It was of great sorrow when we learned about Adam Tepper’s passing. The Bitcoin Gambling Guide team and I express our sincere condolences. He will be missed on the Bitcoin scene, especially in the Bitcoin exchange industry. Nonetheless, his contributions to the market will forever be regarded as one of today’s innovations.
Days before his accident, I was fortunate enough to speak with him to know more about Independent Reserve and his insights on the Bitcoin economy, price, and its future, as well as the benefits his venture brings to the Bitcoin casino market.
Every Bitcoin enthusiast has gone through a journey. What led you to be interested in Bitcoin and come to believe that it is something that you would devote much of your time to?
The technology behind Bitcoin is fascinating. I first heard about Bitcoin many years ago shortly after it began in 2009. A friend of mine, a person who enjoys touting the very latest technology trends, told me that ‘some guy has worked out a way to create Internet money’. I had no idea what that sentence even meant, and I believe neither did my friend at that time.
I didn’t think about Bitcoin again until sometime later in November 2012. I’d noticed an online advertisement for something to do with Bitcoin and thought I’d take a look. The first thing I noted was that Bitcoin, whatever it was, was trading at over USD 10, and had been for quite some time. I had expected it to be worth no more than a few cents, or even a fraction of a cent. Of course, knowing nothing at all about Bitcoin at that time, I couldn’t have had any logical idea of what a Bitcoin should be worth, but assuming there were millions of them in circulation, USD 10 seemed like substantial value and I was curious to find out more. After reading pages of material on the Internet that I had found, I was no closer to understanding what Bitcoin was or how it worked than when I began. Only after carefully re-reading and cross-referencing various sources did I begin to get a picture in my head. I certainly wouldn’t have called it a deep or thorough understanding; I had quite a lot of questions of my own.
It did capture my interest however, and being a software engineer I decided to write my own primitive piece of software that allowed me to send and receive Bitcoin (this was never publically released, just an experiment to see how it worked and to satisfy my own curiosity). I never finished writing the software, but I spent two or three weeks developing it and in doing so I eventually did come to understand how Bitcoin worked, and was deeply impressed and amazed with the technology. It was amazing because it so elegantly brought together multiple disparate software principles into a system that nobody had ever thought of before that could now effectively be used as money.
When I had a thorough understanding of Bitcoin, I passed on what I had learned to my business partner Adrian Przelozny. It was met with the same level of skepticism I had myself initially. A month later he mentioned it back to me, ‘Bitcoin is really amazing – I bought some’. Shortly after, our thoughts turned towards a business in this industry.
How long did it take you to launch Independent Reserve?
After throwing around some ideas about how we could best capitalise on the new digital currency, we incorporated a company in June 2013. We began designing our systems immediately and by September that year, we had our development team together. Our product was launched to the public just over a year later on October 21, 2014.
A development period of eighteen months would be considered by some to be rather long for a company looking to make its mark in a new technology such as Bitcoin. We were very mindful however, of the potential risks involved in releasing a product that was not designed from the outset to be robust, secure and scalable. We were aware that our future customers would not tolerate security breaches and unscheduled downtime, something that had plagued, and continues to plague other exchanges today.
Independent Reserve’s co-founder, Adrian Pzelozny, and I had spent fifteen years designing and developing enterprise systems for financial institutions and other corporations in Sydney. This was something that we could bring to Bitcoin that nobody else in the industry had yet done. We had the engineering knowledge, the knowledge of Bitcoin, and also a team of software engineers we could bring together to achieve these audacious goals.
What can you say is the best thing about your venture? What are the advantages of operating it?
As I touched on in the last section, one of the best things about Independent Reserve is the system behind it. While I’ve already mentioned the fact that it was designed from the outset to be robust, secure and reliable, a lot of people may not realise the level of engineering that has gone into our system to achieve that. People are often surprised to know that our systems run on over 30 servers distributed at multiple data centres. This ensures our systems have redundancy, and each of the components of our system has limited responsibility – leading to a more easily maintainable and more secure system. Designing our system in such a way now enables us to adjust our business model quickly, and adapt to changes in the industry by adding new modules to our existing infrastructure. We see our exchange as the foundation of many higher-level systems to follow.
I think one of the other key advantages Independent Reserve has as a company is the executive team. Whereas many others in the Bitcoin industry have a software programming background, we have brought together leaders with many years’ experience in finance, investment banking, forex as well as Adrian and myself in enterprise software. I think that combination really allows us to see Bitcoin from all perspectives, and make the appropriate industry connections as we move forward.
What can you say about gambling laws and cryptocurrency legality and regulation?
A question a lot of governments around the world are now asking themselves is whether Bitcoin should be considered legal tender, and if so, should it be regulated, and if so, to what extent.
The answer of course is that Bitcoin requires balanced regulation. Regulation that does not stifle a new industry, yet at the same time protects consumers from industry malpractice. The other point to consider is that we can’t take yesterday’s laws that applied to an entirely different financial paradigm, and apply them to Bitcoin. Bitcoin fundamentally works differently to fiat currency, and regulation needs to be developed that supports the decentralised, digital model.
The question then becomes, what that regulation looks like. Well I believe it’s absolutely necessary to allow Bitcoin and other digital currencies as legal tender. Governments and economies should embrace this new world currency and watch as trade flourishes as people are able to make transactions across the world in the blink of an eye without being retarded by yesterday’s banking systems.
Where I believe regulation is required, is with financial institutions that are holding Bitcoin on behalf of others, much like a bank. We have already witnessed the first great financial collapse in Bitcoin with the fall of Mt. Gox, and as recently as a month ago, we saw Bitstamp lose five million dollars’ worth of Bitcoin from their digital vaults. To their credit, in the case of Bitstamp, the majority of their funds was held safely in cold storage and they are honouring their account holders’ balances. It does highlight however that without some oversight on the security measures these organisations have in place, consumers cannot have confidence in their banking institutions responsible for their Bitcoin.
This is not a weakness with Bitcoin; it is an immaturity in the Bitcoin financial sector. Already within the past twelve months since the collapse of Mt. Gox we have seen the entire industry take great strides in security best practice, and no doubt we will continue to do so. It is in everyone’s best interest to have a strong, stable, secure Bitcoin financial sector – and it is this area that a balanced level of regulatory oversight would not be amiss.
It is important for regulators to be mindful of the fact that as a new industry, it is developing at a very fast pace and new practices are being evolved all the time. It would be a step-backwards for regulators, with a limited understanding of an evolving industry to take a strong-hand implementing impossible to meet regulations or regulations that are detrimental to the growth of Bitcoin. Their best stance is to stand back, and as the industry matures to step-in where appropriate. This principle could probably apply to most industries.
What do you think Bitcoin needs to become a more prominent and reliable payment system?
I would argue that Bitcoin is already a very reliable form of payment. I think Bitcoin’s biggest hurdle right now is reaching critical mass. It’s the Catch 22 problem of consumers unwilling to use it when there are only a small number of vendors accepting it, and merchants unwilling to accept it when only a small number of their consumers are paying with it. It offers great advantages for both merchants and consumers, and I think as we see new investment into the industry we will see continued growth across all fronts. One day we may wonder how payments functioned without Bitcoin.
What have been the greatest accomplishments you have had while operating your business from the beginning? What has been the most surprising challenge in your project?
Our greatest accomplishment was delivering our system as it was designed. Since our launch, we have had no unscheduled outages, no security breaches and provided to our customers the secure and robust platform that we designed nearly two years ago.
One of the challenging areas for our company has been finding the right balance around verifying our customers. It’s a difficult problem that everyone in the Bitcoin industry is facing, and many of our customers, and potential customers don’t understand the reasons behind some of our actions. If we were to allow everybody to have an anonymous account with Independent Reserve we would not only be a ready target for fraud, we wouldn’t be applying the rigorous standard that we believe the whole industry should, to strengthen the global Bitcoin infrastructure. On the other hand, by requiring an intensive identity verification procedure we risk losing potential customers, and feeling their ire through public forums. Finding the right balance is challenging, but if we want to be taken seriously by the mainstream as a genuine alternative to cash, we need to operate by the highest standards.
Another challenge common to the industry is creating those critical banking relationships so that we are able to accept payments. Fortunately we have multiple strong relationships with financial institutions now, and strong support from PricewaterhouseCoopers as well who provide independent auditing of our firm. We’ve certainly had our share of financial institutions however who have refused to work with the digital currency industry, which has been frustrating.
What characteristics of your business do you consider revolutionary or groundbreaking?
I would love to say that Independent Reserve is revolutionary. Instead, I’ll go with the fact that Independent Reserve uses the absolute best industry practices in software engineering and security. And developing such a system requires constant innovation, as that level of robustness does not come ‘out-of-the-box’. I’m also quite proud of our multi-currency order book which will be released in March. This allows orders to be made in one of many currencies and placed in the same liquidity pool. I believe our innovative approach here offers the most efficient trading system for buyer and seller.
Do you think it is hypocritical when Bitcoin supporters who are critical of banks are also critical of altcoins? What do you think of the relationship between Bitcoin and altcoins?
I can’t really answer the first part of the question, but I’m happy to talk more about the relationship between Bitcoins and alternative forms of digital currency.
Bitcoin is not the only digital currency, however it was the first and has an overwhelming 98 % majority of the market in terms of market capitalisation when comparing to other digital currencies. Bitcoin was developed in 2009, and it wasn’t until 2011 when we saw any other such digital currencies, such as Litecoin, which is largely the same as Bitcoin.
I believe that the developers of some of these earlier currencies had good intentions, however today there are more than five hundred digital currencies around the world that most people (including myself) have never heard about, and I believe some of them to be nothing more than a scheme for the original creator to profit by.
Having said that, despite the great evolution Bitcoin has been to the history of money, no system is perfect and it is inevitable that the Bitcoin protocol will be refined over time (as it has been), and that potentially new digital currencies may be viable concurrently with Bitcoin or ultimately replacing Bitcoin. The concept of the Blockchain is fundamentally sound and most, if not all, digital currencies are based on the same core principles as Bitcoin.
Do you have a Bitcoin price prediction?
Absolutely not, except to say that it will be different tomorrow. The one thing that I will mention is that Bitcoin, relative to other currencies has relatively low adoption. As that demand increases, it will inevitably drive the price up and reduce volatility. If one believes the concepts behind digital currency are sound, then my advice would be to buy and hold.
Finally, for those who don’t get Bitcoin, do you have any suggestions? And anything more that you wanted to add?
Bitcoin is to money what email was to letter writing – on many levels. Many people didn’t understand it, but the world could barely function without it now. Also, it’s a lot more useful when everyone uses it.
Thank you very much, Adam.