back to indexBrian Armstrong: Coinbase, Cryptocurrency, and Government Regulation | Lex Fridman Podcast #307
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The following is a conversation with Brian Armstrong,
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cofounder and CEO of Coinbase,
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the largest cryptocurrency exchange platform
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with 98 million users in 100 countries,
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listing Bitcoin, Ethereum, Cardano,
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and over 100 popular cryptocurrencies.
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I recorded this conversation with Brian
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before this week's SEC probe
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into whether some of the crypto listings are securities
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and thus need to be regulated as such.
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As always, with conversations that involve cryptocurrency,
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I try to make it timeless
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so that the price soaring high or crashing down low
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doesn't distract from the fundamental technological,
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economic, social, and philosophical ideas
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underlying this new form of money, energy, and information.
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Our world runs on money, the exchange and store of value,
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and cryptocurrency seeks to build the next chapter
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of how money works and what it can do.
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Coinbase and Brian are trying to do this
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by working together with regulators and governments,
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which is a long and difficult road.
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Bureaucracies resist change, for better and for worse.
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The latest SEC probe is a good representation of this.
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It is a serious attempt to limit fraud,
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but one that also runs the risk of limiting innovation
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and limiting financial freedom of individuals.
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This is a complicated mess,
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and I applaud everyone involved
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for trying to work through it.
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I hope in the end, the interest of the individual wins.
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Decentralization, after all, is a hedge
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against the corrupting nature of centralized power.
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This is the Lex Friedman podcast.
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To support it, please check out our sponsors
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in the description.
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And now, dear friends, here's Brian Armstrong.
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Let's start with the fact that you're a programmer.
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What was the first program you've ever written?
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Or the first one that you remember?
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The first memory I have of programming
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was probably in middle school.
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And I remember it was recess,
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and they had this time period where you could read books,
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and the other kids were reading comic books and stuff.
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And for some reason, I had gotten into this idea
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that I wanted to get into computers,
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and I was playing with computers at home.
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And so I got this book, I think from the library,
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it was called How to Learn Java in 30 Days.
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So I was reading this book at the recess,
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and I didn't understand anything.
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And I remember I went home,
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and I tried to get this thing working.
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And if you've ever written a Java program,
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the first lines are public static void main string args
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And it's so foreign, and it's so difficult to get started.
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And so I was kind of frustrated.
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I was like, I don't understand anything
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that's happening in this book.
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So the first thing I wrote was probably just
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a Hello World app in Java.
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But I felt like I was so confused
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about what was actually happening
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that I later learned a bit of PHP.
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And PHP was like more fun for me
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because it was like, oh, just print out what you want.
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It didn't have all this complexity around it.
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So then I got more into PHP,
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I started building like some simple websites,
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I think learned some HTML.
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So I think that was my introduction to programming,
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at least the very beginning part.
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Yeah, you know, Java has a lot of,
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out of all the Hello Worlds it could possibly write,
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Java is the one where I think it's the longest.
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Which is quite interesting
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because Java is often at least for a long time
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was used as the primary programming language
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to teach people how to program,
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or at least about object oriented programming.
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I think most universities have now switched
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and high school switched to Python.
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I'm not sure if that's the case.
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It's easier to learn.
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It lowers the, it makes it less scary.
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It was like less of a hurdle.
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And certainly none of them use PHP.
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I love PHP and I feel like it's a dirty secret.
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I have to keep private to myself.
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Like it's somebody I'm seeing on the side
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or something like that,
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because it's just not a respected programming language
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because I think there's so many ways
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you can write poor code with PHP,
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which is why it's not respected.
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Yeah, it's a scripting language more so,
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although of course Facebook built like a huge stack
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on top of an invaluable company,
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but I still love Ruby to this day.
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Ruby is probably my favorite language.
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Python's great too,
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but I just love the idea behind Ruby that it's like,
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let's make it easier for the human,
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harder for the computer,
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and make it a joy to be expressive and all these things.
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So I was never the best computer scientist,
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but I was a good hacker.
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I could rapidly prototype products
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and using languages like Ruby.
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Do a lot of computer science programs still use like Lisp
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and Scheme and things like that?
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No, they do for, that's like, that's if you're hardcore.
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If you're legit, you're gonna do
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some of the functional languages.
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I think there's a few others that popped up,
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but Lisp is a distant memory for a lot of people.
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That's like somebody has to like,
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you go to library, you dust off the book,
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but Scheme a little bit.
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I think if you're starting,
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I mean, there's courses about languages themselves,
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like programming languages.
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Lisp might be one of those,
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you know how there's languages that nobody uses anymore,
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like ancient languages?
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You might have to go to school in that same way
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for programming languages.
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Back in the day, we used to use parentheses.
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I of course still use Emacs as the editor
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for most things that I do.
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And Emacs is, a lot of the customization you can do
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is in Lisp and that's the language probably
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when I first really fell in love with programming is Lisp.
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Because for a long time throughout the earlier history
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of artificial intelligence,
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Lisp was the primary language,
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but it still had a life in the 90s and the aughts
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where some people would use it.
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It's such a beautiful functional language,
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but it just somehow didn't pick up.
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That said, I should say sort of push back,
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PHP, I feel like it's still true
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that most of the web runs on PHP.
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Most of the backend is still PHP.
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So if you look at, you know,
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it's like the stuff that people don't talk about.
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It's like what runs most systems in the world?
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What runs the most backend?
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What runs most front end?
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JavaScript, you know, HTML.
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The Stack Exchange surveys show JavaScript
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is the most popular language in the world, I think, right?
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Oh yeah, in terms of programmers and numbers of, I wonder.
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By survey of number of programmers on Stack Overflow.
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Oh yeah, but that's also the cutting edge, right?
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Those are the people that are just like excitedly
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I wonder if there's people that are just like
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maintaining gigantic code bases.
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Yeah, I feel like the amount of Java out there
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just running industrial systems has gotta be enormous.
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And then of course in the banking industry, finance,
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it's like even older stuff, Cobalt and whatnot, but.
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I've been actually looking for somebody to interview
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who represents Cobalt and Fortran.
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Like who's the figure still there that holds the flag?
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I did, you know, with Java, founder of Java,
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creator of Java, creator of Python, creator of C++,
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but nobody wants to hold the flag for Cobalt and Fortran,
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even though some of the most important systems in the world
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still run on those.
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Like power systems and infrastructure systems,
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which is fascinating, and ATMs and stuff like that.
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Like a lot of stuff that we rely on,
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it just works, and the reason we don't change it
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is because it works well.
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It was written in languages that people don't use anymore.
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Yeah, that'd be a cool series of interviews.
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Get the stuff that's like tech that was invented
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40, 50 years ago, but still is being used widely.
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I mean Emacs is an example of that.
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Let me ask the big question of
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what are cryptocurrency exchanges and what's Coinbase?
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Before, I'll ask even bigger questions,
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but it's just a nice kind of palate cleansing question
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of what is Coinbase?
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Coinbase is a cryptocurrency exchange brokerage custodian.
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Basically, we're the primary financial account for people
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in the crypto economy, how they buy crypto,
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how they store it, how they use it increasingly
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in different ways.
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We can talk about that.
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So yeah, we want to be the way that a billion people
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hopefully access the open financial system globally.
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What's cryptocurrency?
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There's Bitcoin, there's Ethereum.
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What does it mean to be an exchange?
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What does it mean to store?
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What does it mean to transact?
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How does it, what does Coinbase actually do?
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Okay, so basically in any given market,
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there's some people who want to buy,
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some people who want to sell,
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and you keep an order book of all those prices.
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And then if someone's willing to buy
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for more than the lowest price someone's willing to sell,
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then you get a trade to execute.
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That's kind of how an exchange works underneath.
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And a brokerage is kind of simpler than that even.
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You don't have to know,
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look at the whole order book and everything,
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but you just go in there and you say,
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I want to buy a hundred dollars of Bitcoin
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or whatever cryptocurrency.
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You get a quote, and if you like it, you can hit accept.
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And the core things that we do to make all that
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kind of just work, make it seamless,
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it sounds simple on the surface,
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is we have to do payment integrations
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in a variety of places around the world
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to make it easy for people to get fiat currency
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into this ecosystem.
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We have to do work on cybersecurity a lot.
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There's lots of hackers out there
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trying to break into our systems and steal crypto
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or to put stolen credit cards and bank accounts
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and things like that into these systems.
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We have to integrate with the blockchains themselves,
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which are periodically getting updated
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and having various airdrops and all kinds of things.
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So we're integrated with lots of different blockchains.
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And then we have to store the crypto
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that people buy securely as well.
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So crypto is kind of like storing,
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you store the private keys essentially.
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And we've invented a lot of cool technology
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about how to do that securely
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that helps me sleep at night
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as one of the largest crypto custodians out there.
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So those are some of the pieces that had to come together
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to get that early simple buy sell experience to work.
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And yeah, I mean, Coinbase actually has
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a lot of different products now.
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So we have like an institutional product.
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We have Coinbase Commerce,
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which is like merchant payments, like Stripe for crypto.
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We've got a self custodial wallet,
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which we can talk about.
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There's all kinds of cool applications
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people are building with web3
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and they can access it through that.
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We just launched an NFT product.
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I can go on down the list.
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So we're sort of like a portfolio of crypto products now.
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We're big enough where we can do multiple things.
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But yeah, the core thing we got started with
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and still the majority of our revenue today
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is people just wanna come in and buy and sell some crypto.
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And we help them do that and make it simple
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And I'll ask you about wallet, NFT is about,
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what is it called?
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Coinbase Commerce.
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Coinbase Commerce.
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I'll ask you about all that.
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But order books in exchange,
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what's the difference between that and stocks, for example,
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which there's also order books.
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Yes, I mean, stocks trade through order books too.
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So do commodities.
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There's all similar type of situation.
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So when I wanna buy one Bitcoin and I see Coinbase,
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say the price of that Bitcoin is say $40,000
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and I press buy, what happens?
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So you've gotten a lot,
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when you press the button on your keyboard,
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like an electrical signal goes up the wire
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No, we won't cut out the level.
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That's also important, the timing, right?
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Cause it's not price fixed.
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Yeah, that's true.
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It's giving you a quote, right?
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There's a whole concept of like slippage.
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And like by the time the quote is executed,
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if the price has moved too much, like we may reject it.
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And there's various things like that.
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But how do, I mean, what's the simple version I can give you?
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So we'll basically check the order book, give you a quote.
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It's good for some period of time
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or for some amount of slippage.
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And then what's happening is we're initiating a debit
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to your payment method, whether that's a credit card
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or a bank account, or you're storing dollars or euros
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or something on our platform,
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there's various payment methods.
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So we're basically debiting that.
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And then we're crediting you the crypto
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and we're taking a fee for it too.
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So that's fundamentally what's happening underneath.
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And then there's just some interesting slippage.
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How do you calculate how much slippage is allowed?
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Like how do you know these things?
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Cause order books are fascinating.
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The dynamics of that is pretty interesting.
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The little I know about it.
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Yeah, so there's a lot of people like traders
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who get super into this and like high frequency traders
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and arbitrage and all kinds of interesting topics.
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Flash Boys was like an interesting book
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on this whole thing.
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You want like access to information the fastest,
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sometimes even putting your thing in the data center
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right next to the thing.
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We don't allow that colo stuff
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cause we want it to be more democratized.
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But basically you give a,
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let's say we wanted to just keep it math simple.
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We want to charge a 1% fee.
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So if you're buying $100 of Bitcoin
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and we'll charge you $101,
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we've presented you the amount of Bitcoin
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you're going to get for the $100.
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Now let's say 10 seconds later you hit accept.
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We go to fill the order.
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So it's going to be some error bound
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around that 1% fee, right?
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And if we think we're actually losing money on the trade,
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I think we'll often reject it.
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So some part of the fee,
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the slippage is incorporated into that,
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averaged over a large number of people.
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Just, it's fascinating.
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Cause like even just like that little detail
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probably requires a lot of experimentation.
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And it's kind of like a giant bug bounty out there
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because if you get it wrong,
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there's people who are going to arbitrage that.
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And we've had people sort of pen test our systems
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in a really creative ways where like,
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they'll just fire like programmatically with APIs,
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they'll fire off like a million different quotes
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and look for one of them that's out of bounds
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and then actually take that money right there.
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And we get people doing all kinds of crazy stuff.
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So how do you protect against that?
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How do you protect?
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So we'll talk about cybersecurity in interesting ways,
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but there's a lot of clever people
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trying to do clever things to earn,
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not even just to break into the system,
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but to earn an edge of some kind in the system.
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How do you stay one step ahead?
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There's no silver bullet,
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it's a bunch of lead bullets, right?
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So it's like, you know, one thing we do is
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we just have good test suites, right?
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So you're testing every piece of code that goes out,
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that's like just common good best practice,
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but it's particularly important in financial services.
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Another thing we do is we hire third party firms
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to try to audit this stuff and break in.
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Another one we do is we have a bug bounty program.
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So we basically pay white hat hackers to find this stuff
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before the black hats do.
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And we've paid out lots of good bug bounties.
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So, you know, try all the above.
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And occasionally you don't get it right
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and you lose some money and then you fix it
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and you keep going, so yeah.
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Let's talk about cybersecurity a little bit more.
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You mentioned using stolen bank accounts.
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So that's another one, that's another interesting one.
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How do you protect against that?
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Okay, so fraud prevention, yeah, is a big topic.
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So one of the, there's a lot of things people do,
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but one of the things they do
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is that you use machine learning, right?
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So you look at hundreds.
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To protect or to attack?
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To protect against it.
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So what you want to do is kind of build up
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a labeled data set of all the different people
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who have turned out to be fraudulent and good actors,
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and hopefully collect as much data as you can.
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And then, you know, you might feed hundreds
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or thousands of these factors
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into your machine learning model
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and it'll come back with a risk score.
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So, you know, an example of like the kinds of factors
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people create or put in there, you know,
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obviously I don't want to disclose too many of them
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because it's a cat and mouse game,
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but just kind of, I don't know,
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relatively well known stuff might be.
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You know, you have device fingerprints, right?
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So like, what kind of device are you on
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and what fonts do you have installed?
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A lot of people who are farming lots of these accounts,
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they're using emulators and like virtual machines and stuff.
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They're not like, you know,
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an average person on that device.
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And then you'll see sometimes like,
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one of my favorite metrics we track for this
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was called like improbable travel velocity.
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So we would, we're tracking people's IPS, right?
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And you might see someone who was one day in Austin, Texas
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and then like an hour later they were in London or something.
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It's like, well, that's very improbable.
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I mean, sometimes people are using VPNs.
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So you gotta be careful with that
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because like there's legitimate people who use VPNs too.
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But if it's not possible for them to have gotten on a plane
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and gotten there that quickly,
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then that's usually they're like spoofing a device or IP.
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Sometimes those are interesting factors.
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But yeah, if you feed enough of these in, you will,
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oh, another fun one is like, you know,
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real users will type their credit card
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like one number at a time.
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Scammers have a list of them
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and they'll just paste in a whole number.
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So you can look at like the number of milliseconds
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between keystrokes.
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Like there's all kinds of stuff people have come up with.
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And even for travel velocity,
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you could probably incorporate VPNs too
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because there's probably a travel velocity
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for VPN switching too that's human like.
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Like if you're using legitimately VPN for something else,
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that might be, there's like legitimate uses too.
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Actually, you know, I feel embarrassed
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that I don't know this, probably should.
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But the, I'm not a robot.
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Capture thing. Capture thing.
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So that probably works in the same way.
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Like how do you move your mouse maybe
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or how the dynamics of the clicking.
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But how does that even work that well then?
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And why can't it be fake?
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I need to look into this.
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Cause it's such a trivial capture.
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It feels like it should be very crackable.
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And yet a lot of high security places use that.
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It's really interesting.
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It's another cat and mouse game.
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So I think they've, yeah,
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but it's using a lot of similar signals
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like mouse movements, keystrokes.
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And then obviously all the stuff that comes over
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the wire with your browser.
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So like what operating system, what fonts,
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what headers are being sent over.
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And there's actually, there's an old website.
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I can't remember what it's called.
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It was kind of like Panoptik Click
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or Panopticon or something.
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But it basically was like a proof of concept site
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that they would just show you all the data
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that was kind of getting sent over with your request.
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And like say that there's only one person in the world
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who has this exact set of data.
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And so it's almost like a workaround,
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a clever workaround to track somebody,
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make identify a unique person,
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even if like there wasn't a cookie involved or something.
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Yeah, this is a fascinating world
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where you can't see anybody here in the dark
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and yet you have a lot of signal
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and you have to figure out who's a real person, who's not.
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Who's a robot, who's not.
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We're gonna jump around all over the place.
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That's why I like your interviews.
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You get into like technical topics.
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So just let's use Bitcoin as a measure of time.
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You started Coinbase when Bitcoin was $10.
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And you just mentioned an incredible system
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with security, with transactions.
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Everything is thought through.
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There's a lot going on.
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But what was version one back in those early days,
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the first prototype of Coinbase?
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What did that look like?
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Like what did it take to write it,
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to think through it and make it work enough
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to at least make you believe that it's gonna work?
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Well, I definitely didn't know if it was gonna work.
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I mean, it was kind of,
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I felt like I was just following my gut.
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So, I mean, I was working at Airbnb.
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I was a software engineer there, project manager.
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I was working on some fraud prevention stuff, for instance.
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And I read the Bitcoin white paper
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in kind of December of 2010.
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I started going to some Bitcoin meetups in the Bay Area,
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met lots of interesting people there,
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like crazy people, anarchists,
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really brilliant people, all the above.
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And so I started nights and weekends
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trying to put together a prototype.
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And my initial thought was,
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well, SMTP is a protocol that runs email.
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And Git is a protocol for version control
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that people made like Gmail and GitHub.
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Most people don't wanna run their own email server
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or even their own Git server.
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They just wanna like use a hosted thing
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that will do all the security and backups for them.
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So the thought in my head at that time
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was Bitcoin's this new protocol.
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There's probably gonna be somebody
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who makes a hosted service
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that does all the security and backups for you,
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makes Bitcoin as a protocol easy to use.
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So maybe I should make like a hosted Bitcoin wallet
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or something, that was my,
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it was gonna make Gmail for Bitcoin or something.
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And a bunch of people told me that was a bad idea.
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Like most of my smart friends who I told about it,
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well, first of all,
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I don't really get what you're doing at all.
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Like Bitcoin sounds like a scam
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or something you've gotten involved in.
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But then other people who understood what Bitcoin was
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told me they thought it was a dumb idea
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because they're like, dude, if you store all this Bitcoin,
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you're just gonna get hacked.
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Like nobody, you know, why would you do that?
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And so I kind of had this thought like, you know what?
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I'm not gonna go all in and like make a store
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everyone's Bitcoin, that would be too much right now.
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I have a job, I have a day job, you know?
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But let me just make a prototype
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and I'll tell people this is like a beta thing.
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Like don't put any real money in it
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and just see if there's interest.
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And if I feel like I'm onto something,
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maybe I'll go do this as a company.
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Cause I did, I really wanted to be an entrepreneur
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I was like, I was 29, I was almost turning 30.
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And I was, I always wanted to like start a company,
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but I was, you know, I wasn't yet.
link |
I was an employee at a company that was great.
link |
But so anyway, I had this prototype.
link |
I was hacking together nights and weekends.
link |
I actually wrote a whole Bitcoin node in Ruby,
link |
which turned out to be a, maybe a weird decision
link |
in hindsight, cause Ruby wasn't the most
link |
performant language.
link |
We've subsequently had to rebuild that many times.
link |
But yeah, I had this hosted Bitcoin wallet
link |
and the thing that I didn't have any users for it,
link |
by the way, I applied to Y Combinator
link |
cause I was like, maybe if somebody there writes me a check,
link |
this will like make it feel like a real company.
link |
And I was trying to find a co founder at that time
link |
So I was basically just wandering in the desert.
link |
I had a lot of self doubt about this cause I was like,
link |
I don't know, all my friends don't think this is kind of dumb
link |
and maybe Bitcoin is just gonna get shut down
link |
and like, this is all be some stupid thing.
link |
So there was definitely a feeling of just wandering
link |
lost in the desert, lots of self doubt.
link |
Paul Graham and the Y Combinator group
link |
kind of wrote me the first check
link |
after I went and interviewed and stuff.
link |
And they wrote me a check for like 150K.
link |
And that was the first time somebody
link |
who I really looked up to kind of said,
link |
this is worth pursuing.
link |
Like maybe you're onto something, maybe you're not,
link |
but like, let's at least try it.
link |
And so that was kind of what gave me the confidence
link |
to quit my job and try it.
link |
And I'll wrap the story here by saying that like we,
link |
I found the right co founder after Y Combinator.
link |
We still didn't have any customers.
link |
I basically launched the hosted Bitcoin wallet.
link |
There were people signing up.
link |
I just posted on Reddit and places like that.
link |
And maybe like a hundred people would sign up
link |
and then nobody would come back.
link |
And so I was like, I just in Y Combinator,
link |
they often tell you like,
link |
talk to your customers and improve your product.
link |
Talk to your customers, improve your product.
link |
That's all you're supposed to be doing.
link |
Try to find product market fit.
link |
So I emailed like five of the users that had signed up
link |
and I was like, hey, I worked on this app.
link |
I saw you signed up.
link |
Can I get on the phone with you?
link |
I get on the phone with like five of these folks.
link |
And I was like, why didn't you come back?
link |
And the guy was like, well, the app was okay
link |
for a beta, but like, I don't have any Bitcoins.
link |
So I didn't really know what to do with it.
link |
And I remember this light bulb kind of went off in my head.
link |
I was like, well, if I put a buy Bitcoin button in there,
link |
would you have used it?
link |
And he was like, yeah, maybe.
link |
So then I had this, we went about the process.
link |
My co founder at that time,
link |
we like got basically had to get like a bank partnership,
link |
payment rails, you know, an exchange,
link |
basic exchange functionality,
link |
all that stuff I was mentioning earlier in place.
link |
And the minute we launched that feature
link |
where you could just click buy,
link |
put in your bank counter credit card,
link |
buy Bitcoin, it showed up in your account.
link |
From that day forward,
link |
like the number of users started to go up like this.
link |
And so we finally had found product market fit
link |
after two years of wandering in the desert.
link |
So you weren't even thinking about to buy the on ramps.
link |
You would think it would be just the wallet,
link |
a place to store Bitcoin that you've already gotten.
link |
This is, I mean, cause that's such a pain to do,
link |
to have to work with others to convert dollars
link |
and fiat currency into Bitcoin.
link |
So did you, I mean,
link |
were you overwhelmed by the immensity of the task here
link |
or were you just sort of not allowing yourself
link |
to think too deeply through this whole thing
link |
and just letting the optimism take over here?
link |
You know, I was really looking forward
link |
to like doing something crazy and like a big challenge.
link |
And I wanted to, I love kind of crisis moments like that
link |
where, you know, I'm very determined, right?
link |
And especially when I get like very set on something
link |
and I'm just like, you know what?
link |
I'm gonna figure out a way to make this fucking thing work,
link |
like no matter what.
link |
And so I reveled in that.
link |
I was sort of, I had read all these books about startups
link |
and like every startup has these like, you know,
link |
major setbacks and just like nothing works.
link |
And so that was a sign that you're doing something right.
link |
I had no idea if I was doing anything right at all,
link |
but I was like, I was kind of loving the experience of it
link |
It felt, it felt stressful at the time.
link |
Like, you know, nothing was working and,
link |
but I was just, I felt like I was on the right path somehow.
link |
And so I just kept going, I don't know.
link |
What was the darkest moment that you've gone to
link |
in your mind during that time?
link |
What was, what were some of the tougher moments?
link |
You said self doubt.
link |
Have you, yeah, where'd you go?
link |
Where'd you go in your mind?
link |
Is there a moment where you're just like laying there?
link |
This is, this is hopeless.
link |
Well, there's a couple of moments I'm remembering.
link |
I mean, so for whatever reason,
link |
I had this like big chip on my shoulder at that time.
link |
I really want to do something important in the world.
link |
Like, you know, I could have a good life
link |
and like work for some good companies
link |
and write some software.
link |
And I'm, for some reason, I never wanted that for myself.
link |
That probably would have been healthier, honestly,
link |
just to like, as an expected value outcome,
link |
that's probably a better thing in life.
link |
But I was like, I was like, man,
link |
I really want to do something important
link |
and have a bigger impact.
link |
And I was like, I was willing to sacrifice a lot for that.
link |
I was like sleep and not going out with friends and stuff.
link |
I remember one of the,
link |
just for like years working on this stuff,
link |
I remember one of the darker moments was,
link |
we probably had like maybe five employees at that time.
link |
And I remember like a bunch of bad things happened
link |
And it was, so first of all,
link |
you have to remember at this time,
link |
we were all very sleep deprived,
link |
which kind of exacerbates everything.
link |
If you look at like the Exxon Valdez spill
link |
and all these like natural disasters,
link |
like sleep deprivation is often involved.
link |
So, because the reason why we were so sleep deprived
link |
is not just because we were working so much,
link |
but like the site would go offline in the middle of the night
link |
and we'd get, I'd get paged.
link |
I was like on pager duty.
link |
So I'd get woken up sometimes
link |
like two or three times a night,
link |
like have to try to fix something, go back to sleep.
link |
So in that environment, you can kind of get,
link |
you can get discouraged.
link |
So one bad thing that happened was,
link |
we had a bug on the website
link |
and there was thousands of people on Reddit and Twitter
link |
who were all like pissed at Coinbase
link |
because like the balances were showing wrong.
link |
And they were just like, fuck this company, it's over.
link |
Like, I hate these guys.
link |
And so that was, I'd never had this feeling
link |
of a thousand people mad at me at the same time.
link |
You know, I feel like I'm a pretty chill guy.
link |
Like most of the time people don't get mad at me.
link |
Another one was that.
link |
Can we pause on that?
link |
That's so interesting.
link |
So you were saying like, here's a dream.
link |
I'm trying to create something.
link |
And now forever, the reputation of this dream is ruined.
link |
It will never, it's irrecoverable.
link |
It's over, that kind of feeling.
link |
Yeah, well, I didn't, you're right.
link |
I didn't know at that time.
link |
I was like, is this, is this the end?
link |
Like everybody, we're so, we're so tiny.
link |
Now everybody hates us.
link |
Nobody told me this before starting a company
link |
that like, you're a bunch of people will hate you for this,
link |
which is like a very counterintuitive thing.
link |
Cause you know, most companies I think are doing
link |
good things in the world, at least you're trying, right?
link |
And so even if someone's like trying,
link |
but they're not, they're failing,
link |
I'm generally rooting for them.
link |
At least you're trying, right?
link |
But that's not the case at all.
link |
And most founders I've known have gone through this too,
link |
where they're very surprised at the amount of hate
link |
And if it's, I think it's actually like a muscle
link |
you can build your tolerance to it.
link |
Like, because you know, you go talk to somebody who's like,
link |
for you, it feels terrible
link |
cause you're at the center of this storm and like,
link |
but if you go, then you go talk to like, you know,
link |
your family or some other person like, dude,
link |
I didn't even hear about that.
link |
Like my, they're just busy in their own life.
link |
And so they, they have no idea
link |
that you had all this negative press
link |
or like whatever it was.
link |
Can I put once again, put a link on that?
link |
There's an interesting person I'd like to bring up
link |
just as an example, Bill Gates.
link |
So he gets a very large amount of hate on the internet.
link |
And there's something about him,
link |
this is me talking that you,
link |
that he seems out of touch about that hate.
link |
I believe at least in my understanding
link |
that with the resources he has,
link |
he's trying and is actually doing a lot of good.
link |
And yet there's a gigantic amount of hate,
link |
conspiracy theories and stuff like that.
link |
And it feels like that's the case
link |
because he's somehow out of touch with people.
link |
So I wonder how you stay in touch
link |
with the voice of the people
link |
without being destroyed by the outrage.
link |
Is there any wisdom you have to that or?
link |
I don't know about wisdom, but I've thought about this too,
link |
because yeah, you wanna always be open to feedback,
link |
especially from people who have
link |
like your best interests at heart, right?
link |
And if you can become isolated from it
link |
and just like, you know, surrounded by yes people.
link |
And I mean, who knows, maybe like she and Putin
link |
and people like that are in situations I have no idea.
link |
But if you listen to too much of it
link |
and you just try to please everyone,
link |
you'll never get anything done.
link |
And I mean, most of the best leaders are people
link |
who they can act when they believe
link |
that they're doing something net positive
link |
for the world and humanity.
link |
And they actually don't really care
link |
if they piss off some portion of the people.
link |
Almost anything you're gonna do of significance
link |
in the world today is gonna piss off 5% of people,
link |
maybe 49% of people or whatever, maybe 60%, I don't know.
link |
So you never wanna become so surrounded
link |
by people who just work for you and will say yes.
link |
And then you think like, well, I'm a genius
link |
and I'm like, that's how you become a dictator or whatever.
link |
But you also can't care so much about what people think
link |
because then you'll never do anything
link |
that's truly authentic to yourself.
link |
One other thought on that, by the way,
link |
I think it's a really good question.
link |
So I've thought about this a lot.
link |
Like why, you know, people generally kind of hate on Zuck
link |
and they hate on Bill Gates and they hate on,
link |
they don't really hate on Elon.
link |
Well, actually Elon has a lot of haters too,
link |
but it's a different thing.
link |
This is measured, this is measured, I was looking
link |
at some surveys, so I think Zuck is the most,
link |
so loved and hated, right?
link |
Zuckerberg is the most, both loved and hated.
link |
He's the most hated.
link |
And then I think it's Bill Gates and Elon is down there.
link |
I think it's like 40% hate Zuck, people asked.
link |
And then Elon is in the double digits,
link |
but low double digits.
link |
And so it's interesting, you just look at this data,
link |
Right, so I ask myself this sometimes too,
link |
because I don't claim to know any of these people well,
link |
but like I've met them briefly.
link |
And my impression is that they're actually all smart people
link |
trying to do good things in the world.
link |
So there's not too much difference there,
link |
despite public perception.
link |
So why is it that some are really hated and some aren't?
link |
I mean, it's a complicated question.
link |
Obviously Zuck in his Facebook got blamed
link |
for the whole election thing and all that didn't help.
link |
Social media has gotten a lot of pressure
link |
just from like, hey, why aren't you solving
link |
all of society's tough problems?
link |
It's like, well, they're just one company.
link |
But one thing I've noticed is that a lot of these people,
link |
they have like Asperger's, right, a little bit.
link |
And sometimes people with Asperger's
link |
don't really emote in the same way.
link |
And so I think it's almost a form of like
link |
bias against their cognitive type or something,
link |
which is like that person doesn't emote right.
link |
I don't trust their intentions.
link |
And the other thing I've thought about too
link |
is that sometimes I think some leaders,
link |
like maybe Zuck or Bill Gates,
link |
they can come across as like a little bit PR rehearsed.
link |
Like they're basically,
link |
they're giving the PR approved answers
link |
where Elon just says whatever he thinks like to a fault.
link |
So even if people hate what he says or like,
link |
at least I believe it's authentic.
link |
So I've always thought about that too for myself.
link |
I'm like, how do I,
link |
cause you can fuck it up on both sides, right?
link |
Like if you just come out and you're like saying
link |
whatever stream of consciousness,
link |
you'll often end up like pissing off people on your team
link |
or like saying tripping over some like regulation
link |
that you've, there's all kinds of things
link |
about running a public company,
link |
you can't say certain stuff.
link |
But if you're too PR approved and your answer is like,
link |
nobody trusts you what you're saying.
link |
And so anyway, this is something I think about a lot.
link |
I don't think I have the right answer,
link |
but I'm trying to find that balance.
link |
And more and more with the internet, there's a premium
link |
on authenticity, just like you're saying.
link |
People really, really appreciate that.
link |
So for leaders, it's a challenge to be,
link |
how do I make sure I'm authentic,
link |
but also don't say stupid shit.
link |
And so that's an interesting thing.
link |
I've noticed that just having interacted
link |
with a bunch of leaders that you have to be careful
link |
how much you surround yourself with PR folks.
link |
Because the best, I would say, let me just say a nice thing
link |
about marketing and PR folks,
link |
the best marketing folks are extremely good.
link |
So they understand exactly what great marketing is
link |
and great PR, it's authenticity.
link |
It's showing, revealing the beauty.
link |
As opposed to PR and marketing out of fear.
link |
Oh, don't say that, don't say this, don't that.
link |
Because then you start living in this kind of,
link |
that pushes you towards a bubble
link |
where you can't express the,
link |
your beautiful quirks and weirdness
link |
and all that kind of stuff.
link |
And also the cool, the beautiful things
link |
about what you're doing.
link |
I find like, especially with tech things,
link |
like even like Coinbase,
link |
the way to reveal the beauty of it
link |
is not only by showing all the things you could do with it,
link |
but showing that there's great engineering
link |
going on underneath.
link |
So letting the nerds shine too.
link |
It doesn't have to be like these kind of commercials
link |
where it's like a happy family using Coinbase
link |
to send a transaction about flowers for mom
link |
or something like that.
link |
Like it could be also like gritty stuff and real stuff.
link |
So that's a general just observation I made.
link |
But you said you were talking about dark moments
link |
and that there's people on the internet
link |
that were pissed off that the site was down.
link |
And you said there might be something else.
link |
Yeah, so sleep deprived,
link |
like a bunch of people on the internet were pissed at me.
link |
The balances were fucked up.
link |
Like people were tweeting the company's over,
link |
just give the money back, whatever.
link |
And then, oh yeah, somebody posted.
link |
So we had all this, we didn't,
link |
we started to get all these customer support inquiries
link |
and like, we only had like a few people at the company.
link |
And so we were backed up maybe like 20,000 support requests.
link |
So people couldn't get ahold of us.
link |
So somebody posted my cell phone number on Reddit
link |
and they were like, they were like,
link |
if you need to get ahold of the CEO, whatever,
link |
cause everyone's upset about where their money is.
link |
So I remember we're in the office,
link |
it's like late at night.
link |
We've been working like 12 hours, we're all sleep deprived.
link |
I'm trying to hack and like get this bug fixed.
link |
And we all need like food at the office.
link |
And so my phone has been blowing up all day
link |
cause someone posted my phone number on the internet.
link |
And there's like a guy,
link |
there was a guy like trying to deliver food
link |
and I needed to answer my phone
link |
to like get the food from downstairs.
link |
So I was like, shit, I gotta just see who, if that's him.
link |
So I started answering the call and it's like,
link |
I'm like, nope, wrong number, click.
link |
And I pick up the next call.
link |
It's like every, when I finished the call,
link |
another call is like coming in.
link |
So I was like, I'm a reporter from Japan,
link |
like asking about a security, nope, wrong number, click.
link |
And then I like, finally I get the delivery guy downstairs,
link |
bring the food up.
link |
We were all like surviving to like fix this bug.
link |
I remember there was just basically a point that night
link |
where I was like, fuck, I need to just,
link |
I basically just curled up on like a ball on the floor.
link |
And I just like cried for a little bit.
link |
I think I let myself just kind of wallow in self pity,
link |
kind of took a nap for about five minutes.
link |
And I was like, let's fucking solve this.
link |
And I like, you know, stop being like a little whatever
link |
and like got back up.
link |
Sleep deprivation combined with just the stress
link |
and the pressure of the site going down
link |
and everybody wants the site to be up.
link |
Just the pressure from people
link |
and the number of users is growing and growing and growing.
link |
So that pressure is just mentally, mentally tough.
link |
What was your source of strength during that time?
link |
Like what, like somebody that patted you on the back
link |
and said, we got this.
link |
Yeah, well, it definitely helped to have a co founder.
link |
So, you know, there's like that old saying about
link |
it's better to be in a great relationship than to be single,
link |
but it's better to be single than in a bad relationship.
link |
So co founders actually blow up a lot of companies too.
link |
But when you find the right co founder,
link |
which I was lucky to find with, with Fred or some,
link |
that was very important.
link |
There was definitely moments where, you know,
link |
I was like kind of, you know, at the width end or whatever.
link |
And he was like, it's like, dude, let's rally.
link |
Like, and he basically carried the team, you know,
link |
a couple of times, like in really key moments.
link |
What advice would you give to startup founders
link |
about this particular stage about surviving it
link |
to the five and through the five employees stage
link |
Yeah, well, if your pre product market fit,
link |
the best advice that I have from that period
link |
is action produces information.
link |
So just like keep doing stuff, you know,
link |
I remember like Paul Graham, Paul Graham had this great
link |
I think that's his line.
link |
And he was like, startups are like sharks.
link |
If they stop swimming, they die.
link |
You know, so even if you're like, not sure what to do,
link |
like just do anything because when you do it,
link |
it'll like, it'll produce some information.
link |
Like people liked it.
link |
They didn't, this was very true for me.
link |
There was times where I just did something
link |
instead of debating it endlessly and like, just try it.
link |
You know, like, all right.
link |
And like, there was a couple of times where like
link |
the minute I shipped it and I was like, I knew,
link |
I know we built this wrong,
link |
but now I have an idea of what to do next.
link |
And it wasn't, I only would have had the idea
link |
if we'd actually gone through the exercise
link |
of going to build it.
link |
It's like my other favorite analogy for this is that
link |
you're like at the base of a mountain that's shrouded
link |
in fog and you're looking up at the mountain
link |
and you're trying to think like, okay,
link |
how do I get up there?
link |
But you can only see like three or four steps ahead
link |
cause the fog is so thick.
link |
So you have to just take steps into the unknown.
link |
And when you take three steps,
link |
another three steps will be revealed ahead of you.
link |
And sometimes you'll end up on some local maximum.
link |
You'll have to retrace your steps or whatever,
link |
but, or come up to a cliff, you know,
link |
but most people in life don't take the steps into the fog,
link |
into the unknown because it's scary.
link |
Or they're like, I don't know, what if I fail?
link |
Or like, I don't know how that's going to work
link |
or I might run out of money
link |
or I won't be able to get a job after,
link |
or I don't know, whatever reason.
link |
But that is like one of the things that separates,
link |
I think entrepreneurial people with that kind of inclination
link |
is that they have sort of a comfort with this risk tolerance
link |
but it's actually not really risky if you think about it.
link |
It's not like, you know, at least in most places,
link |
like, you know, if you go to a startup and it fails,
link |
like you're going to, you're even more valuable
link |
to your next employer, right?
link |
Or you can go raise a seed round, pay yourself a salary,
link |
try it for like two years or three years.
link |
If it doesn't work, go get another job.
link |
It's not like you're,
link |
you weren't paying yourself a salary during that time.
link |
So I think, I think people overestimate the risk
link |
of doing a startup and they just never,
link |
they never start because it seems crazy
link |
and all your friends think it's silly.
link |
Like that's sort of the default nature
link |
of every big startup idea.
link |
It's just basic fear.
link |
It's the same kind of fear that if you see a,
link |
if you're a guy, see a cute girl at a bar,
link |
it's the fear associated with coming up to her,
link |
you like her, asking her.
link |
It's like, what's the actual risk exactly?
link |
She'll say, no thanks, I'm not interested.
link |
I guess the risk is like,
link |
that's going to be mentally difficult
link |
to deal with rejection.
link |
So just like it's mentally difficult to deal with failure.
link |
If you had a bunch of ideas and you were excited about them
link |
and you implement them and you realize they're not good,
link |
that could be difficult to keep pushing through that.
link |
But I suppose that's life.
link |
You're supposed to, you know,
link |
perseverance through the failures and then the risk is low.
link |
So that's, and then the whole time through the fog
link |
up the mountain, you're looking for product market fit.
link |
Yeah, that's right.
link |
So you know, you have it when the usage of your product
link |
keeps growing without any marketing dollars
link |
or anything like that.
link |
It's just like more people keep coming back
link |
every week or month.
link |
So you're kind of keep,
link |
you're basically watching your stats.
link |
Nothing is working.
link |
You see these little wiggles of false hope in your metrics
link |
and you basically just keep talking to customers,
link |
fixing the, improving the product,
link |
talk to customers, improve the product,
link |
talk to customers, improve product, you know,
link |
and try not to run out of money.
link |
So be really scrappy.
link |
And then if you're lucky, you hit some kind of threshold
link |
where like, okay, the thing is good enough now,
link |
or we hit on some use case and then it'll organically
link |
start to grow a bit.
link |
And then you have a whole different set of problems
link |
once you hit product market fit,
link |
which is how do we scale this thing?
link |
How do we hire people?
link |
How do we, you know, hire an executive team
link |
or raise more money?
link |
And like, so the problems totally change, but yeah.
link |
Well, you were there through the whole thing.
link |
So that's the other question that's fascinating.
link |
Again, back to the girl at the bar,
link |
how do you hire people?
link |
It's like, how do you find good friends?
link |
How do you find good relationships?
link |
And in this specific case, how do you hire good people?
link |
Engineers, executive, all of it.
link |
One thing is I've done a lot of reps on hiring
link |
So Coinbase has about 5,000 people,
link |
probably the first 500 people or something,
link |
maybe in that range.
link |
You know, I interviewed every single one of those,
link |
but you have to remember there's probably like,
link |
I don't know, on average, maybe 10 people
link |
that we went in the process for every one we hired
link |
So it was like, by the time that we had 500 employees,
link |
I had done like 5,000 interviews or something.
link |
I was like very burned out on interviews.
link |
I had been doing, some days I did like seven interviews
link |
in a day or maybe, you know, you've been doing
link |
lots of interviews, maybe you wouldn't get burned out,
link |
but different kind of interviews.
link |
Very different, very different, very different,
link |
because you're, so first of all,
link |
most of your interviews lead to rejection.
link |
Which is also exhausting.
link |
Yeah, and there's a whole part of the interview
link |
which is about candidate experience, right?
link |
Sometimes you know it's not the right person,
link |
but you wanna make sure they have a good experience.
link |
Like, if you're just exhausted
link |
and you're on your sixth interview
link |
and you're like, well, thanks for coming in
link |
and you wrap and you just, and then like,
link |
you're gonna create a detractor.
link |
Someone who's out there like, fuck that company
link |
or Brian was rude to me or whatever.
link |
So I had to, honestly, I had to work on that a little bit
link |
in the early days because I was doing so many interviews.
link |
Like I needed to make sure that when people came in,
link |
I was like, you know, made them feel comfortable,
link |
asked them a couple of like warmup questions,
link |
just like, oh, how was it getting in the office?
link |
Like, did you find it okay?
link |
And like, what have you been up to this week?
link |
And not just like, you know, like a factory assembly line
link |
like boom, boom, boom, like, yeah.
link |
But also there's a moment,
link |
cause I've interviewed a bunch of people
link |
for like teams and stuff.
link |
There's also a moment when you, early on,
link |
know it's not gonna be a good fit
link |
and you still have to land that plane
link |
and all that kind of stuff.
link |
And that could get really, really, really exhausting.
link |
So yeah, anyway, sorry.
link |
Yeah, so basically we tried all,
link |
we've tried so many things over the years
link |
to make interviews more efficient
link |
cause it's a huge time sink for the team.
link |
So, you know, we basically,
link |
we'll usually get them down to like 25 minutes.
link |
I've seen, if you're trying to hire like a big team,
link |
let's say, you know,
link |
of people who are like contractors or something,
link |
not necessarily full time employees.
link |
I've seen people actually do 10 minute interviews.
link |
You can even interview like a thousand people
link |
almost like in a week or something.
link |
I'm not sure if that quite works out,
link |
but let me a little less than that.
link |
But you can basically get six and six done in an hour.
link |
If you're just, I need to get a team of 30 contractors
link |
for whatever purpose.
link |
But if you're talking about full time employees,
link |
I usually do like 25 minute.
link |
You know, you're oftentimes like,
link |
one thing we've done is we'll put like a Google form online
link |
and it's like, put some basic hurdles in there.
link |
Like, you know, ask them to put in an answer,
link |
which you can check in a spreadsheet
link |
if it was correct or not.
link |
And like, there was some funny examples
link |
in the early days of Coinbase
link |
where we'd put in like brain teasers and stuff,
link |
but we don't do that anymore.
link |
We do like normal interviews, we do references.
link |
The kinds of things I ask in interviews,
link |
you know, it's usually like,
link |
I like to think about what do we need this person
link |
to accomplish in this role, right?
link |
And get really specific about that.
link |
It's like usually something pretty hard.
link |
And then I'll ask them a question.
link |
It's like, tell me about a time you did X
link |
and, or tell me about the hardest,
link |
the hardest kind of problem you've had to solve in Y
link |
and what did you do specifically to overcome it, right?
link |
So I'm asking to see if they can actually do the stuff
link |
we need to get done.
link |
But then I'm also kind of asking like culture questions
link |
if I'm interviewing for that.
link |
And so I'm trying to see like,
link |
are they concise communicators?
link |
Can they just give me a clear answer and stop talking?
link |
Some people like ramble on for like five, 10 minutes
link |
if you ask the first question.
link |
Some people are, you know, they're interrupters
link |
like church of interruption.
link |
So like they won't stop talking until you interrupt them,
link |
which for me, I'm always patient and I wait.
link |
I'm looking to see for humility too.
link |
Like, you know, I'll tell us people,
link |
I'll tell you about a time something went really wrong.
link |
Like you had conflict with someone on a team
link |
or what I'm kind of looking for is,
link |
were they part of the solution
link |
or are they still holding onto like blame and criticism
link |
about that and be like,
link |
well, I told them they shouldn't do that way,
link |
but they didn't listen to me.
link |
And you know, these are all like bad signs.
link |
So I'm looking for, yeah, can they get the job done?
link |
Will they work together on a team?
link |
Can they communicate effectively?
link |
Do they fit into our cultural values and you know,
link |
those kinds of things.
link |
Yeah, I mean, there's a,
link |
cause I've even for help with this podcast here,
link |
but also at MIT and so on, I've done a bunch of hiring
link |
and I was always looking for, you said, brain teasers,
link |
all kinds of simple questions that can,
link |
they can reveal a lot of information
link |
and it's always been challenging.
link |
I used to, I still ask this question,
link |
but do you think it's better to work hard or work smart?
link |
And you know, I had this idea that I've,
link |
that I think I've matured about,
link |
which is I kind of believe that people who say work smart
link |
on that question don't actually work smart.
link |
So the right textbook answer is it's better to work smart.
link |
But the reality is it's people that haven't actually
link |
ever done anything that say work smart.
link |
They're like, they haven't really struggled
link |
because my general belief at the time
link |
was in order to discover what it means to work smart,
link |
to be efficient, to, you have to work your ass off.
link |
So you have to really fail a lot
link |
and failure feels like hard work.
link |
And so I was always suspicious of people
link |
that would say work smart.
link |
I would want to interrogate that question.
link |
But then I also, you know, have learned that there is people
link |
that are just exceptionally, exceptionally efficient.
link |
They really do know what it means to work smart,
link |
even at a young age.
link |
And so like, you can't just disqualify based on that.
link |
You have to dig in deeper.
link |
But some of the most interesting people I've ever worked
link |
with would say work hard unapologetically.
link |
And they're usually the ones that know how to be efficient,
link |
which is, it's just an interesting thing like that.
link |
And I've always searched for questions of that nature
link |
to see can I get a person to reveal something profound
link |
about them in as brief of a question as possible?
link |
And I, you know, and then of course,
link |
there's basic attention to detail and brain teasers
link |
and stuff like that, depending on the role,
link |
programming and so on to see can they solve a tricky puzzle
link |
and do so, like one that doesn't require a lot of effort,
link |
but requires a certain nonlinear way of thinking.
link |
Is there some, I mean, maybe you don't want to reveal,
link |
but is there some questions that you sometimes
link |
find yourself leaning on?
link |
You said like, how did you solve a hard problem
link |
in your past and have them talk through it?
link |
You know, we started with brain teasers periodically
link |
at Coinbase and we got away from that relatively quickly.
link |
And I think one, it's a tough one
link |
because I actually think it does show how somebody
link |
kind of performs under pressure,
link |
but it's, I don't think it's a super reliable indicator
link |
because there's some people who are really good
link |
in the typical work situation,
link |
but that's not a typical work situation
link |
where somebody puts you on the spot,
link |
like in a live interview and sometimes people get nervous
link |
and they can't think clearly
link |
and like they don't have their computer in front of them
link |
or whatever they normally use.
link |
So yeah, I'm a little skeptical now
link |
of the brain teaser thing.
link |
There is a whole, yeah, there is a whole question about,
link |
like a lot of universities are getting rid of,
link |
you know, entrance exams.
link |
So if you're hiring right out of universities,
link |
sometimes it's becoming a less reliable indicator
link |
of like, are they in that university?
link |
And I've heard some companies, we haven't done this yet,
link |
but I've heard some companies are actually creating
link |
their own like for college grads,
link |
like their own basically exams, like standardized testing
link |
almost to get people in the door
link |
because the degree almost like doesn't mean
link |
what it used to, which is the whole topic, but.
link |
Yeah, that's fascinating because it's fascinating both
link |
for that, because it's not just about you trying
link |
to hire a great team, it's also to help them find
link |
the right place to work at.
link |
It's like a two way street.
link |
All right, so once you found the product market fit,
link |
how did Coinbase become what it is today?
link |
So let me ask an engineering question actually.
link |
Sort of from the Ruby wallet days,
link |
what are some of the interesting challenges there?
link |
Or are they not engineering?
link |
Just the things that had to be solved, what were they?
link |
Engineering, regulation,
link |
financial hiring, lawyers, what was it?
link |
So post product market fit, yeah, a lot of it's scaling
link |
and you got to build out an actual company.
link |
So I remember I was still writing a lot of code there
link |
for a while and we were hiring in,
link |
we had like maybe 25 people or something.
link |
I remember one of our investors came by one day
link |
and he was like, Brian, how much of your time
link |
are you spending writing code?
link |
And I was like, maybe 50% or something.
link |
And he was like, how much time are you spending hiring people?
link |
I was like, probably 20%.
link |
And he was like, I think you need to flip those numbers.
link |
Like this company is not going to scale.
link |
You're the CEO, you don't need to be writing code every day.
link |
You're going to have to transition that stuff.
link |
Like even if people can't,
link |
all that stuff's locked in your head.
link |
So maybe they're not going to do it as well as you
link |
for the first six months or something.
link |
But like, if you don't start to transition it,
link |
you're never going to build a real company.
link |
It's just going to be, you're going to be the bottleneck.
link |
So, you know, like a lot of founders that took me a while
link |
to like really internalize that lesson.
link |
I'd always heard people say that and, you know,
link |
but I still was holding on too much to decision making.
link |
And I probably still am, by the way,
link |
like even to this day at Coinbase,
link |
where we continually have to push down decision making
link |
in the org, like even with 5,000 people,
link |
like who are the owners of each of these things?
link |
And so the temptation is people to push it up
link |
and you become a bottleneck.
link |
And anyway, so yeah, you basically need to make sure
link |
you have enough money where you don't die
link |
if there's some kind of a downturn
link |
or hit break even profitability.
link |
We were in a position where we were periodically profitable
link |
during up periods, but then crypto would go down
link |
and we were unprofitable.
link |
And so we had to kind of manage our own psychology
link |
and the balance sheet to make sure we didn't like die
link |
in the downturn, which a lot of crypto companies did.
link |
We had to basically professionalize a whole bunch
link |
of services that had been just very quickly thrown together
link |
by like 20 year olds, right?
link |
Whether that was cybersecurity, it's like, okay,
link |
how do you get like a really senior experienced
link |
cybersecurity person, but not someone who's so senior
link |
that they can't get their hands dirty
link |
and they can come into a company with 25, 50 people.
link |
How do you get a finance person to come in and do that?
link |
Our finances were a mess.
link |
Like we didn't even really know how much money we had
link |
at certain times and stuff.
link |
I mean, this was, it's embarrassing to say,
link |
Like I remember there was a point where we had raised,
link |
I think like our series C or something like that.
link |
And I think we had our bank accounts.
link |
I just put like $25 million, like in a different bank
link |
account that none of this stuff was touched
link |
to the actual operations of business.
link |
Cause I was like, our operations were so messy
link |
and we needed to hire a new finance person.
link |
And I was like, I'd heard horror stories
link |
of actually startups where they thought
link |
they had X amount of money.
link |
And then it turned out they had way less.
link |
And then the whole thing was insolvent in like three weeks.
link |
So you wanted to have some padding to at least like,
link |
all right, I can at least count on this to save us
link |
if we go to like super negative.
link |
Right, I mean, it was like a cheap hack,
link |
but that was like the only I could come up with.
link |
And until we could hire like a real CFO and finance team
link |
who like, okay, now we got our arms around
link |
how much cash we have.
link |
It sounds silly, but we had such high volume
link |
of money coming in and out.
link |
What was the ordering of hiring by the way?
link |
Like how many engineers was it early on?
link |
You said CFO was not, you didn't even have a CFO for a bit.
link |
Like what was the landscape of hiring
link |
as you building up this company?
link |
Was it engineering focused?
link |
I mean, so the first person we hired was just like,
link |
we need to solve customer support.
link |
So we brought someone to do that
link |
because we were all staying up till midnight every night
link |
trying to do customer support.
link |
And then we got more engineers.
link |
And then I think maybe the sixth hire
link |
or something like that was a recruiter.
link |
Cause that turned out to be, you need to build,
link |
hire the person who can hire more people.
link |
That turned out to be a great force multiplier.
link |
And then you're going down the list.
link |
Eventually you want to hire some more senior people.
link |
We needed legal and compliance.
link |
We needed that really badly.
link |
Cause we, it was all kinds of questions about
link |
what the legality of it was.
link |
Was it hard to find legal people that work with crypto,
link |
like serious adults?
link |
Cause it's such a cutting edge new world.
link |
Yeah, I mean, there was nobody who had like more than,
link |
nobody had three years of experience with it
link |
cause it had only been around a few years.
link |
So yeah, we were finding people from adjacent fields.
link |
There's a certain personality type of people
link |
who are willing to join early companies
link |
because they have no structure.
link |
You can't really commit to them about
link |
you're going to have this team or this boss or whatever.
link |
Like everything's in chaos and flux.
link |
So it takes, yeah, hiring is one of the hardest things
link |
in the early stage for sure.
link |
You got to find people crazy enough
link |
to join you on this journey.
link |
So one of the interesting things about Coinbase
link |
and you've written, we've talked, we'll talk about it a bit.
link |
You're very focused on the mission.
link |
You're very kind of, I think that simplifies things
link |
that makes hiring easier,
link |
that makes working at Coinbase easier,
link |
that makes, I mean, it's similar.
link |
So Elon has the same thing.
link |
It's pretty clear.
link |
It's pretty clear what we're here to do.
link |
So I suppose what's the mission of Coinbase?
link |
Well, it's to increase economic freedom in the world.
link |
And what is economic freedom?
link |
Yeah, so economic freedom is this term kind of like GDP
link |
that economists use.
link |
And it's basically a measure of different countries
link |
It looks at things like,
link |
are there property rights enforced?
link |
Is there free trade?
link |
Is the currency stable?
link |
Can you start companies that you wanna start?
link |
And can you join the ones you wanna join?
link |
And is there corruption and bribery prevalent
link |
or is it relatively free of that?
link |
And so there's several different organizations
link |
that basically score countries by economic freedom.
link |
And the really cool thing about economic freedom
link |
is that basically it positively correlates
link |
with things that we all want in society,
link |
like not only higher growth of the economy,
link |
but also things like higher self reported happiness
link |
of citizens, better treatment of the environment,
link |
better income for the poorest 10% of people.
link |
And it negatively correlates with things
link |
we don't want in society,
link |
like corruption and bribery and war,
link |
even in things like that.
link |
And so it's this pretty crazy provocative idea,
link |
which is that if you give people good property rights
link |
and rule of law and allow them to trade,
link |
it basically encourages them to do more good stuff
link |
and the whole society benefits.
link |
Like one of the things, you may have noticed this
link |
growing up in various places you did,
link |
or I spent a year living in Buenos Aires, Argentina
link |
that went through hyperinflation.
link |
And there's a certain like pessimism
link |
that can creep into countries
link |
when they don't have economic freedom,
link |
which it's basically like everyone has this bit of this vibe,
link |
which is like, don't stick your head up,
link |
don't try too hard because it could all be gone tomorrow.
link |
Like the things that really are valuable in life
link |
are just family and friends
link |
and the past was better than the future will be.
link |
And so you don't really, people don't try as many,
link |
they don't try hard because you're not really sure
link |
you can actually keep the upside of your labor
link |
if you try hard, so you just don't try as hard.
link |
Whereas in America, historically,
link |
or high economic freedom countries,
link |
people basically like they just try more stuff
link |
because they're like, if I do good for other people,
link |
I'll get to keep part of it for myself
link |
and I can improve my lot in life
link |
and for my children and my community, whatever.
link |
So I realized when I read the Bitcoin white paper
link |
a long time ago, that at least I had a hunch.
link |
At the time I was like,
link |
this might be a really powerful piece of technology
link |
that can inject good financial infrastructure
link |
into all these countries around the world that don't have it.
link |
Basically good economic freedom principles
link |
in like property rights and things like that
link |
into these countries all over the world,
link |
which just as long as you had a smartphone
link |
and now crypto got invented,
link |
everybody could have economic freedom.
link |
And it's crypto is kind of really well suited
link |
for economic freedom,
link |
because if you want property rights,
link |
it's based like crypto is,
link |
if you can remember a 12 word phrase
link |
or have an app on your phone,
link |
you can store as much wealth as you want.
link |
And it can't be taken away from you.
link |
You can even, there's like refugees who need to flee
link |
and they wanna take their wealth with them
link |
and they can't do it often
link |
in the traditional financial system.
link |
And so crypto lets them do that, right?
link |
Crypto is inherently global.
link |
So it allows free trade and cross border payments.
link |
It makes it easy to accept payments from people globally.
link |
It provides a stable currency to everyone,
link |
not only with Bitcoin,
link |
which is kind of like this new reserve currency,
link |
but also with stable coins, right?
link |
Which are new inventions there.
link |
So yeah, I basically feel like crypto
link |
is this secret hiding in plain sight
link |
that can create economic freedom
link |
for people all over the world
link |
and a more fair and free and global economy.
link |
Well, so the limit,
link |
and by the way, I didn't know about Argentina.
link |
Why'd you end up in Argentina?
link |
Okay, so I was basically,
link |
I was living in Houston, Texas after college
link |
where I went to school.
link |
And I had never studied abroad.
link |
I kind of like, I don't know,
link |
I felt like I needed some adventure or something in my life.
link |
And I was like, I was running this other startup
link |
that I was trying at the time, a tutoring company,
link |
and I could work from anywhere.
link |
So my plan was, you know what,
link |
I'm just gonna go do like a month
link |
in every city around South America,
link |
just like almost like to force myself
link |
out of my comfort zone
link |
because I had never traveled by myself
link |
to a foreign country or whatever,
link |
and where I didn't really speak the language.
link |
And anyway, I landed in Buenos Aires
link |
thinking I'd go all around South America
link |
where I had never been there.
link |
But I basically, once I was set up in Buenos Aires
link |
with an apartment and a cell phone and stuff,
link |
then I was like, I don't wanna do that all again next month.
link |
So I just stayed there for most of the time
link |
and took some day trips.
link |
But yeah, it was kind of a formative experience
link |
You got a chance sort of unexpectedly
link |
to experience the social effects of hyperinflation,
link |
which is interesting.
link |
But I also, I've never been,
link |
I really, really wanna go as a person who likes tangos,
link |
a person who likes the Argentinian national team
link |
and soccer and steak.
link |
All right, and all the other things
link |
that Argentina is known for.
link |
Okay, so economic freedom.
link |
One of the limits on economic freedom
link |
comes from government and government regulations
link |
and all those kinds of things throughout the world.
link |
So how does cryptocurrency help resist that?
link |
So can you sort of elaborate a little bit further?
link |
What are the things that limit economic freedom
link |
and how does crypto help ease that?
link |
Today the world, like the traditional financial system
link |
is basically every country of the world for the most part
link |
has their own currency.
link |
And so there's a group of people or institutions
link |
in each of those countries that's controlling
link |
that economic policy or that money supply.
link |
And it can be manipulated, right?
link |
So it's not like many of these currencies
link |
are not linked to gold standard.
link |
The U.S. kind of famously came off that in 1970s,
link |
for instance, but if you read Ray Dalio and all this stuff
link |
like he talks about, there's thousands of fiat currencies
link |
that have been in existence over time.
link |
And basically all of them eventually get disconnected
link |
from backing of like hard commodities
link |
and then they get overinflated and printed.
link |
And so in times of stress, with Nixon,
link |
I guess it was like in the U.S. it was the Vietnam War
link |
or something like that.
link |
It kind of drove government spending.
link |
And so under times of stress, they say,
link |
hey, it's a temporary measure.
link |
We need to break the peg.
link |
Temporary was like famous words that he used
link |
and they go print.
link |
And so the bad thing about that, of course,
link |
is that it sort of erodes people's like wealth
link |
if they can only hold their assets in cash,
link |
which basically like poor people tend to do that.
link |
If you're wealthy, you can hold stocks
link |
or like real estate and things like that.
link |
But it's really a tax on the poorest people
link |
in society, inflation.
link |
So anyway, crypto in a way is a little bit
link |
of like a return to the gold standard
link |
in this digital era, right?
link |
Bitcoin, there's guaranteed scarcity of it.
link |
It's deflationary.
link |
There's never gonna be more than 21 million Bitcoin.
link |
And so that's a really important principle.
link |
I also think not just Bitcoin,
link |
but like cryptocurrency generally,
link |
it's really important in terms of this,
link |
you asked about regulation, right?
link |
So think about like, if you wanted to make a global borrowing
link |
and lending marketplace or a global exchange,
link |
you would have to go to all 200 countries in the world,
link |
sometimes like maybe 50 states in the US
link |
and get lending licenses or an operating exchange
link |
And that's just an incredible amount of work.
link |
And you can't even do business in many of these countries
link |
because like you have to bribe somebody
link |
or it's corrupt or whatever.
link |
And so, but with DeFi, with decentralized finance,
link |
people have published like Uniswap
link |
as a decentralized exchange.
link |
Everybody in the world, no matter what country you're in,
link |
what jurisdiction can interface
link |
with that decentralized exchange
link |
and there's no central company operating it.
link |
It's a smart contract on the Ethereum blockchain,
link |
which is globally decentralized.
link |
So there's no throat to choke.
link |
There's no one person or a company you can go to
link |
to like, hey, shut this thing down.
link |
Even if everybody who's working on Uniswap today stopped,
link |
the Uniswap smart contract would continue to operate
link |
on the Ethereum blockchain.
link |
Similarly for like a borrowing and lending marketplace,
link |
like somebody in India wants to borrow
link |
from somebody in the US or whatever,
link |
there's very difficult to do that
link |
in the traditional financial world,
link |
but in a smart contract that's decentralized,
link |
you can enable anybody to access it.
link |
So it's really kind of this great democratizing force
link |
that is creating a new financial system
link |
that is more fair and more free.
link |
Yeah, and in some ways it's a clever way
link |
that's enabling people to do that in a novel way.
link |
So is Uniswap in some sense a competitive Coinbase?
link |
In which way is it and which way is it not?
link |
So because for people who don't know,
link |
Coinbase is centralized.
link |
So let me ask, doesn't that go against the spirit of crypto
link |
since crypto is decentralized?
link |
What are the pros and cons of being centralized
link |
So I don't think Coinbase is fully centralized.
link |
We have many different products.
link |
And the way that I think about it is that our exchange
link |
or our brokerage is a centralized,
link |
regulated financial service business.
link |
And it's actually important for the crypto ecosystem
link |
to have that because you wanna allow a lot of the fiat money
link |
in the world to flow into the crypto economy.
link |
So we're very proud of that.
link |
And I think we've helped a lot of that money flow in.
link |
Now, once people have money in crypto,
link |
they can choose to hold it in a variety of ways.
link |
And they can choose to hold it in a self custodial wallet,
link |
which is more decentralized.
link |
They can choose to use decentralized exchanges,
link |
which we love and Uniswap is not really,
link |
I don't think of them as like a direct competitor to us.
link |
We basically have integrated Uniswap
link |
into a number of our products.
link |
We love DeFi, decentralized exchanges, the whole thing.
link |
So Coinbase wallet, which is a self custodial wallet,
link |
is more decentralized and it allows people
link |
to hold their own crypto.
link |
They don't have to trust us.
link |
Can you explain what a self custodial wallet is?
link |
What is a wallet and what is a self custodial wallet?
link |
Yeah, so it's confusing.
link |
So a custodial wallet means you're trusting Coinbase
link |
to store your crypto, the private keys themselves.
link |
And for some people and institutions and everything,
link |
just meeting them where they are today,
link |
that's nice because it's simpler.
link |
They're not afraid of losing their crypto
link |
if they make some accidental mistake.
link |
Or so custodial crypto products are important
link |
to help get a bunch of people into the ecosystem.
link |
But I'm very supportive of self custodial wallets.
link |
And I think in some ways they are the future
link |
because more and more people are gonna want
link |
to store their own crypto,
link |
not trust a third party institution to do it.
link |
And in some ways that is much more authentic
link |
to the ethos of crypto.
link |
So Coinbase will help you convert the fiat into crypto.
link |
And frankly, that's a more centralized thing.
link |
But once you have crypto,
link |
you can then go to the self custodial world,
link |
store it yourself.
link |
And to get into the technical details just for a second,
link |
it's basically saying you're gonna store the keys
link |
on your own device.
link |
And so even if Coinbase gets some court order to seize it,
link |
we actually can't.
link |
From an architecture point of view, we can't do it.
link |
Or if Coinbase gets hacked or something,
link |
we can't lose your funds.
link |
Now the thing is you have to take the responsibility
link |
because we're not taking it.
link |
So the individual person could get hacked.
link |
And there's a whole bunch of really cool research happening
link |
to make self custodial wallets more resilient
link |
to accidental loss, hacks, and just user error.
link |
I don't know how much you've looked at various cryptography
link |
things, but basically, you can have multiple signatures
link |
from different keys on different devices
link |
where you need two of the three or three of the five.
link |
There's a whole technology called multi party computation
link |
or threshold signing signatures, which is really cool.
link |
But those are the things you would run locally?
link |
These are all security measures, cryptography measures
link |
to protect you without a centralized component?
link |
So a simple example would be, let's
link |
say you had a two of three key signature.
link |
And one key might be stored at Coinbase,
link |
but that's not a quorum.
link |
So we couldn't unilaterally move your funds.
link |
But another key is on your device, on your phone,
link |
So in a normal situation, you have a key on your phone.
link |
And so two out of three, it can all
link |
get signed very quickly for day to day use.
link |
But let's say you lose your phone or something.
link |
Now, there has to be a third key.
link |
And that's where you could store it in a backup somewhere,
link |
like in Google Drive or iCloud.
link |
You could trust a third party that's
link |
not Coinbase to also have that one key.
link |
And they can't do anything unilaterally with that one key.
link |
So that's a simple example.
link |
You can get way more complicated.
link |
Yeah, that's an awesome idea.
link |
So if your funds get seized, Coinbase can't do anything.
link |
But you better not lose your phone, maybe, in that case.
link |
But it provides a, there is, so even if you lose your phone,
link |
then there is a recovery mechanism.
link |
Because you can get the one key from Coinbase,
link |
the one from your backup provider,
link |
and recover a new one back on your phone.
link |
But what if Coinbase is no longer,
link |
but because of government, because of, say,
link |
it's in North Korea, government says you're no longer,
link |
like Coinbase is shut down in that country
link |
or something like that.
link |
Then you can get it, even if you have access to those two.
link |
So again, perhaps a silly question,
link |
but isn't a self custodial wallet a competitor
link |
as a notion to Coinbase?
link |
No, I mean, so we offer a self custodial wallet.
link |
We've built one, and it's like one.
link |
But doesn't it bleed the, like I guess
link |
I'm asking a sort of a financial question,
link |
is like how does Coinbase make money on transactions?
link |
So does this not, it does not decrease the number,
link |
or does not significantly negatively affect transactions?
link |
Or are you more focused on growing the number of the pie
link |
of the number of people that are using cryptocurrency?
link |
Yeah, like a traditional financial service firm
link |
would probably say, well, we should be storing,
link |
let's keep more of the custody with us,
link |
because that's how we prove to the world
link |
that we're valuable or whatever.
link |
I don't really believe that.
link |
Like I think that actually we kind of want to encourage
link |
our users to move to self custody over time
link |
for those who are ready and willing.
link |
And that technology needs to mature.
link |
I'm not trying to like force anybody to do it
link |
who doesn't want to do it.
link |
But to me, that's like the future
link |
of how we get billions of people using crypto.
link |
But doesn't that mean they can go somewhere else easier?
link |
Yeah, that's sort of the point is like,
link |
we're all using the same protocol.
link |
So there's low switching costs,
link |
which keeps all the companies accountable, right?
link |
Like if you want to access the visa network,
link |
there's only one company in the world
link |
you can go through to do that, like visa.
link |
But if you want to access the Bitcoin network,
link |
there's dozens or hundreds of companies out there
link |
So it's arguably, you could argue it's worse for us
link |
as a company, but I think it's better for,
link |
it's what makes Bitcoin interesting
link |
and cryptocurrency interesting is that nobody controls it.
link |
There is low switching costs for customers.
link |
It's better for customers.
link |
And that means that all the companies in the space
link |
are going to be held to a high standard
link |
because the minute you lose someone's trust,
link |
they're just going to move their Bitcoin to some other service
link |
and that's good for the world.
link |
Do you think of Coinbase as,
link |
so there's these ideas of layer one,
link |
layer two, layer three technologies.
link |
Do you think of Coinbase as layer one,
link |
layer two, layer three?
link |
Now that said, there's so many products
link |
that are under the Coinbase umbrella
link |
that it's hard to answer that question,
link |
but what do you think?
link |
Do you acknowledge the existence of layer three?
link |
So, you know, usually when people are using those terms,
link |
layer one, layer two, so they're referring to like,
link |
layer one would be the blockchain,
link |
layer one blockchain itself,
link |
like a Bitcoin or Ethereum or something,
link |
not like a centralized service like Coinbase
link |
or even our decentralized self custodial wallet.
link |
So yeah, I wouldn't consider us to be like a layer one.
link |
These are the decentralized protocols
link |
that we're integrating, but Coinbase itself is not those.
link |
Yes, but layer two is the thing that was basically
link |
doing transactions without the settlement on the blockchain.
link |
And so you get to have some of the benefits
link |
of faster transactions without the security
link |
associated with the blockchain.
link |
And layer three is, I suppose,
link |
sort of apps built on top of that.
link |
So, you know, at least I think talking to Michael Saylor,
link |
he considers Coinbase a layer three technology.
link |
Interesting, okay.
link |
I'm not really particularly familiar
link |
with this kind of distinction of layer three and two.
link |
I don't see them as fundamentally different.
link |
But some of the, okay, I mean, one way of asking that,
link |
is there some layer two like of magic happening
link |
in order to make transactions associated
link |
with the blockchain happen instant, so that they're quick?
link |
On Coinbase, yeah.
link |
Is there some magic going on?
link |
Because you're, okay, we should say,
link |
how many cryptocurrencies are currently on Coinbase?
link |
So it's more than two.
link |
It's a lot more than two.
link |
So you have to understand,
link |
they have to incorporate all these technologies.
link |
So how do you make that magic
link |
of sort of universal transactions happen
link |
across all of these different cryptocurrencies?
link |
There's our centralized products
link |
and decentralized products, right?
link |
The centralized products, we are storing that crypto for you.
link |
And so if you're moving from one of your accounts
link |
to another account, like an ETH1 account to ETH2 account,
link |
or from my ETH Coinbase centralized account
link |
to your ETH centralized.
link |
So we can do that transaction off chain to make it faster.
link |
And it saves the customer fees
link |
and it just confirms instantly.
link |
But it's not truly using the decentralized blockchain,
link |
So you can also send any Bitcoin address
link |
or Ethereum address, for instance.
link |
And that is putting the transaction on chain.
link |
Now our decentralized products like Coinbase wallet,
link |
the self custodial wallet,
link |
every transaction is happening on chain with that.
link |
And so basically it just shows a little bit
link |
of the evolution of Coinbase and the blockchains themselves.
link |
Like in the early days, these networks were not scalable.
link |
And so there were no L2 solutions, for instance.
link |
And so we had to do sort of these hacks,
link |
like moving the crypto off chain,
link |
if you were moving between your own accounts
link |
and stuff like that.
link |
Otherwise the minor fees would have just eaten us alive
link |
as a company, right?
link |
But now the blockchains are starting to scale.
link |
There's a whole bunch of more work
link |
that needs to be done on that.
link |
And we're getting L2 solutions.
link |
So I think more and more of the transactions
link |
are going on chain, whether it's L2, L1.
link |
And ideally we shouldn't be doing that many transactions
link |
off chain, just internal Coinbase ledger or something.
link |
That's not really in the spirit of crypto.
link |
So when you say on chain, that includes layer two technology
link |
that the blockchain proposes.
link |
I guess I was asking how much fun magic is happening
link |
off chain within Coinbase.
link |
And you're saying in the early days you had to,
link |
but you're trying to do less and less.
link |
So look, there's a bunch of high frequency traders
link |
that use the centralized products
link |
and even just regular retail people,
link |
they don't want to pay the gas fees and stuff.
link |
And they're trying to, it actually,
link |
we back at the envelope, calculated this out at one point
link |
and just like, it would be completely infeasible
link |
for like high frequency traders
link |
to put everything on chain at this point.
link |
That's basically what DEXs are doing.
link |
And so both are important.
link |
I think more and more is going to move decentralized
link |
over time, which is great.
link |
And we're, and we're basically.
link |
DEXs are decentralized exchanges by the way.
link |
So anyway, we want to encourage more and more of it
link |
to move decentralized over time,
link |
but I don't, the centralized things aren't going away
link |
for like a long time.
link |
It's a decade from now,
link |
there's going to be some big institution
link |
or pension fund or central bank.
link |
That's like, all right, we got to hold crypto.
link |
Let's set up the account in a centralized way.
link |
So that's, that's fine.
link |
Both, both are important.
link |
Do you know the number
link |
of cryptocurrencies currently on Coinbase?
link |
Do you know that number?
link |
It's over a hundred, but it depends.
link |
It depends what jurisdiction you're in.
link |
And, you know, are you in institution versus retail?
link |
There's like, there's so many different categories now.
link |
But over a hundred.
link |
So what does it take to become, to, to, to become an asset,
link |
to become a cryptocurrency on Coinbase,
link |
to add your technology to Coinbase?
link |
Okay. Well, so we're trying to get away from this idea
link |
of being listed on Coinbase as being seen as like
link |
an endorsement or something,
link |
because I actually think it's very important
link |
that we are not considered judge and jury about, you know,
link |
like imagine it was the early days of the internet
link |
and you were like, what's a good webpage
link |
and what's a bad webpage.
link |
Like you would have been totally wrong
link |
or anytime big tech companies try to make these review,
link |
review boards of like, you know,
link |
Apple famously gets in trouble for this a lot
link |
with their app store review process.
link |
And so something that you think like a committee of people
link |
somewhere thinks looks silly may turn out
link |
to be the next big thing.
link |
Right. And so it's very difficult.
link |
We basically have a test of legality, right?
link |
We check, you know, do we believe this is a security?
link |
If so, it can't be listed on Coinbase
link |
and there's a very rigorous process we go through for that.
link |
Just currently the way the laws are in the US,
link |
you can't do that.
link |
And we've been, we acquired a broker duo license
link |
We're trying to work with them to get that operational
link |
and hopefully someday we can trade real crypto securities.
link |
But today that's not possible in the US at least.
link |
Then we look at sort of the cybersecurity
link |
of the crypto asset.
link |
Does it, do we see that there's some flaw
link |
in the smart contract or, you know,
link |
a way that somebody could manipulate it
link |
without the customer's permission?
link |
We look at some compliance pieces to it as well,
link |
like the actors behind it and like, you know,
link |
there any kind of criminal history, anything like that.
link |
But if we believe it meets our listing standards,
link |
basically this test of legality and everything
link |
for customer protection, then we want to list it
link |
because we want the market to at that point decide.
link |
And it's kind of like Amazon or something like that
link |
where, you know, a product might have three stars
link |
or it might have five stars,
link |
but if it starts to get one star consistently,
link |
like it's probably a fraudulent or it's defective
link |
or something like maybe Amazon will remove it.
link |
But otherwise you want to let the market decide
link |
what these things are.
link |
So that's generally how we do it.
link |
And by the way, more and more of these assets,
link |
I think especially like low market cap assets
link |
are going to be traded on DEXs through Coinbase.
link |
we don't need to list every asset on a centralized exchange.
link |
I think DEXs are really good for the long tail.
link |
And then it becomes an even,
link |
it's even more clear to people,
link |
like this is not some endorsement by a Coinbase of like,
link |
this asset's good and this one's bad.
link |
Like, you know, my belief is there's going to be millions
link |
of these assets over time.
link |
And so I hope it doesn't like make news
link |
every time we add one in the future, basically.
link |
Yeah, I wonder how you get there
link |
because I, even I look to Coinbase for, for example,
link |
you know, people, as you can imagine,
link |
sort of tag me on Twitter or something like that
link |
and all that, like you should interview our sort of this,
link |
the founder of this particular coin, right?
link |
And I, it's so hard for me to know what's,
link |
first of all, what's interesting technology?
link |
What's, who's a scammer or not?
link |
Who's actually legitimately representing
link |
an ambitious new thing versus a scam?
link |
And I, you know, there's very few sources
link |
of like a verification signal.
link |
And unfortunately Coinbase in part
link |
has become a little bit of that too.
link |
And you're trying to get away from that
link |
because you're trying to get as many,
link |
sort of let the people decide.
link |
So you're thinking of like Amazon star type system
link |
where the people could rate.
link |
Yeah, so I think we'll actually probably add
link |
like user ratings and reviews.
link |
So, and we'll be very cautious about like, you know,
link |
these are real people.
link |
There's a bunch of stuff we have to do for that already.
link |
So I think wisdom of the crowds is good
link |
in terms of getting feedback on items,
link |
but we also, we're gonna do our own review,
link |
which I mentioned earlier, right?
link |
Which is like, okay, it meets this minimum bar
link |
to be listed on our site.
link |
I think, yeah, both are important.
link |
How do you know if a coin is a scam or not?
link |
Well, you can see a few things.
link |
So, you know, I hate to use the word scam
link |
because a lot of these are judgment calls.
link |
You gotta, I kind of, a court may or a jury
link |
may land either way,
link |
but things that would be red flags to look at would be,
link |
you know, is a bunch of the asset owned by an insider
link |
or insiders with short vesting periods.
link |
You know, does the background of the founders,
link |
like they may have criminal records
link |
or if they've perpetrated other frauds in the past, right?
link |
There's a difference between something
link |
which is just a me too product.
link |
It's like, it doesn't have anything interesting about it
link |
and something that's an actual fraud or outright scam.
link |
And you have to, a lot of this data,
link |
what's cool about it is that it's now available on chain.
link |
You can look at like the tokenomics behind it
link |
and see who owns it.
link |
And are they selling it, you know, in like inappropriately
link |
or are they pumping it on like YouTube and Twitter
link |
and making promises about,
link |
hey, the value of this thing may be a higher in the future.
link |
And like, all those are just big, big no, no's
link |
that we would, you know, we just don't wanna go there.
link |
So our whole thing is like,
link |
we want to enable innovation in this space,
link |
but not allow anybody to curtail the advancement
link |
of this industry by like doing some kind of fraudulent thing
link |
or get rich quick thing.
link |
It's a tricky industry
link |
because I'm trying to figure out who to, you know,
link |
what's interesting to understand, to research.
link |
And it's hard to know.
link |
Let me ask you about a tricky one
link |
to add to a centralized exchange,
link |
which is privacy preserving cryptocurrency.
link |
Is that technically difficult or is that why,
link |
why is like Monero, for example, forget that specific one,
link |
but like privacy preserving cryptocurrency blockchains,
link |
why is that, is that ever possible to add?
link |
So that's a great question.
link |
So the answer is maybe.
link |
So here's the reason why.
link |
So because we're a regulated financial service business,
link |
we have various licenses to do that.
link |
We are regulated by various regulators.
link |
Part of those licenses requires us to have a quote,
link |
reasonable program to monitor for suspicious activity,
link |
you know, an AML program, anti money laundering, right?
link |
And so if it, if a coin is a hundred percent anonymous
link |
and we can't really do blockchain analytics
link |
to track source of funds
link |
and where these things might be going,
link |
it makes it harder to have a reasonable program around that
link |
that's defensible.
link |
Now there are privacy preserving coins like Zcash,
link |
which have something called a view key.
link |
And a view key is basically another key
link |
which allows you to deanonymize the transactions
link |
in specific situations where you want that.
link |
So for instance, you know, we do support Zcash.
link |
And one of the ways we got comfortable with that
link |
is that when you're buying it on Coinbase,
link |
you know, you can basically have a view key.
link |
The transactions are not anonymous while you're buying it.
link |
And we can see where it goes afterwards
link |
and do our whole standard program.
link |
Now, if it gets a few hops away down the road,
link |
I mean, people could eventually turn on
link |
privacy preserving aspects.
link |
So, you know, these are tough judgment calls,
link |
but at least in terms of our interaction
link |
with the customer and everything,
link |
we feel comfortable at that.
link |
I think there's a broader point here,
link |
which is that I actually think privacy coins
link |
are a good thing for the world and they should be allowed.
link |
And more like, you know, despite,
link |
we've made this judgment call to operate
link |
in a regulated and safe and compliant way,
link |
but just taking my Coinbase hat off for a minute,
link |
I think the world would be a better place
link |
if there were more privacy coins,
link |
because it's kind of like the internet
link |
when it first came online, like there was no HTTPS,
link |
everything was HTTP and there was, you know,
link |
so people were afraid to put their credit cards
link |
on the internet and your messages could be intercepted
link |
and all this stuff.
link |
And now the whole internet has basically moved to HTTPS
link |
with a little lock icon in your browser, which is better.
link |
Like, and financial information
link |
is like the most important information to keep private,
link |
So there's times where like,
link |
let's say you're running a charity or something
link |
and you want to have total auditability,
link |
transparency for the whole world,
link |
who donated and where did the money go?
link |
That's great, you want it to be public.
link |
But if it's like your personal money or something like that,
link |
you don't want to be broadcasting that to the whole world.
link |
And in some ways that's what blockchains are doing,
link |
you know, pseudonymously,
link |
because like, but it is a public ledger.
link |
And so if you can know who owns each address,
link |
you can basically deanonymize it.
link |
I, you know, I think basically people should fight
link |
for privacy and freedoms of all kinds,
link |
but privacy of money is a good thing.
link |
So I would like to see more of that in the future.
link |
You chosen with Coinbase to have a seat at the table
link |
with the regulators.
link |
So what kind of conversations are there at that table?
link |
What are the regulations like?
link |
What is the level of understanding with regulators?
link |
What are they worried about?
link |
What are they thinking about?
link |
What are the positive and what are the negative regulations
link |
that you're facing?
link |
That you're educating, struggling with, pushing back on,
link |
supporting, all that kind of stuff.
link |
Oh man, there's so many.
link |
Cause we're, I mean, we're live in like, you know,
link |
maybe a hundred countries or more at this point.
link |
So the conversations are all over the map.
link |
I'm trying to think what broad strokes I could paint for you.
link |
So I'd say one trend that's positive is that basically
link |
regulators around the world are more and more,
link |
over the last five years, I would say,
link |
it's more and more common to find a regulator today asking,
link |
how can we preserve the innovation potential
link |
of this technology while keeping the bad actors out
link |
than it was five years ago, where they were saying,
link |
this is all bad activity.
link |
How do we prevent it?
link |
And so maybe this is.
link |
When you say more and more, what fraction?
link |
I'll give you like a US specific example,
link |
although we operate in many countries.
link |
So when I go to DC now, I would say, you know,
link |
50, 60% of the people who I meet with are basically,
link |
you know, they're in the camp of crypto,
link |
has a lot of potential.
link |
We should regulate it to make sure the bad people
link |
don't do something bad with it.
link |
But this is here to stay and it has a lot of upside.
link |
We should basically create the awful regulation
link |
and celebrate it and actually encourage this innovation
link |
to happen in the US.
link |
That's a huge change from just three years ago
link |
where it was probably 30% of people saying that.
link |
Now it's like 60, it's like almost double.
link |
It's getting harder to find like true crypto skeptics
link |
I'd say that, you know, maybe only like 20 or 30% of people
link |
are like willing to say something negative.
link |
Like they actually think it's net negative.
link |
It's like, it's really hard to defend that position
link |
at this point, because almost like one in five Americans
link |
have used or tried crypto at this point.
link |
So you're kind of condemning 20% of your fellow citizens
link |
if you say that at this point, you know,
link |
especially with NFTs and all these things,
link |
like a huge segment of people who don't even care
link |
about investing or whatever came into the space.
link |
So, and then basically that's that same conversation
link |
is happening, but, you know, delayed by a few years
link |
in like India and Europe and in some Asian countries.
link |
And some countries have really embraced crypto
link |
and they're like trying to really,
link |
they're ahead of where the US is
link |
because they're trying to actually attract
link |
the best startups and entrepreneurs like, you know, like Dubai
link |
and UK and Australia and all are kind of pushing
link |
good regulation, El Salvador actually, I guess,
link |
adopted it as like Bitcoin as a legal tender.
link |
There was another country, Central African Republic,
link |
I think that is supposedly did that as well.
link |
But, you know, there's countries like China
link |
that are more autocratic that are saying,
link |
hey, this is a threat to our power
link |
and like, we're gonna try to really curtail it.
link |
So what kind of regulations are there that you feel the most
link |
that are limiting or that are empowering?
link |
Like, is there specific examples?
link |
So, I mean, basically I think the securities laws
link |
in the US need to be clarified about what,
link |
crypto is many different things.
link |
That's what people don't realize.
link |
So like some crypto, like Bitcoin, Ethereum
link |
and many others are probably more like commodities.
link |
They're not controlled by any one person, you know,
link |
like anyway, there's people who wanna raise money
link |
for a company that's sounds more like a security
link |
that should be regulated by the SEC.
link |
Commodities are regulated by the CFTC.
link |
Then there's some cryptocurrencies
link |
which are more like currencies,
link |
like stable coins and central bank digital currencies.
link |
And those are probably, you know,
link |
should be regulated by the treasury or someone like that.
link |
And then there's a whole another category
link |
of cryptocurrencies, which are none of those things.
link |
They're NFTs like artwork or they're metaverse items
link |
or decentralized identity and voting.
link |
And so I think that there's a very unhelpful point of view
link |
out there by some folks, which is,
link |
hey, this is all, most of this is like bad activity.
link |
We need to shut it down.
link |
So we're just gonna pursue enforcement actions
link |
or something like that.
link |
Most people in DC don't feel that way anymore.
link |
And I think the people of the US don't feel that way anymore
link |
because a lot of them are using this stuff.
link |
And their general view is,
link |
there's a lot of upside potential here.
link |
We can all agree, let's get rid of the fraud and the scams.
link |
We all wanna get rid of that.
link |
So let's create a relatively simple test, which says,
link |
if it's like nobody controls more than 20% of it
link |
or some threshold, it probably is more like a commodity.
link |
If someone's raising money for,
link |
they're selling this thing for a business,
link |
then it's probably a security.
link |
And then if it's more like a medium of exchange,
link |
And if it's none of those things,
link |
maybe it's artwork or whatever,
link |
a legal test like that would help clarify who,
link |
which regulator is regulating what.
link |
And then we also wanna have probably like a sandbox
link |
for innovation where if you're a startup
link |
and you're doing less than, I don't know, some number,
link |
less than some amount of payment volume
link |
or customer funds you're storing,
link |
it's like just let those things get off the ground
link |
without a soul crushing amount of legal bills
link |
So if the US can get there, that would be great.
link |
I think a bunch of other countries now are rushing
link |
around the world to sort of create that regulation
link |
that does attract innovation.
link |
And so in the international bodies like IMF and G20
link |
and stuff, they're starting to look at proposed regulation.
link |
I hope that Coinbase and a bunch of other crypto companies
link |
can help in that conversation too.
link |
We have a whole policy effort.
link |
I think actually crypto policy efforts
link |
are like probably one of the biggest things
link |
So it moves slow at the speed of government,
link |
but yeah, and in the meantime,
link |
we're just trying to help more and more people use crypto
link |
because ultimately that's what, in the democracies,
link |
that's what they care about.
link |
Like they'll do what the people of the country want.
link |
So you want governments to start understanding
link |
differences between, in the crypto space,
link |
commodities, securities, currencies, NFTs.
link |
I still don't understand.
link |
What are they supposed to make sense of NFTs?
link |
What is NFTs exactly from a perspective of a regulator?
link |
Is it the other categories?
link |
Yeah, most NFTs you could think of as like artwork,
link |
although it's, who knows where it's gonna go.
link |
You mentioned Metaverse, right?
link |
You mentioned some kind of unique identity of a thing.
link |
Yeah, like there's people selling virtual land in NFTs.
link |
I actually, I bought this NFT that's like,
link |
it's like citizenship in this like city, Dow in Wyoming.
link |
Like I've never been there,
link |
but it's almost like a badge or an attestation
link |
like to get access to this location.
link |
There's like people doing like tickets to events.
link |
Like, you know, they're called a POAPs.
link |
Like proof of attendance and things like that.
link |
So it'll be very interesting to see where NFTs go over time.
link |
It could get, and that's the danger.
link |
You don't wanna try to like define the regulation
link |
if you don't even know where this thing's gonna go, so.
link |
And so your efforts in the policy arm is education?
link |
Yeah, education, advocacy.
link |
We're just trying to be like a helpful educational resource
link |
essentially, and then if they give us feedback
link |
and they're like, hey, don't do this or don't, or do this,
link |
like we're more than happy to do anything that's requested.
link |
We generally go get licenses
link |
and we've just tried to do the right thing
link |
in the absence of clarity,
link |
because if it's not clear what the law says,
link |
then you should just basically do good things
link |
that you think may be required in the future
link |
to show good faith effort towards the right thing.
link |
And that's part of like innovating in a regulated field,
link |
which is, you know, a whole topic in itself.
link |
So if you are at the table,
link |
let me, this is less the case in the United States,
link |
but can government agencies seize a person's cryptocurrency
link |
by forcing Coinbase to hand it over?
link |
So when you're centralized,
link |
they have a phone number to call.
link |
Okay, so this is a complicated topic.
link |
Like if you really wanna be sure that,
link |
this is why people wanna store their own crypto, right?
link |
Like with self custodial wallets,
link |
like with Coinbase wallet embracing decentralization,
link |
they wanna avoid that.
link |
Now in the US, there is rule of law, right?
link |
So we have reasonable protections in place around
link |
like search and seizure and things like that.
link |
You know, Coinbase does,
link |
we publish transparency reports on this.
link |
We get subpoenas, court orders, things like that
link |
from various countries around the world.
link |
And there are situations where we have been ordered
link |
to freeze accounts, things like that.
link |
You know, we have to follow the law,
link |
is another way to put it.
link |
We're a regulated financial service business and so.
link |
If the money is used as part of breaking the law,
link |
that's what that, in a particular jurisdiction,
link |
Right, and then the other thing,
link |
sometimes we will actually get court orders
link |
or subpoenas that are overly broad.
link |
We've seen, so they need to follow due process, right?
link |
And so we've seen some in the past that were like,
link |
well, we need you to freeze this huge number of accounts.
link |
And it's like, well, we'll actually have gone to court
link |
and like pushed back on some of these and said like,
link |
what is your probable cause?
link |
And has the threshold been met?
link |
And like, we've won some of those cases
link |
on behalf of our customers.
link |
So yeah, it's actually really,
link |
it's kind of unfortunate and frustrating.
link |
As a large business, you spend a lot of resources
link |
basically interacting with inbound requests
link |
by all kinds of lawyers and people and requesting things.
link |
And some of them are silly and ridiculous
link |
and you have to push back and say no.
link |
And so it's kind of a tax on every company at a certain size
link |
which ultimately gets passed on to the customer
link |
So you have to employ armies of lawyers
link |
to deal with this stuff.
link |
Can you educate me on something?
link |
How much innovation is there in the legal space?
link |
So for lawyers working with Coinbase
link |
because it's such a new cutting edge thing.
link |
So you're, there's a lot of gray area
link |
you're supposed to be operating under.
link |
Like how hard is it being a lawyer at Coinbase?
link |
Like how much precedence is there?
link |
I guess is what I'm asking.
link |
I mean, just like you said, three years.
link |
It's kind of a new space.
link |
Yeah, well, it's probably very hard
link |
to be a lawyer at Coinbase and very fun
link |
because whenever you're in a new field that's growing fast,
link |
there isn't a lot of case law and just precedent set.
link |
So that's also an opportunity for you
link |
to go create that stuff.
link |
And that's what a lot of legal careers are made out of
link |
is like take a complex situation
link |
where you have to balance difficult things.
link |
Like how do we prevent bad activity
link |
but still enable an innovation?
link |
That's a hard question.
link |
And there's, you can go draft legislation
link |
and circulate it to policymakers
link |
or come up with these policies
link |
and how do you operate a business in an environment
link |
where the law is just unclear, right?
link |
It's like try to do the right thing,
link |
but like strike the right balance.
link |
So yeah, a lot of our lawyers have to come up with that.
link |
Very creative stuff.
link |
You mentioned one of the things you're focused on
link |
is expanding the number of people,
link |
maybe a billion people on Coinbase or using cryptocurrency.
link |
Where are we at now?
link |
How do we get to a billion?
link |
As of Q4 last year,
link |
we had 89 million verified accounts on Coinbase,
link |
but in any given quarter, only maybe like 10
link |
or a little more million of those are like really active.
link |
So, and then if you look at globally,
link |
I think some of the estimates I've seen
link |
is maybe there's like 200 million people
link |
or something like that who have ever used or tried crypto.
link |
So we're a long, you know, we're ways from a billion,
link |
but it's not like that far off.
link |
How do you get there?
link |
How do you get to a billion?
link |
One is the blockchains have got to become
link |
way more scalable.
link |
It's kind of like we're all running dial up modems
link |
and we need broadband.
link |
And so it's just like too expensive, too slow
link |
to do all these transactions.
link |
And I think if we just get L2s working and scalability,
link |
you know, we'll see another order of magnitude
link |
kind of come out just from that.
link |
I think the second one would be more clear regulation.
link |
That would help a lot.
link |
I do talk to, you know, pension funds
link |
and you know, various asset managers,
link |
sovereign wealth funds and stuff.
link |
And a lot of them tell me,
link |
we've got 1% of our portfolio in crypto today,
link |
but we really would rather have like 20% in there.
link |
But what we're waiting for is more clear regulation
link |
coming out and saying that clear test that I was saying,
link |
these assets are commodities regulated by SCPC,
link |
these are by SCC, these are by treasury, whatever.
link |
So that would be a big unlock.
link |
So one of the things that you mentioned, payments, sorry.
link |
Well, does that unlock a lot of users?
link |
I mean, remittance is like a huge thing.
link |
People sending money home to their families
link |
in other countries where the fees are super high.
link |
So yeah, if we get blockchains to be more scalable
link |
and there's more global adoption,
link |
like I think we'll see remittance quarters
link |
move over to crypto a lot.
link |
There's also just,
link |
the other thing that's driving a lot of crypto adoption
link |
is basically the creation of more and more third party apps.
link |
So, or dApps they're sometimes called decentralized dApps.
link |
So a lot of startups now, you know,
link |
how like you used to use in the early 2000s,
link |
they called them.com startups,
link |
but now you don't need to say.com
link |
cause everybody's using the internet.
link |
And so now there's like hundreds or thousands
link |
of these crypto startups,
link |
but I think in the future,
link |
you won't need to call them crypto startups
link |
cause they'll just be called startups
link |
cause everyone's using the internet and crypto and whatever.
link |
So anyway, the use cases,
link |
the utility of crypto is getting better and better
link |
with like all these third party apps
link |
getting funded and created.
link |
And do you think there's going to be a killer
link |
or a set of killer dApps,
link |
like a thing where nobody can live without?
link |
Are we still waiting for that?
link |
There's going to be a bunch of them.
link |
It's just like, it's like the internet,
link |
like what were the killer web companies, you know,
link |
like Uber and Wikipedia and Airbnb and Google.
link |
And like, so there's going to be some big winners,
link |
but there'll be thousands of,
link |
this is basically the new,
link |
it's like what happened with the.com startups
link |
in the early 2000s.
link |
It's like a lot of the best entrepreneurs
link |
are building crypto startups now.
link |
So tons of venture money flowing into the space.
link |
A lot of smart young people, so.
link |
Do you think Bitcoin or some other cryptocurrency
link |
will become the reserve currency of the world at some point?
link |
Cause this is kind of a controversial idea,
link |
but I actually think yes.
link |
I do think Bitcoin could end up becoming
link |
a reserve currency of the world.
link |
So I've been reading Ray Dalio recently
link |
with his new book, like The Changing World Order.
link |
And I thought it was a really well researched book.
link |
He talks in there, he looks back at history, right?
link |
He looks at like empires and going back
link |
to various Chinese empires, the Dutch and Ottomans
link |
and everybody, and how did they rise?
link |
And they were able to have the reserve currency
link |
as they rose and what produced that?
link |
Like it came from good education and innovation
link |
and better trade and anyway.
link |
So the US by some measures is kind of looks like it's,
link |
maybe it's had a really good run
link |
and it's coming down a little bit
link |
and China is kind of coming up.
link |
Who knows how that'll play out, by the way,
link |
like the world is very complicated.
link |
It could, that could switch.
link |
But I guess if the US dollar is gonna be seeing
link |
more inflation in the future,
link |
the Chinese Yuan is not like necessarily better, right?
link |
I mean, they have a ton of debt as well.
link |
And it's not like you could really,
link |
that the Yuan could be inflated as well, right?
link |
It probably will be.
link |
And so I do think that there's this group of people today
link |
which probably most traditional, I don't know,
link |
like the people who run big banks
link |
and like governments and stuff that they're not,
link |
this is not really on their radar today.
link |
But I think there's basically a group of younger people
link |
in that kind of 25, 35 year old range who are tech savvy.
link |
They're starting to think of crypto as like
link |
the primary thing in their financial life.
link |
It's like, I basically hold my wealth in crypto
link |
and I use dollars or euros or whatever.
link |
If I happen to need something,
link |
I convert it to that at the last minute.
link |
It's like, if I'm traveling,
link |
I might convert some local currency in the moment,
link |
but that's not where I hold most of my wealth.
link |
So this segment of the population is not like massive yet
link |
from a GDP point of view,
link |
but I think it's a leading indicator
link |
of where things could be going.
link |
And this is actually good for the world.
link |
It's kind of like, especially if China does continue
link |
to rise and it has a more authoritarian view,
link |
it'll be kind of this very centralized East
link |
versus a decentralized West where people are in the West,
link |
in the free world, really kind of embracing crypto
link |
and a more open, fair, free global financial system,
link |
which I think will be enormously beneficial for humanity.
link |
And I do think basically Bitcoin is the reserve currency,
link |
the gold standard of the crypto economy.
link |
So that's pretty crazy.
link |
Yeah, the gold standard.
link |
I mean, it's also like with Ray Dalio,
link |
I feel like China will drive a lot of this,
link |
either in response or directly.
link |
I mean, I think the ruble,
link |
I'm not paying as close attention to the financial systems,
link |
but I think they're trying to tie it to gold once again.
link |
So that's an interesting,
link |
maybe it'll be one of the more authoritarian regime
link |
that will switch to Bitcoin standard first.
link |
And then it's the West that will,
link |
out of that pressure will catch up
link |
versus the other way around.
link |
It's fascinating to think of what is the forcing function,
link |
what kind of perturbation is required to switch,
link |
to change anything, honestly, about the financial system.
link |
But it could be, as you're saying,
link |
just waiting for the people that are young now
link |
that are embracing crypto
link |
to enter the positions of power, essentially.
link |
But I hope that's not the case,
link |
because if for any innovation we have to wait,
link |
sorry to say, for the older folk to pass away,
link |
that's not an efficient way to make change.
link |
Yeah, that's a super interesting topic
link |
of how people's minds become less plastic as they age.
link |
I guess it's a feature.
link |
It's called wisdom,
link |
but then we also need the wild ones to explore,
link |
exploration versus exploitation.
link |
You wrote a blog post that's really interesting
link |
in September 2020 titled
link |
Coinbase is a Mission Focused Company,
link |
like what we're talking about.
link |
So one interesting thing you said in that blog post
link |
is that we're not going to be distracted
link |
by activism within the company
link |
that's not related to the mission of the company.
link |
Now, that's a rare thing for a company to state,
link |
for a company CEO to state, especially in this climate.
link |
Can you, first of all,
link |
describe in a little more detail what you meant?
link |
Did you receive blowback for this?
link |
I definitely received some blowback,
link |
but yeah, I'll describe what I meant.
link |
And if you want to talk about how it came to that too,
link |
we can talk about that.
link |
But what I meant is that there's a lot of companies right now,
link |
including tech companies, but not exclusively,
link |
where I think like great companies,
link |
they have an important mission.
link |
They're trying to do something really good for the world.
link |
And unfortunately, they're getting a little distracted
link |
from that at times because of employee activism
link |
that is causing the company to basically jump
link |
into whatever the current thing is
link |
and try to help is like the positive interpretation.
link |
The negative interpretation would be to virtue signal.
link |
And my view is that this is actually kind of destructive to,
link |
this is largely an American company phenomenon, by the way.
link |
I do worry that this is making America less competitive,
link |
even though I think of myself
link |
as kind of internationally minded,
link |
but I am a US citizen, had my whole life here.
link |
So when we put out this statement,
link |
we had employees that were not in the US
link |
who were confused by it.
link |
They were like, why did Brian need to say that?
link |
It was just saying you're going to focus on work at work.
link |
That's what we were doing already.
link |
And there was certain pockets of the US, certain cities,
link |
in particular where we had employees
link |
that a very peculiar cultural phenomenon had evolved
link |
where I think people really wanted the company
link |
they worked at to be almost acting
link |
like the government or something
link |
and like trying to solve the hardest societal issues
link |
and at least have an opinion on it,
link |
if not contribute to the solution
link |
on almost everything.
link |
And for me, it was a very uncomfortable situation
link |
I'd never quite been in this situation
link |
where most of the time when employees in the past
link |
were kind of asking me questions,
link |
they would be asking about like,
link |
how do we make this product better?
link |
Like, what do we do with this competitor?
link |
What about this regulator?
link |
And it got to a place around that time
link |
where most of the questions we were receiving
link |
were I think even about things not related to the company
link |
they were about broader societal issues.
link |
Like Brian, what's your stance on XYZ controversial thing?
link |
And it was, I often like didn't have an opinion
link |
on these really hard questions, right?
link |
And I didn't really,
link |
I felt like it was distracting the company.
link |
People internally were getting into fights a lot too,
link |
like disagreeing with each other.
link |
There was a thing where like the social slack internally
link |
was turning into a social media almost
link |
with people putting in flame wars.
link |
So, and this culminated by the way
link |
with a walkout that happened in the company.
link |
We had received like some demands from employee groups
link |
about various things.
link |
And there was like basically an antagonistic thing
link |
with management and employee.
link |
And I was like, we're all on the same team here.
link |
If you wanna be antagonistic,
link |
let's do it with somebody else outside the company,
link |
that we're trying to improve the world in that dimension.
link |
So yeah, eventually I was like, okay,
link |
the company is not aligned on this.
link |
I just don't feel, I don't like the job as CEO, frankly.
link |
Like if the job is to come in here every day
link |
and like have to squirm in front of like the most difficult
link |
societal questions, I don't think I wanna do that job.
link |
So like either they're gonna have to go
link |
or I'm gonna have to go.
link |
And I founded this company
link |
and I really believe in the mission.
link |
So they're gonna have to go.
link |
And what I realized was that,
link |
so I basically, I made an exit package available
link |
to anybody who wasn't on board with this direction.
link |
5% of employees took it.
link |
I got the company realigned towards this mission.
link |
We're all here to do work.
link |
By the way, people can, they can go do anything
link |
like political or social activism outside of work.
link |
It's totally fine.
link |
Like we all, everybody has stuff like that
link |
in their personal life.
link |
But while at work, we can also disagree at work,
link |
by the way, on the work.
link |
You know, this is not like a no disagreement culture.
link |
Like we should, let's try to get the truth.
link |
But don't bring stuff into work
link |
that's just gonna create division.
link |
Make the workplace a refuge from division
link |
about all these crazy things.
link |
And like, we're all aligned here to work on the mission.
link |
Yeah, that was really, really, really refreshing to hear.
link |
So this is me speaking, but there's a sense
link |
when companies take on these issues publicly
link |
from a CEO position or anywhere else,
link |
that it does seem to optimize for virtue signaling
link |
versus solving a particular problem.
link |
Because to solve a particular problem,
link |
you really have to really put in a huge,
link |
you have to hire a huge number of,
link |
you basically have to create a company with a company
link |
to take on a particular thing.
link |
But if you allow yourself to internally care
link |
about a particular issue,
link |
you're basically pacifying some number of employee,
link |
like making sure Slack doesn't get out of hand.
link |
And then you're doing this kind of, from my perspective,
link |
especially on issues that care about fake virtue signaling,
link |
basically trying to understand
link |
what will make me look the best,
link |
what would make the company look the best
link |
in this particular aspect.
link |
And it just seems very shallow.
link |
And it's optimizing for the wrong thing,
link |
not for the solving of the problems,
link |
but for the making yourself look like the good guy
link |
and trying to then leverage that to say,
link |
I'm the good guy in all situations.
link |
And it just, it's the wrong thing.
link |
And perhaps from your perspective as a CEO, as a leader,
link |
it's also creating division,
link |
unnecessary division within people.
link |
Like they get, yeah, there's something about us
link |
who gets extremely argumentative about certain topics.
link |
They really bring out the emotion.
link |
And I think that probably, as you were saying,
link |
that emotion is even probably okay,
link |
maybe productive when that emotion has to do
link |
with the mission of the company.
link |
Like you really care about those disagreements
link |
versus like something that has nothing to do
link |
with increasing economic freedom using crypto.
link |
Yeah, it's fascinating.
link |
But it was so refreshing because it's rare.
link |
Why do you think that's a rare?
link |
So the city you're mentioning,
link |
I mean, there's a bunch of cities,
link |
but San Francisco is one such city when that culture.
link |
And it's sad because San Francisco is also,
link |
the Bay Area is also the hub historically
link |
of some of the greatest innovation in human history.
link |
So there's that tension.
link |
How did that culture emerge there?
link |
Where like the innovation was done by people
link |
that are very mission driven.
link |
You get a bunch of smart people together
link |
to solve a difficult problem.
link |
They get maybe sometimes too much blinders on,
link |
but they try to balance that.
link |
Because it requires that focus to solve an actual problem.
link |
And yet that's also the place where this culture emerged.
link |
It's a fascinating human dynamic.
link |
Somebody will one day tell the history of Silicon Valley,
link |
not just the innovation,
link |
but the social dynamics that occurred there.
link |
Anyway, why do you think that's so rare?
link |
Well, because people don't wanna get attacked.
link |
It's like super, you don't wanna get canceled, right?
link |
It's super uncomfortable.
link |
Nobody wants to be called a racist
link |
or whatever people wanna say on Twitter.
link |
Did you get attacked?
link |
Yeah, yeah, I definitely got attacked.
link |
I mean, and I knew it would be controversial.
link |
The only reason I did it, frankly,
link |
was that I was kind of at my wit's end.
link |
I was like, well, like I said earlier,
link |
like the job, the CEO job sucks.
link |
Like either I don't wanna do it or they have to go
link |
and I'm gonna make the company into something that I want.
link |
And I'd spent eight or 90 years of my life at that point
link |
kind of building this thing.
link |
I was like, well, I could go start another company,
link |
but it takes a long time to get momentum with these things.
link |
And Coinbase is a very rare thing that happened in the world.
link |
I feel very passionate about it.
link |
So yeah, I'm not gonna go.
link |
Like I need to make this the company that I wanna work at.
link |
And what was really interesting was that
link |
there was such a huge outpouring of support.
link |
So I knew that it would be controversial
link |
and I would get attacked.
link |
And predictably, there was some journalists
link |
and New York Times and all these people
link |
who kind of like went and started writing hit pieces
link |
on the company shortly thereafter.
link |
And they basically just call people who've left the company
link |
and can get quotes on whatever they want
link |
and then they'll write a story.
link |
So mainstream media, I lost a lot of trust
link |
in mainstream media, frankly, after that.
link |
And of course, it's kind of become obvious since then
link |
that most mainstream media is like hyper politicized
link |
It's basically either super left or super right.
link |
And it's not really that focused on truth.
link |
So that's kind of unfortunate
link |
because I think journalism is actually like really important
link |
So that whole thing got eroded in the US.
link |
Luckily, there's sort of new media, people like you
link |
and a whole bunch of people.
link |
Did that blog post help that statement,
link |
the 95 people that remained,
link |
is this still something you struggle with?
link |
Because it's also a culture of the broader tech space.
link |
Okay, so that was an interesting thing, which was that,
link |
so the 95% of people stayed.
link |
I got a huge outpouring of support from people who said,
link |
thank God you finally spoke up and said something
link |
because frankly, it was making it not a very fun place
link |
And I realized that there is, I think there was,
link |
I think Nassim Taleb has this blog post
link |
about the tyranny of the 1% or something like that.
link |
But there's basically a relatively small group,
link |
one in 5% or something like that,
link |
that is really upset about something.
link |
It's not the majority of the company, it's like 5%.
link |
There's another 15% or something that are sympathetic
link |
They're actually somewhat suggestible.
link |
They will go along with whatever,
link |
because it sounds reasonable.
link |
These are like real issues they're talking about.
link |
It's not to say that it's not real.
link |
And they'll kind of get swept up in it.
link |
But there's an 80% of the company that basically
link |
doesn't agree or just wants to get their work done
link |
without all this drama or distraction.
link |
And they're afraid to speak up because if they speak up,
link |
they're afraid of being, again, called a racist,
link |
like fired, ostracized amongst their peers.
link |
And so it did require it to get to a bad enough place
link |
for me to finally say, you know what?
link |
I just, I feel like I have to do this.
link |
Live through the short term attacks of the press,
link |
which ultimately was very freeing for me
link |
because now I don't really care.
link |
And now I can actually just build the company
link |
that I want to build without caring about that.
link |
And then what was cool was a lot of really great people
link |
reached out to the Coinbase too after that.
link |
And were like, I'm an early engineer at Google or wherever.
link |
And this culture has gotten kind of messed up
link |
and I want to work at a company
link |
that's willing to stand for that.
link |
And so we've gotten a lot of good people come over.
link |
Basically what I realized, and by the way,
link |
our diversity numbers and all that stuff,
link |
people told me when I was drafting this poster,
link |
don't post this, people, underrepresented groups
link |
will never want to work at this company again.
link |
And I was like, I don't think that's true.
link |
I talked to our ERG groups and they're not telling me
link |
they care about this stuff that much.
link |
They're telling me they just want to be respected at work
link |
and do good work and contribute.
link |
So my gut was telling me that that advice was wrong.
link |
And I can tell you a year after doing it,
link |
our diversity numbers are basically either the same
link |
or better in every category.
link |
So that turned out to be false.
link |
Look, I hate to be polarizing on either dimension here.
link |
I just want to get good work done
link |
and build good stuff with technology.
link |
So I think companies should just have reasonable policies.
link |
You want to get rid of bias in hiring.
link |
You want to attract great people from all
link |
different backgrounds.
link |
We have pledge 1%.
link |
We put 1% of the company equity into a foundation.
link |
I hope we're able to do good stuff with that.
link |
Let's give back in some way.
link |
But the main message I guess for me is the core mission,
link |
the core work that we're doing on economic freedom
link |
and just all of our products,
link |
that is the main value that we're contributing in the world.
link |
Let's just do that more.
link |
And hopefully we can get from 89 million verified users
link |
to a billion or whatever.
link |
And then I just think that's how we'll have
link |
the biggest impact.
link |
It's tempting though.
link |
It's so interesting how companies get tempted to help.
link |
And you step in and it's almost like a drug
link |
and then you can't, you forget.
link |
I mean, like all of us in life just have to be companies.
link |
You get distracted and maintaining focus.
link |
You're absolutely right.
link |
The way for Coinbase to add value to the world
link |
is to maximize the mission that it's on,
link |
And when you get wealthier and more successful,
link |
it becomes more and more tempting
link |
to just help out in some other shallow ways.
link |
And you just kind of brought that to light.
link |
So it was very refreshing.
link |
And it shouldn't be controversial
link |
to sort of focus on just getting stuff done.
link |
Well, let me ask you,
link |
I mean, do you think that this,
link |
it's all these things tie together.
link |
There's like a general trend of like more censorship.
link |
There's like more cancel culture.
link |
There's some of these like freedom values
link |
are kind of, even like freezing people's accounts,
link |
like the trucker thing that happened.
link |
And this seems like there's a general trend
link |
of more authoritarian policies there.
link |
But do you feel like the tide is turning on that?
link |
Like there's counter examples to it we've seen recently.
link |
I think it's the last gasp of old way of doing things.
link |
And so there's desperation and so on.
link |
Because to be fair, it's kind of the internet,
link |
which is where's the source of a lot of this,
link |
where people have a voice,
link |
is making the power centers of the world really nervous.
link |
And so that's where that's coming from, I think.
link |
And the internet is tricky.
link |
It's full of bots.
link |
It's full of like misinformation of all kinds,
link |
full of large groups with conspiracy theories and so on.
link |
And I mean misinformation broadly.
link |
People are misusing the word misinformation.
link |
They're just, governments are just labeling
link |
random things with misinformation just to censor them.
link |
But I just think it's just like a new world
link |
where the internet is really finally taking hold,
link |
where there's billions of devices
link |
and everybody has a voice.
link |
It's almost, basically governments and powerful people
link |
are slightly losing hold of power.
link |
And they're starting to freak out a little bit.
link |
And once you have young people that are coming up now,
link |
gain power, I think we'll rebalance everything.
link |
And then there's, like you said,
link |
promising signs that it's obvious
link |
that the majority of people want freedom.
link |
And that means a lot of things.
link |
That means economic freedom.
link |
That means freedom to have a voice,
link |
freedom to move around,
link |
freedom to act in the way they,
link |
without reasonable sort of limitations
link |
by people that don't have their best interests.
link |
And I gain more hope from just regular people
link |
that are fighting and like demanding
link |
being able to have freedom of speech,
link |
or more specifically sort of resisting
link |
crude overreach of government in the acts of censorship,
link |
at least in the United States.
link |
And hopefully that percolates out to the rest of the world
link |
that's struggling on a much more basic level
link |
where people are being put in prison for the words they say,
link |
not just banned from Twitter.
link |
Right, it could be worse.
link |
What are some lessons from your failures and your successes
link |
about what it takes to run a company?
link |
I think one of the things that I learned about leadership
link |
is that I never really thought of myself
link |
as a very natural leader, to be honest.
link |
I don't think I was a natural leader.
link |
But so I always envisioned good leaders
link |
as like these military generals,
link |
like they seem so confident and they're just like bark orders,
link |
charge that hill and do this.
link |
And I was actually like more introverted
link |
and kind of, I wasn't really confident
link |
in the way I communicated.
link |
And so what I realized is that
link |
there's lots of different kinds of leaders.
link |
You can be any kind of CEO you want, right?
link |
I was kind of more of like a product, technical focus CEO.
link |
And I preferred to sort of hear everyone's opinion.
link |
And it wasn't just gonna like render a decision in the room
link |
in some like kind of heated moment
link |
and like piss off half the people.
link |
I would do like, all right, I'm gonna go think about it
link |
and I'll send you my decision later today
link |
or tomorrow or whatever.
link |
And so I found ways to kind of make it work for me
link |
where I could basically, I always tried to avoid like,
link |
when people getting like super emotional about something
link |
and like, I think they're thinking,
link |
their judgment goes down, right?
link |
And just like never make a decision when you're angry, right?
link |
And so I would always sort of try to get a sense of,
link |
are these people like trying to be right
link |
or are they trying to seek the truth?
link |
And you can do these little tricks like,
link |
okay, you argue that person's position
link |
and you argue the other one
link |
and like see if you can genuinely represent it.
link |
Now I know you're listening and these kinds of things.
link |
But I guess, sorry,
link |
getting back to your question about leadership,
link |
I think I basically just kept doing things
link |
that were a little outside my comfort zone.
link |
And then my comfort zone kept getting bigger and bigger.
link |
And so I think that's how you build confidence
link |
is you do the thing that's scary
link |
and it's like a little outside.
link |
And like when I first started Coinbase,
link |
I had never managed anybody.
link |
I would have been scared to death
link |
to have put out like a very controversial opinion like that
link |
and sort of, all right, 5% of people will go,
link |
we didn't know what percent it was gonna be by the way.
link |
It could have been 1%, it could have been 50%.
link |
Like, but we went into it scary
link |
because it was a scary thing.
link |
I was like, I don't know, I think this is right.
link |
I'm just gonna do it.
link |
So if you do enough scary things,
link |
like you'll build the confidence.
link |
And I feel like I'm still on that journey.
link |
Every year or two at Coinbase,
link |
there's some big thing that comes out as like,
link |
oh my God, like I didn't sleep well for a week
link |
and like, this is the next level, right?
link |
But that's how you learn and grow.
link |
So you're still going up that mountain
link |
through the fog one step at a time.
link |
Can I just quickly ask you about a couple of other efforts
link |
that are super interesting that you're involved with?
link |
So first of all, a little bit more old school,
link |
fascinating effort of research hub.
link |
So what's that about the GitHub for open science?
link |
Yeah, okay, so basically I've had a chance
link |
to try to help a couple other companies
link |
get off the ground too,
link |
cause I wanna see various efforts out there succeed.
link |
And one of them I've always thought about
link |
like why is scientific research
link |
not more like open source software
link |
or why couldn't it be much faster, right?
link |
And there's, you've probably have seen this
link |
like in an academic setting, right?
link |
But there's all kinds of things that feel very antiquated
link |
to me about scientific research,
link |
everything from the funding process and grants
link |
to how peer review works, to how you submit to journals,
link |
all the costs associated with journals,
link |
you know, that the people,
link |
you'd think like you'd get paid for this or something
link |
and it would then be available to all the taxpayers for free
link |
but no, they're like, they're all pay walled
link |
and there's like these big companies
link |
that have sort of, in my view,
link |
kind of held back innovation here.
link |
So, and the preprint servers like bioarchive