The Innovative Journey of Cryptocurrency: The Trendsetter of the Era, Zhao Changpeng and His Binance
The largest centralized exchange is operated by the largest distributed system, and the market has created Binance's unique model.Author: Zhu Weisha
Binance ranks fourth in market capitalization on the Coinmarketcap website. It has just been surpassed by the stablecoin USDT due to a series of legal issues. The decline in BNB's price reflects the market's pessimistic sentiment. How many users does cryptocurrency have? There is no precise statistical method, but Binance has 120 million users, accounting for just over half of cryptocurrency users, so saying there are about 200 million cryptocurrency users is reasonably accurate. Binance's market cap is $33 billion, and if we calculate customer value at $275 per user, this is also an underestimate, as the market has already considered its risks. Zhao Changpeng is a dark horse who entered the cryptocurrency field with internet methods and thinking, and he is also a myth. Today, he is deeply embroiled in lawsuits, hiding from place to place around the world. He and Binance reflect the rugged and fascinating aspects of cryptocurrency.
Idol or Devil
On November 30, 2021, media reported that Zhao Changpeng's net worth reached $90 billion (approximately 573.3 billion RMB), surpassing Nongfu Spring's chairman Zhong Shanshan. He became the richest Chinese person in just four years. Although cryptocurrency is a hot trend, who in the industry has achieved this? Zhao Changpeng has over 8 million followers on Twitter, while Ethereum's Vitalik has only over 4 million. Vitalik is called "V God," so what should Zhao Changpeng be called? In a world where success in business is measured by money, Zhao Changpeng's success inspires young people at the grassroots level to strive, making him an idol in a natural way.
The development of cryptocurrency is chaotic, much like the early years of China's reform and opening up, where the bold thrive and the timid perish. He is both a beneficiary and a victim of this chaos. At least one of Zhao Changpeng's children was born in the United States. Although the child is American, Zhao Changpeng no longer dares to set foot in the U.S. At the same time, although Zhao Changpeng was born in China, he is now unlikely to return. No one knows where he lives; he is a "vagabond" without a fixed abode, controlling a highly centralized vast empire through a team of about 7,000 people spread across more than 50 countries or regions. The enigmatic Binance, the enigmatic Zhao Changpeng.
Basic Elements Required for Successful Entrepreneurship
- Successful entrepreneurship requires unique skills, meaning having a leading position in the industry;
- Being good at seizing opportunities;
- Having good helpers.
Zhao Changpeng has a background in computer science. In 2005, he founded Fuxin Company in Shanghai, specializing in building high-frequency trading systems for brokerages. In 2013, he joined the cryptocurrency wallet team at Blockchain.info, becoming the third member of the group. Zhao Changpeng served as the Chief Technology Officer of the cryptocurrency exchange OKCoin for less than a year. After leaving, he founded his second company, Bijie Technology, which produced cloud-based exchange software. At its peak, Bijie provided cloud-based exchange software for 30 exchanges.
Zhao Changpeng possesses skills in wallets, trading, cloud technology, and cryptocurrency technology. His technical strength is leading in the industry. He just needed an opportunity.
The ICO in 2017 was the opportunity given to Zhao Changpeng. At the end of June 2017, the company named "Binance," which combined "binary" and "finance," was born, and he announced his white paper and token issuance plan. On July 2, the project raised $15 million using the BNB token, but after being listed on July 25, the value of BNB quickly shrank by 20%, and Binance's ICO broke. Zhao Changpeng's team tried various means to save the market, but the effect was minimal. Zhao Changpeng fell into despair and pain.
On August 8, 2017, He Yi, a 33-year-old acquaintance from OKCoin, left "Yixia Technology" to join Binance as a co-founder and Chief Marketing Officer. The beautiful He Yi was once a host and an internet celebrity. Her willingness to follow him shows that Binance is extraordinary. On the day He Yi joined, the price of BNB surged, skyrocketing 18 times in just two weeks, from $0.13 to $2.45. With Binance's rapid growth, He Yi was also crowned the title of "Sister of the Coin Circle." With money in hand, talent also came. He Yi is a good helper for Zhao Changpeng.
Zhao Changpeng possesses all three points mentioned above. As for how big it can grow? It depends on the wind.
The Trendsetter of the Era
Zhao Changpeng did not start early; there were many exchanges like Huobi, OKCoin, and Yunbi ahead of him. No wonder people were not optimistic about Binance. But who seized the opportunity of the era? Zhao Changpeng began relocating his team to Japan a month before the ban in China, allowing him to operate when competitors could not. The boom in cryptocurrency made users urgently seek overseas exchanges. Chinese people still trust Chinese people because the usability of Chinese products generally exceeds that of foreign counterparts. In terms of user experience, Binance has always been number one. Binance's website is available in 44 languages; who else has achieved that? In just a few months, it attracted millions of Chinese users and established a foothold.
The gap in vision, thinking, and decision-making has opened up a gap in fate with competitors. The same problem is a risk for competitors but an opportunity for him. The international market is not a paradise; countless waves are testing Binance, and the same wind cannot make a pig fly.
A Distributed System Without a Headquarters
The largest centralized exchange is operated by the largest distributed system, and the market has created Binance's unique model. His subordinates can live wherever they want. Although the speed of communication is not perfect, it is an optimization between efficiency and effectiveness, with effectiveness being closer to the markets and time zones they want to serve.
How does such a distributed system operate? The author found three of Binance's own articles: "How Binance Efficiently Manages Remote Teams 2020-04-10," which discusses team management; "Remote Work 2.0: Transitioning to a Decentralized Structure 2020-06-04," which talks about how to technically cooperate with a distributed organization; and "From Remote Offices to Regional Offices: Working with Binance Around the World 2022-10-27," which is a recruitment advertisement. From these, it can be seen that they had over 7,000 employees by mid-2022. In 2023, they began layoffs, reportedly cutting over 1,000 people. There was no mention of how labor contracts were signed or the contract texts. Working from home sounds simple, but how to unify 7,000 people, how to assess, how to communicate, and how to be efficient remains unclear from their brief articles.
Binance is not just a single business but encompasses a wide range of financial services. It is not a "company" but a group of "companies." When Binance settled in Malta in 2018, it began remote work. Remote work does not seem to have affected their efficiency. "From 2018 to the end of 2019, Binance expanded its business at a crazy speed. During this period, there were almost daily announcements of new products: from leveraged trading, margin trading, loan services, to staking rewards and P2P trading. In Q3 2019 alone, Binance launched 12 significant products, surpassing the total of its 12 largest competitors" (Shen Wang 2013-2021 Binance: A Past Story).
Is this model correct? Compared to Ethereum, although Zhao Changpeng engages in cryptocurrency trading, he still follows internet thinking, and his model is lagging behind cryptocurrency. The Ethereum ecosystem is also a bunch of "companies," but Ethereum's "headquarters"—the Ethereum Foundation—has fewer than 30 people, and the projects on the Ethereum platform are independent.
In contrast to YouTube, which also follows internet thinking and is centralized, it has only about 1,000 people serving 2 billion customers. If Binance had 2 billion customers, I think Zhao Changpeng's "company" would collapse.
Binance started as an exchange rather than a platform, and all its businesses are interconnected. Its advantages lie in marketing and trading speed, but it is far behind in management compared to cryptocurrency. Does Ethereum have customer service? No. Binance's customer service team has over 1,000 people but still cannot provide phone support. Currently, cryptocurrency is advanced in thought but lagging in "tools." Without eliminating the blockchain ledger, its advantages cannot be fully realized, making it unable to compete with Binance.
Even in the internet model, Binance cannot be considered advanced, which is the second major issue troubling its development aside from legal problems. Legal issues are "debts," and debts must always be repaid.
The Most Critical Issue is Legal Problems
Cryptocurrency is a single-layer system, while traditional finance is a multi-layer system, adding brokers and fund custodians between exchanges and users. This institutional structure ensures the safety of user funds. When a cryptocurrency exchange completes the tasks of a traditional exchange, broker, and fund custodian, regulation disappears, leaving only the test of human nature. Sam Bankman-Fried's FTX, the second-largest exchange globally, encountered problems; reasonably imagining, Binance could also have issues, couldn't it?
To address users' doubts, Binance utilized the effective Merkle tree in the cryptocurrency field to establish "proof of reserves" to prove its innocence. While the data looks good, it needs to be audited by a third party, and the problem is that we must trust the auditing party. If the auditing company is compromised, the Merkle tree loses its utility from the start. Even if a fair auditing company is found to conduct the audit, the Merkle tree proof still requires a sufficient number of user accounts to assist in verification. If the exchange misappropriates user assets, verifying only a few users cannot guarantee 100% certainty; it requires a certain sample size. The Merkle tree proof released by Binance can only demonstrate its ability to repay user assets, not prove that all user-stored cryptocurrency assets are safe and have not been misappropriated.
What we need is 100% verification, just like the verification conducted on Bitcoin and Ethereum ledgers.
Why doesn't Ethereum have such legal issues? Because it has machine verification. Implementing this verification with machines is actually quite simple; a non-chain financial platform can use smart contracts to escrow exchange funds, replacing brokers and custodians with smart contracts to ensure fund safety and allow users to verify at any time. The non-chain white paper will be published on the chainless.hk website.
Best Wishes
Online, Zhao Changpeng is referred to as CZ. I read the open letter CZ wrote for Binance's 6th anniversary: "Having experienced two industry winters, we are at a critical moment in history." Seeing his difficulties and struggles is very touching. I wish him and Binance a smooth passage through these tough times towards a bright future.
