Source | Cheeky Pint
Translation | Golden Finance
The podcast Cheeky Pint, hosted by Stripe co-founder John Collison, had an in-depth conversation with Coinbase CEO Brian Armstrong.
Brian Armstrong discussed many behind-the-scenes stories of Coinbase: from how to win in the competitive landscape of the U.S., to some life-and-death moments for Coinbase, and the cat-and-mouse game with North Korean hackers; from the crypto influence behind U.S. elections and the GENIUS Act, to the trend of banks embracing crypto; from the near miss of a CEO vote against USDC, to the successful nurturing of L2Base, and Coinbase's exploration of prediction markets.
Armstrong also predicted that by 2030, the price of BTC could reach $1 million, an optimistic outlook based on the gradual clarity of U.S. regulations (such as the passage of the GENIUS Act) and the influx of global institutional capital. He stated that in five to ten years, most wealth management firms or sovereign funds would include 1%-10% of crypto assets in their portfolios.
He also pointed out that there are only five to ten top fiat currencies that can survive, while the long tail of about 150 other government fiat currencies will be replaced by BTC and USDC. The dollar's status as a reserve currency is facing challenges—if the U.S. fiscal deficit continues to spiral out of control (with the debt/GDP ratio approaching historically dangerous thresholds), the dollar will lose its reserve currency status.
Below are the top ten highlights, followed by the full interview, which has been edited.
Top Ten Highlights:
Coinbase's success in the U.S. is due to its compliance path—working with the U.S. government to obtain a money transmission license, making us the only crypto company in the U.S. at the time with a banking partner, allowing users to connect their bank accounts directly to purchase Bitcoin.
North Korean hackers graduate 500 new members each quarter, and their full-time job is to attack—we must become the hardest nut to crack.
Banks are like newspapers of the past: some will disappear, and the smartest will embrace cryptocurrencies. Visa/Mastercard are already experimenting with stablecoins; ultimately, customer demand drives everything.
Coinbase will not apply for a banking license. The core function of a banking license is to allow not holding all funds, and Coinbase does not want to become a bank. Coinbase prefers full reserves rather than fractional reserves.
By 2030, BTC will rise to one million dollars. In five to ten years, most wealth management firms or sovereign funds will include 1%-10% of crypto assets in their portfolios.
I voted against the USDC project back then because it wasn't decentralized enough. USDC may have added $800 million in revenue for Coinbase over the past year, which I never expected; fortunately, the rest of the team supported USDC.
Avoiding the 'embrace and suffocate' of large companies that stifles innovation—Base's success is due to our protection of it rather than excessive intervention. The CEO's job is less about coming up with the next great idea and more about creating the right environment for good ideas to happen and be nurtured.
I lean more towards free markets than most. The best consumer protection sometimes comes from competition. If one company is terrible, the best solution is to let another company compete and offer better choices.
There are five to ten top fiat currencies that can survive, but the long tail of about 150 other government fiat currencies will be replaced by BTC and USDC.
If discipline is completely lost, the dollar will lose its reserve currency status. When the UK or the Netherlands lost their reserve currency status, their debt/GDP was in the range of 200-250; the U.S. is currently at a rather dangerous threshold.
Full Text:
How Coinbase Succeeded in the U.S.
John Collison: Brian Armstrong is the co-founder and CEO of Coinbase, one of the largest cryptocurrency exchanges in the world, founded in 2012, while Stripe launched in 2011. We grew up around the same time. Coinbase has just been included in the S&P 500 index, and the GENIUS Act has just passed. This is a good moment to take a step back and look at the big picture. The crypto space around 2014-2015 was a red ocean, with so many competitors, and you defeated countless others. When you look back, how did Coinbase succeed?
Brian Armstrong: It has been a long journey. I remember seeing you get into Y Combinator, which was very inspiring for me. "Maybe a fintech company can be created in this space." So part of the reason I was eager to get into Y Combinator was seeing Stripe's achievements.
In the early days, the crypto space was truly a wild west. I would attend early Bitcoin meetups, where there were talented cryptography PhDs and anarchists. At one of the Bitcoin meetups I attended in San Francisco, someone told me he was starting his own religion. So we came from those early chaotic days reminiscent of the Chaos Computer Club.
I think Coinbase made a few decisions at that time that helped us get through tough times.
One was our decision to take the compliance path, which meant working with the U.S. government and obtaining an MTL (money transmission license).
Another thing was that we tried to accumulate as many credibility indicators as possible. One of them was being accepted into Y Combinator. This allowed us to establish banking relationships in the U.S., which was very difficult at the time, and we partnered with Silicon Valley Bank, then obtained the MTL.
For a time, we were the only U.S. crypto company with a banking partnership, so users could easily connect their bank accounts to purchase Bitcoin. This really gave us a head start in a way that others couldn't catch up.
John Collison: Who were your competitors at that time? Was it Mt. Gox? Who were you competing with for consumer share?
Brian Armstrong: Mt. Gox was in Japan, and of course, it later collapsed. There was a company in San Francisco called Tradehill that could have become a big exchange but failed to reach some key milestones. There were so many companies along the way that I can't even name them all. There was a Bitcoin conference in San Jose, California in 2012, which, looking back, was a landmark event. The Winklevoss twins showed up, and I met Vitalik Buterin there for the first time. He hadn't invented Ethereum yet. I remember people looking around the venue, feeling very niche. Some talks had only five attendees. We had a small booth selling T-shirts.
John Collison: What was Vitalik doing before Ethereum?
Brian Armstrong: He was a writer for Bitcoin Magazine. He was actually a very talented writer.
I don't know if there's a lesson to be learned from this, but I think you need to get in early on these tech trends—you don't want to be the 42nd AI company when everyone is rushing in. You want to dive into something you think is cool when others don't see it that way. I think, as Paul Graham says, you'd rather have a thousand people who truly love your product than a bunch of indifferent ones. We were like that back then. No one took what we were doing seriously, whether it was Coinbase or the entire industry.
John Collison: Can you describe what it was like to be a more "formal" player? Did having a money transmission license and banking partnerships help you win because you could develop products that others couldn't follow, or did it earn you consumer brand and trust, leading them to choose you?
Brian Armstrong: I think it was both. It allowed us to launch products that others couldn't and kept us from being shut down.
John Collison: Did others get shut down?
Brian Armstrong: Yes, others either received cease and desist orders and couldn't afford legal fees, or basically went out of business due to being hacked.
In the early days, Coinbase had a few near-miss situations when we weren't the mature company we are today, and someone tried to hack into Coinbase's system. I can share some of those thrilling experiences. With those credibility indicators, we were able to attract enough talented people. By the way, some other companies at the time were completely anonymous. Those people told me, "I don't want to put my name on this website because it goes against the spirit of crypto." To me, if we were going to raise funds and accept regulation, how could we remain anonymous forever? If a company gets big enough, someone will come knocking. I wasn't afraid to put my name on it and say, "I am a U.S. citizen, I live in the U.S. I am doing this for legitimate reasons, and I am in it for the long term."
A company is a reflection of its founders. Stripe reflects many aspects of you and Patrick in many ways, even in some details you might not be aware of. Coinbase is the same for Fred Ehrsam and me. It truly is a derivative of our DNA—this encompasses many things—but one of them is that we are legitimate, trustworthy, and we are doing this for legitimate reasons for long-term growth. This is very important.
Some Life-and-Death Moments for Coinbase
John Collison: Fred had previously worked in finance. You worked at Airbnb before. Did you work in finance before?
Brian Armstrong: No. I studied computer science and economics. I have basically always been a software engineer. I tried another startup, but it didn't succeed. Fred also got a degree in computer science and economics from Duke University, but he later went to Goldman Sachs to do forex trading. When I first met him, I thought, "This guy can code, has a computer science degree, but he also knows a bit about finance." In the first few weeks of our collaboration, he came to me and said, "I'm pretty sure every time someone buys Bitcoin, we are losing money." I thought, how could that be? Then he demonstrated it on the whiteboard, and he was right. A complementary skill set.
John Collison: The first version of the business model didn't work. You needed to optimize it. You mentioned some thrilling experiences; what were those?
Brian Armstrong: Let me give you a few examples. In the first version of the app, I created a simple hot wallet deployed on a server. I told people that the app was still in alpha testing and not to store any money they couldn't afford to lose. At that time, Coinbase had raised about $150,000 from Y Combinator. As early users kept coming in, the amount of money they deposited kept increasing, even though there were warnings all over the app, and the total deposits were getting closer to $150,000. I felt that if we lost all that money, I wanted to have the ability to pay it back; otherwise, the company would go bankrupt.
John Collison: You didn't want users to deposit more than what Coinbase had in funds.
Brian Armstrong: Exactly. I had calculated the growth rate of deposits against the funds we had. I said, "We probably have about eight weeks to migrate this system to a new one." I vaguely felt we needed to move the money from the internet to cold storage. I didn't know how to design one. I had studied computer science, taken security courses, and had a basic understanding of cryptography, but I had never built a real key storage solution or anything like that. So I called two friends: "I need a crash course—tell me how to do this." I asked one of them, "How long do you think it would take to build this thing?" He said, "A team of ten might need years to really validate it and everything." I said, "We only have eight weeks." He replied, "Then you're in trouble." I brought in another engineer from our team, and we basically started working on the first generation of Coinbase's cold storage architecture. We were sleep-deprived, and to meet the deadline, we made some trade-offs that we thought were reasonable. But it worked; that was one of those life-and-death moments. If we had waited any longer and the company had been hacked, Coinbase wouldn't exist today.
There was another similar example. One day, we were having lunch in San Francisco, and an employee noticed on his computer that a lot of withdrawals were happening. We quickly realized that someone had hacked into our account and was withdrawing money at lightning speed. I remember we shut down the entire site, figured out how they got into that account, managed to block it, and about 12 or 24 hours later, the site was back online. We fixed the vulnerability, got it running again, and then I realized that if that hacker had started their actions while we were asleep, we would have been bankrupt by morning. We only lost about $50,000 in that incident. But it was pure luck because we noticed it at Pacific Time—San Francisco—where they started their actions.
Looking back, there were many moments like that, very scary. It was like flipping a coin; there were three or four of those coin-flipping moments, not all of which were related to cybersecurity.
Once the company really started to take off, there were other challenges about how to keep up with the pace. One of them was the influx of customer support tickets, and at that time, we didn't have a customer support team. So we would answer all the support tickets on weekday evenings and weekends, from 9 PM to midnight, after finishing other work. At some point, the unread support tickets reached ten thousand, twenty thousand, thirty thousand, and people started getting very angry and disappointed with us. We realized, "We have to scale up here at lightning speed. How do we build a customer support team in the next seven days?" Our team designed a ten-question quiz because we couldn't interview all these people that quickly. We had people apply online and take this quiz, which was a very difficult test about crypto knowledge and other things. We did five-minute interviews with many of them and then hired them, and we started to catch up. There were many similar issues along the way, and we were just feeling our way through, solving things on the fly.
North Korean Hackers
John Collison: What are some things the general public doesn't understand about the field of cybercrime?
Brian Armstrong: One is that there are many North Korean agents trying to work at these companies.
John Collison: Are they working remotely from North Korea or in the U.S.?
Brian Armstrong: As far as we know, most of them are remote. This does create another attack vector. North Korea is very interested in stealing cryptocurrency. You might think we can work with law enforcement—we do receive some files, like "Okay, this is a known actor," and sometimes we share with other companies.
But it feels like every quarter, 500 new people graduate from some school, and hacking is their entire job. In many cases, they are also victims, but they are still interviewing for these positions. We had to take some measures. First, when these people are interviewed in front of a camera, someone is offline coaching them. So we forced them to turn on their cameras to prove they are not AI. We also started requiring everyone to come to the U.S. for onboarding training before they could access any sensitive systems. We fingerprinted them to ensure that anyone with sensitive permissions was a U.S. citizen and had family in the country because you don't want someone to feel they can run away without worrying about extradition or similar issues.
Another thing that surprised me was that these threat actors were willing to try to bribe our customer support staff. Our customer support staff works in a fairly closed facility, and they have a strictly locked-down Chromebook. In some cases, someone offered them hundreds of thousands of dollars to sneak in personal phones to take screenshots and such. We had to strictly limit access for these support staff. We have started moving more work to the U.S. and Europe. We just opened a new customer support facility in Charlotte, North Carolina, and are really starting to build deterrence, meaning that when we catch someone doing this— we have been conducting red team exercises—we don't just show them the door; they go to jail. We work hard to make it clear that accepting that money is ruining your life; even if you think it's life-changing money, it's not worth going to prison. These are the things we have to deal with now, and I am sure the risks will only increase.
John Collison: More verification of physical presence, more isolation of decentralization, and enhancing deterrence through active prosecution. It feels like in a world filled with AI and deep fakes, proof of physical presence will become increasingly important.
Brian Armstrong: Yes. By the way, people may have also seen that we are now also going after threat actors. We are offering a $20 million reward for information leading to the arrest or conviction of the criminals responsible for the recent attacks on our customers. We have fully compensated those customers. We have received a lot of leads in this area and are tracking these individuals with law enforcement; the process is quite interesting.
The ultimate deterrent is not going after insiders but going after the threat actors themselves. We have to become a hard target.
Crypto Trends: Everything Exchange and Asset Tokenization
John Collison: I want to take stock of everything happening in the crypto space, which might help the discussion. Store of value is definitely a very important function; 24/7 trading of assets—I even include memecoins in that; the payments space has also seen some success so far, and both of our companies are seeing rapid growth in that area; the volume of cryptocurrency payments, especially stablecoin payments, looks very optimistic for the next five years; and globally acquiring dollars is also a big deal. What else would you add to this list?
Brian Armstrong: You have already mentioned several of the most important ones. Prediction markets entered the mainstream during the last election, and trading volume continues to grow, along with some new things that are about to emerge that we can discuss. But I think you have captured the essence.
John Collison: Cryptocurrencies can be said to be the underlying foundation for prediction markets. We didn't have these before cryptocurrencies emerged.
Brian Armstrong: Yes and no. There were prediction markets before cryptocurrencies, and there is currently a pending legal question in the U.S.: if you build them entirely on-chain with self-custody wallets, do they not fall under financial services? If so, their creation could be more permissionless—this is also true in the realm of self-custody wallets and others.
Another cool aspect of trading use cases is that now every asset class is going on-chain. People are not just trading cryptocurrencies on-chain; soon they will also be trading stocks. There is private company capital formation, as well as commodities, forex markets, debt instruments, government bonds—every asset class is going on-chain, and we are also working to capture this trend. We created a term called "everything exchange." Coinbase is striving to become a global liquidity market for all asset classes. This is exciting in many ways.
On one hand, there is broader international coverage; many people in various countries have a significant demand for U.S. assets. They want to invest in companies like Nvidia, but unless you are wealthy in the market, it is hard to open a U.S. brokerage account. Then there is trading, fractional shares, and you can also start doing some perpetual futures and other interesting things.
John Collison: So you think, for example, stocks—now there are American Depositary Receipts (ADRs), and if Americans want to buy German or Canadian stocks, the process is exceptionally complicated, and they end up only being able to purchase derivatives. And you think on-chain tokenization is a superior form of derivatives?
Brian Armstrong: Yes, I believe a large number of assets will be tokenized, and to some extent, that is already happening, including private company capital formation—even personal fundraising, like real estate projects or film production. In the future, people will also be able to innovate on governance mechanisms, such as stipulating that only long-term holders of stocks have voting rights. This can be set through smart contracts: you must hold for over a year to gain voting eligibility. There is a lot of room for innovation in this space.
John Collison: What do you think the next major application scenario for asset tokenization will be? Do you think this is the main direction, or are there other more important application areas?
Brian Armstrong: The current core applications are trading and payments. I believe Bitcoin has an anti-inflation store of value function that should not be underestimated. This is a $20 trillion market opportunity—using gold as a reference, but Bitcoin is superior. I believe Bitcoin will ultimately surpass gold.
We are starting to see the emergence of lending services and capital formation. Decentralized social media is also interesting; we just released a beta version of the Base app. Now, every piece of content published by users corresponds to an independent token, and creators have personal tokens whose value accumulates. Users can purchase tokens, and if they like a piece of content, they can share it and earn economic benefits, and they can also remix it, like meme templates on the internet, ultimately allowing all value to return to the content creators. This original ecosystem is nurturing interesting ideas, and while the specific forms are still unclear, the Base app has shown vitality. The waitlist for users is long. These are all emerging application scenarios.
Widespread Use of Stablecoins
John Collison: We both agree that payments themselves can serve as an important new application—over the past decade, it has been largely limited to the crypto enthusiast community, but now it is gradually moving into the mainstream.
Brian Armstrong: I'm particularly excited about Stripe entering this space because it greatly enhances the credibility of the industry. The technology is maturing, but there are scalability issues: users have to deal with messy character payment addresses instead of readable names, and the wallet experience needs optimization. Crypto payments should be the most convenient payment method.
Brian Armstrong: What do you currently see as the next obstacle to the widespread adoption of stablecoins?
John Collison: I think building user familiarity will be the key breakthrough point.
One of the most valuable use cases for Bitcoin remains cross-border money transfers—it truly solves a real problem. If you want to transfer $2 from the U.S. to Turkey, there are almost no products in the traditional financial system that can achieve that. But crypto technology makes it easy.
In the creator economy, we are also seeing a surge in demand.
Interestingly, the application experience and user behavior can create a positive feedback loop. Take QR code technology as an example: this decades-old technology needed two triggering conditions—first, Apple integrated it natively into the iPhone camera app, allowing users to automatically recognize QR codes just by pointing the camera at them (this happened in the late 2010s); second, the COVID-19 pandemic created a demand for contactless experiences, making U.S. users truly familiar with QR codes.
Similarly, stablecoin applications also need to meet these two conditions: first, support from consumer-grade applications (which is still not fully developed),
and second, the cultivation of user habits. To promote stablecoins, we even set up a crypto payment experience at the coffee station on the first floor,
but it is still very unstable and often encounters various failures. However, once the application experience becomes smooth and users gradually become familiar with it, we believe the usage of stablecoins will see explosive growth.
Brian Armstrong: Absolutely right. I think you're correct. It will be interesting to observe whether the ultimate solution will rely on QR code technology or if it will need to leverage tap-to-pay NFC technology.
John Collison: I actually use QR codes as a metaphor for this wave of technological adoption. Tap-to-pay NFC does seem like a likely solution, especially as operating system support improves. Now that iOS has relaxed its restrictions on NFC usage, perhaps the Coinbase app can access the NFC interface?
Brian Armstrong: We've seen quite a few excellent tap-to-pay demonstrations; this field is opening up. However, the secure enclave on devices is still another matter, and access has not yet been opened up; we will continue to work on that.
We even discussed mailing payment stickers to saturate the entire city for testing—observing which merchants are willing to accept crypto payments.
Currently, most application scenarios are focused on cross-border payments and internet-native areas, where crypto payments are the only viable option. Because when global communities gather, using a single national currency feels strange.
Physical retail stores may adopt it later; that's my guess. Merchants want to save 2%-3% on payment processing fees and are also willing to pass some of those savings on to consumers.
How Banks Embrace Cryptocurrency
John Collison: I agree. It feels like digital use cases will be the first to promote, and we are increasingly rolling out the Stripe Checkout experience—offering cryptocurrency payments as an option. Many physical retail stores accept payments via Alipay or JCB. Clearly, accepting the Japanese card brand JCB in the U.S. is quite niche. But that demographic is large enough to warrant it. It feels similar here; once you surpass a certain minimum penetration rate, not everyone uses it for payments, but not accepting it becomes unworthy.
What do you think about all banks starting to embrace cryptocurrency? Jamie Dimon said, "Bitcoin is a scam, worse than the tulip bubble. If I were the government, I would shut it down right now." And now, of course, they are launching their tokenized dollar, JPMD. This is an interesting phenomenon. I'm curious about your thoughts on this widespread trend among major banks.
Brian Armstrong: Ultimately, they will respond to customer demand. As long as customers need it, they will provide support.
I feel there has always been this back-and-forth tug between banks and cryptocurrency; they say, "We're not sure if we like Bitcoin, but we like blockchain technology. Maybe we can build a closed network for interbank settlements." Perhaps they don't like paying SWIFT fees, feel excited about the concept, and have run many related projects, but I haven't seen them fully support it.
It's like the "innovator's dilemma" that Clayton Christensen described. Culturally, it's very difficult for an organization that makes huge profits from traditional systems to change. Anything they do in the cryptocurrency space is probably only a fraction, but it comes with all the risks and complexities. There aren't many people in their companies who come in with that mindset. There aren't many genes for building crypto products within the company. It's like how some local newspapers couldn't adapt to the new system when the internet first emerged; those newspapers gradually disappeared, but some of the best ones adapted. Just like now, media companies all have websites. Banks will embrace cryptocurrency. Payment companies like Visa and Mastercard are conducting good experimental projects with stablecoins. Clearly, I think Stripe is all in, which is very wise, and you are encouraging many others to wake up and do something. I think the smartest ones will adapt.
From Coinbase's perspective, we increasingly hope to become people's primary financial account. As cryptocurrency consumes financial services, for some of our customers, Coinbase can become a bank alternative, managing their transactions, payments, direct deposits, and they have credit cards with Coinbase. By the way, many people actually won't even care whether it's cryptocurrency. They just want the best financial services. If this is the cheapest way to send money to family overseas, or if they can get the best rewards on this card, or anything else, that's what we ultimately want to provide them. Banks will have to compete in this new environment. They can either become an infrastructure layer supporting new fintech applications that become the primary financial accounts for the next generation of young people, or banks can adapt to the new world, build their own applications, or embrace cryptocurrency. As I said, the smartest banks will do this, while many banks will be left behind. This is the nature of free market competition.
John Collison: Companies won't innovate; it's consumers voting with their feet that brings about innovation. In terms of banking, who has impressed you?
Brian Armstrong: Yes, there are several. I think Jamie Dimon is a great leader—very smart, although I don't quite agree with his comments on Bitcoin, but he's a great person, and we have a lot of collaborations with them. Santander has been great. There are also some banks that have truly embraced cryptocurrency, like Citizens Bank, CrossRiver, and Silicon Valley Bank.
Will Coinbase Become People's Primary Financial Account?
John Collison: What would it mean for Coinbase to become people's primary financial account?
Brian Armstrong: It means we take on a greater responsibility and proportion of people's financial lives.
It's not just about trading cryptocurrency; it could mean using crypto assets as collateral for loans, or getting 4% Bitcoin back on spending with a Bitcoin credit card, or sending money overseas instantly at less than a penny cost.
Therefore, we need to be adept at leveraging the benefits of cryptocurrency to update the financial system, rather than doing crypto for the sake of crypto. Coinbase's early users were just hardcore fans of cryptocurrency.
Currently, about 6% or 7% of people globally have used cryptocurrency—similar to the early 2000s internet. And we need to reach about 1 billion people, or half the world's population, to truly increase economic freedom on a global scale. It has to be something more important than the technology itself. It has to be faster, cheaper, and better, helping me accomplish what I want to do.
Coinbase Will Not Apply for a Banking License, Hopes for 100% Reserves
John Collison: The reason I ask this is that I've observed the growth of neobanks outside the U.S. Nubank is dominant in Brazil, and Revolut is the fastest-growing bank in Europe. Meanwhile, the largest consumer banks in the U.S. are basically the same as they were. Compared to the 1970s, it's a group of very similar, recognizable players. Perhaps it will still be like this in ten years, or the situation could change drastically. I'm very curious about what the neobank revolution in the U.S. will look like.
Brian Armstrong: That's a great statement; I should perhaps use that phrasing when describing it. Some people call them stablecoin neobanks or super apps. There are many terms that can be thought of.
I think this is our opportunity. By the way, from a technical perspective, I don't think we will apply for a banking license. The core function of a banking license is to allow not holding all funds, which is known as a fractional reserve system. It's an interesting business model, but it also comes with extremely heavy regulation, making it very difficult to truly innovate and iterate quickly on products. We don't want to be a bank.
Coinbase hopes for full reserves rather than adopting fractional reserves. A 100% reserve rather than a fractional reserve is actually safer for customers—because a bank run is impossible. You can even invest assets, especially the reserves of stablecoins, in bankruptcy-remote assets like U.S. Treasury bonds. You can build very strong protections, which will allow us to continue innovating and providing the best customer experience.
I think for many people, it can replace banks… or in your terms—a new bank is needed in the U.S. because similar institutions seem to be emerging everywhere else in the world.
A Large Pool of Capital Waiting to Be Deployed, BTC Price Will Reach $1 Million
John Collison: What is your prediction for the average annual growth rate of Bitcoin's price over the next decade?
Brian Armstrong: My rough idea is that by 2030, Bitcoin will rise to a million dollars, though of course, the margin of error for such predictions is large.
Here are a few data points: regulatory clarity is starting to emerge in the U.S., which I think is a bellwether for other G20 countries. The GENIUS Act has passed for stablecoins, and the market structure bill is being discussed in the Senate. Let's pray for some progress by the end of this year; that would be a huge milestone.
Now the U.S. government has a strategic Bitcoin reserve. If you had said this five years ago, people would have thought you were crazy, believing the U.S. government could never officially hold Bitcoin. If the U.S. does this (there is currently an executive order requiring it), many other countries will follow suit. We have already seen sovereign nations showing strong interest in this; Coinbase provides crypto services to about 140 government entities (including federal, state, local, and international agencies). Governments are increasingly getting involved. You can imagine a massive pool of capital globally.
I believe the regulatory risks will not disappear, but the significant risk of "the government shutting down the crypto industry" has notably decreased.
As for whether there are flaws in the Bitcoin protocol? I think it has been thoroughly reviewed at this point. We need to ensure it is upgraded to post-quantum cryptography. The Bitcoin core team, along with Ethereum and Solana, are researching upgrade plans to transition to post-quantum cryptography.
The list of risks is decreasing, while the demand and the amount of institutional funds waiting for the next bill to be introduced are increasing. Among the large institutions I speak with, 1% of their investment portfolios are allocated to Bitcoin. I ask them, "What would it take to increase that to 5%-10%?" They respond, "Regulatory clarity, that's it." I believe we will continue to see a significant influx of capital. The impact of ETFs has already been enormous.
John Collison: When people talk about institutional funds on the sidelines, I think the analogy to gold is very apt because it is a non-productive store of wealth—this is a compliment, not a criticism. But specifically regarding institutions, I don't think major sovereign wealth funds, mutual funds, etc., currently hold a lot of gold. Isn't buying BTC like purchasing a substitute for gold? But it seems unusual for large institutions to buy non-cash-flow assets?
Brian Armstrong: It depends on their strategy. There is a theory that suggests 5%-10% of a diversified portfolio should be allocated to commodities and similar assets. BlackRock has actually published some reports and studies suggesting that crypto assets should be part of every healthy diversified portfolio at this time because they exhibit interesting inverse correlations with other assets—this relationship evolves over time. I believe that in five to ten years, most wealth management firms or sovereign funds will include 1%-10% of crypto assets in their traditional diversified portfolios.
How Ordinary People Should Allocate Crypto Assets
John Collison: If someone doesn't want to allocate part of their portfolio to crypto assets, should they dollar-cost average into Bitcoin or even other major tokens (not meme coins) and weight them by market cap? If someone wants to invest some funds into crypto assets, what is the correct investment strategy?
Brian Armstrong: Disclaimer: I do not provide investment advice. For anyone just getting acquainted with anything new, whether it's crypto assets or otherwise, a reasonable approach is to invest 1% of your net worth (the amount you are willing to lose and learn from) if you are interested.
John Collison: Within crypto assets, how should one allocate?
Brian Armstrong: Bitcoin is a great starting point. We have an index called COIN50 that includes the top 50 tokens weighted by market cap. I won't list specific tokens, but I believe you should hold Bitcoin. If you want to allocate it as such, you can also hold index funds.
What you should do is try and use crypto assets: spend at Stripe merchants, use the Coinbase card, publish content on the Base app and start earning crypto assets, shop at stores that accept crypto payments, etc. People should use crypto assets, and part of that is investment.
Ultimately, as stocks are tokenized, when people want to obtain loans, they will unknowingly use crypto technology. Just like people may not understand the principles of electricity but can turn on a light switch.
What the GENIUS Act Means
John Collison: Now that we have the GENIUS Act, what does it specifically mean? What can we do now with the GENIUS Act that we couldn't do before?
Brian Armstrong: I'll start with stablecoins and then talk about the GENIUS Act. Stablecoins are essentially fast, cheap, and global payment tools. We can now make payments anywhere in the world in one second at a cost of one cent. This is unique; no other payment network can simultaneously meet the three conditions of being fast, cheap, and global.
The GENIUS Act stipulates that if you want to issue and operate stablecoins in the U.S., you must meet certain requirements to make them safer and more reliable. One of these is that 100% of the reserves must be backed by U.S. dollars or short-term U.S. Treasury bonds, and no other high-risk assets can be held, and regular audits must be conducted to prove compliance. This is a basic regulatory requirement.
But the more important significance is that it becomes federal law written into the code and recognized, indicating that "this will become a trusted, legitimate, and allowed technology in the U.S." This has triggered enormous demand from every company involved in payment businesses (i.e., all companies). They realize they need to formulate stablecoin strategies and figure out how to respond because the U.S. government has recognized it, and this will become a trend.
John Collison: I've noticed an incredible surge of interest over the past two or three months.
Brian Armstrong: It's like a gold rush. Everyone is rushing in, trying to figure out what this is all about and thinking about how to save money for their companies. Many companies are trying to pay developers in markets around the world. In the U.S., Europe, and some other countries, the existing systems work well. But there are still many long-tail countries where people cannot access good financial services. Payment channels are like black boxes; it's unclear what the final amount received will be, and high fees are charged.
If there were a fast, cheap global payment network, it would democratize financial services, allowing anyone with a smartphone to compete on a more level playing field, and their wealth would not be eroded by inflation. This is a powerful tool for promoting progress, property rights, sound money, and economic freedom. This is the opportunity that stablecoins bring.
Now we need to complete the market structure bill, covering non-stablecoin crypto assets, which ones are securities, which are not, and so on.
How Crypto is Affecting U.S. Elections
John Collison: The passage of the GENIUS Act was a winding process; you must have some interesting stories about it?
Brian Armstrong: I realized that for a long time, we were trying to make progress in Washington to push legislation, but nothing happened. Someone told me, "Congress is good at two things: doing nothing and overreacting in a crisis."
We realized that political will had to be generated to achieve this goal. There are 50 million people in the U.S. who have used crypto assets, and we said, "Let's try to organize." We funded a 501(c)(4) nonprofit called standwithcrypto.org to get 2 million Americans to raise their hands in support of candidates who support crypto assets.
I remember discussing with the policy team, and I said, "Let's grade every politician's performance in the November 2024 elections from A to F." The policy team's job was to build relationships with politicians, and they suggested listing supporters of crypto. I said, "No, I want to list the enemies of crypto and give them an F. Who got an F?" I could see them sweating nervously. We needed to ensure that some people won elections because of crypto votes, while others lost because of crypto votes.
John Collison: The performance of the crypto sector in Washington is well-known; it has been more contentious than the tech industry historically. We have friends and enemies. Thus, the scorecard and "Stand with Crypto" campaign were launched—Fairshake has been more relevant in some recent struggles. Was this led by you? Are we no longer timid but rather clearly expressing our stance?
Brian Armstrong: Many people were involved; I can't take all the credit, but I see a shift in the crypto industry.
The traditional policy advice we received from tech industry people was, "You need to go there, build relationships, and be nice. Then you should form a trade organization to play the bad guy, fight, write sharp op-eds, etc." But somehow, the people we found in these trade organizations just wanted to be nice.
I kept thinking: who would engage in political battles on X platform, attacking those doing bad things? They just wanted to have polite conversations in closed-door meetings. As the elections approached, I realized that if no one was going to be the bad guy, maybe we should be. I don't think we did anything too crazy, but by Washington's standards, it was already quite crazy.
We made it clear that we unequivocally support crypto assets, regardless of whether you are left or right. We want to elect candidates who support crypto assets while trying to unseat those who oppose them. This really shocked people in Washington because everything there is about partisanship.
In the lead-up to the elections, there was a heated debate, and I received angry calls from both sides: "How can you donate to this person?" We said, "Because they support crypto assets." Then the other side called: "How can you donate to that person?" I said, "Because they support crypto assets." We were effectively single-issue voters.
On one hand, I think we may have annoyed both sides and won't be friends after the elections. But on the other hand, if you are being attacked, it means you hit the target. We are clearly a non-political company, but we do not hide our support for crypto assets. I have to remind many people that "non-political" does not mean 50/50; it means we will support candidates who support crypto assets, regardless of their party affiliation. Not every election is 50/50; it could be 60/40 this time, and the other side 60/40 next time.
This is a huge mindset shift, a bit of reverse thinking, and it has helped elect the most pro-crypto Congress. The work we and many others have done—I don't want to take all the credit; other companies have participated—has laid the groundwork for passing this legislation. We have shown people in Washington that there is no voter base against crypto assets; Americans want crypto assets, and supporting them helps get elected. This is just good political strategy.
Qualified Investor Standards, D.C. and More
John Collison: Once the market structure bill passes and the GENIUS Act takes effect, do you have any other issues you need to address in Washington?
Brian Armstrong: The previous administration did try to stifle the entire industry—but now we have accumulated some knowledge on policy, and this kind of self-righteous understanding can be dangerous—after all, the future is unpredictable, and outcomes can vary. I hope we can complete the market structure bill. This has led me to think about what else we can do to help update the financial system.
Our mission is to increase economic freedom. One example is that I think the qualified investor law is somewhat unfair. Only the wealthy can invest to become wealthier, which seems regressive. Perhaps we could replace the qualified investor standard based on net worth or income with a financial literacy test.
I am excited about the idea of economic zones. They have worked well in places like Shenzhen, China, and the UAE. With so much regulation, why can't we set up sandbox testing for new ideas in a region? It could be around crypto assets, biotechnology, drones, or supersonic planes. If we could establish 10 federal lands in the U.S. as different economic zones, that would be fantastic.
There is a company called PROSPERA (we have invested in it) that has established a prototype in South America and is now trying to implement it in the U.S. There are many other areas as well.
Brian Armstrong: Do you have any particular policy issues you would like to promote in Washington?
John Collison: It might be in aviation. I'm super excited about the new MOSAIC rules (modernization of special airworthiness certification)—overall, the current government has a deregulation agenda, but it needs to actually do it and pass new rules. They just achieved this in the aviation sector: you can't just build a plane and sell it to the public; it must go through a series of FAA approvals, which is a very cumbersome process that takes years and has very rigid regulations. For example, electric planes cannot pass certification because the regulations require "aircraft engines to burn gasoline, etc." Last month, U.S. Transportation Secretary Sean Duffy announced a brand new aircraft certification system that greatly simplifies the process. I believe this will encourage more bottom-up innovation in the field. This was originally one of my policy wish list items, but now it has become a reality.
I believe the light aviation sector will see more innovative breakthroughs—this is a field where the U.S. was clearly a leader but has stagnated over the past few decades. By the way, you should also note that the current government issued an executive order requiring the FAA to allow supersonic planes that do not produce a perceivable sonic boom (meeting specific decibel standards) to fly in U.S. airspace.
Brian Armstrong: That is indeed exciting. I really look forward to getting to my destination faster. Another reform worth pushing is that the current FDA approval process averages 10 years and costs $2 billion to bring a drug to market; they have set up three phases of clinical trials to verify safety and efficacy. But if a drug has passed the first phase of safety trials, why not allow doctors to prescribe it? Especially for terminal patients with no other options. You know it is safe; you just don't know if it is effective, so let the doctors make the decision. This would lead to faster data on drug approvals. Many people die every year. There are many such issues that could be improved through reasonable deregulation efforts.
The Phenomenon of Rug Pulls and Fraud in the Crypto Space
John Collison: I think everyone agrees that the accredited investor rules are somewhat silly. They are both exclusive (if you don't meet the minimum net worth test), and as we've seen, the wealthy are not necessarily savvy investors. The list of investors in Theranos is a who's who of various wealthy individuals and accredited investors. At the same time, if we completely deregulate, there will be a slew of scams and fraudulent activities. The U.S. has some of the best capital markets in the world. When I see certain freer areas in the crypto world, I think the phenomenon of rug pulls and people seeking zero-sum behavior are some of the worst things we should not allow to continue. When you think about alternatives to the accredited investor rules, what is the framework for liberalizing investments while maintaining the best qualities we have today (i.e., high integrity and strict honest and fair trading rules)?
Brian Armstrong: That's a great question. Fraud should be prosecuted to the fullest extent of the law. You can require disclosures: if you want to raise funds for something, you must provide certain information. If you make a mistake on important matters, especially if you intentionally defraud investors, you should go to jail for that. But that doesn't mean only the wealthy should be allowed to do so.
We also don't want to create the false notion that "government approval means it's a good investment." Many publicly traded companies—theoretically approved by the SEC and others—have dropped 85%-90% in the past few years, like some biotech companies (I won't name names). You can lose all your money in the public markets. We need to foster a sense of personal responsibility: there is no reward without risk. The government is not here to tell you what a good investment is; you still need to make your own judgments. But they can help by ensuring "the information this person gives you is truthful." If they lie to you, tort law can allow you to seek damages.
I might be more inclined toward the free market on this than most people. The best consumer protection sometimes comes from competition. If you have a car company with a terrible car that frequently breaks down and is expensive, the best solution is to let another company compete and offer a better option.
Many people, even without financial knowledge, have street smarts and know what a scam is. They know when three friends tell them that something is bad.
John Collison: Have you taken measures at Coinbase regarding some token pump-and-dump scams? Or do you think people are adults and should assess investments themselves?
Brian Armstrong: We have a lot of debates about this because it's a bit like an app store or even Amazon. Suppose someone tries to sell fraudulent products on Amazon; Amazon might want to remove it. But suppose it's a two-star or three-star product that some people like and many don't, but it's not fraudulent. You should allow people to make their own choices; they see it has two stars, but if they want to buy it, they can. Maybe the supplier can improve it.
We try to adopt a similar philosophy: we want to list all legitimate products (fraud is illegal) and provide information to customers to help them make better decisions. We have tried various ways and haven't fully figured it out yet. I have considered an on-chain review system or reputation scoring. We released an API that allows anyone to query crypto addresses (which can be assets or people) and get on-chain reputation scores. This is an early prototype.
Ultimately, you would get something similar to a FICO score (Note: a credit score created by Fair Isaac Corporation that lenders use to assess a borrower's creditworthiness), or an Amazon or Yelp rating. You need to ensure that if I try to send John Collison some USDC to buy beer, I need to confirm it's the real John Collison and not an impersonator. These tools built by the private market will help with this, allowing the government to go after fraudsters.
150 Fiat Currencies Will Be Replaced by Bitcoin and Digital Dollars
John Collison: You mentioned the product-market fit of crypto assets in emerging markets, where there is a very strong product-market fit. In historically high-inflation markets, people have traditionally tried to move their funds out, attempting to exchange their money for dollars or other things they believe will hold value better; this behavior has existed for decades. Perhaps countries with black market exchange rates are indicators of demand. Many of these governments do not always approve of this; they prefer all funds to remain in their national currency. There is a gap between what the government wants and what the people want. How will this develop? Who will win?
Brian Armstrong: You're right. When we enter a new country, we often have to walk a tightrope. We really want to work within the existing system, and we usually go to get licenses to set up local entities for regulated financial service products. I'll talk about self-custody wallets later.
When we talk to different departments of the government, we hear different voices. Usually, there are some people in the government who are hesitant about crypto assets, sometimes it's the central bank. There are also other departments in the government that are actually very supportive—they want to achieve national digitization and create economic opportunities. But the people clearly want crypto assets.
In many parts of the world, Coinbase is able to operate within that system and provide what people want. But in other regions, it is very difficult or impossible for us to enter and create regulated financial service businesses because those countries do not have a clear regulatory framework, or they only issue bank licenses to their cousins and bribe their friends, which is illegal for U.S. companies to do. You cannot effectively operate in many of these places.
Therefore, we also have a self-custody wallet, which is not regulated as a financial service business because we never hold customer funds. It is regulated more like a software product (like a messaging app), and you can launch it directly. It's essentially a software product, like keeping your keys in 1Password. This allows us to enter some other markets.
You asked where the future is headed. In some markets, I think the top five or ten government fiat currencies may remain; I don't think they will disappear. But the long tail of the other 150 government fiat currencies should be replaced. They perform poorly, are often abused, and erode people's rights. I think there is ample reason to suggest that these fiat currencies should be replaced by Bitcoin and USDC.
For example, Ecuador has taken a similar approach—they pegged their national currency to the dollar. To be honest, this is almost a form of civil disobedience in all such countries. In places like Venezuela, by introducing self-custody wallets that allow people to hold dollars, it may technically violate legal provisions. I think I can accept that. This is a form of civil disobedience—because people are indeed in a terrible situation due to the government stealing wealth through inflation. This is a good thing.
Clearly, a digital dollar is very beneficial for the U.S., maintaining its reserve currency status and demand for Treasury bonds. The use of Bitcoin in the U.S. is also a good thing because democratic countries around the world are now facing issues with deficit spending. To get elected, you promise more free stuff, which drives up costs. How do you discipline a balanced budget? Bitcoin is part of the answer. It is a check on deficit spending; if it gets out of control, people will flee to Bitcoin in uncertain times. If deficit spending is controlled, people will continue to use that fiat currency.
I don't want to overstate this, but I think Bitcoin extends the Western civilization or the American experiment to some extent. But if we completely lose discipline, the dollar will lose its reserve currency status, and I hope that doesn't happen because I am an American, and I believe America is a good thing for the world. I would rather people turn to Bitcoin than the renminbi. Thank goodness we have Bitcoin as a check in this new economy.
Will the Dollar Lose Its Reserve Currency Status?
John Collison: How can the U.S. avoid losing its reserve currency status?
Brian Armstrong: Don't inflate the dollar. The debt-to-GDP ratio is something to pay attention to. We are currently around 150 or 170. Historically, when the UK or the Netherlands lost their reserve currency status, they were in the 200-250 range. The U.S. is at a historically quite dangerous threshold. It is hard to see where the political will to do this will come from. I hope Bitcoin can be part of the solution. We shall see.
The Success of Dollar Stablecoins
John Collison: Why haven't non-dollar stablecoins succeeded? The share of the dollar in global stablecoins is over 95%, far exceeding the dollar's share in global currencies. Why is that? Will this continue?
Brian Armstrong: If you can access anything without permission, you will use the most trusted reserve currency. That might be the reason.
Europe deserves credit; they have indeed introduced—sometimes Europe is a leader in regulation, but this is not necessarily an area you want to lead in. They did introduce a regulatory framework before the U.S. There is a euro stablecoin, but it is very small and not very attractive. I think the dollar is meeting people's needs.
Another smaller but interesting potential thing is called flatcoin. I don't know if you've seen these; they are not backed one-to-one by the dollar (the dollar, of course, has a certain degree of inflation, about 2% to 5% per year), but they try to track the CPI (Consumer Price Index) to maintain their purchasing power. So, if a Big Mac is worth one dollar today, ideally, a stablecoin should also be able to buy it for one dollar in ten years. There is a company called Ampleforth that has built a token called SPOT, which has been tracking the dollar since 2019 and is now worth about $1.26. It has experienced wild fluctuations but has actually remained quite stable.
Economists often debate whether you want 2%-3% inflation each year to incentivize people to spend money. Having something that maintains purchasing power for contracts and pricing is good; you want future prices to remain stable.
Coinbase's Internal Venture Capital: The Birth of USDC and Base
John Collison: Coinbase has institutional products, the USDC stablecoin, brokerage services, and L2 Base; you are everywhere. This might work in this fast-evolving industry. How do you focus? How do you allocate resources? How do you decide what to cut?
Brian Armstrong: It depends on how you calculate. Stripe has many products in the payment space. A lot of this comes down to the founders. Sometimes I can't help but have many ideas, and in fact, the company often pushes back on me, saying we need to focus more. I say, "Well, you're right; we should focus." Focus has its advantages. Having multiple revenue streams also has its benefits. When one is up, another is down. Letting some small teams handle various things has its advantages too.
The USDC and Base started with teams of only three to five people, and USDC may have added $800 million in revenue for us over the past year. I never expected that.
John Collison: You really didn't expect that? Isn't it obvious?
Brian Armstrong: No, it's not obvious. We have a system internally where employees can pitch their venture bets twice a year.
The internal venture capital model we are trying to build is that it doesn't require unanimous agreement. In most companies, you need your boss, your boss's boss, all the way up to the CEO to say yes to approve something. This means that as long as there is one no, you're out. The venture bets at Coinbase are that you can go to any product lead, along with a few carefully selected smart engineers, and me and a few others. If you get a yes from any one of us and get funded from their budget, you're greenlit. It's like pitching to a group of internal venture capitalists.
This means Coinbase has a more adventurous culture. We try a lot of ideas; some don't work, and we have to shut them down. It's hard; how do you have the courage to cut projects—because in a startup, you can run out of money and not be able to raise the next round. So we have to simulate these investment rounds. Occasionally, they completely exceed expectations.
I'll let you in on a secret: I actually voted against the USDC project. Because I read it, and I said, "Ah, it's not as decentralized as I want it to be." I had some reasons in my head, and thank goodness there were others on the team who voted yes and funded it from their budget. I was completely wrong. I often use this example to illustrate that the best ideas don't have to come from me; they can come from anyone in the company. We have to try bolder ideas.
John Collison: What about Base?
Brian Armstrong: Base is another example of a venture bet. It started as a small thing; Jesse came to me and said he wanted to launch a Layer 2. I had no specific ideas on how to do it. The only thing we did was fund and protect it. New ideas can sometimes be fragile within large companies.
I remember you said something very insightful—avoid letting the "embrace and choke" of large companies stifle innovation.
The only thing I might have done well is protect it, but most of the time, I didn't know what Jesse was doing. He iterated on three or four ideas, and Base was the fourth thing he came up with. Base finally started to succeed and became the number one Layer 2 solution on Ethereum. Now it has just launched the Base app.
As CEO, my job is less about coming up with the next great idea and more about creating the right environment for good ideas to happen and be nurtured, while bad ideas eventually get shut down. We have some discipline in this regard.
The hardest times for new venture bets are when the core business is threatened or in a downturn. The core business is always under threat.
John Collison: So that's why it's core. It's a successful business that others want.
Brian Armstrong: This makes our decision-making very healthy, but it is a healthy tension within the organization. People often say the core is underfunded and threatened. How can we allocate more? I want to draw resources from that thing that hasn't generated revenue yet. But sometimes I'm on the other side, saying I want to fund the core, and we should also allocate 10% of resources to these venture bets. Because in five to ten years, we need to have the next chapter emerge.
Sometimes there is a distinction between founders and operators; if you have too much founder energy, they can sometimes blow things up. If you have too much operator energy, they just get bored and can't innovate anymore, but they run things very efficiently.
John Collison: It's like a series of layered S-curves.
Brian Armstrong: I'm lucky at Coinbase to have Emilie Choi as President and COO. She and I make a great team. I think we both can naturally do things in any way. I try to be more of a founder, providing risk tolerance and venture bets. She makes Coinbase a well-run company, like when she pushes back on me and says, "Brian, if we just focus on the core business in Europe, we could generate another billion dollars in revenue." So, it's a great combination.
Coinbase is Exploring Prediction Markets
John Collison: Do you use prediction markets in your internal operations?
Brian Armstrong: Not yet.
John Collison: If you are crypto believers, shouldn't you be using them?
Brian Armstrong: Yes. We are integrating and researching prediction markets. We don't have complete clarity yet; the new CFTC chair has not been confirmed. U.S. citizens are still not allowed to use on-chain prediction markets. Every market that is allowed to operate in the U.S. must be approved by the CFTC. So if there are some interesting internal bet projects, we don't have the resources to acquire everything. But hopefully, it will become easier at some point.
John Collison: Once they are approved, will I see prediction markets about projects?
Brian Armstrong: That's a good idea.
AI and More
John Collison: In what other ways does Coinbase operate differently as crypto believers and AI believers compared to companies that were founded 10 or 20 years ago?
Brian Armstrong: Like many companies, we are diving deep into AI as much as possible. We are doing a lot of best practices. I mandate that every engineer use Cursor and Copilot. About 33% of Coinbase's code is now written by AI, with a goal of reaching 50% by the end of this quarter.
John Collison: As we start to enter the crypto world more and as crypto becomes more related to payments, what advice do you have?
Brian Armstrong: The crypto space has never been as good as it seems, nor as bad as it seems. You have to stick with it for the long term and ride the ups and downs. It is very cyclical.
Coinbase really wants to set more open standards, and there is a trade-off. Because if you truly have a decentralized protocol, like Base, we launched it, but it is undergoing progressive decentralization; we are moving from stage zero decentralization to stage one, and we will soon reach stage two. On the Base network, everyone should be able to exist in an environment that competes fairly with Coinbase. That is the goal we want to achieve.
It is a permissionless system where anyone can build. This is what truly disrupts traditional finance. It won't be another proprietary system. This is what truly embraces crypto.
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