During the recent Milken Institute conference debate, Alex Mashinsky really stood out as a harsh critic of the traditional banking system, and a strong believer in the future of cryptocurrency. He recently had the ICO for his crypto lending platform Celsius Network, but his involvement in the tech world dates a few decades back. In the 1990s, when Alex invented VoIP (Voice over Internet Protocol), he strongly believed that internet calls through a decentralized protocol could disrupt the business model of phone companies. It is now used by over a billion people across the globe.

Two decades later, he’s certain that the same kind of evolution will happen in the financial system by virtue of cryptocurrency, thus establishing the world of MoIP (Money over IP). A single blockchain-based killer app could usher in a tremendous wave of crypto users. We can all contribute to the dawn of crypto banking with projects like Celsius. The Celsius platform will offer crypto-backed loans, and provide annual interest in the form of CEL tokens for simply using it to store your bitcoin & ether.

Feeling intrigued by these bold promises, I decided to interview Mr. Mashinsky one-on-one, and understand his rationale in a more private context. He was nice enough to have a 40-minute conversation with me on Skype about MoIP (ironic, because Skype is also founded upon VoIP). The following lines are an adapted transcript of the most interesting ideas presented throughout the dialogue.


Vlad: Let’s begin by talking about the Milken Institute conference: would you please do a brief recap of the arguments you presented throughout the 1-hour debate?

Alex Mashinsky: I strongly believe that we find ourselves in the middle of a fight between centralization and decentralization. Now we’re seeing the results of over 500 years of institutional centralization, and there are big gaps and discrepancies in terms of wealth distribution and access to financial services. Cryptocurrency is universal, quick, safe, and a worthy challenger to a system which relies on people trusting incompetent institutions with their money. If you look at Nouriel Roubini, he’s an advocate of this type of centralization, while I’m a fan of decentralization.

Furthermore, let’s not forget that it was Mr. Roubini who wrote extensively about the financial collapse of 2008 and remarkably predicted it two years before it happened.

Vlad: Well, Mr. Roubini seems to be really positive in regards to the FinTech innovations like AI, Internet of Things, and Big Data. How do you think that crypto can remain relevant among other technological leaps?

Alex Mashinsky: Well, crypto can use AI too, and we can have plenty of applications for code-driven decision making. The same goes for Internet of Things and Big Data. I don’t see them in a competitive “one or the other” scenario, and there is enough room to improve one element with features from the others. But fortunately, blockchain enables decentralization, and allows people to become more autonomous in relation to their own finances. Whether or not we’re going to add AI or IoT to the applications, that’s a question for future developments. But banks and FinTech aren’t the only beneficiaries of these technologies.

Vlad: Why are you so certain about the success of cryptocurrency?

Alex Mashinsky: Back in 1994 I wrote the first patent for Voice over IP (VoIP) and then went to phone companies to explain to them that this technology will take over their business. They all laughed at me, and look at us now using Skype, WhatsApp, FaceTime, and other applications of the protocol which makes phone calls useless and costly. Nobody wants to pay fees for an international call anymore, when the internet provides more features at no charge. In the 1990s, almost 90% of phone companies’ profits came from international calls, and today the number is so negligible, it might as well be rounded down to zero.

It’s the same with banks nowadays: you lend them your money and they give you a one percent annual return, but at the same time they also lend your capital for a greedy twenty five percent. The real businesses that succeed are those whose executives wake up every morning and ask themselves “What can we do to offer our customers even more than we already do?”, and that’s how Amazon succeeded to beat giants like Wal-Mart, even though their prices aren’t always cheaper.

At the end of the day, the success of a bank, company or system is decided by the people who finance it. If we just took our money and started buying from another online retailer, even a giant like Amazon could fall. Conversely, if we decided to punish the banks for their practices, we could easily take away their power by not depositing our money in their accounts.

Vlad: Yes, but the power of banks is also tied to their relationship with the government.

Alex Mashinsky: Well, yes but there is no monopoly or exclusivity in relation to a government. All parties that fulfill certain criteria are bound to the same rules and protections. Every financial institution complies with the government’s regulations, and you can even have community funds that receive the same guarantees as big banks. It’s all about legitimizing these organizations and building something that’s commonly acknowledged as a way of conducting banking activities (lending money and depositing your funds).     

What we have to understand here is that crypto is merely the foot soldier and the name of the game is decentralization. The ambitious projects that we’re trying to achieve have a quick and reliable means of monetization, but at the end of the day it’s also about using this acquired economic power to bring important changes to the world.

Vlad: But to you it’s all about building a better alternative to banks?

Alex Mashinsky: If you go back 100 years, you will realize that banks used to be really accountable and trustworthy with their practices. Not only were they charging lower fees for the sake of attracting new clients, but they were constantly doing the best for their existing customers. Likewise, Celsius is all about doing what’s in the members’ best interest. Just think about those small communities that get together and establish common trusted funds, even though they aren’t bankers. They offer each other better return rates and charge lower fees and interest for loans.

Vlad: I also have that in my hometown, but it’s not regarded as being as prestigious as a big bank. A lot of skeptics think that it’s going to fail, so they would rather take their funds to the safer and bigger institution.

Alex Mashinsky: You do know that the government gives the exact same guarantee to that institution, right? The US Central Bank and the EU Central Bank provide the same guarantees for these institutions regardless of their size. Anyway, the point is that we should focus on who benefits and gets all the profit. Are the banks ripping people off with interest rates that are far too high and returns that don’t really justify the deposit?

Vlad: To me it’s also interesting because I noticed that since the rise of cryptocurrency, banks in my country have started to provide similar online interfaces to a Bitcoin wallet, and there’s even a bank called “Banca Transilvania” (The Bank of Transylvania) whose initials are BT and they launched a service that’s called “BT Pay”. It has a similar logo to BitPay and they’re trying to use this move to reduce fees, give more benefits to their customers, and offer no financial incentive to actually move your funds to crypto. A lot of people are scared about cryptocurrency and know about the fees involved, so banks can afford to simply lower these fees to the extent that there no longer is a financial reason to buy Bitcoin. The only reason why someone would buy into crypto would be for total autonomy and privacy over their funds.

Alex Mashinsky: Yes, but with crypto you actually make more money thanks to the perpetual growth we’re seeing and the rising adoption rate.

Vlad: Sure, but even fiat has the same speculative incentive. The Euro seems to be doing quite well as opposed to the US Dollar and the British Pound. Anyway, in my case I’m disillusioned with the practices of banks. About 5 years ago I’ve had a scholarship in Sweden, and my bank didn’t grant me access to any kind of online service to check my balance and fees. When I came back to Romania and asked for a transcript to see my transactions, I noticed that I’ve lost about 100 euro, and to me that amount was about 5 percent of the scholarship I was receiving. It was shocking to me to observe how much foreign transactions between banks can cost; and to crypto it’s universal. You get the same fee no matter where you are on the planet and to whom you’re sending the funds.

Alex Mashinsky: The issue is not that much about fees, but about the quality of service and reliability. Banks can afford zero-cost fees for transactions and still make profits from other charges. Crypto should be regarded as a better store of value where even the biggest companies store about 5 percent of their assets. That’s when the real revolution will begin and people will realize the true potential of cryptocurrency.

Vlad: Let me ask you a more direct question: if you were to be faced right now with Mr. Nouriel Roubini and you wanted to counter one of his points, which one would it be?

Alex Mashinsky: We shouldn’t regard Mr. Roubini as a god. He’s just a professor at NYU, and you know how college professors are. I don’t feel like dismissing any of his opinions or trying to prove him wrong. We come from different backgrounds and have different core values and beliefs.

To me what really matters is inviting people to get into the crypto world in order to join this financial revolution. It perplexes me that people, in spite of all the bad experiences, still put their money into banks. They aren’t transparent, and they have oligopoly-inducing practices that rip you off. Tell me, if you went to the bank right now and asked them to give you a 5% annual return for your deposit, do you think they would keep a straight face?

Vlad: Of course not, they will just send me to another bank to see if they can do me that favor.

Alex Mashinsky: But what if all of us demanded that five percent from the banks? Do you think that we would get it? Because the banks cannot operate without our capital, and 100% of that capital comes from people who voluntarily and willingly put their money there, despite having better alternatives.

Vlad: About that, just a few weeks ago I was thinking that cryptocurrency could replace all the functions of a bank except for that of lending money to other parties. I guess it’s so much easier to follow tradition and go to the bank to get a loan each time you need a large amount of money. But then I saw you debating at the Milken Institute Conference. I found out about Celsius and was amazed that someone found a solution around it. So can you tell me how these crypto loans work?

Alex Mashinsky: They work exactly the same way as in the case of banks. There’s no magic involved, we’ve implemented a cryptocurrency-driven system which follows the same principles you find in a bank, only that you can deposit or lend funds in ways that are more stimulating from a financial perspective. We are fairer, more transparent, and operate on the blockchain.

Vlad: So what’s next for Celsius, do you envision something grander than becoming a crypto bank?

Alex Mashinsky: No, the plan is to constantly grow and get better at what we already do. We hope that our current clients are happy about the service and will spread the word about the services so that we get a snowball effect and prove to the world how powerful cryptocurrency can be. We want to avoid replicating the oligopoly-like practices that we see today. No bank gives you a return that’s bigger than one percent. The fees are similar no matter where you go, and the interest rates are ridiculously high. These are illegal cartel practices that come at the expense of the customers’ satisfaction and financial well-being.

It was their greed that led to the 2008 collapse, and the governments of the world haven’t done anything to serve justice. The banks have been bailed out, and now we’re seeing them act like nothing happened, and there is no lesson that they’ve learned from that situation.

Vlad: Let me ask you something that is a little off-topic – have you seen the latest episode of “Silicon Valley” which aired on Sunday?

Alex Mashinsky: No, I haven’t.

Vlad: Well, they have this revolutionary algorithm which compresses files without quality loss, and then they try to create a decentralized internet with their proprietary technology, and very recently Pied Piper has decided to start an ICO. The idea that’s being portrayed is that they’re a company which has a pure project that tries to be honest, open and efficient, yet in the end of the episode (sorry for the spoiler), they’re not successful and their tokens are pretty much worthless.

Alex Mashinsky: That is the case with many ICOs, there are thousands of them going on at the same time and very few of them actually manage to raise enough money to reach the established capital.

Vlad: Do you see ICOs as the pure and uncompromising way of delivering a product to the world? With this invention, you don’t have to deal with greedy shareholders, corporate board meetings, VCs, CEOs…

Alex Mashinsky: Sooner or later, you have to face the real world: real companies, real employees, real CEOs, and real ways of conducting business. Nobody who does an ICO is exempt from the established hierarchies of our world. Also, I don’t think ICOs should be the only way to get financing for a project. They are great for communities, they are a great way of raising awareness and promoting your concept, but not the ideal means to reach your financial end. You should always seek private investors and try to make partnerships if you want to deliver on your promises.

Nevertheless, we shouldn’t neglect the community-building dimension of the ICO. In order to have a successful project, you need much more than money. You need people to believe in your work, spread the word about it, and then steadily establish a core community which recruits more believers. If your goal is to beat the banks and establish a fairer system, then you need to start up with thousands of enthusiasts, aim for the millions, and keep up the good work until billions of people access your services and trust you with their funds. That’s how any revolution takes place; you need the masses to rise against the establishment and protest against its illegitimate practices by choosing the better alternative.

Vlad: There’s an old Hannah Arendt quote which says that the revolutionaries of today will become conservatives the day after the revolution. How do you think the underlying good intentions of cryptocurrencies can remain pure and untouched even after the technology becomes mainstream?

Alex Mashinsky: That’s pretty far ahead, and the industry still needs a killer app to really bring that mainstream adoption. Right now the interfaces and protocols aren’t friendly enough to appeal to the masses, and that’s one of the reasons why I always draw the comparison with VoIP: today we find ourselves in the same stage that I witnessed in 1994 while working on the communication protocol. I’ve believed in it just as much as I believe in blockchain right now, but it wasn’t until Skype, Google Talk, WhatsApp, FaceTime, and the likes that the technology became so friendly and accessible that we could speak about a grander scale. Also, do you know how VoIP works?

Vlad: No, my degree is actually in political science. I honestly have no idea.

Alex Mashinsky: It’s going to be the same with crypto as the technology evolves and we finally find the killer app to attract everyone. You don’t have to understand the difference between big blocks or small blocks, think that you’re using an off-chain protocol, or even put too much thought into the way your wallet works. It has to be really simple and intuitive so that anyone can use it. And the good intentions can’t be lost if the fundamental function is achieved: Skype and WhatsApp did make millions with the VoIP patent I created, but they had to apply the technology to something friendly and non-technical for the average user.

Remember: crypto is the foot soldier of decentralization and we are in the middle of a battle between centralization and decentralization. Also, we have to understand that unless we all support crypto and want it to be successful, it won’t reach its true potential. Do you think the phone companies wanted VoIP to be successful? Of course not, but why didn’t they win the war? There was nothing that they could do to stop this wave of innovation and the technology basically became the new standard. It’s going to be the same with cryptocurrency and we will all see the results in a few years.