The Bit Podcast Episode 11 – Alex Mashinsky
29 Mar 2021, by Bittrex Global Team
This week on The Bit, we’re joined by Alex Mashinsky of the Celsius Network, a disruptive new platform that aims to build and develop financial freedom through crypto. Celsius’s native utility token, CEL, is now available to trade on Bittrex Global.
Here are the show notes
[01:15] An Entrepreneurial Spirit
[05:20] Onto the Blockchai
[10:51] The Early Unicorns
[18:00] Disrupting the Industry
[23:41] Putting on Our Prediction Hats
Tom: Hi and welcome to The Bit, the Bittrex Global podcast where we give you the inside scoop on all things crypto. I’m Tom Albright, the CEO of Bittrex Global.
Welcome to today’s episode of The Bit, where we sit with some of the hottest names in crypto to give you an insider’s perspective on the fast moving world of cryptocurrency.
If you’re holding your cash right now in a bank account, you’re probably getting either no return on your assets or half a percent per year at most, if you’re lucky. Obviously, that’s not a great situation for the average person.
However, holding or HODLing crypto versus cash is really starting to pay off. There are many crypto companies out there now offering between 5% and 10% returns annually if you hold your crypto with them, sometimes even higher. Obviously, that’s a much more lucrative deal than holding cash in a bank account. Of course, as always do your own research. And this is not investment advice. But my next guest, I think, may sway you a little bit.
So today, we’re really excited to be talking with Alex Mashinsky, CEO of the Celsius Network, an Ethereum based borrowing and lending platform. Alex is a longtime entrepreneur who has founded many tech firms and a leading voice in blockchain. Alex, it’s a pleasure to talk with you. Welcome to the podcast.
Alex: Thanks, Tom. And thanks for having us.
[01:15] An Entrepreneurial Spirit
Tom: Yeah, absolutely. It’s my pleasure. We’re really excited to hear about Celsius and your background and everything else. So really excited just to dig right in.
So you have a really impressive track record and background, especially for the crypto space, having been involved in tech for a long time. So can you quickly tell us a little bit about your background, including taking a company public and, really interestingly, bringing WiFi to the subway stations in New York?
Alex: Sure. So I came to the States just over 30 years ago. I’ve been in New York for that period of time. Celsius is my eighth startup as a founder. So definitely been around the block a few times, a third unicorn, I guess. And really, I was lucky to be there at the birth of the internet and create a company called Arbinet that really was the first creator of Voice Over IP. So we kind of wrote the protocol, the patents, obviously, several billion people use it today. So that little thing called Voice Over IP…
Tom: So you’re enabling all of the remote work around the world now. It’s truly world changing.
Alex: Right, so today we take it for granted. But back when the internet was a dial up network, it was pretty hard for people to conceive that this little thing, this experiment that ran on the phone network, right? Because your dialogue was over the phone network will one day consume the phone network and the phone, the entire phone network would just be an application on the internet. So that was…being at the right place at the right time helps. So I did several startups in the communication/tech infrastructure.
And then also, like you mentioned, put 4G, 5G and WiFi in the New York subway. So basically, New York was the last major city in the world that did not have wireless connectivity underground. You would ask yourself, how is that possible?
And it was not technological…it was, unlike Voice Over IP, where you actually had to invent technologies that never existed before. Here, you had to convince a bunch of different politicians and stakeholders that this needs to get done. And so I kind of committed to do that after September 11. One of my best friends died at the Towers and, again, millions of people got stuck without communication. I was like, okay, I’m going to solve that problem.
Tom: Yeah, yeah, I remember just frantically calling people and the entire cell network was down and nothing was working and you just sat and waited and waited and waited and hoped and prayed. So definitely a pretty incredible upgrade.
Alex: So the funny thing is that one of the biggest challenges for… the company is called Transit Wireless. It’s basically the infrastructure that provides all of the fiber, the electricity, the equipment to broadcast the AT&T or Verizon or Sprint, well, now it’s T Mobile, I guess, signal underground. And the hardest thing was actually getting enough electricity and getting the fiber into all the different tunnels. It was not a technology limitation.
Tom: Really interesting. Just physically getting down there and making it happen.
Alex: These tunnels were built over 150 years ago, so it’s very, very hard to get anything done down there. Any wall you touched, there were asbestos issues and all kinds of other issues.
Tom: Oh, man. And then of course, the third rail, you’ve got to stay away from.
Alex: Exactly. So we solved all that. And we spent about $300 million to kind of build the infrastructure. And today, we basically run the service on behalf of the carriers.
[05:20] Onto the Blockchain
Tom: Yeah, that’s amazing. So switching over to Celsius and to blockchain, how did that lead to you starting Celsius and getting involved in the blockchain space?
Alex: So I tried to solve the double spend issue. Myself, not necessarily through blockchain, I was working on kind of e-money initiatives between, I would say, 2001 and 2005. And frankly, I have to admit, I didn’t solve it.
Tom: So you’re saying you’re not Satoshi, then?
Alex: I’m not Satoshi. And I have over 50 patents that cover everything from Voice Over IP to wireless charging of electrical power, and you name it, right. Very eclectic inventor. But this problem, the double spend problem was one of the hardest problems in computer science.
This was not…I think most crypto users do not understand how big of a problem this was. They think Satoshi created this little project and we’re all using it. But frankly, since the 70s some of the best minds in the world have tackled this problem in a variety of different ways. So, when one of my employees showed me Satoshi’s paper and I read it very, very…I think I read it like five times. Because again, I worked in the space, so I understood exactly.
Tom: So you knew how hard the problem was and how groundbreaking it was.
Alex: Exactly. And having failed to solve it. And this is October 2010, right? So a year or two after it was published, I started doing the math on how much electricity is going to be needed. And the computing power, because we take it for granted today that we have these amazing machines with dedicated ASICs. But back then everybody was just using Intel microprocessors…
Tom: Your spare laptop or whatever.
Alex: Exactly. So I looked at this guy who brought me the paper and I said this is the most wasteful and inefficient system I’ve ever seen in my life. I mean, this would be the world’s slowest database. And I was right, but I was wrong at the same time, right? So sometimes knowing too much is just as bad as not doing anything.
Tom: It was the blissful ignorance. Sometimes you can just blindly charge forward and fight through.
Alex: That’s right. Give you courage to try. Because you don’t know what you don’t know.
Tom: Really interesting. So I’m going to assume that at that point was when you first got into Bitcoin and obviously…did you buy Bitcoin back then? Did you start with mining? How did you get…
Alex: The opposite. I publicly stated, embarrassing myself, that this will never amount to anything. I was a Bitcoin denier. Because my entire career was about getting networks and systems and devices to run faster, cheaper, consuming less power right?
So for example, before Celsius, I was CEO of Novatel Wireless. We launched the first 5G device in the United States for Verizon, right. We built the M1000, which is the first commercial 5G device using the Qualcomm chipset. So that’s what we do, right? That’s what I did my entire career, faster, better, cheaper. Voice Over IP was faster, better, cheaper than the phone network. So it was very hard for me to believe in this.
And I was basically a denier until Mt. Gox. So when Mt. Gox happened, I realized that I just don’t get it. Mt. Gox, for me, it was like I didn’t own any Bitcoins. It’s not like I got burned or anything like that. It was more about, I realized that I’m missing something huge. And I had to reset my thinking. I had to completely revisit every assumption and go back and understand that when you solve the double spend problem, the speed doesn’t matter, because you solve such a huge issue, that the speed or the wastefulness of the protocol.
Because this is the most wasteful protocol ever created, right? There’s nothing on Earth that is more wasteful, wasteful in resources, wasteful in computing power, wasteful in energy, wasteful in communication because you need to communicate across 10,000 nodes to get consensus. So I realized that the double spend problem, in a world where all these other things are almost free, communication is almost free, computing power is almost free, becomes a huge opportunity.
So it took Mt. Gox…basically Mt. Gox, the fact that Bitcoin kept walking like nothing happened after the largest exchange, back then it was like 90% of all trades went through Mt. Gox. Imagine the New York Stock Exchange and the NASDAQ blowing up, like all the computers are decimated, the networks go down, everybody loses all their money, and everything keeps ticking along like nothing happened.
Tom: Yeah, absolutely. And that, frankly, that’s probably underselling it. You probably have to add in the London Stock Exchange, Hong Kong, German, Italian, all those.
Alex: So it was definitely a turning point.
[10:51] The Early Unicorns
Tom: Yeah, absolutely. So one of the things that is super impressive to me about that story is how you could have been publicly anti-Bitcoin and then be able to reevaluate all your assumptions and go back and revisit those things and come to a different conclusion and now be involved in the blockchain space.
And one of the things that I think, from an outside observer, but as I see serial entrepreneurs and people who build these amazing companies and amazing products is that they’re completely unafraid of failures.
And that you can fail with 1, 2, 3, 4, 5, however many startup companies, but as long as you’re learning from those and growing, the 6th one can be huge and change the world. And there’s just so many examples of that. It’s almost more the rule of founders that succeed rather than an exception.
So I’m curious if you could tell us a little bit about some of your biggest misses and mistakes and what you learned from those and really even whether you agree with them, if that’s your perspective, as well.
Alex: So when you’re in your 20s, and your first company is a huge success, like Arbinet was one of the top startups here in New York City, right. This is back in the 90s, where we raised over $300 million, which, being a unicorn back then was a real unicorn. Today everybody’s a unicorn.
Tom: Inflation has been just a little bit since then.
Alex: Exactly. So that kind of taints you also because you think, okay, well, that wasn’t too hard. Let’s do another one. And you realize that, no, your timing might have been perfect on the first one, doesn’t mean it’s going to be perfect every time going forward.
And I think McKinsey did this amazing survey, which they basically analyzed, I think, like 10,000 different companies, startups, and they came back with a conclusion that it was not the team. And it was not the funding. It was mostly timing. If you have the right, even remotely right idea, with the perfect timing, you’ll do better than the best team with the wrong timing.
So anyway, so my point is I agree with you…so just to put the cherry on the story…so this was back in 98 I think. Esther Dyson, she’s a great entrepreneur here in the city in New York, and she helps a lot of young companies and young startups.
And she called me one day and said, hey, you know, you’re a Russian immigrant. I have this other Russian immigrant who needs some help. Why don’t you spend some time helping other entrepreneurs? And I was like, okay, fine, fine. So I went to this gathering and she introduced me to the guy and he’s pitching me on the stuff and I’m like, this never is going to amount to anything. Who needs another search engine? We have AltaVista, we have Lycos. So that was Sergey Brin pitching me on Google.
Tom: Oh my goodness!
Alex: And he was still in Stanford, they were just looking for their first check. They’re like, okay, who’s going to give us enough money…
Tom: For the million dollars. Yeah.
Alex: Who’s going to give us enough money to buy a few computers. And then after doing Voice Over IP, being a big success, taking the company public, I had this team. Actually, one of the VCs called me and said, look, we’re doing due diligence on this little startup. And this was the Skype team. And I said to him again, knowing too much, right. I said to them, look, the tech is good. The product is going to work, but they’ll never make any money. And I was right that they’re never gonna make any money but I was wrong on the fact that Microsoft will pay $9 billion for the company.
Tom: Quite how that manifests…
Alex: So my point is that it is very difficult. I think it’s a Shakespeare quote, tell me which seed will sprout and I will… I’m botching the quote but it basically was saying you never know which seed is going to sprout. But again, I was very lucky to be able to start these companies and hire a lot of great people to work with me and deliver some of these amazing technologies that we use every day. So it’s definitely every entrepreneur’s dream.
So when I decided to do Celsius, it was really all about giving back, it was not about, oh, let me have another unicorn, right? It was, okay, if we really solve the double spend problem, can we create a network, a financial network, that will act in the best interests of the community versus creating Wall Street on the blockchain?
So what I was thinking about was, can we take this pyramid that we all live in, the pyramid in which 1% of the top of the pyramid really benefits from the efforts of the 99% and make that into a circle, and that’s why our logo is a circle. And really allow people to benefit from the contribution to society. Because looking at Ethereum, I mean, it’s a perfect example of, here is a group of people that effectively created a nonprofit organization, created a new protocol.
And their contribution was rewarded with…their reward in terms of ETH and stuff like that had everything to do with their contribution to society. Not, okay, which seat did you sit on the Goldman trading desk? And how much profit did you make moving bonds or stocks or anything else? So this opportunity to open this Cambrian explosion of innovation, called digital assets, and create these amazing new services.
Vitalik went to the Bitcoin Foundation before he started Ethereum and offered to give them the code for free for smart contracts. He just said here, I built it for Bitcoin, just add it on top. Because he used to be the editor of Bitcoin Magazine. And they said to him, we don’t need this, what are you talking about? Satoshi did everything perfectly. We don’t need to add anything on top.
And that’s why he created Ethereum, because he was like, you guys don’t understand anything. I’m just going to create a fork and add all the stuff to it. And it’s just a beautiful system, right? It’s like a system with a full Turing machine and everything else that allows you to do magical stuff, which we’re all benefiting from today.
[18:00] Disrupting the Industry
Tom: Yeah, absolutely. Just for the people that are listening who may not be 100% familiar, could you describe the Celsius platform and business model and what you guys are doing?
Alex: So again, you mentioned before that we run on Ethereum. So our token, CEL token, runs on Ethereum, but the wallet supports 14 different blockchains and 45 different assets in total. So the rest of them are tokens that run on different networks.
And really, we’re not here to choose winners or losers. I love Ethereum. But I also love Bitcoin, and I love Cardano and so on. So our job was basically to say, okay…since yield is disappearing from the world, right? Because central banks are lowering rates to zero because they need to reflate and refinance the debt and everything else. Can we create yield on the blockchain and deliver that yield to the depositors? So we said, what happens if we take all the profit…we’re going to profit from this capital just like the banks do.
It’s not like we invented a new theorem or some mathematical equation, or some algorithm that no one else is using? We kind of do, basically, what Wall Street does, but the piece we innovated on, and Celsius was the first company in the world to do this, was to create yield and then give 80% of it to the depositor.
And then say to people, okay, you want this yield in kind, meaning you gave me Bitcoin and paid you yield in Bitcoin? Or do you want it in this token that will appreciate if the community grows, which is kind of like what afterwards what Compound, Aave, Uniswap, and everybody else did.
Tom: That model has been adopted quite a bit for sure.
Alex: Exactly. And the funny thing is that when we wrote our white paper and published it in 2017, people looked at us and said, what the heck are you guys talking about? You can’t pay interest on Bitcoin or Ethereum, these things don’t yield! Where are you going to create the yield? And we started saying, well, you have to understand there’s this thing called sec lending or securities lending. And that’s how all the companies on Wall Street make their money.
When you buy a stock through Fidelity, they don’t make money, they used to charge you $4.95, right? They don’t even charge you that anymore. They make all their money rehypothecating your stocks. Tesla costs 25% a year to borrow. So if you hold the $10,000 worth of Tesla stock with Fidelity, they make $2,500 a year on your $10,000.
You just don’t get any of that. You get to keep zero of that, because that’s their profit. So we know all these tricks that Wall Street uses to make money. And actually, that is one of the safest businesses on Wall Street, right? There’s never been a Wall Street bank that went under because they rehypothecated stocks or did sec lending. It’s always a derivatives business, or they’re prop trading or all this other stuff.
So we took the safest business on Wall Street, brought it into crypto, and then said we’ll give 80% of that back to the community. And we created this thing, and it kind of got legs of its own. I mean, I was and still am the largest user of Celsius, so probably over $300 million worth of my own capital in earning yield. Right?
But then all these people started showing up saying, this looks like a good platform, we’ll trust you. And we kept adding assets. And the growth has just been phenomenal. I think we had like $25 million, the end of the first year. End of 2020, we had $550 million and by January 2021, we had over $10 billion.
Tom: It’s amazing how explosive the growth has been. Absolutely.
You’ve mentioned a couple there, but what are some other crypto or blockchain projects that you’re interested in, that you’re following, or you think are doing good work? Obviously, apart from you guys at Celsius?
Alex: Cardano, Polkadot, obviously, are huge initiatives that are kind of trying to steal the cake from Ethereum. My view is that they’re going to do much better if they found a new killer app. So for example, if Cardano was the king of NFTs, for example. If they created an even better protocol for NFT, and they were launched and so on, they would probably do even better than trying to steal or take away Ethereum developers.
So there’s so much opportunity here that I think creating new verticals and new pieces of the pie, those pieces of the pie are bigger than the pie you’re fighting over. So to complete the analogy here. And again, we just listed DOT on Celsius. It just went live this week. We’re launching Cardano, I think, Q2 or Q3. And again, we’re cheering for all these people. But all of this infighting internally… again, guys, all the money is sitting in JP Morgan. Let’s just get it out of there! What are we fighting over?
[23:41] Putting on Our Prediction Hats
Tom: It’s a great point. I think everyone needs to keep their eye on that prize, rather than fighting over the crumbs that the big banks are kicking out.
So one last question for you to end things. I know that you like to make predictions. So right now, where do you think the top of the bull market ends? And when do you think that will be?
Alex: Yes, last year, I hit it on the nose, saying we’re going to end the year at $30,000. People were like, oh, he’s just using a round number. I’m like, no, I think it’s going to hit right on $30,000. And we missed it by like four hours. I think it hit $30,000 like 4 am on the 1st of January…
Tom: You were a whole year off right?
Alex: So this year is much harder because you have this influx of corporate and institutional demand, which kind of makes it much harder to just plot the user growth than the average account.
Tom: Yeah, and the timing for sure.
Alex: And the other halving, so you knew kind of, okay, supply’s going to get cut by half. Okay, let’s plot this and the dots showed up at $30,000. So I just called it $30,000. But this year is much harder. My prediction is that we will rocket to something like $160,000 and then close the year below $100,000. And the reasoning for it is that I just don’t see sellers, like no matter how high we go, we’re seeing even though it retrenches, 10%, 20%, you’re just seeing big chunks coming in and buying all of those dips.
But I think as we go higher in price, more and more people are going to basically sell their bags. So we will be closing the year at a lower level than the peak, right? It’s not, this is not going to continue infinitum, we’re going to have a point at which the number of sellers exceed the buyers and we’re going to normalize somewhere.
So you take $160,000, usually you retrench 50% so you will be somewhere between $80,000 and $90,000 to close the year with the peak of $160,000. But we may shoot all the way to $250,000. I mean, it doesn’t mean…like I might be completely wrong.
And the HODLers, Celsius is a HODLer community. So we watch…think about it this way. We have half a million users, about 350 institutions, about 1,000 corporates, but most of our community is retail HODLer so we can see their behavior, right. And I just don’t see them withdrawing or selling anything. So we kind of know where the peak is because the minute our HODLers start withdrawing Bitcoin, we’re sitting on the thermometer, on the Celsius thermometer.
But obviously we’re all cheering for Bitcoin, I’m a big Bitcoin holder personally. And people say, oh, Alex, you’re saying bad things about Bitcoin. I want it to go to a million. I’m just giving people realistic expectations and what are the drivers but I might be completely off this year.
Tom: We’re going to have the marketing team cut this up: Alex Mashinsky predicts million dollar Bitcoin.
Alex: Exactly. Well, that’s old news. I think you have a bunch of Wall Street guys who already did that.
Tom: That’s right. That’s true. We’ll have to go to something significantly higher. But on a serious note with that, do you have a long term price prediction? Do you think we’re above a million at some point in the near term?
I personally think it’s inevitable at some point just based purely on supply and demand, long term. But I’m really curious to get your take on that.
Alex: That’s a great question. And I always joke that it’s not like Celsius is so great, it’s that the banks are so bad. And the same applies to the central bank, right? I mean, one Bitcoin is still one Bitcoin. It just happens that it used to be $100 it took to buy and now it’s $50,000 or $55,000 to buy it. So the issue is not Bitcoin, the issue is what happens to the dollar.
Tom: When you print trillions of dollars every couple months, that tends to have an impact.
Alex: And here you have completely opposite opinions, meaning there are the modern monetary theory guys, the MMT guys, who kind of look at Japan and say, look, 30 years of QE…right, because we are, the Fed is really the new kid on the block. The Japanese have been doing it for 30 years, right?
Tom: Yes. They’ve been doing it since the 80s. Yeah, that’s right.
Alex: Exactly. And nothing happened. And the Japanese central bank owns over 75% of all the securities and all the debts, all the bonds in Japan. And it’s just a crazy number, right?
Tom: They just don’t pretend anymore. Yeah, that’s right. They issue bonds. And it goes right to the central bank.
Alex: Exactly. But they’re not the reserve currency of the world. So it’s not apples to apples. So on one side you have…and by the way, if you google modern monetary theory, it doesn’t have an author. It’s almost like a Satoshi. It doesn’t have an author, no one claims, it’s just something that people created out of thin air. It’s not a real theory. And it’s definitely not modern.
Tom: It’s not modern at all.
Alex: It’s like the Federal Reserve. It ain’t federal and it has no reserves.
Tom: Yep, but it sounds official.
Alex: Yeah, it’s funny, but these things, that’s what we live in.
Tom: Right. Well, I mean, if enough people paid attention really to what is going on with our, our collectively, money in central banks and all those sorts of things, no one would really be laughing. It is absolutely terrible for most people in the world.
Alex: Exactly. All these people that say that Bitcoin is this crazy creation, I think they need to look, take a hard look at the dollar and tell us what that is. I mean, the dollar, the way we know it today is also an experiment. I mean, it was really created in 1971 when we went off the gold standard.
Tom: And they’re pushing the boundaries of that experiment. Every year, it gets a little bit more extreme.
Alex: Exactly. So if MMT happens, and we look like Japan, nothing may happen for 20 years. And then Bitcoin just keeps going a little bit higher because there’s more buyers than sellers, and we go from 160 to 250, or from 250 to 380, or whatever, right? Whatever the numbers are, we don’t go parabolic, right?
On the other side, if this experiment goes out of control, and people realize that inflation is here and they want to move off the dollar as fast as possible, then effectively they basically don’t transact in dollars, right? They want to move off the dollar as fast as possible, which is what happened in Germany, before World War II, what happened to Zimbabwe, what happened in Venezuela, and so on and so on in all these countries.
Then Bitcoin goes parabolic, because you have this mass dash into Bitcoin by people who don’t care what the price is, right? They’re not traders. They’re not HODLers. They’re just trying to run away from the dollar. And because there are so many dollars…there are trillions of dollars looking for yield, looking for store value. Bitcoin just goes parabolic.
And then I think under that circumstance, a million is a very, very conservative estimate, meaning a Bitcoin could be worth $10 million or $20 million or $50 million. Because again, I have here a reminder that I look at every day, which is the Zimbabwe $20 trillion note. It’s not enough to buy a loaf of bread. $20 trillion note.
Tom: These numbers are just getting inconceivable at that point.
Alex: Exactly. So when inflation hits and inflation is rampant, it doesn’t matter what Bitcoin costs, right? So there are only 21 million Bitcoins. There’s, again, billions of people around the planet. If the reserve currency has an earthquake, every other currency is like a domino, it’s going to have an earthquake. So you’re talking about all the money in the world. And satoshis just become the reserve currency.
Tom: Absolutely. So Alex, it has been great pleasure talking to you, really, really enjoyed it. Really looking forward to seeing how Celsius continues to grow and the things that you guys are doing. So thank you so much for coming on the podcast. It’s been fantastic.
Alex: Great. Thanks for having us.
Tom: Thank you, Alex.
Thanks for listening to The Bit, the Bittrex Global podcast. Our guest today was Alex Mashinsky, the CEO of Celsius. To learn more about Celsius, visit www.celsius.network and check out their token, CEL. That’s C-E-L on Bittrex Global. To learn more about Bittrex Global visit global.bittrex.com. And please make sure to subscribe to our podcast. You can find us wherever you get your podcasts. Thank you for listening and for making The Bit one of the fastest growing podcasts in the world of crypto. I’m Tom Albright, the CEO of Bittrex Global.