CC#12: Brian Armstrong, CEO of Coinbase on Clubhouse talking about the past & future of bitcoin

”What stood out to me the most about the bitcoin white paper had to do with freedom." Brian talks about discovering bitcoin, and what the next decade will look like for cryptocurrencies.

Brian, the founder of Coinbase—the world’s largest cryptocurrency exchange—was a shy and nerdy kid growing up. He was interested in computers, so when he went to college he studied computer science and economics. Before he ever heard of bitcoin, he already had an interest in the financial world.

“I always had a sense that the financial system was a bit broken and wasn’t accelerating quickly enough. At one point I lived in Buenos Aires for a year and I observed how their currency became hyper-inflated and the impact it had on the people who lived there. Many people lost everything they had.”

After College, Brian went to work for a startup that is now very well known, but was in its early days at the time “I was an early employee at Airbnb and I remember we needed to send some money to Uruguay. It was completely unclear how much pesos would come out on the other side if we sent $100 — the guy on the phone from the exchange couldn’t even tell us an exact amount.” He began to think “Wow, the financial system is so broken and it seems like a real barrier for innovation."

“In 2010, I was at home for Thanksgiving and was reading Hacker News and read the bitcoin white paper. I thought ‘this is probably the single most important thing I’ve ever read in my life’, and then I re-read it 3 times. I couldn’t stop thinking about it. I started going to bitcoin meetups in San Francisco. I remember thinking someone is going to build an exchange for this thing. Theres gonna have to be some company that stores all this bitcoin in the cloud. I even thought ‘I don’t want to start that company, cause there’s gonna be a lot of regulation and I don’t want to be storing people’s money because of the liability.’ And then 6 months later I started making prototypes of the platform. That’s how Coinbase was born.”

”What stood out to me the most about the Bitcoin white paper had to do with freedom. I felt like in certain countries around the world, there were a few people with a hand on the dial of the currency and they were manipulating that. Inherently, it didn’t feel fair to me. If you do something good in the world, you want to be compensated for it. This is a fundamental freedom that I felt everyone in the world should have. Why should people have centralized currencies that could be manipulated; instead, we should have a global decentralized currency.”

If you think holding your bitcoin during a bear market is difficult, imagine how Brian felt in 2010, when people didn’t even take bitcoin seriously. He recalled a few experiences from the early days that really made him second-guess himself.

“I remember I wen’t to one of the early bitcoin meetups in San Francisco and I told someone that I wanted to build a digital wallet and this guy said ‘that’s a terrible idea, haven’t you seen all of these other wallets & exchanges being hacked?’ There’s been a lot of cybersecurity stuff we’ve had to go through over the years and at times it was a bit scary—we invested so much into it.”

Garry Tan did a quick google search and said “The first time bitcoin was mentioned in Hacker News was on May 8th, 2009. The first comment on the post read ‘Well this is an exceptionally cute idea, but there is absolutely no way that anyone is going to have any faith in this currency.’”

Brian added “It’s hard to overstate how bad of an idea everyone thought it was. I also recall putting a post in Hacker News about looking for a co-founder, and I got a bunch of snarky comments. Not even my friends got it. They said it sounded like a scam that I was getting myself involved in. There was a lot of self-doubt when I was starting out. I began thinking: ‘Maybe I’m crazy cause other people just don’t seem to get it.’ I also thought - ‘Do I really wanna be known as the bitcoin guy?’ I was afraid of telling my parents I just quit my job to pursue this - especially cause Airbnb was growing incredibly fast at the time.”

He applied to Y-Combinator and they accepted him and subsequently wrote him a $150k seed check. Brian said he had a ton of respect for Paul graham & the YC folks, so this was very validating for him: “I felt like ‘Wow someone actually believes in me’ and it gave me the confidence to call my parents and tell them: ‘I quit my job but someone gave me $150k for this new company I’m starting.’ The brilliance of YC is that they believed in me when this seemed completely crazy.” 

Sriram added that in a sense, Brian was sort of a diplomat between regulators and the “crypto community” that was viewed as a bit weird and eccentric at the time.

Brian recalled “I remember another early bitcoin meetup I went to in San Francisco after leaving a meeting with regulators and I had some nice shoes on. This guy got in my face and yelled ‘You just want to create a bank for bitcoin!! You even dress like the bankers, just look at your shoes!’

Avichal asked Brian how he dealt with the cycles of BTC going up and down over the years.

Brian replied “I wasn’t doing it to make money, I was doing it because I believed in Bitcoin and its ability to bring economic freedom to the world. I also don’t get very down or very excited about things. It’s a blessing and a curse. I remember an early day at Coinbase, it seemed like everything was going wrong—someone quit, we were notified that there was a law suit against us and we had a bug on the website so we were at the office until 2am. I finally got to go home and when I arrived, there was a man waiting in the lobby for me to notify me that my apartment had flooded. I looked at him and said ‘ok, so I guess I’m staying at a hotel?’ and the guy replied ‘I’ve told a lot of people over the years that their apartment flooded and I’ve never seen anyone be so calm about it!’

I guess that’s what it takes to be a global business leader in a space that is as volatile as cryptocurrency.

Brian was then asked about the past decade in the bitcoin world, to which he replied “So the whitepaper was published in 2008, I read it in 2010. The decade that followed was filled with a series of bubbles and corrections. However, bitcoin was the best performing asset of the decade when compared to all other assets. Each time it hit a new peak, it brought with it new groups of people who then became a part of that world. We saw the community break into factions, new coins emerged, the ICO bubble happened, the BTC split and a big debate about the scalability of bitcoin. People were wondering is it going to scale, and if so, will that harm decentralization? It’s funny because at the beginning of the decade, after reading that white paper, I thought that bitcoin would start becoming a globally accepted currency. I was completely wrong about that! We’re all still on dial up (in the early days).”

Before moving to the next topic, Brian added one other memory from the early days: “We would call regulators and ask if what we were doing was ok. They would respond saying they didn’t know what bitcoin was. Instead of simply moving forward as if they said it was ok, we would actually set up meetings with them to educate them. We realized we had to embrace regulation, which no other crypto company was doing at the time.”

Sriram asked what the next decade will look like for the cryptocurrency space.

Brian replied “One thing is that blockchains are becoming more scalable—which is really important. We’ll see Ethereum 2 come out and Layer 2 solutions come out on BTC. It’s sort of like the internet going from dial up to broadband. This will unlock a lot of use-cases that most people aren't even thinking about right now. We’re also seeing DeFi (decentralized finance) and NFT (non-fungible tokens) becoming increasingly popular. There will be more and more stable coins, and many more governments issuing their own digital currency like China has done.

Last year, Brian published a phenomenal blog post about being a mission-focused company and this was apparently accompanied by some changes in the organization as well. Sriram asked about this and Brian said

“As you grow a company, one of your jobs is to make sure everyone is rowing in the same directions. You hire all these smart people from all these different backgrounds, and you want everyone to share the same values, but to bring different skillsets to the table. I hit a moment last year where I realized that not everybody was on the same page about what the mission for the company was. I had a clarifying moment and I said ‘This is our mission and we’re going to focus on that.’ There’s a lot of hard problems in the world to solve, and it takes a lot of smart people working hard together for years to solve these. The only way to accomplish this is to be focused. We created an exit package for some folks at the company. Because that was my fault, if you signed up and weren’t aware of the mission. It was the most important thing I did for the company last year. For the next 1000-10,000 people who join Coinbase, it’ll be very clear what our mission is.”

Aarthi asked the question “What is the best model to think about the intrinsic value of bitcoin?”

Brian answered “One way to think about it is to see bitcoin as a decentralized global ledger and you have to spend a transaction fee to participate in this global ledger. Rather than quiver over the details, we can simply say BTC doesn’t have intrinsic value, but people believe in it. It’s divisible, fungible, and it’s a great store of value. What is the price of btc? It’s simply the lowest price that somebody is willing to sell it for, by definition. 

Sriram asked about how Coinbase has adapted to COVID.

Brian said “We were figuring out how to react to the pandemic and had everyone working remote. One of the engineers came to me and said are you thinking about being a fully remote company. I was very dismissive of the idea at the time, but over the subsequent weeks I talked to more people and thought more about it - one of the most important things we say at Coinbase is top talent in every seat. In our recruiting efforts and also understanding why people left the company, the number one reason was commute. They didn’t live within 30 minutes from one of our 5 locations in the world. We decided to make the company remote first, indefinitely. It’s turned out to be great. I won’t say it’s 100% better in every way. It’s harder to build closer relationships. Theres a question: are you getting the spontaneous collaboration. Productivity is up, employees seem to really like it. The exception is that some people don’t have enough space at home. People like not having to commute, it gives them more time in day and more time to exercise so they are healthier.

Avichal brought up the point that ~2/3 of all money they send for seed investments at his firm Electric Capital are sent using USDC because of how quickly it send.

Brian concluded by pointing out that the NFT market surpassed $250,000,000 in 2020.

”One of the things btc did in that white paper is that it showed you could have a truly unique digital item. It is provably scarce. NFTs - there’s a lot of other items (art, domain names, concert tickets, etc.) A lot of the deals that artists get are terrible, because there’s so many middle-men that they end up getting pennies on the dollar. Eventually you’ll be able to buy merchandise or limited edition of a song and know you’re directly supporting the artist. This will really take off when some of the metaverse things start to be used more widely.”