Let’s get going:
We all know you as the co-founder and leader of Bitstamp, one of the largest cryptocurrency trading platforms in the world. But little is known about what you were doing and who you were before. Can you tell us a little more about Damian Merlak before his success and life story before all the fame and recognition? Back to the basics, you could say. How did the idea for Bitstamp come about, and what was the path to it? How and when did your crypto story begin; when did you first become familiar with cryptocurrencies and blockchain technology?
It all started when I went to a computer programming course in primary school. I think I was 13 years old back then. They were teaching basic programming in Turbo Pascal, which was a very good computer language to start with. The class started with 10 people and soon after everybody realized it would not be easy to develop even the most basic computer game, they all quit. So for the next few years it was only me and my schoolmate going to that class, constantly competing with each other on who would write a better code. I can fairly say I became hooked on developing software in that period of my life.
A few years later, when I was around 15 years old, just like any other teenager, I started to develop the need to have some fun in my life. I was born and raised in a low-income family, so I never received any pocket money, which meant I had a bit of a problem there. I quickly found a company that was developing websites, applied for a job, and got hired. So, for the next few years, I would go to school, come back home, and start working from home as a web developer.
Then, very soon, I realized that working for somebody is not scalable. I can only sell, let’s say, a maximum of 12 hours of my life per day, and that’s it. So, how do I grow beyond that? My answer was investing in stocks. I started researching, reading about stock markets, and soon I decided that I would work, save as much as possible, and invest everything in stocks. Looking back, if I just continued doing that, I would be very well off at this moment.
In 2011 when I was 24, working as a software developer, saving money, and investing in stocks, a friend of mine told me about some internet money called Bitcoin. I checked the website, read about it, and said to myself: “that’s some crazy hippie stuff,” and closed the website. But I remembered the price. It was around $2 per Bitcoin. Fast forward a few months later, and I came across an article stating that bitcoin price hit, I think, $10 and then crashed back. I thought, wow, that is some insane volatility. The marketplace for Bitcoin back then was Mt.Gox, it had a REST API, so I decided to develop a simple trading robot that would make markets and profit from these wild price swings. While I was doing that, I researched everything about Bitcoin and blockchain technology and fell in love with it.
My next step was to start mining Bitcoin. I decided to buy some mining hardware, and since my friend’s brother owned a local computer hardware store, I asked him to supply everything to me. Because the configuration was very unusual, the best graphic cards combined with the cheapest CPU and other components, he started asking questions. I was always reluctant to explain my Bitcoin ventures because people were always quick to dismiss it as a pyramid scheme or a Ponzi scheme, but eventually, I told him I was planning to mine this thing called Bitcoin and how great it was. He started mining as well; we became friends, started hanging out, talking about Bitcoin, and at some point, we decided to do some Bitcoin-related business together. But we didn’t know what kind of business. Back then, there were only two businesses related to Bitcoin: a mining pool or an exchange. I thought that mining pools were not scalable since they were limited by block reward. So we calculated how much Mt.Gox, the exchange of that time, was doing in volume, calculated their approximate revenues, and ended up with a number around $10,000 per day. We said to ourselves: “if only we can do the same thing, we earn $10,000 per day.” And that is how it started. In August 2011, me and Nejc Kodrič launched Bitstamp.
We know what’s going on in the world of NFT right now, insanely high prices for works of art and collector’s cards of athletes and the like. Are you still actively monitoring the crypto world and what is your opinion about NFTs? Is it just a “one hit wonder” that will eventually pass, or do NFTs have a chance to survive despite all the overhype, as we can already see a few projects being created that have some utility in the real world (e.g. smart contracts for football players’ transfers) and are not just expensive JPEG images? Also, NFTs are widely used in the gaming and virtual world, which are popular especially among young people, what’s your take on this?
I see NFTs useful in the digital art space and DeFi. Our imagination is the only limit on what people will do with NFTs, but it is important to point out that NFTs are nothing new to crypto enthusiasts. CryptoKitties, for instance, became extremely popular in 2017. We can see NFTs being used in UniSwap v3. Each liquidity position is represented as an NFT, which shows how NFTs can be used in financial transactions. But every time there is a market bubble happening, ridiculous things are being sold to naive buyers and newcomers. And this time, it is no different.
Lately, we have been noticing that you are present in stock and energy trading. How is this different from cryptocurrency trading? Given that, as we have already mentioned, eye-watering amounts revolve around the world of NFTs, have you ever thought about trying your hand at trading NFTs and perhaps buying some digital memorabilia or artwork?
Trading stocks is much easier than trading crypto. Trading things with 1000% bull runs and 80% corrections is really hard. Everybody who is trading crypto would be much better off just holding it and doing nothing. I can say all of these things since I don’t own any exchanges anymore. I never did any research on the NFT marketplaces, so I never tried it. I think I will stick to stocks for now.
Since you have a lot of experience, networks and, of course, success with the Bitstamp project, which still resonates in Slovenia and the world, the question arises; is there a possibility for Damian Merlak to create an NFT trading platform in the near future?
When I was the CTO of Bitstamp, I once said that being a CTO of a cryptocurrency exchange is the worst job in the world. I still think so. I like to go on vacation for a week and not worry about being hacked, website going offline, having problems with blockchain transactions…you know, these blockchain apps are not that stable and robust. They are like a custom-made sports car, exciting, state-of-the-art stuff, but they break down all the time, and you have to fix it constantly.
I was enjoying my vacation in Santorini when some obscure vulnerability was found in the Ripple network that would allow our hot wallets to get drained. I had to spend a few days fixing our Ripple transaction processors to fix them while our service had to stay online and still process incoming deposits and outgoing withdrawals. People don’t understand how hard it is to run that kind of business. One mistake, and you are gone.
So, the answer is: most probably no.
But let’s go back a little further into the crypto world in general. Lately, the crypto world seems to be controlled and controlled by a single Earthling, Elon Musk, armed with billions from Tesla and his Twitter profile. What is your opinion on how much influence a single person has on the market, especially regarding the value of bitcoin and the “meme coin,” Dogecoin?
He has been doing the same thing with Tesla stock for a long time. In the long run, it doesn’t matter; in the short run, I don’t care. Volatility is a trader’s friend anyway, so active traders should welcome him moving the price up and down. My opinion is Tesla as a company should not be buying Bitcoin in the first place. Tesla almost went bankrupt not so long ago, and today it is gambling on Bitcoin. What happens if Tesla runs into financial troubles again and has to liquidate its position while the market is in correction mode? They would crash it even more. Bitcoin market is really not that liquid as many people think. If you are forced to liquidate $1.5 billion worth of Bitcoin in a downtrend, you are in big trouble.
Suppose we draw a parallel between bitcoin, which is “controlled” by Elon Musk, and NFTs. In that case, we can find Mark Cuban, on the other hand, who invests heavily in NFTs, among other things, announcing that tickets for Dallas Mavericks games will only exist as NFTs in the future. Gary Vee, who launched the VeeFriends project, is also heavily involved on the NFT side. Could such influential personalities be the driving forces in the existence and revolution of NFTs?
I believe yes. These people are very important for the ecosystem, but they also need to be smart not to get caught up in the wrong projects. I have seen so many good people get involved in an outright scam ICO projects in the previous crypto-mania. They just didn’t know; they thought they were doing a good thing.
You are probably already tired of this question, as it repeats itself like a broken record, but still: where do you see cryptocurrencies and blockchain technology in ten years? In your opinion, will there be enough space for NFTs in this environment?
I always saw Bitcoin as an investment asset, something like digital gold. I always said Bitcoin would always be the main crypto asset, and then you would have others, smaller but more speculative. Today, I’m not sure anymore. Today, I can imagine Bitcoin being dethroned at some point in the future. I like the development of decentralized marketplaces, such as UniSwap. Actually, these markets are very similar to what Ripple used to be initially, but unfortunately, they changed it into something completely useless. What happens with NFTs? We will have to wait. There is a lot of hype out there—a lot of stupidity. When the dust settles, we will see what stays and what goes.
We saw quite a few changes in this bull run compared to the one in 2017/2018; of course, the crypto market cap is significantly higher, mainly because there are more institutional investors present, back then there was the ICO boom, now DeFi projects and NFTs are getting all the attention? What’s your angle on what is different? Although there has been a lot of talk about the same timeframe regarding another crypto crash, this is not the case so far, at least not to such an extent…given that finances are a cyclical matter, sooner or later, a more significant drop is to be expected, or is it?
Obviously, the size. The size of the market impacts its volatility. That is why the bigger it gets, the more stable it is. On the other hand, I think we will see a sizable correction in the stock market this year, and when that happens, crypto will also go down. The more institutional money you have in the crypto market, the more correlated it is with the stock market.
What is your opinion on central banks’ digital currencies?
People talk about central bank digital currencies as something positive, a next step in the evolution of cryptocurrencies. They couldn’t be more wrong. Central bank digital currencies will have nothing in common with cryptocurrencies. They will not be decentralized, and they will not be anonymous; they will not have a limited supply. Basically, nothing in common with what crypto stands for. Central bank digital currencies will be the worst thing to happen to our financial freedom. They will try to replace cash with an app on your phone holding digital dollars or euros, but with some new features, which they could never do with physical money. For instance, your digital dollars could have an expiration date. If you don’t spend them in 3 months, they could expire and be deleted from your wallet. They (the authorities) will be able to freeze your funds at all times. They could put a limit on how much you can spend on certain things. They can easily implement negative interest rates to increase the velocity of money. They could give more targeted stimulus checks, as they could give you free dollars, but you could only spend them on food or energy or hotels in a certain region to stimulate tourism, etc. Options for control with central bank digital currencies are limitless, some of them more and some less likely to be used.
Finally, we would like to touch on your plans for the future. We see that you have tackled real estate, more precisely hotels that were not in the best condition before you, but now better times await them…great projects, congratulations! You are also involved in the story of electricity products. What do you have in your plan for the future, is there a new idea or a project insight?
I would love to make more investments, more projects, but unfortunately, due to central banks’ money printing, everything is overpriced right now. On top of that, I also do not have enough manpower to handle all the projects I am doing. A lot of people just don’t want to work anymore. They are getting rich now by just holding crypto and doing nothing.
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