Why does the world need a new cryptocurrency exchange?
My interview with Mayuko Kawashima, spokesperson of the new Osaka cryptocurrency exchange – PLUSQO
In my previous life in Canada, I operated a fin-tech company for nearly 15 years and worked in the mutual fund field for another 8 years before that. Since moving to Japan in 2009, I’ve continued to research securities and invest my own money. But I never caught the cryptocurrency bug … until now.
Honestly, I just didn’t see cryptocurrency as a responsible investment – I thought it might have potential someday as a hedge against inflation, like gold. However, I didn’t like the volatility and although many of my previous customers and close associates were self-professed gold-bugs, I was not.
My introduction to blockchain
A couple of months ago, I was contacted out of the blue by a local fin-tech company called PLUSQO who wanted me to do a little translation for their new cryptocurrency exchange website. By coincidence, their offices are only a convenient 15 minute walk from my apartment.
As you might imagine, interpreting one language and re-writing something in a completely different language requires a lot of research if you’re not intimately familiar with the topic. Industry language and buzzwords have to be right and admittedly I was not nearly as familiar with blockchain and cryptocurrency topics as I would’ve liked to have been – so I started studying. What I learned while researching cryptocurrency, ICOs, IEO’s, STOs, hot wallets, cold wallets and blockchain started to really intrigue me.
What initially got me interested in learning more, I guess is what gets almost everyone excited – blockchain – the potential of a decentralized ledger. An independent, computerized third party that can verify and permanently encrypt transactions, making changing those transactions once appended to the blockchain, virtually impossible. However, the further ‘down the rabbit hole’ I went, the weirder and more wonderful it got.
For example, I couldn’t grasp why anyone would want to buy a utility token if it means the token holder cannot participate in any future profits of the token issuer. It just made no sense to me from a traditional investing standpoint. Suddenly, in the middle of the night, it hit me; if you align a company’s goal with the values of a group of people passionate about a particular issue, then suddenly achieving the goal becomes more important than any need for financial compensation. That realization came to me as a shock. This new way of decentralizing the financing of expensive projects could open up a whole new world of innovation. I finally understood utility tokens could potentially take away the problem of competing for venture capital from a very limited number of sources. By decentralizing the sources of money, it also takes away the need for a project to be profitable – projects could be profit-neutral and service a network of users instead. This is a very powerful idea.
Let me give you an example; I read this morning on Medium how a small pharmaceutical company was issuing utility tokens for a project to create a new cancer screening test. The author wondered why you would issue tokens for $10 in exchange for a free cancer screening test (assuming the test is successfully developed some time in the future) when you could simply offer the test for cash. Simply put, the pharmaceutical company needs cash to develop the test. Token purchasers know they won’t receive any return on their tokens, even if the project is successful. Token purchasers simply want to see the cancer screening test become a reality. Why? Who knows. Maybe someone in their family is suffering from the same kind cancer, maybe they want to see cancer cured someday, maybe token holders fear the big pharmaceutical firms don’t want to work on these kinds of projects because they aren’t financially attractive. It doesn’t matter the motivation, it only matters that token holders of this project want to see the new cancer screening test get developed and the pharmaceutical company issuing the tokens wants to develop the screening test.
Long story short, I’ve become a believer. Blockchain is not going away. In the way Web 2.0 revolutionized and created new business (including my own fin-tech business 20 years ago), I believe it is inevitable blockchain and cryptocurrency will change the way we do business in the future in ways we can’t even imagine right now. However, if you’ve spent any time investing in or researching the world of blockchain, then you know cryptocurrency and blockchain projects are struggling to shake the negative image created by the last cryptocurrency bubble and the explosion of ICO scams in 2017 and 2018 (According to Investopedia, nearly 80% of ICOs were scams and only 8% ever managed to get listed on an exchange).
Where do we go from here?
If the army of blockchain fans are right and this technology isn’t going away, then what are the next steps to create the trust and credibility necessary to make decentralized cryptocurrency and blockchain part of our everyday lives? I decided to take my questions to PLUSQO, the new cryptocurrency exchange down the street, to see if they could help me understand where this technology is going, how PLUSQO thinks they can make this industry safer and why they thought it was a good idea to open a new cryptocurrency exchange right in the middle of a cryptocurrency bear market.
The exchange’s spokesperson, Mayuko Kawashima graciously offered to sit down with me and answer a few questions I had about this new world of Web 3.0. What follows is part of our interview.
The interview
Q: Why would a cryptocurrency exchange be opening now in such a terrible market?
Mayuko: This might be the perfect time to start a new cryptocurrency exchange. The bear market and washout of many ICOs will make investors more cautious in vetting tokens in the future. I think tokens issued will be held to a much higher standard going forward – as they should be. By starting an exchange now, we don’t have all of the baggage. Although we are new in this arena, we are starting with a clean slate. We have the financing in place to take our time and make sure we partner with and list the right projects.
Q: Why does the world need a new cryptocurrency exchange? What are the goals of PLUSQO?
Mayuko: I don’t know if the world needs a new exchange, but we have a specific goal in mind. We want to help finance new and interesting entrepreneurs in Japan. Since the bubble economy in the 1990’s, Japanese banks have been reluctant to finance new businesses. Venture capital is also very hard to access here. Even relatively small business loans include securing a guarantor in case of default on the loan. This may not be possible for the majority of people thinking of creating their own startup. An IEO (initial exchange offering) makes it possible for entrepreneurs with an enthusiastic following to access startup money from a diversified group of passionate people who want to see a project get off the ground. In the near future, we will also be offering STOs to investors both inside and outside Japan for anyone wanting to participate in new Japanese startups. We think this is currently a very under-invested segment of the Japanese economy. Japan hasn’t had a lot of entrepreneurial success recently. The company founders of Rakuten and SoftBank have been critical of the lack of entrepreneurs in Japan. I think access to decentralized capital sources might be the trigger for a new crop of exciting, new businesses.
Q: I’m glad you mentioned IEOs. What are IEOs and how are they different from ICOs?
Mayuko: IEOs are initial exchange offerings. They are a little different than ICOs. In a typical ICO, a white paper and website are developed and the business issues it’s own token for the new project. Once the money is raised, the business will seek to have the token listed on an exchange so the tokens can be traded. There are two problems with this model in our opinion. First, with no oversight at all, there is no way to know if you are simply being fooled by a beautiful website and cleverly worded white paper. Second, if the token doesn’t get listed, there’s no easy way to trade or even fairly value a token. IEO’s include an assessment of the business plan and financial circumstances of a project by experts hired by the exchange to evaluate the business before tokens are issued. And because the token issue is done as a partnership between the exchange and the business, listing of the token on the exchange is nearly guaranteed if the project achieves its financing goals.
Q: What do you think about the future of security tokens – will real assets eventually become tokenized and sold to investors around the world?
Mayuko: I don’t know where this will go exactly, but yes. I think many real assets like real estate and precious metals will eventually be tokenized, allowing fractional ownership by investors all over the world. This will be a big game changer. Imagine you want to sell a family farm for example. You could try to sell into the local market using a local real estate agent, or you could look for a foreign buyer with deeper pockets (For example, Chinese companies are working hard to match yuan with foreign property), or you could tokenize the property and sell it fractionally to hundreds of individual investors and have farm profits distributed automatically by smart-contract to investors all over the world. I get excited when I think about futuristic-sounding transactions that will be considered normal and even routine in the near future.
Q: What do you think about the meltdown in ICOs and what is the future for the ICO market? Are we going to move more and more toward IEOs and SEOs?
Mayuko: I think IEOs are still very new, but I expect them to gain traction in the future. The lack of regulatory oversight will eventually doom most ICOs. I think the extra level of scrutiny brought by exchange oversight, although not a replacement for due diligence by investors, will greatly improve the quality of token offerings in the future. You have to understand, a bad IEO reflects directly on the exchange that helped list it. If a new IEO implodes, it will reflect very badly on the credibility of the exchange that vetted the new token. So yes, I think IEOs and SEOs are going to become more and more the norm in the future.
Q: How do average investors purchase tokens on an exchange – how to get from fiat currency, to cryptocurrency, utility or security token.
Mayuko: Well, that’s a case-by-case situation. But if you’re talking about PSQ, PLUSQO’s native token, the process is simple. You can either use Euros or Bitcoin to purchase PSQ. PSQ can be used to purchase any of the tokens listed on the PLUSQO exchange. Other exchanges that list utility tokens have similar processes. Our bank account is registered in Malta right now. A lot of people express disappointment that they can’t purchase PSQ directly with Japanese yen, but Japan is a very conservative country and registration takes a little longer. We expect to be registered in Japan soon and subsequently will be taking deposits in Yen.
Q: What’s the Know your client (KYC) process like?
Mayuko: Yeah, great question. Pretty simple really. Fill out some personal information, upload copies of a few key documents and usually within 10 minutes, you’re approved. Of course there are always exceptions to this, but under normal circumstances, the approval process is very straightforward.
Q: Recently Binance was in the news for a security breach and theft of 7000 BTC. I understand the security breach was due to API keys and passwords being stolen by using phishing techniques and viruses. What precautions can investors take to avoid having currency stolen?
Mayuko: I think there are a few commonsense things you can do to keep your cryptocurrency safe. 1. Save and store all your passwords and keys off-line. Don’t keep any of these important passwords in any electronic format that’s connected to the Internet (for example don’t save passwords in Evernote or Dropbox). 2. Use either software or hardware wallets to store your currency. Only move currency to a hot wallet if you’re planning to trade. If you want to be 100% safe, use a hardware wallet, disconnect it from the Internet and store it in a safe place.
The original interview was conducted in Japanese. You can find a recording of my interview with Mayuko here.
Disclosure: I am a PSQ token holder. I don’t plan any transactions within the next six months.
