Show notes
From blockchains to mooncakes, two Chinese crypto founders on the ICO and bitcoin exchanges ban Qtum NEOPrevious episodes mentioned in the podcast
Interview with Smith & Crown Interview with Bobby LeeTranscript
Laura Shin:
Hi, everyone. Welcome to Unchained, the podcast where we hear from innovators, pioneers, and thought leaders in the world of blockchain and cryptocurrency. I’m your host, Laura Shin, a senior editor at covering all things crypto. If you’ve been enjoying this podcast, please help get the word out about the show. Share it on Facebook, Twitter, or on your secret Slack and Telegram channels, and if you have a chance give this show a rating or review on iTunes, or wherever you listen to your podcasts and don’t forget, you can always tweet at me to let me know who you’d like to hear from in a future episode. My Twitter handle is @laurashin.
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The topic of today’s’ episode is whatever is going on with tokens in China. My guests today both lead Chinese projects that have held ICOs. Welcome to Da Hongfei, co-founder of NEO, formerly Antshares, and Patrick Dai, founder of Qtum and chairman of the Qtum Foundation.
Da Hongfei:
Hello, Laura.
Patrick Dai:
Hello.
Laura Shin:
So, before we dive into the main topic let’s hear a little bit about your backgrounds. Hongfei, let’s start with you. How did you get into crypto and come to launch NEO?
Da Hongfei:
Okay. I came across bitcoin in 2011, so that’s almost the same with everybody else, and I started working full time in the crypto industry in 2013, and then at that time we have a club called Bit Angels Club, there are seven of us funded this club. At that we spin off a project called Antshares, so that’s…basically, NEO is the rename of Antshares, so we started in 2014 to develop Antshares as a platform to issue digital assets and then we add in the digital assets. We add in smart contract to the end shares and this year we rebranded it to the new name, NEO.
Laura Shin:
Okay, and Patrick how did you get started in this space and come to launch Qtum?
Patrick Dai:
Yeah. Okay. Hello, everyone. Hi, Laura. Yeah, so my name is Patrick. I’m from the Qtum Foundation, founder of the Qtum Project. I involved into bitcoin industry since 2012 when I was still prepare my masters degree and PhD degree in the CES, one of the best tech knowledge university in China, so I joined in the industry since 2012, and then I dropped out of my PhD when it’s 2015 and I worked for Alibaba for six months, and then I left Alibaba and I started the Qtum project at the March 2016. Yeah, so right now the Qtum is ready, so we made that a few days ago, and as a project, it’s growing pretty…very big right now. Yeah.
Laura Shin:
Oh, congrats. Congrats. Although it’s kind of a crazy time, I imagine, for you. So, let’s talk a little bit about your ICOs. Hongfei, when you were Antshares you had two ICOs about a year ago and raised about four million. Is that correct?
Da Hongfei:
Yeah, correct. Yeah.
Laura Shin:
I say an interview that you did with…or that someone on your team did with Smith & Crown, and they actually…the CEO Brian Leo, and the researcher Matt Chwierut, they were on the podcast a little while back, but in the interview the people on your team said that they felt that western investors were more focused on the technology and they read the white papers closely, but that a lot of the Chinese were more speculators and they tended not to read the white papers as closely, so I just wanted to hear from you, overall, how would you characterize the Chinese people who have been investing in ICOs and how have you seen that change over time?
Da Hongfei:
Yes, that statement is true, and things is getting worse. In the past few weeks, there are like 10 ICOs every week. A lot of people that don’t understand bitcoin, they don’t know what bitcoin is, they’re just coming and want to make quick money, and where the situation gets worse, the old ladies are investing their retirement savings, the government is stepping and stopped all the ICO in China.
Laura Shin:
So, they were participating in the ICOs themselves, like buying ether and then sending ether to the smart contract and receiving tokens?
Da Hongfei:
Actually, there are many platforms, ICO platforms, in China so they help you to deal with the technical issues, so you don’t need to be tech-savvy to do all the things.
Laura Shin:
Okay. Okay, but the concern was that people who didn’t know what they were doing were getting into this?
Da Hongfei:
Yes.
Laura Shin:
Okay and then, Patrick, so Qtum raised 16 million dollars in April. For you, what percentage of your investors do you think were Chinese versus non-Chinese?
Patrick Dai:
Yeah, so after the Qtum ICO finished we asked the CEO of our partners, who helped us host the ICO…so from the data we got more than 20 countries, people, participate in the Qtum ICO, so I think maybe 30 or 40 percent of people from the Chinese investor, or the Chinese participator. Yeah, but the other percentage come from US…not US because we block all the US IP from Canada or from UK, or from Europe, or in Japan, Korea, and Russia. Yeah.
Laura Shin:
Oh, wait. You blocked all of those countries?
Patrick Dai:
No, we blocked the US citizens, because we made a clear announcement if you are a US American you cannot participate in our ICO. Yeah.
Laura Shin:
Oh, I see, but it was…so, the participants, you were saying, were from Canada, and Europe, and the UK, and Russia, and Korea, and Japan?
Patrick Dai:
Yeah, Korea, Japan, and China. Not in the US market. Yeah.
Laura Shin:
Okay, and Hongfei, for the NEO…or back when you were Antshares, what percentage of your investors do you think were Chinese versus non-Chinese?
Da Hongfei:
The ICO one, the first ICO, most of them are Chinese investors, and for the ICO 2, the one that finished last year, half of the investments are coming from non-Chinese countries.
Laura Shin:
Okay, so over time how would you say that the atmosphere around ICOs was in China maybe a year or two ago versus now? How has it changed?
Da Hongfei:
I think a year ago it’s still very limited, because the general public they don’t know what an ICO is, and people attending, joining, ICOs they need to have some technical background, but these days everybody is talking ICO because lots of them made money from ICOs, so the general public are investing their money.
Laura Shin:
And how do you think that change happened, like it started with, you were saying, tech-savvy people? Was it kind of like coders who were buying this initially, and then how did it spread?
Da Hongfei:
It isn’t necessary to be a coder, they just…those are people that are fascinated by the new technologies. They love to try new things. They love to support new things, but these days most of them are speculators.
Laura Shin:
Okay.
Da Hongfei:
And there are many ICO projects. I think their goal is pointless. They’re just here to make money. They’re not trying to build something. \
Laura Shin:
Okay and so what are some of the, maybe, inflection points or milestones where you feel like you saw that shift happen?
Da Hongfei:
I think it starts in 2017.
Patrick Dai:
Yeah. I mean, the shift point or the change point happened three months ago. Yeah, after some project that had been pumped so high. I think that because of the influence of maybe the UCM price they jumped to 40 times higher since March to May. Yeah, the price went up 40 times, so after the people saw the price went up 40 times all the people, I think…not all in China. All the people in the world they become crazy. Yeah.
Da Hongfei:
I think the shift started slowly from 2017 and…
Patrick Dai:
Yeah.
Da Hongfei:
Yeah, I think the reason is people are making money. The organization that started ICO are making money, the people invested in ICO are making money. It looks like everybody is gaining something, so it looks like it’s a very good opportunity to make some profit, so everybody is very excited, and they just made up a lot of ICO projects.
Laura Shin:
Does this parallel any other kind of bubble or…I don’t know if bubble is really the word, but any behavior in China that you’ve seen in the past?
Da Hongfei:
I think the ICO bubble is not just a Chinese thing, it’s a global phenomenon. Yeah.
Laura Shin:
I had read about previous bubbles in China that involved things like tea and types of wood, and even the stock market, that was a couple of years ago. Is this something that you feel like is maybe even culturally specific in a way? I agree with you that there is a bubble, obviously, and I agree with you it’s the same US with a lot of projects that shouldn’t be trying to raise money are just because it’s easy to do so, but I also feel like I’ve read that China, in particular, has some kind of culture around speculation that often leads to these types of bubbles.
Da Hongfei:
Yes, I think the Chinese…because in China there are really very limited investment opportunities, so people…you know the Chinese way is deprivation slowly, so people want to preserve their value, but they have very limited investment channels. The money can only stay in China. You can’t invest in global market, so if they see some opportunity they go ahead.
Laura Shin:
Something else that I was wondering about is when you guys were constructing your ICOs what were the laws in China that you had to be aware of to make sure that your offerings wouldn’t land you in jail?
Patrick Dai:
Okay, for the question which of the law area we needed to aware before we do the ICO?
Laura Shin:
Yeah. I’m assuming a securities regulation is probably one. I don’t know what else.
Patrick Dai:
Oh, okay. I think earlier in China all the ICO area it’s just an unclear and grey area because we don’t have very clear regulations in that area, so for Qtum we sort of maybe felt that Chinese government may have some regulations, so when we started the Qtum project we release our foundation in Singapore, but we do have a small office in Shanghai, but yeah. We have the…I mean, originally, we come from China, but then we were thinking…from the very beginning we know okay, in the future maybe the Chinese government may do some regulations, so we choose to release the Qtum project legally in Singapore, and we have a very pretty global team from nine countries. Yeah, but in China, I think in the ICO area there is a field department that they taking charge like there’s a Central Bank, and there’s the Chinese Security Committee…or Chinese Security Regulatory Committee, and maybe sometimes there’s insurance like a Department of _____00:12:52.
They both can take charge of the ICO area, but as a main regulator it should be the Central Bank and also the Chinese Security Regulatory Committee, they are the main role to taking charge of the ICO regulation, but until right now we do not have a very clear law or any legal regulations definition around the ICO, but it’s just like the regulators they saw the big risk right now, so they wanted the market just to be come down. They wanted the market to not go too crazy. Yeah. They wanted to stop it right now.
Laura Shin:
Another thing I wanted to ask about is just how you guys first started hearing that the People’s Bank of China or PBoC might ban ICOs. Did you first hear rumors or how did that all start for you?
Patrick Dai:
Yeah. Okay, I will answer it first. Maybe then Hongfei can answer this. Yeah. Yeah, in truth we were keep talking to the regulator even before the regulation come out. Yeah, so we know it’s kind of like you feel…in China, you can feel some bubble is happening one month ago like everyone wanted to start an ICO project. Like Hongfei said, most of the ICO project is just meaningless. It’s pointless. It’s just some guy oh, I want to make money, so I think I’ll do an ICO. This of course…they already forge the initial idea of the ICO. The initial idea of the ICO is okay, I have a good idea. I want to build an open source project and no business model. Okay, I need a community to support me, to donate me some money. I think that’s the initial idea since 2013 in the cryptocurrency industry, but this year kind of something crazy happened so I think the government they realized that it’s a big risk in China right now.
Also, the ICO platform, Hongfei just mentioned, in China, we have maybe 65 ICO platforms. They help you to do the investment into the ICO. It’s kind of like that broker of the traditional stock market. It’s kind of like lower the barrier for the average people no matter you know bitcoin, blockchain, or not you can participate…you can invest. Yeah, so that’s a big risk for the regulators. I think that’s the reason why the government, they made the regulation…they announced it a few weeks ago. Yeah.
Laura Shin:
And when you say that there are these ridiculous projects and it’s just some random person who just decides to raise money with a cryptocurrency, but they don’t have any real project or idea what are some examples of some of the, really, crazy ICOs that you’ve seen or heard of recently.
Patrick Dai:
Yeah. You know, initially the ICO is some way to…you can use your money to fund some opensource project, some talented developer, especially in the blockchain industry, but the last few months a lot of people come from the traditional business, like okay, because I saw a project. Okay, they are a mooncake. It’s like a mooncake company. Okay, I want to release an ICO. I want us to sell my Mooncake. Yeah, so it’s kind of funny, because…yeah, they want to do this kind of ICO to use case for the regulations earlier. Yeah, so that’s something I think as a government they realized oh, it’s become crazy right now. We need to stop it. Yeah. That’s just one of the examples. There are lot of similar examples. Yeah.
Laura Shin:
Well. What are some of the others? That is hilarious. What are some of the others?
Da Hongfei:
Patrick Dai:
Yeah, there’s some others like there is some project…I mean, okay, blockchain is a very big innovation for the whole society, for the whole internet but you cannot use blockchain everywhere, it’s impossible, Yeah, but since blockchain is a very hot topic right now all the people come from the traditional industry, no matter what they are doing they want to build some connection or a relationship with these blockchains, so they are just selling the blockchain concept to the average people, because the blockchain is harder for people to understand. It’s like the AI, it’s the internet or other things. It’s some big concept, so the people they saw the opportunity, like just okay, I’m doing blockchain business. Okay, give me your money. This is something like this. Yeah, so you cannot make money from a concept you need to have real product, but then people realize oh, I can sell blockchain concept and I can get money, then people will change their initial idea.
A lot of projects they over raised. I mean, some projects they raised 20 hundred million dollars in ICO, some projects they raised 50 million dollars. I mean, for a startup why you need that much money. Yeah, you don’t even have a prototype. Yeah, that’s still some real project. Then it became like a very, very…how can I call that. It’s a very normal project or even some fake project they wanted to raise money because they say oh, I have some connection with blockchain, then you can give me your money because blockchain is the trend of the new worlds, yeah, so something crazy. People already forgot what they are doing. Yeah.
Laura Shin:
Well. Wait, but I just am so curious, so aside from mooncakes are there any other really ridiculous traditional industries that said that they were going to have an ICO. The mooncake one is so funny. I love it, but I was just wondering if there’s another?
Patrick Dai:
Yeah, there’s maybe some superstar in China they wanted to release some coin to sell their income in the next five year or 10 year. Oh, I can release a superstar coin.
Laura Shin:
Oh wow. That is, I think, a security. At least in the US, it would be.
Patrick Dai:
Yeah, it’s kind of a security, and there’s some traditional investors they join the industry. They become the wiser. I can feel there’s a trend like one month ago. A lot of angel investors they jumped into the ICO industry because the reason is they invested into a lot of startup companies, but it’s very hard for only the startup they invest either to go to NASDAQ or go to the Chinese stock market because it’s very…only one percent of the startup they have the chance to go to NASDAQ, so then that means most of the angel investments will fail, so they wanted to cash out, so how can they cash out?
Okay, they ask the company they invest either to go through the ICO then the angel investors they can cash out. Yeah, that’s something that happened in the last four months or two months. Yeah, and I think…because it’s like an…it’s some private company and you cannot sell the shares easily in China, but people they figure out oh, I can do this in ICO ways, so I can sell my chares. Yeah, but it’s not permitted in China. You cannot do this even today with government regulation. You cannot sell your shares easily in China. I mean the private company shares.
Laura Shin:
Okay. Yeah, this is, again, not that different from what the perception of that behavior would be in the US. Now, out of curiosity, once the ban was put in place what was the reaction to that? It sounds like you guys think it was pretty sensible. What was the broader reaction from the public?
Da Hongfei:
I think most people think it’s a good thing to stop all the scam projects, but they still feel it is too strict. It may kill some good projects too.
Laura Shin:
And Patrick?
Patrick Dai:
Yeah, I think the public they have some reaction for sure. Yeah, I agree with Hongfei, but still, there’s some good projects in China. They think okay, this ICO strict regulation may kill some innovations in China in the blockchain area. Yeah.
Laura Shin:
Okay. So, there’s so much more to discuss but we’re going to take a break. We’re going to come back and talk about scams. We’re going to talk about refunding investors, the closing of the bitcoin exchanges and some rumors we’re hearing, but first I’d like to take a quick break to tell you about our fabulous sponsor OnRamp.
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So, let’s talk about refunding investors because that is something that kind of really piqued my curiosity. You described a lot of really interesting situations where I would imagine it would be pretty complex. Are you guys doing that, and if so, how do you even do that?
Da Hongfei:
Yeah, we offered a…actually my end shares ICO, the second one in 2016, is refundable before the mandate is launched, so after we…from the period after we finished the ICO, and before the mandate launched investors or participants, can ask for a refund, a full refund. We received about 15 requests and refunded 50 bitcoins at that time, and when the ICO ban came out a few weeks ago we decided to extend that period, so until October 17 the participants in both ICOs can still refund…ask for a refund and they will get their bitcoin back, but they have to send back the new token, so that’s the way we do it. Yeah.
Laura Shin:
And so, you did it. You already had all their email addresses? Is that how you’re doing these refunds?
Da Hongfei:
No. I’m asking them to send us an email at [email protected] and we will give them an address, a NEO address. They send back the NEO and we will refund them with bitcoin.
Laura Shin:
Okay, and how can you be certain that they didn’t just buy on a secondary market?
Da Hongfei:
Okay, so we will need them to sign the message. They have a private key. For the ICO 1 they have an account, so we have their email address. For ICO 2 the user will have a private key.
Laura Shin:
Oh, I see. Okay, so they have to send it to you from that account.
Da Hongfei:
Yeah.
Laura Shin:
Okay, but what if they’ve already sold their NEO then what happens?
Da Hongfei:
Yeah. Actually, I don’t care where you get the NEO if you invested one bitcoin and get, let me say, 1,000 NEO if there is such record you just send back 1,000 NEO. We won’t check if it is the original NEO.
Laura Shin:
Oh, I see.
Da Hongfei:
Yeah.
Laura Shin:
Okay, so you had already planned that, but for all the ICOs that haven’t planned that…or hadn’t, how are they doing the refunds?
Da Hongfei:
I think they just refunded…some of the ICOs they finished their money raising…fundraising period but they haven’t issued their token, so they just refunded all the money to the user.
Laura Shin:
Oh, okay.
Da Hongfei:
Yeah.
Laura Shin:
Oh. Okay, so sometimes…I haven’t participated in ICOs, so sometimes you send them money but then you don’t get the token until later?
Da Hongfei:
Yes. Yeah.
Patrick Dai:
Yeah.
Da Hongfei:
For that situation, they just send back the money, send back the ether, or bitcoin.
Laura Shin:
Okay, but then what about other situations where the tokens were already trading?
Da Hongfei:
Yeah, NEO is already trading so we offered a refund option, but until now I haven’t seen a request for a refund because it’s more profitable to sell them in the market than get a refund.
Laura Shin:
Oh, really? You haven’t seen…oh, but it’s voluntary so it’s not like…
Da Hongfei:
Yeah, it’s not compulsory.
Laura Shin:
Oh, I see.
Da Hongfei:
Yeah.
Laura Shin:
Oh, interesting. Okay and not a single person has requested a refund?
Da Hongfei:
Yeah. People are not silly.
Laura Shin:
Okay. Yeah, I guess it’s not as complex a process as I imagined. One other thing I wanted to ask about was we were talking about the silly projects that are not blockchain related at all that were trying to hold ICOs, and I saw this one report that said that PBoC claimed that 90 percent of all the ICOs in China were fraudulent. Do you think that’s true, and if so, what examples do you have of that?
Da Hongfei:
Mooncake ICO is a good example.
Laura Shin:
Okay, why was that fraudulent?
Da Hongfei:
I’m not sure what is the exact words they used. I read the statement but I’m not sure if they used the word fraudulent.
Laura Shin:
But the way that works was something like let’s say I am a mooncake bakery…or a mooncake company, and I say okay, I’m going to issue these tokens and then you can redeem them for mooncakes. Is that what the structure of this was?
Patrick Dai:
Yeah. Yeah, that’s how it worked in the white paper.
Laura Shin:
But why would that be fraudulent? I mean, it just seems like a stupid reason for a token, but I don’t know if it’s…
Da Hongfei:
Yeah, I think that it’s based on that many of the projects they don’t even have a technical person at first. When they started ICOs all they have is idea, and after they get money, they may start to hire some real technical person to do that job and they may not.
Laura Shin:
Oh, I see. They’re just marketing hey, we’re going to have an ICO, but they don’t even have any.
Da Hongfei:
Yeah.
Laura Shin:
Oh wow. Okay.
Da Hongfei:
Yeah, they don’t have any concrete architecture for the product.
Laura Shin:
Meaning that it sort of felt like they were just going to take their bitcoins and ether and then not even issue tokens?
Da Hongfei:
I think they were issuing tokens, but their real intention is not to build the product, their real intention is to get the token, the bitcoin or ether from the ICO and spend a small portion of it to deliver a so-called product and they can keep most of the money.
Laura Shin:
Oh wow.
Patrick Dai:
Yeah.
Laura Shin:
Okay.
Patrick Dai:
The token is useless sometimes.
Laura Shin:
Did the regulators contact those issuers and…I’m not sure what you would…what they would do exactly but bring some kind of regulatory action against them. Do you know of any particular ICOs where the regulators came in and said hey, you’re violating this or that law?
Da Hongfei:
I’m not sure. I haven’t been contacted by the regulators. Yeah. So, Patrick?
Patrick Dai:
Yeah. In China why the PBoC they say 90 percent of the project is a scam or a very project is because, okay…because I read some news. In China, we have some ICO project. The ICO it’s just a _____00:29:53 for you to raise some money. ICO itself is not a scam but some ICO projects is a scam, so that’s the reason, but in China people, they cannot really…there still is a difference, like most of the public people…most of the people they do not really understand what’s it really. It’s the ICO and there’s an ICO project, you know. They think oh, all ICO is a scam or the ICO itself is a scam. I think it’s a different concept.
Yeah. Another reason why the regulator is so angry was…so strict is because in China we have some bad people, they use the ICO name to do scam stuff like they scammed people. There is a Ponzi scheme in China, maybe like some fake coin or some Ponzi scheme coins, so they used…they say oh, I’m doing the ICO. You give me your money and I will pay you back every month. Yeah. I think maybe there is some Ponzi scheme in China, yeah, in the cryptocurrency world here. It’s like the dark side of the cryptocurrency. They have nothing. They only have a website and they do not have any experience with the blockchain industry, they don’t have any, any experience with the developing the work. They just build a website and it’s usually the Ponzi scheme.
Yeah, so their initial idea is to scam people, but they say oh, I’m doing an ICO. That’s kind of like already devalued is the ICO concept in China. When people hear about an ICO they say oh I feel it’s most likely the scam, but that’s a reason is because there’s too many people. They used the ICO concept in China. They kind of make ICO become a bad word in China. Yeah.
Laura Shin:
And for those Ponzi schemes did they raise a lot of money? Were they pretty successful?
Patrick Dai:
I don’t know too much, but from what I hear yeah there are a few Ponzi schemes, I think that they scammed some people, and they raised some money. Yeah, and they also released the coin, but the coin it’s meaningless. You give your RMB to them or give your USD dollar to them and then you get a coin, and then the coin itself is meaningless.
Laura Shin:
Wow. That’s too bad.
Patrick Dai:
Yeah, I think that’s also why the regulators are so angry. Why they made the most strict regulation ICO in China. I think the original target it’s not the good projects in China, their original target is the Ponzi scam in China. Yeah.
Laura Shin:
So then why do you think they made the bans so complete instead of just trying to target the bad actors?
Patrick Dai:
Maybe the reason is the…okay. The good projects also have some risk, but the bad projects are 100 percent totally risk, like no real use case. Yeah, no real use. Yeah, so I think from the regulators point of view it’s like okay, it’s kind of crazy. All the ICO is crazy right now. I think their idea is to…okay, let’s as a community…not as a community. The _____00:33:22 come down and it will stop it right now and then two, let the people think about this.
Laura Shin:
Oh okay. Well, so this actually is the perfect segue to my next question because I also saw a report that said that the ban is only temporary, and I guess someone in China…unfortunately, I didn’t write down the name, but somebody with some authority who said that he thought that it was going to be temporary while the lawmakers hashed out the regulations. Again, all of this is just conjecture, but he also said that he thought maybe ICOs would only be allowed if the teams get licenses first. Of course, I think this is all just guesses, but do you think that the ban is temporary, and if so, how long do you think it will last?
Patrick Dai:
I think it’s very hard to predict the government’s attitude, you know, because I think it depends on the publics’ reaction, and it also depends on the regulators themselves. It depends on all the financial environment in China. Yeah, so it’s hard to say it’s temporary or it’s forever. I don’t know the answer. Yeah, but the time will change and then we will see what will happen. Yeah, because if the financial environment becomes in China, I think ICO ban it’s forever, but if the financial environment in China becomes much better in one year or two years maybe the government will change its attitude on ICO or on bitcoin. Yeah.
Laura Shin:
Oh, interesting.
Da Hongfei:
Yeah, my take is according to the words they used I don’t think they intend to be a temporary ban, so don’t expect two months or three weeks later they declare licensing some ICO. I don’t think so.
Patrick Dai:
Yeah, I don’t think so too. Yeah, maybe no licensing forever. No ICO forever. It’s possible, yeah.
Da Hongfei:
Yeah, but I want to clarify one thing, is that the China government only banned raising money from general public. They did not ban raising money privately, so you can still do a token raising in China as long as you do not pitch to the general public and there are no more than 200 investors in the project, and you do not promise a return of profit, so that will be fine. That will be okay, still perfectly legal.
Laura Shin:
And do you know if some of the teams that were planning to do ICOs are they planning to do it that way now, to fundraise that way now?
Da Hongfei:
I think it’s a very sensitive period, so no team in China will want to do an ICO at this kind of situation, no matter it’s private or public.
Patrick Dai:
Yeah, but I know a team…yeah, earlier they wanted to do a public offering to the public, the ICO, the token, but I think right now after the regulation came out, they wanted to do a private offering to the angel investors, so yeah. I know a team they are trying to do this in China right now. Yeah.
Laura Shin:
Okay, so basically this thing that I read where someone said that the ban is probably temporary you think that’s just a rumor and probably not likely to happen?
Da Hongfei:
I think it’s a rumor.
Patrick Dai:
Yeah, it’s a rumor. Also, there is some misunderstanding. In China, we have different opinions from the government. I mean not form the government. Some people they say the ICO bans are temporary, but then some journalist from some other countries they translate it, but it’s not representative of the government. Yeah, the government always have the same opinion. Yeah, it depends on the governments’ attitude. It depends on the public reaction. It depends on the financial environment.
It’s not a simple ICO in China. I think even this kind of regulation it’s a very high-level officer, very high level…very, very high-level guys, they made this kind of regulation. It’s not just PBoC or just one department in China, it’s seven. Yeah, seven. Like the most influential department in China, they made this announcement. Yeah.
Laura Shin:
Okay, so something else I was curious about was that I read…and granted obviously I don’t speak Chinese, but I read that the language of the ban made some kind of distinction between virtual currencies like Ethereum versus tokens. First of all, is that true and if so, what is that distinction? Because I mean, Ethereum did do an ICO, it’s just long before ICOs were such a big trend, so I kind of am not really sure how they’re distinguishing between what is legal versus what isn’t legal.
Patrick Dai:
I think they’re all illegal.
Laura Shin:
Oh, even ether now?
Patrick Dai:
Yeah, even ether, even bitcoin. The reason is okay, very few people they know the difference, the cryptocurrency, and the token. Personally, I think even Ethereum or even bitcoin it’s just a token. It’s just a simple bit of blockchain nanowork, it’s just a token, but the token I think the regulators they don’t know the clear definition of the token and of the cryptocurrency because in the whole industry we do not have this kind of a clear definition. I mean, even in Silicon Valley or even in any other countries, or any other area no one give a very clear definition on what’s cryptocurrency. What is a token? What is a currency? What is a cryptocurrency? Do definition at all. Yeah, so in China some translation, like okay, they call it a token, but the token have a very wide definition. Even cryptocurrency is a kind of token. Yeah, even bitcoin and Ethereum it’s kind of a token, but the reason…sometimes even the regulators they do not have too much technical background.
Yeah, it’s hard to distinguish. It’s even harder for us to distinguish what’s the difference, even for the experts in this area, in this blockchain area. No one can give a very clear definition, but from the other…from the fuller action, or the fuller move of the PBoC under the regulatory department, like BTC China they shut down the exchange, so that basically means no matter what token you are trading or what cryptocurrency you are trading in your platform you need to delete it in three months. Yeah.
Da Hongfei:
Yeah, actually I have a different opinion with Patrick here. The PBoC document they used two words. One is, in Chinese, is _____00:40:52. You can translate it to token or it also means substitution. It also means substitution in Chinese, so I think it refers to those tokens that mostly are ERC20 tokens. They claim to have their own token, have a specific usage but they issued before their main net is launched, so probably PBoC is using token to refer to those kind of virtual currencies and they also used _____00:41:32, or virtual currencies. I think this word refers to the tokens that had already had their main net and is up and running, so they used the two different words, and I have seen repeatedly in some official media that we need to separate bitcoin, bitcoin exchange and blockchain technology.
The government is encouraging blockchain technology and that’s their stand on blockchain technology, and they also said bitcoin is legal in China, and Chinese citizen can lawfully hold and even trade in person with bitcoin, but bitcoin exchange is not legal at this moment because any centralized exchange should be licensed under the Chinese security law, so all the bitcoin exchanges are centralized exchange in China and actually it’s not legal.
Laura Shin:
I want to pick apart a few of the things that you mentioned, this distinction that you were saying that you saw in the language where they had these different words, so for the token one you thought that that was referring to tokens that had been issued where the main net that had not been launched, and then the other word that referred to any token where they main net has already launched?
Da Hongfei:
Yeah.
Laura Shin:
Oh, interesting. Okay, so…
Da Hongfei:
Let me say it this way. The word token they used referred to those ICOs, the tokens issued by the ICOs, and virtual currency referred to the token that has raised…they used as a finding method, like bitcoin, ether.
Laura Shin:
Oh, interesting.
Da Hongfei:
Yeah.
Laura Shin:
So, then it doesn’t matter if the tokens main net has launched it’s only about what is being issued versus what is being received?
Da Hongfei:
I don’t know. I think there are two kinds of explanations here. Yeah. I’m not sure. I think the regulators they don’t have a very strict definition.
Patrick Dai:
Yeah, that’s true.
Laura Shin:
Okay. Yeah. It is kind of curious, why did they use the two different words and then which category does each token belong to, but actually when you were talking about how you felt like even ether or bitcoin falls in those categories and how those exchanges were banned. I did want to talk about that. So, right now it’s Friday morning in China, and yesterday, here in the US…or not…well, for me it’s the same day. This morning when I woke up I saw the news about bitcoin exchanges, or at least BTCC, Bobby Lee’s Exchange, and Bobby Lee actually also was on the podcast maybe about six months ago, but…so I read that he was closing his exchange and it sounds like you were saying that the regulators were closing them all because even right now, as far as I know, I haven’t seen that confirmed officially.
Da Hongfei:
Yeah, it’s never confirmed officially, yeah, but many media that was linked to the government had repeatedly reported all the exchanges will be closed.
Laura Shin:
Okay, and why…so, why is the government saying that the exchanges have to be closed but that peer to peer exchanges are okay. Sorry. You said this earlier, it’s because they need to be registered first, so it sounds like this will be temporary, that they’ll reopen?
Da Hongfei:
No. I’m saying that centralized exchange is. You need to have a license to set up a centralized exchange and all the bitcoin exchange does not have a license and I don’t think the government were licensing them.
Laura Shin:
Oh, so they all have to close?
Da Hongfei:
Yeah.
Laura Shin:
And there’s o chance of them getting licenses now?
Da Hongfei:
I don’t see that.
Patrick Dai:
No.
Laura Shin:
Okay, so then does that mean that some traditional exchanges will be able to obtain these licenses to trade cryptocurrencies?
Da Hongfei:
No, I don’t think so.
Patrick Dai:
It depends.
Da Hongfei:
I don’t think Shanghai Stock Exchange will do that.
Patrick Dai:
Yeah. Well. The stock exchanges will not do that. I think no one will do this in short term. Maybe in one year, two years no one will do this. Yeah.
Laura Shin:
Okay, and why do you think that they decided to do that, to ban the trading of bitcoin?
Da Hongfei:
There are many reasons. There are anti-money laundering reasons. There are a cap to control reasons, and one statement in the official media is that bitcoin is not…there is no real use case of bitcoin and most of the use case are trading and speculation and sometimes involves criminal activities.
Patrick Dai:
Yeah, I think there are many reasons, yeah.
Laura Shin:
I mean, do you think that the PBoC was right, that that’s what people are doing and nothing else?
Da Hongfei:
I would say most of the activities around bitcoin is trading speculation. That is somehow true, yeah.
Patrick Dai:
Yeah, that’s true. Yeah, but I think they view the…I mean, they take the whole cryptocurrency as a narrow field. You should see the future of the currency, like the future of the money in the world. There’s some people in this area they think okay, maybe by the…in 10 years or 20 years the bitcoin will become the top five currency in the whole world only after USD dollar, RMB, or…yeah. I mean, most of the people in the blockchain area they still believe bitcoin will come…some time in the future will become a global currency. Yeah.
Laura Shin:
Yeah, so what is the reaction to this ban versus the ICO ban, is it pretty much the same or do you think people are even more disappointed or surprised?
Da Hongfei:
Patrick Dai:
People are even more surprised than scared.
Laura Shin:
Oh, scared. Why scared?
Patrick Dai:
Okay, there are some new people, they join the industry this year, maybe just a few months ago, and they all think okay, the bitcoin prices are already going up, so some people they may invest a lot into the bitcoin, and after the…after BTCC China confirmed that they will close the exchange the price just went down 25 percent or even 30 percent of bitcoin price in China, so you can see people are scared, are like bitcoi9n may become useless in the future and I cannot sell my bitcoin in the future anymore, so yeah, it has some worse influences on the ICO banks some of the people, like they still think okay, I can still trade my bitcoin. I just cannot participate in the ICO anymore, but I can still take bitcoin as a long-term investment, but after the BTCC China confirmed that they will close the exchange I think that’s bringing more influence in the society to the public. Yeah.
People are scared, like okay, maybe in the future bitcoin will go back to maybe 500-dollar, 1,000 dollars again. Yeah.
Laura Shin:
And so, for people that own bitcoin in China what are they doing? Are they all now panic selling on BTCC China trying to sell their bitcoins before the exchange closes, or are they holding onto it and saying oh, a year from now, two years from now it’ll still be worth more. I can keep it and I can sell it person to person at that point? How are people reacting?
Da Hongfei:
I think the newcomers they are selling. Yeah, they are panic.
Patrick Dai:
Yeah, different actions. Yeah, people have different reactions.
Da Hongfei:
Yeah, the true believers, the veterans in the crypto world, they are holding their coins and even buying more, buying when others are panicked, but the newcomers they want to make quick money. They want to buy today, maybe sell next week. They find out it’s very difficult to sell maybe in the future, so they decide to sell it.
Laura Shin:
And so, once there is no trading anymore on exchanges the way that people will both buy and sell bitcoin will just be peer to per. Is that going to be something similar to local bitcoins or how will that work?
Da Hongfei:
Yeah, I think so. I think that it will be similar to look at bitcoins. Yeah.
Patrick Dai:
Yeah, the OTC markets, yeah.
Laura Shin:
So, I actually heard that one of the over the counter trading desks closed. Again, there are so many rumors I really don’t know if it’s true. Have you guys heard that, and if so, do you think that that will happen to all the OTC desks?
Patrick Dai:
It’s true. There’s an OTC company…not a company. There’s an OTC application, the name is _____00:51:25, so they closed their OTC yesterday. Two days ago. Yeah.
Laura Shin:
Wow. Okay. What are you guys doing? Are you selling your bitcoins or are you going to keep them?
Da Hongfei:
I’m buying.
Patrick Dai:
I’m keeping all my bitcoins for the long term.
Da Hongfei:
Yeah, I bought some yesterday.
Laura Shin:
I love it. You’re buying more. That’s hilarious. Okay. Well. Something else I was wondering about was in 2013 the PBoC banned financial institutions from using bitcoin. How would you say that this crackdown is different?
Da Hongfei:
Actually, in 2013 they did not forbid the financial institutions to use bitcoin they asked them not to facilitate bitcoin trading, so many of the bank account of exchange is closed, but now they don’t just close the bank accounts they shut down all the exchange, so it was weird, yeah. It’s a harder blow.
Laura Shin:
Okay. Well, so what do you think happens next? If you were going to make some predictions about where cryptocurrency in China is headed what would you say?
Patrick Dai:
Okay, the bitcoin it’s not released by our central government or by any country, it’s a global currency on the internet so it’s harder to ban by one country, well one country, because it’s not released by the government themselves, yeah. I think in the future yeah, it’s going to be harder for the people who want to buy bitcoin in China if all the centralized exchanges like okay BTCC China closed, yeah, but I feel that’s _____00:53:10. I think they already have the plan to go to overseas, to go to other countries, to reopen the exchange platform, but I mean they reopen the exchange platform just coin to coin trading, not fear to money, no army, no dollar involved just the bitcoin to ether, or bitcoin to Qtum, or bitcoin to Neo, so it’s just a coin to coin trading.
In the future I think it maybe become mainstream in other countries, yeah, so I think for the blockchain technology in China, yeah it’s still growing but it will take a longer time and some of the team in China they wanted to move abroad, or they wanted to move to other countries, and yeah, I think the regulations for sure have some side effect over the startups and over the bitcoin or the blockchain related industry in China, but the future I think it’s still bright. Yeah.
Laura Shin:
And what about you guys? How do you plan to proceed with your own projects?
Patrick Dai:
Okay, so Qtum already it’s a pretty global project, but in the last couple of years we focused a lot in China, so right now we may just change our focus to other countries, maybe to US, Korea, or Russia. Yeah, but China is not the highest priority right now. We are moving to the main development in Canada, the focus is on marketing, our energy to other countries, yeah, and we have a plan to open an office in Denver next month. Yeah. In the US, yeah.
Laura Shin:
Oh, that’s really nice. Oh, wow. Yeah, Colorado’s great.
Patrick Dai:
Yeah.
Laura Shin:
And Hongfei, what about NEO?
Da Hongfei:
Yeah, my understanding is the intrinsic reason for the Chinese government to ban ICO and the exchanges is because it is somehow antigovernment, and somehow, it’s anonymous, and anti-censorship, and I believe it is the same in other countries, so even in the United States, so I think global regulation is inevitable. There will be other countries that may step into the ICO or the main exchange, so I think anonymous or anti-censorship blockchains is not the trend for the next few years. I think it’s necessary for the blockchain to be compliant to have digital identities to make the network compatible with current legal system, and we are…at NEO we are drafting a global legal framework for small contracts running on NEO, so if they want to do a token raising they can do it legally in most major countries, so that’s what we are doing, and the same thing is we are going global.
NEO is already quite global because I believe most of the NEO holders are currently not Chinese citizens. Many of them are in the United States, so we will organize events, meetups, conference in different countries. Yeah.
Laura Shin:
Okay. Well. This has been such a fascinating discussion. How can people get in touch with you?
Da Hongfei:
Yeah, my email is [email protected] and I want to add that NEO is hiring, so if you are a developer, if you are a promoter, marketer, please send me an email.
Laura Shin:
And Patrick?
Patrick Dai:
Yeah, so you can contact me through my email or Skype. It’s both the same. My email is [email protected]. That’s the same as the Skype account. Yeah, same like NEO. I think that all of the projects it’s growing fast in blocking area, so we are hiring too. Yeah, we wanted to hire some marketing director in the US, so if you have some strong background, you’re welcome to join the Qtum team. Yeah.
Laura Shin:
Okay, great. Well. Thank you both, so much, for coming on the show.
Da Hongfei:
Thank you, Laura.
Patrick Dai:
Yeah. Okay, thank you, very much. Yeah.
Laura Shin:
Thanks, everyone, for joining us today for today’s episode with Da Hongfei of NEO and Patrick Dai of Qtum. To learn more about them and to find previous episodes of the show with other innovators and thought leaders in the blockchain and crypto space check out my Forbes page, forbes.com/sites/laurashin, and be sure to follow me on Twitter @laurashin. New episodes of Unchained comes out every other Tuesday, so if you haven’t already, subscribe on iTunes or wherever you get your podcasts. If you liked this episode share it with your friends who are looking to learn more about this rapidly involving space and please, rate, review or send me feedback on who you’d like to see interviewed on the show. Unchained is produced by me, Laura Shin, with help from Elaine Zelby, and Fractal Recording. Thanks for listening.
