• Bianca Chen

The One Exchange that Clogged Ethereum Network--Why Crypto Investors Think It Will Topple Binance

Updated: Sep 5, 2018

Crypto Asia 100 Vol.1

Hongcai Guo was a beef merchant from Shanxi, China. Through bitcoin mining and blockchain angel investments, he became an icon in the Chinese crypto circle. Now Guo resides far from China, in his Silicon Valley villa with three Rolls-Royce cars, but he never stays away from controversy.

Lately, the FCoin Exchange achieved an astounding trade volume merely fifteen days after launch--passing that of OKEx, Binance, and Huobi combined. Accusations of fake transaction arose. As a staunch advocate for FCoin [FT], Guo is taking flak from doubters. So I called him.

Bianca: You just launched two crypto tokens yourself. What for?

Guo: Acquiring users. Right now, the biggest cost in our circle is the cost of traffic and user acquisition. And the spending is enormous. CoinMarketCap has the highest traffic. To book an ad at CoinMarketCap can cost you 400,000 RMB. Still, ICOs are willing to do it because CoinMarketCap's traffic is five times that of Binance. The same reason why Binance created "Binance Info." People need to look up unfamiliar coins, and those inquiries contribute to the traffic. I launched new tokens for the same purpose: to gain traction.

Bianca: Speaking of traction, everyone is talking about FCoin’s "trans-fee mining" model. You stood up for FCoin in this discussion. How did you learn about it and why supporting it?

Guo: I was late to the party. By then its value had gone up a hundred times. I was on vacation in Canada. I studied it a bit during my vacation and thought this would disrupt the cryptocurrency exchanges. FCoin is different from everything else. For other platforms, you don't get to decide what coins to be listed and what don't. The barrier to entry is high. But aren't ICOs supposed to topple IPOs due to a lower barrier? As established exchanges grow bigger, it isn't the case anymore. ICO projects pay more than half of the fund raised to the exchange platform, or to the voting institutions. This need to change.

FCoin’s mining model is actually very simple, you mine at a low cost and reach a high trade volume easily. It attracts a large number of users, the users in turn attract media attention. Everyone wants to know how it is able to reach such a high volume. So it's trending everywhere, in media, in group chats. When everyone talks about it, people will sign up. That’s how they grow their users.

Sure there are fake transactions, yet the user growth is real. The users are real. What do these users bring to the table? New ICO projects. It is an open platform where every project can get listed. Thus, each project brings its own followers, who become new users. Suppose one thousand projects are waiting in line--in fact, Binance's waitlist is twice as long. Of these two thousand projects, not many will end up on Binance, at most one or two. Those big exchanges have to be selective which coins get listed. The big players do not want to tarnish their brands. However, FCoin does not operate on such a mechanism. An ICO may seem promising or shady, all of them can get listed. It's up to the people within the community to decide for themselves. This model opens the door for easy entry. In the end, if each project brings 10,000 users, then a thousand will bring the platform 10 million users.

Bianca: So it's listed for free, for everyone? Say I plan to launch a Bianca Coin, I just submit it, and it will be on?

Guo: Yeah, everyone can submit their project directly. The fundraising starts on the next day. Then, any user is allowed to invest using FCoin Tokens [FT]. Top 20 projects with the most FTs raised get listed first. As user assets turn into FTs, potential adopters will be more confident in pumping money into their FCoin account and will wait for the next trade day. In this way, all ICOs become FCoin shareholders, motivating them to bring in more people. At the same time, more FTs are mined through transactions. Project founders also play the role of the market makers here. Once you hold FTs, you get bonuses every day. Let's be honest, most projects nowadays are scams. They will never see the day of realization. So those project founders would, secretively, rather hold FTs, and changed other tokens into FTs. Once they do that, they will have the incentives to promote FCoin even more. That's how it works.

Bianca: Are you mining FTs now?

Guo: Yes. I asked my team to generate a large number of transactions every day through program trading, thereby mining FTs. At first, the referral reward was 20%. Then it dropped to 10%. Now the reward is canceled, but we have not stopped mining because the price of FT is still going up and we are making money.

Bianca: Some say they can emulate FCoin’s model. Binance claimed they could team up with 1,000 exchanges and achieve the same result. Others say FTs will soon be exhausted, and the current "trans-fee mining" is not sustainable. What are your thoughts?

Guo: The FCoin community is evolving at a staggering pace because participants keep coming up with solutions. Imitators can't keep up with them. One big challenge for the imitators is they cannot handle such a trading volume--their system will simply collapse. We attempted a test run ourselves, and soon we gave up. Because our trading system is not that robust. The fact that FCoin is running with larger concurrent transactions than Binance, shows they have a reliable infrastructure. At least my team doesn't have the technology. So we chose to corroborate FCoin rather than fight it.

Besides, the Internet follows the winner-takes-all logic. Once a platform is established, it will gain the most traction for free. Copycats may appear. Some users may even try it out, but they will leave just as quickly. No loyalty to talk about. They will soon return to FCoin, because of its trade volume and market depth. Binance can recruit 1,000 exchanges and still won't compete with FCoin.

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