Not a huge amount is known about Binance, the Chinese startup that became the world's largest crypto exchange in just a few months, or the man who created it, Changpeng "CZ" Zhao. In this article, we first provide you with a biography of the Binance CEO, and then through a "virtual interview" ask him questions about how he got into crypto, how Binance got started, the motivation behind it, how it works, why he thinks it's so successful, and plans for its future. The information in the biography and the answers to these questions come not from an actual interview we did with CZ, but from aggregating answers he has given to questions at the few interviews he has given over the past several months to various people in the media. In this way, hopefully, we can give you with a more accurate and complete picture of CZ and the company he has built. Special thanks are owed to Matthew Aaron, the editor and CEO of the "Crypto 101" podcast. The episode of the podcast in which he did a wonderful interview with CZ Zhao is what inspired this article, most of the answers you will see below come from this interview, and I would highly recommend that you check out the excellent "Crypto 101" podcast.
CZ was born in Jiangsu, China, around. Both of his parents were teachers. Sometime in the late 1980s, probably round the time of the protests in Beijing's Thiananmen Square, his family emigrated to Vancouver Canada. After finishing high school, he moved to Montreal to study computer science at McGill University. Upon graduation, he moved to Tokyo to work at a company that was developing software for matching trade orders for the Tokyo Stock Exchange.
He then moved to New York in 2001 to work on software for futures trading at Bloomberg Tradebook, soon getting promoted to Head of Development. During his time here, he managed a team that was responsible for the entire futures trading platform in Bloomberg.
After staying at Bloomberg for four years, in 2005, he moved to Shanghai to become a co-founder of Fusion Systems, a company focused on building ultra-low-latency trading systems for brokers.
Then, in 2013, after learning about Bitcoin (BTC) from a venture capitalist friend, he moved to London to start work at Blockchain as the third member of the Bitcoin wallet team, and soon became Head of Technology. Whilst there, he worked with Ben Reeves, Roger Ver, Anthony Antonopoulos and Nicolas Cary to grow the Blockchain.info service.
After about a year, he left London in June 2014 to become the CTO of Beijing-based crypto exchange OKCoin. During his time at OKCoin, CZ worked with He Yi, who was the head of branding and marketing there.
Eight months later, in February 2015, he announced that he was leaving OKCoin, and by September 2015, he had come back to Shanghai to become the founder and CEO of BijieTech, a company focused on providing cloud-based exchange systems to exchange operators.
Finally, in July 2017, CZ left BijieTech to become the founder and full-time CEO of a new "pure crypto" exchange (as opposed to a fiat-based crypto exchange) called Binance (the name short for "Binary Finance"). He chose as CTO, Chief Architect, VP of Engineering, Product Director people he had hired for similar positions at BijieTech: Roger Wang, James Hofbauer, Paul Jankunas, Allan Yan, and Sunny Li.
CZ believed that a pure crypto exchange could move more quickly than a fiat-based crypto exchange due to not having to deal with banks and being under less pressure from financial regulators, and felt that eventually, such exchanges would become much bigger and more important than fiat-based exchanges. The Binance team saw four problems with existing crypto exchanges that they wanted to address: poor technical architecture, insecure platform, poor market liquidity, poor customer service, and poor internalization (and language support).
Although Binance had raised funds from various angel investors (such as Roger Ver), an ICO sale for "Binance Coin" (BNB) tokens took place between 1 July 2017 and 21 July 2017, and approximately $15 million was raised through this sale. The ERC-based BNB tokens would run on the Ethereum blockchain. 200 million tokens were created (and this number would never increase) and allocated as follows: 50% for the ICO, 40% for the founding team, and 10% for the angel investors. And on 14 July 2017, trading went live on version 0.1 of the web-based version of Binance. The plan was to initially only support trading pairs for BTC, ETH, LTC, NEO, and BNB, with other coins added in future, provided that they met three requirements: strong credibility, user base, and liquidity.
Less than eight months later, CZ had managed to turn this startup into the world's largest crypto exchange (by traded value), become well-known and successful enough to land on the cover of Forbes magazine as the third richest man in crypto (with a personal fortune currently thought to be worth around $2 billion), and led Binance to a $200 million profit in only its second quarter of corporate life.
Now, it is time to put a few questions to the Binance founder and CEO.
Why Did You Wait Until 2017 to Start a Crypto Exchange
"When I first got exposed to cryptocurrencies in 2013, I actually wanted to do a crypto exchange, but everything was quite new then...
I left OKCoin in 2015. I wanted to do a crypto exchange at that time. Poloniex was already there... So, I looked at it. The market was still quite small. We decided the market wasn't big enough.
And in 2017, we decided that now the market is big enough, and we want to do one. So, I've always been doing exchange systems. So, I have been on the technical side. For two and half years before Binance, I ran a technology startup providing exchange systems to other exchanges, and we provided a platform for 30 other exchanges. During that two and half years, we polished our system. So, the Binance system wasn't developed in twelve days after the ICO before the launch. That's just not possible.
And we got lucky in a lot of ways. I was able to attract my business partner, He Yi, right after the ICO. She doesn't speak too much English. Her English is Limited. She speaks some, but her values... are very much aligned with what we want to do. She is a freedom seeker. She is also very strong in marketing. And she is probably one of the top CMOs you can hire in China. So she complemented our team because before I had a good technical and product team, but we were very weak in our marketing operations...
And then we got lucky in a lot of other ways. Just random events happened. We got hurt sometimes, but sometimes later on, it turned out to be good for us."
How Did You Go From Being Non-Existant to Number One Overnight?
"There's a lot of things, some of which we controlled, and quite a lot which we didn't. Quite a lot was luck... So, I believe our product is superior in terms of matching engine speed, which gives people a very fluid experience... We were weak on servers at the beginning, but we caught up... I think our servers, although not perfect, are relatively decent in the industry, and better than most... Our philosophy is we always protect investors. So we don't do anything crazy. Whenever something happens, we take the investor's point of view. So I think philosophy filters through the organization, shows up in small places, and different people get different pieces of it. So that is why we've got a relatively decent reputation in the industry."
How Did You Deal With Scaling the Site?
"So actually we did run into a little bit of problem in January. So our system was actually OK, but ran into very heavy problems on the customer support side... because you can only hire people so quickly. And the waiting time went from one day to two weeks. So we had some complaints during that period. And then we streamlined our workflow, we hired a lot more people, and so we got that problem under control. System-wise, we were always very fast... because we had working on a high performance system for two and a half years. And we kind of planned for that."
What Technological Innovations Does Binance Bring to the Table?
"We have a very fast matching engine, which is written in C/C++. And that can process up to 1.4 million transactions per second. Everything else is written in Java... We did a lot of work on the UI side. So, I think everybody can see our UI is comparable to a PC client... We did a lot of optimizations there... That is quite hard to do in a web browser."
What Is the Selection Critera for ICOs?
"For ICOs, we actually prefer the ICO to have a prototype that we can play with... It doesn't have to be public... And we want to see a very strong team. And we want to see a dedicated team. We don't want to see teams that do multiple coins... And having a strong advisory team really helps."
What Is the Purpose of the BNB Token?
"Our token has three benefits.
The first benefit is that you have a BNB token balance in Binance, when you trade, instead of paying a trading fee using whatever you trade, we get a commission fee from your Binance coin and you get a 50% discount at market value... The discount goes lower over a five year period. So, the next year, the discount is 25%...
The second benefit we promised in the white paper. Every quarter we use 20% of our profit to buyback the coins at market value. And we will buyback and destroy those. And we will destroy up to one hundred million Binance coins, a half of all available coins... Financially, that works the same way as a dividend...
The third thing we do is that when we do the decentralized exchange, the BNB coin will be used as "gas" or for paying fees on that blockchain."
Besides China, Any Other Problems With Regulators?
"On March 23rd, Japan's FSA issued a warning to us saying that they considered us operating illegally in Japan. So that warning letter came out, and it was actually posted on the FSA's website in Japan in Japanese. So a lot of Asian users were aware of it. Luckily, on the same day, I did an interview with Bloomberg, and I said that we already have plans to move to Malta, and so we are just going to speed that up. And by 4pm Asia time, I guess Europe wakes up, and the prime minister of Malta just tweeted 'Welcome to Malta @binance.'! So, I think that's the first ever the prime minister of a country welcomed a crypto business. So the coin price instead of going down, actually went up... the Binance Coin price went up and the Bitcoin price went up. And... this is something we'd been planning. We'd had very good talks with Malta about moving there and getting established, but I would never imagine a prime minister tweeting for us... So very lucky there... After that, I've been convincing everybody to go to Malta because we want to help the economy there. So, I'm doing my part now."
What is the Future of Binance?
"We want to help the industry grow. Binance itself is extremely profitable right now, and we're still a very small team. I think if you compare to team size, our profitability is really through the roof. I don't think any other team our size is this profitable. So we are no longer incentivized by money. The team is very rich.
So basically we want to spread the freedom of wealth, the freedom of investments, and the freedom of assets. So, this is our mission. We want to promote this freedom. Once we have this kind of mission, other things fall into place... For example, at the beginning we said we want to do margin and futures trading, but we asked ourselves do those things help to spread the freedom? No, they don't really; they are just another financial instrument people play with and gamble with. So, we said we are going to put that on hold. Then we said DEX (Decentralized EXchange)... Does that help? Yes, that does. So we moved that forward. We are developing and we are promoting other people to develop decentralized exchanges.
We have our own fund called Binance Labs, which is a blockchain technology incubator. I told the Labs team that Binance will invest in projects, but we are one of those funds that will not look at returns. We just want to invest in projects that help the industry, anything that is infrastructure-related, especially wallets, faster blockchains, ecommerce, payment gateways... even decentralized chat, decentralized social media, even decentralized driverless cars, or Uber-like companies.
So, basically, our approach is we will invest a small bit, like a couple of million dollars, and then we'll invite other people to invest. Most of the time when Binance invests, other people want to follow because they know that we got the token economics figured out for this coin, we will help them do ICOs, we will help them list, and they will have liquidity... We don't want to be the majority shareholder in each of these icons... We just want a small percentage."
What Part of the Crypto Space Do You Think Will Be Most Influential?
"So, I think right now people are focused on exchanges. There are actually a couple of other exchanges who are already very influential and they are tackling a problem that we have avoided so far, which is the fiat-to-crypto conversion. So, Coinbase is doing that very well. Bitfinex is taking a slightly different approach, a more international approach. There are a company that got hacked twice, but came back from the dead twice. And they are very strong actually.
And the wallet market is a bit segmented right now. We don't see one single wallet that is a super leader. So, hopefully, somebody will emerge there... So we are actually trying to invest in multiple companies in that sector...
For chain development... that sector is very crowded because now doing ICOs is very easy... I think the winner there is less clear."
Is It Possible to Have Some Kind of Insurance for Exchanges?
"Right now, there is no insurance company that is able to insure this kind of size... Most insurance companies haven't figured out how to calculate the risk return on this type of insurance. So, there is no insurance business model yet. But I think that as time progresses, we are getting more and more sophisticated in tracking down bad players. So, we are working with multiple law enforcement agencies around the world in tracking hackers and theft, and stuff like that. So, there is more recourse now...
As a user, you've got to be very careful in choosing the type of exchanges that you want to use. And there is also the decision you have to make: are you able to keep the coins more securely yourself? If you can, then you should... I think as the industry matures, the security of retail wallets and the security of exchanges will all improve. Right now, we have one of the most elaborate security mechanisms that one can imagine. So, I think for the time being, that is OK."
What Do You Think of the Health of the Market?
"I am actually not a very strong technical analyst, or even an analyst in general. I hold a very long view. I personally think it is a bit unfair to pick the highest point of the Bitcoin price and compare it to right now. If you compare the average price for Bitcoin over the last seven years, or one year Bitcoin was a $1000... It shot up to a peak and then did a little correction. And it is a big correction in terms of traditional finance, but for crypto, because the market cap is smaller, it is very usual. So I'm not concerned about it at all. I've experienced this many many times. I think if you hold on to a six month, one year, three year, five year view, this drop will not be noticeable a couple of years later because Bitcoin will be so much higher then. So, if you look at the previous graph, like say before November, right now, our price is the highest of all time and you can't see the previous dips because they're compressed on the chart now because the price is so high now... I'm not worried about it at all."
And Finally, How Are You Dealing With Becoming So Wealthy So Quickly?
"It wasn't until the Forbes articles that I thought 'I am really rich!'. My lifestyle hasn't changed very much. I still live in the same type of apartment... I don't have anything luxurious. I don't have a watch. I don't have a car. I actually don't have a house; I rent. I feel that crypto will rise in value much more than if I buy a house. So, I don't want to put my investments in a house...
Making more money now will not make me happier. It will not do anything for me. It is just a number... I realize that as a human being the thing that has meaning is to help other humans... What I can do is relatively meaningful, which is promoting the freedom of wealth. I believe that by promoting crypto, which is a freer asset, freer investment vehicle, we will help normal people achieve financial freedom much much more easily... We will see the speed of improvement pick up once more and more people are able to achieve financial freedom easier."
- "Meet Chang Peng "CZ" Zhao: CEO/Founder Binance" Episode of the "Crypto 101" Podcast (Interview by Matthew Aaron)
- "Binance - Interview with CEO Changpeng Zhao" video on YouTube channel "Boxmining"
- Forbes: "The Richest People In Cryptocurreny"
- Forbes: "From Zero To Crypto Billionaire In Under A Year: Meet The Founder Of Binance"
- Binance White Paper
- Bloomberg: "How a Billionaire Crypto King Built the No. 1 Exchange in Just 8 Months"