Tony Gallippi - BitPay
Tony Gallippi is the co-founder and executive chairman of Bitpay. Tony has 20 years of experience in Sales and Marketing in the Robotics and Financial industries. Tony has a Bachelor’s degree in Mechanical Engineering from Georgia Tech.
PODCAST INTERVIEW TRANSCRIPT
Tony Gallippi of Bitpay on bitcoin merchant processing for over 60,000 merchant clients including behemoths like Microsoft, Newegg, Dell, TigerDirect and others.
Interview with Tony Gallippi on Bitcoin Merchant Processor
Trace Mayer: Welcome back. We have a legendary interview with the legendary Tony Gallippi from BitPay. Welcome to the podcast.
Tony Gallippi: Thanks, Trace.
Trace Mayer: I heard a joke once that someone had been introduced as legendary and he said you know you’ve become a legend and the host is like, “No, I’ve no idea.” He was like, “You just outlive everybody else.” When did BitPay, bitcoin merchant processor, get founded?
Tony Gallippi: BitPay was started in May of 2011. That was a year where you really only had three bitcoin merchant processor companies, you had Mt. Gox, BitPay and Bitinstant. Of that generation of companies, we’re the only left standing so I guess we have outlived the others from that era.
Trace Mayer: So you’re legendary. March of 2011, bitcoin was at about a dollar, dollar fifty. Before the big run up to thirty two dollars in June of 2011 when Mt Gox had problems like usual.
We’ve seen just so much happen since then. Bitcoin was pure potential back then. There was nothing actually done and now BitPay has the majority of billion dollar plus merchants, right? Like what are the numbers nine out of fifteen, I think.
Tony Gallippi: Yeah, we started the year with no public companies or billion dollar companies accepting bitcoin, but then right away in January we had a TigerDirect and Zynga. You know we followed it up with Rakuten, Warner Brothers, Newegg and we got a couple other ones in the pipe. So, yeah, we’ve got a bunch.
Trace Mayer: This is really exciting. What type of trends are we seeing with the larger institutions coming in the bitcoin? Are we seeing payment processor integrations, point of sale integrations? What are the overall trends for bringing bitcoin to the merchants?
Tony Gallippi: So some of the trends that we see from the bigger companies nowadays is they want to do something with bitcoin. They don’t know what, but they see a lot of buzz in the press and they see maybe some other smaller competitors getting fantastic press for doing something with bitcoin and they say well gee we should do something with bitcoin too. What do we do?
So in many cases they’re looking through their backlog and they’re not really able to find any time to squeeze anything in. So they’re looking more for partnerships, right? They’re looking at how can we work with a bitcoin company to say we’re doing something, but you know, work with BitPay, let them power the bitcoin acceptance we can refer people to them. So companies like Global Payments are a great example, right?
They eventually integrate us into their platforms and all of their enterprise solutions that their customers use. Right now they’re just referring merchants to us who want to accept bitcoin, but at least it shows that they’re doing something. Their sales people are engaged and so when they get asked about it they can say, yes, we have an answer to that.
Trace Mayer: BitPay is based out of Atlanta. You’ve got offices in Buenos Aires, the Netherlands, New York, San Francisco. Did I miss any?
Tony Gallippi: We have got one person in Washington D.C. as well.
Trace Mayer: Well, okay. And why are you based out of Atlanta?
Tony Gallippi: It’s interesting, you know, my co-founder and I both went to college there so we do have some roots there. But it’s a fantastic town for financial technology. The majority of credit card processing and all types of electronic payments are actually done through Atlanta. I think in the U.S. it’s like seventy percent of electronic transactions in credit cards are done through Atlanta.
The Atlanta Fed runs the A.C.H. system and a lot of the initial check clearing and check processing companies were built there and then credit card processing became more popular. So there is a huge infrastructure of companies that do payments and bitcoin is a natural evolution and a natural next step for payments.
So since we’re there we’re able to recruit some of the best talent from some of these companies because where there the infrastructure that the community understands what a payment processor does because they probably know somebody who works in the industry. So we’ve already been able to hire people from Global Payments, from Visa, from TSYS.
So from some more of the established players that have a reputation from the credit card industry we’re able to bring more experience into how we build our product. We want to make sure that we build a product that merchants are able to use, it’s something they’re familiar with but takes advantage of all the new potential that bitcoin can bring.
Trace Mayer: How many employees is BitPay up to now?
Tony Gallippi: We’re over eighty. Somewhere between eighty and eighty five employed.
Trace Mayer: Eighty and eighty five and you’re kind of shy like you know someone from Visa but I mean, you got one of their major compliance officers, right?
Tony Gallippi: While he was their head of A.M.L. for all of Visa.
Trace Mayer: For all of Visa.
Tony Gallippi: Yeah.
Trace Mayer: So, I mean this idea that we’re just kind of running a little rag tag operation in bitcoin and we’re not like trying to be compliant with regulations and things like that. Not only the head of compliance from Visa now over at BitPay, but I think Azba, she came from the Federal Reserve overpayments and she’s one of our, what?
Tony Gallippi: She’s our regulatory counsel.
Trace Mayer: Regulatory counsel?
Tony Gallippi: So she’s a payments attorney. She worked with Paul Hastings before taking the job at the Atlanta Fed, but at the Atlanta Fed she was in the risk group understanding the risks involved in new types of payments. What they should look for from a structural perspective as well as a consumer protection standpoint. So she has a lot of great experience, you know, Tim as well from Visa, their former head of A.M.L.
Before that he was a bank examiner at the Federal Reserve and the F.D.I.C. So, he’s got 16 years as a bank examiner and 5 years as a A.M.L officer. So we’re bringing in some heavyweights that understand how we should be setting our policies to prevent bad guys from using our system.
There’s lots of different tricks that criminals will use to try to gain advantage to your system and try to use it undetected. These guys know a lot of the tricks the criminals use and we’re rapidly enhancing our policy from the strong policy that was to be even stronger.
Trace Mayer: This is just critical for banking partners, for integration partners, for payment processors you might work with. It gives publicly traded companies like Zynga confidence to use you guys. Also, you know when we’re looking it counterparty risk, Tim Draper, recently he had won the $20 million worth of bitcoins in the U.S. Marshals auction and he bid on the other fifty thousand Bitcoin blog.
You guys have processed some really big payments. I mean like a million dollar payment, Ferrari’s, all types of funds, Tesla’s. Like what are some of these large transactions you process and I mean have there been any issues with actually clearing and settling and giving merchants dollars.
I mean all that requires a tremendous amount of kind of cash and working capital both on bitcoins and dollars all of this. Can you speak a little bit to about like why companies that are looking to integrate bitcoin, why they need to choose a reputable payment processor that can really handle everything?
Tony Gallippi: That’s where our venture funding comes in. So we need to have operational capital to be able to run a business and right now we’ve got operational currencies, we’ve got five. So we manage a treasury of Bitcoins, Dollars, Euros, Canadian and Pounds. And constantly we’re managing our portfolio to make sure we have enough of each currency. So we’re always in the markets trading.
We’ve done a handful of million dollar plus transactions. We’ve done a couple of houses. We haven’t done a yacht yet although we do have a new yacht dealer that accepts bitcoin. So it’s interesting today in the markets. I would say a year ago or maybe a year and a half ago the markets did not have enough liquidity. We couldn’t have sold a million dollars’ worth of bitcoin in a day without dramatically moving the markets. But things have changed. There’s a lot more participants now.
We can move a million dollars a day and you wouldn’t even notice that we’re trading just because there’s a lot more volume and a lot more buyers and sellers in the market. We also have a lot of hedge funds that want to accumulate bitcoin position so when we have these huge spikes we also have some off market opportunities to sell those.
You’d be surprised how many Wall Street firms are starting to accumulate bitcoin positions that aren’t talking about bitcoin yet. There’s a lot going on behind the scenes as well as some, you know, some private family wealth funds and things like that.
Trace Mayer: Yeah. Because we’ve got at least as investors in BitPay, we got Matt Mullenweg from WordPress, Shakil Khan from Spotify, Jerry Yang, right, Richard Branson.
Tony Gallippi: Richard Branson.
Trace Mayer: Who else have I forgotten? Jim Robinson from RR & E Ventures, his father, who I met was the C.E.O. of American Express.
Tony Gallippi: For 17 years.
Trace Mayer: For 17 years and he is –
Tony Gallippi: So they spun off First Data, Western Union, right? So, they understand.
Trace Mayer: Yeah. And his father, very interested in what’s going on in this bitcoin and this payment space like who else have I failed to mention? Index Ventures.
Tony Gallippi: Yeah. Index out of London. Of course we have Arthur Levitt, former chairman of the S.E.C. He’s on our advisory board now and an Arthur is really engaged. When we first talked to him, he had kind of a research that he was doing to try to get faster settlement for securities and he said well, I would love to have a world someday where I can have instant settlement or near instant settlement to reduce that T+3 counterparty risk that somebody could fail to deliver.
Trace Mayer: Failure – yeah, FTD is just.
Tony Gallippi: Failure to deliver. So when we first talked to him about Bitcoin he was very interested in the fact that now for the first time in our history we have a financial transaction that can immediately settle with no counterparty risk and the ability for that to be used in all types of contracts and trades is pretty interesting.
Trace Mayer: Switching gears a little bit. In reality, Stephen Pair should probably be the one I ask these questions to, but I’ve seen on Reddit, you know, some of the developers they’ve gone and build applications on top of Coinbase’s API or Blockchain’s API and then for whatever reason the APIs go down and they just, like it completely throws our entire businesses into tail spins because like they can’t make all these API calls because these APIs it’s kind of a layer between the people and the bitcoins themselves.
And BitPay seems to really leading the charge with things like Bitoff, Insight, Copay. All APIs. that help developers interact directly with the block chain without having BitPay in the middle there as a central point of failure. Can you discuss a little bit about that, the overall strategy and how that’s helpful not just for a BitPay, but also for the bitcoin community in general whether we use BitPay services or not?
Tony Gallippi: Sure. You see a lot of these applications and most of them quite honestly have been born out of hackathons. Something where in a one or two day period you want to get a working product and so you’ll do the simple thing that is to connect up to a proprietary API that’ll get you the information that you need. It’s a great proof of concept,, but that’s not how you can build a reliable scalable business. Right.
So it is an open source project and we got it going. We’ve recently refactored it, tried to organize a little bit better. There are a lot of other people that contribute to it as well. And we’re hoping to make it grow and make it stable as a foundation for lots of people to build applications on top of and at the end of the day there needs to be a good common operating system for bitcoin, kind of like Red Hat for Linux that is well-maintained and well-documented, that people can use and that gives you all the power you need to run it yourselves and not have any dependencies.
Trace Mayer: And just a tremendous service to the bitcoin community in general and the developer community whether it’s somebody coming in and wants to integrate bitcoin into their apps or whatever. It’s like just used this, you know, free open source, don’t have to BitPay to use it. Really helpful.
I try to make the interviews objective. Of course I’m an investor in BitPay so somewhat biased there. There are always a ton of threats. I try to make my payment and it never went through or blah, blah, blah and all these types of things. And there seems to be a big root cause and that’s the Coinbase which is one BitPay’s major competitors doesn’t broadcast transactions.
So we got consumers that make a payment from Coinbase but BitPay never sees it because Coinbase never broadcast it to the network. And then the fifteen minute time window expires or things like that. Can you talk a little bit about? Like there are a lot of new people listening to the podcast. If they’re going to use Bitcoin how can they use it in a way that if they’re using Coinbase the other participants in the Bitcoin ecosystem can interact with them and that way they’re just not frustrated?
Tony Gallippi: Sure.
Trace Mayer: You know.
Tony Gallippi: So when we create an invoice for a merchant, which happens when a customer has an intention to pay. Right, I’m trying to check out. It could be in a retail store where you’re trying to pay for something so you can walk out the door with the merchandise or it could be online where you’re trying to pay. We have to deal with the EX component of Bitcoin right.
If bitcoin has a fluctuating exchange rate. So we need to create a small window where we can lock in that exchange rate so that the buyer can check out and we can guarantee that rate so the merchant gives their funds. Right now that window is fifteen minutes. We decided on that four years ago, we haven’t changed it, we may change in the future, but that’s the window that that we have today.
Trace Mayer: And it’s enough time to get out of your phone and scan a Q.R. code and make your payment.
Tony Gallippi: It is. I mean most customers pay within one or two minutes. We could actually reduce that.
Trace Mayer: Probably shorter than that. I always pay within thirty seconds.
Tony Gallippi: Surely.
Trace Mayer: Really not that hard.
Tony Gallippi: It’s not that hard, right? When we first built it, you know, most people are using Bitcoin QT. They may have had to wait for their block chain to sync up before they could broadcast transaction. You typically don’t have those issues today.
Trace Mayer: Used things like Bread Wallet or blockingchain.info mobile phone wallet.
Tony Gallippi: Yeah, yeah. The idea of waiting for your wallet to sync up before you can send a payment when you’re sitting there that doesn’t happen anymore.
Trace Mayer: We have the thin clients and S.P.V. clients now like.
Tony Gallippi: Correct.
Trace Mayer: It’s just not an issue.
Tony Gallippi: It’s not an issue. But we still do have that window and so that gives an opportunity for the customer to blow their wallet and pay. We’ve tested all the wallets out there. Some of them are extremely fast to send a transaction. It happens in a matter of milliseconds. Some of them take longer. You know we monitor the mesh network so we don’t wait for any confirmations as long as we can detect the transaction on the mesh network.
And we feel that the majority of the nodes that we’re connected to think it’s valid, you know, we’ll go ahead and mark it as paid and that typically takes on the order of, you know, tens of milliseconds. Some of the wallets take longer to pay and it’s not the user’s fault. The user logs into their wallet and says send, but that wallet is running a service where it’s up to the wallet then to actually sign and broadcast that transaction for that user, right? The user doesn’t control the keys. They can’t sign and broadcaster it themselves from their client application.
They’re asking that party who is holding the keys to be able to do that for them and this is the case where we have seen cases where it takes several hours. I don’t think there’s been a case where it’s never been broadcast, but there could be a significant delay. A delay of longer than ten or fifteen minutes, you know, could cause our invoice to timeout, could cause us to, you know, have to do a lot of work on our end to try to resolve this late payment that came in from the customer even though it wasn’t the customer’s fault.
So you know we recommend certain wallets and we don’t recommend others. We also don’t recommend trying to use like an exchange account to send your bitcoins because those could be done at the time that the exchange wants to process that withdrawal.
Trace Mayer: And there could be issues with refunds if you’re sending from an exchange address or an address where you don’t hold the keys to it.
Tony Gallippi: Correct. If you have any type of a co-mingled account or the service you’re using is co-mingling the funds from all the other users. You have no control over the keys and how funds come in and out, right? You’re reliant on the application that they have built to be able to do that for you. So we recommend that people actually use wallets and there’s plenty of them now and they’re just as easy to use as these account based services if not more.
So that give you the availability to be able to sign and broadcast transactions right away. And that the major problem that we see is in retail and we’re getting a lot more retail merchants now accepting bitcoin. It’s not just e-commerce anymore. So if you walk into a store and you ordered some ice cream and you sent the payment from your account and it takes fifteen minutes to get there.
Your ice cream is going to melt before you have the opportunity to actually enjoy it because that store owner is probably not going to let you leave until he sees his payment. Again, we don’t wait for any confirmations. We just need the transactions to hit the mesh network with a reasonable probability that it’s going to get confirmed.
Trace Mayer: Yeah I think this is just really important basic stuff, but until people have used bitcoin a little bit they just aren’t aware of a lot of this. It’s just kind of like riding a bike. You learn a little bit as you go and you learn from experience what not to do and at least in my case.
I just don’t see any reason to use Coinbase as a payment wallet, where they’re asking me to tweet out to my friend that I bought a lemonade or something and I mean none of that is mission critical to getting a payment done. We need to keep bitcoin simple I think in terms of the community. Like the less moving parts we have in any particular area the easier it’s going to be for consumers to use it and the less chance for something to go wrong.
Tony Gallippi: Sure.
Trace Mayer: You know whether that’s the wallet that we’re using, the way it broadcasts the payments, the API that we’re using, it’s developers. I mean let’s just remove the dependencies and the moving parts if we can to make for the most seamless user experience possible. That certainly is kind of my opinion and then you’re less frustrated when the transactions don’t get broadcast and there’s an issue and it’s not marked as paid then you don’t get the tickets or whatever it is you’re trying to buy because you missed the time window.
I mean it, like that’s really, really frustrating and it happens all the time with credit cards. I mean I hate making payments online with credit cards. Oh, you need to call your credit card because it’s been placed on hold because you made the payment from who knows what IP address because you’re travelling. I mean you don’t have any of those issues with bitcoin but you can still run into other issues like we just talked about.
Tony Gallippi: Sure.
Trace Mayer: And so as long as you’re kind of cognizant –
Tony Gallippi: But they’re manmade issues that don’t need to be there.
Trace Mayer: Yeah, but they don’t need to be there at all. So, I mean you can remove those if you want to, if you kind of take the training wheels off as you ride the bike around
Tony Gallippi: Yeah. And I understand the desire to try to make it easier and integrate more with social media. I get that because that helps get new users to use the product, but you can still keep it just as safe and powerful and secure with a great user interface. You don’t have to sacrifice security for usability.
Trace Mayer: Looking on the pessimistic side. What are you most worried about in the bitcoin world, like what kind of keeps you up at night?
Tony Gallippi: You know, there’s been a lot of –
Trace Mayer: Besides all the parties at the conferences.
Tony Gallippi: Well, that keeps you up at night for sure. You know there’s a lot of talk from different governments thinking that they can make their own block chain currency. They don’t want bitcoin. They like block chain technology, whatever that means. And they want to create their own coin. And it could be a situation a few years from now, where a government will issue its own coin and ban bitcoin but only let people use their own government issued cryptocurrency.
Trace Mayer: Like the Ecuador, Bolivia or kind of a little rumblings down there about that.
Tony Gallippi: They’re trying. Whether they could pull it off I’m not sure. Canada tried it with the mint chip they retracted it.
Trace Mayer: It flopped on its face.
Tony Gallippi: Yeah. It just didn’t get any interest. However if you have a major central bank saying this is going to be the cryptocurrency of our country and nothing else is allowed and they’ve got the police and the department revenue and financial services to enforce that, you know, it could be a problem for bitcoin.
So I think we have to fight to keep bitcoin open and free. It’s like other countries trying to block off the internet and saying, “Well, no we’re going to have our own internet in our country and it’s going to be sanitized or only content viewable for people in our country and we’re going to put up this firewall and not let our citizens see the outside world.”
Trace Mayer: Yeah, but even when where we’ve seen that happen whether it’s the Arab Spring or Erdogan in Turkey blocking YouTube because they didn’t like them talking about the corruption that his son was engaged in and he was engaged in. So he blocked YouTube and then there’s VPNs and now with Facebook and a lot of these initiatives to get the Google blimps out and the balloons we’re just seeing and the way the mesh networks are working, I mean with the Internet it’s just kind of routing around all of that. I mean, why would a developer go and build on one of these closed loop systems anyways?
Tony Gallippi: We’ll, it’s not necessarily the developers.
Trace Mayer: I do thinks it’s an issue because there’s a lot a government can do in terms of tax policy and even kind of, you know, I guess they could try and ban smoke signals or like any other form of competing cryptocurrency, but it would still be I think it would be very difficult for an economy like that to get the real tech traction because you have to have all the experimentation to really know that you’re blockchain “technology” is going to be secure. Otherwise you don’t get everybody banging on it.
Tony Gallippi: Sure. I mean, you know, it’s got to be battle tested, but you know you’re looking at a situation where if it does become banned or illegal to use, people may still use it but major companies won’t. You know, a major public companies are not going to take the risk of their officers going to jail.
Trace Mayer: Right. But like the major companies in North Korea are just operating on fifty-year old obsolete technology. I mean that’s what happens when you ban new technological innovations like, yeah, people don’t use it because they want to be compliant with the law but they’re just stuck in the past. They get vastly out competed by people that do have access to the tools.
Tony Gallippi: It would be a huge competitive disadvantage. I mean just take a look compare North Korea to Hong Kong, right? You’ve got a very central planned restrictive state and you’ve got what was an experiment and an extremely open free market state, you know. Look at what fifty years in each has done. And what it’s produced and I think jurisdictions and countries now that are trying to make the decision of what should they do with bitcoin should they clamp down on it and ban it or should they make it and try to support it open and free. Look at the situation between North Korea and Hong Kong, which would you rather have your country be?
Trace Mayer: Yeah. And Facebook, Google, Amazon, Yahoo all very helpful from the Snowden papers in terms of U.S. intelligence. So, I mean even Ben Bernanke, he has come out and said that virtual currencies hold a lot of promise. So, I mean are these threats that we’re looking at least in the western world or are you thinking more in terms of like China or Russia or Ecuador. I mean what markets are – is it really that much of a concern right now that it does keep you up for night or is it just kind of a larger trend that could kind of affect everything?
Tony Gallippi: Yeah. I think that countries that would be most likely to attempt to ban or block bitcoin are the ones that have the strictest capital controls today. Because they want to try to protect their own currency. It is a protectionist measure and prevent your currency from leaving your country. If people can’t get their currency out of the country through banks, they’re going to get out a different way. They’re going to try to figure how to buy bitcoin and then move to bitcoins out of the country. So the net result is the same, right? You’ve got money leaving the country and it’s leaving for a reason it’s because they’re trying to flee and phrase inflation or some political policy that they don’t agree with. We’ll have to see it. I think Ecuador and Bolivia are probably too small to really –
Trace Mayer: They don’t matter that much.
Tony Gallippi: Yeah. To really matter. But if you start to see it –
Trace Mayer: Argentina, Venezuela.
Tony Gallippi: In Argentina and Venezuela. I mean even India is starting to get some inflation. India has some capital controls. I mean, that’s a population of over a billion people in that country.
Trace Mayer: It’s interesting India just relaxed all their gold import rules. So they’re letting all the gold kind of flow into India.
Tony Gallippi: Well, you can import but I don’t know if you can get it out.
Trace Mayer: Well, gold just goes into India and gets worn around the neck.
Tony Gallippi: True.
Trace Mayer: But what, you know, we’re kind of getting close to our time. What are you most optimistic about in bitcoin? I mean, well, actually that what are like the two or three things you’re most optimistic about? Because it’s just moving forward like never before on so many different fronts.
Tony Gallippi: Sure, I think we’ll continue to see business adoption of bitcoin and I’m excited to see some of the things we have in our pipeline that could hit in the next you know couple of months. It’s really going to help raise more awareness of bitcoin and give more people a reason to use it. The more types of items that you can spend with bitcoin the more likely you are to try to engage with the technology.
So I think that when you look at micro payments and tipping that is just a very recent trend that’s come out. I think it has a lot of potential to really expand the user base of bitcoin in a way that is fun, engaging but again not a mission critical type situation, right? You’re not trying to buy a real cupcake. You’re just trying to send somebody money so that they can get their own cupcake or a dollar and if it takes five or ten minutes to get there that’s not a problem.
However they have built their own system where you know it’s all internal and it does get there instantly. So, the whole concept of being able to pay it forward and do tipping I think is incredibly exciting and where that’s going to go in the next six to twelve months, it could potentially increase the number of bitcoin users by a factor of five or ten because there’s a lot of people that use social media and being able to send and receive a dollar’s worth of value you know from your friends is really exciting.
Trace Mayer: What really helps find out the authenticity of the social media? We’ve seen there could be all types of public company and big companies that are running like marketing campaigns or viral campaigns that really they’re just funding it all or there might be other actors out there, but you start raising the cost in terms of the expectations and you make a good comment you get tip a dollar, five dollars or things like that.
People can start voting with their money on the ideas that they think are good. I mean if you’ve ever seen the YouTube comment section it’s just such a mess. But if comments begin to get rated based on how much they’ve received in tips or things like that then all of a sudden we might be getting much more authentic social media.
Tony Gallippi: Yeah.
Trace Mayer: Which, you know, these are all unintended consequences of having this type of a technology to be transferring value over the internet, right?
Tony Gallippi: Sure. And if you’re actually trying to look at matrix of social media to measure, you know, quality or measure, you know, adoption so much of that can be forged today.
Trace Mayer: Oh yeah.
Tony Gallippi: There’s an estimated like, you know, 80% of Twitter accounts are fake or something and you can actually go into a profile and there’s a service that will runs some analytics and you can analyse somebody else’s profile to see how much of their followers are fake and some of those might be false positives, but they tend to get it right or at least it’s consistent across the board to measuring from profile to profile. You can’t fake that when people actually are giving money.
Trace Mayer: Well, I guess you could, but Changetip, you know, Changetip.com, they could implement some types of policies and begin to sell some of that data. And so they could know whether the accounts are being faked or not. The tipping amounts. Because I guess you could tip back and forth to yourself, right? Like so, I mean I guess you would hack some of it, but it’s going to get a lot more difficult to hack because when you begin data mining all that from the outside in, you’re able to, you know, you can start creating a webs and see who’s tipping who and how much and figure out where there’s a relationships are and, you know, it might get built right into Google’s algorithm.
Tony Gallippi: Uh-hmm.
Trace Mayer: But just like social media that it became very important for Google to be measuring social media to determine like relevancy and credibility and very well we could see a tipping impact the search algorithms the same way. Because it’s so important for Google to make sure that those results they serve to their customers are accurate and authoritative and stuff like that and that whole industry is just one big game, right? The SEO game so.
Tony Gallippi: Yeah. They want to try to filter out the bots and try to reach what is the real organic interest.
Trace Mayer: And at the very minimum, I think, Changetip charges like 1% fee or something so if someone is going to be running some type of a bot campaign to increase their tipping profile, they’re going to be losing a little bit on every hop. So like how sustainable is that going to be?
Tony Gallippi: Yeah.
Trace Mayer: So, I mean that this is all really exciting. I mean Bitcoin has a potential to disrupt so many different industries where it’s just totally kind of an unforeseen consequence. Are there any other industries that you kind of see potentially being disrupted like that?
Tony Gallippi: You know, I think the entertainment industry has been disrupted enough with digital content, but they’re about to be disrupted again with bitcoin because we’ve gone from, you know, selling albums online to selling songs one at a time online and in a system – a marketplace like an iTunes for example, but you still have a really high cost structure. It costs a dollar twenty nine for a song. That’s what the customer has to pay to purchase it.
How much that money actually goes to the artist? Probably about fifteen cents. Apple’s going to take a big chunk off the top and you’ve got the distributor, the promoter, the marketing, the artist gets about fifteen cents. With bitcoin an artist could actually sell their content directly on their own website for twenty five cents.
Trace Mayer: And make the same amount of money per demo.
Tony Gallippi: Actually make more.
Trace Mayer: Make more per demo.
Tony Gallippi: And customers are excited because it’s one fifth of the cost, right? And you’ve consolidated an industry down to where an artist can sell directly to a consumer without any –
Trace Mayer: Yeah. Completely peer to peer.
Tony Gallippi: – without any distribution channel, completely peer to peer and it’s a much lower price for the consumer and a much higher net for the artist. I think there’s going to be a huge influx.
Trace Mayer: And that’s not even counting the different torrent options. Like, I think one of the torrents out there you can actually integrate bitcoin like right into the torrents so when the torrents downloaded bitcoins are automatically sent or something like that. So, I mean it’s like it’s just very fascinating how this technology is changing so many different areas.
Tony Gallippi: Yeah. And if you look at the battle that Kim Dotcom is facing, right, for –
Trace Mayer: With Megaupload.
Tony Gallippi: Yeah. With Mega for, you know, letting people store stuff in the cloud, it’s still a problem we have today. You can’t send large files over e-mail. You just can’t, right? You have to put them somewhere and then send the person a link. So whether it’s a Dropbox or Google Drive or every company has a cloud storage site nowadays.
One of the challenges that all those sites face is how do you fight against pirated content. So what Kim Dotcom has done is saying, “I’m just going to encrypt everything from the moment that it’s uploaded until the moment that it’s received at the other end.”
Trace Mayer: Which everybody has to do now because of the Snowden leaks.
Tony Gallippi: Yeah. You have to, I mean if you’re if you’re archiving your financial records and your taxes you need to encrypt them locally and store them on a cloud hosted server so if you lose your laptop or need to retrieve them later, right, you can go back and get them, but you can’t have everybody else looking at your financial records and looking at your tax returns and how much you make.
Trace Mayer: And Dropbox had the authentication hole and so people were able to get into other people’s Dropbox accounts without the password or something like that. They’re kind of horrible you have all your receipts and financial badge to the Dropbox automatically with something like Shoebox and then bam, you’re just leaking it all over the internet.
Tony Gallippi: But bitcoin offers a tremendous value here because one of the reasons why there is such an incentive to pirate content and to steal content is because it’s overpriced.
Trace Mayer: And there’s no way to pay the merchants.
Tony Gallippi: Right.
Trace Mayer: The transaction.
Tony Gallippi: If you don’t want to spend a dollar twenty nine for a song, then you’re going to go out and you’re going to try to download it illegally. However if you could buy that song legally for twenty five cents it’s probably not worth your time.
Trace Mayer: Exactly.
Tony Gallippi: To go and find a way around the system. You’re going to waste more in time than the twenty five cents to just go ahead and buy it legally out right? So I think bitcoin is going to force market pricing to a point where you could actually significantly reduce copyright infringement because you’re pricing the content at where it should be.
Trace Mayer: Yeah. Which is what we saw with the iPhone from Steve Jobs is the unbundling of albums with the iTunes store and so it it’s giving the consumer what they want at the price point they’re willing to pay for it.
Tony Gallippi: Yeah. I don’t want to spend fifteen dollars on a whole album I just want one song or two songs.
Trace Mayer: And iTunes store sold like tens of billions of songs now.
Tony Gallippi: Sure.
Trace Mayer: I mean, they generated tons of revenue for everyone in the ecosystem. You know, this has been fascinating. I have to get on top of the panel. So we got to close this up. But thanks so much. We’ve the legendary Tony Gallippi, founder of BitPay testified before the U.S. Senate. All types of stuff just moving bitcoin forward. Thanks so much for being with us.
Tony Gallippi: Alright. Thanks, Trace.