20VC Coinbase's Brian Armstrong on The Rise & Short Term Correction in ICOs, The Regulatory Framework Required For Blockchain To Succeed & How The Rise of Blockchain Disrupts The VC Industry



In the final episode of the week on the "20 minutes VC," host Harry Stebbings interviews Brian Armstrong, the founder and CEO of Coinbase, a leading cryptocurrency exchange platform. Armstrong shares his journey from software engineering at Airbnb to embracing the potential of Bitcoin after reading Satoshi Nakamoto's research paper, despite initial skepticism from peers. He emphasizes the importance of Y Combinator's support in boosting his confidence to start Coinbase. The conversation delves into the technical and cultural differences between Bitcoin and Ethereum, highlighting Ethereum's scalability, Turing-complete language, and the distinct ethos of its team. Armstrong also discusses the rise of ICOs (Initial Coin Offerings), their potential to disrupt traditional venture capital funding, and the challenges of scaling and governance in the cryptocurrency space. He envisions a future where Coinbase offers a range of products to support an open financial system, transforming economic participation globally.

Summary Notes

Introduction to the Episode

  • Harry Stebbings is the host of the 20 minutes VC podcast.
  • He encourages listeners to suggest future guests via Snapchat.
  • Brian Armstrong, founder and CEO of Coinbase, is the guest for this episode.
  • Coinbase is a popular platform for buying and selling cryptocurrencies like Bitcoin, Ethereum, and Litecoin.
  • Coinbase has raised over $100 million from notable venture capital firms.

We are back on the 20 minutes VC with our final episode this week with me, Harry Stebbings and I really want to hear your thoughts on future guests you'd like to see on the show. So to send those to me, simply add me on Snap at htebings with two B's. It'd be awesome to see you there.

This quote is Harry Stebbings introducing the podcast episode and inviting listeners to suggest future guests via his Snapchat.

Brian is the founder and CEO at Coinbase, the startup that provides the world's most popular way to buy and sell bitcoin, Ethereum and litecoin.

Harry Stebbings introduces Brian Armstrong, highlighting his role at Coinbase and the company's significance in the cryptocurrency market.

Background of Brian Armstrong

  • Brian Armstrong was a software engineer at Airbnb prior to starting Coinbase.
  • He founded universitytutor.com before his tenure at Airbnb.
  • Jonathan Downey at Airware facilitated the introduction to Brian Armstrong for the podcast.

Was a software engineer at Airbnb and before that founded his own startup, universitytutor.com.

Harry Stebbings provides a brief background on Brian Armstrong's career before Coinbase, mentioning his previous entrepreneurial effort and position at Airbnb.

Introduction of Sponsors

  • WePay is mentioned as a sponsor that helps online platforms with integrated payment processing.
  • WePay is highlighted for its unique ability to offer integrated payments without compromising UX or exposing platforms to fraud and regulatory issues.
  • Pipedrive is introduced as the sales CRM and pipeline management software used by the 20 minutes VC team.

WePay helps online platforms increase revenue through integrated payments processing, constant contact, equid and GoFundMe use WePay.

Harry Stebbings talks about WePay's services and how it benefits online platforms, emphasizing its integrated payment solutions.

Pipedrive is the sales CRM and pipeline management software to use, with the primary view being the pipeline, a clear visual interface that prompts you to take action, remain organized, and stay in control of a complex sales process.

Harry Stebbings discusses the utility of Pipedrive for sales professionals and dealmakers, praising its visual interface and customizability.

Brian Armstrong's Start in Bitcoin

  • Brian Armstrong discovered Bitcoin in 2010 while working as a software engineer at Airbnb.
  • The Satoshi Nakamoto research paper on Bitcoin caught his attention, and he couldn't stop thinking about it.
  • Despite initial self-doubt and skepticism from friends, Armstrong gained confidence to start a company after receiving investment from Y Combinator.
  • The support from Y Combinator provided not just funding but also validation and confidence to pursue his startup idea.

I saw on Hacker News one day the bitcoin research paper had come out. This was the Satoshi Nakamoto research paper, and I just happened to read it while I was home for Christmas with my family.

Brian Armstrong describes his first encounter with the Bitcoin research paper, which sparked his interest in the cryptocurrency.

The thing that actually gave me the confidence to go start a company was actually applying to y combinator.

Brian Armstrong credits Y Combinator's investment as the pivotal moment that gave him the confidence to pursue his startup in the cryptocurrency space.

Bitcoin vs. Ethereum Analysis

  • Brian Armstrong discusses the differences between Bitcoin and Ethereum.
  • Ethereum is more scalable than Bitcoin, with a plan to increase its transaction capacity.
  • Ethereum has a Turing complete language, allowing for more complex software development.
  • The teams behind Bitcoin and Ethereum differ, with Ethereum's team being more focused on scalability.
  • Armstrong emphasizes that Coinbase is not biased towards any particular digital currency and aims to support a variety of cryptocurrencies.

There's really three things to know about ethereum versus bitcoin. The first is there's a difference in scalability, so ethereum is more scalable.

Brian Armstrong outlines one of the key differences between Ethereum and Bitcoin, focusing on Ethereum's scalability.

The second is that it has a Turing complete language behind it, and I can explain what that means. Essentially, you can write more complex software.

He highlights the technical capabilities of Ethereum's programming language, which allows for the creation of complex software.

The third thing is that there's a different team behind it.

Brian Armstrong points out that the teams behind Bitcoin and Ethereum are different, affecting their development and focus areas.

Digital Currency and Global Payment Network

  • Brian Armstrong expresses enthusiasm for digital currency as a global payment system.
  • He envisions an open financial system, akin to a native currency of the Internet.
  • Scaling is necessary for digital currency to reach the transaction capacity of traditional systems like Visa.

"I want there to be a global system for money, an open financial system, if you will, sort of like a native currency of the Internet."

This quote highlights Brian Armstrong's vision for digital currency to serve as a universal monetary system, paralleling the global nature of the Internet.

Ethereum's Capabilities and Developer Appeal

  • Ethereum is seen as a path to scaling digital currency to meet global transaction demands.
  • Ethereum's underlying language is more complex than Bitcoin's, allowing for a wider range of functions.
  • Developers can write and publish smart contracts on Ethereum, which is like a global decentralized computer.

"Ethereum has a full programming language that can be published to the blockchain."

The quote emphasizes Ethereum's advanced capabilities, which enable developers to create a variety of applications and smart contracts.

Quality Assurance and Regulation in Ethereum

  • Quality assurance and regulation are distinct but important aspects of Ethereum's ecosystem.
  • There is no perfect solution for quality assurance, but a body of knowledge and professionalism is expected to develop.
  • Smart contract expertise is anticipated to improve over time, similar to the evolution of legal contracts.

"You're going to build a body of knowledge around it and the professionalism will develop around it."

Brian Armstrong suggests that the development of smart contracts will mature through cumulative experience and expertise, akin to traditional legal professions.

Cultural Differences Between Bitcoin and Ethereum Communities

  • Bitcoin and Ethereum communities have different cultures and focuses.
  • The Bitcoin community is characterized by early ideologically driven members.
  • The Ethereum community is more focused on technology and scalability.

"The bitcoin group, I would say they had a lot of people join early on that were kind of more ideologically motivated... the Ethereum community I would describe as more like technologists."

Brian Armstrong contrasts the ideological motivations of early Bitcoin adopters with the technologically driven culture of the Ethereum community.

Initial Coin Offerings (ICOs) and Token Sales

  • ICOs, or initial coin offerings, are a means of raising funds by creating and selling tokens on the Ethereum blockchain.
  • The term ICO is controversial due to its similarity to IPOs, and there is a preference for the term 'token sales'.
  • The legal status of ICOs is not yet clear, and regulatory clarity is needed.

"People are using the term ICO to mean an initial coin offering, and what that means is essentially creating a token on top of the Ethereum blockchain and selling it to try and raise money for your startup or project."

Brian Armstrong defines ICOs as a fundraising method for projects or startups using the Ethereum blockchain, highlighting the need for careful consideration of the term due to its legal implications.

Future of ICOs and Sustainable Financing

  • Brian Armstrong believes in the long-term positive trend of ICOs but expects short-term corrections.
  • Sustainable ICOs will require regulatory clarity and improved smart contract security.
  • AngelList's system of ICO participation by accredited investors is seen as a step in the right direction.

"I think the long term trend for icos is very positive... I think in the short term we'll probably see a correction on it."

This quote reflects Brian Armstrong's optimism for the future of ICOs, tempered by the expectation of market corrections as the technology and regulatory environment matures.

ICO Funding and Cyclicality

  • Some ICO funding may be cyclical, with digital currency gains being reinvested into new ICOs.
  • The sophistication of ICO investors may reduce the urgency of regulatory protection.

"A lot of these people are... people who've recently become millionaires by investing in digital currency. So they have some degree of sophistication, and they're certainly not poor."

Brian Armstrong discusses the nature of ICO investors, suggesting that their experience with digital currency gains may afford them a certain level of sophistication, potentially impacting the regulatory landscape.

Demand for ICOs and Traditional Fundraising

  • The demand for ICOs is high, with thousands investing millions in minutes, contrasting traditional venture capital fundraising.
  • Traditional fundraising typically involves pitching to VCs on Sandhill Road, Silicon Valley.
  • ICOs represent a stark difference, offering a new method for startups to raise capital.

"Like I've been shocked just to see you might have 17,000 people all over the world in 1 minute will invest 30 or $50 million into one of these icos."

This quote highlights the speaker's surprise at the rapid and large-scale funding that ICOs can attract from a global investor base, which is a departure from the traditional, more localized approach to venture funding.

Disruption of the VC Industry by Blockchain

  • Brian Armstrong believes ICOs will disrupt venture capital by separating financial investment from advice and connections.
  • Entrepreneurs could raise funds from early supporters and separately seek advisors or board members for their expertise.
  • This model allows for a mix of crowd investment and strategic advisory without requiring venture capital for both.

"I do think that is pretty disruptive for venture capital."

Brian Armstrong expresses his view that the rise of blockchain technology and the model of ICOs have the potential to significantly alter the traditional venture capital industry.

"I'm not sure that necessarily needs to be the case."

Brian Armstrong questions the current model of venture capital where money and advice are bundled together, suggesting that these could be provided separately in the future.

"So I'm going to raise money from people who are my early fans, but I also want to bring in a team of advisors or board members to help me surround myself with people who fill in the skill sets that I don't have."

This quote outlines a potential future fundraising model where entrepreneurs raise funds from their early supporters and separately engage with advisors or board members for their expertise, rather than relying solely on venture capitalists for both capital and advice.

Key Problems in Scaling Digital Currencies

  • The main challenge in scaling digital currencies like Bitcoin is political/governance, not technical.
  • There are disagreements within the community on how to scale, leading to a stalemate.
  • Technical solutions exist, such as increasing block size or sharding, but they come with trade-offs.
  • Scaling decentralized systems have unique challenges, but they are not insurmountable compared to scaling large platforms like YouTube or Facebook.
  • Brian Armstrong believes that digital currencies can reach and surpass traditional payment systems like Visa in terms of transaction volume.

"Actually, the biggest challenge in scaling digital currencies right now is not a technical one. I think it's a political one or a governance one."

Brian Armstrong identifies governance issues as the primary obstacle to scaling Bitcoin, rather than technical limitations, indicating that the community's inability to reach consensus is a significant barrier.

"So I can give you a simple example. A lot of times people say, well, let's double the block size in bitcoin."

This quote provides a straightforward technical solution for scaling Bitcoin, which is to increase the block size, but acknowledges that it is not a permanent fix due to other implications for the network.

"I think there's nothing preventing digital currency from getting to visa level."

Brian Armstrong expresses optimism about the potential for digital currencies to scale to levels that meet or exceed traditional payment processors like Visa.

Personal Recommendations and Advice

  • Brian Armstrong recommends "Surely You're Joking, Mr. Feynman!" for its portrayal of a curious and happy life.
  • He advises single founders to prioritize finding the right co-founder over rushing into a partnership, echoing advice from Paul Bukite at Y Combinator.

"Well, there's a few ideas come to mind. I mean, one book that I've really enjoyed has been. Is called. Surely you're joking, Mr. Feynman."

Brian Armstrong shares a personal book recommendation that he has found enjoyable and impactful.

"Which is better to be in a great marriage than to be single, but it's better to be single than to be in a bad marriage."

This quote relays advice given to single founders, drawing a parallel between business partnerships and marriages, emphasizing the importance of a compatible partnership.

Mentorship and Influences

  • Brian Armstrong considers Paul Graham a significant influence through his writings.
  • Fred Wilson from Union Square Ventures is a mentor with whom Brian speaks monthly.
  • Executive coaches have had a significant impact on Brian's life.
  • Brian values reading as a source of mentorship and learning, often equating it to the value he gets from actual mentors.

"I'm not sure if he would consider me to be a mentee, but the first person that comes to mind is Paul Graham." "I talk with him every month and I've had a couple different executive coaches that have had a really big impact on my life."

The above quotes highlight the importance of mentorship in Brian's life, with Paul Graham being an indirect mentor through his writings, and Fred Wilson being a direct mentor through regular conversations. Executive coaches are also mentioned as significant influencers.

Learning Resources for Cryptocurrency

  • Dan Romero's Medium post is recommended for digital currency reading.
  • The newsletter 'Week in Ethereum' is suggested for weekly updates on Ethereum.
  • These resources are used for educating candidates at Coinbase and GDAX.

"Actually, Dan Romero put out a medium post just in the last few weeks with a bunch of digital currency reading." "There's another newsletter called Week in Ethereum which just summarizes what happened every week."

Brian recommends Dan Romero's Medium post and the 'Week in Ethereum' newsletter as valuable resources for staying informed about digital currency and blockchain technology.

Lessons from Airbnb

  • Brian learned valuable lessons from Airbnb's hiring process.
  • Airbnb's approach to hiring based on company values and raising the bar with each hire influenced Coinbase's hiring practices.
  • Creating a mission-driven company and reinforcing it through various communication channels was a lesson from Airbnb.
  • The hustle and energy at Airbnb, particularly for international expansion, was inspiring.
  • Meeting Airbnb's founders gave Brian a model for success and confidence.

"They always used to say, raise the bar with every hire." "Just creating a very mission driven company, reinforcing that at all hands meetings, communicating it through different channels, whether that was in writing or verbally."

Brian emphasizes the importance of a rigorous hiring process and the impact of a mission-driven culture, both of which he adopted from his experience at Airbnb and applied at Coinbase.

Coinbase's Future Roadmap

  • Coinbase's mission is to create an open financial system for the world.
  • The goal is to foster innovation, equality of opportunity, and economic freedom.
  • Coinbase started by making it easy to buy and sell digital currency.
  • GDAX serves as the institutional exchange to increase trading volume.
  • Toshi is described as a browser for the Ethereum network, likened to a 'Netscape moment' for digital currency.
  • Coinbase aims to build the components of an open financial system, such as merchant processing and identity systems.
  • In five years, Coinbase is envisioned to have a broader portfolio of products supporting an open financial system.

"Coinbase, our mission is to create an open financial system for the world." "That's what we're doing with Toshi, which is really kind of like a browser for the Ethereum network."

These quotes summarize Coinbase's mission and strategy, with a focus on creating user-friendly access to digital currencies and building the infrastructure for an open financial system.

Acknowledgements and Collaborations

  • Brian expresses gratitude for being invited to the show.
  • Host Harry Stebbings provides information for listeners to engage with the show and thanks those who facilitated the interview.
  • Harry also endorses WePay and Pipedrive, discussing their benefits and how they are utilized within the 20 Minute VC team.

"Yeah, thank you so much for having me. And your questions were excellent." "A phenomenal guest, and I'm so grateful to Brian for giving up the time today to appear on the show."

Brian appreciates the opportunity to be on the show, and Harry expresses his gratitude for Brian's participation and the support of others who made the episode possible. Harry also takes the opportunity to promote services that are beneficial to platform users and sales professionals.

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