Reeve Collins - Bitcoin Expert
Tether CEO Reeve Collins discusses digitized USD.
PODCAST INTERVIEW TRANSCRIPTION
Interview with Reeve Collins on dollars to bitcoinTrace Mayer: Welcome back. We have with us Reeve Collins, the CEO and co-founder of Tether. Welcome to the podcast, Reeve.
Reeve Collins: Thank you. I’m happy to be here.
Trace Mayer: Yeah. So Tether.to is the site. Some big news recently. You guys integrated with BitFinex, one of the largest bitcoin exchanges. Can you give us just a little bit of background, like, how do you get into bitcoin? And like what's Tether, why did you start it?
Reeve Collins: Well, bitcoin have been of interest to me for quite some time. But what really accelerated that was Brock Pierce actually. I've known him for a while and his enthusiasm is somewhat contagious and so I did more and more research and the idea kind of evolved where bitcoin really has the ability to connect the world, to get value instantly and for free and the next natural step would be to enable dollars, to provide dollars the same portability as bitcoin. So, that's how we got to Tether.
Trace Mayer: We've actually interviewed Brock on the podcast. Is he an investment on Tether or an advisor?
Reeve Collins: Yes.
Trace Mayer: Is he somehow involved?
Reeve Collins: Yes, Brock is one of the co-founders/advisors to Tether.
Trace Mayer: Okay. Cool. And what's the value proposition with Tether? Who are we dealing with? It's both retail and behind the scenes with exchanges. Why should we care about it? Why should we use it?
Reeve Collins: With the real value of proposition for Tether is enable cash to move like bitcoin or dollars to bitcoin. So, if you look at all the main exchanges right now. One of the challenges that a trader or other exchanges have when they're working together is instant settlement.
So, let's say you want to put money on to an exchange. It's one to three days and twenty to forty dollars because you have to wire that money. And if you want to pull the money off the exchange, it’s the same. You have to wire it back. And then if you want to put it to another exchange it's a wire.
So, you rely on the traditional financial institutions. It is the only way to move fiat currency, dollars, Euros, Yen etc. With Tether, it enables currency to move like bitcoin. So, now you hold your dollars as Tether and you can move them instantly to the exchange and then one exchange to another instead of having to have it wired back and forth.
Trace Mayer: I guess we need to back up a little bit. Tether is actually running on the Omni protocol, right?
Reeve Collins: Correct.
Trace Mayer: Let's go in a little bit about this Omni protocol. The MaidSafe coins are actually issued on the Omni protocol. Can you give us a little bit like how does this work? How is it tied in with bitcoin?
Reeve Collins: Yeah. So, Tether is an asset-backed token. If the bitcoin block chain and then there's these protocol layers on top of the block chain. Mastercoin which has now been rebranded to Omni is the protocol that we're utilizing. So, it enables tokens to work on the block chain in the same manner as bitcoin.
So, as a company Tether really stands for the ability to issue and redeem those tokens. So, you know if you hold a Tether USD you can redeem that at any time for one dollar. So the Omni layer enables us to do that on a technical level.
Trace Mayer: Awesome. Now, the Omni wallet, which is web-based wallet. They have actually done an integration with Armory. So you can create your transaction a move MaidSafe coins around and then take the transaction, sign it with your offline computer with Armory and then come back and rebroadcast it. Have you guys considered integrating something like that so that we can keep our Tether tokens that are issued on this Omni protocol block chain safe and secure in something like Armory?
Reeve Collins: Yes, absolutely. Well, from the consumer's perspective they'll be able to use a multitude of different wallets. The Omni wallet being one of them and there's a handful more that are being ruled out. And we're getting the Omni layer integrated with many different wallet providers.
So, we have multi signature capabilities and then offline cold storage capabilities. And then as well as Tether as an organization where we hold the Tethers would be both on a hot wallet and cold wallet. The majority being stored in a cold wallet and both of them being multi sig.
Trace Mayer: Nice. So, you're going to be dealing directly with retails. So, individuals will be able to hold their own private key to their Tethers that are then representing these ownerships on dollars or probably other fiat currencies you'll be dealing with later and then also the exchanges. Are there any regulatory issues that we're dealing with here? Have you guys pursued any licenses, things of that nature?
Reeve Collins: Yes. So, that's the real challenge behind this. The technology that the block chain has enabled the world to do is very revolutionary and extraordinary, but it's much further ahead than all the regulatory and I think the laws are having a challenge catching up. So doing that appropriately is the most important thing. Because there's technology's that allows you to do asset-backed tokens. Our focus is currencies as the asset that is backing these tokens. So we're specializing importing real world currencies on the block chain.
Now to do that though the biggest hurdle is banking and regulatory. So we've developed a lot of banking relationships. And we're going down the road of being compliant with all of the various jurisdictions. Initially, we're operating out of Hong Kong with a money transmitter license that enables us to operate in the rest of the world. And we're going down the road of securing our US-based license as well. And that should be done in the next three plus months.
Trace Mayer: Okay. So, one of our other guests that we’ve interviewed is Halsey Minor. He’s CEO BitReserve. Is Tether going to be operating kind of like that? In the sense that you're going to have all of these different types of assets that are going to be tethered. That you're going to be custodianship over.
Reeve Collins: Well, so the main difference I said between Tether and BitReserve is BitReserve focuses on ending bitcoin volatility. You send bitcoin in and you hold it as a bitdollar and then you have to convert it back to bitcoin in order to pull it out. Tether is you send dollars in and it becomes a Tether USD. And that Tether token works on the block chain.
And then eventually you can format that back or convert that back to a dollar. You can also send bitcoin in and acquire Tether with bitcoin but our goal is to skip those multiple exchange steps and just have it dollars to Tether and then back to dollars. So, a Tether token actually lives and operates on the block chain. So it's compatible with all the different companies that will be built on the block chain.
Trace Mayer: Yeah. And you're able to really take advantage of the whole concept of programmable trust. Once you’ve digitized the dollars you could say, right, into the Omni protocol?
Reeve Collins: Yeah. The whole purpose is once you hold a Tether, once it gets enough utility there's no need from going in and out. Because if you can spend it in many different places and there's no need to format it back to cash. The best example is you have your bank account and it’s tied to PayPal for instance. It actually, your dollars go to PayPal and turn into PayPal tokens. They work on the PayPal platform. But they don't work anywhere else and then when you want you have to pull them back into your bank account.
Well, now every bank account be tied to your Tether wallet and once they are turned into Tether it will work on the entire bitcoin block chain ecosystem. Which we all believe is going to be rapidly growing and more and more services will be built on top of that ecosystem. So you'll get a lot of utility for Tether. But once you're done utilizing Tether in the ecosystem. You can simply put it back into your bank account, format it like dollars.
The beauty is, you know, your PayPal token or your money in your PayPal wallet is always a dollar. It's the same with Tether. It's always a dollar. Unlike today, to utilize the companies in the block chain ecosystem you have to use bitcoin. And it's volatile and that's kind of restricting mass adoption and quick adoption.
So our goal at Tether is to be a foundational layer and the utility in this block chain ecosystem where all the new companies that are being built on top of the block chain will simply plug into Tether as well as bitcoin, because now they're built on the block chain. They can offer their goods and services to their customers via Tether or bitcoin.
Trace Mayer: Now, kind of zooming down into one of these transactions. When we create a transaction using the Mastercoin protocol we're actually using bitcoins to do that, right. Like inputs and outputs. But they're usually very very small amounts. So we might see on the block chain a transaction for half a penny's worth of bitcoins. But that could actually represent a hundred thousand dollar worth of Tethers moving around, right?
Reeve Collins: Right. And as a Tether user or anytime you utilize Tether you won’t see the bitcoin transaction. It will happen in the background. So, it will be very transparent to the user. But yes, on the block chain you'll see the small block chain fee as well.
Trace Mayer: So, as Tether gets more widely adopted. We'll have dollars circulating around as a form of cryptocurrency that will be increase the demand for bitcoins?
Reeve Collins: Yes, absolutely. And we also feel that Tether will accelerate the adoption of block chain technology absolutely because it will make it easier for more companies to provide goods and services on top of the block chain. And secondly, we feel that it's a nice on boarding step to bitcoin. Because all of us in the industry and we're hoping that it gains more wide spread adoption, but everyone believes that bitcoin is inherently better currency then fiat currency. Just based on the nature of what bitcoin is.
However, it's a large step for a lot of people to take. So, now they can utilize blockchain technology and get involved in this world of cryptocurrency by using currency they’re familiar with, such as dollars, euros, yen and then once there are really familiar with that and used to it, it's a much smaller step to bitcoin to actually claim, Bitcoin the currency.
Trace Mayer: And on the larger size players like say BitFinex. I don't know maybe there's another exchange that's going to be integrating Tether. If they wanted to settle Tethers between each other for bitcoin or something like that they can actually do that atomically in a bitcoin transaction, right?
Reeve Collins: Yeah, so that's one of the best and initial use cases for Tether. It's really the portability of money. As we eluded to earlier, if you want to move cash on an exchange and then off of an exchange you have to send a wire to get money to the exchange (dollars to bitcoin). That's one to three days and twenty to forty dollars and then if you want to pull it off it’s the same. And then if you want to send it in another exchange it’s the same. It take a long time and costs some money. But if you hold your cash as Tether it moves like bitcoin.
So it will instantly go to the exchanges and so you can pull it on and off and you can move from one exchange to the other. So it makes it much easier for consumers or individuals who want to use exchanges to move their cash on-off or move it from one exchange to the other. Now what's more important in that specific ecosystem is the large exchanges. They have order books, they buy on each other. But today, to move the cash, large dollar amounts, it still take some time so they all end up extending credits, etc. This allows them for instant settlements between the exchanges.
Trace Mayer: And we're doing it atomically in the block chain so there's no counterparty risk, no Herstatt risk either. Because I mean, we could be talking about OKCoin and BitFinex. And there are in two different time zone jurisdictions. It’s not going to introduce Herstatt risk. So, you know, personally I like to figure out where any risk is in the system and completely eliminate it. So, when I'm looking at tether. Where are these dollars at? Are they in a bank account? Are they in a vault, physical like where are these dollars at? What's the risk profile of these dollars?
Reeve Collins: Currently, they are in bank accounts. So, the tellers would be held in our various banking partners.
Trace Mayer: And are those banks like are they US banks or the Swiss bank? Where are they at Singaporean bank?
Reeve Collins: Yep, so were building -- absolutely. So, today we're building a federation of banks. So the first banks they we’re starting off with is Taiwan. It’s Cathay Bank. It’s out of Taiwan. Because we are a Hong Kong company initially. As we roll out more licenses in other jurisdictions. But Taiwan has a very sophisticated banking system and a very robust system out there. So that is where the funds will be held and then we are opening accounts in Isle of Man and then very soon in the US as well.
Trace Mayer: Nice. And I've actually talked with Brian Donegan quite a bit and he was on the podcast from Isle of Man government and this Proceeds of Crime Act that they're going to be passing pretty soon like all this is going to really help pave the way for the banks to get involved in a much deeper way.
Reeve Collins: Yeah. Absolutely, because we're on the cutting edge here and so the regulations are catching up and the banks are catching up. So, we're going with the banks that are open to it and at the same time also very secure and have a robust history and so we try to reduce the counterparty risk as much as possible. But ultimately you have to trust large national banks at some level.
Trace Mayer: Well, if you want my input on a wish list. Let's just cut the banks out if we can involve physical cash. Because we don't necessarily know what the balance sheets are on these banks. We don't know what type of hypothecation or re-hypothecation they’ve done on the bank accounts or the treasuries that they may have. If we could just completely eliminate all of that by taking physical possession of the cash and then vaulting it with someone like Via Mat or G4S or RINA or Brinks or whoever. Then we would know that dollars on Tether are actually in a vault and not encumbered in any way.
Reeve Collins: Yeah.
TRACE MAYER: Because we don't necessarily know what assets are encumbered right now or to what degree they're encumbered. Even with some of the most trusted custodians like State Street or Bank of New York Mellon.
Reeve Collins: Yeah. So, you bring up two great points. One is how do you reduce the risk in the banks. So, step one is for us to have we'd like to say just our federation of banks, a handful of partner banks that will distribute our cash. So, all of the Tether reserves won’t be held in one specific bank. We’ll have a handful. So, that diversifies that risk of a bank default. And I'm being very open to discuss it with you more about actually vaulting some portion of the cash because you do have a good point that further diversify that risk and putting physical assets in a vault somewhere.
Trace Mayer: And just eliminating it.
Reeve Collins: Yeah.
Trace Mayer: You know, let's just eliminate the risk. Because with gold money another company I’m invested in, we have one point four billion dollars of physical gold and silver, platinum plate in bullion that we vault all over the world. London, Zurich Singapore, etc. Hong Kong. And we charge twelve basis points to vault gold for example. And it's insured by Lloyds of London. Switzerland now has -- they charge 75 basis points to keep Swiss francs in a bank account.
Reeve Collins: Yeah.
Trace Mayer: So, you're paying 75 basis points and you're taking on all the counterparty risk with a bank. Like, it would make more sense to just vault the Swiss francs instead of actually have them in the bank account. Because one, it's going to be cheaper with less basis points. And two, you're going to completely eliminate all the counterparty risk out of that particular asset profile. So, you know, I think there might be a significant market opportunity for Tether to kind of explore down this particular path.
Reeve Collins: Yeah. That's definitely something we'll take under consideration. The second thing you mentioned earlier was how banks are not transparent. You don't see their balance sheet and for Tether our main goal is to create the -- at least trust required in order to have still some level of centralization. Because Tether is a centralized organization and you do need to trust us at some level.
Trace Mayer: And just the nature of the dollar. I mean, we have to, like, if we're going to be dealing with dollars or gold we're going to have to be doing with some type of centralization there. Just because of the nature of that particular instrument.
Reeve Collins: Absolutely and that's why I feel our industry, our entire industry of bitcoin is leading the charge in transparency. Because we feel that trust list is always better. And so a lot of the companies now one of the main value propositions is transparency. And so for us to have a completely transparent balance sheet is imperative to gain that trust.
So, you’ll at all times be able to see the amount of money in our reserves and the different bank accounts. And it will always be one to one the amount of Tether in circulation. So there's a thousand Tethers in circulation there’ll be a thousand dollars in the bank account. And that bank account balance will be published on the website and it will be audited. So you can see that at any time and then it's always easy to utilize the block chain to audit the number of Tether in circulation.
Trace Mayer: Yeah. And that's actually what James Turk, the founder of GoldMoney, he gotten patents in 1993 for coming up with the way to do this with gold. Yeah, a form of digital gold and stuff like that he actually got like five patents in that area. So, you know, it's very exciting to see some of these applications.
James Turk, he kind of talks about, you know, when we developed the first car it was a horseless carriage. It took several iterations before we had the Ferrari, for example. And I think it's going to be the same way as we're reinventing and recreating and innovating money in the Information Age. And Tether's, you know, right there kind of at the forefront in all these.
Before we kind of end the podcast like what are you most optimistic about in this industry, like, what kind of really excite you?
Reeve Collins: The entire industry is exciting. And just the revolution of what the block chain will bring to the world, because the connectivity that it gives all the people that haven't had it before is pretty exciting.
The fact that we really can now serve the under banked and be un-bank and as well as the people with robust financial institutions. That entire infrastructure is being disrupted and so that's what's exciting about this that we can see some real changes and some industries that people would have never thought could see this type of innovation.
Trace Mayer: Wonderful. Been an excellent interview. Thanks for taking the time out. We’ve had Reeve Collins, CEO and co-founder of Tether (dollars to bitcoin exchange) that you can find at Tether.to. Thanks for being with us.
Reeve Collins: Absolutely, thank you.