bitcoin, and also to the spirit of blockchain. I am doing this to pay my tribute to Satoshi Nakamoto. I thank him for the beginning of this new era.
Fred: What is your next plan? Do you have the nuclear launch code in your hands? According to your previous interview, you mentioned that full transparency is just the starting point of the FCoin evolution. You will improve the clearing and settlement system of cryptocurrency exchanges based on the Zipper’s cross-chain technology. In the end, you will transform all exchanges into a “Token+Blockchain” architecture. Could you please tell us whether you have a specific timetable in mind?
Jian Zhang: Many people think we are going to disrupt exchange centers, because I used to be involved with them. This is a wrong perception. Our original intent was to practice the token economy. Exchange center is a scenario which I am most familiar with, and it’s also the place where we can fundamentally practice the token economy. I wish to complete by the first half of next year the restructuring the exchange center into the token+blockchain model. We already reformed the system, so the technical evolution will be much easier.
This year we will release another product that utilizes the token economy – Flnsur. we will use it to innovate the insurance industry. This is the first time I’m disclosing this agenda. As the program’s adviser, I designed this whole economic model, and soon we will begin financing and it be put into operation.
We’ve been planning Finsur.com for a long time and we will release it soon.
Fred: Many people think that the model of FCoin is very simple, that it is just a price war, like the subsidy war that happened in Chinese internet industry before.
Generally speaking, an industry that utilizes a price war to win the market is not likely to have any technical barrier. Changpeng Zhao said that there is no barrier for FCoin’s mode and everyone can do it. He said so, and he did call on everyone to do it.
I notice that dozens of exchanges have claimed to adopt the “Trans-Fee Mining” model. It seems that these exchanges just want to use this concept to get funding in the primary market. However, there are already a small number of copycats trying the “Trans-Fee Mining” model. I consulted my friends in the cryptocurrency industry. They said that many exchanges cannot execute the transactions when their platforms access the API. What is the cause of the problem? Could you please kindly explain this right now?
Jian Zhang: Actually the barrier is very obvious. Our product is far from reaching its best point since we have been online for only half a month, yet we’ve supported such huge number of global transactions and orders already. Even top-notch exchange centers may not have such technical capacity. Not to mention we have huge number of new entries each day. Therefore, it’s fair to say that there is a very high threshold for exchange centers to accommodate gigantic number of transactions.
Fred: Recently, a large number of exchanges are opening their business, like the so-called of Great Campaign with One Hundred Regiments happened in Chinese group-buying market. What do you think the core competitiveness of an exchange is? For the new entrants, what are the barriers?
Jian Zhang: 1. Technology, gigantic number of transactions 2. Trust, which is the corner stone of our launch 3. Mechanism, and an in-depth understanding of tokenomics. Our model is almost not replicable.
Fred: The FT economy system is designed very well. In addition, there are no obvious problems in data concurrency, security, and asset transparency, at least for now. I am very surprised to know the completion of FCoin's products. Both the user experience and the UI design are clearly ahead of most of the exchanges. I heard that some top cryptocurrency exchanges are learning from your UI. Could you please introduce your team? How long did it take from the approval of the FCoin project to the final operation?
Jian Zhang: It took us around half a year to bring our product online. Most of the times we were actually consolidating our inner strength on the underlying structure of the brand-new transaction system. And that’s why we were able to support such a huge number of transactions immediately after we came online. Besides, we boast that we have the best team in UI design. I also personally have the best knowledge of our products, all of which are quite unique to us.
Fred: In your opinion, what are your personal and your team’s advantages and disadvantages? What opportunities and threats are you facing at the moment? Jian Zhang: Our advantages are :1) Technical accumulation and innovation; 2) Deep understanding of tokenomics; 3) Accumulation of community credibility and brand. The drawback is, I am way too exhausted.
The opportunity we had is we stood at the turning point of the reform, and I am not exaggerating. Because we are trying to reform the relationship with tokenomics and blockchain, the future prospect of which is unlimited.
We lack all sorts of people. But our community model has strong momentum, because we are more inclusive. We exist to transform relationships, that’s why we will use a fresh-new community structure to build FCoin. We have just started; the best is around the corner.
I am receiving a lot of threats, all types of badmouthing behind my back. We are growing very rapidly, and so are rumors.
People always say we are going to make a fortune and be on the run or disappear. Bad rumors.
But I never doubted what we are doing is noble and correct, it’s a cause poised to the future.
Fred: As commission discount decreases, someone thinks, many high-frequency traders will gradually withdraw from the market and the price of FT will also drop sharply. To some extent, the biggest beneficiaries, through incentives of dividends or FT offering, are high-frequency traders relative to general investors and platforms. Their withdrawal seems that a round of fund harvesting has been completed at the macro level. Furthermore, if there were many imitators of FCoin operating system, in addition to support plans of several major exchanges, more high-frequency traders would enter the market, which in turn triggers a holistic capital harvesting of the digital currency market. If so, it will damage the overall digital market in the second half of this year. Do you agree with this statement?
Jian Zhang: The quantitative transactions will not withdraw, and more types of transactions will flow in. Currently, the number of transactions in the cryptocurrency exchange are inadequate. There are only a few types of transactions and few institutional investors. We are going to 100% refund the fee by using FT. But it is most likely to take a few years. At that time, not to mention the existing industry, the cryptocurrency ecosystem ecology will be expanded by many times.
Fred: In addition, some extreme voices claim that this round of market decline has a certain relationship with FT. Do you agree? Others believe that a large number of high-frequency traders who have already sold cryptocurrency, and FT's market value of nearly RMB 5 billion, lead to a liquidity black hole. (I noticed that the bankruptcy liquidation of Mt.Gox triggered a total of $1 billion in scale). I don't know if you have heard this before. If you have, what do you think of it?
Jian Zhang: Although many exchanges have their own plans, the entire industry will not be impacted because most of them are going about it at the wrong directions. The reasons for short-term rises or falls are very complicated in a market. It is impossible to be specified by one or two factors. Investment is not simple.
The improvement of liquidity, in the long run, will definitely benefit the cryptocurrency industry. Tokenomics brings a qualitative change of liquidity. Compared with the traditional equity, the most profound change of the token economy is enhancing the cryptocurrency industry’s liquidity. Moreover, it will improve the market issuance mechanism, reduce the cost of collaboration, and eliminate asymmetrical information.
Fred: Your fanatical supporters believe that the innovative FCoin model may continue to attract more users, including even most blockchain investors. At that time, FCoin will eventually have the opportunity to be the first cryptocurrency exchange with tens of millions of users. Do you think this is possible? In other words, have you made such a prediction?
Jian Zhang: Our model is innovative. By implementing the tokenomics, we will develop the production relations, promote the relationship between service providers and users from opposition to unity, and improve the progress of times. Therefore, the future can only be imagined.
I of course imagined the future. And I am extremely optimistic. Actually, I focus on the future market space rather than the market pattern.
Fred: The price of FT rose to $1.25, then fell rapidly, showing an inverted V-shaped trend. The curve is so steep that I bet you might not have expected it in the beginning. Will FT’s market performance disrupt your initial design?
Jian Zhang: We could say we predicted this, or we could say it was not predicted. I always say let’s not predict the short-term trend of the market, because oftentimes you will end up in vain. In the long run, price will fluctuate around value, so value is the core. FCoin has the mission to create value for communities. So that’s why I always remind my colleagues not to care so much about short-term fluctuations, we need to position ourselves towards long-term value. So, it didn’t interrupt my original design.
Fred: You once said that you are very confident in FCoin economic model and will encode it into smart contracts and never change it when FCoin launches its public chain. After a month of fluctuation like a roller coaster, have you ever changed your idea?
Jian Zhang: Yeah, everybody understands the implication of such fluctuation, you know, compared to the early days of Bitcoin.
Why such large fluctuations?
Because it’s a new phenomenon, a new “species”.
People still don’t know how to place a price on it.
I always say at the beginning stage the market will often lack a maturing pricing mechanism.
Now more people are getting to know it, more will understand.
If you look back at history, all new things were not recognized at the beginning. Many were believed to be fraud. Jack Ma was recognized as a fraud when he first promoted the internet in China.
Fred: If we solely took market capitalization into consideration and used circulated market capitalization to backward reason its total market cap, the "market capitalization" of FT has reached RMB 50 billion which ganji.com took 13 years to get , and now FT’s market capitalization has reached more than RMB 35 billion, which is equivalent to the total market cap of BNB and HT. Do you think it is reasonable? In China, there may be fewer than 30 Internet companies with FT’s "market capitalization." With such a high "market capitalization" as starting point, will it affect FCoin's following strategies?
Jian Zhang: Yes, but I just solved this problem. It’s wrong to calculate our market value using coins not issued yet, which can’t be traded, not be part of any dividend distribution. They actually don’t even exist, and how can they be calculated as market value? No one calculate the market value of any cryptocurrency this way. It’s totally different from the non-tradable share from the traditional financial market.
Mining is a fresh-new concept created by blockchain.
You will get to know this once you understand the growth of Bitcoin.
Our “market value” will grow together with the “value” we create in a step-by-step manner.
Fred: The process of bringing a currency onto an exchange center was oftentimes criticized with its high cost prior to the entry-through-voting model. According to a report by Autonomous Research (a FinTech analysis company) in April, Crypto Currency Exchange Center charges about one to three million dollars from tokens, which is 10 times more than traditional exchange centers. Whereas on Nasdaq, application and entry cost for 15 million shares stands only at $55,000.
For clients, without paying a large-sum entry fee or if the client does not have much capital strength, it’s impossible to enter major exchange centers, thus become marginalized in a competitive market. Therefore many clients expect a friendly exchange center. Do you think there is any opportunity of reform in this aspect? What is your current strategy for currency entry?
Jian Zhang: Yes, this is a very good question. The high entry cost is leading to the consequence that some good tokens are squeezed out by bad ones. Our “market value” will grow together with the “value” we create in a step-by-step manner.
Fred: Clients still need to pay heavily even with the voting mechanism. Take Huobi for example, according to the first round of voting of Houbi HADAX between Feb 12 and 28, the top 3 ranking projects had a voting of more than 10 million, costing an actual payment of RMB 47.93 million, 44.39 million and 43.65 million respectively.
Jian Zhang: in which created the scenario of those yelling are making more money than those doing well.
This is a vicious cycle, if it continues it will lead to a big recession of the token economy. Maybe it has already happened.
If in the long run, large number of bad tokens with strong financing capacity get to the exchange center, then eventually we will lose our value, and that will be detrimental to the long-term development of the industry.
Yes, I think there is a big opportunity of reform and innovation.
Our goal is to give liquidity to programs with true value, so that we could inspire a team and a community and form a positive loop.
That’s why we will never impose an entry charge.
We will vigorously explore and promote the positive development of a market mechanism for the token industry.
Fred: Any form of dividends has a huge global compliance risk. The type of cryptocurrency represented by FT has characteristics of dividends, voting rights, etc. But dividends are the basic attributes of securities. The possibility of FT being recognized as securities will be great by regulatory agencies. In my opinion, the uncertain supervision policy is a risk to be reckoned with by FCoin. If FT is identified as securities, it needs to face challenges of licensing supervision and pre-approval in accordance with existing regulatory laws and regulations. In this regard, have you prepared yourself enough?
Jian Zhang: Lower the threshold, but have in place a strict disclosure system, and protect the interest of the public. We will later release specific strategies.
There are currently two types of platform coins: one is credit points and the other is stocks. Ours is more similar to the latter. Beyond any doubt it has dividend sharing, and profit, and voting rights, etc. But I don’t think it’s the stocks of our time, it’s stocks of the future. It doesn’t make any sense for us to regulate something in the future with existing laws and rules. So that’s why we call it token instead of stocks.
That’s why I am not a fan of regulating the future with today’s regulatory system. It’s a new stock representative format totally different from the old system. In the meantime, I also hope we can step up with new regulatory rules.
I think the future of regulation is public, community-based regulation. Traditional listed companies can’t be regulated by ordinary shareholders, because you can’t break into their offices and check their inventory or verify if their assets are still there. But at the digital exchange center all assets are visible. That’s why I believe the trend in the future is to have a public, autonomous regulation.
There are some theoretical conversations, but real discussion will take place in the future.
Fred: On June 21, you told Babite, “we are at a turning point, trying to progress from old world to a new world. The new world must have a new set of regulatory rules, rather than using traditional financial rules.” What kind of attitudes future institutional supervisions should take is something you have been pondering over recently to greet the tide of asset digitalization. In Mars Finance's program “10 Questions with Fred Wang,” could you share some in-depth insights on supervision with us?
Jian Zhang: It’s very difficult to predict short term changes. But in the long run, from a global perspective, whoever has the guts and wisdom to build a new regulatory system for digital asset will definitely gain a competitive edge in the next round of competition.
The key is we cannot use old financial regulatory rules or policies. It’s already very complicated, it won’t work if we add digital and crypto currency into the system.
I’m not referring to any specific person or organization, I’m only expressing my personal views.
Fred: Security issue has always been the sword of Damocles hanging over cryptocurrency exchanges. According to rough statistics, one million BTC have been stolen in total. In 2014, Mt. Gox went bankrupt. Recently, Bithumb was hacked with loss of $32 million BTC. All of these precedents have triggered the "black swan" phenomenon in the cryptocurrency market. As a technical expert, what do you think are the reasons for Security vulnerabilities of exchanges?
Jian Zhang: Firstly, the biggest difference between this form of digital currency and most of the assets is the fully digital form of storage. It therefore can be easily hacked and stolen.
Before the emergence of digital currency, hackers focused on stealing information. Assets were difficult to be directly stolen because many assets are centralized and offline. However, after the emergence of digital currency, once the private keys were stolen, your assets are most likely to be lost. This is determined by the nature of digital assets.
Secondly, the professionalism of a large number of exchanges is extremely not good. The nature of the cryptocurrency exchanges is “Internet + Finance”. It is necessary to have the speed of the internet, but also to be rigorous and professional in finance and have a profound understanding of blockchain assets. In fact, the threshold is extremely high.
Although FCoin emphasizes its decentralization on paper, I think that it is just a decentralization of operating model from the current point of view. If we look at products, FCoin, Binance, Huobi pro, OKEx and other exchanges are all centralized platforms. Supposed that there is a well-prepared DDoS attack, it will make everyone crazy. According to CoinMarketCap, there are 11214 cryptocurrency exchanges globally by June 15, 2018. A senior security expert in China told me that there is basically no overall security protection for these exchanges. The transaction system has not undergone security auditing and lacks security hardening. Since you have ever worked for two exchanges, could you tell us whether the security state is exactly the one mentioned above?
FCoin is systematically decentralized, and technically, it will take some time. As mentioned above, the cyrptocurrency exchanges hold a large number of user assets and its business logic is very complicated. However, due to the lack of supervision, many immature teams are brought into the market just because they think the industry is profitable. Therefore the probability of problems is extremely high. There is such an accident. It just means that many people misunderstand the exchanges.
Fred: Someone thinks that exchanges’ frequently-occurred security vulnerabilities stem from the chaotic internal management. Do you agree with it? FCoin adopts the mode of asset transparency, wallet address is open and revenue of FCoin is displayed in real time. Compared with other centralized exchanges, FCoin faces greater challenges. The larger the trading volume is, the greater the potential security risks are. I believe that FCoin has already aroused hackers’ attention. What would you do?
Jian Zhang: I have experienced too many security incidents and I know that the system security is important for the exchange. Here, I would like to talk about my ideas. Firstly, the exchanges should have rigorous security protocols. A vulnerability always occurs in the confusion of process. However, many exchanges do not have the concept of financial preciseness. They just hope to develop as soon as possible. Secondly, it is necessary to have a profound understanding of digital assets, including wallet structure design, audit framework, and the construction of various rigorous systems. It requires the accumulation of experience. Unfortunately, many practitioners do not have such experience. FCoin hopes to pay much attention to the system security rather than the speed of development.
Fred: Interestingly, both Binance and FCoin were founded by entrepreneurs who are formerly CTO of cryptocurrency exchanges and both of them attached great importance to operational innovation. The rapid rise of Binance last year was also due to its introduction of fee refunds and incentives for existing users to introduce new users. Binance is the first to be popular among high-frequency traders. In this round of exchange wars, confrontations between Binance and FCoin seem to be more direct. What do you think of Changpeng Zhao and his Binance? What are the similarities and differences between you and Changpeng Zhao?
Jian Zhang: As I said in my WeChat Moment, I very much admire Changpeng Zhao, and I really mean it.
But I recently saw his interview and I think it’s great. I think his logic is very clear, and he always gets to the points and has very good judgment.
So Binance’s achievement today is not a coincidence.
Were I still in the old box, I wouldn’t be that hard to challenge.
But now I’m in a different box, with a different agenda and approach. I’m building a new community structure, it’s quite different from a company pursuing profit.
On the surface we are both doing exchange centers, but we are actually doing different things. He is doing a company, working for commercial gains. I am trying to build a community, with the purpose to gain community benefit. We have different goals, and of course different approaches.
Fred: Changpeng Zhao sent a Tweet attacking on your “transaction is mining” model. The following afternoon, FCoin accepted BNB, where BNB’s trading volume even surpassed that of Binance’s. There are many people believing it is your marketing strategy. Can you disclose the process how you make decisions to accept BNB? Why are you so skilled at business strategy?
Jian Zhang: I could understand why he dissed us on Weibo, because in his eyes it’s business competition, he fights back when he feels challenged.
In my view the community approach is fundamentally different. Our approach is that we are all members of a community, we are all part of a eco-system. We share the mission to strengthen the community and guard the profit of all members. So “inclusiveness” is a principle I abide by, we will never regard anyone as our competitor.
What I truly want to see is a flourishing crypto economy.
BNB is a top-ranking token if you look at its BNB.
Fred: FCoin exchange listed five new tokens: BTM, ICX, ZIP, OMG, and ZIL. All of them are related to FCoi‘s investment institutions. Therefore, someone on the Internet said that you have already controlled every step from projects to exchanges, which may seem like a conflict of interest. Does it have any misunderstandings with you?
From projects, to incubators, to investment, is it a closed loop of ecosystem created by FCoin? What is your view on FCoin’s ecosystem? Jian Zhang: This is such a big misunderstanding. The token industry is so small that you can work out a drawing like that for any organizations in the industry. We are all connected to some extent. You can try it on a big organization if you don’t trust what I say here. So after all what we need to do is to positively develop the industry and expand its scale. …Instead of competing for market inventories.
The answer to this drawing is, we have a small token circle urgently needed to be expanded.
Project incubation, project investment to project transaction, is it an ecological closed loop that you want to build? What is exactly your FCoin ecological plan?
Jian Zhang: The FCoin eco-system I envisioned is one that is autonomous, open, transparent and belongs to the public. FCoin should not belong to me, it’s designed for the community, which is the core of its design philosophy. So, I will try my best to achieve this target. I will never build any closed-loop ecosystems, because those truly lively ecosystems are open, sharing and win-win ones, and this is also the spirit of blockchain.
My other purpose is to justify and guard the credibility of blockchain, because many people doubt the significance of blockchain and view it as useless.
I want to create an organization that may exist also in the traditional world but definitely more efficient with the help of blockchain. This is my dream and I will use this organization to push our industry forward. FCoin was established based on this vision. Apart from FCoin, i will also use tokenomics to engage with more programs, not necessarily make a lot of money, but to inspire others and usher in the bigger wave of tokenomics. I am willing to turn the page and I hope this can be witnessed by many.
Fred: You have cooperated with Lin Li of Huobi pro for more than a year. Could you share with us the way that you worked together? Do you still have a good relationship with each other? Could you tell me about your experiences before your entering Huobi pro?
Jian Zhang: Lin Li and I become good friends after brief contact and we immediately decided to cooperate at that time. We work together and understand each other. We experienced a lot. I really miss the period of time.
Lin Li is a natural entrepreneur and have the personality that entrepreneurs need. This is the reason why he is successful.
We do not have much contact after I left Huobi. Lin Li is very busy because Huobi is growing rapidly. I respect him very much. I think we should work together to achieve the ideal of blockchain and cryptocurrency industry.
Before working in Huobi, I was an entrepreneur. Sometimes, I am also an investor. I entered the cryptocurrency industry in 2013 and got a fresh lease on life. I would like to say thank you to Nakamoto Satoshi!
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