Brian Armstrong on Cryptocurrency

Brian Armstrong: Coinbase, Cryptocurrency, and Government Regulation | Lex Fridman Podcast #307

Check out the Episode Page and Show Notes 

Key Takeaways

  • “We want [Coinbase] to be the way that a billion people access the open global financial system.” – Brain Armstrong 
  • All of Brian’s friends thought Coinbase was a dumb idea when he first started building it in 2010; there was a lot of uncertainty around Bitcoin at the time, which was trading at $10 per coin 
  • Most of the best leaders are able to contribute a net positive to the world and do not care if they anger a certain percentage of people 
    • You’ll never do something authentic to yourself if you care too much about what people think 
  • Early startups need to “keep doing stuff” and aggressively iterate on their product or service 
    • “Startups are like sharks; if they stop swimming they die.” – Paul Graham 
  • People who are uncertain about their future don’t try as hard to make or achieve things because everything they produce and earn could be gone tomorrow; good property rights are foundational 
  • Bitcoin is a new technology that can bring economic freedom to everyone around the globe, specifically in places where economic freedom had not previously existed 
  • “I think Bitcoin could end up becoming the reserve currency of the world.” – Brain Armstrong 
  • Companies are getting distracted from working on their core missions by “the current thing”, which is destructive to their productivity 
    • It’s not Coinbase’s job to solve the most important societal issues
    • Focus on work at work and pursue your other interests during your own time 
  • To become a better leader, consistently do things outside of your comfort zone so that your comfort zone grows
  • It is easy to be a critic; be the person in the arena that uses technology to improve the world and is a part of the solution and not a part of the problem 

Intro

  • Brian Armstrong (@brian_armstrong) is the Co-founder and CEO of Coinbase, the most popular cryptocurrency exchange and platform in the world
  • In this conversation, Brian and Lex talk about starting Coinbase and the company’s technologies, why leaders are commonly criticized, startup advice, how to hire better, how cryptocurrency can bring economic freedom to one billion people, employee activism in the workplace, and the meaning of life 
  • Check out these Podcast Notes from Brian’s appearance on the Siraj Raval Podcast
  • Host – Lex Fridman (@LexFridman)

Books, Articles, and Websites Mentioned

Coinbase Reaching One Billion People

  • Coinbase is a cryptocurrency exchange that allows people to buy and sell various cryptocurrencies, among many other services  
  • “We want [Coinbase] to be the way that a billion people access the open global financial system” – Brain Armstrong 
  • Brian started Coinbase when bitcoin was $10 per coin 

How Coinbase Uses Artificial Intelligence and Machine Learning 

  • Coinbase uses machine learning for fraud protection
  • It has a data set that separates the users that are good actors and those that have turned out to be bad actors, and this data is inputted into the company’s machine learning model to create a risk score based on various factors of a user, such as:
    • Device fingerprints 
    • Improbable travel velocity (basically tracking people’s IP addresses to see if they’re spoofing their location) 
    • Keystroke timing, i.e. real users enter their banking information slowly and letter by letter, while scammers are copying and pasting the information at a much faster rate 
  • How Coinbase protects against people earning an unfair edge in the market: 
    • Establish good code test suites 
    • Third-party firms “penetration test” and audit their system
    • Bug bounty program that pays white hat hackers to find vulnerabilities before the black hat hackers do 

Starting Coinbase in 2010

  • Brian was working at Airbnb in the Bay Area when he first discovered bitcoin and began to develop a prototype for storing bitcoin during his nights and weekends
  • All of his friends thought it was a dumb idea; there was a lot of uncertainty around bitcoin at the time 
  • Paul Graham and YCombinator wrote him a check for $150K to pursue the hosted bitcoin wallet project 
    • Brian quit his job at Airbnb to pursue it full time
  • Early feedback he got from users led him to add a “Buy Bitcoin” button in the app, which caused user growth to exponentially increase 

Why People Hate Leaders

  • Brian was surprised at the amount of hate he got in the early days of Coinbase
  • Most of the best leaders are able to contribute a net positive to the world and do not care if they anger a certain percentage of people 
  • You can’t become too consumed with what people think or else you’ll never do something that is truly authentic to yourself 
  • Try and find the balance between being “too PR approved” and “too stream-of-conscious” as a leader; there is a premium on authenticity 

Startup Advice to Founders

  • If you’re at pre-product market fit: action produces information … “keep doing stuff”
    • You have to take steps into the unknown 
    • Talk to customers, improve the product, repeat 
  • “Startups are like sharks; if they stop swimming they die.” – Paul Graham 
  • Entrepreneurs have a certain risk tolerance, but Brian believes the entrepreneurial path isn’t actually all that risky 
    • Going to a startup that ultimately fails makes you more valuable to your next company
    • People overestimate the risk of doing a startup and they never start it because it seems crazy 
  • You know you have product-market-fit when the use of your product keeps growing without marketing
  • When scaling a company, the CEO should spend more time hiring and recruiting talent than coding 
  • Have enough money to survive downturns 

How to Improve Your Hiring Process 

  • Be cognizant of “candidate experience” when interviewing; you don’t want disgruntled interviewees saying how rude you or members of your company were during the interview
  • Ask warm-up questions
  • Brian does 25-minute interviews for full-time hires and 10-minute interviews for contract-type work
  • Ask yourself what you need this person to accomplish for the specific role, then ask them questions that help you determine if they’re able to do the thing
  • Concise communication is key; do not ramble on when giving an answer
  • Do you notice the candidate still holding onto grudges when answering questions related to conflict-resolutions, or were they part of the solution?
  • Basic hiring criteria:
    • Can they get the job done?
    • Will they work well on a team?
    • Can they communicate effectively?
    • Do they fit into our cultural values?
  • Brian is skeptical of asking “brain teaser” questions when interviewing because they don’t replicate a real work situation 

How Crypto Enables Economic Freedom 

  • If people have good property rights, they’re encouraged to create things for society that benefits everyone 
  • People who are uncertain about their future don’t try as hard to make or achieve things because everything they produce and earn could be gone tomorrow
  • Bitcoin is a new technology that can bring economic freedom to everyone around the globe, specifically in places where economic freedom had not previously existed 

Coinbase Technology & Custodial Solutions

  • There are several ways to store your crypto, like in a custodial wallet kept on an exchange or a self-custodial wallet 
  • A custodial wallet is where an institution has the private key for your cryptocurrency, and a self-custodial is where you manage your own private key 
  • Self-custody doesn’t hurt Coinbase; Brian wants to encourage users to take self-custody over time
  • Cryptocurrency users have low switching costs because everyone is using the same protocol
    • Users can freely move from one service to the next 
  • Centralized cryptocurrency services like Coinbase will be around for a while 

Cryptocurrency Listings on Coinbase

  • Coinbase listing a given cryptocurrency on its exchange is not an “endorsement” of that cryptocurrency, much like web hosting companies weren’t endorsing the initial websites on the internet
  • The listing is a matter of legality and meeting the minimum bar of Coinbase’s internal review process 
    • Is it a security, satisfactory cybersecurity evaluation, etc. 
  • Allow the market to decide the value of the given cryptocurrency 
  • “My belief is that there are going to be millions of these assets over time, so I hope it doesn’t make the news every time we add one in the future.” – Brian Armstrong 
  • Coinbase wants to enable cryptocurrency innovation, but not allow anyone to curtail innovation by doing some fraudulent thing 

Government Regulation

  • Over the last five years, Brian has noticed a shift in how regulators view the cryptocurrency industry
    • They’re interested in keeping bad actors out and allowing innovation to take place, whereas before they were critical of the technology itself
  • Brian estimates that 60% of US regulators he meets with in DC want to establish thoughtful regulation around crypto and allow it to continually develop as a new technology 
  • “Crypto” can be a lot of different things; some are more like commodities, others are like currencies, and then there is art, digital ID tech, NFTs, etc. 
    • The US must clarify its securities law to better govern the different types of cryptos
  • On governments seizing a user’s crypto kept on the exchange: “Coinbase has to follow the law.”
    • There have been times when the government has ordered Coinbase to freeze certain accounts 
    • This risk is why many users choose self-custody 

al Reserve Currency

  • “I think Bitcoin could end up becoming the reserve currency of the world.” – Brain Armstrong 
  • Bitcoin is the gold standard of the crypto economy 
  • All fiat currencies are vulnerable to debasement; a rising nation might have a strong currency today, but history suggests it will eventually debase and weaken it currency 

Combatting Employee Activism in the Workplace

  • Companies are getting distracted from working on their core missions by “the current thing”, which is destructive to their productivity 
  • “Focus on work at work” is a US-centric phenomenon; this concept is normal in most countries
  • It’s not Coinbase’s job to solve the most important societal issues
  • Brain offered an employee exit package for employees who wanted to leave the company following his blog post, and 5% of employees took it
  • The mainstream media isn’t really focused on the truth 
  • The loudest and most extreme opinions tend to come from a small minority in a given group; their opinions do not tend to reflect the consensus opinion of the group
  • Coinbase’s diversity numbers are either the same or better in every category following the blog post 
  • Companies should have reasonable personnel policies and focus on the core mission

Leadership Lessons Learned from Being CEO at Coinbase

  • Brian never thought of himself as a natural leader; he was an introvert and not always confident in how he communicated
  • There are different types of leaders, not just the traditional military-general-type leader
  • Consistently do things outside of your comfort zone so that your comfort zone grows
  • Do what scares you to build your confidence

ResearchHub

  • Brian invested in ResearchHub following Coinbase’s public offering 
  • ResearchHub wants to be a translation layer between the scientific and entrepreneurial community
  • It is Reddit for science 
  • There are a lot of people building companies, and there are a lot of people working on cool things in science, but these two groups rarely intersect
    • Although, amazing things get created when they do intersect, i.e. SpaceX, Google, & Genentech
  • Scientific studies published behind pay-walled journals don’t help humanity; publishing in an open-source way will benefit more people 

NewLimit

  • NewLimit is a biotech company Brian invested in that is inventing medicines composed of epigenetic reprogramming factors that restore youthful functions in old cells 
  • Atoms, not bits: a phrase to describe software entrepreneurs pivoting to hard tech and creating companies that deal in the physical space
  • If people can live longer due to improvements in AI and technology, we can keep writing and watching the movie of life 

Advice for Young People

  • Most people want to do something important and have an impact 
  • Today, many young people are turning to activism to try and have an impact on the world, but Brian does not believe this is the optimal means  
  • It is easy to be a critic; be the person in the arena 
  • Be a part of the solution instead of being a part of the problem, and use technology to improve the world 

The Meaning of Life

  • “I don’t really think there is any point to life.” – Brain Armstrong 
  • We are organic molecules with DNA running some naïve algorithm 
  • Pursue whatever gets you fired up and set goals that seem outlandish 
  • After accomplishing one goal, set a new and larger goal and pursue it 

Additional Notes 

  • During recess as a kid, other kids would read comics books and Brian would read about computer programing 
  • Brian wanted to do something important in the world and have a larger impact than he would have had he kept working a steady job 
  • Early Coinbase employees were all sleep-deprived 
  • Blockchains and L2 solutions need to become more scalable to reach 1 billion users
  • Regulatory clarification is needed; sovereign wealth funds, for example, would invest in crypto but they’re hesitant because of the lack of regulation 
  • Brian sees similarities in the crypto space of today and the original dot com boom of venture funding and talent of the early 2000s 
  • Write down your goals each day so they are on your mind and orient your productivity towards them 
  • Ruby is his favorite programming language
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