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ShapeShift, The New Face Of Digital Asset Exchange with Erik Voorhees

JFS 001 | Digital Asset Exchange

Just like other currencies, there are different digital currencies that can convert from one type of coin to another. ShapeShift is a digital asset exchange, a website that makes the conversion of bitcoins to other coins faster and easier. Erik Voorhees, ShapeShift founder, explains how the system works. Bitcoins can be converted into ethereum and litecoin can be converted into dash.Simply go to the website, there is no need to use an email account which is one of the coolest parts of it. Also, ShapeShift uses KeepKey. This is a hardware wallet that helps in preventing people from knowing your private key through a USB device. Learn why this is the safest way for a person to store cryptocurrency.

We have our guest Erik Voorhees, who promises to have some exciting information for us. Erik Voorhees is among the top recognized serial Bitcoin advocates and entrepreneurs, understanding Bitcoin as one of the most important inventions ever created by humanity. Having been a featured guest on Bloomberg, Fox Business, CNBC, BBC radio, and Peter Schiff Show and numerous Bitcoin and industry conferences, Erik humbly suggest that there is no such thing as a free market when the institution of money itself is centrally planned and controlled.

Erik founded ShapeShift in August of 2014 as an elegant, secure and fast solution to digital asset exchanges. Prior to the creation of ShapeShift, buying digital assets was a lengthy process that required an account creation and forfeiture of personal data to the service provider. Erik’s past blockchain company affiliations include BitInstant, Coinapult, and most notably, SatoshiDICE, which was responsible for most of the Bitcoin transactions in 2012 and 2013. Follow Erik on Twitter @ErikVoorhees. His blog is http://moneyandstate.com. I have Erik on the line. Here is our host Joseph Farley.

Listen to the podcast here:

ShapeShift, The New Face Of Digital Asset Exchange with Erik Voorhees

Why don’t you give us an overview on ShapeShift and then go from there?

ShapeShift is a digital asset exchange. It’s been around for about three and a half years. It allows a user or a robot to convert one digital asset into another. For example, to convert Bitcoin into Ethereum or Litecoin into Dash. Our claim to fame is that we don’t have any user accounts at all. There’s no sign up. We don’t take any user information. We make it simply fast and easy to move between these different digital assets.

As far as moving between the different assets, let’s say I have a lot of Bitcoin and I want to diversify and get into some different coins, then I could exchange those. I could turn my Bitcoins in for other coins.

Yeah, we’re the fastest and easiest way to do it. If you have Bitcoin and you want to turn it into a different digital currency, ShapeShift is a great way.

ShapeShift does not take fiat currency though, correct?

Correct.

You have to be in a cryptocurrency before you can use ShapeShift?

Yeah, we don’t touch dirty fiat and we never will. If you’re stuck with fiat and you’re trying to get into crypto, we can’t help you with that, unfortunately. There are other good companies that’ll help you with that like Coinbase but we don’t touch that stuff.

As far as any type of gold or silver, don’t touch that either?

I’m a big fan of gold and silver, but those are hard to transfer through computer. We don’t support any metals on the site either.

We could go to your site. We don’t have to use an email. We don’t have to give up our identity or firstborn or anything like that?

No examples.

The program would issue a key, I would assume.

We work very similarly to a currency exchange desk at an airport. You walk up, you have euros, you want Japanese yen. You tell the teller that then they take your euros and they give you yen and you walk away. We’re very similar. You come to the ShapeShift website, you tell us that you have Bitcoin and that you want Ethereum, for example. We then show you a Bitcoin address. You send your Bitcoin to that and then you give us an Ethereum address and we send your Ethereum to that. Very simple.

As far as regulatory or compliance issues, these different departments are attempting to grab as much money as they possibly can or as much authority as they possibly can. We interviewed Joe Ciccolo and Amber Scott with compliance pieces. Joe had made a very interesting comment that the SEC claim that cryptocurrency is a security.IRS claim something else. All these different departments are trying to get their hooks inside these currencies as well as licensing for different platforms. Do you fall under any of that?

There’s no such thing in the world as an unregulated business, unfortunately. Every company has to deal with regulators in one capacity or another. It’s just a question of which ones and to what extent. ShapeShift operates all over the world with the exception of two places, in New York State and in North Korea.

JFS 001 | Digital Asset Exchange
Digital Asset Exchange: Every company has to deal with regulators in one capacity or another. It’s just a question of which ones and to what extent.

We’ve been looking at their licensing laws or their statutes and it’s funny.

New York State a few years ago, their regulators wanted to be proactive, which is their weasel word for ‘harmful’. They created this whole monstrosity of regulation called the BitLicense. The BitLicense basically declared that most crypto activities needed to be treated in the same way as banking activities, which means that you need to take all sorts of private information from people. You need to do all sorts of spying for the government. You need to pay lawyers hundreds of thousands of dollars to handle these procedures for you. They had crazy things like if you want to change your business model at all, you need approval from the New York Department of Finance.

What’s interesting about that is that department was set up in 2011. You and I could set up a department of whatever. It is the biggest fraud that starting to get exposed along with Chucky Schumer and all this other stuff that they’re working on.

The guy spearheading this there is Benjamin Lawsky. After the BitLicense was enacted, ourselves and a few dozen other of the leading crypto companies left New York. We basically said, “We’re not going to endanger users for the benefit of some New York State regulator.” We blocked the State. The BitLicense was a total disaster. New York obviously has been the center of finance in the world, but only has a few crypto companies there anymore, which is pretty, pretty tragic for that place. After that whole debacle, Benjamin Lawsky left the department, started his own consulting practice to help companies navigate the rules that he himself created, essentially built. We had this beautiful open pasture of innovation. He comes in, builds a whole bunch of walls and obstacles. He whores himself out to people who will pay money in order to have him navigate through the things that he created.

Long-term retirement program for him.

You can’t have a better example of crony capitalism of people in government using their power to put on shackles to industry, and then taking money to help people relinquish the burdens of the shackles. It’s absurd. We wanted nothing to do with it and so we left New York State and we’ll probably never be there again.

There are a lot of people voting with their feet. In this midterm, there’s a real push to throw the people out of office that have become career politicians regardless. Democrat, Republican, it doesn’t matter who they are. If they’ve been a career politician, they need to go.

All of them need to go regardless of how long they’ve been there. Voting for new people never helps anything. I don’t have much hope for that.

Tell us a little bit about some of the other things that you’re working on.

ShapeShift is our main project. It’s the exchange. We also have number of other services. We run CoinCap.io, which is a market data site for digital assets, shows all the different cryptos sorted by market cap that shows the trade volume, the prices, those important details. That’s a free service. Anyone can download that or get the app. We run Prism which is a little more technical. It’s a smart contract based derivatives exchange essentially for creating portfolios of digital assets. We run KeepKey, which is a hardware wallet company. KeepKey makes little USB devices that securely store the private keys that hold crypto. The best, safest way for a normal person to be storing cryptocurrency is not on their computers, not on their phone, it is on a hardware wallet. KeepKey does that. We run all these businesses in parallel together and it’s been a fun ride.

If with this KeepKey and now, we’re seeing this thing with Prism where they’re tracking all this stuff. A regulator could not get into your computer, steal your money, move your money around, do whatever else that they do if you have this key that’s in your pocket or in a safe location?

Yeah. All of crypto is secure if you keep the private key safe. The private key is a long string of digits. You can think of it like your private account number. Knowing that number is what gives you the authority to spend the money attached to it. If that number is known to anyone else, they can take your money instantly. It doesn’t matter if they’re a regulator or just a neighbor or a criminal or anyone. If you keep that key safe, then no one can steal it. Not the NSA or anyone of any kind. What KeepKey does is it helps you prevent people from knowing your private key by storing it off your computer on a USB device. It’s much, much harder to hack that. Anyone that knows security will never say that something’s perfectly unhackable. Keeping a key off of an online computer is a really good and important step.

They would have to be able to get it immediately when you plug that in, hit the net and put in your code. They’d have to grab your money right then.

No, not even that. Even when you have the USB drive plugged into your computer, it’s built in such a way that it can only sign transactions that you approve with the manual button press on the device. You can plug it into a completely compromised computer for example, and nothing can be stolen from it.

One of the businesses or industries that we’re in is in the oil and gas industry. If somebody wanted to develop a smart contract to buy X amount of natural gas from one location and move it to another location without using fiat currency, would they be able to do that with those keys and with your platform?

The oil is a physical item. You can pay for oil with crypto. If someone sells you oil, you can buy it. If they accept crypto, you pay them with the crypto. But the movement and transfer and storage of the physical oil is something that occurs in the physical world. We operate a platform that only works for digital assets, not for anything physical.

Tell us a little bit about how people go about getting that wallet and where you buy the physical key and so forth.

KeepKey is available on their website, KeepKey.com. You can also get it on Amazon. It’s about $120 and it will be shipped to you. You go through a setup process where the device creates the private keys that are held secretly on the device. You make a backup phrase, which is a series of words. You keep those words held in a secure location somewhere else so that if your device is ever damaged or stolen, you can recreate your money essentially somewhere else. You put a pin on the device so that if it is stolen, the person still can’t get into it. Once you go through that setup process, then it acts like a Bitcoin wallet. When you plug it into your computer, you can receive Bitcoin. You can send Bitcoin. You can also store Ethereum and a few other coins on that hardware wallet. It’s a great option. Anyone who is storing crypto should be using a hardware wallet. There are other companies that make good ones as well. Trezor and Ledger both make great products. A hardware wallet from any of those three companies is a great option.

Let’s say that you wanted to travel to Mexico. If you had your key here, you could travel to Mexico and order another key if you had the pin and phrase?

Yeah, totally. With crypto, you never need to cross border with money. That concept doesn’t exist. Crypto exists digitally on the internet. There’s no such thing as these imaginary lines that governments make. When you send Bitcoin, you’re not transferring it physically from one jurisdiction to another. You’re simply updating a global ledger that’s stored and tracked in countries all over the world that this account now has this many fewer coins and this one has that many more coins. If you’re storing your coins on a physical device, they’re not on that device. They’re on the number inside the device. If you duplicate that number, you can recreate or use that same money from any other locations. You could have two KeepKey devices, one in the US and one in China. If you’re flying back and forth between the two, you set them both up with the same key and then your money is available in both places. You’re never crossing a border with the money itself.

One of the items that we’re going to get into is a phrase that all the states have used including New York. The phrase is called ‘in this state’. All the laws and everything else as far as jurisdiction have to do with in this state. It is the biggest fraud and when this thing comes out about ‘in this state’ and people see what this means, this is how they have been able to get around the constitution and the organic states that are separate and apart from Washington DC. It’s an amazing thing. You’re key on being able to go back and forth because the big problem that China has is the people in China getting their money out of China.

Any fiat currency is controlled and held in banks, which are a branch of the government. If a government or a bank doesn’t want you to move funds across the border, you’re at their control. You don’t have control and sovereignty over your money. You use it at the privilege of the bank. In crypto, no one is holding it. No one is authorizing it. No one is approving a transaction. No one can block an account. Crypto brings people actual sovereignty over their wealth, which is an immensely powerful new phenomenon that has not existed before. If you own gold physically, you have sovereignty over that, but that’s hard to move, especially in any significant amount.

Provided that you have enough guns and badges to protect it.

It’s very expensive. Transferring a million dollars from the US to China in gold is not trivial. Transferring a million dollars from the US to China in Bitcoin can be done in about two minutes at a very low cost and no one in the world can stop it. If you do it right, no one in the world even knows that it happened. Even if they know that it happened, they can’t stop it. That’s immensely powerful. Over time, that’s going to change the relationship between individuals who now truly have an option to have sovereignty over their wealth and those who would rather they don’t.

In China, let’s say, can you order your key in China? Will they allow that key to come in or do you have any experience with that or do you know people that order?

I don’t think that we currently sell them in China. You could certainly buy one in the U.S. and put it in your suitcase and fly over. No one knows what it is. It’s not that valuable until you put Bitcoins on it. Even if they seize it at the border, you’re only out $120 instead of anything real. It certainly works as well in China. The Bitcoin that you store on it can’t be blocked in China any more than it can be anywhere else.

You got into the Bitcoin movement in 2011, is that correct? Bitcoin, at the time, was $5 or so.

Yeah. I got involved in May of 2011 and it was right around $5. I thought I missed the boat because a year earlier it was only $0.20. Everyone that gets into this stuff, it feels like they missed the boat, even myself back in 2011. It was much smaller back then. Very few people took it seriously and it has been very exciting to watch it grow and achieve much of the potential that us, naïve or early adopters, hoped it would have. We talked for many hours on online forums about how crypto would take over the world and be used all over the place. It’d be worth billions of dollars and rival fiat currencies. That has all happened. Bitcoin itself is the 12th or 15th largest currency in the world, Market Cap, the value of all the currency supply. Every big financial institution in the world is investigating and experimenting with this stuff. Every government is somewhere between annoyed and curious about this stuff. It’s changing how finance works and that’s been pretty exciting.

As far as the banks go, do you think that they are trying to at all manipulate the price to buy Bitcoin, sell Bitcoin? That’s what they do in the stock market and something that they’ve been very good at completely manipulating, causing crashes and things like that. Or is there a way that the community can see that, “This guy is with Chase bank,” or whatever the case is?

Banks are not alone in trying to manipulate markets. Manipulate is already a weighted term. People generally seek profit. People that play in financial markets try to buy low and sell high or sell high and then re-buy low if there’s shorting. There’s nothing necessarily wrong with that. What causes a lot of problems in the traditional financial world, the fiat world, is that there’s zero way to know how much of an asset exists. There’s no way to know how many dollars exists. You can read some reports from governments based on certain monetary estimates or claims but you can never know. They lie about most things. Take everything they say with a big grain of salt. Even other financial assets like shares of Apple. There are a certain number of shares of Apple, and I trust that Apple knows what that number is, but when you get into the nuances of how exchanges and trading systems work, you can have all sorts of promises or IOUs for shares. Knowing the difference between those things can become tricky. This leads to things like naked short-selling where people will sell things that they don’t have.

That stuff can take you down a path where it goes from people just trying to profit from markets to maybe unethical. Crypto solves that in that you can know exactly what exists and you don’t have to trust anyone. You can know exactly how many Bitcoins exist. There’ll be a little more of them tomorrow and a little more than the day after that and you can know exactly what that number is. Same with Ethereum and all the big blockchains. You can know the money supply down to the day or the minute and then shares and other assets that turned into these tokens on a blockchain. For example, Apple could reissue all of its stock on a blockchain as blockchain tokens. You’d have these tokens that represent each shares of Apple. Because they’re tokens, maybe they are on the Ethereum blockchain. You will know exactly how many there are. You don’t have to trust anyone for that.

When you have that basis of mathematical proof in the supply, you end up with a much more honest financial system. If people are shorting, you know that they’re shorting assets that they have or that they legitimately borrowed from someone else. You know who else had them. You don’t necessarily know names, but you know that those things existed. While crypto does not solve human greed and it does not remove every method of manipulation from a market, it removes a large quantity of possible manipulations. That’s a huge improvement.

JFS 001 | Digital Asset Exchange
Digital Asset Exchange: Crypto does not solve human greed and it does not remove every method of manipulation from a market, it removes a large quantity of possible manipulations.

You would be able to go back if you needed to. If there’s somebody trying to manipulate the market, people in the community could tell and sit tight.

Stated more accurately, everyone in a market is always trying to manipulate it in some sense. If you’re selling, you’re hoping that the thing goes back down. Manipulation is a little bit of a tricky word, but the point would be that if someone is selling, you know what they’re selling, you know where it came from and you know that it was there. You can’t just create Bitcoin out of thin air and then sell it. You don’t have to wait for some report after the fact to be created. This is all happening in real time on public blockchains that anyone with a computer can watch.

You mentioned something that I wasn’t aware of and I may be wrong. Maybe I misinterpreted what you said. Does each coin company, Bitcoin or Ethereum, have their own blockchains or is it one blockchain that encompasses all the companies?

First thing is they’re not companies. Bitcoin is not a company. Ethereum is not a company. They are protocols. There are many companies that utilize them as technology protocols, but they themselves are not companies. Just like, you would not say the internet is a company. It’s a protocol or more accurately, a set of protocols. Some of these are their own blockchains. Bitcoin is the first and the biggest and the most important blockchain in the world. Ethereum is the second biggest and second most important blockchain in the world. There are several hundred blockchains. Only the top ten or twenty are relevant or important. On some of these blockchains, there are tokens that exist that are their own asset, but they’re not their own blockchain. If Apple released tokenized equity shares, those would be tokens on the Ethereum blockchain, not on their own new blockchain.

That makes sense with that other thing that you offer where you can take bitcoin off apparently their blockchain, if I owned it, and put Bitcoin on to Ethereum’s blockchain.

Not quite. What you would do is if you have Bitcoin, you send it to us at ShapeShift and that’s the transaction happening on the Bitcoin blockchain from your Bitcoin account to ours so we receive your Bitcoin. Then we send you Ethereum on the Ethereum blockchain from our Ethereum account to yours. We’re not moving an asset from one chain to another but you are moving the value. Maybe you had $100 in value in Bitcoin. You send it to us and then we send you $100 in value on the Ethereum blockchain. The value has moved across the chains, but the actual asset does not leave the chain.

Do you foresee the time when digital currency like this will be used like a credit card? In other words, we’ll all be able to go in and buy a pair of shoes, sit down and have dinner and pay for it with coins or is this something that is mainly going to be used to store your currency?

I firmly believe that this will end up being how the world transacts with each other. You already can buy shoes with Bitcoin. Overstock.com is one of the best retailers that accepts crypto. Overstock will sell almost any home good that you could imagine and you can pay with Bitcoin. They’ve integrated ShapeShift so you can pay with any kinds of crypto. You can already buy quite a bit of life’s necessities with Bitcoin, but you can’t go into a 7/11 yet and buy your coffee with Bitcoin. That will happen eventually, but it could take awhile. People’s habits are hard to change. Even when they have a superior alternative, the required work in learning it and changing your behavior is friction and it takes a while for people to change.

Erik, thank you very much.

Thanks.

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About Erik Voorhees

JFS 001 | Digital Asset ExchangeErik Voorhees | CEO and Founder, ShapeShift AG

Erik Voorhees is among the top-recognized serial Bitcoin advocates and entrepreneurs, understanding Bitcoin as one of the most important inventions ever created by humanity.
Having been a featured guest on Bloomberg, Fox Business, CNBC, BBC Radio, The Peter Schiff Show, and numerous Bitcoin and industry conferences, Erik humbly suggests that there is no such thing as a “free market” when the institution of money itself is centrally planned and controlled.

Erik founded ShapeShift AG in August 2014 as an elegant, secure, and fast solution to digital asset exchanges. Prior to the creation of ShapeShift, buying digital assets was a lengthy process that required account creation and forfeiture of personal data to the service provider.

Erik was most recently featured on the 2016 documentary, “Banking on Bitcoin.” His past blockchain company affiliations include: BitInstant, Coinapult and, most notably, SatoshiDice, which was responsible for most of the Bitcoin transactions in 2012 and 2013.

Follow Erik on Twitter: @ErikVoorhees

Blog: http://moneyandstate.com/

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