How Coinbase Keeps Building with Brian Armstrong (Coinbase) | Disrupt SF (Day 3)
10:53PM Sep 7, 2018
Please welcome to the stage Coinbase CEO Brian Armstrong and your moderator Fitz Tepper.
Thanks for coming.
Thanks for having me.
How are you?
I'm well, thank you.
Good to have you back here.
Yeah, it's been a while.
We only have 20 minutes so I'll get right into it.
Very personal question. When was the last time you checked the price of bitcoin?
You know, I can't help but see it, because we have monitors all around the office where people look at it, and they track the trends and all kinds of other stats about what's going on in the company. But I mean, the truth is, I try not to focus on the price too much because I'm encouraging everyone in the company to just to think long term and not be worried about what's happening day to day with the price.
What was like the so, there was like another 15% price drop this week, which has become normal but like what was the atmosphere in the office like let's say Wednesday when that happened versus two years ago or three years ago at the office if that happened?
Yeah, I mean actually, I didn't hear anybody mention it. It didn't really get on my radar. Actually on Wednesday this week, I think the company has been through this period for so long now that crypto has gone through so many like big run ups, and there's a correction and then a big, big run up and a correction. I think that's happened five times now.
So we've just kind of come to accept that this business is going to be very cyclical, and we're going to grow very deliberately and carefully through this through all these ups and downs.
I want to, like I said earlier, I want everybody to have a long term view. So I'm much more concerned about, you know, how do we get crypto to be used by a billion people in five years than I am what the price did this week.
Is part of that that you're now hiring employees that are kind of not diehard crypto people because like the pool of that is so small? Are you having to kind of expand into regular people?
Well, I mean we certainly have a lot of crypto diehards of the company, but a lot of the people you know, we've added 300 people or so in the last 12 months. We're over 500 full time now.
And a lot of those people didn't come from crypto backgrounds as you put it. I think this is a misconception. People think, oh, I need to be a crypto expert to, you know, even apply to Coinbase or something like that. And that's really not true. A lot of the people, they come to Coinbase to build their crypto career and they really want to learn on the job.
And, you know, we've been really fortunate to hire these amazing people from all these different big tech companies, you know, LinkedIn, Facebook, Amazon, and from traditional financial services to come together and train them on the job about crypto. And I think that's been giving us a huge advantage.
I want to go back to kind of like the bubble of late last year like q4 last year, insane kind of price rises insane engagement on your platform. And at that point, like there's hyper attention from the whole world like forget about what people in your company think you have CNN, CNBC, everyone talking about the price of bitcoin on a daily basis is that good or bad for the industry?
You know, I think it's it's good. Like I'll take it. I think sometimes the focus is a little bit misguided in the sense that again, it's all about the price and the run up, you know, but you know, so many people are being introduced to cryptocurrency that I think that's it's great marketing and it's certainly driven a ton of growth for Coinbase. So I don't mind that.
You know I think managing during those periods is really interesting because sometimes it feels like you know the whole the world is on fire and you were just it's a stressful but fun environment.
And then other times you know we're in rebuilding mode. And I've come to enjoy the rebuilding mode meaning like, right size the organization by hiring you know, new leadership and new employees.
I've come to enjoy that more because in these kind of correction periods, a lot of the people who got into crypto for the wrong reasons or wanted to make a quick buck or something, they just sort of leave and they lose interest and the people who are in it for the long term and want to just build good products and go talk to our customers which is what I want the team to do. They stick around.
So we actually get more work done during these kind of correction periods.
And you say, like, now we're in one?
So before we talk about now, I still want to go back to the crazy kind of run up. And you guys were having some operational issues and customer service issues, just like extreme, you know, usage stats, I guess. What was the point where, like, shit was like, hitting the fan the most, I guess, like, as a CEO with kind of nothing you can do about it that day. Like, how do you feel?
Yeah, well, I mean, we had so many people sign up. I remember, you know, one day we had 40,000 people sign up, and I went to go look at like, the giant Stadium in San Francisco holds about 40,000 people. And I was like, I looked at a photo of it. I was like, that's a lot of people, you know, you kind of have to find a way to imagine those large numbers in your mind. And then I think like, you know, a month later, like 500,000 people signed up in one day. And so it was like 10 giant stadiums, you know, in one day.
So I remember one of the biggest challenges we had was just scaling customer support to keep up with all these new people who are signing up and learning about crypto and trying to buy it.
And, you know, one thing we did, we brought in like this really amazing leader who had scaled customer support at Twitter and Tina Bhatnagar so she joined and helped us scale that team, really quickly. And you know, I think we hired about three or 400 new customer support reps in about one quarter just to meet that demand. So that was, that was an incredible experience.
I would say, everybody in the company who went through that period it was they would probably tell you, it was stressful, but I also think they did some of the best work of their life and just going through that experience kind of brought the team really close together.
And it seems like you guys came out of that with this insane hiring plan. you've hired at least like 10 C suite or like VP level people in the company is really matured in the last six months I guess was there like a one time like conscious decision where you in the board or you, you know, sat down and said, okay, we need to bring in like experience talent.
Yeah, absolutely. I mean, I think I realized that and the board realized that too. And so what I did was I started to write down actually, I wrote a medium post, you know how to hire executives and I, I wrote it because I wanted to learn it better myself and teach it to the current leadership team we had so we could scale out the recruiting of these people.
And as we started to get, you know, it was really flattering. The kind of caliber of executives that were willing to come talk to us. And what we did was, you know, I pitched them on, hey, look, this is the mission of the company. We're trying to create an open financial system for the world, which will create all this innovation and efficiency and economic freedom. So we had this really ambitious mission that was part one, you know.
Number two was, we're only 1% of the way there. So only 40 million people in the world have crypto but I think in a year or five years, we can get to a billion people and 10 we can get to 4 billion people, you know, roughly half the population. So just like the internet when it first started out. I mean, it had a long way to go to get to like half the world having internet access. Same thing is true for crypto.
And then the last part was, you know, you can own a piece of a meaningful piece of this company still, because it's so small, it's early days, but we hired these people who were builders, they wanted to come in and grow organizations from the ground up.
And some people really love that. It's a chance to define how that department or team or product is going to work. And instead of coming into a company where something is already at scale, and just moving it incrementally, or, you know, having to shrink headcount or cut costs or something like that.
Presumably, there were some people that worked for Coinbase doing all of these people's jobs before they got in, right there was someone doing customers there was there was someone doing finance, how do you handle even when you know, it's the right decision hiring over in early employee?
Yeah, so well, luckily, there was so much work to go around. It wasn't a matter of anybody leaving as a result of these new people coming in, there was just we all they all knew that they needed the help. And so here was some additional capacity. But you know, one thing I talked to people about sometimes is if you're in a company that's growing you know, 50%, 100% a year, you can take the people you have, and they can really grow into that role. And it's an amazing outcome.
If you have a company that's growing, you know, five x a year or something like that, there's, there's almost nobody who can learn at that pace on the job. And in fact, you can bring in somebody really senior above them, and they still have a bunch more work to grow.
So most people, you know, if you give them that choice, and you say, well, I know you want to learn on the job, would you rather learn by being thrown into the fire? And you might you might die by the way, or do you want to learn from having a great mentor and there's a there's a big gap between where you are, and they are, and they can see that most people are very willing to do the second.
That's nice. And you wrote a blog post recently about how someone at your company asked if you were a tech company or a finance company, your answers were kind of a hybrid, which is great, but that doesn't solve the issue of like a hybrid culture. You have have, you know, finance people and have tech people and they're used to very different schedules and routines and snacks and stupid things like that. But it matters at the end of the day. So like how do you balance that?
Yeah. Well, so I would phrase it slightly differently. I said, are we a finance or a tech company? Yeah, if I had to pick one, we're a tech company. Because I think technology is the most powerful force in the world that's disrupting, improving things for the best.
You know, although I have to say we are, I would say we're a crypto company, which is something kind of new. And what I mean by that is, you know, it's, it's certainly it's technology, we need to be excellent at that. And we're on the cutting edge of a lot of this cryptography and everything that people are doing.
At the same time, we can't move fast and break things, right. That doesn't work when you're handling people's money. And so we do have a really strong legal compliance function that comes in and what I try to do is look for people who they're not they're not people who just want to check the box or you know, it's see the world in black and white.
A lot of what we're doing is it's in totally uncharted territory. There are no laws that are written about a certain area and so we need people who can kind of help guide and shape legislation that's out there, come up with creative solutions that haven't been thought of before, and then go implement them as we, you know trailblazers in this industry.
Let's talk about those laws for a bit. Yeah. So right now, there's not a lot of regulation in the US. I hear like crypto fanatic, say like, oh, next year, we'll have great, you know, thorough cryptocurrency laws. And I remind them that we're working off the Securities Act of 1933, 1934, and we haven't had a new one since then. And we've altered it of course, but like what is your realistic timeline for thorough cryptocurrency regulation? And like in your ideal point of view, what do you want that to look like?
Yes, I don't think there will ever be a moment where it's like now we have cryptocurrency regulation, because cryptocurrency has now branched out to be so many things, you know, it's it's money, it's it's potentially stocks or securities, its commodity, its property, and then that's just in the US. And of course, cryptocurrency is a global phenomenon. And so every country is looking at this in different ways.
Now, I mean, that being said today cryptocurrency is already a regulated industry in the United States. You know we have a bit license. We're one of the few companies that has that out of New York. We're regulated as a money transmitter transmitter in many states.
Now, I think the next piece in this progression that will come down is probably some more clarity about what are these new tokens that are being created, which is this amazing new way companies are raising money. And, you know, it's potentially the next version of the entire stock market. Right. I think in five years, most startups that are created will have some kind of at least tech startups will have some kind of token associated with it, because that's just how you move value around on the internet now.
But I think there's a big open question about are some of these securities or are they commodities and, you know, I don't have an opinion about that there's, there's great regulators that we work with out in DC that are looking to answer this question, but certainly we are we do have a responsibility to be an educational resource to them and really try to work with them to help, you know, shape that regulation even if we're not the ones coming up with the answer.
Got it, and you did acquire broker dealer recently here at least moving towards steps towards maybe putting securities on the platform. Do you want to be one day like a platform where any of those tech companies that are doing some kind of tokenization can put their tokens on your platform?
Absolutely. So we did acquire a broker dealer. And the reason is that we do feel a substantial sub, you know, subset of these tokens will be securities, our approach has always been to be the most trusted, you know, the easiest to use. So, we want to be the legal compliant place where you can start to trade these these tokens that are classified as securities.
So, I think that's certainly one of our goals. And, you know, I could imagine a future where companies come to Coinbase to, you know, issue their token and get in onto our exchange where we have all this liquidity and people trading.
In terms of like adding new tokens, like you mentioned, we're not talking about any kind of cryptocurrency right now you have I think four on Coinbase and five on Coinbase pro you have a pretty thorough you know, outline of how you're going to evaluate new ones and add them.
But I still feel like even though you have that there's kind of like maybe backed into a corner where everyone's watching for what you guys at next, like, do you think that's a problem? And how do you move past it to where you can just add 100 and not have the price freak out and not have people watching like that?
Yeah, I mean I i certainly look forward to a day where we add a new asset to Coinbase and it's a non event and it almost becomes routine and boring.
It will get there. Yeah, because I think there's going to be, you know, hundreds of on the platform within, you know, years and I think there could be millions someday.
So there, it makes sense that any company out there who, you know, has a cap table, they should have their own token, every open source project, every charity, potentially every you know, fund or these new types of decentralized organizations, these new types of decentralized apps, they're all going to have their own tokens. And so, you know, we want to be the bridge all over the world where people come and they they take fiat currency and they can get it into these different cryptocurrencies.
And this exchange is kind of the core product right now, but you're experimenting, you're branching out whether that's custody, whether that's wallet, Toshi, which is kind of like a project you really like. Right? I guess the question is, how do you decide what new products to get into? And are you going to take like a Google bets approach? And if they fail, you make a bet. Who cares? Or like an apple methodical like, we're gonna launch this and we really need it and want it to work out approach.
Yeah, so you're absolutely right. I mean, most people know Coinbase for our first product, which is the consumer app where you can trade crypto. We also have an exchange for professionals and institutions who trade crypto called Coinbase Pro, then we've we've launched some new initiatives that are targeting more, you know, the institutional space with custody and prime and then we have a number of bets in the venture category I call it which are these newer bets.
And a lot of that is about driving the utility phase of crypto. So a lot of like 90% of crypto activity today is still in the investment phase, which is people putting money into it to try to make money. And I think that's the initial kind of gateway that's getting a lot of people into crypto. But the utility phase is going to be even bigger, which is people starting to use it for various types of goods and services in the economy.
You know, one other way to look at this is that, you know, web 1.0 was about publishing information. Web 2.0 was about interaction. And, you know, messaging web 3.0 is going to be about value transfer on the internet, because now the web has this native currency. And so applications can be built that instantly tap into this global economy on the internet.
And so you're seeing Coinbase become a multi product company. Our early products were very successful at helping people just get field into crypto, whether your retail or institution and our newer products are really operating in that that web 3.0 decentralized sphere of helping people use crypto.
So we have, you know, a merchant solution for crypto we have wallet that you mentioned, we have earned calm where people can earn crypto by completing tasks and jobs. So we're thinking more and more about how to shift crypto from that investment phase utility phase.
Got it. So that sounds like you have plans to kind of take over the industry, obviously. And I guess what I'm getting to is your mission statement is like building an open financial system for the world. And you guys actually define that is not controlled by one company or one country. How do you balance like that mission with the fact that you want to build the biggest company possible and you have stakeholders, shareholders, employees that, you know, want to build a big company?
Yeah, well, I think, you know, every, every company, it helps to have resources so that you can go accomplish your mission. And so I think of a lot of our early bets are, you know, we need to make sure they have a business model so we can make them sustainable and excellent, and then use the proceeds of that to invest, invest in the next phases that will help us reach our mission.
So I don't know for me, I think my approach to entrepreneurship and business has always been, don't try to think of something that'll make money try to think of something that's useful that people want and the money part will kind of take care of itself.
So, you know, the other thing is that creating an open financial system for the world is in such a empowering and an ambitious goal that I think there's going to be a whole bunch of things they're going to have to happen to get there, and a lot of opportunities. So I don't know, I'm less concerned about the short term there. I think maybe it's easy for us to say that because our early products were so successful, but that's a little bit how I think of it.
Got it. Let's talk about the money part for a bit because we're at disrupt, and that's what everyone wants to hear. You've raised about, I guess, to 25 million about which is not a ton compared to how big you are, and you're generating a lot of revenue, I think 1 billion was the estimate for last year. Are you guys self sustaining? You have any plans to take on more capital? What's the game plan there?
Well, you're right. We are self sustaining. You know, we've been profitable for quite a while. We don't have any plans to raise additional capital at this point. But never say never.
You know, obviously, like someday I'd love to run a public company. Right? And that would be another type of.
You looking at my questions?
Great. I just read your mind.
No, I mean, someday, I think that would be great to get to. And, you know, I wouldn't rule out doing, you know, going public on the blockchain or something we know.
Also my next question. So tell me, like the roadmap to going public, when do you think it would happen and what needs to be done with check marks? It'd be checked before you do it.
Yeah. Well, I mean, I liked the idea of operating the company while it's private with with the rigor of a public company. And so, you know, we're making strides to get there, but I don't have any timeline to share, we'd want the option to be able to do it, but not necessarily have to go and do it. It depends on if everything is right.
Got it and then talk about the blockchain part I guess would you kind of like I don't know if it's practicing what you preach or like would you go public on yourself if you could one day I know that's way in the future yeah or traditional.
I think it would be very on mission for us to do that because of course creating on dimensional not and mission on military on mission yeah to to, you know, open financial system would involve companies that could list their stock at the which is really tokens, you know, the, instead of a cap table you token eyes the cap table, but I yeah, I don't have any decisions on that or anything to share at the moment.
Got it. Last question I guess. What product are you most excited for? That's coming out soon. I know wallet is kind of like a, is it like a baby of yours or am I just saying that?
Yeah, wallet has been an awesome project. You know, it's tough to pick your favorite children, but that's certainly a good one. Because, you know, Coinbase wallet is really a browser for the decentralized web. These these gaps are new types of applications that people are using, and it's this very new space, but it's a totally new way to build applications on the internet that has value as a native part of it.
And there's, you know, Coinbase wallet is a great way to access that and see some of the really new stuff that's being created.
Got it. Cool. Thank you so much.