The following is a conversation with Brian Armstrong, cofounder and CEO of Coinbase,

the largest cryptocurrency exchange platform with 98 million users in 100 countries, listing

Bitcoin, Ethereum, Cardano, and over 100 popular cryptocurrencies.

I recorded this conversation with Brian before this week's SEC probe into whether some of

the crypto listings are securities and thus need to be regulated as such.

As always, with conversations that involve cryptocurrency, I try to make it timeless

so that the price soaring high or crashing down low doesn't distract from the fundamental,

technological, economic, social, and philosophical ideas underlying this new form of money, energy,

and information.

Our world runs on money, the exchange and store of value, and cryptocurrency seeks

to build the next chapter of how money works and what it can do.

Coinbase and Brian are trying to do this by working together with regulators and governments,

which is a long and difficult road.

Bureaucracies resist change, for better and for worse.

The latest SEC probe is a good representation of this.

It is a serious attempt to limit fraud, but one that also runs the risk of limiting innovation

and limiting financial freedom of individuals.

This is a complicated mess, and I applaud everyone involved for trying to work through

it.

I hope in the end, the interest of the individual wins.

Decentralization, after all, is a hedge against the corrupting nature of centralized power.

This is the Lux Freedom and Podcast.

To support it, please check out our sponsors in the description.

And now, dear friends, here's Brian Armstrong.

Let's start with the fact that you're a programmer.

What was the first program you've ever written, or the first one you did that you remember?

The first memory I have of programming was probably in middle school.

And I remember it was recess, and they had this time period where you could read books,

and the other kids were reading comic books and stuff.

For some reason, I had gotten into this idea that I wanted to get into computers, and I

was playing with computers at home.

And so I got this book, I think, from the library, and it was called How to Learn Java

in 30 Days.

So I was reading this book at the recess, and I didn't understand anything.

And I remember I went home, and I tried to get this thing working.

And if you've ever written a Java program, the first lines are like, public static, void

main string args, or whatever.

And it's so foreign, and it's so difficult to get started.

And so I was kind of frustrated.

I was like, I don't understand anything that's happening in this book.

So the first thing I wrote was probably just like a Hello World app in Java.

But it was so, I felt like I was so confused about what was actually happening that I later

learned a bit of PHP, and PHP was like more fun for me because it was like, oh, just print

out what you want.

You know?

It didn't have all this complexity around it.

So then I got more into PHP, started building like some simple websites, I think, learned

some HTML.

So I think that was my introduction to programming, at least the very beginning part.

Yeah.

You know, Java has a lot of, out of all the Hello Worlds, it can possibly be right.

Java is the one where I think it's the longest, which is quite interesting because Java is

often, at least for a long time, was used as the primary programming language to teach

people how to program, or at least about objectoring and programming.

I think most universities have now switched, and high school switched to Python.

I'm not sure if that's the case.

Probably better.

It's easier to learn.

It makes it less scary.

It's like less of a hurdle.

And certainly none of them use PHP.

I love PHP, and I feel like it's a dirty secret.

I have to keep private to myself, like it's somebody I'm seeing on the side or something

like that, because it's just not a respected programming language, because I think there's

so many ways you can write poor code with PHP, which is why it's not respected.

Yeah.

It's a scripting language more so, although, of course, Facebook built like a huge stack

on top of it and valuable company, but I still love Ruby to this day.

Ruby is probably my favorite language.

Python's great too, but I just love the idea behind Ruby that it's like, let's make it

easier for the human, harder for the computer, and make it a joy to be expressive and all

these things.

So, I was never the best computer scientist, but I was a good hacker.

I could rapidly prototype products and using languages like Ruby.

Do a lot of computer science programs still use like Lisp and Scheme and things like that?

No.

No.

They do.

That's like, that's if you're hardcore.

If you're legit, you're going to do some of the functional languages.

I think there's a few others that popped up, but Lisp is a distant memory for a lot of

people.

That's like somebody is like, you go to library, you dust off the book, but Scheme a little

bit.

I think if you're starting, I mean, there's courses about languages themselves, like programming

languages.

Yeah.

Lisp might be one of those.

You know how there's languages that nobody uses anymore?

Like ancient languages?

Yeah.

You might have to go to school in that same way for programming languages.

Back in the day, we used to use parentheses.

I, of course, still use Emacs as the editor for most things that I do, and Emacs is a

lot of the customization you could do is in Lisp.

Yeah.

And that's the language probably when I first really fell in love with programming as Lisp.

Because for a long time throughout the earlier history of artificial intelligence, Lisp was

the primary language, but it still had a life in the nineties in the aughts where some people

would use it.

Yeah.

It's such a beautiful functional language, but it just somehow didn't pick up.

That said, I should say, sort of push back PHP.

I feel like it's still true that most of the web runs on PHP.

It's still PHP, so if you look at, you know, it's like the stuff that people don't talk

about is like what runs most systems in the world, what runs most back end, what runs

most front end?

Yeah.

JavaScript.

You know, HTML.

JavaScript, I think, the Stack Exchange surveys show JavaScript is the most popular language

in the world, I think, right?

Oh, yeah.

In terms of programmers and numbers, I wonder.

I surveyed a number of programmers on Stack, Stack Overflow.

Yeah, but that's also the cutting edge, right?

Those are the people that are just like excitedly writing codes.

That's true.

I wonder if there's people that are just like maintaining gigantic code bases.

Yeah.

I feel like the amount of Java out there just running industrial systems has got to be enormous.

And then of course, in the banking industry, finance, it's like even older stuff, cobalt

and whatnot.

I've been actually looking for somebody to interview who represents cobalt and fortune.

Like who's the figure still there that holds the flag?

I did, you know, Java founder of Java, creator of Java, creator of Python, creator of C++,

but nobody wants to hold the flag for cobalt and fortune.

Even though some of the most important systems in the world still run on those, like power

systems and infrastructure systems, which is fascinating, which in ATMs and stuff like

that, like a lot of stuff that we rely on that just works and the reason we don't change

it because it works well is written in, which is that people don't use anymore.

Yeah.

That'd be a cool series of interviews.

Get the stuff that's like tech that was invented 40, 50 years ago, but still is being used

widely.

I mean, Emacs is an example of that.

Let me ask the big question of what are cryptocurrency exchanges and what's Coinbase?

How does it work?

Before, I'll ask even bigger questions, but it's just a nice kind of palette cleansing

question of what is Coinbase?

Coinbase is a cryptocurrency exchange, brokerage, custodian, basically, we're the primary financial

account for people in the crypto economy, how they buy crypto, how they store it, how

they use it increasingly in different ways, we can talk about that.

We want to be the way that a billion people hopefully access the open financial system

globally.

How does it work?

What's cryptocurrency?

There's Bitcoin, there's Ethereum.

What does it mean to be an exchange?

What does it mean to store?

What does it mean to transact?

What does Coinbase actually do?

Basically, in any given market, there's some people who want to buy, some people who want

to sell, and you keep an order book of all those prices, and then if someone's willing

to buy for the lowest price someone is willing to sell, then you get a trade to execute.

That's kind of how an exchange works underneath.

A brokerage is kind of simpler than that even.

You don't have to look at the whole order book and everything, but you just go in there

and you say, I want to buy $100 of Bitcoin or whatever cryptocurrency, you get a quote

and if you like it, you can hit accept.

The core things that we do to make all that kind of just work, make it seamless, it sounds

simple on the surface, is we have to do payment integrations in a variety of places around

the world to make it easy for people to get fiat currency into this ecosystem.

We have to work on cybersecurity a lot, there's lots of hackers out there trying to break

into our systems and steal crypto or to put stolen credit cards and bank accounts and

things like that into these systems.

We have to integrate with the blockchains themselves, which are periodically getting

updated and having various airdrops and all kinds of things, so we're integrated with

lots of different blockchains.

Then we have to store the crypto that people buy securely as well.

Crypto is kind of like storing, you store the private keys essentially, and we've invented

a lot of cool technology about how to do that securely that helps me sleep at night as one

of the largest crypto custodians out there.

Those are some of the pieces that had to come together to get that early simple buy sell

experience to work.

I mean Coinbase actually has a lot of different products now.

We have an institutional product.

We have Coinbase Commerce, which is like merchant payments, like Stripe for crypto.

We've got a self custodial wallet, which we can talk about.

There's all kinds of cool applications people are building with Web 3, and they can access

it through that.

We just launched an NFT product, I've gone down the list.

We're sort of like a portfolio of crypto products now.

We're big enough where we can do multiple things, but yeah, the core thing we got started

with and still the majority of our revenue today is people just want to come in and buy

and sell some crypto, and we help them do that and make it simple and easy to use.

I'll ask you about wallet and NFTs.

What is it called?

The Stripe type?

Yeah, Coinbase Commerce.

Coinbase Commerce.

Yeah.

I'll ask you about all that, but order books in exchange.

What's the difference between that and stocks, for example, which there's also order books.

Yeah.

I mean, stocks trade through order books too, sort of commodities.

There's all similar type of situations.

When I want to buy one Bitcoin, and I see Coinbase say the price of that Bitcoin is

say $40,000, and I press buy, what happens?

Yeah.

Okay.

So you've gotten a lot, when you press the button on your keyboard, like an electrical

signal goes up the wire on your keyboard, now we won't cut down the level.

That's also important, the timing, right, because isn't that price fixed?

Yeah.

Yeah, that's true.

It's giving you a quote.

There's a whole concept of slippage, and by the time the quote is executed, if the price

has moved too much, we may reject it, and there's various things like that.

But what's the simple version I can give you?

So we'll basically check the order book, give you a quote.

It's good for some period of time, or for some amount of slippage, and then what's happening

is we're initiating a debit to your payment method, whether that's a credit card or a

bank count, or you're storing dollars, euros, or something on our platform, there's various

payment methods, so we're basically debiting that, and then we're crediting you the crypto,

and we're taking a fee for it, too.

So that's fundamentally what's happening underneath.

And then there's some interesting slippage, how do you calculate how much slippage is

allowed?

How do you know these things, because order books are fascinating, the dynamics of that

is pretty interesting from the little I know about it.

So there's a lot of people, like traders, who get super into this, and high frequency

traders, and arbitrage, and all kinds of interesting topics.

Flash Boys was an interesting book on this whole thing.

You want accessed information to the fastest, sometimes even putting your thing in the data

center right next to the thing.

But we don't allow that colo stuff, because we want it to be more democratized.

But basically, let's say we wanted to just keep it math simple.

We want to charge a 1% fee.

So if you're buying $100 of Bitcoin, and we'll charge you $101, we've presented you the amount

of Bitcoin you're going to get for the $100.

Now let's say 10 seconds later, you hit accept, we go to fill the order.

So it's going to be some error bound around that 1% fee, right?

And if we think we're actually losing money on the trade, I think we'll often reject it.

So some part of the fee, the slippage is incorporated into that, averaged over a large number of

people.

It's fascinating, because even just that little detail probably requires a lot of experimentation.

Yeah.

And it's kind of like a giant bug bounty out there, because if you get it wrong, there's

people who are going to arbitrage that.

And we've had people sort of pen test our systems in really creative ways where they'll

just fire, programmatically with APIs, they'll fire off a million different quotes and look

for one of them that's out of bounds and then actually take that money right there.

We get people doing all kinds of crazy stuff.

So how do you protect against that?

How do you protect?

So we'll talk about cybersecurity in interesting ways, but there's a lot of clever people trying

to do clever things to earn, not even just to break into the system, but to earn an edge

of some kind in the system.

How do you stay one step ahead?

There's no silver bullet.

It's a bunch of lead bullets.

So it's like, one thing we do is we just have good test suites.

So you're testing every piece of code that goes out.

That's just common good best practice, but it's particularly important in financial services.

Another thing we do is we hire third party firms to try to audit this stuff and break

in.

Another one we do is we have a bug bounty program.

So we basically pay white hat hackers to find this stuff before the black hats do and we've

paid out lots of good bug bounties.

So try all the above and occasionally you don't get it right and you lose some money

and then you fix it and you keep going.

So yeah.

Let's talk about cybersecurity a little bit more.

You mentioned using stolen banking accounts.

So that's another one.

That's another interesting one.

How do you protect against that?

Okay.

So fraud prevention is a big topic.

So there's a lot of things people do, but one of the things they do is that use machine

learning.

So you look at...

Protect or to attack.

To protect against it.

So what you want to do is kind of build up a labeled data set of all the different people

who have turned out to be fraudulent and good actors and hopefully collect as much data

as you can.

So you might feed hundreds or thousands of these factors into your machine learning model

and it'll come back with a risk score.

So an example of the kinds of factors people create or put in there, obviously, I don't

want to disclose too many of them because it's a cat and mouse game, but just kind of, I

don't know, relatively well known stuff might be...

You have device fingerprints.

So what kind of device are you on and what fonts do you have installed?

A lot of people who are farming lots of these accounts, they're using emulators and virtual

machines and stuff.

They're not an average person on that device.

And then you'll see sometimes...

One of my favorite metrics we tracked for this was called improbable travel velocity.

So we were tracking people's IPs and you might see someone who was one day in Austin, Texas

and then an hour later, they were in London or something, and it's like, well, that's

very improbable.

I mean, sometimes people are using VPNs, so you got to be careful with that because

there's legitimate people who use VPNs too, but if it's not possible for them, we've gotten

on a plane and gotten there that quickly, then that's usually they're spoofing a device

or IP.

Sometimes those are interesting factors, but yeah, if you feed enough of these in, another

fun one is real users will type their credit card one number at a time.

Scammers have a list of them and they'll just paste in a whole number.

So you can look at the number of milliseconds between keystrokes, there's all kinds of stuff

people have come up with.

Even for travel velocity, you could probably incorporate VPNs too because there's probably

a travel velocity for VPN switching too that's human like.

If you're using legitimately VPN for something else, that might be, there's like legitimate

uses too.

Actually, I feel embarrassed that I don't know this, probably should, but I'm not a

robot.

Capture thing.

Capture thing.

Yeah.

So that probably works in the same way.

How do you move your mouse maybe or how the dynamics of the clicking?

Totally.

Well, how does that even work that well then and why can't it be fake?

I need to look into this because it's such a trivial capture.

It feels like it should be very crackable and yet a lot of high security places use

that.

Yeah.

It's really interesting.

Yeah, but it's using a lot of similar signals like mouse movements, keystrokes, and then

obviously all the stuff that comes over the wire with your browser.

So like what operating system, what fonts, what headers are being sent over and there's

an old website.

I can't remember what it's called.

It was kind of like Panoptic Click or Panopticon or something, but it basically was like a

proof of concept site that they would just show you all the data that was kind of getting

sent over with your request and say that there's only one person in the world who has this

exact set of data.

It's you.

And so it's almost like a clever work around to track somebody, identify a unique person

even if there wasn't a cookie involved or something.

Yeah, this is a fascinating world where you can't see anybody.

You're in the dark and yet you have a lot of signal and you have to figure out who's

a real person, who's not, who's a robot, who's not.

Let me step back.

I'll go around all over the place and step back.

That's why I like your interviews.

You get into like technical topics.

So just let's use Bitcoin as a measure of time.

You started Coinbase when Bitcoin was $10.

And you just mentioned an incredible system with security, with transactions, everything

is thought through.

There's a lot going on, but what was version one back in those early days, the first prototype

of Coinbase?

What did that look like?

Yeah.

What did it take to write it, to think through it and make it work enough to at least make

you believe that it's going to work?

Well, I definitely didn't know if it was going to work.

I mean, it was kind of, I felt like I was just following my gut.

So, I mean, I was working at Airbnb.

I was a software engineer there, project manager.

I was working on some fraud prevention stuff, for instance.

And I read the Bitcoin White Paper in kind of December of 2010.

I started going to some Bitcoin meetups in the Bay Area, met lots of interesting people

there, like crazy people, anarchists, like really brilliant people, all the above.

And so I started nights and weekends trying to put together a prototype.

And my initial thought was, well, SMTP is a protocol that runs email.

And Git is a protocol for version control that people made like Gmail and GitHub.

Most people don't want to run their own email server or even their own Git server.

They just want to use a hosted thing that will do all the security and backups for them.

So the thought in my head at that time was, Bitcoin is this new protocol.

There's probably going to be somebody who makes a hosted service that does all the security

and backups for you, makes Bitcoin as a protocol easy to use.

So maybe I should make like a hosted Bitcoin wallet or something.

That was my, it was going to make Gmail for Bitcoin or something.

And a bunch of people told me that was a bad idea.

Most of my smart friends who I told about it, they were like, well, first of all, I don't

really get what you're doing at all.

Like Bitcoin sounds like a scam or something you've got, you've gotten involved in.

But then other people who understood what Bitcoin was told me they thought it was a

dumb idea because they're like, dude, if you store all this Bitcoin, you're just going

to get hacked.

Like nobody, you know, why would you, why would you do that?

And so I kind of had this thought like, you know what, I'm not going to go all in and

like make a store everyone's Bitcoin.

That would be too much right now.

I have a job.

I have a day job, you know, but let me just make a prototype and I'll tell people this

is like a beta thing.

Like don't put any real money in it and just see if there's interest.

And if I feel like I'm onto something, maybe I'll go do this as a company because I did,

I really wanted to be an entrepreneur at that time.

I was like, I was 29, I was almost turning 30 and I was, I always wanted to like start

a company, but I was, I was, you know, I wasn't yet.

I was an employee at a company that was great, but so anyway, I had this prototype.

I was hacking together nice and weekends.

I actually wrote a whole Bitcoin node in Ruby, which turned out to be a, maybe a weird decision

in hindsight because Ruby wasn't the most performant language.

We've subsequently had to rebuild that many times, but yeah, I had this hosted Bitcoin

wallet and the thing that I didn't have any users for it, by the way, I applied to Y Combinator

because I was like, maybe if somebody there writes me a check, this will like make it

feel like a real company.

And I was trying to find it.

I was trying to find a co founder at that time unsuccessfully.

So I was basically just wandering in the desert.

I had a lot of self doubt about this cause I, I was like, I don't know, all my friends

don't think this is kind of dumb and maybe Bitcoin is just going to get shut down and

like, this will all be some stupid thing.

So there was definitely a feeling of just wandering lost in the desert, lots of self

doubt.

Paul Graham and the Y Combinator group kind of wrote me the first check after I went and

interviewed and stuff.

And they, they wrote me a check for like 150 K. And that was the first time somebody who

I really looked up to kind of said, this is, this is worth pursuing.

Like maybe, maybe you're on to something, maybe you're not, but like, let's at least

try it.

And so I, that was kind of what gave me the confidence to quit my job and try it.

And I'll wrap the story here by saying that like, we, you know, I found the right co

founder after Y Combinator, we still didn't have any customers.

The thing that, you know, I basically launched the hosted Bitcoin wallet, there were people

signing up.

I just posted on Reddit and places like that.

And you know, maybe like a hundred people would sign up and then nobody would come back.

And so I was like, I just, in Y Combinator, they often tell you like, you know, talk to

your customers and improve your product, talk to your customers, improve your product.

That's all you're supposed to be doing.

Try to find product market fit.

So I emailed like five of the users that had signed up.

And I was like, Hey, I'm, I worked on this app.

I saw you signed up.

Can I get on the phone with you?

I get on the phone with like five of these folks.

And I was like, you know, why didn't you come back?

And the guy was like, well, the app was okay for a, for a beta, but like, I don't have

any Bitcoins.

So I didn't really know what to do with it.

And I remember this light bulb kind of went off my head.

I was like, well, if I put a buy Bitcoin button in there, would you have used it?

And he was like, yeah, maybe.

So then I had this, we went about the process.

My co founder at that time, we like got basically had to get like a bank partnership payment

rails, you know, an exchange, basic exchange functionality, all that stuff I was mentioning

earlier in place.

And the minute we launched that feature where you could just click buy, put in your bank

counter credit card, buy it by Bitcoin, it showed up in your account.

From that day forward, like the number of users started to go up like this.

And so we finally had found product market fit after two years of wandering in the desert.

So you weren't even thinking about the buy the on ramps, you would think it would be

just a wall, a place to store Bitcoin that you've already gotten.

Yeah.

Okay.

This is, I mean, because that's such a pain to do to have to work with others to convert

dollars of any fiat currency into, into Bitcoin.

Yeah.

I mean, were you overwhelmed by the immensity of the task here?

Or were you just sort of not allowing yourself to think too deeply through this whole thing

and just letting the optimism take over here?

You know, I was really looking forward to like doing something crazy and like a big challenge.

And I wanted to, I love kind of crisis moments like that where, you know, I'm very determined,

right?

And especially when I get like very set on something and I'm just like, you know what,

I'm going to figure out a way to make this fucking thing work, like no matter what.

And so I, I reveled in that.

I was sort of, I had, I had read all these books about startups and like every startup

has these like, you know, major setbacks and just like nothing works.

And so

So that was a sign that you're doing something right?

I had no idea if I was doing anything right at all, but I was like, I was kind of loving

the experience of it in a weird way.

It felt, it felt stressful at the time, like, you know, nothing was working and, but I was

just, I felt like I was on the right path somehow.

And so I just kept going.

I don't know.

What was the darkest moment that you've gone to in your mind during that time?

What was, what were some of the tougher moments?

You said self doubt.

Yeah.

Have you, yeah, where'd you go?

Where'd you go in your mind?

Is there a moment where you're just like laying there?

This is, this is hopeless.

Well, there's a couple of moments I'm remembering.

I mean, so for whatever reason, I had this like big chip on my shoulder at that time.

And I was like, I really want to do something important in the world.

Like, you know, I could have a good life and like work for some good companies and write

some software.

And I'm, for some reason, I never wanted that for myself.

That probably wouldn't have been healthier, honestly, just to like, that as an expected

value outcome, that's probably a better thing in life.

But I was like, I was like, man, I really want to do something important and have a

bigger impact.

And I was like, I was willing to sacrifice a lot for that.

I was like, sleep and not going out with friends and stuff.

I remember one of the, just for like years working on this stuff, remember one of the

darker moments was we probably had like maybe five employees at that time.

And I remember like a bunch of bad things happened like all at once.

And it was, so first of all, you have to remember at this time, we were all very sleep deprived,

which kind of exacerbates everything.

If you look at like the Exxon Valdez spill and all these like natural disasters like sleep

deprivation is often involved.

So because the reason why we're so sleep deprived is not just because we're working so much,

but like the site would go offline in the middle of the night and we'd get, I get paged.

I was like on pager duty.

So I'd get woken up sometimes like two or three times a night, like have to try to fix

something, go back to sleep.

So in that environment, you can kind of get, you can get discouraged.

So one bad thing that happened was we had a bug on the website and there was thousands

of people on Reddit and Twitter who were all like pissed at Coinbase because of like the

balances were showing wrong.

And they were just like, you know, fuck this company.

It's over.

You know, these guys and so that was, I'd never had this feeling of a thousand people

mad at me at the same time.

You know, I feel like I'm a pretty chill guy.

Like most of the time people don't get mad at me.

So that was one.

Another one was that.

Can we pause on that?

That's so interesting.

So you, you were saying like, here's a dream.

I'm trying to create something and now forever the reputation of this dream is ruined.

It will never, it's irrecoverable.

It's over.

That kind of feeling.

Yeah.

Well, I didn't, you're right.

I didn't know at that time.

I was like, is this, is this the end?

Like everybody, we're so, we're so tiny.

Now everybody hates us.

So is it over?

Yeah.

Um, nobody told me this before starting a company that like your bunch of people will

hate you for this, which is like a very counterintuitive thing because, you know, if most companies

I think are doing good things in the world, at least you're trying, right?

And so even if someone's like trying, but they're not, they're failing, I'm generally

rooting for them.

At least you're trying, right?

Yeah.

But that's not the case at all.

Like most founders I've known have gone through this too, where, um, they're very surprised

at the amount of hate that they get.

And if it's, I think it's actually like a muscle you can build your tolerance to it.

Like, because, you know, you go talk to somebody who's like, for you, it feels terrible because

you're at the center of this storm.

And like, but if you go, then you go talk to like, you know, your, your family or some

other person like, dude, I didn't even hear about that.

Like my, they're just busy in their own life.

And so they, they have no idea that you had all this negative press or like whatever it

was.

Like once again, put a link on that.

Yeah.

There's an interesting person I'd like to bring up just as an example, uh, Bill Gates.

Yeah.

So he gets a very large amount of hate on the internet.

Yeah.

And there's something about him, this is me talking that you that he seems out of touch

about that hate.

I, I believe at least in my understanding, the, uh, with the, with the resources he has,

he's trying and is actually doing a lot of good.

And yet there's a gigantic amount of hate conspiracy theories and stuff like that.

Right.

And it feels like that's the case because he's somehow out of touch with, with people.

So I wonder how you stay in touch with the voice of the people without being destroyed

by the outrage.

Is there, is there any wisdom you have to that?

I don't know about wisdom, but I've thought about this too, because yeah, you want to

always be open to feedback, especially from people who have like your best interests at

heart.

Right.

And if you can become isolated from it and just like, you know, surrounded by yes people

and, um, I mean, who knows, maybe, maybe like she and Putin and people like that are in

situations.

I have no idea.

Um, but if you listen to too much of it and you just try to please everyone, you'll never

get anything done.

And I mean, most of the best leaders are people who they can act when they believe that they,

they're doing something net positive for the world and humanity.

And they actually don't really care if they piss off some portion of the people, almost

anything you're going to do of significance in the world today is going to piss off 5%

of people, maybe, maybe 49% of people or whatever, maybe 60%.

I don't know.

So you never want to become so surrounded by people who just work for you and will say

yes.

And then you think like, well, I'm a genius and I'm like, I'm a, that's how you become

a dictator or whatever.

Um, but you also can't care so much about what people think because then you'll never

do anything that's truly authentic to yourself.

One other thought on that, by the way, I think it's a really good question.

So I've thought about this a lot, like why, you know, people generally kind of hate on

Zuck and they hate on Bill Gates and they hate on, um, they don't really hate on Elon.

Actually Elon has a lot of haters too, but it's a different thing.

This is measured.

This is measured.

I was looking some surveys.

So I think, uh, Zuck is the most so loved and hated, right?

Yeah.

Uh, Zuckerberg is the most both, uh, loved and hated.

He's the most hated.

And then I think it's Bill Gates and Elon is down there.

I think it's like, uh, 40% hate Zuck, people asked, and then Elon is in the double digits,

but low double digits.

And so it's interesting, you just look at this day and ask yourself, why, right?

So I asked myself this sometimes too, because I don't claim to know any of these people

well, but like, I've, I've met them briefly and I, my impression is that they're actually

all smart people trying to do good things in the world.

So there's not too much difference there, despite public perception perception.

So why is it that some are really hated and some aren't?

I mean, it's a complicated question, um, obviously, you know, Zuck and his Facebook got blamed

for the whole election thing and all that didn't help.

Um, social media has gotten a lot of pressure just from like, you know, Hey, why aren't you

solving all of society's tough problems?

It's like, well, they're just one company.

But one thing I've noticed is that, you know, a lot of these people, they're a little, they

have a like Asperger's, right?

A little bit.

Um, sometimes, you know, people with Asperger's don't really emote in the same way.

And so I think it's almost a form of like, um, um, like bias against, um, their cognitive

type or something, which is like, that person doesn't emote, right?

I don't trust their, their, um, intentions.

And, um, the other thing I've thought about too is that sometimes I think some leaders,

you know, um, like maybe Zuck or Bill Gates, they can come across as like a little bit

PR rehearsed.

Like they're basically, um, they're giving the PR approved answers as where Elon just

says whatever he thinks, like to a fault.

So even if people hate what he says, they're like, at least I believe it's authentic.

So I've always thought about that too for myself.

I'm like, how do I, cause you can, you can fuck it up on both sides, right?

Like if you just come out and you're like saying whatever's stream of consciousness,

you'll often end up like pissing off people on your team or like saying tripping over

some like regulation that you've, you know, um, there's all kinds of things about running

a public company.

You know, you can't say certain stuff, but if you're too PR approved and your answer

is like, nobody trusts you what you're saying.

And so anyway, this is something I think about a lot.

I don't think I have the right answer, but I'm trying to, I'm trying to find that balance.

And more and more with the internet, there's a premium on authenticity.

Just like you're saying people really, really appreciate this.

So for leaders, it's a, it's a challenge to be, how do I, uh, make sure I'm authentic,

but also, um, don't say stupid shit.

Yeah.

And so that's a interesting thing.

I've noticed that, um, just having interacted with the, with a bunch of leaders that you

have to be careful how much you surround yourself with PR folks, cause the best I would say,

let me just say a nice thing about marketing and PR folks, the best marketing folks are

extremely good.

So they understand exactly what great marketing is and great PR.

It's authenticity, it's showing, revealing the beauty as opposed to PR and marketing

out of fear.

Oh, don't say that.

Don't say this.

Don't say that.

Because then you, you start living in this kind of, that pushes you towards a bubble

where you can't express the, your, your beautiful quirks and weirdness and all that kind of stuff.

And also the cool, the beautiful things about what you're doing.

I find like, um, especially with the tech thing, like even like Coinbase, the way to

reveal the beauty of it is not only by showing all the things you could do with it, but showing

that there's great engineering going on underneath.

So letting the nerds shine too.

It doesn't have to be like, uh, these kind of commercials where it's like, uh, a happy

family using Coinbase to send a transaction about, uh, flowers for mom or something like

that.

Like it could be also like gritty stuff and real stuff.

Um, um, that's a general, just observation I made, but you said, you were talking about

dark moments and that there's people on the internet that were pissed off that the site

was down.

And you said there might be something else.

Yeah.

So sleep deprived, like a bunch of people on the internet were pissed at me.

The balances were fucked up.

Like people were tweeting the company's over, just give the money back, whatever.

And then, um, oh yeah, somebody posted.

So we had all this, we didn't, we had started to get all these customer support inquiries

and like we only had like a few people at the company.

And so we were backed up maybe like 20, 20,000 support requests so people couldn't get a

hold of us.

So somebody posted my cell phone number on Reddit and they were like, they were like,

if you need to get a hold of the CEO, whatever, because everyone's upset about where their

money is.

So I remember what we're in the office.

It's like, it's like late at night.

We've been working like 12 hours or all sleep deprived or I'm trying to, I'm trying to hack

and like get this bug fixed and we all need like food at the office.

And so my phone, my phone has been blowing up all day because someone posted my phone

number on the internet and there's like a guy, um, there was a guy like trying to deliver

food and I needed to answer my phone to like get the food from downstairs.

So I was like, shit, I got to just see who, if that's him.

So I started answering the call and it's, and it's like, is this Brian?

I'm like, no, wrong number, click, you know, and I, you know, I, the next, I pick up the

next call.

It's like every, every, when I finished the call, another call is like coming in.

So I was like, this, I'm a reporter from Japan, like asking about a security, no, wrong

number, click.

And then I like, finally I get the delivery guy downstairs, bring the food up.

We're all like, you know, surviving to like fix this bug.

Um, I remember there was just basically a point that night where I was like, fuck, I

need to just, I basically just curled up on a, on like a ball on the floor and I, I just

like cried for a little bit.

Um, I think I let myself just kind of wallow and self pity kind of took a nap for about

five minutes and I was like, let's fucking solve this and I like, you know, stop being

like a little whatever and like got back up.

Deprivation combined with just the stress and the pressure of the site going down and

everybody wants the site to be up, just the pressure from people and the number of users

is growing and growing and growing.

So that pressure was just mentally, mentally tough.

Yeah.

What was your source of strength during that time?

Like what, like, uh, somebody that pat, patting you on the back and said, we got this.

Yeah.

Well, it definitely helped to have a co founder.

So, you know, there's like that old saying about, it's better to be in a great relationship

than to be single, but it's better to be single than being in a bad relationship.

So co founders actually blow up a lot of companies too.

But when you find the right co founder, which I was lucky to find with, with Fred or some,

that was very important.

There was definitely moments where, you know, I was like, kind of, you know, at the wit's

end or whatever.

And he was like, it's like, dude, let's rally like, and he basically carried the team, you

know, a couple of times, like in really key moments.

What advice would you give the startup founders about this particular stage, about surviving

it to the five and through the five employee stage where you were?

Yeah.

Well, if your pre product market fit, the best advice that I have from that period is,

um, action produces information.

So just, just like keep doing stuff, you know, I remember like, um, Paul, Paul Graham, Paul

Graham had this great line like that.

I think that's his line.

And he was like, startups are like sharks, if they stop swimming, swimming, they die.

You know, so even if you're like, not sure what to do, like just do anything because

when you do it, it'll like, it'll produce some information.

Like people liked it.

They didn't.

This was very true for me.

There was times where I just did something, um, instead of debating it endlessly and like,

just try it.

You know, like, all right.

So we shipped it.

And like, there was a couple of times where like the minute I shipped it, and I was like,

I knew, I know we built this wrong, but now I have an idea of what to do next.

And it wasn't, I only would have had that idea if we'd actually gone through the exercise

of going to build it.

It's like my other favorite analogy for this is that you're like at the base of a mountain

that shrouded in fog and you're looking up at the mountain and you're trying to think

like, okay, how do I get up there?

But you can only see like three or four steps ahead because the fog is so thick.

So you have to just take steps into the unknown.

And when you take three steps, another three steps will be revealed ahead of you.

And sometimes you'll end up on some local maximum.

You don't have to retrace your steps or whatever, but, or come up to a cliff, you know, but

most people in life don't take the steps into the fog, into the unknown, because it's scary.

Or they're like, I don't know what if I fail or like, I don't know how that's going to

work or I might run out of money or I won't be able to get a job after or I don't know,

whatever reason.

But that, that is like one of the things that separates I think entrepreneurial people with

that kind of inclination is that they have sort of a comfort with this risk tolerance,

but it's actually not really risky if you think about it.

It's not like, you know, in, at least in most places, like, you know, if you go to, if you

go do a startup and it fails, like you're going to, you're even more valuable to your

next employer, right?

Or you can go raise a seed round, pay yourself a salary, try it for like two years or three

years.

If it doesn't work, go get another job.

It's not like you're, you weren't paying yourself a salary during that time.

So I think, I think people overestimate the risk of doing a startup and they just never,

they never start because it seems crazy and all your friends think it's silly.

Like that's sort of the default nature of every big startup idea.

It's just basic fear.

It's the same kind of fear that if you see a, if you're a guy, see a cute girl at a bar,

it's the fear associated with coming up to her, be like her, asking her, it's like, what's

the actual risk exactly?

Right.

She'll say, I'm no thanks.

I'm not in.

No thanks.

The risk is like that's going to be mentally difficult to deal with rejection.

So just like it's mentally difficult to deal with failure.

If you had a bunch of ideas and you were excited about them and you implement them and you

realize they're not good, that could be difficult to keep pushing through that.

But I suppose that's life.

You're supposed to, you know, perseverance through the failures.

And then the risk is low.

So that's, and then the whole time through the fog up the mountain, you're looking for

a product market fit.

Yeah.

That's right.

So you know you have it when the usage of your product keeps growing without any marketing

dollars or anything like that.

And it's just like more people keep coming back every week or month.

So you're kind of keep, you're basically watching your stats.

Nothing is working.

You see these little wiggles of false hope in your metrics and you basically just keep

talking to customers, fixing the, improving the product, talk to customers, improve the

product, talk to customers, improve the product, you know, and try not to run out of money.

So be really scrappy.

And then if you're lucky, you hit some kind of threshold, we're like, okay, the thing

is good enough now, or we hit on some use case and then it'll organically start to grow

a bit.

And then, then you have a whole different set of problems once you hit product market

fit, which is how do we scale this thing?

How do we hire people?

How do we, you know, hire an executive team or raise more money and like, so the problems

totally change.

But you're there through the whole thing.

So that's the other question that's fascinating.

Going back to the girl at the bar, how do you hire people?

It's like, how do you find good friends?

How do you find good relationships?

And in this specific case, how do you hire good people, engineers, executive, all of

it?

One thing is I've done a lot of reps on hiring at this point.

So Coinbase has about 5,000 people, probably the first 500 people or something maybe in

that range.

You know, I interviewed every single one of those, but you have to remember there's probably

like, I don't know, on average, maybe 10 people that we went in the process for every one

we hired or something.

So it was like, by the time that we had 500 employees, I had done like 5,000 interviews

or something.

I was like very burned out at interviews.

I had been doing, some days I did like seven interviews in a day or maybe, you know, you

would do lots of interviews, maybe you wouldn't get burned out, but different kind of interviews.

Very different.

Very different.

Yeah.

Very different.

So first of all, most of your interviews lead to rejection, which is also exhausting.

Yeah.

And there's a whole part of the interview, which is about candidate experience, right?

Sometimes you know it's not the right person, but you want to make sure they have a good

experience.

Yes.

If you're just exhausted and you're on your sixth interview and you're like, well, thanks

for coming in and you rap and you're just, and then like, you're going to create a detractor.

Someone who's out there like, fuck that company or Brian was rude to me or whatever.

So I had to, honestly, I had to work on that a little bit in the early days because I was

doing so many interviews.

Like I needed to make sure that when people came in, I was like, you know, made them feel

comfortable.

I asked them a couple of like warm up questions, just like, oh, how was it getting in the office?

Like, did you find it okay?

And like, what have you been up to this week?

And not just like, you know, like a factory assembly line, like boom, boom, boom, boom.

Like, yeah.

But also there's a moment, because I've interviewed a bunch of people for like teams and stuff.

Yeah.

There's also a moment when you early on know this is not going to be a good fit.

Yeah.

And you still have to land that plane and all that kind of stuff.

And that could get really, really, really exhausting.

So yeah.

Anyway, sorry.

Yeah.

So basically we've tried so many things over the years to make interviews more efficient

because it's a huge time sink for the team.

So, you know, we basically, we'll usually get them down to like 25 minutes.

I've seen, if you're trying to hire like a big team, let's say, you know, of people

who are like contractors or something, not necessarily full time employees, I've seen

people actually do 10 minute interviews.

You can even interview like a thousand people almost like in a week or something.

I'm not sure if that quite works out, but let me listen to that.

But you can basically get six and six down an hour if you're just, I need to get a team

of 30 contractors for whatever purpose.

But if you're talking about full time employees, I usually do like 25 minute, you know, you're

oftentimes like one thing we've done is we'll put like a, like a Google form online and

it's like put some basic hurdles in there, like, you know, ask them to put in an answer,

which you can check in a spreadsheet if it was correct or not.

And like, there were some funny examples in early days of Coinbase where we put in like

brain teasers and stuff, but we don't do that anymore.

We do like normal interviews, we do references.

The kinds of things I ask in interviews, you know, it's usually like, I like to think

about what, what do we need this person to accomplish in this role, right?

And get really specific about that.

It's like usually something pretty hard.

And then I'll ask them a question.

It's like, tell me about a time you did X and, or tell me about the hardest, the hardest

kind of problem you've had to solve in Y and what did you do specifically to overcome

it?

Right.

So I'm asking to see if they can actually do the stuff we need to get done.

But then I'm also kind of asking like culture questions if I'm interviewing for that.

And so I'm trying to see like, are they concise communicators?

Can they just give me a clear answer and stop talking?

Some people like ramble on for like five, 10 minutes if you ask the first question.

Some people are, you know, they're interrupter, like church of interruptions.

So like they won't stop talking until you interrupt them, which for me, I'm always patient

and I wait.

So that's weird.

I'm looking to see for humility too.

Like, you know, I'll tell, I'll ask people, tell me about a time something went really

wrong.

Like you had conflict with someone on a team or, and what I'm kind of looking for is,

were they part of the solution or are they still holding on to like blame and criticism

about that and be like, well, I told them they shouldn't do that way, but they didn't

listen to me.

You know, these are all like bad signs.

So I'm looking for, yeah, can they get the job done?

Will they work together on a team?

Can they communicate effectively?

Do they fit into our cultural values and, you know, those kind of things.

Yeah.

I mean, there's a, because I have even, even for help with this, this podcast here, but

also at MIT and so on, I've done a bunch of hiring.

And I was always looking for, you said brain teasers, all kinds of simple questions that

can, that can reveal a lot of information.

And it's always been challenging.

I used to, I still ask this question, but do you think it's better to work hard or work

smart?

And you know, I had this idea that I've, that I think I've matured about, which is I kind

of believe that people who say work smart on that question don't actually work smart.

So the right textbook answer is work, it's better to work smart.

But the reality is it's, it's people that haven't actually ever done anything that say

work smart.

They're like, they haven't really struggled because my general belief at the time was

in order to discover what it means to work smart, to be efficient to, you have to work

your ass off.

So you have to really fail a lot and failure feels like hard work.

And so I was always suspicious of people that would say work smart.

I would want to interrogate that question.

But then I also, you know, have, have learned that there is people that are just exceptionally,

exceptionally efficient.

They really do know what it means to work smart, even at a young age.

And so like, you can't just disqualify based on that, you have to dig in deeper.

But some of the most interesting people I've ever worked with would say work hard, unapologetically.

And they're usually the ones that know how to be efficient, which is, it's just an interesting

thing like that.

And I've always searched for questions of that nature to see, can I, can I get, can I

get a person to reveal something profound about them in as brief of a question as possible?

And I, you know, and then of course there's basic attention to detail and brain teasers

and stuff like that, depending on the role, programming and so on to see, can they, can

they solve a tricky puzzle and do so?

Like one that doesn't require a lot of effort, but requires a certain nonlinear way of thinking.

Is there, is there some, I mean, maybe you don't want to reveal, but is there some questions

that you sometimes find yourself leaning on?

You said like, how did you solve a hard problem in your past and have them talk through it?

That's one.

You know, we started with brain teasers periodically at Coinbase and I, we got, we got away from

that relatively quickly.

And I think one, it's a tough one because I actually think it does show how somebody

kind of performs under pressure, but it's, I don't think it's a super reliable indicator

because there's some people who are really good in the typical work situation, but that's

not a typical work situation where somebody puts you on the spot, like in a live interview

and sometimes people get nervous and they can't think clearly and like they don't have

their computer in front of them or whatever they normally use.

So yeah, I'm a little skeptical now of the brain teaser thing.

There is a whole, yeah, there is a whole question about like a lot of universities are getting

rid of, you know, entrance exams.

So if you're hiring right out of universities, sometimes it's becoming a less reliable indicator

of like, are they in that university?

And I've heard some companies, we haven't done this yet, but I've heard some companies

are actually creating their own like for college grads, like their own basically exams like

standardized testing, almost to get people in the door because the degree almost doesn't

mean what it used to, which is the whole topic, but yeah.

That's fascinating because it's fascinating both for them because it's not just about

you trying to hire a great team, it's also to help them find the right place to work

at.

Yeah.

It's like a two way street.

All right.

So once you found the product market fit, how did Coinbase become what it is today?

Let me ask him an engineering question actually, sort of from the Ruby wallet days.

What are some of the interesting challenges there, or are they not engineering?

The things that had to be solved, what were they, engineering, regulation, financial hiring,

lawyers, what was it?

So post product market fit, yeah, a lot of it's scaling and you got to build out an

actual company.

So I remember, I was still writing a lot of code there for a while and we were hiring

in, we had like maybe 25 people or something, and remember one of our investors came by

one day and he was like, Brian, how much of your time are you spending writing code?

And I was like, maybe, maybe 50% or something, he was like, how much time are you spending

hiring people?

Probably 20%, he was like, I think you need to flip those numbers, like this company's

not going to scale, you're the CEO, you don't need to be writing code every day, you're

going to have to transition that stuff, like even if people can't, all that stuff's locked

in your head, so maybe they're not going to do it as well as you for the first six months

or something, but like, if you don't start to transition it, you're never going to build

a real company, it's just going to be, you're going to be the bottleneck.

So you know, like a lot of founders, that took me a while to like really internalize

that lesson.

They'll say that and you know, but I still was holding on too much to decision making

and I probably still am, by the way, like even to this day at Coinbase where we continually

have to push down decision making in the org, like even with 5,000 people, like who are

the owners of each of these things?

And so the temptation is people to push it up and you become a bottleneck and anyway.

So yeah, you basically need to make sure you have enough money where you don't die if there's

in some kind of a downturn or hit break even profitability.

We were in a position where we were periodically profitable during up periods, but then crypto

would go down and we were unprofitable.

And so we had to kind of manage our own psychology and the balance sheet to make sure we didn't

like die in the downturn, which a lot of crypto companies did.

We had to basically professionalize a whole bunch of services that had been just very

quickly thrown together by like 20 year olds, right?

Whether that was cybersecurity, it's like, okay, how do you get like a really senior

experienced cyber security person, but not someone who's so senior that they can't get

their hands dirty and they can come into a company with 25, 50 people?

How do you get a finance person to come in and do that?

Our finances were a mess, like we didn't even really know how much money we had at certain

times and stuff.

I mean, this was embarrassing to say, but it was true.

Like I remember there was a point where we had raised, I think like our series C or something

like that.

And I think we had our bank accounts and I just put like $25 million like in a different

bank account that none of this stuff was touched the actual operation of business because

I was like, you know, our operations were so messy and we needed to hire a new finance

person.

And I was like, this, I had heard horror stories of actually startups where they thought they

had X amount of money and then it turned out they had way less and then the whole thing

was in solvent in like three weeks.

So you wanted to have some padding till it was like, all right, I can at least count

on this to save us if we go like super negative.

Right.

I mean, it was like a cheap hack, but that was like, come up with and you know, until

we could hire like a real fine CFO and finance team who like, okay, now we got our arms around

how much cash we have.

It sounds silly, but we had such high volume of money coming in and out anyway.

What was the ordering of hiring, by the way, like, how many engineers was it early on?

You said CFO was not, you didn't even have a CFO for a bit.

Yeah.

Like what was the, the landscape of hiring as you're building up this company?

Was it engineering focused?

Well, let's see.

The first person we hired was just like, we need, we need to solve customer support.

So we brought someone to do that because we were all staying up till midnight every night

trying to do customer support.

And then we got more engineers and then I think maybe the sixth hire or something like

that was a recruiter because that, that turned out to be, you need, you need to build hire

the person who can hire more people.

That turned out to be a great force multiplier.

And then you go on down the list, you eventually want to hire some more senior people.

We needed legal and compliance.

We needed that really badly because we, you know, it was all kinds of questions about

what the legality of it was.

Was it hard to find legal people that work with crypto like serious adults?

Because it's such a cutting edge new world.

Yeah.

I mean, there was nobody who had like more than, nobody had three years of experience

with it because it had only been around a year.

So yeah, we were finding people from adjacent fields.

There's a certain personality type of people who are willing to join early companies because

they have no structure.

You can't really commit to them about you're going to have this team or this boss or whatever.

Like everything's in chaos and flux.

So it takes, yeah, hiring is one of the hardest things in the early stage for sure.

You got to find people crazy enough to join you on this journey.

So one of the interesting things about Coinbase and you've written, we've talked, we'll talk

about it a bit.

You're very focused on the mission.

Yeah.

Yeah.

You're very kind of, I think that simplifies things that makes, that makes hiring easier,

that makes working at Coinbase easier, that makes, I mean, it's similar sort of Elon

has the same thing.

It's pretty clear.

It's pretty clear what we're here to do.

So I suppose what's the mission of Coinbase?

Well, it's to increase economic freedom in the world.

And what is economic freedom?

Yeah.

So economic freedom is this term kind of like GDP that economists use and it's basically

a measure of different countries around the world.

It looks at things like, are there property rights enforced, is there free trade, is the

currency stable, can you start companies that you want to start and can you join the ones

you want to join?

And, you know, is there corruption and bribery prevalent or is it relatively free of that?

And so this, there's several different organizations that basically score countries by economic

freedom.

And the really cool thing about economic freedom is that basically it positively correlates

with things that we all want in society.

Like not only higher growth of the economy, but also things like higher self reported

happiness of citizens, better treatment of the environment, better income for the poorest

10% of people.

And it negatively correlates with things we don't want in society like corruption and

bribery and war, even in things like that.

And so it's this pretty, pretty crazy provocative idea, which is that if you give people good

property rights and rule of law and allow them to trade, it basically encourages them

to do more good stuff and the whole society benefits.

Like one of the things, you know, you may have noticed this growing up in various places

you did or, you know, I spent a year living in Buenos Aires, Argentina that went through

hyperinflation.

And there's a certain like pessimism that can creep into countries when they don't have

economic freedom, which it's basically like everyone has this bit of this vibe, which

is like, don't stick your head up, you know, don't try too hard because it could all be

gone tomorrow.

Like the things that really are valuable in life are just family and friends and the past

was better than the future will be.

And so you don't really, people don't try as many, they don't try hard because you're

not really sure you can actually keep the upside of your labor if you, if you try hard.

So you just don't try as hard, whereas in America historically, you know, or high economic

freedom countries, you know, people basically like, they just try more stuff because they're

like, if I do good for other people, I'll get to keep part of it for myself and I can

improve my lot in life and for my children and my community, whatever.

So I realized when I read the Bitcoin white paper a long time ago that at least I had

a hunch at the time I was like, this might be a really powerful piece of technology that

can inject good financial infrastructure into all these countries around the world that

don't have it.

Basically good economic freedom principles in like, you know, property rights and things

like that into these countries all over the world with just as long as you had a smartphone

and now crypto got invented, we could, everybody could have economic freedom and it's crypto

is kind of really well suited for economic freedom because if you want property rights,

it's basically crypto is, if you can remember a 12 word phrase or, you know, have an app

on your phone, you can store as much wealth as you want and it can't be taken away from

you.

You can even, you know, there's like refugees who need to flee and they want to take their

wealth with them and they can't do it often in the traditional financial system.

And so crypto lets them do that, right?

crypto is inherently global, so it allows free trade and cross border payments.

It makes it easy to accept payments from people globally, you know, it's, it provides a stable

currency to everyone, not only with Bitcoin, which is kind of like this new reserve currency,

but also with stable coins, right, which are, you know, new, new inventions there.

So yeah, I basically feel like crypto is, is this secret hiding in plain sight that

can create economic freedom for people all over the world and a more fair and free and

global economy.

Well, so the limit, and by the way, I didn't know about Argentina, why'd you end up in

Argentina?

Okay, so I was basically, you know, I was living in Houston, Texas after college where

I went to school and I had never studied abroad.

I kind of like, I don't know, I feel like I needed some adventure or something in my

life and I was like, I was running this other startup that I was trying at the time, a tutoring

company and I could, I could work from anywhere.

So my plan was, you know what, I'm just going to go do like a month in every city around

South America, just be like, I almost like to force myself out of my comfort zone because

I, I had never traveled by myself to foreign country or whatever and where I didn't really

speak the language and anyway, I landed in Buenos Aires thinking I'd go all around South

America where I had never been there.

But I basically, once I was set up in South, in Buenos Aires with an apartment and a cell

phone and stuff, then I was like, I don't want to do that all again next month.

So I just stayed there for most of the time and took some day trips.

But, but yeah, it was kind of a formative experience in that regard.

You got a chance sort of unexpectedly to experience the, the social effects of hyperinflation,

which is interesting.

But I also, I've never, I've never been, I really, really want to go as a person who

likes tangos, a person who likes the Argentinian national team and soccer and, and, and steak.

All right.

And all the other things that Argentina is known for.

Okay.

So economic freedom, one of the limits on economic freedom comes from government and

government regulations and all those kinds of things throughout the world.

So how does cryptocurrency help resist that?

So can you sort of elaborate a little bit further, what are the things that limit economic

freedom and how does crypto help ease that?

You know, today the world, like the traditional financial system is basically every country

of the world for the most part has their own currency.

And so there's a group of people or institutions in each of those countries that's controlling

that economic policy or that money supply.

And you know, it can be, it can be manipulated, right?

So it's not like many of these currencies are not linked to the gold standard, you know,

the US kind of famously came off that in the 1970s, for instance.

But if you read Ray Dalio and all this stuff that he talks about, there's thousands of

fiat currencies that have been in existence over time.

And basically all of them eventually get disconnected from backing of like hard commodities.

And then they get over inflated and print it.

And so in times of stress, you know, with Nixon, I guess it was like in the US, it was

the Vietnam War or something like that.

It kind of drove government spending.

And so under times of stress, they say, hey, it's a temporary measure.

We need to break the peg.

Temporary was like, you know, famous words that he used and they go like they go print.

And so the bad thing about that, of course, is that it sort of erodes people's like wealth

if they can only hold their assets in cash, which basically like poor people tend to do

that.

You know, if you're wealthy, you can hold stocks or like real estate and things like

that.

But it's a really a tax on the poorest people in society, inflation.

So anyway, crypto in a way is a little bit of like a return to the gold standard in this

digital era, right?

Bitcoin, there's guaranteed scarcity of it.

It's deflationary.

There's never going to be more than 21 million Bitcoin.

And so that's, that's a really important principle.

I also think big, you know, not just Bitcoin, but like cryptocurrency generally, it's really

important in terms of this, you asked about regulation, right?

So think about like, if you wanted to make a global borrowing and lending marketplace

or a global exchange, you would have to go to all 200 countries in the world, sometimes

like maybe 50 States in the US and get lending licenses or an operating exchange or whatever.

And you know, they're not going to, it's just an incredible amount of work and you can't

even do business in many of these countries because like, you know, you have to bribe

somebody or it's corrupt or whatever.

And so, but with DeFi, with decentralized finance, people have published, you know,

like Uniswap is a decentralized exchange.

Everybody in the world, no matter what country you're in, what jurisdiction can, can interface

with that decentralized exchange because it, and there's no central company operating it.

It's, it's a, it's a smart contract on the Ethereum blockchain, which is globally decentralized.

So there's no throat to choke.

There's no one person you can, or a company you can go to to like, hey, shut this thing

down.

Even if everybody who's working on Uniswap today stopped, the Uniswap smart contract

would continue to operate on the Ethereum blockchain.

Similarly for like a borrowing and lending marketplace, you know, like it's, you know,

if you want, somebody in India wants to borrow from somebody in the US or whatever, like

there's very difficult to do that in the traditional financial world.

But in a smart contract that's decentralized, you can enable anybody to access it.

So it's, it's really kind of this great democratizing force that is creating a new financial system

that is more fair and more free.

Yeah.

And in some ways it is, it's a, it's a clever way that's not, you know, it's, it's enabling

people to do that in a novel way.

So is Uniswap in some sense a competitor Coinbase in which way is it, in which way is it not?

So because for people who don't know, Coinbase is centralized.

So let me ask, does that go against the spirit of crypto since crypto is, is, is decentralized?

What are the pros and cons of being centralized as an exchange?

So I don't think Coinbase is fully centralized there.

We have many different products and the way that I think about it is that our exchange

or our brokerage is a centralized regulated financial service business.

And it's actually important for the crypto ecosystem to have that because you want to

allow a lot of the fiat money in the world to flow into the crypto economy.

So we, you know, we're very proud of that.

And I think we've helped a lot of that money flow in.

Now once people have money in crypto, they can choose to hold it in a variety of ways

and they can choose to hold it in a self custodial wallet, which is more decentralized.

They can choose to use decentralized exchanges, which we love and Uniswap is not really a,

I don't think of them as like a direct competitor to us.

We basically have integrated Uniswap into a number of our products.

We love DeFi decentralized exchanges the whole thing.

So Coinbase wallet, which is a self custodial wallet is more decentralized and it allows

people to hold their own crypto.

They don't have to trust us.

Can you explain what a self custodial wallet is?

What is a wallet and what is a self custodial wallet?

Yeah.

So it's confusing.

So, so a custodial wallet means you're trusting Coinbase to store your crypto, the private

keys themselves.

And you know, for some people and institutions and everything, just meeting them where they

are today, that's nice because it's simpler, you know, they're not afraid of losing their

crypto if they make some accident accidental mistake.

Or so, you know, a custodial crypto products are important to help get a bunch of people

into the ecosystem.

But I'm very supportive of self custodial wallets.

And I think in some ways they are the future because more and more people are going to

want to store their own crypto, not trust a third party institution to do it.

And in some ways that is much more authentic to the ethos of crypto.

So Coinbase will help you convert the fiat into crypto in a, frankly, that's a more centralized

thing.

But once you have crypto, you can then go to the self custodial world, store it yourself

in a, to get into the technical details just for a second.

It's basically saying you're going to store the keys on your own device.

And so even if Coinbase, you know, gets some court order to seize it, we actually can't

like from an architecture point of view, we can't do it.

Or you know, if Coinbase gets hacked or something, we can't lose your funds.

Like now you, the thing is you have to take the responsibility because we're not taking

it.

So the individual person could get hacked, right?

And there's a whole bunch of really cool research happening to make self custodial wallets more

resilient to accidental loss, hacks, and just user error, like, you know, I don't know how

much you've looked at like various cryptography things, but there's like, basically, you can

have multiple multi sig, multiple signatures from different keys on different devices where

you need like two of the three or three of the five.

There's a whole technology called a multi party computation or threshold signing signatures,

which is really cool.

But those are the things you would run locally?

Yeah.

Like what these are all security measures, like cryptography measures to protect you

without a centralized component.

Right.

So like a simple example would be, let's say you had a two of three key signature and

you know, one key might be sort of Coinbase, but that's not a quorum.

So we couldn't unilaterally move your funds, but another key is on your device, on your

phone, let's say.

Oh, cool.

So that, so in a normal situation, you have a key on your phone, we have one, but you,

and so two out of three, now just, you know, it can all get signed very quickly for day

to day use.

But let's say you lose your phone or something.

Now there has to be a third key and that's where, you know, you could store it in a backup

somewhere, like in Google Drive or iCloud, you could trust a third party that's not Coinbase

to also have that one key and they can't do anything unilaterally with that one key.

So that's a simple example, you can get, you can get way more complicated.

Yeah, that's an awesome idea.

And so like if your funds get seized, Coinbase can't, can't do anything, but you better not

lose your phone, maybe in that case.

Yeah.

So that's okay.

But it provides a, there is, so even if you lose your phone, then there is a recovery

mechanism because you can get the one key from Coinbase, the one from your backup provider

and recover a new one back on your phone.

No, no, yeah.

So what if Coinbase is no longer, but because of government, because of say it's in North

Korea, government says you're no longer like Coinbase is shut down in that country or something

like that.

Right.

Then you can get it even if you have access to those two.

Right.

So again, perhaps a silly question, but isn't a self custodial wallet a competitor as a

notion to Coinbase?

No, I mean, we, so we offer a self custodial wallet.

We've built one and it's like.

Doesn't it bleed the, like I guess I'm asking a sort of a financial question is like, how

does Coinbase make money on transactions?

So does this not, does it does not decrease the number or does not significantly negatively

affect transactions or are you more focused on growing the number of the pie of the number

of people that are using cryptocurrency?

Yeah.

Like a traditional financial service firm would probably say, well, we should be storing,

let's keep more of the custody with us because that's how we prove to the world that we're

valuable or whatever.

I don't really believe that.

Like I think that actually we kind of want to encourage our users to move to self custody

over time for those who are ready and willing.

And that technology needs to mature.

I'm not trying to like force anybody to do it or doesn't want to do it.

But to me, that's like the future of how we get billions of people using crypto.

But doesn't that mean they can go somewhere else?

Easier?

Yeah.

That's sort of the point is like we're all using the same protocol.

So there's low switching costs, which keeps all the companies accountable, right?

Like if you, if you want to access the Visa network, there's only one company in the world

you can go through to do that, like Visa.

But if you want to access the Bitcoin network, there's dozens or hundreds of companies out

there who can do that.

So it's, you know, it's arguably, you could argue it's worse for us as a company, but

I think it's better for, it's what makes Bitcoin interesting and cryptocurrency interesting

is that nobody controls it.

There is low switching cost for customers.

It's better for customers.

And that means that all the companies in the space are going to be held to a high standard

because the minute you lose someone's trust, they're just going to move their Bitcoin to

some other service.

And that's good for the world.

Do you think of Coinbase as, so there's these ideas of layer one, layer two, layer three

technologies.

Yeah.

Do you think of Coinbase as layer one, layer two, layer three?

Now that, that said, there's so many products that are under the Coinbase umbrella that's

hard to answer that question, but what do you think, do you acknowledge the existence

of layer three?

So, you know, usually when people are using those terms layer one, layer two, so they're

referring to like layer one would be the blockchain, layer one blockchain itself, like a Bitcoin

or Ethereum or something.

Not like a centralized service like Coinbase or even our decentralized self custodial wallet.

So yeah, I wouldn't consider us to be like a layer one.

These are the decentralized protocols that we're integrating, but we are Coinbase itself

is not those.

Yes.

But layer two is the thing that was basically doing transactions without the settlement

on the blockchain.

And so you get to have some of the benefits of faster transactions without the security

associated with the blockchain.

And layer three is I suppose sort of apps built on top of that.

So, you know, at least I think talking to Michael Saylor, he considers Coinbase a layer

three technology.

Interesting.

Okay.

I don't even, I'm not really particularly familiar with this kind of distinction of

layer three and two.

I don't see them as fundamentally different.

But some of the, okay, I mean, one way of asking that, is there some layer two like

of magic happening in order to make transactions associated with the blockchain happen?

And so that they're quick, so that on Coinbase, yeah.

Is there some magic going on because you're, okay, we should say how many cryptocurrencies

are currently on Coinbase, so it's more than two.

Yeah.

It's a lot more than two.

So you have to understand, they have to incorporate all these technologies.

So how do you make that magic of sort of universal transactions happen across all of these different

cryptocurrencies?

There's our centralized products and decentralized products, right?

The centralized products, we are storing that crypto for you.

And so if you're moving from one of your accounts to another account, like an ETH, ETH one account

to ETH two account, or from my ETH, ETH Coinbase centralized account to your ETH, so we can

do that transaction off chain to make it faster.

And it saves the customer fees and it just confirms instantly.

But it's not truly using the decentralized blockchain, right?

So you can also send any Bitcoin address or Ethereum address, for instance, and that

is putting the transaction on chain.

Now our decentralized products like Coinbase Wallet, the self custodial wallet, every transaction

is happening on chain with that.

And so basically, it just shows a little bit of the evolution of Coinbase and the blockchains

themselves.

Like in the early days, these networks were not scalable, and so there were no L2 solutions,

for instance.

And so we had to do these hacks, like moving the crypto off chain if you were moving between

your own accounts and stuff like that.

Otherwise, the minor fees would have just eaten us alive as a company.

But now that the blockchains are starting to scale, there's a whole bunch more work

that needs to be done on that, and we're getting L2 solutions.

So I think more and more of the transactions are going on chain, whether it's L2, L1.

And ideally, we shouldn't be doing that many transactions off chain, just internal Coinbase

ledger or something.

That's not really in the spirit of crypto.

So when you say on chain, that includes a lightning now.

That includes layer 2 technology that the blockchain proposes.

So I guess I was asking how much fun magic is happening off chain within Coinbase, and

you're saying in the early days you had to, but you're trying to do less and less.

So look, there's a bunch of high frequency traders that use the centralized products,

and even just regular retail people, they don't want to pay the gas fees and stuff.

It actually, back at the envelope, calculated this out at one point, and it would be completely

infeasible for high frequency traders to put everything on chain at this point.

That's basically what DEXs are doing.

And so both are important.

I think more and more is going to move decentralized over time, which is great.

And we're basically...

DEXs are decentralized exchanges, by the way.

So anyway, we want to encourage more and more of it to move decentralized over time.

But the centralized things aren't going away for a long time.

A decade from now, there's going to be some big institution or pension fund or central

bank that's like, all right, we got to hold crypto, let's set up the account in a centralized

way.

So that's fine.

Both are important.

Do you know the number of cryptocurrencies currently on Coinbase?

Do you know that number?

It's over a hundred, but it depends what jurisdiction you're in and are you an institution

versus retail.

There's so many different categories now.

But over a hundred, yeah.

So what does it take to become an asset, to become a cryptocurrency on Coinbase, to add

your technology to Coinbase?

Okay, well, so we're trying to get away from this idea of being listed on Coinbase as being

seen as an endorsement or something, because I actually think it's very important that

we are not considered judge and jury about, imagine it was the early days of the internet

and you were like, what's a good webpage and what's a bad webpage?

You would have been totally wrong.

Or anytime big tech companies try to make these review boards of like, Apple famously

gets in trouble for this a lot with their app store review process.

And so something that you think, like a committee of people somewhere thinks looks silly may

turn out to be the next big thing, right?

And so it's very difficult.

So what do we do?

I mean, we basically have a test of legality, right?

We check, you know, do we believe this is a security?

If so, it can't be listed on Coinbase.

And there's a very rigorous process we go through for that.

Just currently the way the laws are in the US, you can't do that.

And we acquired a broker duo license from the SEC, we're trying to work with them to

get that operational.

And hopefully someday we can trade real crypto securities, but today that's not possible

in the US at least.

Then we look at sort of the cybersecurity of the crypto asset, do we see that there's

some flaw in the smart contract or, you know, a way that somebody could manipulate it without

the customer's permission?

We look at some compliance pieces to it as well, like the actors behind it and like,

you know, they're any kind of criminal history or anything like that.

But if we believe it meets our listing standards, basically this test of legality and everything

for customer protection, then we want to list it because we want the market to at that point

decide.

And it's kind of like Amazon or something like that where, you know, a product might

have three stars or it might have five stars, but if it starts to get one star consistently,

like it's probably a fraudulent or it's defective or something like maybe Amazon will move it.

But otherwise you want to let the market decide what these things are.

So that's generally how we do it.

And by the way, more and more of these assets, I think, especially like low market cap assets

are going to be traded on DEXs through Coinbase.

It's not that we, we don't need to list every asset on a centralized exchange.

I think DEXs are really good for the long tail.

And then it becomes an even, it's even more clear to people like this is not some endorsement

by a Coinbase of like, this asset's good and this one's bad.

Like, you know, my, my belief is there's going to be millions of these assets over time.

And so I hope it doesn't like make news every time we add one in the future.

Yeah, I wonder how you get there because I, even I look to Coinbase for, for example,

you know, people, as you could imagine, sort of tag me on Twitter or something like that

and all that, like you should interview our sort of this, the founder of this particular

coin, right?

Yeah.

It's so hard for me to know what's, first of all, what's an interesting technology?

What's, uh, who's a scammer or not?

Who's actually legitimately representing an ambitious new thing versus a scam?

And I, you know, there's very few sources of, uh, like verification signal.

And unfortunately Coinbase in part has become a little bit of that too, and you're trying

to get away from that because you're trying to get as many sort of, let, let the people

decide.

So you're thinking of like Amazon star type system where the people could rate.

Yeah.

So I think we'll actually probably add like user ratings and reviews.

So, um, and we're, we'll be very cautious about like, you know, these are real people.

Um, there's a bunch of stuff we have to do from that already.

So I think wisdom of the crowds is good in terms of getting feedback on items.

But we also, we're going to do our own review, which I mentioned earlier, right?

Which is like, okay, it meets this minimum bar to be listed on our site.

Yeah.

Um, but I think, yeah, both are important.

How do you know if a coin is a scam or not?

Well, you can, you can see a few things.

So, you know, I hate to use the word scam because a lot of these, these are judgment

calls.

You got a, I kind of, a court made it may or a jury may land either way, but things

that would be red flags to look at would be, um, you know, is a bunch of the asset owned

by an insider or insiders, um, with short vesting periods, um, you know, are just the

background of the founders, like they may have criminal records or if they've perpetrated

other frauds in the past, right?

Um, there's a difference between something which is just a me too product.

It's like, it doesn't have anything interesting about it and something that's an actual fraud

or outright scam.

And, um, you have to, a lot of this data, what's cool about it is that it's now available

on chain.

You can look at like the tokenomics behind it and see who owns it and are they, yeah,

and are they selling it, you know, in like inappropriately or are they pumping it on

like YouTube and Twitter and making promises about, Hey, the value of this thing may be

a higher in the future and like all those are just big, big no knows that we would, um,

you know, we just don't want to go there.

So our whole thing is like, we want, we want to enable the innovation in this space, but

not allow anybody to curtail the advancement of this industry by like doing some kind of

fraudulent thing or get rich quick thing.

So it's a tricky industry because I'm trying to figure out who to, you know, uh, what's

interesting to, to, to, to understand, to research and, uh, it's hard to know.

Let me ask you about a trick you want to add to a centralized exchange, which is privacy

preserving cryptocurrency.

So like Monero, is that, is that technically difficult or is that why, why is like Monero,

for example, forget that specific one, but like privacy preserving cryptocurrency block

chains.

Uh, why is that, is that ever possible to add?

So that's, that's a great question.

So the answer is maybe, so, um, here's the, here's the, what, the reason why.

So, um, because we're regulated financial service business, we have various, um, licenses

to do that.

We are, we are regulated by various regulators.

Part of those licenses requires us to have a, quote, reasonable, um, program to monitor

for suspicious activity, um, you know, an AML program, anti money laundering, right?

And so if it, if a coin is 100% anonymous and we can't really do blockchain analytics

to track, um, source of funds and where these things might be going, it makes it harder

to have a, um, a reasonable program around that.

That's defensible.

Now there are privacy preserving coins like Zcash, which have something called a view

key and a view key is basically another key, which allows you to deanonymize, um, the transactions

in specific situations where you want that.

So for instance, um, you know, we do support Zcash and one of the ways we got comfortable

with that is that when you're buying it on Coinbase, um, you know, you can basically

have a view key, the, the transactions are not anonymous while you're buying it and we

can see where it goes afterwards and do our, our whole standard program.

Um, now if it gets a few hops away down the road, I mean, people could eventually turn

on privacy preserving aspects.

So you know, these are tough judgment calls, but at least in terms of our interaction with

the customer and everything, we feel comfortable at that.

I think there's a broader point here, which is that I actually think privacy coins are

a good thing for the world and we, and they should be allowed and more like, you know,

despite we've made, we've made this judgment call to operate in a regulated and safe and

compliant way, but just taking my Coinbase head off for a minute, I think the world would

be a better place if there were more privacy coins because it's kind of like the internet

when it first came online, like there was no HTTPS.

Everything was HTTP and there was, you know, so people were afraid to put their credit

cards on the internet and, um, your, your messages could be intercepted and all the

stuff.

And now the whole internet has basically moved to HTTPS with a little lock icon in your browser,

which is better.

Like, and, and financial information is like the most important information to keep private.

Right.

So there's times where like, let's say you're running a charity or something and you want

to have total auditability, transparency for the whole world, who donated and where did

the money go?

That's great.

You want it to be public.

If it's like your personal money or something like that, you don't want to be broadcasting

that to the whole world.

And in some ways that's what blockchains are doing, you know, pseudonymously because like,

but it is a public ledger.

And so if you can know who owns each address, you can basically deanonymize it.

I, you know, I think basically the people should fight for, um, privacy and freedoms

of all kinds, but privacy of money is a good thing.

So I would like to see more of that in the future.

Be chosen with Coinbase to, to, uh, to have a seat at the table with the regulators.

So what kind of, what kind of conversations are there at that table?

What are the regulations like?

What is the level of understanding with regulators?

What are they worried about?

What are they thinking about?

What are the positive and what are the negative, uh, regulations that you're facing that you're

educating, struggling with, pushing back on, supporting, all that kind of stuff.

Yeah.

Oh man, there's so many because we're, I mean, we're live in like, you know, maybe 100 countries

are more at this point.

So the, the conversations are all over the map.

Um, I'm trying to think what broad strokes I could paint for you.

So I'd say one trend that's, that's positive is that basically regulators around the world

are, are more and more over the last five years, I would say it's more and more common

to find a regulator today asking, how can we preserve the innovation potential of this

technology while keeping the bad actors out?

Then it was five years ago where they were saying, this is all bad activity.

How do we prevent it?

And so, um, maybe this is when you say more and more, what fraction, I'll give you like

a US specific example, although we operate in many countries.

So when I go to DC now, I would say, you know, 50, 60% of the people who I meet with are

basically, you know, they're in the camp of crypto has a lot of potential.

We should regulate it to make sure the bad people don't do something bad with it.

But this is here to stay and it has a lot of upside.

We should basically, um, create the awful regulation and celebrate it and actually encourage

this innovation to happen in the US.

That's a huge change from just three years ago where it was probably 30% of people saying

that now it's like 60, it's like almost double.

It's getting harder to find like true cryptoskeptics in DC.

Um, I'd say that, you know, maybe, maybe only like 20 or 30% of people are like willing

to say something negative, like they actually think it's net negative is like, it's really

hard to defend that position at this point because it's almost like one in five Americans

have used or tried crypto at this point.

So you're, you're kind of condemning 20% of your fellow citizens, if you say that at

this point, um, you know, especially with NFTs and all these things, like a huge segment

of people who don't even care about investing or whatever came into the space.

So, and then basically that's that same conversation is happening, um, but you know, delayed by

a few years in, in like India and Europe and in some Asian countries and, um, some countries

have really embraced crypto and they're like trying to really, they're, they're the head

of where the U S is because they're trying to actually, uh, attract the best startups

and entrepreneurs like, you know, like Dubai and UK and Australia and all are kind of pushing

good regulation.

Um, El Salvador actually, I guess adopted it as like Bitcoin is legal tender, right?

There was another country, Central African Republic, I think that is supposedly did that

as well, but you know, there's countries like China that are more autocratic that are saying,

Hey, this is a threat to our power and like, we're going to try to really curtail it.

So what kind of regulations are there that you feel the most that are limiting or that

are empowering?

Like, is there specific examples?

Yeah.

Okay.

So, um, I mean, basically I think the securities laws in the U S need to be clarified about,

um, what there's crypto is many different things.

That's what people don't realize.

So like some crypto, like Bitcoin, Ethereum and many others are probably more like commodities

Um, they're not controlled by anyone person, you know, like, anyway, there's people who

want to raise money for a company.