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Companies are a reflection of their founders.
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In ways ways you probably don't even realize.
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I think— We are in a pub after all.
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Within the first few weeks of us working together, he came back to me at one point and said, "I'm pretty sure we're losing money every time someone buys Bitcoin."
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He walked me through on the whiteboard and he was right.
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There's the top five or 10 fiat currencies— but the long tail—the other 150 or so government currencies, I think they probably should get replaced.
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If the US is going to lose the reserve currency status, I'd rather people went to Bitcoin than to the Chinese Yuan.
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I don't think we can serve these sad pints, I'm sorry.
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It's not meeting the Stripe quality bar.
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Isn't there some ethos at Stripe about the details really matter? They do.
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You deserve a delicious creamy pint. Not this monstrosity.
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I actually was a bartender in grad school.
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I should know how to do this.
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Brian Armstrong is the co-founder and CEO of Coinbase, one of the world's largest crypto exchanges.
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Founded in 2012, earlier this year, they became the first crypto company to be added to the S&P 500. Cheers.
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It feels like a good time to do this and take stock.
1:00
Stripe— we launched in 2011.
1:04
Coinbase was founded in 2012, and grew up at the same time.
1:07
Coinbase just got added to the S&P 500, The GENIUS Act just passed.
1:11
A good moment to step back and take stock. Yeah.
1:15
As you look back on it, when I think about crypto in say the 2014—2015 era, it was such a red ocean, there were so many different competitors and you guys beat so many people to get here.
1:28
As you look back on it, how did Coinbase win?
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It has been a long journey and I remember seeing you guys go through YC and everything was very inspiring for me.
1:39
"Okay, maybe a fintech company could be built in this area."
1:43
So I had a lot of aspiration to go through YC in part by seeing what Stripe did.
1:48
And you're right, in those early days, it was the wild west.
1:51
I'd go to the early Bitcoin meetups and there were brilliant cryptography PhDs and also anarchists.
1:59
One of the first meetups I went to in San Francisco for Bitcoin, a guy there told me he was starting his own religion.
2:05
I thought it was a little off-topic, but somehow it all worked together in his mind.
2:08
So, we've come together from these early days, which remind me of the Chaos Computer Club equivalent.
2:15
And I think Coinbase made a couple decisions there that helped us ride through.
2:20
One was that we decided to follow a regulated approach, which meant working with the United States government and getting money transmitter licenses.
2:27
Which I remember the anarchist crowd at that time— This was considered kinda selling out? It was a little bit.
2:32
One guy—I remember—I had just gone to meet with some banks or something like that.
2:36
So I was wearing like a suit and I came to the Bitcoin meetup and the guy was like— You were using the suit.
2:39
Yeah, he was like, "You look like a banker."
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And I said no, no, I'm a software guy, trust me.
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I think the other thing that we did was we tried to stack up as many credibility indicators as we could.
2:51
One of them was getting accepted to Y Combinator.
2:54
That led to us getting a bank relationship in the US at the time when that was very difficult to do with Silicon Valley Bank of all places— getting the money transmitter licenses.
3:01
There was a period there in the US where we were the only US company that had a bank partnership so it was easy to connect your bank account to buy Bitcoin.
3:10
That really allowed us to get started in a way that nobody else could catch up.
3:14
You were more credentialed versus— and who were the competitors at the time? Was it Mt. Gox?
3:19
Who were you competing against for consumer share? It's been so long. So the Mt.
3:22
Gox was in Japan, which of course blew up.
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There was a company called Tradehill in San Francisco, which probably could have been a big exchange, but it didn't hit some of those milestones.
3:33
There were so many of them along the way.
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I couldn't even name all of them.
3:36
There was a Bitcoin conference in San Jose, California in 2012, that was kind of iconic in hindsight.
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The Winklevoss brother showed up and I met Vitalik Buterin there for the first time.
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He had not invented Ethereum yet.
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I remember people looking around the room and it felt so small-time.
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Some of the talks only had five people show up to it.
3:57
We had this little booth with T-shirts What was Vitalik working on before Ethereum?
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He was a writer at Bitcoin Magazine.
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He was actually a very good writer.
4:04
You see it in his— Blog posts.
4:06
—how he leads the Ethereum movement. Exactly.
4:07
From the philosopher king. Yeah.
4:09
I don't know if there's a lesson to draw from this, but I think being early on some of these tech trends— you don't want to jump in and be the 42nd AI company or something.
4:19
You want to jump into something when you think it's cool, nobody else thinks it's cool.
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And it's, I guess Paul Graham has that thing, You'd rather have 1,000 people who really love your product than a bunch people don't care. That's where we were.
4:32
Nobody took seriously what we were doing, us at Coinbase or the entire industry at that time.
4:36
Can you describe being the more buttoned-up player?
4:42
Having the money transmitter license, having bank partnerships.
4:43
Did that help you win because you were able to build products that other people weren't able to follow you with?
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Or did it help you win because for consumers it gave you a brand and a trust that led them to choose you? I think it was both.
4:59
It allowed us to launch products that others couldn't.
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It allowed us to not get shut down.
5:04
Did other people get shut down?
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Yeah, they either just—they got cease and desist letters.
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They couldn't afford the legal bills.
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They got shut down by getting hacked basically.
5:14
We had a couple close calls in the early days where we were not the mature company we are today and we had people trying to break into our systems.
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I can tell you about some of those closed calls if you want.
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We were able to get just enough good talent in the door due to the credibility indicators.
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By the way, some of the other companies at that time were totally anonymous.
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These people were telling me, "I don't want to put my name on this website because it's against the ethos of crypto."
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In my view, if we're going to raise money, be regulated, how are you going to be anonymous forever.
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If this gets big enough, someone's going to come knocking on your door.
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I wasn't afraid to put my name on it and say "I'm a US citizen.
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I live in the United States.
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I'm doing this for the right reason.
5:50
I'm here for the long-term."
5:51
Companies are a reflection of their founders, right?
5:54
Stripe's very much a reflection of you and Patrick in bits and pieces of you in many ways you probably don't even realize.
6:00
We are in a pub after all. An Irish pub.
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This is one small example.
6:04
The same thing was true of Coinbase with Fred Ehrsam and I.
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It was really a derivation of our DNA— which was many things— but one of them was, we were legitimate and trustworthy and we were doing it for the right reasons for the long-term. That counted for a lot.
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Fred had worked in the financial world before.
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Had you, no, you were at Airbnb before.
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Had you worked in finance at all before? No.
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I had studied computer science and economics.
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I'd worked at pretty much as a software engineer.
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I tried doing another startup that was more of a base hit— didn't work.
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Fred got a computer science degree in economics too at Duke but he went into FX trading at Goldman's.
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When I first met him, I thought, "Okay, the guy knows how to write code, has a CS degree, but he knows something about finance."
6:49
And of course within the first few weeks of us working together, he came back to me at one point and said "I'm pretty sure we're losing money every time someone buys Bitcoin."
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I was like, how could that possibly be?
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And he walked me through it on the whiteboard and he was right. Complimentary skillset.
7:03
V1 of the business model is not going to work.
7:05
You need some optimizations. Yeah. That's wild.
7:08
You're saying some of the close calls, I think that one thing people don't realize is they think when a startup isn't working that it's bad and stressful because no one's buying your product and that is true.
7:17
But when a startup really is working, it is also bad and stressful in a way because you're being pulled along by forces and it's not obvious that you can keep up.
7:28
What were some of the close calls?
7:30
I'll give you a couple examples.
7:32
On the first version of the app, I had created this simple hot wallet that was live on the servers.
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I remember telling people, this app is an alpha, don't store any money here you're not willing to lose.
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The company had raised about $150,000 or so at that point from Y Combinator.
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As early users came on site, they kept depositing more money, even though despite these warnings all over the app and it was getting closer and closer to being $150,000.
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I felt like if we lost all the money I would want to be able to pay it back or else we'd be insolvent.
8:02
You were tracking corp cash— how much money the company had—versus user deposits and you didn't want user deposits to outstrip how much money Coinbase had. Exactly.
8:12
I calculated at one point the growth of the deposits and how much money we had.
8:16
I said, "hey, we have about eight weeks to put this onto some new system."
8:20
I had the vague sense we needed to move the money off the internet, to cold storage.
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I didn't know how to architect one.
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I'd studied computer science, I took a security class, I had basic understandings of cryptography, but I never built a really key storage solution or anything like that.
8:34
So I called up two friends of mine.
8:35
I said, "I need a crash course—how to do this."
8:39
I remember asking one of them , "how long do you think it will take to build this?"
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He said, "A team of 10 people would take a couple years to really validate it and everything."
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I said, "we have eight weeks."
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And he said, "Oh, well you're in trouble."
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I tagged one of the other engineers on our team and we basically got to work coding up the next gen, the first generation of the cold storage architecture.
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We were sleep-deprived and we made some trade-offs that we thought were reasonable to get it there in time.
9:05
But it worked and it was one of the most do-or-die moments where if we had waited longer and the company had gotten hacked, we wouldn't exist here today.
9:13
There was another example like that where, we were sitting there at lunch one day in San Francisco and someone on their computer noticed, there were a lot of refunds going out.
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We quickly realized someone had hacked into one of our customer support accounts and was issuing themselves refunds as fast as they could.
9:29
I remember we shut down the whole website and we figured out how they access that account, managed to block it, came back online maybe 12 or 24 hours later.
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We patched it, we went back to work and I realized if we had been asleep when that hacker started doing it, we would've been insolvent by morning.
9:48
We only lost $50,000 or something in that incident.
9:50
But it was pure luck that we were in Pacific time—San Francisco— they started doing it in a place where we noticed it.
9:57
There were moments like that in hindsight, very scary. There were a coin flip.
10:00
There were three or four coin flips not all of them were cyber-related. You're right.
10:05
Once it started to really work, there were other challenges about keeping up.
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One was just the level of customer support tickets coming in and we didn't have a customer support team.
10:13
So nights and weekends we would, 9:00 PM to midnight we'd answer all the support tickets after doing the other work.
10:19
At some point there were 10,000, 20,000, 30,000 unread support tickets and people were starting to get really angry and frustrated with us.
10:26
We realized, "Okay, we have to hyper-scale here.
10:28
How do we build a customer support team in the next seven days or something?"
10:33
Somebody on our team made a 10-question quiz, because we couldn't interview all these people that fast.
10:40
We had people apply online, take this quiz, it was a really hard quiz about knowledge of crypto and other things.
10:45
We hired, did five-minute interviews with a bunch of them and hired them in and we started to get up to speed.
10:50
There were a lot of problems like that that we were figuring out along the way by the seat of our pants.
10:55
What does the general tech public not appreciate about the cyber crime landscape?
11:01
One is that there are a lot of North Korean agents trying to work at these companies.
11:06
In the US or remotely from North Korea?
11:08
For the most part remotely as far as we can tell.
11:11
The remote work revolution. Yeah.
11:12
It does bring another vector.
11:15
DPRK is very interested in stealing crypto.
11:18
You'd think that, we can collaborate with law enforcement— and we get these dossiers of, "Okay, this is a known actor," we share sometimes with other companies.
11:28
But it feels like there are 500 new people graduating every quarter from some school, and that's their whole job.
11:36
Many of these cases, it's not the individual person's fault, their families is being, will be coerced or detained if they don't cooperate.
11:44
They're the victim as well in many cases, but they're interviewing for these roles.
11:49
We've had to do a number of things along the way.
11:51
First, these people are being coached offline as they're on the camera.
11:56
So we force them to turn on the camera and prove they're not AI.
12:01
We also started requiring everybody to come to the US for orientation to access any sensitive system.
12:09
Fingerprinting them, making sure anybody with sensitive access has US citizenship and family in-country because you don't want someone to feel like they can flee and then have no fear of extradition or these kind of things.
12:23
We've had to kind of adapt all of this on the DPRK side.
12:27
The other thing that was surprising to me is the willingness of these threat actors to try to bribe our customer support agents.
12:35
Our customer support agents work in facilities that are pretty locked down, they have a Chromebook that is pretty locked down.
12:43
In some cases they've been offered hundreds of thousands of dollars to smuggle in a personal phone and take photos of a screen or something.
12:50
You'd think, "Wow, okay."
12:51
We've really had to lock down the kind of access that these agents have.
12:56
We've started to move more of it to the US and Europe.
12:58
We just opened a new customer support support facility in Charlotte, North Carolina and really started to make a deterrent in the sense of when we catch people doing this— and we red team it consistently— we don't walk them out the door—they go to jail.
13:13
We try to make it very clear that you're destroying the rest of your life by taking this, even if you think, it's some life changing amount of money, it's not worth going to jail.
13:22
These are the kind of things we've had to deal with now and I'm sure the stakes will just keep getting higher.
13:26
So more proof of physical presence, more compartmentalization, and more deterrent effect through aggressive prosecution. Good summary.
13:34
It feels like the proof of physical presence is going to become a bigger deal in a world of AI, deepfakes— just higher stakes for all this kinda cyber crime— where in a weird way, maybe you see certain areas where remote work goes backwards.
13:49
People are saying "Oh no, we want to do our customer service in the United States," or other examples like that.
13:56
But it feels like the physical presence is becoming more relevant and not less. Yeah.
14:00
By the way, people may have seen this too, but we turn the tables and we're actually going after threat actors too.
14:06
We put out a $20 million bounty for information leading to the arrest or conviction of folks who recently convicted an attack on our customers— who we made whole by the way.
14:16
We've gotten a lot of inbound tips from that and we're having a fun time working with law enforcement on tracking folks down.
14:22
That's the ultimate deterrent is not going after insiders, but after the threat actors themselves.
14:29
We need to be a hard target.
14:32
Who after the DPRK are the biggest troublemakers?
14:36
There's actually some groups that are in the US and they're usually younger people in their twenties that are caught up in hacker groups.
14:46
Some of them are more mobile, they're in Eastern Europe.
14:48
Sometimes it's about getting them into a US extradition country or sometimes they're already here.
14:54
I would say a bit of an inventory of everything that's happening in crypto and that'll probably be helpful for the discussion.
14:59
As I look at what's working, store value is for sure working in a big way.
15:04
24/7 trading of assets— I would include meme coins, there's some success in payments so far.
15:14
But I think both our companies are seeing that really ramp up.
15:16
We're very optimistic on the just payments volumes in crypto, especially stablecoins over the next five years.
15:24
Global access to the dollar is a big thing.
15:26
What else would you include in that list?
15:28
I think you hit the big ones.
15:30
Prediction markets did, I'd say in their mainstream consciousness during the last election.
15:34
For sure, that's a good one.
15:34
The volumes have continued and there's some more things on the horizon we could talk about.
15:39
But I think you nailed the big ones.
15:40
Crypto is, I guess, load-bearing for prediction markets.
15:43
We just didn't have them pre-crypto. Yes and no.
15:47
There were prediction markets before crypto and there's an open question currently legally in the US about: if you build them entirely on chain with self-custodial wallets, are they not financial services?
15:57
In which case they're much more permissionless about how they can be created— which is true in self-custodial wallets and other areas.
16:04
That's another great one.
16:07
A cool thing about the trading use case too, by the way is that every asset class is now coming on-chain.
16:12
It's not people just trading crypto, they're going to be trading stocks soon.
16:16
Private companies are doing capital formation and commodities and FX markets, debt instruments, Treasuries.
16:22
Every asset class is coming on-chain and we're really trying to lean into that as well with what we...
16:27
we kind of coined this term, "the everything exchange."
16:30
We're trying to be a liquid market that's global for every asset class.
16:34
That'll be exciting in a variety of ways.
16:35
Both more international reach, there's a lot of people in countries where they have high demand for US assets.
16:42
They want to invest in NVIDIA and these things, but unless you're a wealthy person— usually in some of these markets—you can't get a US brokerage account opened.
16:49
Then there's 24/7, the fractional shares and you can start to do things with perpetual futures and other interesting things.
16:55
So you think for, say, stocks, there's these ADRs—American Depository Receipts— where if you want to, if you're an American and you want to buy a German stock or a Canadian stock, it's weirdly tricky to do so.
17:09
So you end up buying a derivative.
17:11
You think on-chain is just a better derivative of that. Yeah.
17:14
I think a lot of those will get tokenized.
17:16
They are already in some ways.
17:18
Then private-company capital formation— or even people doing anything, they want to raise money for real estate development or to make a film.
17:25
I think people will eventually be able to do novel things around governance too where let's say you really want to only have long-term holders of your stock be voters.
17:33
You can put that in the smart contract and say you had to have held this for at least a year to be able to vote, right?
17:38
Or there's interesting things you could do around that as well.
17:40
Is tokenization of assets that I was going to ask you...
17:43
what the next big use case that starts working is? Would that be your vote?
17:48
Or are there other next big use cases that you would point to? Tokenization? Yeah.
17:52
The big ones right now are, trading and payments.
17:57
I think Bitcoin has a store of value that's inflation-resistant.
18:00
It's not to be underestimated.
18:01
That's also a $20 trillion opportunity with gold as a comparable—but better than gold, I think.
18:08
Gold is a $20 trillion market cap. Yeah.
18:10
And Bitcoin is one and a half?
18:11
It's two or three or something, yeah. Oh okay. I'm out of date.
18:14
And I think it'll eventually be bigger than gold. Yes.
18:18
If that's all crypto ever was, that's already enormous.
18:20
But we're starting to see borrowing and lending, capital formation.
18:26
People doing decentralized social media too is pretty interesting.
18:29
We just launched a prototype of this or a beta of— I watched the Base event. Yeah That was cool.
18:35
Now people are posting content and every post on social is its own coin and you, the creator, have your own coin whose value flows up. People can buy it.
18:44
If they like the post, they can reshare it and earn a share of the economics. They can remix it.
18:51
You see sometimes on the internet, people have like a meme template and there are a thousand— —and all the value can flow back to the content creators.
18:59
That's an interesting primordial soup where some cool ideas are happening.
19:03
I don't know exactly how it'll play out but the Base app's been fun.
19:05
There's a bunch of people on the wait list.
19:07
Those are some good new use cases.
19:09
I think both of us would say, payments actually qualifies for a major new use case because over the last 10 years it's been pretty much just kind of the crypto-enthusiast use case.
19:19
Whereas now at least we are seeing a bunch of mainstream use. Yeah.
19:23
I was excited to see you guys come into the space because it was super-legitimizing, frankly.
19:28
The tech was slowly getting there and there was a scalability issue.
19:35
There was a usability issue with, are you sending some random string of characters or they sending human readable name.
19:41
The wallets need to get better.
19:43
Crypto should be the easiest way to pay.
19:45
What's your current thinking on what's the next blocker to stablecoin adoption?
19:51
I think training consumer familiarity is going to be the big one.
19:58
Right now one of the places where still Bitcoin usage is most interesting is in a cross-border money movement where it solves a real world problem.
20:08
If you want to send $2 from the US to Turkey, it's not really a thing you can do.
20:13
There is no product that historically fills that space. Crypto makes that easy.
20:18
In a lot of creator economy use cases we're seeing a lot of pull.
20:24
What's interesting is you get this cycle of the apps getting better and consumer behavior coming along with it.
20:33
An example of that might be if you look at QR codes.
20:36
The QR code as a technology has existed for decades.
20:39
It's a super-old technology but it required two things.
20:43
It required Apple to natively include QR code scanning in the camera app on the iPhone.
20:51
If you just point the camera app on the iPhone towards a QR code, it kind of did the right thing.
20:56
That happened in the late 2010s.
20:58
Then with COVID, there was lots more focus on touchless experiences and things like that.
21:03
I feel like in the US people really got familiar with QR codes during COVID.
21:07
So again, that technology had existed for a long time but it required the consumer apps to get good in the form of the iPhone supporting it and consumers to be kind of wired to inspect it and use it.
21:17
I feel like we still don't have both of those for the stablecoin use case.
21:23
Because we wanted to encourage stablecoin adoption, we have our coffee station downstairs on the first floor you can pay with crypto.
21:29
It's a super janky experience, because you always run into a bug or something like that. That will get good.
21:35
As consumers get familiar and as the all the app experiences get really smooth then that feels to us like it's going to drive a sharp rise in usage. Does that scan? Totally. I think you're right.
21:50
It'll be interesting to see if QR is what is needed here or if it's a tap-to-pay NFC thing.
21:54
I'm using QR as a metaphor for this wave of— Sure. But I agree.
21:58
Tap-to-pay NFC feels like it'd be a very plausible ingredient— some better OS supports.
22:03
I guess now with the new iOS rules around NFC, maybe you can use the NFC APIs in the Coinbase app? Question mark?
22:12
We've seen some good demos of tap-to-pay.
22:15
I think that part is opening up.
22:16
The Secure Enclave on the device is another story. You still can't get it.
22:19
We'll keep working on that one. I think you're right.
22:24
We debated mailing these stickers to just flood the zone of a city to test it out— seeing which merchants want to accept it.
22:32
A lot of the use case is happening across borders happening in more internet-native applications where crypto is the only way to pay.
22:38
Because it's a global group of people coming together into some community.
22:41
It'd be a little weird to use one country's currency. Yes.
22:44
Brick-and-mortar, will probably be a later adopter is my guess.
22:47
They don't want to pay 2%—3% on the fees they can save money and give some of it back to the customer too. Yeah, I agree.
22:55
It feels like the digital use case is where it'll roll out first and we're starting to roll out more and more of the Stripe Checkout experiences— pay with crypto as an option.
23:04
There are a lot of brick-and-mortar retailers that accept Alipay or accept JCB.
23:07
Obviously that's a pretty niche use case—accepting JCB, the Japanese card brand, in the United States.
23:16
It's a large enough constituency to be worth it.
23:19
It feels analogous here once you get above some minimum penetration, not everyone's paying with it, but it's just not worth not accepting it. Yeah.
23:29
What do you make of all the banks starting to embrace crypto?
23:31
Jamie Dimon said previously, "Bitcoin is a fraud, it's worse than tulip bulbs.
23:36
If I was the government, I'd close it down now."
23:38
And now of course they're launching JPMD, their tokenized dollar.
23:41
It's just been an interesting reversal.
23:43
I'm curious what you make all that across banks generally.
23:46
Ultimately they're responding to customer demand.
23:48
If their clients want it, they're going to support it.
23:51
I feel like the banks have had this back and forth with crypto where they'll say, "We're not so sure about Bitcoin but we like blockchain technology."
24:01
Maybe we could make a closed network for interbank settlement.
24:06
Or maybe they don't like paying SWIFT fees.
24:09
They are excited about it in the abstract and they've run a lot of pilots but I haven't seen them full on embrace it, right?
24:16
It's a little bit of that Innovator's Dilemma type thing—Clay Christensen— where culturally it's so hard to get an organization where they're making tons of money off the traditional system.
24:27
Anything they do in crypto would just be this fraction of a share.
24:29
But it comes with all this risk and complexity.
24:31
They don't get a lot of people who come in with that mindset.
24:34
They don't have a lot of DNA inside the company that wants to build a crypto.
24:38
Now, I think just The New York Times when the internet came out or something, some of these local newspapers are not going to adapt to the new system and they're going to fade away.
24:46
But a lot of the best ones will adapt to it, right?
24:48
In the same way that there are websites now for these media companies.
24:53
The banks are going to embrace crypto.
24:55
The payment companies Visa and MasterCard— are running good pilots on stablecoins.
24:59
Obviously I think Stripe's jumped in with both feet, which is really smart and you've caused a lot of other people to wake up and do the same thing.
25:05
I think the smartest ones will adapt. That's good.
25:09
From a Coinbase point of view, we increasingly want to be people's primary financial account, right?
25:14
As crypto eats financial services.
25:17
For some of our customers we can be a bank replacement, right?
25:20
And they can manage their trading, their payments, their direct deposit.
25:25
They have a credit card, they have a loan and a lot of them, actually, by the way, they won't even really care that it's crypto.
25:30
They just want the best financial services.
25:31
If it's the cheapest way to send money to their family overseas or they can get the best rewards on this card or whatever it is, that's what we ultimately want to provide to them.
25:40
The banks will have to compete in that new environment.
25:42
Are they going to be an infrastructure layer powering some of these new fintech apps that the next generation of kids thinks of as their primary financial account?
25:51
Or are they going to adapt to the new world and build their own apps or embrace crypto?
25:56
Like I said, the smartest banks will do it and many will get left behind and that's good.
25:59
That's free-market competition. Totally.
26:01
Companies don't disrupt consumers cause disruption by voting with their feet to use something else.
26:10
Has anyone impressed you on the banking side of things?
26:12
Just in terms of being forward thinking? Yeah, a number of them.
26:17
I think Jamie Dimon is a great leader—very smart even though his comments on Bitcoin— He's the GOAT, yeah.
26:21
—I don't really agree with but he's a great guy and we work with them a lot.
26:25
Santander has been really great.
26:28
There are some banks that have really embraced crypto like Citizens Bank.
26:32
Cross River and Silicon Valley Bank had a love-hate relationship.
26:38
They had their own risk to manage. There's a bunch.
26:45
What does Coinbase becoming people's primary financial account look like?
26:49
It means that we just have a bigger responsibility and share of people's financial lives.
26:54
It's not just going to be coming in to trade crypto, "Okay, maybe I started with that but I have a lot of crypto here.
27:00
I can get the best rate on a loan to do a mortgage or whatever because I have a lot of assets here as collateral."
27:07
Or it could mean that I can use a Bitcoin credit card and get 4% back in Bitcoin as rewards when I spend, right?
27:15
Or it could mean that it's very easy to send money overseas instantly for less than a cent.
27:22
So we need to do a good job of leveraging the benefits of crypto to update the financial system and not make it just crypto for crypto's sake.
27:29
The early users of Coinbase were just crypto diehards and that's great.
27:33
We've gotten to maybe 6% or 7% of the world has used crypto now— like the early two thousands for the internet.
27:39
And we now need to get to about one billion or half the world eventually using it to really increase economic freedom globally.
27:46
It has to be about something more than the technology.
27:49
It's has to be about that it's faster, it's cheaper, it's better.
27:52
It helps me get done what I want to get done.
27:55
The reason I ask is because I observe the growth of neobanks outside the US.
28:00
Nubank has obviously taken over in Brazil.
28:02
Revolut is the fastest growing bank in Europe.
28:04
In the United States, the largest consumer banks are basically the same.
28:10
A very similar recognizable set of characters from the 1970s.
28:15
Maybe that'll still be true in 10 years time or again, maybe things will really have shaken up.
28:21
I'm very curious what the neobank revolution in the United States looks like.
28:26
That's a great way to phrase— I probably should have phrased it that way actually when I was describing it.
28:30
Some people are calling them stablecoin neobanks or super apps, right?
28:37
There are a lot of terms you could come up for this, I think that's our opportunity.
28:43
By the way, as a technicality, I don't think we're going to go get a banking license because I don't know how deep people want to go on the details here.
28:51
The core thing a banking license allows you to do is not have all the money there.
28:56
It's called fractional reserve. Right.
28:58
Which is an interesting business model, but it also comes with such heavyweight regulation that it makes it much harder to really innovate on products and ship quickly.
29:08
We don't want to be a bank.
29:10
You want to be fully backed as opposed to be doing fractional reserve money.
29:13
I want to be 100% reserve, not fractional reserve, which is actually safer for the customer— because you can't have a bank run.
29:20
You can even store the assets the stablecoins especially backed in US Treasuries and things that are bankruptcy remote, et cetera.
29:26
There's really strong protections you can put in there.
29:28
That will allow us to continue to innovate and provide the best customer experience.
29:33
I think it could be a bank replacement for many people...
29:37
or let's call it, I like your term— the US needs a neobank since rest of the world seem to keep having them. Yeah.
29:43
What is your prediction for the 10-year rate of growth, average annual growth in the Bitcoin pricing?
29:56
The rough idea I have in my head is, we'll see a million dollar Bitcoin by 2030 and there's high error bars around these things.
30:02
To give you a couple of data points.
30:04
We're starting to see regulatory clarity emerge in the United States, which I think is a bellwether for the rest of the G20.
30:11
You have The GENIUS Act passed for stablecoins, but this market structure bill is being debated in the Senate.
30:16
Fingers crossed something could happen by the end of this year.
30:19
That would be a huge milestone.
30:21
The United States government now has a strategic bitcoin reserve.
30:23
If you asked me five years ago, that would've been vision board, someone would've said, "You're crazy the United States government's not going to officially hold Bitcoin."
30:32
If they do that, which there's now an executive order to do, a bunch of other countries are going to do that.
30:38
We've seen a lot of interest from sovereigns, right?
30:41
Coinbase provides crypto services to about 140 government entities federal, state, local, and internationally.
30:51
Governments are now getting more and more engaged in this.
30:54
You can imagine the big pools of capital around the world.
30:58
I don't see the regulatory thing going away.
31:01
That was one of the big risks is, "is the government going to shut this down?"
31:04
I think that risk has been severely diminished and then is there going to be some flaw found in the Bitcoin protocol?
31:10
I think that's been severely combed over at this point.
31:12
We need to make sure we upgrade it to a post-quantum cryptography but— Aren't Elliptic Curves already post-quantum or no?
31:19
They are theoretically I believe.
31:21
Really good to nail that down.
31:23
It's a little untested but yeah.
31:24
I believe there is a path where the Bitcoin core team and Ethereum and Solana, everyone, they're looking at proposals now to upgrade to— —Definitely post-quantum. Yes, yes.
31:33
I think the list of risks is getting diminished and at the same time, the amount of demand, the amount of institutional money just sitting on the sidelines waiting for this next bill to land.
31:46
The big institutions I talk to, they're holding 1% of the portfolio in Bitcoin and I'm like, "What would it be to 5%—10%?
31:53
They say regulatory clarity, that's it.
31:55
I think we'll continue to see huge inflows of capital. The ETFs have been huge.
31:59
When people talk about the institutions on the sidelines, I think the gold comparison is a very apt one in that it's a non-productive store of wealth, which I mean that is a compliment, not an insult.
32:12
But depending on what you mean by institutions, I don't think the major sovereign wealth funds or mutual funds or whatever hold a lot of gold today. I don't know.
32:24
Doesn't it seem like you're substituting the gold buying, but it would be kind of unusual for those large institutions to buy a non-cash flowing asset?
32:35
It depends on their strategy, but there is a theory that in a diversified portfolio you should have some percentage of it, 5%—10% in commodities or whatever.
32:47
I think there's a good bet to be— BlackRock has actually published some reports and research on this— about how they believe crypto should be a part of every healthy diversified portfolio at this point.
32:58
Because it has interesting inversely correlated aspects with other assets and it's changing over time, by the way, as it evolves.
33:06
I think that we'll be sitting here in five or 10 years and most wealth managers or maybe sovereigns who hold a traditional diversified portfolio will include 1%-10% crypto.
33:18
If you didn't want to put a fraction of your portfolio into crypto, should you dollar cost average into Bitcoin and maybe the other major coins, but not the meme coins in a market cap weighted way?
33:31
What's the right investment strategy if you want to put some money into crypto?
33:34
With the caveat that I'm not giving investment advice and all that, it's reasonable for people if they're just learning about any new thing, whether it's crypto— If you like it, put 1% of your net worth in, something you're willing to lose and learn about it.
33:48
But within crypto, how should they put it into?
33:53
Bitcoin is a great place to start.
33:54
We have something called the COIN50 index, which is the top 50 coins by market cap.
33:59
Market cap weighted, I presume.
34:00
Yeah, market cap-weighted.
34:01
I'm not going to go down and list specific coins, but I think what you should do is you should hold Bitcoin.
34:07
You can hold the index if you want as sort of a— what you should do is go try and use crypto.
34:12
Spend it at a Stripe merchant.
34:15
Use your Coinbase credit card.
34:18
Post some content onto the Base app and start to earn money in crypto.
34:23
Start to shop at a store that accepts it, whatever.
34:27
People should go use crypto.
34:31
There's a part of it that's an investment.
34:33
Eventually, by the way, as these stocks get tokenized and people want to get a loan, they're going to be using crypto without even really knowing it underneath.
34:41
It's like they may not know how electricity works, but they can turn on a light switch. That makes sense.
34:45
So we have The GENIUS Act now. Yeah.
34:49
What does it mean in particular?
34:50
Stablecoins were legal before, they're more enshrined now, but just what can we do now that we have The GENIUS Act that we couldn't before?
34:58
I'll start with stablecoins and then The GENIUS Act.
35:00
So stablecoins are basically fast, cheap global payments.
35:03
We can now do it under one second, 1 cent anywhere in the world. That's unique.
35:07
There's no other payment rail that gets all three of those fast, cheap, global.
35:10
This is not a GENIUS Act thing, you're just saying this is a thing you can now do with stablecoin.
35:12
Yes, which I'm getting to your question too.
35:15
There's no other payment rail that gets all three of those boxes checked.
35:18
There's some that are fast and cheap and not global et cetera. That's a huge deal.
35:22
Now, what The GENIUS Act did was it said, if you want to call yourself a stablecoin and operate in the United States, there are certain requirements you have to meet that make it more safe and trusted, right?
35:31
One of them is 100% of the reserves have to be backed in US dollars or short-term US Treasuries.
35:37
You can't hold it in other risky things and you have to pass an audit once in a while and prove you're doing it. It's basic hygiene.
35:43
These are the tactical things, but the bigger picture thing that it did was it put a federal law in the books and a stamp of approval and it said, "This is going to be trusted, legal, allowed, and built in the United States."
35:57
That created a huge demand from every company that deals with payments, which is 100% of them.
36:04
It said, we need to have a stablecoin strategy, we need to figure out what we're going to do here because it's now going to be a thing.
36:10
The US government blessed it and can't be— I've noticed so much more interest in the past two or three months.
36:14
It's incredible, you've probably noticed something similar. It's like gold rush.
36:17
Everyone's kinda coming in trying to figure out what is going on with this and how it can save their company money.
36:23
There are a lot of companies, that try to pay out developers in these markets all over the world.
36:28
In the US and Europe and a few other countries, it works pretty well.
36:31
Then there's a whole long tail tailed countries where people just don't have access to good financial services.
36:36
It's kind of a black box, how much money shows up on the other side of this payment rail with huge fees taken out.
36:42
If you have a global payment rail that's fast and cheap, it just, it democratizes access to financial services where anybody with a smartphone is on a more level playing field, their wealth can't be taken away from them, eroded away via inflation.
36:56
It's an incredible tool for progress and just property rights and sound money, economic freedom.
37:01
That's what that opened up with stablecoins.
37:04
Now we need to get the market structure bill done, which is all the non stablecoin crypto assets. Got it.
37:09
This what's security, what's not, all that kinda stuff. Yep.
37:12
You must have some funny stories from the passage of The GENIUS Act because it was such a winding— Rollercoaster ride. Yeah.
37:21
One thing I realized was for a long time, we were trying to make progress in DC and try to advocate for legislation and nothing was ever happening.
37:31
I realized that, people educated me about this a little bit.
37:34
It's kind of rare for Congress to act.
37:37
In fact, somebody told me, "Congress is really good at doing two things, nothing and overreacting in some crisis moment."
37:43
We realized that a certain point we had to generate a political will to do this and we had 50 million people in the US who had used crypto.
37:54
We said, "Let's try to get them organized."
37:55
We funded this 501c4 I believe called standwithcrypto. org.
38:00
We got 2 million of these folks in the US to raise their hand and say they wanted to elect pro-crypto candidates.
38:04
I remember I was talking to our policy team and I said, "let's put a scorecard A to F of every politician in this upcoming election in last November."
38:12
Our policy team's whole job is to build relationships with politicians.
38:16
So they're said, "Why don't we put a list of our crypto champions?"
38:18
And I said, "No, I want to put a list of the crypto enemies too with an F. Who has an F?"
38:23
I could see them nervously perspiring.
38:26
Let's put the scorecards— someone needs to win an election, someone needs to lose an election because of the crypto vote.
38:33
Crypto famously, in terms of how it shows up in DC, is much more pugnacious than, say tech was historically.
38:45
Where we have our friends and we have our enemies and things like that.
38:47
So did that and the stand with crypto and Fairshake—I guess Fairshake was a more relevant one in some of the recent battles.
38:54
Did that come from you essentially that we're not going to be pussyfooting around here, we're going to make clear how we feel?
39:01
There were a lot of people involved, so I can't claim full credit, but what I saw shift in the crypto industry was a lot of the traditional policy advice that we got from people who worked in tech, they all said, "You need to go in there and build relationships, so be the good cop.
39:18
Then what you should do is form a trade organization who can be bad cop and they can go fight the battles and write the nasty op-eds and whatever."
39:27
For whatever reason, the people we kept getting into these trade groups wanted to also be good cop.
39:33
I kept thinking, okay— When does the bad cop arrive? Yeah, yeah.
39:36
Who's going to get into the political blood sport on X and be tearing down these people that are doing bad things.
39:44
They just wanted to have polite meetings behind closed doors.
39:47
So, I realized at a certain point as the election was coming up, if they don't do it, maybe no one's going to do it.
39:53
So maybe we should do it, right?
39:54
I don't think we did anything too crazy but what we did do is we, for DC standards, this was crazy.
40:01
We came out and we said, we're unequivocally pro-crypto.
40:06
We don't care if you're on the left or the right.
40:08
We want to elect pro-crypto candidates.
40:11
By the way, we want to get anti-crypto candidates out of office.
40:16
This really blew people's minds in DC because everything there is kinda partisan.
40:20
There was a feeding frenzy coming up to the election where I was getting angry phone calls from both sides.
40:26
Like, "How could you have given money to this person?"
40:29
And we said, "Well, they're pro-crypto."
40:30
And then I get a call from the other side, "How could you have given to that person?"
40:33
I'd say, "Well, they're pro-crypto."
40:34
Really a single issue voter.
40:36
So on the one hand I thought, maybe we're pissing off both sides and we'll have no friends after the election.
40:43
But on the other hand, if you're taking flack, you're over the target.
40:48
We're explicitly an apolitical company.
40:49
But we are unapologetically pro-crypto.
40:52
To me it was very consistent.
40:54
By the way, I had to remind many of them.
40:56
Apolitical does not mean 50/50.
40:59
It means we will elect a pro-crypto candidate regardless of what party they or help donate to them or whatever regardless of which party they're in.
41:06
It's not necessarily going to be 50/50, it might be 60/40 one way and 60/40 the other way the next election.
41:12
That was a big mental shift and it was kind of a contrarian thing, and it helped elect the most pro-crypto Congress.
41:20
The work that we did along with a bunch of other people— I don't want to take credit for it, a bunch of other companies worked on this— that set up the most pro-crypto Congress, which is now getting this legislation passed.
41:31
We made it clear to people in DC that if you're anti-crypto, there's no constituency for that.
41:36
The American people want crypto, and if you are pro-crypto it can help you get elected. It's just good politics. That was a novel idea.
41:46
Do you have issues now once you get through the market structure bill, The GENIUS Act's happened, do you have issues left?
41:53
Are you done going to DC?
41:55
The upside to all of this, there was a lot of downside.
41:59
I mean, literally in the last- You stuck your neck out. Yeah.
42:01
In the last administration, they were trying to kill the whole industry.
42:06
Now that we've gotten to build a little bit of knowledge around policy, which can be dangerous to think you know too much, these things can go either way— hopefully we'll get market structure done.
42:17
It does kinda start to make me wonder what else can we do to update, help update the financial system.
42:20
Our mission is around increasing economic freedom.
42:22
An example would be, I think the accredited investor laws are kind of unfair.
42:27
Only rich people can invest money to get richer.
42:30
That seems regressive, right?
42:32
There could be a financial literacy test, for instance, instead of having a certain net worth or income to become an accredited investor.
42:40
I'm very excited about this idea of special economic zones.
42:43
They've worked very well in China with Shenzhen and in the UAE in these places.
42:48
We have so much regulation, why not have a sandbox for one area to test out new ideas where you could have one around crypto or biotech or drones or supersonic aircraft.
42:59
It'd be great to see if we could get, 10 pieces of federal land in the United States set up as different special economic zones.
43:07
There's a company called PROSPERO which we actually invested in, which has a prototype set up in South America, but they're trying to do this now in the United States.
43:14
There's a lot of different areas.
43:16
Do you have any favorite pet policy issues that you would push for in DC?
43:21
Probably something with aviation.
43:22
I'm just going to say, this one happened.
43:26
I'm super excited about these new mosaic rules that happened— What is that?
43:31
In general, there's been a lot of discussion around the deregulatory agenda of the current admin and you're like, "Okay, getting rid of outdated regulations seems great, but you need to actually go do it and pass the new rules."
43:44
They just did that in the aviation sector where you can't just build a plane and sell it to the general public.
43:49
You have to go through a whole bunch of FAA approvals that were both a very cumbersome process, took multiple years, and also a very prescriptive process.
43:55
Where you can only have these kinds of engines or something like that.
44:00
So, famously electric aircraft couldn't be certified because they said, "An aircraft engine burns gasoline, does this and that."
44:07
They just came along with the, Sean Duffy announced last month, this new regime for certifying aircraft that is radically simpler, I think will allow for much more kind of bottoms up innovation in that sector.
44:21
That would've been on my list, but it happened.
44:24
I think we'll see much more innovation in the light aviation sector, which obviously the US used to be a leader in and stagnated over the past decades. Yeah.
44:34
I think you might have seen by the way the, there was an exec order instructing the FAA to allow supersonic aircraft that over land in the US that did not create an audible boom by some decibel thing. Yes, yes.
44:45
That was really exciting.
44:46
I'd love to fly places much faster.
44:48
Another one I think would be great is it takes 10 years and $2 billion apparently to get a drug to market through the FDA.
44:56
They have these three phases of trials around safety and efficacy.
44:59
It'd be amazing if you pass one phase one for safety, why not let a doctor prescribe it, especially to somebody who is end of life patient who has no other options.
45:09
You know it's safe, you just don't know if it's effective, let a doctor make that call.
45:14
This would give you data much sooner on getting these drugs to market.
45:19
Every year that goes by, there's people dying.
45:20
There's so many things like that that could be improved by making sensible deregulatory movements.
45:27
I think everyone agrees that the accredited investor rules are a bit silly.
45:32
They are both exclusionary— if you don't meet the kind of minimum net worth test— and as we have seen, wealthy people are not that necessarily savvy when it comes to making investors.
45:44
The list of Theranos investors was a who's who of various wealthy and accredited people.
45:50
At the same time, when it's just a free for all, you get a bunch of scams and frauds and the US has some of the best capital markets in the world.
46:03
As I look at what's happened in the crypto world where various pockets are more liberal, I think the whole phenomena of rugging and people looking to engage in zero-sum behaviors are some of the worst things that we should not allow to perpetuate.
46:18
I'm curious, as you think about replacing the accredited investor rules, what would your framework be for liberalizing investment and yet keeping the best things we have today?
46:31
Which is I think, really high standards of propriety and really strict rules for honesty and fair dealing? That's a great question.
46:41
Fraud you'd want to prosecute to the full extent of the law.
46:44
One thing you could do is have requirements in there about disclosures.
46:48
And say, if you want to raise money for this thing, you do have to provide the following information.
46:53
If you materially you mistake something, especially intentionally, and you defraud investors, you should go to jail for that.
47:01
It doesn't mean only wealthy people, wealthy people should be allowed to do it.
47:05
That's a nice way to divide up those issues.
47:09
There's also we don't want to create this false idea that the government stamp of approval means it's a good investment.
47:18
Because there's many stocks that have been— publicly traded companies, in theory, blessed by the SEC or whatever, that went down 85%—90% in the last few years.
47:28
Some of the biotechs, I won't name companies, but you can lose your shirt in the public markets with these officially— We need to teach a sense of personal responsibility in this too, which is there is no return without some amount of risk.
47:44
The government is not here to tell you what is a good investment or not.
47:48
You still have to make that judgment yourself.
47:50
But they can help by saying, "The information this person's giving you is true."
47:54
And if they're lying to you, there's tort law for that where you can go have damages.
48:00
I probably lean a little more free-market on this than most people.
48:07
The best consumer protection sometimes is competition.
48:11
If you have a car company and it's a bad car and it keeps breaking down and it's expensive.
48:17
In some ways the best solution is to have another company come and try to compete with them and provide a better alternative.
48:26
A lot of people are very street smart, even if they're not financially literate, but they know what a scam is.
48:33
They know that their three friends told them that that thing is not good.
48:36
Do you guys try to do anything on the Coinbase product side of things with some of the coin hype scams that happen?
48:41
Or do you say people are grownups and they should evaluate their own investments?
48:46
We've had a lot of debate about this because it's a little bit like the app stores or maybe even Amazon.
48:52
Let's say someone's trying to sell a fraudulent product on Amazon.
48:55
They probably want to get rid of that.
48:57
But let's say that it's like a two or a three star product and some people like it and a lot of people don't. But it's not a fraud.
49:03
You actually— You want to allow people to make their own choices and see it got two stars, but you can buy this if you want.
49:10
Maybe the provider of it can clean it up too.
49:13
We've tried to take a similar philosophy where we want to list everything that is legal, and frauds would be illegal, and provide information to the customer to help them make better decisions.
49:27
We've tried variations of this, we haven't quite nailed it yet.
49:29
I think about an on-chain review system or reputation score.
49:34
We released an API that allows anybody to look up a crypto address, which could be for an asset or a person and have an on-chain reputation score.
49:42
So it's an early prototype of this.
49:44
Eventually you'll get a FICO score equivalent.
49:48
You'll get an Amazon or Yelp rating equivalent.
49:52
You want to make sure if I'm trying to send a few USD coin to John Collison for the pint, I need to make sure it's the real John Collison.
50:01
Not an imposter squatting on your name Those are some of the tools in the private market build that would help this.
50:10
And let the government go after the fraudsters. That makes sense.
50:14
You mentioned crypto's product market fit in emerging markets and there is a very strong product-market fit there that's not new.
50:21
People in markets where there's historically been a very high rate of inflation have traditionally sought to get money out of that currency.
50:29
People talk about buying hard assets as one approach trying to get money in dollars.
50:33
It's already a behavior to try and get money out of that currency and into something that they think will hold its value better.
50:41
This is not invented by crypto.
50:43
This existed for many decades.
50:44
Maybe countries where there is a black market exchange rate that's a good indicator for there will be this demand there.
50:51
The governments of many of these countries will not always approve of this where they would prefer that all money is kept in the country's currency.
51:00
There's kind of a gap between what the government wants and what the people want. Where does this go? Who wins? You're right.
51:06
We are often walking in this balance when we go into a new country where we really want to work within the existing system.
51:12
We often will go get a license, set up a local entity for our regulated financial service products.
51:18
I'll come back to our self-custodial wallet in a moment.
51:21
There are usually portions of the government which are hesitant around crypto.
51:25
Sometimes it's the central bank.
51:28
There's other parts of the government that are actually very pro— they want to digitize the country and create economic opportunity.
51:34
We're sort of talking— you talk to different hands of the government, you'll hear different things.
51:38
But the people unequivocally want it.
51:41
In many parts of the world, we're able to work within that system and offer what people want.
51:46
Other parts of the world, it would be difficult to impossible for us to go in and create a regulated financial service business.
51:54
Because that country doesn't have a clear regulatory framework.
51:57
They only give out bank licenses to their cousins and friends who bribed them which would be illegal for a US company to do.
52:03
You just can't do business very well effectively in many of these places.
52:06
So we also have a self-custodial wallet that is not regulated as a financial service business because we never take possession of customer funds.
52:13
It's regulated more like a software product like a messaging app, you can just launch it.
52:16
As if you kept your keys in 1Password.
52:17
Ultimately it's a software product. Yeah.
52:20
That's allowing us to go into some of these other markets.
52:23
You asked where this will go.
52:25
In some of these markets, I'd say there's the top five or 10 fiat currencies, government currencies, the majors.
52:33
Those will probably stay around.
52:35
I don't think they're going anywhere.
52:36
But the— —US dollar, Swiss Franc, everything like that. Yeah.
52:39
But the long tail, the other 150 or so government currencies, I think they probably should get replaced.
52:44
They're not doing a good job. They're often abused.
52:48
They're eroding the rights of the people.
52:50
I think that there is a good case to be made that those should get replaced by Bitcoin and USDC, et cetera.
52:56
It was Ecuador, something like that, they pegged their currency of the dollar too.
52:59
So it's a way of doing that in all these countries almost as an act of civil disobedience, frankly.
53:04
In some of these places like Venezuela, you may be technically breaking the law or something by introducing a self-custodial wallet that brings dollars to the people.
53:13
I think I'd be okay with that.
53:14
That's an act of civil— because people are really in terrible conditions.
53:17
There due to the government stealing their wealth via inflation. That is a good thing.
53:22
Even in— obviously digital dollar is very unequivocally good for the United States and keeping the reserve currency status and demand for treasuries.
53:30
It's also a good thing for Bitcoin to be used in the United States because the democracies around the world are having a problem right now with deficit spending.
53:38
It's this kind of issue that to get elected you can promise more free stuff and that drives up the cost.
53:45
How are we going to have the discipline to balance budgets?
53:48
Bitcoin is part of the answer to that.
53:50
It's a check-and-balance on deficit spending where if it gets too out of control, people will flee to Bitcoin in times of uncertainty.
53:55
If deficit spending is kept under control, people will continue to use that fiat currency.
54:01
I don't want to be hyperbolic about this, but I think Bitcoin is in some ways extending Western civilization or in the American experiment.
54:08
If the US is going to lose the reserve currency status, which I hope it doesn't, because I'm an American, I believe America is a good thing for the world.
54:16
But if we lose all discipline and we're going to lose the reserve currency status, I'd rather people went to Bitcoin than to the Chinese Yuan.
54:23
Thank goodness we have Bitcoin as a check-and-balance in this new economy.
54:29
The deficit warriors look at the deficit maths and say, "Interest payments are inaugurated in defense spending."
54:37
How does the US avoid losing reserve currency status?
54:43
Don't inflate away the dollar.
54:44
The debt to GDP ratios are the thing to watch usually.
54:47
I think I forget where we're at now, 150 or 170 or something.
54:50
If you look at historically maybe when it was the British lost it or the Dutch, they were in the 200—250 range.
54:58
We're within sight of a pretty dangerous threshold historically.
55:03
It's hard to see where the political will is going to come from to do that.
55:06
I hope that Bitcoin could be a part of that solution. We'll see.
55:10
Why haven't non-dollar stablecoins worked?
55:13
The share of global stablecoins that is US dollars is 95% plus.
55:19
It's much higher than the US dollar share of currency.
55:23
Why is that and will it persist?
55:24
If you're going to have permissionless access to anything, you're going to use the most trusted one, the reserve currency. That could be why.
55:34
Europe to their credit, they did put— sometimes Europe's the leader on regulation, which is not necessarily what you want to lead on.
55:39
They did get out a regulatory framework before the US to their credit.
55:43
There is a Euro coin, you're right. But it's very small. It's very small.
55:45
Doesn't have a lot of traction.
55:47
I don't know, I think the dollar is solving the need that people have.
55:51
One other thing that's even smaller, which I think has interesting potential is called a flatcoin.
55:58
I don't know if you've seen these, instead of tracking a one-to-one backed by a dollar, which of course, has some level of inflation between whatever, two to 5% a year, a flatcoin tries to track CPI, which is the Consumer Pricing Index to maintain its purchasing power.
56:12
So if a Big Mac costs— Like tips. Inflation-protected. Securities.
56:16
If you could buy a Big Mac for a dollar or whatever today, a stablecoin ideally 10 years from now, you'd also be able to buy it for a dollar.
56:23
There's one that's built by this company called Ampleforth, it's called SPOT and it's been tracking a 2019 dollar since 2019 and it's now worth about $1. 26.
56:34
It went through crazy ups and downs.
56:35
It's actually been pretty flat.
56:37
Economists will often debate do you want to have 2%—3% inflation a year to incentivize people to spend their money?
56:44
It's kind of nice to have one that also maintains its purchasing power for putting contracts together and pricing things that you want to be the same price in the future. Yes. Whoa. Wow. Wow, okay. What was that?
56:57
How much is the center center?
56:58
So the bullseye is 50, so 78. 78? Okay. Whew. Well. 18, 23 and four is 27. Okay. We did it. TradFi wins again.
57:13
What have you learned from Balaji?
57:16
For anyone who doesn't know Balaji, but you can probably— hey probably know who Balaji is. He's Balaji. He is one word. It's like Madonna.
57:23
Exactly, just— Yeah, one name.
57:24
Balaji's a brilliant guy.
57:25
I mean he's probably, top couple of the smartest people I've ever met in my life. He's very out there.
57:32
He's truly an original thinker.
57:34
He was briefly the chief technology officer of Coinbase.
57:37
He came in through an acquisition, did some amazing work and he taught me how to manage a totally different type of person Balaji, he is kind of unmanageable.
57:49
He's what some people might call a free radical within an organization.
57:51
He really bounces around and he's just kind of absorbing vast amounts of information.
57:57
Even things that aren't his responsibility, maybe he's not even supposed to be doing.
58:02
—Was explicitly told not to do them.
58:04
Yeah, was explicitly told not to do them, does it anyway.
58:07
Occasionally he would come back to me with these incredible insights.
58:12
I'll give you one funny Balaji story, at one point he came back to me and he said, "These are all the salespeople that are making more revenue than their salary and these are all people that are not."
58:26
First thought I had was, you're not supposed to have access to anybody's salary. How did you get that?
58:31
He said, "Don't worry about it.
58:33
I found it in some database somewhere I wasn't supposed to have access to."
58:37
The other thing I asked him was, "Well, how did you connect all that up?
58:39
Because last week I was asking the data team.
58:40
Can you connect up Salesforce to all of our salary data and let's start to run some reports and have some more accountability."
58:49
And he was said, "Oh, well, I couldn't sleep this weekend and something felt off and so I had to code it up and put it all together."
58:59
And I said, "Okay, give me a little bit of time to go verify this."
59:02
He came in on Monday, he looked like he hadn't slept the whole weekend.
59:05
He is kind of this mad genius.
59:07
By the way, I went and ran it down with the actual data team and it took them three weeks to replicate what he had done over the weekend.
59:12
But it came back and he's 100% right.
59:15
He continually was doing things like that.
59:18
He's incredibly high disagreeableness, which I learned from him as well, where he would go into a team and say, "Why is this not functioning well?"
59:25
He would suffer no fools.
59:28
He would not be afraid to go in there and turn half the people on a team, whether he had the permission to fire them or not.
59:34
Sometimes he would just torture them to greatness or whatever.
59:38
He has a very contrarian figure.
59:39
I'd say about once a week someone would come into my office as CEO and say, "I can't work with Balaji.
59:47
He's causing so much collateral damage."
59:49
I'd say, "Yeah, but he's also generating an enormous amount of value.
59:53
I need you to learn how to work with him.
59:56
I realize it's difficult, but it's creating a very positive outcome across all these areas."
1:00:01
Now, I knew that it wasn't going to last forever because it was incredibly disruptive.
1:00:05
I learned from him how to come and be like a turnaround CEO when needed. If I can call it that.
1:00:11
In the past I was opting a little more toward trying to be liked instead of to be clear about what we're doing and where we're going and what the bar is.
1:00:21
He helped me be better CEO and have a little more disagreeableness.
1:00:25
He encouraged you to let Brian be Brian, listen to yourself more.
1:00:29
I liked the tweet a while back, what was it?
1:00:32
The three scariest words in the English language are Balaji was right. Yeah.
1:00:35
I think it was about some COVID prediction or something like that. Yeah.
1:00:37
He was frequently very early on his predictions.
1:00:41
And I think that— Are there predictions he had that you thought were crazy at the time that now you've or worldviews he had that, you thought were crazy initially and now you've come around? Yeah.
1:00:51
He was early warning me about the activist contingent within the company.
1:00:58
And I said, this is not a big deal.
1:01:01
Just the apolitical company stuff. Yeah.
1:01:03
Which led to the mission first post.
1:01:04
He was telling me about that years before and I thought this can't be a big deal.
1:01:09
So on that, in 2020 you released this blog post saying that Coinbase is a mission-oriented company and take all your other issues you might have and don't come to them with us and work somewhere else if you don't like it.
1:01:19
You had a buyout offer if people didn't want to work at such a company.
1:01:22
and a few percent of the company took the buyout.
1:01:26
This was a big deal at the time and everyone was talking about it.
1:01:30
I think part of what's interesting is how much the industry has moved.
1:01:32
Coinbase was, I don't want to say a pariah, but definitely notable at the time for being so stringent on this point.
1:01:43
Recently Google was putting out a blog post saying, leave your politics at home.
1:01:49
We're just focused on organizing the world's information and we don't want to hear from you about all your other stuff.
1:01:54
It feels like Silicon Valley has really shifted on this.
1:01:57
One question I had is you talk about being an apolitical company.
1:02:01
I feel like apolitical is a convenient way to frame it, but it's maybe more something like, there's actually a very narrow set of views that you have to agree with to work at Coinbase.
1:02:11
You have to believe in financial freedom or you have to believe that crypto is a good thing for the world.
1:02:15
Everything else, we're just not going to engage with and we'd rather you don't bring up.
1:02:20
Maybe that's a technicality, maybe that's a kind of nuance, but- No, you're 100% right.
1:02:25
As I was writing that blog post, originally, I was thinking of calling it an apolitical company, but I changed it to be mission first.
1:02:32
Because you're absolutely right, we are unapologetically pro-crypto, we're about economic freedom.
1:02:37
You could argue okay, that does have a policy angle to it, right? Yes.
1:02:40
In fact, we are trying to get massive change happening in DC with legislation passed.
1:02:44
We're very unapologetic about it engaging in politics on our mission, but everything outside of that, which sometimes there's edge cases— you have to go figure out— but everything outside of that, we try not to bring it to work.
1:02:56
It's a mission first policy as opposed to being explicitly apolitical across everything.
1:03:00
That was an evolution and we did take a lot of arrows for doing that, but I think it was a good move.
1:03:07
I presume now looking back on it, you're very glad that you did it. Very glad.
1:03:11
I was failing as a leader before that because I was not creating clarity in the organization.
1:03:17
We were having, some people thought our mission included social justice activism on police brutality.
1:03:23
I clarified it and I said, "No, we're all going this way and I'm sorry I failed to create clarity beforehand, but if you don't want to work here at that company more now that I'm making it clear, here's the exit package."
1:03:33
I remember we had all these debates internally.
1:03:36
The people were terrified that I was about to do this, had some people try to convince me not to do it.
1:03:40
Some people said 50% of the company will quit and all this. It turned out to be 5%.
1:03:45
Sometimes your fear gives you bad advice.
1:03:49
I got more confidence to do it by basically going and talking to some of our employee groups.
1:03:55
Hearing from them directly and also watching some videos of people like Lee Kuan Yew and Ronald Reagan in similar situations, leadership inspiration moments.
1:04:05
I'm curious, where does Stripe land on this topic if you could talk about it?
1:04:13
I think the norms have, or the expectations have very much shifted where, in a productive way I think, where people get that companies have a thing they're trying to do in the world and it's hard enough to do that thing.
1:04:30
It's hard enough to get The GENIUS Act passed.
1:04:31
It's hard enough to make some impact in the world.
1:04:36
The US is a pretty big place and there's a broad variety of views on a whole bunch of social views.
1:04:47
The classic, if you're going to a dinner party in the 1950s the advice would've been that you leave politics and religion aside as good work dinner party conversation topics.
1:05:00
This rediscovering of old wisdom, that it's hard enough to do one thing.
1:05:06
It's not that these aren't very worthwhile endeavors.
1:05:09
Both of us have kind of pursuits that we're doing outside of work in various regards.
1:05:15
It's really hard to get an entire company aligned around some cause.
1:05:20
So you want to spend that capital very carefully.
1:05:24
Yours came at an interesting moment in time where there was a lot of expectations of companies to be kind of broadly getting involved in a whole bunch of issues.
1:05:33
It was so notable again because that was such a popular idea at the time.
1:05:37
It's become almost received wisdom at this point. Yeah.
1:05:41
I think we never went super far into the broad set of issues, but I think I broadly agree with you on companies mostly sticking to the knitting.
1:05:54
It strikes me that Coinbase, from a product point of view, when you're in the early days of an industry, you kind of have to do everything.
1:06:02
Microsoft in the '90s they were doing operating systems and they were doing applications, and I mean they made some hardware.
1:06:07
Remember like the Microsoft natural keyboards and fight simulators? Clippy.
1:06:11
Exactly Encarta, everything.
1:06:13
If you look at OpenAI in AI, they're doing consumer, they're doing B2B, they're doing Sora, the video model.
1:06:19
Again, because AI is so fast-changing and rapidly emerging.
1:06:23
Similarly in crypto, you guys have the institutional product.
1:06:26
You have the stablecoin with USDC. You have the brokerage.
1:06:30
You have your L2 with Base, you're playing everywhere.
1:06:34
That feels correct to me in a very fast moving space.
1:06:37
It also seems like it would challenge focus where everything is a good idea because it could work in this fast-moving industry.
1:06:43
How do you focus, how do you resource things?
1:06:45
How do you decide what to cut?
1:06:47
It's easy with Stripe because we're just trying to stick to the knitting.
1:06:49
We're trying to make the payment infrastructure good.
1:06:53
But your world is a more open-ended map. Yeah.
1:06:57
Well, it all depends how you count it.
1:06:57
You guys have a lot of products in the payments space.
1:07:00
I was simplifying, for the purpose of the question.
1:07:03
A lot of this comes down to the founders, right?
1:07:08
Sometimes I can't help myself.
1:07:10
I have so many ideas and in fact, the company usually is pushing back a little bit. We need more focus.
1:07:16
I'm like, "Okay, you're right, we should focus."
1:07:17
There is virtue in focus.
1:07:19
There's also virtue in having multiple revenue streams.
1:07:22
When one thing's up, another thing is down.
1:07:25
There's virtue in having some small teams working on a variety of things.
1:07:29
USDC and Base started off as three to five person teams and USDC will probably add 800 million of revenue to our bottom line.
1:07:38
I would've never have guessed that— in the past year.
1:07:43
—Would you actually not have have guessed that?
1:07:45
Was it not obvious— It was not, no.
1:07:47
So we have this system internally where twice a year employees can come pitch venture bets that they want to do internally.
1:07:56
We've tried to construct it to be, where you don't need a unanimous yes.
1:08:00
In most companies, you need your boss, your boss' boss, your budget all the way up to the CEO to say yes to green light something, which means you get one no, you're out. Yeah.
1:08:08
We try to create it a little bit more like internal venture capital.
1:08:10
So you can go to any of the product group leads, and there's a handful of smart handpicked engineers and then myself and a few other people.
1:08:18
If you get any one of us to say yes out of their budget to fund it, you're green lit.
1:08:22
It's like pitching a bunch of internal venture capitalists.
1:08:25
What that means is we get more of this risk-taking culture.
1:08:27
We try a lot of ideas and some of them don't work and we have to shut them down.
1:08:31
That's hard, how do you have the guts to cut— because in a startup you'd run out of money and you can't raise the next round.
1:08:37
So we have to have sort of mimic these rounds of investment.
1:08:40
Once in a while they completely defy odds.
1:08:42
I'll tell you a secret, which is I actually voted no on the USDC project because I read it and I said, "Ah, it's just not decentralized as much as I would want."
1:08:52
I had some reason in my head and thank goodness somebody else on the team voted yes to fund it out of their budget and I was totally wrong.
1:08:57
I use that as an example a lot where the best ideas don't have to come from me, they have to come from everybody in the company.
1:09:03
We have to try more ambitious ideas. How about Base?
1:09:07
Base is another example that was a venture bet.
1:09:10
It started as a small thing where Jesse came to me and said he wanted to spin up a Layer 2.
1:09:15
I didn't have any specific idea about how to do it or anything.
1:09:18
The only thing that we did was we funded it and we shielded it.
1:09:23
New ideas are fragile sometimes within big companies.
1:09:23
I think one time you told me a great phrase, you don't want to give it the big company bear hug of death.
1:09:28
The only thing I did to my credit was I may have protected it, but I didn't have any idea really what Jesse was working on for most of that.
1:09:35
He iterated through three or four ideas and Base was the fourth thing that he came up with and it finally started to work and became the number one Layer 2 solution on Ethereum.
1:09:43
Now it's the Base app that just came out.
1:09:45
As CEO it's not so much my job to come up with the next great idea.
1:09:48
It's to create the right environment where good ideas can happen and be nurtured and the bad ideas eventually do get shut down.
1:09:56
We have some discipline around that.
1:09:57
The hardest time to work on new venture bets is when the core is under threat or it's a downturn.
1:10:06
The core is always under threat, right?
1:10:08
And so, this is where- That's why it's the core.
1:10:10
It's a successful business that other people want. Right.
1:10:14
We have this great— this makes our decision making very healthy, but it's a healthy tension in the org where usually people are saying the core is underfunded, it's under threat.
1:10:24
How can we allocate more?
1:10:26
I want to take resources from that thing, that's not generating revenue yet.
1:10:28
Not always, but sometimes I'm on the other side saying I want to fund the core.
1:10:32
We also should have some percent, 10% of our resources going to these venture bets.
1:10:37
Because five, 10 years from now we need to have the next chapter coming out.
1:10:43
Sometimes there's founders versus operators and if you have too much founder energy, they sometimes blow the place up. Yeah.
1:10:52
If you have too much operator energy, they're just boring and they never do anything innovative ever again.
1:10:56
But they're very efficiently run.
1:10:58
And so I think— It's like a series of layered S-curves. Yeah.
1:11:01
I'm in a lucky spot at Coinbase with Emilie Choi as the president and she and I make a great team.
1:11:06
I think we can both do it either way, but the natural- It's a natural happy place.
1:11:10
I try to be a little more founder— provide the risk tolerance, the venture bets.
1:11:15
She really makes it a well-run company, pushes back when she's like, "Brian, if we just focused on the core in Europe, it might generate another billion of revenue." So, it's a great combo.
1:11:26
Do you use prediction markets anywhere internally in how you run the business? Not yet.
1:11:31
Shouldn't you if you're crypto pilled? Yeah.
1:11:33
We are integrating, working on prediction markets.
1:11:36
We haven't gotten full clarity, this new CFTC chair hasn't been confirmed yet.
1:11:41
The US ones, US citizens are not allowed to use it yet, the on-chain ones. Yeah.
1:11:46
The ones that are approved to work in the US you have to get them— each market has to be approved by the CFTC. Oh wow.
1:11:54
So if you had some fun internal pet project, we don't have the resources to go get everything.
1:11:57
But hopefully it becomes lower friction at some point.
1:12:00
Then once they are approved, would I see a prediction market on projects or something like that? We can use them.
1:12:04
Yeah, that's a great idea.
1:12:06
What are other ways in which Coinbase is crypto-pilled, AI-pilled, works differently from a company founded 10 or 20 years prior?
1:12:18
Like a lot of companies, we're leaning as hard as we can into AI.
1:12:22
I don't know how much- What does that mean concretely?
1:12:24
We're doing a lot of the best practices.
1:12:26
We made a big push to get every engineer on Cursor and Copilot.
1:12:30
Then another question was, well, are they actually going to use it?
1:12:33
A lot of them onboarded when I- Was it you or Toby who mandated it? I mandated it.
1:12:39
You required people to have a call with you who— That's true. I did do that.
1:12:42
You required people to justify to you, the CEO, if they weren't using AI code. That's true.
1:12:48
Sorry, maybe I'm not meant to tell the story. No. I don't mind. It's a good story.
1:12:51
Originally they were coming back and saying, "All right, over the next quarter...
1:12:57
we're going to get to 50% adoption."
1:12:58
I said, "You're telling me— why can't every engineer just onboard by the end of the week? So I went rogue. Yeah.
1:13:05
I posted in the all in Slack channel.
1:13:07
—Just a light dusting of founder mode. I said, "AI's important.
1:13:11
We need you to all learn it and at least onboard.
1:13:13
You don't have to use it every day yet until we do some training, but at least onboard by the end of the week.
1:13:16
And if not, I'm hosting a meeting on Saturday with everybody who hasn't done it and I'd like to meet with you to understand why."
1:13:21
Now a few people were on vacation.
1:13:22
There was a list of— Anyway, I jumped on this call on Saturday and there was a couple people that had not done it.
1:13:30
Some of them had a good reason, because they were just getting back from some trip or something, and some of them didn't and they got fired. Wow.
1:13:39
Some people really didn't like it, by the way, that heavy-handed approach but I think it did set some clarity at least that we need to lean into this and learn about it.
1:13:47
What's your experience of AI coding been so far?
1:13:50
It's clear that it is very helpful to have AI helping you write code.
1:13:55
It's not clear how you run an AI-coded code base and what the best way to do it is. I agree.
1:14:03
I think we're still figuring that out too.
1:14:04
One thing we started doing is every month we host, we call it an AI Speed Run where one of the engineers volunteers that month to run a training for how they're using it.
1:14:13
We try to cherry pick the people, the teams that are doing it the best.
1:14:16
We're doing about, 33% of code written by AI now.
1:14:21
We have a goal to get to 50% by the end of the quarter.
1:14:22
Let's see if we get there.
1:14:24
You probably can go too far with it.
1:14:25
You don't want people vibe coding these systems moving money.
1:14:28
We've really encouraged people to really, you have to code review it and have the appropriate checks in place on that from with humans in the loop.
1:14:35
But some of the front-end pieces, et cetera, you can iterate faster.
1:14:40
We want to make sure it's used not just in the engineering teams.
1:14:43
It really should be any team, design is using it heavily.
1:14:46
Product managers, I think FP&A could even be using this as generate, ingest all the data and tell me what you forecast the revenue to be.
1:14:54
We're getting to a world where, even as CEO by the way, I use it a lot.
1:14:58
We use a decision making process called RAPIDS and everyone writes their input.
1:15:03
We have a row now for AI that writes its input in as one of the people that help make decisions.
1:15:09
We're testing the limits of it, when can it actually start to be the decision maker on some things and do better than humans. Last question.
1:15:18
What advice do you have for us as we start to navigate the crypto world more and as crypto becomes so much more relevant for payments?
1:15:26
I feel like I should be asking you the same question.
1:15:28
We're starting to figure out- Payments, yeah.
1:15:30
We're doing repayments, you guys are up in crypto.
1:15:32
Hopefully we get to work more together.
1:15:35
In crypto, it's never as good as it seems, never as bad as it seems.
1:15:38
You gotta be in it for the long haul through ups and downs. It's very cyclical. Yeah.
1:15:42
I would say that crypto is about decentralized protocols fundamentally.
1:15:48
Those are the ones that have done the best.
1:15:51
There are temptations at times.
1:15:55
I won't name some of the prior projects, but they've come together with small, consortiums of companies.
1:16:01
We really want to make more open standards and there's a trade off because if you truly have a decentralized protocol, it's slower, right?
1:16:09
Base for instance, we started it, but it's going through progressive decentralization and we went from stage one or stage zero to stage one decentralization.
1:16:16
We're getting stage two soon.
1:16:18
Everybody should really, on that network, be able to exist on a level playing field with Coinbase.
1:16:24
That's where we're getting to.
1:16:25
I think in that ethos, it's a permissionless system everybody can build on.
1:16:31
That's what's going to actually disrupt traditional finance.
1:16:34
It's not going to be another proprietary system.
1:16:37
There's a spectrum between those two things. It's not a binary. I don't know.
1:16:42
I guess that's how to get really red pilled on— Embrace what makes crypto actually work. Yep. Yeah.
1:16:46
All right, well with that, thank you. Thank you.