How I Built This with Guy Raz - Coinbase: Brian Armstrong

Episode Date: November 15, 2021

Brian Armstrong wanted to be a tech entrepreneur since he was in high school, but his first serious venture—a tutoring website—never quite took off. Around 2010, while looking to get a job in Silicon Valley, he stumbled across an intriguing idea for a peer-to-peer digital currency called Bitcoin, which quickly turned into his obsession. Brian's initial prototype for a hosted Bitcoin wallet got him accepted into the prestigious Y Combinator program, and he launched Coinbase soon thereafter. Many experts warned that cryptocurrency was no more reliable than Monopoly money, but the startup prevailed, surviving wild swings in the crypto market and steadily building a user base. Today, Coinbase is one of the largest cryptocurrency exchanges in the world, with 7.4 million monthly users, 2,700 employees and over 80 cryptocurrencies traded on its platform. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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It had tall windows, beautiful old details, and plenty of space for all of us. And being in that home on Airbnb, right in the middle of Vienna, walking distance from so much of the city, made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb. your place with all of its personal touches and its amazing location could make someone else's vacation even better your home might be worth more than you think find out how much at arbb.ca slash host somebody has to be a little crazy to join something so early stage where it's like okay it's two people with a laptop and a dream and it was incredibly difficult to hire the first

people. In the early days, I was just relentless. Like, I, if I went to a networking event in Silicon Valley, I'd walk up to every single person. Are you interested in crypto? I'm doing this company. It's early stage. We just, if you have any interest in joining, I'd love to catch up. Can I get your email? You know, no, no, no, no. I'd get one, one yes after 10. I'd go do 30 more. From NPR, it's how I built this, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz and on the show today, how Brian Armstrong bought into Bitcoin before most people knew what it was and built Coinbase, one of the biggest cryptocurrency exchanges in the world. In Yuval Noah Harari's book Sapiens, he argues that our societies are almost entirely constructed around stories.

The stories we collectively believe in have made it possible to invent the idea of a name. nation or a people or even a faith. So let me ask you a question. What is the value of gold? Why does it cost almost $60 a gram? You might say it's pretty and shiny or that it's difficult to mine or that it's useful in certain industrial applications. But all of these factors apply to many other metals that are much cheaper. The reason we value gold is because we believe in a story of about gold, a story that tells us it's valuable. Same with diamonds, same with the dollar bills in your wallet. None of these things have any intrinsic value, but they do have value because we all agree they do, which brings us to today's episode, because we are going to be talking about something

that is very challenging for many people to believe in, in part because we can't see it or feel it. digital ones and zeros with names like Bitcoin and Ethereum and Pocod and thousands more. In fact, there are more than 6,000 cryptocurrencies in the world right now with more being generated weekly, and not a single one is issued by a central government, at least not yet. As of this recording, the total value of these cryptocurrencies is hovering at around $3 trillion, and the reason? You know where I'm going with this, because lots of people believe they have value.

And some of the most powerful forces in global finance are starting to come around to the idea that the future of finance is, like cryptocurrency, decentralized, untethered to any single government or central bank. Now, to be clear, there are still a lot of skeptics out there. But the people who are totally committed to crypto, So, at least for the moment, seemed to have seen something long before the rest of the world did. Brian Armstrong is among them.

Back in 2010, he was a talented computer coder with ambitions to start a new company. That year, he came across a mysterious document on the Internet about a new peer-to-peer digital currency called Bitcoin. That document envisioned a digital ledger that would guarantee the value of that currency. what we now call the blockchain. It's an idea that would change Brian Armstrong's life and lead him to develop a way for people to buy and sell cryptocurrency. In 2012, when he founded Coinbase, most of the people Brian came across were deeply skeptical.

But when the company went public nine years later, Coinbase's valuation hit $86 billion. And today, the company is among the largest crypto exchange. in the world. Now, it's possible this is all a bubble, and in 20 or 30 or 50 years, we'll look back on this time and wonder how anyone could have placed a value on any of this stuff. But Brian Armstrong is betting that he's right. Brian grew up in San Jose, California, the unofficial capital of Silicon Valley. Both of his parents were engineers, and as a kid, Brian would take apart computers and design websites for fun. In college at Rice University in Houston, he was always trying to figure out ways to start businesses. You know, my roommate at that time, he and I were trying to think about how to make extra money around campus. And, you know, you could get a job at the library or the coffee shop, and it paid, I don't know how much per hour.

But one thing we realized, I think an upperclassman told us this. And they said, hey, you know, if you tutor high school kids, you can make like $60 an hour. And I was like, what? That's crazy. How can, you know, it was like 6x, you know, the price of these other on-campus jobs. Yeah. And so I think we just put like a small classified ad in the Rice University newspaper. We just said where Rice University students were available to tutor.

And math or whatever or. Yeah, it was like high school algebra or things like that. Yeah. And sure enough, it was pretty easy to do. And we made good money. And so after doing that for three to six months, we were thinking, okay, why don't we expand this to other universities? So we tried to hire people at other good schools around the U.S., and I think we probably signed up 25 or 50 of those maybe.

And we were trying to really just grow this thing. And what was your roommate's name that you're the other student that you found it with? Yeah, this was John Nelson. So you and John basically are like, hey, we can recruit students at other universities. To me, it sounds like Facebook. It's like the early days of Facebook. They're like to start at one place and then they go to another place. Yeah.

So how did you, where did you go to next? Well, it was similar to Facebook except just not anyone near as big of a market. But yes, I mean, we basically went to Ivy League schools and just good schools in every state that we could like big state schools. Right. It was very amateurish. I mean, you know, there was times where I remember we set up a bank account and the bank one day called me and they were like, what are all these payments going through here? And, you know, I was just in my dorm room and there was like probably some party going on next door or something. And I was like, well, we're this tutoring company.

And she basically didn't believe me over the phone. This was like this sounded, you know, I probably sounded like I was 12 years old or something. Yeah. All right. So you start to expand out. And this seems like it's probably your overhead was like almost nothing, right? So were you making a profit from the get-go? Well, it sounds more glamorous than it was.

I think probably net we might have been making $1,000 or $2,000 at the most a month. You know, so it was not like a huge thing. our cut on each of the tutoring transactions that was happening was quite small. And so it was puttering along, but it was not growing at all. Yeah. I guess at the time I felt like it was a failure essentially because I had these aspirations of us doing, you know, millions of dollars of revenue a year or something. And it was doing a tiny fraction of that.

And so my hunch or my gut was telling me, this is where my energy and my passion is, as like I like building these new products and entrepreneurial stuff. but I hadn't seen any really good results from it yet. And so I had a lot of doubt about it. All right. So you eventually graduate from Rice and you're living in Houston and you're still working on this tutoring business. And I read that that you bought out your partner, John. And then you spent a bunch of time like updating the website and adding some new features.

And were you able to get any traction? Yeah. So we started to get tutored. But like now instead of having, you know, 100 tutors or maybe a couple of, couple hundred tutors at various universities around the U.S., we started to have thousands. Were you making any, like, how much money at its peak were you making an income from university tutor? Like, $20,000, $40,000 a year? I think at the peak I was probably paying myself like $4,000 a month or something like that.

That's interesting because it's a great idea, and it sounds like the website was pretty good, but you were just not blowing up. It wasn't really kind of like breaking through. Exactly. There was some kind of a formula that I could never quite crack. And that was one of the lessons I learned actually building that was that when you're trying to get product market fit, you know, you're just continually tweaking things and getting customer feedback and fixing bugs. And you never know if you're one more fix from turning the corner and then boom, organic growth just starts to take off on its own. Or maybe it's just never going to work. And you don't actually know. And not knowing is actually really kind of what gets people down in entrepreneurship. because you're just sitting there like you're like three years in, you're kind of broke. You know, it's like, am I just like wasting my life here? Or is this my one more fix away from it really working? And I was very passionate about this idea of I want to build this machine that can generate

income and can grow. And then if I achieve some kind of financial freedom, my time will be freed up. And I can then go pursue all kinds of new things and build new things. But I got to get some kind of, you know, ramen profitability, they would call it. Yeah. I mean, I mean, clearly you had certain ambitions. for what you wanted it to be. But at the same time, like, from the outside looking in,

like somebody could have said, oh, you're not really taking this seriously because, like, you moved to Argentina, I think, for a year and, like, went backpacking while you were running the business. Yeah. And instantly, I thought of Tim Ferriss. Yeah. And, of course, his book, The Four Hour Work Week, came out in 2009.

But you were basically doing this at the time. You were quoted by some publication called Jet Set. citizen, I think, they interviewed you on what you were doing. And you said, yeah, you know, I'm making less than I would have had a full-time job in corporate America, but I have total freedom. So it's a trade-off. That was what you were after, right? You were after this kind of four-hour workweek life, or just do I have that wrong? No, that's right. I mean, when that book came out, I was actually very surprised and interested because I was like, that's kind of what I've been doing the last few years. Yeah. And I mean, I wasn't really backpacking it, but I was, yeah, I moved to

Argentina and I was just staying in Buenos Aires trying to travel. But yeah, that's, that's right. I was trying to hit this financial freedom level where I could then travel around. I was very big on this idea of not having a boss. You know, I was like, kind of had this anti-authority streak. And the thing I didn't realize was that I actually love working. And there's never going to be a world where I don't think where I'm just going to like sit on a beach or something. That's just not who I am. But I'm curious, back then, you go to Argentina, from everything, I've read about you, you're super introverted. Like, you're not the kind of person to go up to people randomly and say, hey, I'm Brian.

How are you doing? What are you doing here? Right. I mean, did you socialize with people? Were you lonely? What did you, who did you hang out with in Argentina? Yeah. So part of the reason, so you're right, I was very introverted.

I was not very confident with people. But one thing I did was I kept forcing myself to push myself into situations where I had to be more extroverted. You know, as an example, when I was. I was in grad school, I was actually, I got a job bartending randomly. And part of the reason I got a job bartending was because I wanted to force myself to learn how to talk to people, which sounds kind of odd. But that's what I was doing at the time. I also, I remember I joined this club called Toastmasters where people practice public speaking because I was like, I was like, kind of nervous about that. And I was pushing myself into these uncomfortable situations as kind of a personal growth thing. And that's kind of what Argentina was for me too. I was like, all right, you know what? I'm just going to go to a foreign country by myself where I don't speak the language very well. and I'm not going to have any plan. I'm just going to show up and figure it out. So I found a room to rent at this house that they were basically renting a bunch of rooms to different international people. I also, there was a small group of American expats who were doing kind of various entrepreneurial things and I'd go to barbecues with them.

But I would say overall, I actually was quite lonely. I was there almost a year. I think by the time I left, I felt like I had a group of friends and whatnot. But there was a six-month period there where I was kind of homesick and it was pretty lonely. All right. So you're kind of living this expat life in Argentina and I guess supporting yourself with some income from the university tutor business. But I guess eventually, I mean, you decided to move back to California to the Bay Area where you grew up. What was your plan around that time? Like what were you thinking that you'd do next? Well, I came to California. And that's kind of an interesting story too because I remember, I think I realized, I was also, I was reading this book at that time. It was called The Dip by Seth Godin. And it was this idea that what are you actually going to enjoy doing for the next 10 years, even if you don't see any signs of success?

You know, what's the thing that you're passionate about long term, not the thing that is just a hobby right now? And so I was kind of sitting there putting on a piece of paper. Like, what's the thing that I will actually still want to do in 10 years, whether I'm successful or not? And the only thing I could really think of was tech entrepreneurship. That was something that I'd been doing since I was a kid in high school. And I realized, okay, well, if that's what I'm going to focus on, why am I living in Buenos Aires? I want to go play in the major leagues. You know, go to Silicon Valley.

Like, that's, if I want to be an actor, I should go to Hollywood. If I want to be in finance, I should go to New York. But I wanted to be a tech entrepreneur. So what am I doing here? And I decided at that point to move back to Silicon Valley. I want to say late 2009. And at this point, I guess, I mean, to first get a feel for the startup world, you went and joined a startup, a company called CarWoo.

I guess they were helping people buy cars online. Yeah. And I guess, and you were there a pretty short period of time. And then you got a job as a software engineer at Airbnb, which was kind of blowing up at that time. So what was that like? Yeah. So going from university tutor, which was complete amateur hour, to Carwu, which was like pretty legit, Airbnb was like, they had caught lightning in a bottle. There was something magic happening there about the culture, the people that were joining.

And, you know, they had absolutely found product market fit. The thing was a rocket ship. And it was growing incredibly fast. It was an incredibly exciting company to be at because we were always struggling to keep the website up just due to all the growth, all the demand. So, yeah. So you are now living in San Francisco working for Airbnb. This is like 2011.

And I think around this time, you'd just. come across this article that came out maybe a year or two before that I've tried to read to me is impenetrable. But it's written by a guy or somebody named Satoshi Nakamoto. And it's a white paper called Bitcoin, a peer-to-peer electronic cash system. And it came out in 2008, maybe. And I'm assuming lots of people in your sort of, that you were hanging out with, were reading this or we're talking about it. I wouldn't say a lot of people were reading about it, actually, at that time. I happened to see it on Hacker News, just sort of reading things on the internet. Yeah. And I don't claim to have understood it the first time I read it, but I did have a

degree in computer science and economics. And I, something about it grabbed my attention. I didn't fully understand it, but I said, whoa, this is really important. This is really ambitious. Something tells me that this is something I should look into more. And everybody can access this. It's easily available, but it's the language on there, probably some of the words you knew as a computer programmer, basically the argument is, hey, we should have a peer to peer currency, like electronic cash system that will live on this thing that we now call the blockchain. I don't think that term exists in the white paper, but that would be verified in this public ledger. But it's really like, you know, even now when I read it, you know, it's just, there's a lot.

It's very dense. There's a lot in there. Yeah. I mean, this is one of the challenges. challenges with cryptocurrency is that it is such a mind-bending concept that it's a lot of people have struggled to wrap their head around it. And it's kind of like if you go back and watch those early videos of the internet and people, you know, news reporters and stuff like, what is the at symbol in the email? And you know, what is the internet? It's a series of tubes, you know,

and all this. So I certainly don't claim to have read it and then seen the future and how everything would play out by any stretch. But I do remember distinctly reading it and thinking, wow, this might be the most important thing I've read in like five years. And I was so enamored with the internet. I was like, the internet was probably the most important thing that had happened in my lifetime. And there was a little piece of me, actually, this might sound funny, but I was worried that I had missed my moment with the internet because I had seen these internet companies get created like Google and Amazon and PayPal. And sort of naively, I thought at that time, maybe those, the biggest internet companies have already been created. and I need to wait for some new technology revolution to happen.

And so that turned out to be incorrect. But I think when I saw the Bitcoin white paper, my thought was, wow, this is kind of like the next internet. This is another global decentralized protocol. But instead of for moving information around, it's for moving value around. And what if this could build a financial system that's more free, more global? Did anybody, any of your friends, were they, any of them into it? people who are like, yeah, that paper is amazing. This thing is really, there's potential here.

Like, was there a lot of chatter around that in your world? Well, I definitely went and talked to a couple of my friends about it. And I was like, this Bitcoin thing seems kind of cool. And most of my friends who I talked to about it, they didn't get it at all. In fact, they thought it might be a scam or something like that. Like, I felt like I was, I might be crazy or something because to me, I thought it was kind of cool and something was interesting here, but I couldn't really get any of my friends interested in it. So just to kind of step back for a sec, I mean, you were around a lot of really smart people who were steeped in the world of technology around these startups and they were engineers. And they did not understand Bitcoin.

So when you explained it to them and they're like, I don't get it. It's ones and zeros. It's just like how is it like a fiat currency? I can't touch it. It's not like a $100 bill or a piece of gold. Brian, please explain this to me. How is there any value in this thing? What would you say?

Well, so I think there was technical people who got the idea that, oh, okay, they've created some kind of new algorithm that creates digital scarcity. So it's not like you can just make infinite copies of the thing. You know, some of them got far enough in where they're like, I get the technical part of it. There's a new algorithm here. But that's still never going to work. Why would anybody use like a new form of money that someone just invented randomly?

You know, it has no trust behind it. It's not issued by a government. I mean, this is a preposterous idea. Like, why would anybody use this over the U.S. dollar? You know, you'd have to be crazy. And one of the things they didn't realize was, first of all, if you've only grown up in the U.S., you have this sense that, you know, the financial system more or less is trusted, right? Okay, yes, inflation is there a little bit in the U.S., maybe more nowadays.

And yes, it's annoying that to do a bank transfer takes two to three business days. It's not open on the weekend. Why doesn't it arrive instantly? every time I swipe my credit card, you have to pay two to three percent or maybe two percent. But we trust the system. We know the dollar is stable. We've lived that way. We've grown up that way. Most of us are like, yep, the dollar, it's cash. We don't even, there's no second thought. Right. I think that was the other piece that I had was I had studied economics. I had some at least high level understanding of monetary policy and inflation and, you know, the understanding that actually a lot of places in the world, people don't have that security. And a lot of places in the world, people actually don't even have. bank accounts and the global financial system is incredibly broken right and I had seen this in a number of ways one of it was when by living in Argentina and seeing a country that had gone through hyperinflation and all the ways that that affected people in the culture and being afraid of

their savings being wiped out and all the stuff another one was starting a university tutor I had seen how difficult it was to both collect payments and then pay out the tutors there was an enormous amount of pain and headache doing that. And the banks kind of always asking me these hostile questions. I felt like I was being accused of being a criminal or something by running this company of all the checks that I had to go through. And then at Airbnb, the same thing. I mean, Airbnb was trying to operate in 190 countries around the world.

There was delays. It was impossible to know how money was going to get moved in all these countries. And so I just had this sense that financial services is really holding back innovation in the world, and it's holding back human progress because people don't have the freedom to participate in this global economy because of all the barriers to innovation. Imagine if you could unlock the level of innovation or the kind of trust in security that a society like the U.S. has, but put that into 190 countries, just because they have good internet access, a cell phone, and now they have crypto, and what if I could help do that? That just got me incredibly excited.

When did you start to think about that idea? Because you had this job at Airbnb, you liked it. You could have probably had a lifetime career there and gotten shares and when they went public, made lots of money and all those things. When did you start to think, you know, maybe this is a thing I should pursue? So I was having that exact thought that you mentioned. I was like, maybe this is the thing. I keep thinking about Bitcoin and cryptocurrency, but my friends don't think it's interesting. And I was filled with self-doubt at this point. I was like, do I really want to be like the Bitcoin guy? It seems like so weird and everybody's not into it. And by the way, I read at that time that you also kind of started to tinker around like coding a prototype for I get like a kind of a digital wallet.

Yeah, basically. I mean, I was working nights and weekends on this prototype for what would eventually become Coinbase. It was a web app and it was going to be a hosted service. And I was building that sort of nights and weekends and for maybe six, eight months, something like that. And the prototype, just to be clear, this was something that would enable people to safely store the Bitcoin they bought. Yeah. And I was putting in like pretty crazy hours, by the way. I was like, I'd work till maybe 7 p.m. or something like that at Airbnb. And then from like 8 p.m. until midnight, I would work on this, this prototype for what would become Coinbase. And, you know, there's something about my personality is like, when I get excited about things, I just, I just start to build things. It's kind of an obsession.

I don't know what you'd call it. But I kind of couldn't help myself. You know, I remember I was actually almost trying to talk myself out of it at a certain point because I was like, if you go down this rabbit hole, you know, you're not going to be able to get out of it because this is not some kind of throwaway project you can do. This is going to be, if you actually start storing people's money, you got to have like a whole team and funding and compliance and licenses. And I was,

I knew that it was a crazy thing. But I couldn't, I was like, let me just tinker a little bit and see what happens. I kind of couldn't help myself. And so, yeah, the prototype was getting a little farther along.

And I decided, I was like, all right, I want to apply to Y Combinator and try this idea. If I get into Y Combinator, that would give me some amount of confidence to leave my job and go do this because then maybe I'm not crazy. And I was looking for a co-founder at that.

time as well. I was kind of, because I knew that I would improve my chances of getting accepted at Ycombin. That's right, because Paul Graham, one of the founders of Ycombinator famously says, one of his criteria is a co-founder. He looks for co-founder when he makes investments. Yeah. And I'm just curious, in your mind, what was your pitch going to be to them? Like, hey, I'm building this thing that does what? Yeah. So the words I used, I said, I'm building a hosted Bitcoin wallet. Today, people are using Bitcoin. Maybe you've heard of it. I'll give you a quick primer if you haven't, but people are using it today with this desktop app on their computer. It's a really interesting new protocol, but it's way too difficult to use for the average person.

So I'm going to make a hosted Bitcoin wallet that's easy to sign up online, kind of like Gmail is for email. And that was my analogy that I gave them. Got it. And you, from what I understand, you met this guy, Ben Reeves, who was also into Bitcoin, clearly, because I think you guys met like on a Reddit side or something. I don't know, we've read it, but you met somehow. By the way, how did you meet him? I reached out to him cold, yeah, because I was trying to find a co-founder at that time, and I had seen he had launched his site, blockchain. info, and I was like, wow, this site has a lot of potential.

There was something that exuded quality to me. And it was doing roughly a similar thing that you were trying to do? Yeah, it was another Bitcoin wallet. They weren't trying to store anybody's money. they were making a self-custodial wallet. And it seemed like it had some real talent behind it. And so I reached out to him cold. Gotcha.

So he had this thing going. You called email, Ben, and he's based in the UK, I think, at that time, right? Right. And what would you say to him? You say, hey, I'd love to meet up or to talk. Yeah. So I said, look, the site you built is really cool. I'm working on a similar prototype.

And I live in Silicon Valley. I want to tell you about this thing called Y Compinator. I think that this is going to be a big industry and has potential to change the world, but it means that we need to create a real company around it. I think this is one where we should really swing for the fences and make a real professional company out of it. And so there might be some opportunity where you and I should join forces here. And we could be the winning team. So did you guys agree to meet in person? Yeah.

So I think we did a couple kind of Skype calls or something like that. And then this is kind of crazy. but we had basically like a shotgun wedding almost. I was like, I'm applying to this, this Y Combinator program. Which he probably knew of. He had actually, he had never heard of it.

It's not, it wasn't well known in the UK. And I was like, the application is due in two weeks and then there's an interview. So I want you to fly to San Francisco and, well, let's apply together and then we'll, we'll go to this interview.

And if we get in, then we can talk about it basically. Wow. And we applied online first. We got invited to interview. He flew to San Francisco. We literally met for the first time the day before the interview. And then we went in the next day to interview together as a founding team.

Wow. Which, by the way, in hindsight, was a terrible idea. I would not recommend this to anybody. You know, having a co-founder is like getting married, basically. Like, it should be somebody that you have worked with for years and you at least maybe you've known them for years, ideally. But sometimes these things work out fortuitously. Sometimes they don't.

And you guys were aligned on the vision, which was around Bitcoin. I'm curious, when you went and pitched the folks at Y Combinator, I have to mention some of them were like, I don't know, but Bitcoin, I mean, was anybody skeptical about Bitcoin? Because you couldn't really spend it anywhere. It was just ones and zeros. Or were they all like, oh, yeah, this is, this is going to be big? So I never got to know what the discussion was in the room after we interviewed, right? So they discussed in private, but they did decide, my hunch is that. yeah, some people were like, I don't know, I don't get it. But the way that why a combinator works, which I think is a good model, is that if any of the partners choose to champion it, then it can get funded. I think there's a real danger in consensus, especially when you're talking about real breakthrough innovation. Because every breakthrough innovation looks like a bad idea, but it's actually a good idea. And so I think you really want to avoid a committee that has to have unanimous yeses because you'll basically miss all the big stuff. Yeah.

So they knew that. And I don't know who actually championed me in the room or if it was unanimous. but I suspect one of them was Paul Graham because he seemed excited about it later when I went through the program. But yeah, for whatever reason, they decided to say yes. All right. So they say yes. And that means that they give you a check. It was like $150,000 or something like that. Yeah. And they get a percentage cut of your business. And with that money that you got from Wycombinator, I'm assuming you, did you get an office or did you, were you able to hire anybody? Or were you and Ben able to do anything beyond just the two of you kind of, you?

kind of grinding away at the keyboard and starting to develop this app? Yeah, so honestly, things didn't really work out with Ben even before we got the money because Ben had flown back to the UK. We were kind of like getting all these things prepared. I was like, all right, when are you going to move here? Let's try to get this office. And there's all this incorporation paperwork. And there was basically some red flags, right?

Like he hadn't really bought his plane ticket. He missed a couple of meetings. and I was like, he's not fully in it. You know, like, I was kind of talking to the Ycommodator partners throughout this whole thing. And I was like, I'm trying to make this progress and what do you think? And they were like, you need to go make a decision, basically. Like, do you want to co-found with this guy or not? Because if it's not going to work out, end it now.

And so I basically took that to heart and had to go have a real difficult note to send him, which was like, I don't think we should co-found together. and we really only knew each other, I think, like four weeks or something. Like start, you know, from the moment we first spoke to getting accepted and then the whole thing didn't work, it was like a three or four week thing. And by the way, the name, was the name Coinbase at that point? No, so the name that I had at that time was BitBank. Bitbank, which is a great name.

Yeah, I liked that name because it had a double B sound in it, like PayPal and Coca-Cola. It was a great name, but the problem with it was, which one of the things that Ycommitter does is they have a couple of lawyers, on staff who just help you with all the corporate law stuff. But they told me pretty quickly, they were like, you can't, it's illegal to have the word bank in your name if you're not an actual bank. And so you need to change that. And so that was a good piece of legal advice. They gave me along the way. So how did Coinbase that name come up? Yeah. So one of the first things I had to do in the program was come up with this new name. And so, you know, naming things is so hard for a variety of reasons. One is that every name sounds terrible

when you haven't been associating it with something. It's brand new. And in your mind, you're comparing it to these things like Google and Coca-Cola, but you're just like that name. Really, that's a terrible name. But all names sound bad when you first hear them. Anyway, I just did an exhaustive search and I came back with a bunch of finalists and I pulled all of my friends and some of the people at Y Combinator. And I remember, Coinbase sounds reasonable. And the domain was like maybe $2,000 to buy it. You might think this is funny, but I eventually was like, I don't like that name, really. But all right, I'll just choose Coinbase for now. And then maybe like a year from now, I'll improve it and get an even better one.

And then, of course, after about a year or two, I was like, actually, I really like it. And so did everybody else. And so as with many things, you just, they stick a lot longer than you would have expected. When we come back in just a moment, how Brian tries to convince skeptical investors to put real life cash into a crypto marketplace. Stay with us. I'm Guy Raz. And you're listening to how I built this from NPR. Hey, welcome back to how I built this. I'm Guy Raz. So it's mid-2012, Brian Armstrong launches his cryptocurrency startup, Coinbase, and users start to sign up. And he's going through the Y Combinator program solo because things didn't work out with his first partner, Ben. So Brian is still searching for a co-founder, and he reaches out to a number of different people, but finding the right fit is not easy.

You know, I was kind of scarred, honestly, from this co-founder search process. I was like, oh, my gosh, I've tried to meet so many people and they never seem to work out. Maybe I'm just resigned to being a solo founder, and that's my lot in life. And so I was like, let me just keep making progress on the business, right? So I went through the Ycombinar program, solo. We went out and I tried to raise a seed round after that, right? And I got a lot of nose, like nine nose for every one yes, but I managed to scrape together a 600K seed round. And then I was in the early stages of trying to launch the buy feature on Coinbase.

And lo and behold, the right person reached out to me, right, which happened to be Fred Ersum. And he reached out cold just over email. I had been putting out the prototype for Coinbase on, and I think he saw it on Reddit. You had posted it on Reddit on like a Bitcoin board. Yeah. And by the way, I think there's an important lesson I've told a lot of people this, which is how to find the right co-founder. It's like, I tried so hard. And I tried so hard. I could never get the right person. But once the product and the business started to show signs of progress, like a seed round and a live demo and going through Y Combinator, the right person found me. Right. So my lesson to a lot of people on that is if you're not finding the right co-founder, just keep making progress. And if you show signs of success, the right person will show up sometimes. But. And who was Fred? What was he doing at the time? So he had studied computer science and economics also at Duke. He had then gone on to be a trader at Goldman. And so, he had some kind of experience in financial services, which I liked, because I didn't really. And he had

just moved to the Bay Area. So I was like, okay, on paper, this looks interesting enough for a coffee meeting. And that's exactly what we did. How did you, did you guys get along right away? Did you like each other right away? Was it that simple? Well, I think we were, we were kind of sizing each other up, right? My first impression of him was, this guy's smart. He's confident. his first impression of me was probably, okay, this guy's very driven. When he saw the website, he was like, he assumed that it was some kind of a company with at least a handful of employees because there was like a customer support line and a sales line and a press PR email address.

And he showed up and it was like, it's just you. And I was like, yeah, I'm the only one. And he was like, okay, this guy has some real talent to create this thing. He's probably like a little unsure of himself and he's a little rough around the edges or whatever. But what I did was I said, why don't we try working together for two weeks? You know, I'll pay you a couple thousand dollars or whatever. But the point would just be to see how we like working together. And there was a few things that I really noticed about him. I mean, one was that like me, he had incredible work ethic. So we would work like 10 a.m. to midnight every day.

another thing was that he started to challenge my ideas and I realized this is not somebody who's just someone who's going to follow what I do. One of the things I remember Fred said when we were doing that week was I was getting ready to code up this feature so people could have an easy way to buy Bitcoin on the site and connect their bank account. And he came to me at one point. He's like, I've been looking at this the last couple of hours. And I'm pretty sure that we're going to lose money on every purchase the way it's

currently set up. And I was like, that can't be right. Like, walk me through it. And he walked me through it on the whiteboard. And it turned out he was right. So at what point did you say, hey, you know, that like Fred could actually be the co-founder I've been looking for? At that point, after the two weeks, I was like, this is great. He's adding a lot of value.

He's also just a jack of all trades. Like he was like, okay, let me try and hire some people. Let me do customer support. Let me go pick up the trash on the floor. Like, you know, and he was like, I'm going to do anything because this is huge. And I saw that fire in him. like the determination was really important. And it wasn't until, I think maybe three or four months later, we were working together.

And that's when I was like, okay, Fred is truly acting as the co-founder here. I need to make that official. And that's kind of when I asked him to be co-founder, solidified it. And it ended up working incredibly well. Basically for the next five or six years, we built the company together. And I don't think Coinbase would have been successful if I hadn't found Fred. So I am eternally grateful to him on that. All right. So Fred is part of the company. And I wonder at this time, 2012 coming into 2013, I mean, I know you were in San Francisco and you're in that environment around sort of first adopters and people who are excited about new things. Was there anyone around you, even people that you admired and respected, even people who were experienced who are like, this is a total scam. This whole Bitcoin thing is not. I mean, there were people saying that. Warren Buffett was saying it. Lots of.

that people are saying it outside of Silicon Valley, but people you were interacting with. Were there people saying to you, I don't understand how this has any value. Explain that to me. Yes. I mean, there was definitely a lot of skepticism. I remember it mostly during the fundraising process. So for those who have never done fundraising, success in fundraising looks like nine out of ten people saying no. And very smart people who you probably respect telling you why your idea will not work. So it's kind of this very emotional gut punch. That's what success looks like. Failure looks like 100% of people or whatever saying no.

So even the success case sucks. And these people were telling me, well, PayPal is already there. So how are you going to be better than PayPal? They would tell me things like, well, I mean, if this gets any kind of traction, like the U.S. government is just going to shut it down. Yeah. And I remember actually there was one particular moment that stood out to me where I was during the Ycombinator demo day, where you were,

you got kind of to go meet a bunch of investors. There was kind of like a happy hour afterwards where I was supposed to go around and kind of network and get meetings set up to go pitch them. I remember talking to these investors about Coinbase. And I was like, so I'm really excited about Bitcoin. I think it could be like the next payment method of the whole world to make it more economically free and efficient. And I think they had had like a couple beers or something at that point. And I was like, they were asking me these questions like, oh yeah. So so you think it's going to like take over the global economy, huh? And I realized at a certain point they were actually like making fun of me a little bit. And I sometimes I'm not very good with sarcasm. Like I actually something, I can't really read

sarcasm in people for some reason. But I was like, okay, they're actually making fun of me. And then I was just like left and went to go talk to the next set of investors. So there was a lot of meetings like that where, yeah, I was like nobody, nobody really believes in this thing. But one out of 10 people, I got to say yes and write a small check. Yeah. And to, you know, It turned out great for them. But, I mean, going back to those skeptical investors for a moment, I mean, you can kind of understand why they were skeptical, right? Like, why they would wonder why Bitcoin or any cryptocurrency would have any value. And I mean, I know, you know, you can look at Bitcoin and say, well, there's a cap on how many will ever exist.

I think it's like 21 million. So there's a scarcity issue there. But then there are other cryptocurrencies that, you know, don't have caps. And I guess you could ask this question, the same question about gold or dollar bill, right? Why does it have any value? But I'm just curious. What's your answer when people ask that question? When they say, hey, why does it have any value at all?

So people have been debating this for years. And I think there's some really complicated answers and there's some really simple answers. And I guess I'll tell you which one I think is right after I tell you a few of them. So Bitcoin, for instance, is this global decentralized ledger. and the value of it is that it allows you to move, it allows you to have right access to this globally decentralized database, this ledger. Now, I mean, I think the more simple answer is probably that cryptocurrencies are provably scarce, and people believe that they have some kind of legitimacy,

especially like in the case of Bitcoin, just because it's the first one that got created and there's a finite amount and like how it was created sort of fairly and who the person is that we don't really know. So it has this kind of aura of legitimacy and it's scarce. And so that's the reason it has value. And so another example you could think of is like a Picasso painting or something. The intrinsic value is really just like some canvas and paint on it. It's not the reason it has value is because it's scarce and people think it's legitimate somehow.

So that's the same thing for crypto. Because enough people basically think it's worth something, which makes it worse something, which is the answer to pretty much why does anything have value? Sure. Yeah. Yeah. And by the way, how many people, people were just kind of like, finding out about this.

And I mean, I guess people in the Bitcoin community knew about this. And so you started to get some traction right off the bat. Initially, the product didn't get traction because there was no way to buy and sell Bitcoin. Basically, my initial idea was a hosted Bitcoin wallet, which was just going to be a wallet to store and send and receive. And so I got some people to sign up just by posting it on Reddit, but none of them really stuck around. And so I did not have product market fit. But what I did was following the Ycommodator playbook of go talk to your customers. take their feedback and go improve the product. So I emailed five people who had signed up. And I was like,

hey, I'm the founder of this thing. I'd love to get your advice. Can I call you? I got on the phone with him. And I was like, so I saw you signed up, but you didn't come back any advice. And the person was like, well, I like the app, but I don't actually have any Bitcoin. And so I just left. And my thought was like, well, if there was a simple way to buy it in the app, would you have bought it and stuck around? And he was like, yeah. So I was like, okay, I guess I need to make a simple buy button for Bitcoin. It sounds simple, but it involved a lot of complicated stuff. I had to go get a bank partner to process payments. I had to get a very expensive legal opinion letter written about for the bank to allow us to do this. That was even why this was even allowed to do this.

I'm just curious, though, this might come. This might sound like a totally dumb question, but why wouldn't you've thought about that from the beginning? Like, I would think that that was how you were going to make money. That was how, like, yes, we're going to sell Bitcoin. Like, that was the pain point. It was really hard to get it. So I'm just surprised that you didn't think about that before. Yeah. I don't know if it seems obvious in hindsight or if we should have known in the past. Because the people who I knew who wanted to get Bitcoin, they were like, oh, well, I guess

it's hard to get, but nobody really wants to get that much of it anyway. It wasn't a big thing. And so I guess I'll just wire money to Japan. And yeah, it was complicated. And Japan was the only place you could get it from? There might have been one or two other small venues, but yeah, Mount Gawks was the biggest one at that time. Okay.

And one thing I will tell you, by the way, I think one of the things I think that helped me make this work, it's basically just being determined. Like, it wasn't that I had some brilliant insight that everybody else didn't have or that I was smarter than everybody else. I was just so goddamn determined that I was going to keep being my head against the wall. And this was an example of that of just, all right, call 10 people, see what they say, and then go back and add that. And then I was going to keep doing that forever until I found something that broke through.

Were you ever worried that it wasn't going to work? I mean, I guess you could have always gone back to being a software engineer somewhere else. But were you ever, did you ever have any doubts that, because there are lots of Y Combinator companies that didn't work, that went nowhere. Oh, absolutely. I mean, I knew basically that this was, I had been dealt to hand where I at least got to play a couple of rounds, you know, but this was by no means success, you know, and that was one of the messages they drilled into it at Y Combinator was do not treat fundraising as success.

Some people raise some money and then suddenly they think that they're like, going and advising all these other startups. And it's like, so I was, I was very much in the heads down. Let's try to keep making progress. This is, we have no idea if we're going to be able to make this work, but we're going to make sure we give it our all. In fact, around the end of Y Combinator, I was thinking, I'm going to work on this all out for two years. If after two years nothing is working, then maybe I will contemplate, you know, trying something different, but I'm not going to give up before two years. Because there was other YC, Y Combinator companies I had seen where they try something and then three months later, you know, there's a bunch of co-founder fighting and the thing just blows up and they're like, I guess it didn't work. Well, it's like to me, no, that's nothing ever works the first time you try it. So three months in, is way too early to quit. You've got to keep trying over and over and over again to see if something can break through. All right. So you guys, we've got this business and how do you find people to work with you? Yeah. So Fred and I started searching for employees and it was incredibly difficult to hire the first people.

In the early days, the true answer is that you need to beg, borrow, and steal and just hustle and try to reach out to anybody who you know through LinkedIn, through your friends. I was just relentless. Like, if I went to a networking event in Silicon Valley, I'd walk up to every single person. Are you interested in crypto? I'm doing this company. It's early stage. We just, I'd rattle off my pitch.

If you have any interest in joining, I'd love to catch up. Can I get your email? You know, no, no, no, no. I'd get one, one yes. after 10, I'd go do 30 more. I mean, somebody has to be a little crazy in a way to join something so early stage where it's like, okay, it's two people with a laptop and a dream. And the only reason that somebody would come join is they're very passionate about what you're doing. They have pretty high risk tolerance and they value equity in a business. They want to get more equity early on

because that's the only thing that you can offer that Google doesn't. Like you can't get one percent of Google if you joined today, right? But you could if you join the very early stages of a company. What were you looking for? Were you looking for engineers, for, for, for marketing people, for salespeople, or pretty much just engineers at that point? Well, the first two hires were, well, really, Olaf was the first employee. And he, and he joined as kind of a, we needed somebody to jump into customer support as the very first thing. But he became, you know, this kind of jack of all trades, really. Who was Olaf? So Olaf Carlson-Whee is somebody who, again, I believe reached out cold to us. Now, we had interviewed a few people who were running like

pretty large customer support teams at various established companies. And they seemed good on paper, but we just couldn't get excited about them when we met them in person. And Olaf comes in. He's like completely unqualified. He had just graduated college. So he had written, I guess, a thesis while in college about Bitcoin. His professor had told him, this is crazy, don't do it. It's a scam or whatever. But he'd persisted anyway. way. And then after college, you know, Olaf is kind of like a deep thinker, like, almost like a spiritual person. And he had gone to become a lumberjack to basically be able to just be in nature and read books. His name is Olaf. You have to become a lumberjack. Yeah. At some point.

So anyway, he comes into this interview in our little loft apartment in San Francisco. And this kid is just kind of captivating, you know, he's like, I'll do anything. And I'm incredibly fast learner. By the way, he told me later that he didn't own any clothing really at that time that was not covered in tree sap. And anyway, he bought like a button down shirt and some black, he borrowed some black shoes from somebody or something to like come into the office. And so he wasn't wearing hiking boots.

And after he left, Fred and I looked at each other and were like, this kid is nuts, but like we got to give him a shot. Like his energy and enthusiasm and positivity was just off the charts. And there's something really important about that. When you're in the early stages of a company, pessimism can really kill startups, you know, because you're attempting the impossible. Like, you know, what business do a couple people in an apartment sitting around have to try to reinvent the global economy?

I mean, that's an insane thing to do. And so you need to be incredibly optimistic just to kind of get through the days and not let people get on each other's nerves and fight with each other and whatnot. So we were just like, something about him had this spark and we're like, let's bring them on. And of course, it turned out great. Okay. So your customers are signing up for this coin-based wallet and they can buy and sell Bitcoin on your site. Yeah. So when you just, just to get a sense of the revenue model, right, if someone was buying a Bitcoin, let's say for $300 in early 2013, they would pay you a

transaction fee, which is a certain percentage of that $300. And would you get that money in U.S. dollars or would it be pegged to Bitcoin? Yeah. So we would get it in dollars and we would hold it in dollars. We weren't trying to become a hedge fund on top of all the risky stuff we were already doing. So yeah, we would get about 1% or something like that and hold on to $3 up to $300 or something like that. I mean, that seems like a great model for making money, right? Because you are always going to get a commission. You're always going to get a transaction fee. I mean, this is how Stripe and, you know, these kinds of processing companies make money. Was it clear that you were going to hit profitability pretty quickly, or was that way, way, way far away?

Way, way. And just to give you one reason of many, so fraud was an incredibly big challenge for us. At the beginning. At that time. Yeah. Yeah. And still to this day, by the way. I mean, so an example, you know, people have all kinds of stolen credit cards.

You can buy on the internet. And so basically what would happen is somebody would get a stolen card. they'd come in, they'd buy $300 of Bitcoin, we would get our $3 of commission. But they would then send the $300 of Bitcoin off of our platform. Maybe 30 days later, we would get a charge back from the person who had gotten their credit card stolen. And we would have to give the $300 back to the bank. So we had made $3 of profit, but we lost $300 on the transaction.

And so I remember we burned this into our memory. We said, it takes us 100 legitimate transactions to make up for one fraudulent transaction. And so we put so much time and energy into building the fraud systems early on. But that cost you a lot of money. Yeah. I mean, so that was like literally causing me to wake up in the middle of the night in like terror. You know, like I couldn't sleep. There was some scary moments where, you know, somebody found a weakness in our system or another way to bypass it.

We might go home on a Friday, come back Monday, and the company could have been insolvent. Because enough fraud happened over the weekend that we could not cover it from. our bank account. We would have had to just go shut down. Yeah, I think in 2013, like, somebody stole $250,000 out of a Coinbase wallets, and that made news, right? I mean, I remember that story. Yeah, I mean, actually, I'm not even sure exactly which one you're referring to, but yeah, that was the other big challenge. It was that there was not only were people putting and stolen credit cards, there was also hackers trying to just break into our systems and steal customer funds. That was incredibly stressful. You know, I think at that time, by the way,

we also got our first threat of a lawsuit. You know, some other fintech company had like threatened to sue us over something, which I don't even remember what it was. I mean, there was all, this is, this is kind of the default state, by the way, of a new company. It's like, just get hit from every corner. Yeah. There's this phrase that I love, which is starting a company is moving from one setback to the next with enthusiasm. And that's really true.

I mean, you basically just somebody quits. Somebody sues you. You know, you lose a bunch of money. your customers are pissed. You know, you have to kind of move through these things and just find the least bad option and then wake up the next day and fight the next thing. And, you know, there was customers that were upset with us on the internet. I had never had, I had never been in a situation where I had a thousand people angry at me at the same time. Like, it was just kind of a new feeling, you know? So you guys, from what I understand, like,

really, by February of 2013, I read, there was like a period of 30 days where your users bought or sold more than a million dollars with Bitcoin. And at that time, I mean, Bitcoin, was, I don't know, maybe $3, 400 per coin. And we'll talk about the price later that year. But I mean, that's pretty great. I mean, it seems, I would imagine that by February of 2013, you're thinking, yeah, this is looking pretty good. Yeah. So you're right. Once we launched the buy and sell feature for Bitcoin, we suddenly had product market fit. Like more people were coming in every day than the day before. And in some ways, that was positive. We were like, okay, we might have got something to work here. But in some ways, it was incredibly scary because we had this working capital issue where we had to front the money. When somebody went to buy, we had to use our own working capital to go buy the crypto at that price. So we locked in the price. But then we wouldn't receive the customer payment for two to three business days. And if there was like two to three business days, by the way, it can become five or six days if you include a weekend and maybe a bank holiday on Monday or something.

And so we had to have enough cash on hand to fund like sometimes six days of. of buy order flow. And like we had only raised 600K. Yeah. And we were getting quickly to a point where we were using 500K of the 600K just to serve the day to day, day flow of funds on the site. And that's when we kind of pinged Paul Graham and we said, are we ready to go out and raise a series A? He had told us previously, he's like, don't go out and raise a series A until you can honestly tell and make investors believe that this could someday become a public company. He's like, it's very easy to raise a seed round to raise a series A. is a big deal.

And I sent him the graphs and I was like, we're going to run out of working capital in like six weeks if we don't raise money. He's like, go. You're ready. When we come back after the break,

how Coinbase survives the first so-called crypto winter, a crash in the price of Bitcoin. And later, Brian explains a very controversial decision he had to make about Coinbase's company culture. Stay with us.

I'm Guy Roy. and you're listening to How I Built This from NPR. Hey, welcome back to How I Built This. I'm Guy Raz. So it's the middle of 2013, only about a year since Coinbase has launched. It already has around 130,000 users, and Brian's raised about $5 million in a Series A round. But shortly after that, the price of Bitcoin, as lots of people had been predicting, begins to tank. I'm looking at the historical price of Bitcoin. I think this is known as like the first Bitcoin or crypto winter.

It was like an 80% drop in the value of Bitcoin. And I kind of remember that because I was kind of following it. I remember there was a lot of Schadenfreude. There's a lot of people saying this is nonsense. See, this is just here we go. And actually, your business model and revenue was tied to Bitcoin's price, right? That had a huge impact on your business. Yeah. What happened? Yeah. So there was definitely some scary moments where the crypto was going through these bubbles and then these crashes. And I remember people coming up to me and being like, well, now that Bitcoin is over, like, what are you going to do next? And I was like, well, what do you mean? It's not over. And they were like, oh, okay, I guess he still thinks it's going to work. And, you know, there was another thing I had to kind of figure out, which was getting up in front of the employees, which I don't know how many people we had at that time, maybe 25 or something. And, you know, they were scared. And morale, morale, morale.

row was kind of down. And frankly, I was kind of scared. You know, I was like, I don't know what's going on here. When are things going to come back or will they come back? And so I sort of had this sense of obligation like, okay, I got to get in front of the company and like tell them a good plan or like put on a good face. And eventually I realized there's great power in vulnerability, right? Like you don't have to be the person with all the answers to be a leader. I thought you had to be the one with all the answers. It's actually better to go up there and say like how you're really feeling, right, which is like, this sucks. I'm pissed. Like I'm scared. And one of the things that I just tried to drill into the team and

into my own psychology is it's never as good as it seems and it's never as bad as it seems. And so when crypto is way up and everyone in the press is writing about how we're geniuses and all this is like, you've got to ignore that stuff because it's not true. And also when crypto is down and everyone's talking about how this is over and it's a failure, you got to ignore that stuff too. There was a point, I guess, after that crypto winter where you and Fred considered layoffs, right? Because it took a huge hit on your, I mean, from what I understand, like your runway of cash was going to run out if you didn't lay people off. So what happened? What was that conversation like? Well, I think there was a couple moments like that. I think one of them was

more, there was another crypto winter kind of in 2016. And yeah, there was definitely a moment there where we had been trying to build things for a couple of years. We weren't seeing a lot of growth in crypto and we looked at our cash runway and we said, all right, if this goes on another month or two, we probably need to start cutting headcount to extend our runway. And by the way, at that time, a lot of people were pivoting in crypto. There was this kind of meme that developed on the East Coast, which was like, well, I'm not into Bitcoin, but I'm into blockchain as an underlying technology. And there was all these bank consortiums had come together like R3. Right. Well, a lot of crypto companies had pivoted to sort of get out of Bitcoin and build blockchain

enterprise solutions. And Fred and I kind of looked at each other during that, and we were like, why did we get into this in the first place? You know, we got into this because we're excited about economic freedom. And so if we have to pivot this company to be an enterprise software company for banks, you know, it's kind of like what's the point? You actually had those conversations like, hey, this Bitcoin thing doesn't work out because I remember that. Companies were raising so much money just calling those blockchain companies. Yeah. It's funny. People look back on it now and they're like, wow, you guys had such vision and you never wavered. And the reality is it was actually a little simpler than that. I mean, we were just sitting in the room thinking, I mean, if we have to pivot this company to be an enterprise software company, I think we maybe just want to shut it down and return capital to investors because I just didn't want to run that company. Like we really were in it for the mission. We were a mission driven company. If we were just going to sell software to banks, I was like, I don't really want to do that. So, all right, in the meantime, I mean, the service you're providing, which is where your revenue is coming from, buying and selling Bitcoin, that was, still remains, a hugely volatile currency. Right. I mean, there was a point where it was like down to 300 bucks in 2014 and then it went to 2000 and a 5,000 and it hits 20,000 in 2017.

It goes down to 5,000 in March of 20. I mean, it's insanely volatile currency. How was it that it wasn't making your business volatile? There's no predictability about how much revenue we're going to be making. Totally. And this was a huge challenge, I guess, disadvantage in our business, was that the revenues were so volatile. I remember Dropbox, the CEO, he drew a house in one time he told me,

he's like, we can predict our revenue quarter to quarter within 1%. Because it's a subscription product and, you know, it's just the growth marketing and all that stuff. But yeah, we were having like, we could. predict our revenue within one order of magnitude up or down, which I always thought was funny. But what it meant was that we had to get really good at operating a business in uncertainty. So basically, when things were good, we didn't over expand. We kind of tried to stockpile cash when things were really good. And then when things were bad, we didn't cut things too much.

And I wouldn't say that we got it perfect. But I think that is one of the reasons we were successful is we just didn't die. We didn't die through all the ups and downs that thinned out the hurt. with a lot of the other crypto companies in the space. All right. So now we're in this. We're still like in the pretty early stages of crypto. But we're in this place where these currencies are out into the world.

One of the things that you thought when you started Coinbase that you thought that this would just become super popular for payments, for everyday payments, like buying a cup of coffee or to a house. are you surprised that it hasn't happened yet? I definitely in the very early days of Coinbase, I thought payments would be a more early adopter use case. Yeah. And it always just seems so unfair to me that every time you swipe your credit card, the merchant is losing 2% of the transaction. You know, it's really just sending some bits over the internet, which is the same thing we do when we send an email or a text message. But those are free, but every time we swipe a credit card, it's 2%. That doesn't make sense to me.

And I think the reason is that there's essentially an oligopoly of payment processors who had to spend enormous capital to build those networks and they were very valuable. So I'm not completely criticizing them. But the thing that we actually are seeing payments start to work in crypto, but they didn't happen in the coffee shop on the corner. In fact, that's one of the things if I could go back to my mindset at the beginning of Coinbase. I was like thinking, oh, you know, three or four years, there's going to be hundreds of millions of people using this as a payment method and the whole network is going to scale. and I would have been very surprised to learn that fast forwarding, you know, eight or nine years, there was a ton of trading activity that had happened. And now there's things like defy and NFTs and tons of activity happening.

But the actual everyday payment use is not there. I actually misjudged that part. And I would have thought that would have happened sooner. All right. So as Coinbase starts to get more and more traction and more and more attention, you start to understandably, there's a lot more scrutiny, right? There's regulatory scrutiny. There's scrutiny for the media.

And one of the main areas of scrutiny around crypto was that a lot of it was or some of it was being used for illicit transactions. And you and I have both seen the numbers on this. And they're all over the map. But there's one study from 2019 where it says something like close to 50% of Bitcoin transactions were related to illegal activity. Obviously, there are other numbers that are a lot lower than that. But the thing is, I mean, the way. crypto is designed, it's more anonymous, right? And that makes it a lot more attractive to criminals, right? So, yeah, this is an interesting topic that comes up a lot when I talk with folks in government

and DC and regulators and everything today. And, you know, I'm actually not familiar with that study that you mentioned. I have to say, I'm a little skeptical of it being that high, 50%. And, you know, even today, people are using crypto for all kinds of things, you know, NFTs and artwork and all this stuff. So I, but did I occasionally run to somebody who said, hey, I got some magic mushrooms on Silk Road, yes. But it's like 1% of people or something. And so the best data that I have on it today, like over the last couple of years, is that crypto transactions, it's less than 1% are for illicit purposes.

I think even if you were to go back to like 2014 or 15, you know, it could have been as high as 5 or 10% or something that I could believe. But I guess maybe the broader point to make here is that this is actually a really key part of Coinbase's success, I think, which is that very early on, we decided to to be a regulated company. We decided to proactively reach out to regulators. I have to say that was a very contrarian idea at the time amongst the crypto peers that I had because they felt like, hey, this is all about crypto anarchy and we should build the anti-establishment financial system or whatever. And my view is like actually the value creation here is we need to build a bridge between the traditional

financial system and this new crypto economy and be a trusted bridge, meaning we have to go get license. We have to focus on cybersecurity. We have to focus on consumer protection and things like that. So that turned out to be a very important differentiator for Coinbase. Here's what I'm wondering about. We touched on this a little bit earlier about disruptive technology. All disruptive technologies you point out creates friction. But ultimately, the arguments that are made are, you know, anything that is disruptive and that brings progress gets people scared at the beginning. And eventually people understand that it improves lives. I mean, I think that's true in lots of cases, but I also think that there's sometimes too much optimism about the promise of technology. You know, I remember I interviewed Mark Zuckerberg 2010. You can see this on YouTube.

If you type in Guy Raz Mark Zuckerberg, but I remember asking him like, why should Facebook? Why should you have all of this data? And, you know, his view then was like, look, the more open we are, the more transparent we are, the closer will become, the better the world will be, the more. or, you know, we'll know each other. And he was really earnest and believed that. But, of course, that didn't pan out, right? That didn't happen. Right.

It's clearly I'm trying to draw an analogy between the optimism of Facebook and the optimism of any new technology, right, including crypto, which is the idea that there are downstream consequences that we can't fully know. For sure. So, you know, from the standpoint of a consumer in five or ten years, is there a world where we might be saying, oh, we should have done X or Y or Z. We should have regulated crypto more. We should have put more controls on it because lots of people lost a lot of money, for example. I mean, look, so we are in favor of regulation in crypto. I don't think there's any world where it gets to be that big and important like we all want, and there's not some level of regulation around it. Now, one thing we always have to be cautious about is like people always call for sensible regulations. regulation, right? But the problem is almost all regulations has great intentions, but it often has these unintended consequences, right? You know, one of the ones that I look at a lot is like the accredited investor rules, right? Where it's like to invest in private companies that have not gone public yet,

you know, you have to be an accredited investor, which basically means you need to have a certain amount of net worth, like a million dollars or have $250,000 a year of income. And the idea behind it was good, which is like, let's protect, you know, less sophisticated investors. from scams and things like that. But what they also did was they basically made it illegal to get rich off these private investments unless you were already rich. And there's a bunch of regulations like that. When Coinbase was first starting out, for instance, there's a morass of regulation out there we had to figure out. And we went and got money transmitter licenses, which were kind of invented for the time when Western Union was like moving money around and almost like stagecoaches

with cash and stuff like that. So believe it or not, it's like we're sitting here in 2021. And the industry is using all these rules, which like predate even the internet to sort of try to figure out how they apply to our business. And the net result of it is that, you know, are consumers protected? Yes. In some cases, it kind of helps. But actually in a lot of cases, it really harms consumers. You started this company when you were, I think, barely 30, right? And it was just you and then you and Fred, and then they grow, grew, grew and grew and grew over time. Now you've got thousands of employees. How did you learn how to lead a business? I mean, your previous experience was running a business from your laptop in Buenos Aires, more or less.

I mean, there's no playbook. So how did you know, how did you learn how to lead? Yeah. So, you know, I was never somebody who thought of myself as a natural leader. In fact, I was always kind of awkward, frankly, around people and trying to make decisions and like even just running a meeting to this day. I'm still kind of awkward sometimes. But, um, I think one thing I realized was that if you just put yourself into slightly uncomfortable situations, you can basically grow your comfort zone. And over time, you just get more and more comfortable with things which used to make you uncomfortable. So five or 10 years ago, actually when I was first starting Coinbase, you know, I had never had never managed a single person.

I had never done an interview with the press. I had never gone out and raised money. I was never meeting with heads of government or any of this stuff. But I guess I got more comfortable in my own skin a little bit over time. time and just kind of embrace the introvert, you know, somewhere on the spectrum, probably personality that I have. And I just realized, do you think you are, by the way, somewhere on the spectrum? Yeah. I mean, I've never been officially diagnosed, but I'm, I'm pretty sure, yes. I'm, like, somewhere on the Asperiger's kind of spectrum. But I basically just, I was okay putting myself in

uncomfortable situations, and I slowly grew my comfort, you know, and there was one other thing I just kind of learned over time, whereas a lot of time when you're, when you're a young person and You hear all these people like on how I built this, you know, and you're like, wow, they're just like so incredible. And it's really great to sometimes go meet your heroes because you realize that they're just normal people and they're flawed and that actually everybody is just kind of making it up as they go, right? It's like nobody has it all figured out. And that's kind of a brilliant thing to learn. Yeah. One of your big tests as a leader happened in 2020 before you guys went public.

you publish a blog post called Coinbase is a mission-focused company. And this happened after a pretty intense summer. Everybody will remember in the United States racial justice protests. And, you know, corporations around the U.S. were trying to figure out how to respond and to be responsive to, certainly to their employees of color. And one of the, essentially what I'm paraphrasing, and you can fill in the blanks here, but you essentially put out a manifesto that said, look, we're focused on our company's mission. which is to advance cryptocurrency. And when it comes to questions or issues of politics,

let's just leave it out of the workspace. Is that a fair description of what you said? Yeah, pretty close. The mission was to increase economic freedom in the world, not just advanced crypto. But yeah, otherwise, yes, totally correct. All right. So you put this out there. And there was quite a bit of blowback, to say the least, certainly in the media and in the social media sphere. First of all, were you expecting that? Yeah, fully expected it. Yeah. So tell me, explain this.

Walk me through it. I mean, many leaders are kind of leaning into trying to, you know, kind of be responsive to employees who, you know, have various, some very legitimate political grievances. And, but you decided to take an opposite position and to essentially push it away. Can you walk me through your thinking and why? Yeah, sure. I mean, this was definitely, there was a time period there for quite a while inside Coinbase where I would say there was this growing tension and unrest. But something happened last year, which actually started to take a different tone. And I had this gut sense that was like something different is happening here. One of the things that would happen was that we would host these kind of weekly Q&A sessions with the company. You know, there's all kinds of challenges that are going on in the company. How do we improve our products? We've got these competitors. We've got these regulators coming after us. But again, again, got to a place where like the majority of the questions at the weekly Q&A were about things that I didn't think were actually what the company should be focusing on. They were about various

societal political issues, current events. And, you know, these are very important things happening in the world, but they're not really related to what we're doing. And there was a, there was a tone that was happening there that was different than what I had seen before where employees were almost like, like grandstanding or holding the mic hostage, you know, it was almost became almost a game of like who can make the exec team squirm the most on stage or something like that. And it kind of culminated with a walkout that happened, actually. And this is related to social justice protests. And I mean, the employees wanted you to take a stand and make a statement about racial justice and injustice. And was that the issue? Exactly. Like supporting BLM specifically, which, you know, I was

still kind of getting an understanding of. And of course we support like equality for all people and everything. but like, you know, I later learned that BLM also supports defunding the police and like getting, you know, you'd always, there's one step further where it's like, actually, okay, that's a more complicated thing. So anyway, I deferred and to kind of answer this person's question live about what we were going to do. And a walkout ensued. And so, you know, three or 400 employees, I don't know the exact number, kind of closed their laptops in a virtual environment and decided to leave, just stop working in protest. us. So the exec team sort of came back together with a little emergency meeting and it was an interesting moment. It was like, okay, that's never happened before. I guess we sort of like in a rush kind of put out some statement. We got everybody back to work. And so the months kind of went by. And in some ways, it felt like everything is back to normal. But on the other hand, something just felt

wrong to me. And it was like there's a misunderstanding in the organization. Some percentage of people kind of believe that our mission is actually to go engage in broader societal issues. And so over the months, I was trying to find my words for this. I was like, I'm kind of like a white man of every privilege you can probably imagine. And so like what voice should I even have on this? It was very scary. You know, I'm just, everybody's afraid of being called racist or whatever, all these kind of terrible things.

And so I finally, you know, got sort of the confidence to say, you know, this doesn't feel right to me. Like, of course, we believe in having a workforce where everybody can come and do their best work and it's inclusive and we treat everybody with respect and they can do these great things here. But does that mean that the company should be held hostage by a small group of employees to then dive into these issues which are unrelated to our mission? No, I don't think that sounds right. And so I finally kind of put out that statement. Some people internally, you know, almost like begged me not to do it. They were like, this is going to destroy the company and you'll never have a person of the company.

color work here again and all this stuff. And what was surprising was that after we made it public, the media sort of stories, I would say, definitely leaned negative. But internally, the response was overwhelmingly positive. It turned out it was about 5% of the company. We offered this exit package to people, anybody who was not on the same page and wanted to make it all win-win. About 5% of the company decided to take the exit package. But the vast majority of people internally were incredibly supportive. I can't tell you the number of CEOs. that reached out of different companies. I can't tell you the number of employees. By the way, many of them underrepresented groups from other top companies who reached out to us and said,

thank God somebody finally stood up and said this because I don't want this in the company that I work at. I just want to come to work at a company where I'm respected. I can do good work. I can learn things and I can work on an important mission. I don't want to be in a workplace where everybody is having continuous conflict and tearing each other apart over these unrelated issues. And so I think it ended up being one of the best things actually that I've done as a leader. I can tell you the net result of it was actually quite good. The risk there, of course, right, in any free market system is when you take a stand or you don't take a stand or you make a position clear, one side is going to potentially punish you.

Right. And so there are potential economic consequences to doing certain things. Did that ever cross your mind that there could be people with their wallets and that people would stop using your platform? Absolutely. I mean, this was one of the concerns that was discussed in advance was, hey, we're getting ready to go public. And is this going to scare everyone and scuttle the company from going public? Or is there going to be a delete coinbase hashtag trending on social media and everyone's going to boycott us? or whatever. This is where I think founder CEOs sometimes have a little bit of a disproportionate advantage in the sense that founder CEOs, by the way, if you look at them as a cohort in public companies, they

outperform professional CEOs. And I think one of the reasons is that they have a bit higher risk tolerance, right? This is not some job where I'm doing for five or ten years where I'm trying to get good scores from the market and then go on to my next thing. This is a company that I built from

nothing. I mean, I was the only employee with my laptop and now it has thousands of employees. And, you know, if I need to start it over again or have a setback or whatever, I'm not afraid of doing that because I was there. I can do it again. What about your future? I mean, if you were to guess, how long do you think you're going to run Coinbase before you move on? You do what Bill Gates did and you go run the Family Foundation or something? I don't know. I'd like to run it a long time. Look, one of the ways I think about it. Like today, Coinbase is actually incredibly well run. I have an amazing executive. team. I have a COO president, Emily Choi, that's just like an amazing operator. And so what is my

actual value? I mean, a lot of my time has spent just kind of collecting information in the organization. You know, I'm like absorbing different reports of how things are doing. I'm going and doing employee lunches and traveling to different offices and stuff. I like to push the company on, to think bigger and sort of to try bigger ideas. Like one of the failure modes that big companies have, even if they're very well run, is basically incremental. They just continually like, you know, ship, okay, got a tiny bit better every month. But, okay, let's think of big new disruptive stuff, you know, that's crazy bets that look like kind of a toy today, but could be the next big thing. And that's how you have a company that continually can reinvent itself, you know, like the classic examples, like Steve Jobs with the iPhone or something. It's, I want to push us to try big bets. So I think that's where I'm adding value today. But if it ever in the future, I'm not, then I would totally be open to having somebody do it better. How high do you think crypto or Bitcoin could go? Yeah, I mean, I'm not an investment advisor here, so we'd have to disclaim all that.

But so today, the market cap of Bitcoin is about a trillion dollars. One comparable people talk about a lot is gold, which is about $10 trillion. But I think in many ways, Bitcoin is actually better than gold because it's portable. You can send it anywhere in the world instantly, you know. And so could Bitcoin be as big as gold? I think absolutely could it be 10x gold, probably. it's actually pretty hard for me to imagine that there's not more people using crypto in 10 years. And the reason is that, you know, think about all the trends that are correlated with that.

Are there going to be more people using the internet? Are there going to be more people doing e-commerce and online games? You know, crypto is much bigger than just digital gold. It's an entirely new economy. I mean, so crypto as a whole industry, I think could become 10, 20% of global GDP, like in maybe 10, or 20 years, something like that. That's what the internet did. I mean, e-commerce was tiny in 1999, and now it's about 15% of global GDP. So I think the crypto economy could follow a similar path. When you think about the success of what you created, how much do you think it has to do

with how hard you worked and your intelligence? And how much do you think it had to do with luck? It's probably 50-50. Look, I actually, so I think every CEO who I've met, they have some minimum level of intelligence, right? But they're oftentimes not the smartest person in the room. And I would put myself in that category too. Like I'm, you know, I'm at some binibum bar, but I'm not the smartest person. What I am is probably quite determined. There is a part of my personality. This might be a little bit like that being on the spectrum thing or whatever, but it's just like, whether it's like a really good day or a really bad day, I'm sort of even keeled. And I'm offing just like, okay, well, what's the next step? How do we fix it? And let's keep making progress.

even over like a decade or more, I can be quite resilient in that regard. But I guess the other thing I would say just about luck, absolutely luck played a big role in Coinbase. I mean, there were certain moments early on in our history where if a coin had flipped the other way, we might not be here. I think we got very lucky with sort of the timing of when the company decided to launch and when crypto decided to grow. I think that I kind of just kept trying in things until eventually one of them hit, right? Which is it's a way. of unifying those two ideas. It's definitely a lot of luck when it works, but if you just keep trying, you can kind of make your own luck. That's Brian Armstrong, co-founder and CEO of Coinbase.

Recently, Forbes ranked Brian number one on its crypto rich list. Magazine estimated his net worth to be more than $6.5 billion. By the way, there's so much suspicion around cryptocurrency. Why are they call it crypto? I mean, crypto just sounds so dodgy and, like, secretive. Like, what do they call it, like, transparency currency or something like that? You know, it's funny because in the early days, I had always thought about that, too, and I was like, we should call it digital currency. Digital currency sounds better than crypto, but, you know, you can't control these things. Like, the internet and the memes of the world, they just spread, you know, and they get away from you sometimes. So that's what it ended up being called.

Hey, thanks so much for listening to the show this week. If you're not yet a subscriber, please do subscribe wherever you get your podcasts. If you want to write to us, our email address is H-I-B-T at npr.org. And if you want to follow us on Twitter, we're at Guy Raz or at How I Built This. You can also find us on Instagram. That's at How I Built This NPR or my personal account, at guy.org. This episode was produced by Casey Herman with music composed by Rumpteen Arablui. It was edited by Neva Grant with research help from Claire Murashima. Audio engineer with Stu Rushfield. Our production staff includes J.C. Howard, James Delahousie, Rachel Faulkner, Liz Metzger, Julia Carney, Farah Safari, Elaine Coates, Annalise Ober, and Harrison V.J. Choi. Our intern is Katie Cyper.

Jeff Rogers is our executive producer. I'm Guy Raz, and you've been listening to How I Built This. This is NPR.