GAW Miners is a company that has been under a lot of scrutiny lately. Since the launch of their Hashlets, many people in the community have criticized them for a lack of transparency. There have even been very serious accusations aimed at the company.
At Coin Brief, we have covered the growth of GAW Miners since they were first selling Scrypt ASICs. We interviewed their CEO, Josh Garza once before, via email, and I personally purchased a couple of Scrypt ASICs from the company earlier in the year. Still, over the past few months, we have had our own questions about the company. I even wrote an article about what I thought they were doing with Hashcoin, Hashbase, and Hashpool, though I was a bit off with my predictions.
Following that article, the criticism from the Bitcoin community has continued to increase, and many accusations have been stacked against GAW. We have been reluctant to comment, as there has been no actual evidence against GAW, but at the same time, some of their actions were very confusing. I have personally been trying to sort through the various claims against the company, as well as the articles published by GAW itself, to try to glean some sort of insight, but have struggled to pull out anything concrete. That being said, I did leave a few negative comments about GAW, indicating my suspicion, which lead to Josh reaching out to me directly.
He agreed to answer some of my questions, and a few days ago, I spoke with him for nearly an hour and a half. It has taken quite a while to transcribe our conversation, which ended up reaching over 10,000 words, even with editing to remove repeats, and clean it up a little. However, that is now complete, and the full conversation can be viewed below. Rather than tell you what I think of GAW, it seems more appropriate to provide this, in a rather raw form, and let others make up their own mind.
Again, this is rather long. There is a table of contents in the left sidebar, which can be accessed by clicking the arrow in the top left of the screen. That may be helpful to those that do not have time to read through this all, or want to skip to a specific topic. I plan to write a summary of this conversation, which should be available within a few days, and will include any additional information that is provided to me by that time.
GAW's Josh Garza on Hashlets to Paycoin
Table of Contents
- GAW's Josh Garza on Hashlets to Paycoin
- Hashlet Guaranteed Profitability
- Coin Fire vs GAW Miners
- Mistrust and Calls for Transparency from the Bitcoin Community
- The Wallstreet Journal's Michael Casey on GAW, and Potential Proof of Mining Income
- GAW's Hashbase, Hashcoin, Hashpoints, Paybase, and Paycoin
- GAW's Paycoin-based Payment Platform: Paybase
- Final Thoughts on the GAW Interview
D: is for Dustin (me) and J: is for Josh Garza. Also, I have put my own writing in bold, and anything in parentheses was not actually said in the conversation, but is provided for clarification.
Hashlet Guaranteed Profitability
D: One question I, and many others, have had for quite some time is this: How can you guarantee that Hashlets will be profitable?
J: That is a good question. Admittedly, as with anything, when you design and build a business you kinda learn things as you go. One of the things that we learned is that obviously Proof of Work is, by design, made to continue to decrease in profitability.
That is it's entire design, as it is built around Moore's Law. As new technology gets built, then the older stuff becomes outdated, so it continues to evolve. So, the business model behind how we have been able to keep this going is based on a couple of things.
We view it as this: We want our customers to have a shot at making money in more than one way. One of them is regular mining, which people who buy them (miners) obviously do. But, as time goes on, we have built plans to continue to decrease the price of our maintenance fees. I think there is some confusion about that, and in hindsight I think we should have been more clear, because there is a difference of perception in what people in this industry think is a lot of time, and what people outside of this industry think is a lot of time. So, we hear folks say that it has been forever, and we should have changed the industry by now. Hashlets have only been around for about 3 months, and in any business I've ever been in, that is not a long amount of time at all. That is a fairly short amount of time. I'm used to doing things on more of a quarterly basis.
I think we have learned from these things going forward. We need to be more clear about managing expectations. I guess the point is that we never meant that to mean that every 3 weeks we would somehow have new, more efficient hardware that would keep reducing the cost. You have to take a step back and really think about the process of building these co-locations, and the work that those take to do, as well as sourcing the miners. That is about the amount of time it has taken to get to where we are now. So, had we are beginning started to try to find things that were more efficient, we would just now be seeing that increase in efficiency because of the way the life cycle of this hardware works. The bottom line is that when you have this kind of scale, things don't happen as quickly as everyone would like. More importantly, the generation of hardware doesn't change as quickly as everyone would like. So, as time goes on, it is becoming easier to plan out when we will be able to manage our maintenance costs down.
Obviously in the case where we use pools that we don't control, because they are external, we have lower payouts. Then we are covering the maintenance cost for that customer, whereas if they had a miner at home, and it was costing them a similar amount of money to manage, as you have to include internet, real estate, and everything else in the cost of mining something, and they were mining at a pool that had a bad day, they would be spending money and not even realizing it. With our platform, we cover that cost for that customer, and up until now we have been awarding that customer with our internal point system that they used to be able to use to retrieve mining capacity and now will be able to retrieve new coins. So, there is a value associated with it. No matter what, they are making something.
Back to your core question, we have known, through a number of things, such as reducing maintenance, covering maintenance, rewarding them something within the system, as well as being able to use the marketplace to exchange them, we can say that you will be able to be generating a profit, and making money. Now, again, thats where there is a notion of clarity...outside of this industry, making money doesn't mean in 2 months. If you ROI on a normal investment, it is going to take you, with a really good investment, 5 - 10 years. When you talk to a miner that is an outrageous number to them.
Our initial launch, and aligning those expectations with our customers, and then learning along the way that X amount of things that we thought would happen have happened, and X amount of things we thought would happen have not happened. Obviously the drop in payouts as quickly as they have happened, and those kinds of things, are kinda hard to factor and predict. Either way, we are always committed to covering the cost of the maintenance for the customer, as well as giving them something of value. That is always within our control, and we have always intended to keep doing that, as well as creating things like amps that people can put on hashlets. Generally if those are used well, and correctly, they can continue to make money as well.
It is a little bit of a catch 22, because who knew that whatever multipool would be paying $0.05 per MH per day a month and a half later. The crux of this question is kinda why we started moving in the direction of spinning back and saying that we really should be looking for a currency that works differently. One where miners aren't always getting the tail end of it, which doesn't work for them. One that rewards miners as the market cap increases, versus now where they are only making money when the hardware is powerful enough, and there are enough alternate coins that are trading correctly, and all of the things that have to go right in order for a miner to make money. That is our goal. Keep them making money, even at our own expense.
There is a lot of stuff that goes on out there that is the opposite of what we are trying to do. Like, when we allowed people to mine Hashpoints, that wasn't about...we've got cash. It was never, ever about that. We knew that if we launched a new coin, and our customers did not have some kind of advantage, they would not like that. There is a lot of stuff that we do because we know, ahead of time, based on what we have seen so far, that people are going to want to see.
So, again, this is an industry problem, because people just don't trust people in this industry. I'm starting to realize, even as recently as a couple of weeks ago, that it's not personal...there are just so many companies that have come before us, and other companies that have done the exact same thing. People relate the niavety and trust that people have for companies to the possibility of them screwing them. I think thats why there is all of this.
We have a lot of people that aren't as experienced in the industry. When you have that, if it is the wrong kind of company, it would be very easy for them to mislead them. The bottom line is my perceptions never changed. I didn't start this company to make more money, as I had money before I started it. Frankly, I haven't made a single cent from this company, and I've invested millions of my own dollars into it to build out more infrastructure because I genuinely want miners to be successful.
There have been plenty of times I've thought, you know, screw it. Is it really worth it? It is. If we weren't here, doing what we are doing, someone else would be, and they may not have the same intentions that we do. So, that is why we do things the way we do...that is why sometimes it doesn't make sense...because we are really not primarily focused on lining our pockets. We are really trying to make it work for people that, in the past, things have gone wrong for them. I think it is very confusing sometimes why we do things so differently...that was kinda a long answer, but I wanted to cover a couple of things at the same time.
D: Well, when I mentioned guaranting Hashlet profitability, I was not actually referring to near term, but long term. By guaranteeing profitability, and people keeping hashlets forever, 10 years from now how can GAW still guarantee profitability? As long as the value of digital currency continues to rise, I can see how you could build a business around that...but there would be a bit of risk in my opinion.
J: Oh, it is, but you have to remember that when dealing with us, and dealing with me, we come from a different industry. I don't look at things the way most people do. I was trained to value subscribers, like in the broadband business. In the broadband business, it is all about subscribers. You only make money if you have long term relationships with customers. There is no scenario where you can get 100,000 customers to pay you for one month, then screw them. It doesn't work that way. You make money over a long period of time. This is the direct reason we marketed, and went the way we did. There is a lifetime value to a customer that most people in this industry don't see, that I see. Our most valuable assets are our customers, and we have a large customer base. That is valuable to merchants. That is valuable to partners. That is valuable to people.
Look at SnapChat, or one of the many examples of companies where they never even monetized. The whole service is free. If it is risky to provide something to a customer that comes with a cost, then there would be no point of having SnapChat in business. Literally every customer costs them something. It may be a penny, or it may be a fraction of a penny, but it costs them something, and they do not make money from them. But, they did it because their value was based on their customer base. They have TONS of customers. That was valuable enough to another company to pay hundreds of millions of dollars for, so they could then build strategies to monetize. That is the world I come from. That is what I am used to. I'm used to scale, and volume, and stuff like that. Not little transactions here and there. I'm used to a world where you pay an amount of money, even if you don't make a return immediately on that customer, because of their lifetime value. Because they are more likely to make another purchase, or because they are more likely to refer more people. There are all kinds of advantages to a customer that many people don't realize. They are not worth a negative number, even if you have to step in and offset, they are worth a lot. If you do right by them, you will have them for a long time. That is valuable.
In my previous world, we would do things like introduce services that cost us money to do, not because we thought we would get a return, but to increase retention. That is what I am used to. It is not a foreign concept to say we will continue to spend money to retain that customer, because we know there is value in the long term.
Coin Fire vs GAW Miners
D: Moving on to another topic, I have read the Coin Fire article that has caused a lot of controversy recently. Now, they certainly tried to call GAW our as liars, but at the same time, the only actual claims made in the article were saying that they (Coin Fire) talked to this person (someone at one of the companies in question), and then presented the statements. How did that lead to Coin Fire being served with a cease and desist?
J: Sure. Simply, I have relationships with the companies that they (Coin Fire) alleged that they have spoken to, and I've been very thorough in my investigation into this, and I have been assured, by more than one person, that should the time ever come that this needed to be said publicly, or from a legal perspective, that what they (Coin Fire) claimed happened never did actually happen. So, it comes down to this situation of benefit.
There's a saying: Keep counting on people to take a step back, look at something for what it is, and think about it for 30 seconds, just to see if what is being said even makes sense. How in the world would we possibly allege that we will be working with these companies, if at one point we are going to have to be working with them. How would that even work out? Why would a company...that doesn't even make any sense. It is going to eventually need to happen. So, if it doesn't happen, you would be in the same exact place.
You almost could reverse the question. Thats what Coin Fire actually thought, when another approach could be to just wait a month, and see what happens in real life, and see how things play out, because then you will have the actual facts. We seem to be in an industry where just about anything someone says all of the sudden becomes fact, and that trumps basic logic. So, that kinda is where my response came from. Its like, "wait a minute, how does that make any sense". Now I get what someone might say, which is,"Well he would say it to create the perception of greater value," and that is fine, but it still has to come together, so how would that even make any sense?
I think that I am also expecting, maybe inaccurately so, for people to take a step back and say,"well wait a minute, why would these guys...what's to gain from this?" If you start looking at who gains, a company like Coin Fire gains exponentially by creating this kind of tabloid-research type news more than anyone else. So, who would be the most compelled to not be straightforward, us or them?
So if you kinda look at what has happened, especially the alleged "hack" that happened afterwards, we are a com...no. There is no basic logic. We are a huge company, constantly looked at publicly, so why in the world...how would it even make sense for a company to publish something like that, then we would hack their website? I guess I just expect people to say,"How did that make any sense? Why would a company even do that and think it is going to work out?" It is obviously not going to. Again, it is just that industry problem of so much mistrust that people generally have, that I think that sometimes people really aren't thinking things through.
So, it lead to a cease and desist, because I emailed the guy, Mike I think, and it is already out there publicly, but basically what I said was that there are 2 points that are important to me:
We will defend ourselves in situations that we think are libelous, perioid, and no one wins in situations like this. I think that there is this perception that "if we are right, then you are the one..." No one wins. Everyone loses. Whether it is your time, whether it is money, or whatever it is. That is how I look at it. Again, a lot of people said,"Well, you know, he just said he was threatened with a lawsuit." No. I am a business owner. When someone says to me,"I'm going to sue you," I typically sit back and say,"Hmm...even if I have a case, and even if I think I am going to win, it is still a problem. It is still going to take me time. So I should factor that in to my decision making." It seems like a lot of these companies don't do that.
The second point is that I am willing to talk about this. It said it in the article, that we didn't comment, or we didn't...what does that say about a company if their base claim is that they tried to reach out to us, which was a big part of what they said, they couldn't get a reaction from us, then I send an email saying that,"I will gladly talk to you, and answer any question you have." Rather than return it, and say "Great, that is what we were looking for to begin with," they post it online and don't even respond.
Again, I come from a world where people look at that and say,"Wait a minute, that doesn't make any sense. They responded, they want to talk...why would you not want to talk to them if you know you are getting the information you want." So what does it say when they don't do that, and they put it online? When I saw that happen, it was clear that these guys aren't interested in facts like you are. You are talking. You are interested in learning, and then putting the story together yourself. They are not interested in that. So if they are not interested in that, then the next logical conclusion is that they are interested in creating a show, and creating a problem for us so that they benefit...and that is against the law. You can't do that. You are not allowed to do that. That is the reason I reacted the way I did. It is basic logic.
D: Yeah, I completely get that. I was mainly asking that, because I was not sure the whole story was. No one has been able to really put forth the actual story of what happened there. But, if they did not actually speak to these companies, and you have...you said these companies are willing to publicly say what happened?
J: My legal guys are working on a response, but Coin Fire has done a couple of things. They have also twisted my words, so there were a couple of things that they said, that I never actually said. I didn't, and maybe I should have taken the approach of just saying that, and now my attorneys are a little upset that we didn't do that...but you know, I just didn't feel like that, like it was really where we wanted to go...to get so petty. I guess we should have. They have done that as well. The bottom line is, the exact thing that I said is the exact thing that is going on and will happen. That exact thing.
Mistrust and Calls for Transparency from the Bitcoin Community
D: Ok well, moving on from that...and you are right. We are in an industry that is mistrusting, and is not going to take anyone at their word, because there have been really horrible experiences in the past. People have had really bad things happen. There was everything from Gox, to Butterfly Labs, to 100 other examples of companies that have came out, seemed awesome, and made lots of promises. Then, people believe them, and put their money with them, and put their faith in them, and it turned out to be smoke and mirrors basically. The company was having problems the whole time, and no one ever knew, because they would not show...they were not transparent with their funds, or what was happening internally, and suddenly everyone's money is gone without things that were promised to them.
At the same time, I get where you are coming from, where in the normal industries you don't always disclose everything. That is not always expected, though it kinda is for investors. Investors are going to expect that, and that is what a lot of people in Bitcoin see themselves as when they are putting money with a company. Even at a small level, they are investing...but that could be argued either way. But, this does kinda move us on to the next point, which is something that I read about earlier, and I was happy to see. I was going to see if you would provide any sort of tangible proof of the mining power has sold does actually exist in some form.
I saw that your CTO was going to spray paint the datacenter during a call, and write on the floor, but that doesn't actually really prove anything about the hashing power. Who knows what could be running in there. But, I did see on the Wallstreet Journal that you had signed and shown that you have control of a wallet that has had 20,000 Bitcoin in it, and has had a lot of mining revenue going into it, and that you have provided proof of a lease for a 150,000 sq. foot datacenter, as well as pictures of equipment and infrastructure being installed. That is great, and will go a long way in this community I am sure. So, rather than a question, if you send us similar proof to us, we are willing to corroborate that yes, we have seen this as well, without actually disclosing the Bitcoin address, or anything else that you do not want us to.
J: Yeah, obviously that is something that we could look to do, but the Wallstreet Journal is a pretty serious publication. It is about as legit as it really gets. So, if people don't trust the Wallstreet Journal...Again, one thing people need to really consider, and again, this is a level of intelligence that I count on, that maybe isn't always the best way of approaching it.
Look at it this way: If the Wall Street Journal felt that they needed to make a followup from their first article, they did it for a reason. So, they thought that they needed to make a followup, and the entire followup was about showing that they did their due diligence before they published the original one, right. So, essentially that article is about them covering themselves, to show that they are writing and reporting ethically. Don't you think that they would be under a high level of scrutiny before taking a second shot at putting something out there that may not be true. If the guy had any doubt whatsoever that there was a problem, why would he write another article, and end up being a part of something not once, but twice. So, their level of magnification on the 2nd would be hundreds of times higher, so, at least if they found something they could retract, and not put themselves at risk, and things like that, which is why they did it to begin with. If something happens, and you have the ability to double check to make sure, because you think that there may have been a problem, how close are you going to look at it the 2nd time? So, the fact that they wrote something, and said,"Yes, we can confirm all of these things" that is about as good as it gets.
Naturally, we could do all of the same things, but it essentially puts it in the same position we are already in. There is no way that we could have somehow bamboozled them...again, it just doesn't make any sense. It is just basic logic.
The Wallstreet Journal's Michael Casey on GAW, and Potential Proof of Mining Income
D: I just wanted to offer that. There is no issue with the Wallstreet Journal. That is proof enough for me (that what was stated in the WSJ article was true), so that did ease a lot of the things I had worried about before. I have been a supporter of GAW since the beginning, and bought furies early on, and you kinda sold me on that. You were the first ones providing legit scrypt ASICs. Others had small ones, but you were the first to sell strong scrypt ASICs. For that time, they were powerful, and you had great customer service. The Wall Street Journal definitely caught me.
One of the problems people have with websites outside of the cryptocurrency industry, though, no matter who they are, is the fact that a lot of their writers don't really understand the technology behind it (Bitcoin/digital currency). They often don't understand cryptography, and in many cases (these large publications) have published articles that are very inaccurate. For example, there have been cases where some author was explaining what Bitcoin is, how it functions, or how to do something (mining, buying, etc.) with it, but their article was full of errors or issues that anyone that has actually been part of the community for more than a month or two would say,"oh, that's wrong."
It is up to you. If you would like to provide that, I can add it to my article.
J: Yeah, I'll ask my guys if they can reset all of that stuff back up...and I do hear what you are saying, which is there is a different kind of credibility that comes with a publication that knows what they are looking for. I also understand that while some people, like myself, would say,"it is good enough for me, not just because it is the Wall Street Journal, but because it happened twice." Obviously, other folks will ignore that fact, and may see it different. I would ultimately conclude that people are going to see what they want to see. Again, it's the difference between looking for facts vs looking to make something fit your agenda, but I've got not issues with that at all.
D: Yeah, honestly, even if you sent me this, I actually could not verify the cryptographic signature myself. I've never actually done that (Correction: I learned how to verify messages and signatures right after this interview was compelete). Luckily, my partner, the main developer for Coin Brief, can. He could take care of it, and say yes, this is absolutely proof (if it is authentic).
GAW's Hashbase, Hashcoin, Hashpoints, Paybase, and Paycoin
D: Moving on from that, and into Hashbase, Hashcoin, Hashpoints, Hashpool, Paybase, Paycoin, and all of that...I've been going through all of these things, trying to figure out what was going on with them. I've been in and out of the loop recently, and I think I've gotten mostly caught up, but I've got a few questions that will basically be yes or no. If they are yes, then we can just move on quickly.
So, Hashpoints are being discontinued when Paycoin is launched, with existing Hashpoints being converted to Paycoin, which is the official name for Hashcoin, right? Is that correct?
J: Right. That is correct.
D: Ok, great. Also, am I correct in thinking that Hashpoints are only obtained by mining through Hashpool, which will be closed when all Hashpoints are converted to Paycoin?
J: That's right.
GAW's Paycoin-based Payment Platform: Paybase
D: Ok, so Hashpoints and Hashpool are both gone, or going. That leaves Paybase and Hashbase mainly, and Paybase is something that seems really exciting to me, but I have a lot of questions about how it works. Paybase seems to be like a payment processing system, that works with Paycoin, Bitcoin, and fiat? All three together?
J: That's right.
D: Then let's move into questions about that. Are there limitations on how you can use Bitcoin, how you can use fiat with it? What are the stopping points? Where can you use it, and where can't you use it? How can you use it, and how can't you use it?
J: Well, what's the context. Do you mean what places you can use it? Maybe you can explain that a little more.
D: Yes, that is my next point. In the article I read, that I believe you wrote, it mentions that it will work for merchants that accept Bitcoin, plus the entire Shopify network, and anyone accepting PayPal. It also says that Paybase can be used anywhere that debit cards are accepted. Then, it also mentions mailing checks to companies that don't use Paycoin...and those three things together are a little bit confusing, because if someone accepts PayPal, then they basically accept debit already anyway.
If someone accepts debit, you would never have to mail a check, even if they don't use Paycoin. So, this could be taken a few different ways, and I'm not sure which is correct. Does this mean that Paybase can be loaded with Bitcoin and automatically convert to fiat when you use a debit card, or a PayPal purchase, or on Shopify? Or, if it doesn't accept any of it, then it uses a check?
J: Yeah, so think of it like there are orders of priority. The top priority would be them accepting Paycoins directly. The next one would be them converting Paycoins into fiat, and obviously then they would accept fiat. The third would be them taking a check.
So, if you start looking at the different ways you can interact with people you pay money to, we want to move from the top of that down to the bottom of that. In the case of a merchant, we would want to prioritize, and work with merchants that take Paycoin directly. If that is not possible, another way a person can do business with them is by debit card. Then, in the case of paying a bill, or something like that, obviously some people prefer to do that on a monthly basis, and they want to have control over when they send it.
So, what we are trying to do, if we back up and approach it from a higher level, I think that there is this huge misconception in the crypto-space that once crypto becomes "X", whatever they think "X" is, then everyone will accept it, and it's completely not true. For a thing to gain mass adoption, then most people need to use it. Most people have a certain level of tech savviness, a general level of what they are willing to do, and how much patience they will have, and all of these different things, and they are kind of generally true. This would mean for whatever coin to be massly adopted, it has got to be just as easy as the things they know about today, but even better, to the point that they would be willing to spend some time and switch to it.
So the barrier of entry, the thing that really creates scale, is completely different than what people in the industry think it is. It is not just about it being able to be used. It has to be better in many ways for people to consider it over something like, say, PayPal, or anything else. That was the real challenge when I started looking at how to craft a coin that would be...I started working with big marketing firms, and they are telling me...I'm used to a world where it's like,"hey, we can link it to a debit card," and everyone is like,"thats amazing!" Now they are looking at it, and saying,"What are you talking about? I already have a debit card. I already have PayPal. That doesn't mean anything to me. Why would I actually use it?" and so these things are like the bare minimum. The bare minimum is that you need to be able to pay your bills, go use it anywhere you want to use it, use it at a merchant...all the things people are excited about are the minimum. That is the minimum barrier of entry for stuff to even gain a second look.
All of these things exist (D: debit cards, PayPal, etc.), and are the things that people are used to. They are used to going into their bank account, putting in a check when they want to...I think we are doing this a little differently, or maybe a little more innovatively. We are embedding crypto inside of that. Lets say you would send a check to the guy that mows your lawn. Obviously every time that guy gets a check...he isn't likely to accept any kind of crypto...but there is going to be something in that check that says,"Hey, you could have gotten this money instantly, in your account, instantly available to you, if you accepted Paycoin." We are basically looking to use those payment methods almost as a solicitation to draw more merchants in. You can kinda see how this snowball effect works. As more and more people know about it, it creates more and more sales, and it kinda networks itself out.
So a debit card, or a check, I can use wherever I want, and however I want it, obviously. So draw Paycoins out of your account, it is going to automatically do the conversion for you, and it is going to work the way you would imagine it would work. Now I want to send a payment, and this vendor doesn't accept Paycoin. Thats ok, we will send them a check and try to get them to accept Paycoin. Or this merchant accepts Paycoin directly, and there is an upside to the merchant for doing that, because they will pay less in fees, and it is just as easy, because they already have the account. Much like PayPal, they can just click, click, click all the way through it, have it automatically deducted, and the thing is being shipped. So it is kinda combination of all of those things working together.
The funny thing is that while it is so impressive to the industry, that is just like the minimum it's going to take to get people to take a look at it. Not necessarily even get them to switch. So, we have got to work really, really hard, and we have our work cut out for us to create advantages over what they know about. That is where I think we are going to do some cool things. We understand that there is strength in crypto, and it's in the blockchain, and it's in the things that the technology can do...not necessarily just in a currency. We intend to leverage the community and do things like hold awards, run contests, create a funding / investing vehicle for development groups that build cool technology into the block chain that often times would never see the light of day because they do not have the funding, they do not have the customers, they do not have the scale.
So, we will do things almost like the "Dyson Awards" where we are constantly pulling these incrediblely creative development teams and saying,"Hey, here is the money that you need in order to finish this thing. Get it done, and we will put it on a platform that millions of people use." Now, imagine that. If you can do that, and pull it together, now you have got something that is much more powerful than anything that exists today.
D: Oh, I completely agree. But, the core question I was asking here is, when Paybase launches, will it immediately have debit card / PayPal integration? Will I be able to use it instantly to buy something that would take a debit card normally? Will I be able to use it instantly somewhere that PayPal is accepted?
J: We will have a rollout approach. Certain people, obviously our customers first, they will have access. Then we will come back and we will stage it in a way that it gets rolled out like any other launch that takes place. So, we intend for the full rollout to end somewhere in January, so the answer to that question is that it depends on where you sit. Whether you are an earlier customer, that obviously we feel an obligation to take care of first, and give the most features to first.
So if the question is, "On the 15th of December are we going to open it up, and anyone who wants..." No. No system launches that way. We have everything in beta right now, and we already have people testing it. Then we will open it up to an invite situation, to our existing customers over the next week or two, and they will have access to all of that. We will just keep expanding, expanding, expanding. We will let them give invites to their friends, and then, eventually, anyone who wants to do it can just go do it. That should be the beginning or middle of January.
D: Well, that still is not exactly what I was asking, though that does answer part of it. I'll put it this way, in the past I have worked for a company involved with payment processing. My question is related to the legal hoops you have to jump through.
J: The money transmission licenses.
D: Right. So, when you first launch, will the ability to use it anywhere debit card is accepted, or PayPal is accepted, be available to them?
J: The answer to that question is yes. We knew that ahead of time. We are fortunate that with our resources, we have been able to leverage our scale to get in front of the right people. We have an entire team of people that that is all they do. So yes. A way of asking that question, which could be "Are there going to be setbacks, or are things going to be held back, or suppressed as a result of regulation hoops that you have to jump through?" And the answer is no.
D: Ok, I understand what you are saying about resources. The amount of funding you have would be helpful.
I have a few more yes/no questions that I would like to clear up, and make sure that I have all of this right. As I said before, all of the "hashes" and "pays" have a lot of people confused regarding what is what.
Hashbase is a platform to mine various cryptocurrencies, including X11, and stuff like that, with Hashlet Primes, which are only obtainable from other users via the Zencloud market at this point, right?
J: That is correct.
D: Hashlet Primes that mine on Hashbase pay lower than normal maintenance fees, can use their Hashlet Primes as collateral for loans, and will increase in power, or hashrate, over time. Is that correct?
J: Yes. We have things that we are implementing now to increase their value. We have definitely learned a lesson about trying to create more value for people in the future using proof of work. That is a BAD way to create new value for a customer through proof of work, because proof of work is designed to do the exact opposite. Over time, it gets you less.
So when we started the business, we had certain perceptions on how long certain things would take, and we are now saying that if we are going to deliver on "X" to make someone have more value, then we need to approach it differently. Ultimately, as long as the guy ends up with something much better...every single person who owns a Prime is going to get at least 2x what they have invested, which is pretty awesome. We can accomplish that. But, it is not going to be just going out and buying more mining hardware, and throwing that at it. You have to be a lot more innovative and a lot more clever than that. We are going to announce that later this evening, and I think it will make more sense. I just want to be clear about the answer to that.
D: Well, lets move on from that to more about Paycoin, because that is the one that is important right now. That is what everyone is paying attention to.
You posted an article today, clarifying some points about Paycoin, and according to this article, along with the whitepaper, Paycoin will initially be a PoW coin, until 12.5 million have been created. Of the 12.5 million, 5.5 million will be given to current investors in exchange for their Hashpoints, and for the Initial Paycoin Aquisition Program. After the 12.5 million have been mined, Paycoin will switch to PoS only, with 50 special nodes called "Prime Controllers". Is that correct?
J: That is right.
D: Then, I see that the block time is set for 1 minute during the PoW phase, but what is the block reward. Is it set? Do you have an algorithm? Or has that been released?
J: Oh, yeah, we have an entire company building that for us. I wouldn't be able to speak to those details. That is not my area of expertise. We have a very, very reputable company building this for us. They have their act together, and know what they are doing.
D: So, they are still developing that, and figuring out what the algorithm will be for the block reward?
J: I think it has already been set. I just wouldn't be able to tell you what it is. I just don't do that part of the business.
D: Ok, gotcha. Do you know how long the Proof of Work phase is supposed to last?
J: It think it really depends on how much hashing power is directed at it. From what I understand, the way that it is going to work, there is a distribution of coins to be distributed in that phase, and once those coins have been distributed, then it moved to PoS. So, it really is a factor of how much hashing power is directed at it. So, yeah, this is another thing that I know that THEY know, but I don't really exactly know. It is a variation depending on a couple of things.
D: Ok, well, if I had the answer to either one of those, I could have figured out the other, so I was hoping that you had an idea on that.
So, once the PoS phase starts, the Prime Controllers will be staking at a higher than normal rate, but the only way to own a Prime Controller node is to bid for it. These bids are stated to be split between Orion Controllers, based on their proportional share. Then, Orion Controlls are any "qualified node". What is the definition of a qualified node?
J: Thats another technical question...I know it is in the whitepaper. It is some amount of computing power, a certain amount of coins that they are putting in escrow...there are technically two ways the coin stakes, but a third way money, or revenue, is generated. So, one is the monthly, 5% APR stake that happens that any wallet, on any computer can participate in, just like a normal PoS coin. Then there is the next level up, which is akin to Dark Coin, where you have the Orion nodes and put X number of coins in it, and they get a % of transaction fees. Then the third is what we call Prime Controllers, which are kinda like the main nodes of the network, and do most of the heavy lifting in terms of some of the features the coin does, and those are obtained through a bidding process.
The whole reason why it works that way is because when I first issued the whitepaper, we looked at it from a technology perspective, and we looked at it from a business...we kinda mixed the two, and out pops what we put out there. It kinda looks similar to some stuff that happened before, and so everyone knows about that. Then I took a look at that and thought,"Man, we did not do near a good enough job from an adoption perspective." We solved the adoption problem in terms of a way to obtain funding for adoption, but I believe, and continue to believe, that the number one thing that will create adoption is stability.
So, the problem with our original design was that, like Bitcoin, which is why I believe it won't be what people want it to be, is that it continues to create coins, whether those coins are needed or not. They just continue to be made, whether the market cap has increased to be able to handle those extra coins or not. So, the reason I have set it up the way I did is I said,"Let's approach this from a purely business perspective. How would a business look at this? What would make a business feel comfortable doing business with a currency. Well, the number one thing is stability. How do we achieve stability? Well, it's simple. When coins aren't needed, coins stop getting made, and when coins are needed, no matter how many are needed, they are there, because they are needed.
So, that is how Prime Controllers are made to work. Prime Controllers prevent the number 1 thorn to any coin, which is a company spending a relatively small amount of money to go build and tape out a chip, and gain a technical advantage over everyone else, mine the crap out of the coin, then take that coin, dump it on the market, and run away with some money. You know, it is so funny that people are after us. This happens all the time. That is like the most sketchy thing that could possibly happen, and it happens all the time, on a daily basis. They have no skin in the game, they don't care...it's a run to make money.
So we made Prime Controllers so you can't do that because, A, the minimum requirement is a lot more money, and will be a lot more money as times goes on, as it keeps scaling as a %, than it would be to make hardware. So, you have to be really serious about making an investment, and wanting to get involved, right in the beginning, if that is something you want to do. The other thing is the stake rates: 10% a year, 5% every 6 months. That is not the normal mining mindset, right? That is an institutional investor mindset, and that is exactly what it was made to attract. Normal groups of money that want to invest, to create and build a market. That looks normal to them. So, you won't be able to gain those same kinds of advantages like you could with just mining.
The idea though, is for that structurally to exist so businesses can build business models around the way Prime Controllers work. To be profitable, but at the same time, add to the ecosystem. They have to put a lot of money in to gain that position to begin with, so that is why I call it "market makers", because they are affecting the market. I can go out and buy all these controllers, and be this "whatever" guy, and not care, but if I go out and start dumping these coins, and there is no demand for it, then I don't make any money, and I just tied up a ton of money that I didn't make any money off of. What am I going to do? The next time I'm not going to do that again. I'm going to pull my money out, because it doesn't make sense to me to have a lot of money tied up. What's going to happen? Well, it is going to free up the controllers for more people to buy in. Or they may not become managed, which will slow down the production of coins so the market demand can catch back up with the amount of coins that are there. So, it is made to flex, depending on what needs to exist in order to make the market move.
So I know one of you questions was how does that tie back to GAW? Well, we have been going around, collecting investments, so we could pool a large group of investors together, with a large sum of money, to be able to obtain a stake of the coin that does not all belong to just us. It is split up between a number of groups of investors. The aggregate group is such that can yield a much greater percentage, which is where hashstakes come from, as hashstakes are essentially wallets that sit on top of our Controllers, and are taking advantage of the stake rate that we created from scale...basically pooling all of this money together to make it work.
Basically, a round will happen, and we will pool our money, and then when a round happens again, one of two things is going to happen. Either we did well for our investors, and they are going to want to do it over again, and a market exists, and demand exists...or we didn't. We will get competed with. It is quite possible that we could lose our position, because if another company does a better job of managing their money, managing their investments, they will take them from us.
That's why its funny when I hear that it is centralized. Well, not really. It may become that way for a period of time, but just like anything in life, if you are not a good steward of that investment, you will lose it through competition. If we get greedy, and put too many coins out on the market, guess what? Groups will come in, buy those coins up, outbid us, and then as we scale down in what we are managing, so does our stakes and so does our profit.
So it is made to distribute. Anyone can get involved. Anyone can build a business out of it. And, they only win or lose if everyone wins. Because, miners are taking advantage of the growth of the marketcap. Miners are taking advantage of big companies fighting and spending their money against each other to grow the market cap so they make money. Miners are on the upside of that, unlike now, where they are on the backside of that, where companies are fighting, they keep all the money, and then they dump it on the market, and it kills the market. There is no way for mining hardware companies to do what they do. They won't be able to do things like that. Especially in the way they do it now, with the way our coin works.
D: Well, that actually answers some of the other questions I had. Now, I have looked through the white paper, and the qualified node thing I was referring to does not really have a definitive answer. It says that the node has to pass certain tests, but what those tests actually mean is not explained. Basically, would a personal computer that is mid to high end be able to handle it?
J: Yeah, I know it is designed that way. We looked at what success Darkcoin had in managing those kinds of nodes, and it's made to be something more than someone just opening a wallet and leaving it open, but obviously that can be done by a regular person at home that believes in the coin and wants to make money that way. That is exactly who it is designed for. I know its is a very reasonable type thing, because large companies are not necessarily going to be interested in that. Rather, prime controllers are designed for large companies to compete.
D: Another question I had was, will Prime Controllers be worth the double stake rate, and other advantages, but you basically answered that before I got to it.
J: I know I saw a question like,"How many do we need?"
There is some thing they are building in it, again it is a technical thing beyond me easily telling you. It flexes like that. If the network needs more, and there is a greater demand for processing power, then those 50 have the ability to become more, and change, or even decrease and become smaller.
So, we set the number to what we did because, essentially, I did a calculation and discovered that, in a general sense, our company can put anywhere between $400,000 and $600,000 a day to crypto. Crypto usually increases in theoretical market value by $1.4 - 1.8 million per day. That is where I noticed that we were contributing around 1/3rd or more of the marketcap, so we know that we can sustain a coin. If anything, we believe we may have made the number a little bit too low. There may be a greater demand for it than we have created coins to be able to meet it, so I think that potentially could be an issue, because that obviously would push the price of the coin up, because our coin should grow at roughly around $1,000,000 a day at full strength. As in, when all things are staking at the maximum capability. I know, our company will immediately eat into half of that.
Then you've got like Paybase, which could be a scale thing, or something like an interview, and suddenly we have 2 million customers...so we are thinking that there may not be the supply that we need. But, if you have a problem, then that is the problem to have. You don't want it to be that you have too many, and can't sell anything.
D: Yeah, you are right. And I think this could work pretty well, as it is well thought out. If the team you have working on this can actually make this work the way it is outlined in the whitepaper, it will do phenomenoly. It is making it all just work actually...
J: I am glad you see that, because I saw people posting that it was "no big deal" and we shopped many, many different developers, and we had people in the industry with a lot of respect flat out say that it is not even possible to build. Like, it is not even possible...there is no way you could build that. So, I am glad you see that.
Paycoin's Prime Controllers
D: I really only have time for one other question, which you partially answered it earlier, and I know it is one that will be a concern for people in cryptocurrency, simply because of who people in cryptocurrency are. There are a small number of Prime Controllers, relatively. You start with 50, and it can fluxuate up and down. I don't know how far those fluxuations up can go, but if it can go down at all, that will worry a lot of people.
Even though that is still decentralized, which is something that I did not understand when I sent you my first questions, as I had read incorrect information about this. Now that I've read all of the current information, I do undestand that yes, this is decentralized...but, it still leaves control of the network in the hands of a small number of groups, no matter what. 50 people, or 50 groups, or less is tiny. Not that Bitcoin is necessarily much better, because there are a small number mining pools that do control it, but it seems like something like this would be more directly purchaseable to gain control of the network than Bitcoin, because, to control the Bitcoin network, you actually have to buy enough mining hardware to mount a 51% attack, or close to it. Then you have to spin that all up, get that all going, and then do something to really corrupt anything.
J: If I could make a quick point, I would go as far as saying that if not in the first round, easily in the second, it will require more money to gain 51% control of this coin than it will be for Bitcoin. I know exactly how much money it takes to buy power in Bitcoin. It is ridiculous how much control you can get in the Bitcoin network for such a small amount of money. In fact, I can tell you that I could buy about 10 Petahashes, and spent $4 or $5 million. It will cost $4 or $5 million to get one controller that stakes at 10% annually. So I would definitely counter that argument with the amount of investment it takes, as well as the fact that as the market cap grows, more controllers will get created. But, I would kinda yield at the point that it does take...that is why I call it a hybrid, and I know people don't want to accept this...but it does take market makers. You have to have people interested in a market being made, and a financial model that they can make money on. Not in the traditional industry way.
That is the bottom line. Who do you want controlling the network? Do you want people who are opportunistic, and are taping out chips to gain technical advantages over other companies, and can selfishly build what they want, or do you want actual financial management companies that understand investment, understand the risks involved, and understand that a market needs to exist in order for them to make money. Now, obviously you might have people argue different sides of this, but I can tell you right now, I would much rather trust my money with the second than the first. We have seen, so far, how that first thing has gone. We have evidence of it. Now we are going to see what it is like when the network is managed by a combination of both everyday users, as well as companies that are interested in building a market.
D: I get what you are saying about the costs, because if the market cap gets high enough, with a Prime Controllers minimum bid being around 1% of all Paycoins, adjusting based on how many Prime Controllers are needed at the time, then that could grow to be a huge number. The issue I see with it, say with Paycoin's code base, and owners of Prime Controllers deciding to make changes to it. Not necessarily a change to not make it work, or really screw people, but give them a slight advantage, or change the code in a way that people don't really want it to be changed, just because they want to, without really ruining anything, while the market is still small.
J: You would need consensus for that to happen, and obviously we have a strong position the first time around, because we have been preparing for a while. As the second round opens, the amount of money you would need for a controller move from like $3 or $4 million, or whatever it is, to like $20 million. So, it is going to cost you a lot of money in order to gain the consensus you would need to manipulate the code. I don't know what is going to happen. Hopefully we stay in a great position, because we managed the money correctly. But, we will see. It's fair game. The best thing for users is competition, and when companies are forced to compete with each other. We set this up to be intentionally competed with. So, we will see what happens.
D: Yeah, we will see what happens. I'm excited to see it. You have definitely eased a lot of my...well, I wouldn't say worries about GAW
D: I'm not a conspiracy theorist, and when people said "GAW is a ponzi" or "GAW is whatever" my thoughts were,"No, they are not...they were selling mining machines, they had a working business model, so it wouldn't really make sense to go into a Ponzi when they could just keep making money legitimately."
J: And not have to worry about going to jail?
D: Exactly. That would be stupid. But, I was worried about what you were doing. I wasn't sure. I was worried about,"Is this a good business model?" or "What are they planning with this?" I don't know if you saw my article where I actually tried to figure out what was going on with Hashcoin, Hashpool, and all of that...and I was completely off, but I was trying to figure out... (I am still confused about how much of this will work in the end, and what is going on internally at GAW. I hope to have more information about that in the near future)
J: No, actually, I would say you weren't. You got a lot of things right. I was actually incredibly impressed with how well you nailed some things, so give yourself more credit than that.
D: Well, still, I missed quite a bit of it. I was trying my best to figure out what you were trying to build with this...I knew there had to be some end game here.
J: You know what the end game is? I'm trying to change the industry here. Honestly, I hope that someone comes into this, and can do a better job of running this whole thing than me. That is the honest truth. We started something that is so good that people want to be a part of it, want to embrace it, and they take it from the point we took it to, and they are so much better at doing it than we are, and they just take it to the next level. Then, I could sit back and say,"That was a tough ride, but we made a difference. We did something." I don't need to be the big guy, I am worn out, and I am tired. This is a tough industry to keep that momentum going. I can't not do what I do, because way too many people believe in us, but if I had a choice where I was sure that those customers would get taken care of, and I was sure that their interests was...I would be glad that we did something great, and made a difference. It is not about me at all.
That is why I've kinda built it this way. I'm hoping that it gets so amazingly great, that it gets so much bigger than us, which is what it should be, that it just takes off and becomes this amazing thing. Then one say I can say,"We were a part of that. We helped make that happen."
D: That is the amazing thing about decentralized systems. Once they are created, and reach a certain point, then they do not need their creators anymore.
Final Thoughts on the GAW Interview
Many of my questions were answered here, others weren't, and I have many that I just did not have time to ask. I hope to have a chance to get more in depth answers on some of these issues, as well as have other questions answered in the future.
If anyone has any additional information, or questions, about GAW, Paycoin, Coin Fire's article, or anything else mentioned in this interview (or left out of it), please email me at [email protected]. I will work to stay in contact with Mr. Garza, and his team, to try to get answers to all of the questions that I have, or anyone else in the community has, as long as they are legitimate.