In less than a year since its inception, cryptocurrency exchange Binance has become the biggest exchange by volume in the world.

In an industry driven by the brightest minds, competition is fierce as the world begins to warm to the existence of cryptocurrencies. Newcomers to the industry face an uphill battle playing catch-up to established exchanges with loyal user bases.

This is what makes Binance’s emphatic rise in popularity so astounding, given the short amount of time in which it has overtaken its competitors.

At the helm of this exchange is a man who has gleaned knowledge from previous experiences and fast-tracked the development of the exchange. However, even Changpeng Zhao is still surprised by the astronomical speed in which his exchange has grown.

In July 2017, Zhao launched an initial coin offering (ICO) for Binance that raised $15 mln – enabling the development of the cryptocurrency exchange powered by its own Ethereum-based ERC20 BNB token.

While users cannot trade with traditional fiat currencies as of yet, they can deposit various cryptocurrencies into a Binance account and trade using Bitcoin, Ethereum and numerous other altcoins.

Fast forward to June 2018 and Binance is setting the pace for other cryptocurrency exchanges to follow. Currently the biggest exchange globally with $1.5 bln in trade volume according to Coinmarketcap data, Binance is making big moves to cement its place as an industry leader.

In an exclusive interview with Cointelegraph, Zhao revealed that Binance has officially opened up a bank account in Malta, paving the way for the eventual support of fiat currency deposits and withdrawals on the exchange.

The 41-year-old CEO spoke openly of the challenges brought about by the whirlwind rise in popularity of the exchange and how their ICO kick-started the existence of Binance. He weighed in on recent criticisms of exchanges producing over-inflated data on trade volumes, touched on some innovative ideas possible with blockchain, and gave insights into current projects being undertaken by the Binance team.

On background

How Changpeng Zhao (CZ) entered the world of cryptocurrencies

Changpeng Zhao: I’ve always worked in the financial and IT industry and I’ve been an entrepreneur for quite a while, one of BTC China’s investors. BTC China is one of the oldest sites. One of the investors is a good friend of mine and he introduced me to Bitcoin and Ripple. That was back in 2013 – not too early, not too late. His name is Ron Cao, and he was the managing director of Lightspeed Ventures in China. In 2013 he said, “Hey, CZ, why don’t you look at Bitcoin, it’s kind of interesting.” I took a look, I really liked it.

Born in China and having lived in Canada, CZ says the mixture of cultures has shaped who he is and how Binance operates:

CZ: I think both experiences do have a fairly big impact on me as a person, how I think, how I operate and in terms of how Binance works. Because Binance inherits a lot of my personality as well. From the Chinese perspective, Chinese people work really, really hard. They don’t stop. If you determine what kind of business relationship you have, you can call the vendor at 11 p.m. at night, any day of the week, they will respond – and that’s fully accepted in Chinese culture. They just work non-stop. The Binance team retains that.

The experience in Canada is very, very helpful from an international perspective. Canada is an immigrant country with all different races, different people from different origins. Canada is also very friendly, very internationally friendly. I’ve lived in a few additional places when I was younger, so I’ve always felt Earth as one entity. I’ve never really had a strong one-country concept. So that’s why the Binance team is truly international. Our users are international.

Also, on the first day I learned of Bitcoin, I thought, “Wow, this is going to be very good internationally,” because I have personally experienced a lot of trouble transferring money from one country to another. For example, if I moved to Hong Kong, I would be wanting to transfer money from Canada to Hong Kong – it is a pain. I understood the impact of that. China, Canada, the US, Hong Kong, Japan – I’ve lived in all of those places and that experience helps a lot.

CZ gained experience in the world of cryptocurrency exchanges with OKCoin, which helped immensely when starting up Binance:

CZ: I think the OKcoin experience also helped a lot. There’re a few different things. I think having firsthand experience helps a lot. When I joined OKcoin, I think there were about 20 to 30 people, and they’d started for a few months – not very big. We took that exchange from nothing into one of the largest trading volumes, although some of the volumes are questionable.

Having that firsthand experience of growing an exchange, I was one of the three co-founders and I was the chief technical officer (CTO), so having that kind of experience is extremely valuable. Binance avoided a lot of mistakes we had to figure out by trial and error back then. There’s another important factor. Having that experience also taught me that there’s a lot to improve. That’s the industry of exchange and even today Binance has a lot of room to improve.

A lot of people, when I started Binance, said, “Look, there are thousands of exchanges in the world already. It’s a very competitive space. Why do you want to do another one? It’s not going to work.” Those kinds of comments did not deter me because, given the experience and the knowledge that I had, that helped a lot.

On criticism

CZ weighs in on how he deals with negative publicity:

CZ: There are two different types of negative comments. Firstly, they can be constructive feedback that our users are giving us, how we can improve and what we’re doing wrong or what we’re doing not necessarily wrong, but not in the best way. Those things we read and we reflect on and we improve. Those things we take very seriously. The second type of negative comments are either smear campaigns or competitors who, instead of focusing on their own core business, spend time spreading negative news about us.

Also, different types of traditional media have misunderstandings about cryptocurrency. Certain countries or governments or people are spreading thought against modern questionable volume exchanges. I think fear, uncertainty and doubt accounts for about 90 percent of the news we see. Those we generally ignore, and we just carry on with our stuff, those are very easy. At the end of the day, I think you value what you bring to your people, to your users. That’s the most important thing.

We focus on creating value on helping people achieving value. Many, many people have told me that they’d achieved financial freedom through Binance, either through our ICO or investing some of the coins that we listed. Those things will keep us going and those are very solid things. We help people’s lives. Those are very strong motivations for us to continue going. We know we’re doing the right thing.

We can very comfortably ignore anything that’s negative. To be honest, a lot of the negative news actually help us, because it creates debate, contention which, to a lot of observers, are more interesting stories.

If it’s just “Binance is great, Binance is great,” people get tired of it very quickly and we have less awareness spread from a marketing perspective. So, a lot of the negative news actually help us, because in a story you’ve got to have ups and downs. To be honest, even in early days, we were aware that some of our competitors were deliberately spreading negative news about us. We were not number #1, we were quite small, but those really helped us to grow.

Inflated trade volumes - CZ responds to claims

A number of media outlets recently reported that some cryptocurrency exchanges were inflating trade volume data to boost their standings. CZ addresses these claims:

CZ: They are definitely questionable volumes if you look at a lot of the candlestick charts from many different exchanges when the price is moving very significantly. Basically, if you look at the top 10 exchanges, I think Binance, you don’t see this at all and we are very honest with our volume. We actually want ways to report lower volumes so that we’re not number one always. That’s the problem we actually face.

There’s a practice, I can share with you, where some crypto exchanges report volume twice. We only do it once. Basically, we’ll leave 50 percent of volume other people report if we use the same standards that they do. When you buy and sell, when this is one trade, there’s a buy side and there’s a sell side. Basically, if I buy one Bitcoin from you, some of the exchange count this trading volume as two Bitcoin, because there’s one sell, one buy. We always report it as one. In a lot of ways, we actually report only 50 percent of the volume.

I think some of the exchanges recently became more honest. Then there are other things like wash trading, there are other things which are very obvious. If you look at the candlestick chart, when the price is moving very significantly, that’s a low volume. When the price is stable, this very high volume is wash trading and that’s wrong. That’s a very clear indication of wash trading. Many exchanges have put requirements on the listing on the coin project team that you have to guarantee a certain trading volume. What happens is that listing team will hire some guy, who they call a market maker, who will just generate tons of volume. And they basically create 2 accounts who just trade against each other. In this way the exchange is not doing, but the project team is. As part of the listing requirement, they ask the project team to guarantee the trading volume, which we do not do.

As for us, we try very hard to not be number one all the time, because being number one creates other problems sometimes, especially with regulators. The regulators like to talk to number one guy. We try very hard to not be number one all the time, but other people are trying very hard to boost their volumes to be number one.

Also, if you look at the traffic analysis, if you look at the mono-traffic different websites scale, it’ll give a very clear idea. If you look at the top 10 trading volumes exchanges, many of them have the similar trading volume or, sometimes, even higher trading volumes than us, and only 10 percent of the web traffic.

Building an empire in under a year

CZ admits that the speed at which Binance became the world’s biggest cryptocurrency exchange by volume took him by surprise. He also delves into the challenges brought about by the explosion of Binance users:

CZ: To be very honest, I didn’t expect it to happen so quickly. I thought it would take us solid 2-3 years to climb up there. We had many, many different plans to do that, but it happened so quickly that I was actually surprised.

I think our system is literally faster than our competitors’ systems, which also helped. When you build a really fast system, when you build a really modern road, people drive on it very quickly. I think that contributed to our high volume. And because we can sustain a high volume, people came to us. It’s like a passive cycle. Our system was quite fine, because we built a very fast and high-capacity system from the ground up, but we had many other departments to help the growth. Especially in customer support.

When you grow from zero to a few million users very quickly, a few million ask questions and need help. From a customer support perspective, we don’t have an AI system, so it’s all human based. We only hired people so quickly – that put a lot of strain initially, but now we’re finally catching up. Today, I’m pretty sure, we provide one of the best support in the industry, but I think there’s still a lot of room to grow. Our support is not good enough, not even near good enough, I would say. We’re still struggling on that part a little bit, but we’re aiming at being there.

The power of an ICO

Binance got off the ground through an ICO and also offers users a 50 percent discount on fees if they use the native BNB Binance tokens. CZ says ICOs are an incredibly powerful way for companies to raise capital:

CZ: Yes, when people have BNB in their account and use them to pay for their fees, they get a 50 percent discount today and since the beginning. The ICO definitely helped us a lot. I cannot stress how much it has helped us. I think it’s probably helped us on the order of 10 to 200x . First of all, raising money through the ICO was literally more than 100 times easier than going through traditional venture capital (VC) rounds. We were able to raise money much quicker and much easier.

I always imagine in a parallel universe another version of myself or somebody with exact background, exact appearance, exact capabilities raising money through the VC round, they will be two years slower than us. And to be honest, they would not be just two years slower, they would not exist because we’re here now and any company that’s going to do this two years later will not exist.

The ICO helped us in so many ways as well; it gave us the initial user base. Even before we started, even before we launched our platform, we had about 25,000 registered users at just the ICO phase. It gave us a lot of popularity and initial user base which is extremely valuable. Also, having the token economics, now people who participated in our ICO, they are now investors, coin-holders, and users at the same time. This is an economic that’s never existed before. Before, there were users paying for paying or adding value to the system, but the shareholders realizing value were usually a separate bunch of people, but now they’re the same.

Having done ICO myself and having seen many people doing ICOs, I personally think that ICO is a magnificent tool to have and it will not go away. There are many people using it for bad purposes, but that’s just bad people, not a bad tool.

This is part of the reason why Binance lists a number of ICO, identifying the most promising projects as possible:

CZ: We are here to promote more adoption for ICOs. I’m very pro-ICO. We are helping other projects who do ICOs. Of course, not all projects, we’re helping the good projects. There’re always bad players, that’s just bad people.

A new home in Malta

Binance recently set up a new base in Malta and revealed to CT that they’ve incorporated in Malta and set up a bank account.

CZ: We are incorporating in Malta and we have a bank account already, which is very significant. Things are going very well there. We are also in talks with the Malta stock exchange, which is the traditional equity stock exchange, for some collaboration. I can’t release details yet, but I believe certain co-operation will result from that. Things are going very well there.

CZ also believes that Malta is fast-becoming a hub for cryptocurrency adoption and blockchain development:

CZ: I think since March 23, which is the day I actually announced that we were going to Malta, Malta has already become the blockchain island. It’s become the leading place for work, at least one of the leading places for blockchain companies to go. There’s literally a few dozen companies already establishing there. The government and the regulators are very welcoming, very reasonable, so I think it is already one of the best places to establish.

Dreams of a blockchain-powered state

While the idea of blockchain-powered state sounds enticing, CZ says the logistics of such an endeavor is far more complicated than it sounds:

CZ: I think it is definitely possible, but it’s not easy. Establishing a country is not an easy feat. Establishing a company is among the last. Making a new country, and having all the foreign affairs is a lot of work. Establishing legal systems, establishing community service, public service systems, education, hospital, roads – that’s just a lot of stuff. I think most people, when they think about the concept, they think about a very symbolistic, idealistic view of it. When that rumor was circulating that Binance or I have already bought an island, even Justin Sun from Tron asked me, “Hey, is that real?” A lot of other very famous people asked me. That also shows that people are seriously interested and thinking about it. But currently I have no plan to do so, it’s too much work.

What's next for Binance?

The Binance founder CEO gives us a glimpse of what is coming up for the cryptocurrency exchange:

CZ: Right now, we are working on a decentralized exchange, our Binance Chain. That’s a very high priority for us. It’s a big project and the work is progressing. We are setting up a fiat-to-crypto exchange in Malta and also in Uganda and, hopefully, in Asia as well. We are setting up fiat exchanges. That’s in progress now. I don’t know exactly when they’ll be up and running, but hopefully, this year.

Other than that, we’re just wrapping up all of our services, improving our service helpdesk, improving our system and listing more coins. We slowed listing of coins deliberately for a while, mainly, for other people to catch up, for other exchanges to catch up. But now I think we’ll go and push again.

Thoughts on Bitcoin and crypto in 2018

While he wouldn’t make any price predictions, CZ believes that cryptocurrency markets will begin to become more stable in the months and years to come:

CZ: I usually don’t make predictions because any prediction I make will be wrong. But looking historically we have spent 99 percent of the time slightly below a historic high. If you look at Bitcoin, so far, the maximum high was $20,000. But if you look at 2 or 3 years before that, it was like $1,000. It went up and came down a little bit, and then it stays there.

Reaching a peak and dropping down is a totally normal market behavior. The market always overreacts. I don’t think we should take too much care in campaign to the peak. But if you look at what is stabilized right now, it’s still times more than the price of Bitcoin a year ago, right?