Zhao Changpeng's full speech in Hong Kong: Many governments attempt to control cryptocurrencies, which instead triggers the growth of cryptocurrencies

Source/Editor: Wu Shuo (This article has been edited and excerpted)

Original video: https://www.web3festival.org/hongkong2023/live?lang=en

Zhao Changpeng: Hello everyone, I am the CEO of Binance. Due to a scheduling conflict, I am unable to attend in person. I have been to Hong Kong many times and really like it here. I look forward to participating in this conference next time.

Deng Chao (Host): Today's topic is about CeFi. I would like to ask some questions on behalf of the audience regarding the CeFi ecosystem and hear your thoughts and insights. First, starting with the security issues that users care about the most, we have recently seen some security incidents. A few years ago, some people said that due to CeFi's reliance on centralized infrastructure, it is not as secure. How can we prevent infrastructure failures to ensure the safety of users' funds?**

Zhao Changpeng: CeFi and DeFi have different risks, and security must be considered in both. CeFi has its own risk characteristics; it’s not that one is safer than the other. You must take security measures into account. For CeFi, exchanges can also be very transparent, with good proof of reserves that can be verified on the blockchain. If a CeFi platform is transparent, it can actually be more transparent than traditional financial service providers.

Speaking of DeFi, if you can properly protect your keys, self-custody of private keys can be a good way and will give you more control. However, I believe that most people today are unable to fully protect their security or keys. Even when using computers or hardware wallets, backups are still necessary, and those backup materials also need to be protected. So there are many factors and different risk characteristics. Users must take all of these into consideration and cannot just unilaterally think that one is better than the other. Moreover, when using DeFi, wallets can also be attacked. I encountered such an example yesterday, where a user's wallet IP address was leaked, resulting in the loss of funds.

Deng Chao (Host): The second question is about trust related to security. After the internal collapses of some notorious CeFi platforms, the key factor "trust/lack of trust" has been a constant topic in the news and headlines. How can users trust CeFi companies? What can CeFi and Web3 companies do to rebuild trust within the user community, including gaining trust from other relevant stakeholders?**

Zhao Changpeng: When we talk about trust, I usually consider three levels:

The first level is the reliance on technology. In our trustless industry, technology can be used to verify things, and technology can produce utility to some extent. For example, with Bitcoin or using the blockchain, you can verify for yourself whether your money is there, along with your keys, etc.

The second level is for platforms. When you provide any service or business, even if you use blockchain or Bitcoin, you still need to trust the community. This trust takes time to verify, especially for centralized platforms. Over the past decade, thousands of failed exchanges have emerged, so trust takes time to build and must be proven through our actions. I believe Binance has very strong user trust.

The third level is self-education and risk management. Everything you do carries risks. Centralized platforms have risks, DeFi has risks, traditional financial service providers and banks have risks, and even countries have risks. You just need to learn risk management. It is very important not to view things in a naive black-and-white manner but to have a balanced perspective.

Deng Chao (Host): After ensuring trust in security platforms, the next question is about exchanges being the gateway for people to enter cryptocurrency or Web3. Many people enter cryptocurrency and the Web3 space through Binance, but looking at user experience, there is still a gap between Web2 and Web3 applications. What exactly is preventing users from entering Web3 to some extent? Can you share what Binance has done to enhance user experience, and how do you see CeFi further improving user experience to bring more users into the Web3 world?**

Zhao Changpeng: That is indeed the case. Today, the experience of CeFi in Web3 is not that good. From the user's perspective, they need to register, do 2FA authentication, use hardware keys, and complete KYC and address verification. There are many risk controls at different stages. In Web2, most Web2 services do not require KYC; most social media platforms, such as Google and WeChat, do not require KYC. Therefore, the user experience in Web3 is not as simple as using the internet.

Speaking of DeFi, most DeFi does not have KYC or AML processes, which actually makes it easier to use. However, today most people tend to use CeFi because they prefer the support of email and customer service. If they lose their password, they can easily recover it after verification. In the Web3 world, since we are dealing with users' assets, security is paramount. We have not yet achieved an optimal solution that makes everything very secure while also being very user-friendly; security and convenience are inversely proportional. We must use many security measures, and we hope that with the advancement of relevant technologies, we can reduce these layers of measures. Binance will have local KYC processes by country and region, using local government databases and local vendors to provide specialized and customized solutions. For example, using local driver's licenses for KYC and employing localized solutions. But overall, I personally am not very satisfied with the user experience in Web3; there is much room for improvement, but this also means there are many opportunities.

Deng Chao (Host): You mentioned the comparison between CeFi and DeFi at the beginning, and there was a forum discussing this topic this afternoon. The conclusion is not that CeFi and DeFi are in opposition. For a while, CeFi and DeFi may coexist. Do you agree with this conclusion? Do you think DeFi and CeFi will coexist in the next year or a few years?**

Zhao Changpeng: Indeed, CeFi is not against DeFi, and DeFi should not oppose anyone. In a decentralized world and industry, there should be no barriers; anyone can participate. Any two people collaborating is centralization; pure decentralization means no collaboration. When you form a company or a project team, that is centralization; there will always be some centralized elements in a decentralized world.

From the DeFi perspective, we want to help more people transition from traditional industries into crypto assets and the DeFi space, building a "bridge" between these two areas. We are also actively promoting this transition. So what we need to do now is to collaborate and fill the gaps in technology and product services. There are too many gaps to fill; it is not about competition. Whether using DeFi or CeFi is a matter of user choice. If more people use DeFi, more people will also use CeFi. There are different user groups on both sides, and we just need to work together to grow the industry.

Deng Chao (Host): Regarding the comparison between CeFi and DeFi, what are your thoughts on mass adoption? We have discussed this topic several times. What do you think will trigger mass adoption of crypto and blockchain? What will be the trigger point? Is it killer applications? Regulation? Or competition? Where are we in this process? What will be the next trigger point?**

Zhao Changpeng: What can trigger the next mass adoption is a question that changes over time. To be honest, I cannot predict it. Back in early 2013, I could not guarantee that Bitcoin would take off on such a large scale; 2017 was the year of ICOs, and everyone was doing ICOs; in mid-2020, DeFi took off, followed by the NFT boom in 2021. What is important now is that we need to provide an ecosystem for people to try different things. Different things take different amounts of time. If you ask me this today, I would say that many governments are trying to control cryptocurrencies, but this may actually trigger the growth of cryptocurrencies. More restrictions on traditional financial markets will encourage more people to enter the cryptocurrency market. To keep everyone in traditional finance, the best approach is to lower the fees in traditional markets, making trading easier and improving user experience. However, the traditional financial industry currently lacks improvements, which is the driving force we see now or in the future.

Deng Chao (Host): Since you mentioned the government and the industry, I must ask about your views on regulation before we conclude. Thank you very much to the Hong Kong government for strongly supporting the Web3 industry, which is why we can gather in Hong Kong for the Web3 Carnival this week. We all agree that regulatory agencies should engage in interaction and communication to establish good rules and a good regulatory framework, balancing and encouraging innovation while preventing illegal activities and crimes. What advice would you give to regulatory agencies? How can they design a thoughtful and practical regulatory framework? At the same time, what advice would you give to industry practitioners? Many practitioners here are in dialogue with regulatory agencies, which is indeed a very important topic.**

Zhao Changpeng: This is a very important issue. I completely agree with what you said; it is the worst situation for the industry to lack regulatory clarity. Even a strict regulatory regime is better than that, as practitioners at least know what they can do. For example, in 2017, when the Chinese regulators required exchanges to cease operations, we left. Even with clear regulatory rules, there will still be some good or bad decisions. Every regulatory direction is certainly made with consideration, and it is necessary to find an ideal balance point, which may also change over time.

When the industry is still in its early stages, the main goal is to let the industry develop because at that time, you cannot predict what will become a hot topic. For instance, when NFTs had not yet gained traction, there was no reason to set regulations for them or for any future area that we do not yet know about. Now we need to let the industry develop and grow. After the industry matures, various bad actors or those who harm other interests may emerge, and at that point, we need to isolate these individuals from regulation to prevent them from harming others.

There is also a natural tendency for regulators to try to apply the regulatory templates of traditional finance to the cryptocurrency space, but these two are different. Moreover, the types of crypto assets are also different; some look more like securities, some look like commodities, some look like utility tokens, and some combine several of these characteristics.

Therefore, it is very necessary for regulators to have a deep understanding of the industry. I must be frank; currently, most regulators do not have experience in the crypto industry. Most financial regulators only have banking experience, so communication between industries becomes very important. For practitioners, it is essential to actively engage with regulatory agencies. For example, we actively communicate with regulatory authorities in various countries. Some governments have a very high acceptance of regulation, while others are skeptical. That’s okay; what we need to do is to continue communicating patiently. Usually, the first version of regulatory rules will be overly restrictive. From the currently limited regulatory framework to suddenly becoming overly stringent, adjustments are definitely needed, and it will take time to find the best balance. This is my view, and Binance is also very proactive in communicating with regulatory agencies around the world. We are also willing to explore more possibilities in Hong Kong.

Deng Chao (Host): Which area of Web3 excites you the most in the next two to three years?**

Zhao Changpeng: There are many interesting aspects. My focus is mainly on foundational applications, which I call experimental or early-stage innovations. This is determined by my personality. Once the technology is proven feasible, I hope to benefit hundreds of millions of people.

Currently, some experiments are very interesting, such as NFTs, Bitcoin, and other blockchain and cryptocurrency payments. Ultimately, we still need to solve the wallet issue. Today's wallets are not user-friendly enough, and I believe this is currently the biggest obstacle to cryptocurrency adoption. For Binance, as a platform service provider, we need to enable people to access cryptocurrencies and help projects build cryptocurrency ecosystems. This is our perspective, but personally, I find many things very interesting.