jakiro
source:Cheeky Pint, compiled: bitchain vision
Recently, a podcast program Cheeky Pint hosted by Stripe co-founder John Collison had an in-depth conversation with Coinbase CEO Brian Armstrong.
Brian Armstrong talks about many behind-the-scenes stories about Coinbase: from how to win the U.S. competition, to some life-and-death moments in Coinbase, to the offensive and defensive game with North Korean hackers; from the crypto influence behind the U.S. election and the GENIUS Act, to the general trend of banks embracing the cryptocurrency; from CEOs who voted against the opposition to almost missing USDC, to the successful cultivation of L2Base, to Coinbase’s research and prediction market…
Armstrong also predicts that BTC prices may reach $1 million by 2030, an optimistic outlook based on the gradual clarity of U.S. regulation (such as the passage of the GENIUS Act) and the influx of global institutional capital. He said that in five to ten years, most wealth management companies or sovereign funds will contain 1%-10% of crypto assets in their portfolios.
He also pointed out that there are only five to ten top fiat currencies in the world that can survive, and about 150 other government fiat currencies in the long tail will be replaced by BTC and USDC.The US dollar’s status as a reserve currency is facing challenges – if the US fiscal deficit continues to lose control (the debt/GDP ratio approaches the historical risk threshold), the US dollar will lose its reserve currency status.
Below you can first read the top ten exciting points, then read the full text of the interview, with some abridgements.
Top 10 exciting points:
1. Coinbase’s victory in the United States is to follow the compliance path – cooperating with the US government to obtain a currency transmission license, which made us the only crypto company in the United States with bank partners at that time, and users could directly connect to their bank accounts to purchase Bitcoin.
2. North Korean hackers graduate every quarter, and their full-time job is attacking – we must be the hardest bone to crack.
3. Banks are like newspapers of that year: some will disappear, and the smartest will embrace cryptocurrencies.Visa/Mastercard is already experimenting with stablecoins, and ultimately customer needs determine everything.
4. Coinbse will not apply for a bank license.The core function of a bank license is to allow you to not hold all the funds, and Coinbase does not want to become a bank.Coinbase wants to reserve completely, rather than adopt partial reserves.
5. BTC will rise to one million US dollars by 2030.Five to ten years later, most wealth management companies or sovereign funds will contain 1%-10% of crypto assets in their portfolios.
6. I voted against the USDC project back then because it was not decentralized enough.USDC may have added $800 million to Coinbase in the past year, and I never expected that fortunately the rest of the team supported USDC.
7. Avoid the ’embracing suffocation’ of large companies to kill innovation – Base can succeed because we protect it, not over-intervention.The CEO’s job is not so much about coming up with the next great idea, but rather creating the right environment for good ideas to happen and be nurtured.
8. I prefer free markets more than most people.The best consumer protection is sometimes competition.If there is one company that is bad, the best solution is to let another company compete and offer a better option.
9. There are five to ten top fiat currencies in the world that can survive, but about 150 other government fiat currencies in the long tail will be replaced by BTC and USDC.
10. If the discipline is completely lost, the US dollar will lose its reserve currency status.When the UK or the Netherlands lose their reserve currency status, their debt/GDP is in the range of 200-250, and the United States is in a rather dangerous threshold.
full text:
What is Coinbase winning in the United States
John Collison: Brian Armstrong is Co-founder and CEO of Coinbase, one of the world’s largest cryptocurrency exchanges, founded in 2012 and Stripe launched in 2011.We grew up at the same time.Coinbase has just been included in the S&P 500 index, and the GENIUS Act has just been passed.This is a good time to take a step back and look at the big picture.The crypto space was a red ocean from 2014 to 2015, with so many competitors and you beat countless people.When you look back, how did Coinbase win?
Brian Armstrong: It’s a long journey.I remember seeing you all selected for Y Combinator, which was very inspiring to me.“Maybe a fintech company can be created in this field.” So, partly because I saw Stripe’s achievements, I was so eager to get into Y Combinator.
In the early days, the crypto space was a wild west.I would go to early Bitcoin parties, where there were talented cryptography PhDs and anarchists.I was first at a Bitcoin party in San Francisco and someone told me that he was starting his own religion.So, we came from those early years that reminded the Chaos Computer Club.
I thinkCoinbase made several decisions at that time to help us get through the difficulties.
One of them is that we decided to take the compliance path, which means working with the U.S. government and obtaining MTL (currency transfer license).
Another thing is that we try to accumulate as many credibility metrics as possible.One of them is being accepted by Y Combinator.This allowed us to establish a banking relationship in the United States, which was very difficult at the time. We worked with Silicon Valley Bank and then obtained an MTL (currency transfer license).
For a while, we were the only American crypto company with a banking partnership, so users can easily connect their bank accounts to buy Bitcoin.This really makes us start a good start in a way that others can’t catch up.
John Collison: Who was the competitor at that time?Is it Mt. Gox?Who are you competing with for consumer share?
Brian Armstrong: Mt. Gox was in Japan, and of course it broke out later.There is a company in San Francisco called Tradehill, which could have become a big exchange but failed to reach some key milestones.There are too many such companies along the way, and I can’t even name them all.There was a Bitcoin conference in San Jose, California in 2012, and it was an iconic event in retrospect.The Winklevoss brothers showed up and I met Vitalik Buterin there for the first time.He hadn’t invented Ethereum at that time.I remember people looked around the venue and felt very niche.Some lectures were attended by only five people.We have a small booth and sell some T-shirts.
John Collison: What was Vitalik doing before Ethereum?
Brian Armstrong: He is a contributor to Bitcoin Magazine.He is actually a very outstanding author.
I don’t know if I can learn any lessons from this, but I think it’s time to go on these tech trends – you don’t want to be the 42nd AI company when everyone is in.You have to be involved in a time when you think it’s cool but no one else thinks it’s cool.I think it’s like Paul Graham said, you’d rather have a thousand people who really love your products than have a lot of indifferent people.That’s what we were like at the time.No one takes what we do seriously, whether it is Coinbase or the industry as a whole.
John Collison: Can you describe what it is like to be a more “regular” player?Have a fund transfer license, a banking partnership, help you win because you can develop products that others cannot follow?Or is it because it has won the brand and trust of consumers for you, and thus chose you?
Brian Armstrong: I think there are both.It allows us to launch products that others cannot launch, and also saves us from being shut down.
John Collison: Are the others shut down?
Brian Armstrong: Yes, others either received a letter of order to stop and could not afford the legal fee; or basically went bankrupt because of hacking.
There were several dangers in Coinbase in the early days. At that time, we were not as mature as today. Some people tried to invade the Coinbase system.I can talk about some of these thrilling experiences.With those reputation indicators, we can recruit enough outstanding talents.By the way, some other companies were completely anonymous at the time.Those people told me, “I don’t want to put my name on this website because it goes against the spirit of crypto.” In my opinion, how can we always remain anonymous if we intend to raise funds and be regulated?If the company is big enough, there will always be someone knocking on the door.I wasn’t afraid to put my name on it and said, “I’m an American citizen, I live in the United States. I’m doing this for legitimate reasons, I’m doing it for the long term.”
The company is a reflection of its founder.Stripe reflects the qualities of you and Patrick in many ways, in some of the tiny details you may not realize.Coinbase is the same for Fred Ehrsam and me.It is indeed a derivative of our DNA—that contains a lot of things—but one of them is that we are legal, trustworthy, and we do it for legitimate reasons for the long term.This is very important.
Some life and death moments at Coinbase
John Collison: Fred has worked in the financial world before.You were on Airbnb before.Have you worked in the financial industry before?
Brian Armstrong: No.I studied computer science and economics.I’ve basically been a software engineer.I tried another startup project but failed.Fred also received a degree in computer science and economics from Duke University, but later went to Goldman Sachs to do forex trading.When I first met him, I thought, “This guy can write code and have a computer degree, but he also knows a little bit of finance.”In the first few weeks of our collaboration, he came to me and said, “I’m pretty sure that whenever someone buys Bitcoin, we’re losing money..”I was thinking, how is this possible?Then he demonstrated it to me on the whiteboard and he was right.Complementary skill set.
John Collison: The first version of the business model doesn’t work.You need to do some optimizations.You mentioned some thrilling experiences. What thrilling experiences did you have?
Brian Armstrong: Let me give you a few examples.In the first version of the app, I created a simple hot wallet that was deployed on the server.I tell people that the app is still in the alpha beta stage and don’t store any money you can’t afford to lose.At that time, Coinbase raised about $150,000 from Y Combinator.As early users continued to influx, they saved more and more money, despite warnings everywhere on the app, the total deposits were getting closer to $150,000.I think if we lose all the money, I hope to be able to repay it, otherwise the company will go bankrupt.
John Collison: You don’t want users to deposit more than Coinbase has.
Brian Armstrong: That’s right.I have calculated how fast the deposits grow and what funds we have.I said, “We have about eight weeks to move this system to a new system.” I vaguely felt that we needed to transfer money from the internet to cold storage.I don’t know how to design one.I’ve studied computer science, taken security classes, and had a basic understanding of cryptography, but I’ve never built a real key storage solution or anything like that.So I called two of my friends, “I need a crash course – tell me how to do it.” I asked one of them, “How long do you think it will take to build this thing?” He said, “It might take a few years for a team of ten to really validate it and everything.” I said, “We’re only eight weeks.” He said, “Then you’re in trouble.” I called another engineer on our team and we basically started writing the first generation of cold storage architecture for Coinbase.We lacked sleep and to complete the task on time, we made some tradeoffs that we thought were reasonable.But it succeeded, and that was one of the life-and-death moments.If we wait a little longer and the company is hacked, Coinbase will not exist today.
There is also a similar example, one day we were having lunch in San Francisco and an employee noticed on his computer that there were a lot of withdrawals happening.We quickly realized that someone had hacked into our account and were withdrawing money to ourselves as quickly as possible.I remember we shut down the entire website, found out how they got into that account, managed to block it, and the website was back online about 12 or 24 hours later.We fixed the vulnerability, went online and continued to run, and then I realized that if that hacker was sleeping when we started to act, we would be bankrupt by the morning.We only lost about $50,000 in that incident.But it was pure luck, because we noticed where we started to act in Pacific time—San Francisco—we started to notice.
Looking back, there are many moments like that, which are very scary.Just like to tossing a coin, there are three or four such moments of tossing a coin, not all of which are related to cybersecurity.
Once the company actually starts taking off, there are other challenges on how to keep pace.One of them was the influx of customer support tickets, and we didn’t have a customer support team at the time.So we answer all support tickets on weekday nights and weekends, from 9pm to midnight after we finish the other work.At some point, the unread support tickets reached 10,000, 20,000, or 30,000, and people began to be very angry and disappointed with us.We realized, “We have to expand super fast here. How do we build a customer support team in the next seven days?” Our team designed a quiz of ten questions because we couldn’t interview all of these people so quickly.We have people apply online, take this quiz, which is a very difficult quiz about crypto knowledge and other things.We interviewed many of them for five minutes and then hired them and we started to keep up.There are many similar problems along the way. We all crossed the river by feeling the stones and solved them temporarily..
North Korean hackers
John Collison: What do the general public don’t know about the field of cybercrime?
Brian Armstrong: One is that there are a lot of North Korean agents trying to work in these companies.
John Collison: Do they work in the United States or remotely from North Korea?
Brian Armstrong: As far as we know, most of them are remote.This does bring another attack vector.North Korea is very interested in stealing cryptocurrency.You might think that we can work with law enforcement – we do receive files like “OK, this is a known actor” that we sometimes share with other companies.
But it feels like 500 new people graduate from a certain school every quarter, and hacking is their entire job.In many cases, they are also victims, but they are still interviewing for these positions.We had to take some measures.First, when these people were interviewed in front of the camera, someone was coaching them offline.So we forced them to turn on the camera and prove that they are not AI.We also began requiring everyone to come to the United States for onboarding to access any sensitive system.Fingerprinting them to make sure anyone with sensitive permissions has U.S. nationality and family is at home because you don’t want someone to feel they can run away without worrying about extradition or something.
Another thing that surprised me was that these threat actors were willing to try to bribe our customer support staff.Our customer support staff work in rather closed facilities and they have a strictly locked Chromebook.In some cases, someone offered them hundreds of thousands of dollars to steal their personal phones, take screen photos, and so on.We must strictly limit the access rights of these customer service personnel.We have started to move more of our work to the United States and Europe.We just opened a new customer support facility in Charlotte, North Carolina and really started building deterrent, meaning that when we catch people doing this – we keep doing Red Team drills – we don’t call them out – they’ll go to jail.We try to make it clear that you accept the money is ruining the rest of your life, and even if you think it is a money that can change your life, it is not worth going to jail.These are the things we have to deal with now, and I’m sure the risks will only get higher and higher.
John Collison: More verification of physical existence, more segregation and deterrence, and enhanced deterrence through active prosecution.It feels like in a world full of AI, deep falsification, the proof of physical existence will become increasingly important.
Brian Armstrong: Yes.By the way, people may have seen that we are now in turn hunting down threat actors.We offer a $20 million reward to solicit information that led to the arrest or conviction of criminals who recently attacked our clients.We have fully compensated those customers.We’ve received a lot of clues from this and have tracked these people with law enforcement, and the process is very interesting.
The ultimate deterrence is not the pursuit of insiders, but the pursuit of the threat actors themselves.We have to be a tough target.
Crypto trends: Exchanges of Everything and Tokenization of Assets
John Collison: I want to take a look at what’s going on in the crypto space, which may be helpful for the discussion.Store of value is definitely a very important function; 24/7 all-weather transactions of assets – I also counted the model memecoins; the payment field has also achieved some success so far, and both of our companies have seen this aspect growing rapidly; the payment volume of cryptocurrencies, especially stablecoins, is also very optimistic in the next five years; it is also a big event to acquire the US dollar globally.What else would you add to this list?
Brian Armstrong: You have mentioned a few of the most important ones.Forecasting the market, entered mainstream society during the last election, trading volume continued to grow, and there are some new things that are about to come, we can discuss.But I think you’ve grasped the point.
John Collison: Cryptocurrencies can be said to be the basis for the prediction market.We didn’t have these until cryptocurrencies came along.
Brian Armstrong: Yes, not.Cryptocurrencies have had forecast markets before, and there is currently an open question in the U.S. law: If you build them entirely on-chain with self-custodial wallets, do they not belong to financial services?If so, they can be created more without permission—and this is true in self-hosted wallets and other areas.
There is another cool thing about transaction use cases, that is, every asset category is now on the chain.People are not just trading cryptocurrencies on the chain, they will soon trade stocks as well.There are private companies’ capital formation, as well as commodities, foreign exchange markets, debt instruments, and treasury bonds. Each asset class is on the chain. We are also working hard to grasp this trend. We have created a word called “everything exchange”.Coinbase is working to become a global liquidity market for all asset classes.This is exciting in many ways.
On the one hand, it is a wider international coverage, and people from many countries have a great demand for US assets.They want to invest in companies like Nvidia, but unless you are a wealthy person in the market, it will be difficult for you to open an American brokerage account.Then there is trading, fragmented shares, and you can also start doing some sustainable futures and other interesting things.
John Collison: So you think, for example, stocks – now there are American depositary receipts (ADRs), if Americans want to buy German or Canadian stocks, the operation will be extremely complicated and they can only buy derivatives in the end.And do you think on-chain tokenization is a better derivative form?
Brian Armstrong: Yes, I thinkA large number of assets will be tokenized, which is already happening to some extent, including capital formation in private companies – even personal funding, such as real estate projects or film production.In the future, people can also achieve innovation in governance mechanisms, such as stipulating that only long-term stockholders have voting rights.It can be set through smart contracts: you must hold it for more than one year to be eligible for voting.This kind of innovation is very room for a lot of room.
John Collison: What will be the next major application scenario for asset tokenization?Do you think this is the main direction?Or are there other more important application areas?
Brian Armstrong: The most core application at present is transactions and payments.I think Bitcoin has anti-inflation-resistant value storage function, which should not be underestimated.This is a $20 trillion market opportunity – gold is used as a reference, but Bitcoin is better.I think Bitcoin will eventually surpass gold.
We are beginning to see the prototype of lending services and capital formation.Decentralized social media is also very interesting, we just released a beta version of the Base app.Every content posted by users now corresponds to independent tokens. The creator owns personal tokens and its value will accumulate.Users can purchase tokens. If they like a certain piece of content, they can forward and share economic benefits, and can also recreate them. Just like the Meme template on the Internet, all the value can be returned to the content creator in the end.This primitive ecology is nurturing interesting creativity. Although the specific form is not yet clear, the Base application has shown vitality.The waiting list for users is very long.These are emerging application scenarios.
Stablecoins are applicable on a large scale
John Collison: We both agree that payment itself can be an important new application—it has been basically limited to the cryptocurrency enthusiast group in the past decade, but is now gradually becoming mainstream.
Brian Armstrong: I was particularly excited about Stripe entering this field because it greatly improved the credibility of the industry.The technology is gradually maturing, but there are scalability problems: users have to face the payment address of messy characters rather than readable names, and the wallet experience also needs to be optimized.Crypto payment should be the most convenient way to pay.
Brian Armstrong: What do you think about the next obstacle to the popularity of stablecoins at present?
John Collison: I think cultivating user familiarity will be a key breakthrough point.
Currently, one of the most valuable application scenarios for Bitcoin is still cross-border capital flows – it truly solves real problems.If you want to transfer $2 from the United States to Türkiye, there is almost no product in the traditional financial system that can achieve it.And encryption makes this a breeze.
In the creator economy, we have also observed a large number of demands.
Interestingly, application experience and user behavior will form a virtuous cycle.Take QR code technology as an example: This super-old technology that has existed for decades requires two trigger conditions – one is that Apple integrates it natively into the iPhone camera application, and users can automatically identify it by simply pointing the camera at the QR code (this happened in the late 2010s); the other is that the new crown epidemic has created a demand for a contactless experience, allowing American users to truly become familiar with QR codes.
Similarly, stablecoin applications also need to meet these two conditions: one is the support for consumer-grade applications (not yet improved).
The second is the cultivation of user habits.In order to promote stablecoins, we even set up a crypto payment experience at the first-floor coffee station.
But it is still very unstable and will always encounter various failures.But when the application experience becomes smooth and users become familiar with it, we believe that the use of stablecoins will experience explosive growth.
Brian Armstrong: It’s totally correct.I think you’re right.It is worth observing that will the final solution rely on QR code technology, or will it require tap-to-pay NFC technology?
John Collison: My use of QR code is actually a metaphor for this wave of popular technology.Touching payment NFC does seem to be a very likely solution, especially as the operating system support increases.Now the iOS system has relaxed the NFC usage restrictions. Perhaps the Coinbase application can call the NFC interface?
Brian Armstrong: We have seen many excellent touch payment demonstrations, and this field is opening up.However, Secure Enclave on the device is still another matter. Access is not available yet, so we will continue to work hard.
We even discussed mailing payment stickers to saturate the entire city for testing—watching which merchants are willing to accept crypto payments.
Currently, most application scenarios are concentrated in cross-border payments and the Internet native fields, and encrypted payment is the only feasible way in these scenarios.Because when globalized communities gather, it seems strange to use a single country currency.
The brick-and-mortar retail store may adopt it later, which is my guess.Merchants want to save 2%-3% of the payment fee, and are also willing to give some of the saved costs to consumers.
How banks embrace cryptocurrencies
John Collison: I agree.It feels like digital use cases will be the first place to promote, and we are increasingly launching the Stripe Checkout experience – using cryptocurrency payments as an option.There are many brick-and-mortar retail stores that accept Alipay or JCB.Obviously, accepting Japanese bank card brand JCB in the United States is a pretty niche situation.But this group of people is big enough that it is worth doing.It feels similar here, once you get over a certain minimum penetration rate, not everyone pays for it, but not accepting it becomes unworthy.
What do you think about all banks embracing cryptocurrencies?Jamie Dimon said, “Bitcoin is a scam, worse than the tulip bubble. If I were the government, I would have shut it down now.” And now they are certainly launching their tokenized dollar JPMD.This is an interesting thing.I’m curious about how you view this common phenomenon in major banks.
Brian Armstrong: Ultimately they will respond to customer needs.Whenever customers need it, they will support it.
I feel like there has been this back and forth pull between banks and cryptocurrencies, and they would say, “We’re not sure if we like Bitcoin or not, but we like blockchain technology. Maybe we can build a closed network of interbank settlements. “Maybe they don’t like paying for SWIFT, are excited about the concept, and have run a lot of related projects, but I haven’t seen them fully support it yet.
Like Clay Christensen calls the “innovator’s dilemma.”Culturally, it is very difficult to make a change from an organization that makes huge profits from traditional systems.Probably only part of anything they do in the cryptocurrency space, but it comes with all the risks and complexity.Not many people in their company come in with this mentality.There are not many genes within the company that want to build crypto products.Just like when the New York Times first appeared, some local newspapers will not be able to adapt to the new system, and these newspapers will gradually disappear, but some of the best newspapers will adapt to it.Just like media companies now have websites.Banks to embrace cryptocurrency.Payment companies Visa and Mastercard are working on good experimental projects on stablecoins.Obviously, I think Stripe is already fully engaged, which is very wise, and you encourage a lot of others to wake up and do something.I think the smartest ones will adapt.
From a Coinbase perspective, we increasingly want Coinbase to become people’s main financial account.As cryptocurrencies eat up financial services, for some of our customers, Coinbase can be a replacement for banks, managing their transactions, payments, direct deposits, they have credit cards, loans, and by the way, many people don’t actually even care whether it’s cryptocurrency or not.They just want the best financial services.If this is the cheapest way to send money to overseas families, or they are able to get the best rewards on this card, or anything else, that’s what we want to offer them eventually.Banks will have to compete in this new environment.Either become an infrastructure layer that supports new fintech applications that become the main financial account in the minds of the next generation of young people, or banks adapt to the new world, build their own applications or embrace cryptocurrencies.Like I said, the smartest banks will do that, and many will be left behind.This is free market competition.
John Collison: Companies do not innovate, but consumers choose to use by voting with their feet to bring innovation.In the banking industry, who has left a deep impression on you?
Brian Armstrong: Yes, there are several.I think Jamie Dimon is a great leader – very smart, and although I don’t agree with his comments on Bitcoin, he is a great guy and we have a lot of collaboration with them.Santander Bank has been great.There are also banks that have really embraced cryptocurrencies, such as Citizens Bank, CrossRiver and Silicon Valley Bank.
Will Coinbase become people’s main financial account?
John Collison: What happens if Coinbase becomes people’s main financial account?
Brian Armstrong: This means we take on greater responsibilities and proportions to people’s financial lives.
This is not just about trading cryptocurrencies, it could mean using crypto assets as a secured loan, or using a Bitcoin credit card to get 4% of Bitcoin as a rebate when spending, or sending money overseas immediately at less than a cent.
Therefore, we need to be good at leveraging the benefits of cryptocurrencies to update the financial system, rather than encrypting it for the sake of encryption.Coinbase’s early users were just big fans of cryptocurrencies.
About 6% or 7% of the world’s people have used cryptocurrencies now—just like the internet in the early 2000s.And we need to reach about a billion people, or half of the world, to end up using it, in order to truly increase economic freedom globally.It has to be something more important than the technology itself.It has to be faster, cheaper, better, helping me do what I want to do.
Coinbase will not apply for a bank license, hope to have 100% reserve
John Collison: I ask this because I observe the growth of new banks outside the United States.Nubank is dominant in Brazil, and Revolut is the fastest growing bank in Europe.And in the United States, the largest consumer bank is basically the same.Compared to the 1970s, it is a very similar and recognizable group of characters.Maybe it’s still like this in ten years, or things may change completely.I am very curious about what the new banking revolution in the United States will look like?
Brian Armstrong: This statement is great, and I should probably use this way of describing it.Some people call them stablecoin new banks or super apps.There are many terms to come up with.
I think this is our opportunity.By the way, from a technical point of view, I thinkWe won’t apply for a bank license.The core function of a bank license is to allow not to hold all funds, this is called the partial reserve system.It’s an interesting business model, but it’s also accompanied by extremely heavy regulation, making it very difficult to truly innovate and iterate quickly on products.We don’t want to be a bank.
Coinbase wants to make full reserves, rather than partial reserves.100% reserves, rather than partial reserves, are actually safer for customers – because it is impossible to encounter a bank run.It can even invest assets, especially reserves of stablecoins, in bankruptcy quarantine assets such as U.S. Treasury bonds.You can build very strong protections that will allow us to continue to innovate and deliver the best customer experience.
I think for many people it can be a substitute for banks…or in your terminology – the United States needs a new bank because the rest of the world seems to be popping up with such institutions all the time.
A large amount of capital is waiting to allocate BTC BTC price will reach $1 million
John Collison: What are your predictions about the average annual growth rate of Bitcoin prices over the next decade?
Brian Armstrong: My rough idea is that Bitcoin will rise to one million dollars by 2030, and of course the error range of this kind of prediction is very large.
Provide several data points: The United States has begun to see regulatory clarity, which I think is of a weather vane for other G20 countries.The GENIUS Act has been passed against stablecoins, while the Market Structure Act is being discussed in the Senate.Praying for progress at the end of this year will be a huge milestone.
Now the US government has a strategic Bitcoin reserve.If you said this five years ago, others would think you were crazy and think that the US government could not officially hold Bitcoin.If the United States does this (and there are currently executive orders requiring it), many other countries will follow suit.We have seen sovereign states show a strong interest in this,Coinbase provides crypto services to approximately 140 government entities, including federal, state, local and international agencies.The government is increasingly involved.You can imagine the huge global capital pool.
I don’t think the regulatory risks will go away, but the huge risk of “government will shut down the crypto industry” has been significantly reduced.
As for whether there are flaws in the Bitcoin protocol?I think it has been thoroughly reviewed at this time.We need to make sure that it is upgraded to post-quantum cryptography.The Bitcoin core team, Ethereum and Solana are all working on upgrade plans to turn to post-quantum cryptography.
The risk list is decreasing, while demand and the amount of institutional funds waiting for the next bill to be introduced on the market are increasing.The large institutions I talked to have 1% of their portfolio allocated Bitcoin, and I asked them, “What are the requirements to increase to 5%-10%?” They replied, “Regulation is clear, that’s all.” I think we will continue to see a large inflow of capital.The impact of ETFs is already huge.
John Collison: When people talk about off-site institutional funding, I think the analogy with gold is very appropriate because it is a non-productive means of storage of wealth—I am a compliment, not a derogatory one.But when it comes to institutions specifically, I don’t think that major sovereign wealth funds, mutual funds, etc. currently hold a large amount of gold.Isn’t buying BTC like buying a gold substitute?But it seems unusual for large institutions to purchase non-cash flow assets?
Brian Armstrong: It depends on their strategy.There is a theory that in a diversified investment portfolio, 5%-10% should be allocated to assets such as commodities.BlackRock actually published some reports and research that crypto assets should be part of every healthy diversified portfolio at this point because of interesting inverse correlations with other assets—a relationship that evolves over time.I thinkFive to ten years later, most wealth management companies or sovereign funds will contain 1%-10% of crypto assets in traditional diversified portfolios..
How ordinary people configure crypto assets
John Collison: If you don’t want to allocate a portion of your portfolio to crypto assets, should you make a USD cost average fixed investment in Bitcoin or even other major tokens (rather than meme coins) and weighted by market value?If you want to invest some money in crypto assets, what is the correct investment strategy?
Brian Armstrong: Disclaimer required: I do not provide investment advice.For those who just know anything new, whether it’s crypto assets or something, it’s reasonable to do it: if you’re interested, invest 1% of your net worth (the amount you’re willing to lose and learn).
John Collison: How should it be configured within crypto assets?
Brian Armstrong: Bitcoin is a great place to start.We have an index called COIN50 that contains the top 50 tokens weighted by market capitalization.I won’t list the tokens in detail, but I think you should hold Bitcoin.If you want to use it as an allocation, you can also hold an index fund.
What you should do is try and use crypto assets: spend at Stripe merchants, use Coinbase credit cards, publish content on the Base app and start earning crypto assets, shop in stores that accept crypto payments, etc.People should use crypto assets, part of which is investment.
Ultimately, as stocks are tokenized, people will use crypto without knowing it when they want to get a loan.Just like people may not understand the principle of electricity, but can turn on the light switch.
What does the GENIUS Act mean?
John Collison: Now that we have the GENIUS Act, what does it mean?With the GENIUS Act, what can we do now that we could not have done before?
Brian Armstrong: I start with stablecoins and then talk about the GENIUS Act.Stablecoins are essentially fast, cheap, and global payment tools.We can now pay at a cent in a second anywhere in the world.This is unique, and no other payment network can meet the three conditions of fast, cheap and global at the same time.
The GENIUS Act states that if you want to issue stablecoins in the United States and operate them, certain requirements must be met to make them safer and more reliable.One of them is that 100% of the reserves must be backed by US dollars or short-term U.S. Treasury bonds, cannot hold other high-risk assets, and must be audited regularly to prove compliance.This is a basic specification requirement.
But more importantly, it becomes that federal law is written into the code and recognized, indicating that “this will become a trusted, legal, and allowed technology in the United States.”This has sparked a huge demand from every company involved in payments (i.e. all companies).They realize the need to develop a stablecoin strategy and figure out how to deal with it, as the U.S. government has endorsed it, which will be a trend.
John Collison: I’ve noticed an incredible surge in interest over the past two or three months.
Brian Armstrong: It’s like a gold rush.Everyone flocked in to try to figure out what the hell is going on and think about how to save money for the company.Many companies try to pay developers in markets around the world.In the United States, Europe and some other countries, the existing system works well.But there are still a large number of long-tail countries where people cannot access good financial services.The payment channel is like a black box, and it is unclear what the final amount is, and a high fee is charged.
If there is a fast, cheap global payment network that will democratize financial services so that anyone with a smartphone can stand on a more level playing field, and their wealth will not be eroded by inflation.This is a powerful tool to promote progress, property rights, sound currency and economic freedom.This is the opportunity brought by stablecoins.
Now we need to complete the market structure bill, covering issues such as non-stable currency crypto assets, which are securities and which are not securities, etc.
How encryption affects U.S. elections
John Collison: The passage of the GENIUS Act is tortuous, you must have some interesting stories, right?
Brian Armstrong: I realized that for a long time, we were trying to make progress in Washington, pushing for legislation, but nothing happened.I was told: “Congress is good at doing two things: doing nothing, and overreacting in times of crisis.”
We realize that political will must be generated to achieve this.There are 50 million people in the United States who have used crypto assets, and we say, “Let’s try to organize it.” We funded a 501(c)(4) nonprofit called standwithcrypto.org, which has 2 million Americans raise their hands to express their desire to elect candidates who support crypto assets.
I remember discussing with the policy team, and I said, “Let’s rate every politician’s performance in the November 2024 election, from A to F.” The policy team’s job is to build relationships with politicians, who recommend making a list of crypto supporters.I said, “No, I want to list the encrypted enemies and rate F. Who got F?” I could see them sweating with nervousness.We need to have some people win elections because of crypto votes, and others lose elections because of crypto votes.
John Collison: The crypto field is well-known for its performance in Washington, and is more fighting than the tech industry history.We have friends and enemies.AtIt is launched with the Score Card and the “Stand with Crypto” campaign – Fairshake is more relevant in some recent struggles.Is this what you dominate?We are no longer afraid of our heads and minds but express our position clearly?
Brian Armstrong: A lot of people are involved, I can’t take the credit for it, but I see a shift in the crypto industry.
The traditional policy advice we get from people in the tech industry is: “You need to go there to build relationships and be good people. Then you should form a trade organization, and they play the bad people, fight, write sharp commentary articles, etc.” But somehow, the people of these trade organizations we find also want to be good people.
I’ve been wondering: Who will be involved in political struggles on X platform and criticize those who do bad things?They just want to have a polite conversation in closed-door meetings.As the election approaches, I realize that if no one is a bad person, maybe we should.I don’t think we’re doing anything too crazy, but by Washington’s standards, it’s crazy.
We make it clear that we support crypto assets unambiguously and don’t care if you’re left or right.We want to elect candidates who support crypto assets, and we also want candidates who oppose crypto assets to step down.It really shocked people in Washington because everything there is partisanship.
There was a heated debate on the eve of the election, and I received an angry call from both sides: “How can you donate to this person?” We said, “Because they support crypto assets.” Then another group called, “How can you donate to that person?” I said, “Because they support crypto assets.” We are actually single-item voters.
On the one hand, I think we may have annoyed both sides and will not become friends after the election.But on the other hand, if you are attacked, it means you hit the target.We are explicitly a non-political company, but we support crypto assets without any concealment.I must remind many that “non-political” does not mean 50/50, but rather that we will support candidates who support crypto assets, no matter which party they belong to.It is not necessarily 50/50 every election, maybe 60/40 this time, and 60/40 next time the other party is 60/40.
It’s a huge mindset shift, a bit of a reverse thinking, and it helps to select Congress that supports crypto assets the most.The work we and many others do—I don’t want to take the credit out of my own, and other companies are involved—set the foundation for the passage of this legislation.We show people in Washington that there is no voter base to oppose crypto assets, and Americans want crypto assets, and supporting crypto assets helps to be elected.This is just a good political strategy.
Qualified Investor Standards, US SAR, etc.
John Collison: Once the Market Structure Act is passed and the GENIUS Act takes effect, do you have any questions to go to Washington?
Brian Armstrong: The last administration did try to kill the entire industry—but now we have accumulated some knowledge in policy, and this self-righteous perception can be dangerous—after all, things are unpredictable, and results are both good and bad.Hopefully we can complete the Market Structure Act.This started me thinking about what else can we do to help update the financial system.
Our mission is to increase economic freedom.One example is that I think the Qualified Investor Law is somewhat unfair.Only the rich can invest to become richer, which seems to be a regression.Perhaps financial knowledge testing can be used instead of qualified investor standards based on net assets or income.
I’m excited about the idea of a special economic zone.They work well in places like Shenzhen, China and the UAE.We have so much regulationWhy can’t you set up a sandbox in one area to test new ideas?It can revolve around areas such as crypto assets, biotechnology, drones or supersonic aircraft.It would be great if 10 pieces of federal land could be established in the United States as different special economic zones.
There is a company called PROSPERA (we invested in it) that has built a prototype in South America and is now trying to push it in the United States.There are many other areas.
Brian Armstrong: Do you have any policy issues you particularly like in Washington that you want to promote?
John Collison: It might be the aviation side.I’m super excited about the new MOSAIC rules (modernization of special airworthiness certification) – in general, the current government has a relaxed regulation agenda, but it needs to really do it and pass the new rules.They just did this in the aviation field: you can’t make an aircraft and sell it to the public, you have to pass a series of FAA approvals, the process is very cumbersome, years of time, and very rigid regulations.For example, electric aircraft cannot pass the certification because the regulations require that “aircraft engines burn gasoline, etc.”.U.S. Secretary of Transportation Sean Duffy announced a brand new aircraft certification system last month, a reform that greatly simplifies the process.I think this will drive more bottom-up innovation in the field.This was originally one of my policy wish lists, but it has become a reality now.
I believe that the light aviation sector will usher in more innovative breakthroughs—the United States once clearly led the way, but has stagnated over the past few decades.By the way, you should also note that the current government has issued an executive order requiring the Federal Aviation Administration to allow supersonic aircraft that do not produce perceived sonic booms (compliant with specific decibel standards) to fly in U.S. airspace.
Brian Armstrong: It’s really exciting.I really look forward to flying to my destination faster.Another reform worth promoting is: The current FDA approval requires an average of 10 years and $2 billion in time for the drug to go to market, and they have set up three phases of clinical trials to verify safety and effectiveness.But if a drug has passed the first phase of safety trial, why not let the doctor prescribe it?Especially for dying patients who have no choice.You know it’s safe, just don’t know if it works, let the doctor make the decision.This will get data on the drug market faster.Many people die every year.There are many such things that can be improved through a reasonable relaxation of regulatory campaign.
Runaway and fraud in the crypto field
John Collison: I think it’s a bit stupid for everyone to agree with the qualifying investor rules.They are both exclusive (if you don’t meet the minimum net worth test), and as we’ve seen, the rich aren’t necessarily shrewd when it comes to investing.Theranos’s investor list is a who’s who’s list of all kinds of wealthy and qualified investors.At the same time, if it is completely relaxed, there will be a bunch of scams and frauds.The United States has some of the best capital markets in the world.When I see some of the more liberal areas in the crypto world, I think the rugging phenomenon and people seeking zero-sum behavior are some of the worst things that we shouldn’t allow for perpetuation.What is the framework for liberalizing investment while maintaining the best quality we have today (i.e., high integrity and strict honest fair trading rules) when you think about alternatives to qualified investors?
Brian Armstrong: That’s a good question.Fraud should be prosecuted to the greatest extent possible by law.You can ask for disclosure: If you want to finance something, you must provide certain information.If you make mistakes on important matters, especially intentionally defrauding investors, you should go to jail for this.But that doesn’t mean that only the rich are allowed to do so.
We also don’t want to create the wrong concept that “government approval means good investment”.Many listed companies—theoretically recognized by SEC, etc.—have fallen 85%-90% in the past few years, such as some biotech companies (I don’t name them).You can lose all your money in the open market.We need to develop a sense of personal responsibility: there is no return without risk.The government is not here to tell you what is good investment, you still need to judge for yourself.But they can help by making sure that “the information this person gives you is real.”If they lie to you, tort law can allow you to recover damages.
I may be more inclined toward free markets than most people in this regard.The best consumer protection is sometimes competition.If you have a car company, the car is terrible, often broken and expensive, the best solution is to let another company compete and offer a better option.
Many people have no financial knowledge, but are very smart on the street and know what a scam is.They knew three friends told them that the thing was not good.
John Collison: Have you taken measures against some token speculation scams in Coinbase products?Or should people be adults and should they evaluate their investments themselves?
Brian Armstrong: We have a lot of arguments about this because it’s kind of like an app store or even Amazon.Assuming someone tries to sell a fraudulent product on Amazon, Amazon may want to remove it.But assuming it is a two-star or Samsung product, some people like it, many people don’t, but it’s not a fraud.You should allow people to make their own choices and see that it has two stars, but you can buy it if you want.Maybe the vendor can improve it.
We try to adopt a similar philosophy: we want to list all legal products (fraud is illegal) and provide information to customers to help them make better decisions.We have tried various ways, but have not yet fully solved it.I’ve considered an on-chain review system or a reputation score.We have published an API that allows anyone to query encrypted addresses (can be assets or people) and get an on-chain reputation score.This is an early prototype.
Eventually you will get something like FICO score (Note: a credit score created by Fair Isaac Corporation, which lenders use to evaluate the borrower’s credit status), Amazon, or Yelp ratings.You need to make sure that if I try to send John Collison some USDC to buy beer, I need to confirm that it is the real John Collison, not the impostor.These tools built by private markets will help this, allowing the government to hunt down fraudsters.
150 fiat currencies will be replaced by Bitcoin and digital dollars
John Collison: You mentioned the product market fit for crypto assets in emerging markets, where there is a very strong product market fit.In markets with high inflation rates historically, people have traditionally tried to move funds out, trying to exchange funds for something like the dollar, and they think they can maintain their value better, and this behavior has been around for decades.Perhaps countries with black market exchange rates are indicators of demand.Many of these governments do not always approve this, and they prefer that all funds remain in their country’s currency.There is a gap between what the government wants and what the people want.How will this develop?Who will win?
Brian Armstrong: You’re right.When we enter a new country, we often have to walk on the balance beam.We really want to work within the existing system, usually getting a license to set up local entities for regulated financial services products.I’ll talk about self-hosted wallets later.
We talk to different departments of the government and hear different voices.Usually some people in the government are hesitant about crypto assets, sometimes central banks.There are other ministries in the government who are actually very supportive – they want to digitalize the country and create economic opportunities.But the people clearly want crypto assets.
In many parts of the world, Coinbase is able to work within the system and provide what people want.But in other regions it is difficult or impossible for us to enter and create regulated financial services businesses because these countries do not have a clear regulatory framework or simply send bank licenses to their cousins and bribe their friends, and American companies do so illegally.You can’t do business effectively in many of these places.
Therefore, we also have a self-custodial wallet that is not regulated as a financial services business because we never possess customer funds.It’s more regulated like a software product (like a messaging application) and you can start it directly.Just like saving a key in 1Password, it is essentially a software product.This allows us to enter some other markets.
You ask where the future will go.In some markets,I think the top five or top ten government fiat currencies may be retained, and I don’t think they will disappear.But the other 150 long-tail government fiat currencies should be replaced.They perform poorly, are often abused, eroding people’s rights.I think there is a good reason to show that these fiat currencies should be replaced by Bitcoin and USDC, etc..
For example, Ecuador has adopted a similar approach – they peg their own currency to the US dollar.To be honest, this is almost like a kind of civil disobedience in almost all such countries.In areas such as Venezuela, the introduction of self-custodial wallets that allow people to hold US dollars may technically violate the legal provisions.I think I can accept this.It’s a kind of civil disobedience – because people are indeed in a terrible situation because the government steals wealth through inflation.This is a good thing.
Obviously, the digital dollar is very beneficial to the United States, maintaining its reserve currency status and government bond demand.It is also a good thing that Bitcoin is being used in the United States, as democracies around the world now have problems with deficit spending.To be elected you promise more free stuff, this will drive up costs.How to balance your budget disciplinedly?Bitcoin is part of the answer.It is a check and balance of deficit spending, and if it gets out of control, people will flee to Bitcoin during uncertain times.If deficit spending is under control, people will continue to use the fiat currency.
I don’t want to exaggerate this, but I think Bitcoin extends to some extent Western civilization or American experiments.But if we lose discipline completely, the US dollar will lose its reserve currency status, I hope not, because I am an American, and I believe America is a good thing for the world.I would rather people turn to Bitcoin than RMB.Thankfully, in this new economy, we have Bitcoin as a check and balance.
Will the US dollar lose its reserve currency status?
John Collison: How can the United States avoid losing its reserve currency status?
Brian Armstrong: Don’t inflate the dollar.The debt-to-GDP ratio is usually something to pay attention to.We are now at around 150 or 170.Historically, when the UK or the Netherlands lost their reserve currency status, they were in the range of 200-250.The United States is within a historically dangerous threshold.It is hard to see where the political will to do so is produced.I hope Bitcoin can be part of the solution.Let’s wait and see.
The success of the US dollar stablecoin
John Collison: Why are non-USD stablecoins not successful?The share of the US dollar in global stablecoins is more than 95%, far higher than the share of the US dollar in global currencies.Why is this happening?Will this last?
Brian Armstrong: If you can access anything without permission, you will use the most trusted reserve currency.This may be the reason.
Europe deserves its credit, they do come out – sometimes Europe is the leader in regulation, but that’s not necessarily the area you want to lead.They did introduce regulatory frameworks before the United States.There is an Euro stablecoin, but it is very small and does not have much appeal.I think the dollar is meeting people’s needs.
Another smaller but interesting thing is called flatcoin.I don’t know if you’ve seen these, it’s not supported by a dollar one-to-one (the dollar certainly has a level of inflation, about 2% to 5% per year), but is trying to track the CPI (Consumer Price Index) to maintain its purchasing power.So if a giant is worth a dollar today, ideally a stablecoin should be able to buy it for one dollar in 10 years.There is a company called Ampleforth that has built a token called SPOT that has tracked 2019 dollars since 2019 and is now worth about $1.26.It has gone through crazy ups and downs, but has actually been quite smooth.
Economists often argue whether you want 2%-3% inflation to motivate people to spend money?It’s great to have something that keeps purchasing power to sign contracts and price, and you hope the price will remain unchanged in the future.
Coinbase internal venture capital: the birth of USDC and Base
John Collison: Coinbase has institutional products, USDC stablecoins, brokerage business, L2 Base, you are everywhere.This may work in this fast-growing industry.How do you focus?How to allocate resources?How to decide what to cut?
Brian Armstrong: It depends on how you calculate it.Stripe has many products in the payment field.A lot of this comes down to the founder.Sometimes I can’t help but have a lot of thoughts, and in fact, companies usually oppose me and say we need to focus more.I said, “Okay, you are right, we should focus.” Focus has its advantages.Having multiple sources of income also has its advantages.When one rises, the other falls.It also has its advantages to having some small teams deal with various things.
USDC and Base started with only three to five teams.USDC may add $800 million to us in the past year.I never thought.
John Collison: You didn’t actually expect it?Isn’t it obvious?
Brian Armstrong: No, not obvious.We have an internal system where employees can market venture capital they want to make internal investments (Venture bets) twice a year.
The internal venture capital model we are trying to build is that it does not require unanimous consent.In most companies, your boss, your boss, and until the CEO says yes can only approve something.This means that as long as there is a no, you are out.Venture bets within Coinbase is that you can go to any product owner, a handful of smart engineers selected, and me and a few others.If you get any of us yes and fund it from their budget, you have the green light.It’s like selling to a group of internal venture capitalists.
This means Coinbase gains more adventure culture.We tried a lot of ideas, some of which didn’t work, and we had to turn them off.It’s hard, how do you have the courage to reduce projects – because at a startup, you’ll spend all your money and can’t raise the next round.So we have to simulate these investment rounds.Occasionally they completely exceed expectations.
I’ll tell you a secret:I actually voted against the USDC project.Because I read it, I said, “Ah, it’s not as decentralized as I want it to be.”I had some reason in my head, thankfully there were others in the team who had invested yes and funded it from their budget. I was totally wrong. I often used this example to illustrate that the best ideas don’t have to come from me, they can come from everyone in the company. We have to try bolder ideas.
John Collison: Where is Base?
Brian Armstrong: Base is another example of Venture bet.It started out as a small thing, and Jesse came to me and said he wanted to start a Layer 2.I don’t have any specific ideas on how to do it.The only thing we do is fund and protect it.New ideas are sometimes fragile within large companies.
I remember you said a very insightful thing – to avoid letting the “embracing suffocation” of large companies kill innovation.
The only thing I did well was probably that I protected it, but most of the time I didn’t know what Jesse was doing.He iterated three or four ideas, and Base was the fourth thing he came up with.Base finally started to succeed, becoming the number one Layer 2 solution on Ethereum.Now is the Base app that has just been launched.
As CEO, my job is not so much about coming up with the next great idea, but creating the right environment where good ideas can happen and be nurtured, and bad ideas eventually shut down.We have some discipline in this regard.
The most difficult time for new Venture bets is when the core business is threatened or in a downturn.Core businesses are always under threat.
John Collison: So that’s why it’s the core.It’s a successful business and others want it too.
Brian Armstrong: This makes our decisions very healthy, but it is a kind of healthy tension in the organization.Often people say that the core funding is insufficient and threatened.How can I allocate more?I want to draw resources from that thing that has not yet generated income.But sometimes I’m on the other side and say I want to fund the core, and we should also use 10% of our resources for these Venture bets.Because in five to ten years, we need the next chapter to appear.
Sometimes there is a distinction between founders and operators. If you have too much founder energy, they sometimes blow up the place.If you have too much operator energy, they are just bored and can’t do anything innovative anymore, but they run very efficiently.
John Collison: It’s like a series of layered S-curves.
Brian Armstrong: I was lucky at Coinbase, with Emilie Choi as president and chief operating officer.She and I formed a great team.I think we can do things naturally in any way.I’m trying to make the Founder more, provide risk tolerance, Venture bets.She made Coinbase a well-run company, like she said against me: “Brian, if we were only focusing on the core business in Europe, we might generate another $1 billion in revenue.” So, it’s a great combination.
Coinbase is researching forecasting markets
John Collison: Do you use the forecast market in your internal operations?
Brian Armstrong:not yet.
John Collison:If you are crypto believers, shouldn’t you use it?
Brian Armstrong:Yes.We are integrating and researching forecasting markets.We have not yet received full clarity and the new CFTC chair has not been confirmed.U.S. citizens are not yet allowed to use on-chain forecasting markets.Every market that is approved for operation in the United States must be approved by the CFTC.So if there are some interesting internal bet projects, we don’t have the resources to get everything.But hopefully it gets easier at some point.
John Collison: Once they are approved, will I see forecast markets about projects and the like?
Brian Armstrong: That’s a good idea.
AI and others
John Collison: What other ways does Coinbase use to encrypt believers and AI believers, which are different from the companies founded 10 or 20 years ago?
Brian Armstrong: Like many companies, we are delving into AI as deeply as possible.We are doing a lot of best practices.I’m mandatory to get every engineer to use Cursor and Copilot.Coinbase now has about 33% of its code written by AI, with the goal of reaching 50% by the end of the quarter.
John Collison: What advice do you have when we start to get into the crypto world more and encryption becomes more relevant to payments?
Brian Armstrong: The crypto space has never been as good as it looks, nor has it been as bad as it looks.You have to persist for a long time and go through ups and downs.It is very periodic.
Coinbase really wants to set more open standards, with a trade-off.Because if you really have a decentralized protocol like Base, we started it, but it is going through incremental decentralization, we go from stage zero to stage one, and we will soon reach stage two.On the Base network, everyone should be able to exist in a level playing field with Coinbase.This is what we want to achieve.
It is a license-free system that everyone can build.This is what really subverts traditional finance.It won’t be another proprietary system.This is something that really embraces encryption.
