Growing up, I was kind of really shy, introverted, so I started to really get drawn to computers. We had a lot of early computers in the home. I studied computer science and economics in school. I wanted to learn about how that worked and how technology could improve the economy and business. I also spent a year living abroad in Argentina. None of this made sense to me at the time, by the way. This only in hindsight made sense. When I was living in Argentina, I saw this economy that was going through hyperinflation and it destroyed the lives of the average poor people in society that could only hold cash, right? So that was an important piece of the puzzle.
Had you not seen that, your life would be different?
I think so because if I had only spent time growing up in the United States, you know, we have inflation issues once in a while here and there, but more or less our financial system works, right? People are really frustrated with overdraft fees and there's all kinds of delays and payments. So there's things we can improve, but in a hyperinflation country, it's like an existential issue. In these places where the government is essentially stealing wealth from people by just printing money, right?
It's so extreme that it's hard for us to even imagine.
Yeah, exactly. So that was a part of it. And then I also had worked at Airbnb as an early employee and they were moving money into and out of about 180 countries around the world. And I got to see how difficult and broken that was. We were trying to send money into Cuba or Ecuador or these places people were renting their homes and we were trying to pay them out and we had no idea how much money was going to show up on the other side. It was like a cartel or almost like a black market where these extraordinarily high fees were being charged and no one could even tell us how much the fees were. And so I realized through a couple experiences like that how broken the global financial system is. It's kind of this patchwork quilt of different proprietary technologies. There are usually a couple of monopolies, an oligopoly in each country, and so it's just incredibly inefficient. Whereas if you compare it to the internet, you can send a text message and it just shows up anywhere in the world instantly for free basically. It's not like there's a different internet in each country unless you're in North Korea or something. And so fast forward to December 2010, I was at home for the holidays with my parents. Sometimes I would kind of do a little introvert mode, go upstairs, read things on the internet. And I happened to read the Bitcoin white paper.
You just found it on your own.
Yeah, I found it on this website called Hacker News, which some technologists read. Paul Graham from Y Combinator had created this back in the day.
Yeah. And it was describing how the world could have something kind of like the internet that's global and decentralized, but instead of for moving information around, it was for moving value around. And it immediately caught my attention. I said, that's a pretty interesting idea. I have no idea if it'll work. Maybe the government will block it. Maybe there's some flaw that will be found in it. But I couldn't stop thinking about it. And over the next six months, I reread the Bitcoin white paper a few times. I started going to these early Bitcoin meetups in San Francisco, which was a wild experience. The people who would show up were kind of like half brilliant computer science PhDs, the other half were completely crazy people like anarchists, people starting their own religions, homeless people just wanting free beer. It was a really interesting motley crew. And over this period, I started to tinker with prototypes and just think about whether this was real or not. And I started talking to a lot of my best friends about it and they told me it was a terrible idea. So I can go on and on, but that was really the initial moment where I started to think about Bitcoin as a protocol and then what product might be built around it that would make it trusted and easy.
Did you have any friends who were on board, maybe not in terms of being partners, but just people you could talk to and bounce ideas off of?
There's actually a guy I went to college with named Brandon Isles, and he was a software engineer at Google. A lot of the people I reached out to said, 'Brian, this sounds like a terrible idea.' They had no interest. Brandon was interested in it. So on the weekends sometimes I'd go over to his house and we started to build a prototype that was essentially a mobile app that would allow you to have a simple Bitcoin wallet. And we actually put this out as an open source project. We weren't trying to make a company or anything. We were just playing with this technology on the weekend. And I remember actually Wired magazine wrote a little article about it when we put it out. I thought that was cool. I'd never had anything I'd done before get written up in a magazine like that. And a couple people started submitting contributions in the open source world. Somebody submitted a translation into Japanese for the app, and I thought, 'Oh, this is cool. People are kind of into it.' I also realized the minute we put out the app that we had built it in the wrong way because we were actually running a full Bitcoin node on the phone. Every time you opened the app, it had to sync with the entire blockchain and download a ton of data, making your phone heat up and drain the battery. And I realized almost the minute we launched that there would need to be some sort of cloud service that would do all the data, security, and backups, kind of like how for email people use Gmail instead of running their own email server on their phone. So there's an important lesson in that: just getting started with anything, even if it's the wrong thing, will sometimes let you figure out what the right thing is to do.
If that iteration didn't happen, the next iteration couldn't happen. You needed to make it and realize what was wrong.
And then what was the next step?
Well, I remember at this point I was thinking about, okay, do I want to start a company in this space? I remember thinking somebody's going to start a company around this, building the Gmail for Bitcoin or whatever analogy I had in my mind. But I remember thinking, you know, I don't know if I want to be that person. Number one, I have a day job. Number two, that's going to be a lot of work. A bunch of people are going to try to hack into this thing and steal the crypto. That's a really serious endeavor. I tried to convince Brandon, 'Do you want to start a company around this?' And he was like, 'No, I work at Google. Leave me alone.' He actually later went on to start a crypto company which is now pretty successful. So essentially on nights and weekends I kept iterating on the project. Again, I wasn't sure I wanted to quit my job and do this full-time, but I couldn't help myself. I was just writing code in evenings. The thing that actually convinced me to quit my job and do it full-time was that I applied to Y Combinator, the startup incubator. Paul Graham, I had read a lot of his essays on the internet and I had a ton of respect for him. He was a hero of mine. He still is. I applied to Y Combinator. The first time I didn't get in. The second time I had the right mix of co-founders or something, and they decided to invite me. They gave me $150,000, and that's what convinced me to quit my job and really try it. I remember, it sounds kind of silly in hindsight, but the thing I was nervous about was calling my parents and telling them I quit my job to go do this crazy thing. My mother's first question was, 'Do you have health insurance?' I told her, 'I don't know if it's going to work, but this guy Paul Graham gave me $150,000 and he believes in me.' There was something really powerful about that. A lot of people I've met over the years think back to the most impactful moment in their career when someone gave them an opportunity that was maybe a little more than they deserved at that time. Someone I really trusted told me he believed in me, and I thought maybe I could do it. Until that time, I had so much self-doubt.
Was it the money or something else? Was it Paul Graham's words?
I think the check was symbolic of him believing in me. It was showing real skin in the game.
And I mean, he didn't say more than a few words to me until much later. He told me all kinds of brilliant things. But at that time, I think they just told me something like, 'This is high beta. It could be a really massive outcome or zero, but it's worth trying because the upside could be big.'
And what was the Y Combinator experience?
It's really about three or four months long and you get together with a bunch of other startup entrepreneurs.
How many were there would you say?
I think in our batch there were maybe 70 companies, something like that. They put you into this pressure cooker of an environment where you're working 12 hours a day on your company, bringing in other entrepreneurs who are mentoring and coaching you. You go to dinners, it's a community, and you build a lot of friends. At the end of the program after three or four months, you go to Demo Day where you basically get on stage and for five minutes you pitch your company to a room full of investors and see if they want to invest. Then you're part of the YC community. It's an incubator that helps you get these ideas off the ground. For people like me at that time who were interested in trying to build something but didn't quite know how to do it, it was invaluable. I'll give you a specific example. When I applied to Y Combinator, I had called the company Bitbank. The name PayPal was in my head — it alliterates. Anyway, I got there and the first day, there were lawyers who help you with incorporation. I said, 'One problem: it's actually illegal to have the word 'bank' in your company name unless you're registered as a bank, and you don't have a bank license.' So they said I had to change the name. That was just one example of a hundred things I didn't know what I was doing.
Was there a sense of competition between the 70 groups there, or was it more a sense of camaraderie, everyone trying to lift each other up?
Mostly camaraderie, I would say, but there was a bit of competition towards Demo Day of 'How much have you raised?' And Coinbase was not a hot company at Demo Day. There were other companies that had already raised a bunch of money and had traction. I was trying to raise $1 million. I had gotten the $150,000 check, now let me try to raise $1 million so I can hire a few people.
How long would $1 million have lasted in what you wanted to do?
Well, at that time it was just me and I had very moderate costs for running servers, but I wanted to hire a team of maybe three to five people.
For a million dollars, you might have only gotten two or three people for a year or two, right? Would that have been enough?
Yeah. A lot of times early employees want more equity, so they'll take a pretty low cash salary. I was paying myself $60,000 or something. I had taken a pay cut to do this, really trying to preserve cash. I failed to raise $1 million. I was only able to get about $600,000 by doing a bunch of meetings. You get nine 'no's for every one 'yes.' If you pitch 10 venture capitals, that's what success looks like.
Wow. What does rejection feel like?
It felt like a punch in the gut, over and over.
I've built a lot of resilience to it now because it's like in sales — you just get rejection. So it doesn't bother me as much now, but at that time, especially, I looked up to these really smart, rich people who had seen thousands of startups, and they were telling me my idea sucks. So they must be right. What do I know?
Do they just say they don't want to invest, or do they tell you why they don't want to invest?
Well, this is an interesting debate. Some of them will tell you why, but it's often not the whole why. It's probably like in dating — if someone doesn't want to go on a date with you again, they might tell you a partial truth, but not the whole thing. So you always have to trust the 'no,' but not necessarily the reason. There's an art to trying to extract feedback from people, which I felt like I always tried to lean into. I tried to make it safe for them, saying, 'You're not going to hurt my feelings. What's the actual concern?' Once in a while, they would tell me something more.
Do you remember what some of the concerns were?
One concern that got relayed back to me was people said, 'Why would anybody trust a currency that's not issued by a government?'
So it wasn't against your company, it was against crypto.
Yeah, actually that's an important point. Anybody who came into the meeting skeptical on crypto, I didn't manage to convince any of them. The only people who invested were already at least open to the idea of crypto. They were just looking for the right team.
Yeah.
What do you think was different about the people who were open to it versus those who weren't?
Yeah, because you're right, it was a contrarian idea and bet. The art of entrepreneurship is to find something that's contrarian but right — that's the sweet spot. I think having a more global mindset was important. Having lived in Argentina, I'd seen that. People who had only lived their entire life in the US would ask, 'Why would anybody not trust the dollar?' Right? That was part of it. Also, if you look at the ethos of crypto, a lot of it is about distrust in government. It's kind of saying, 'What if we unbundled money from the state and people had more sovereignty over their money and wealth in a way that it couldn't be manipulated or taken from them?' So you can imagine a certain category of people for whom the government is sacred, the source of American soft power in the world, and questioning the validity of the United States government really gets under their skin. Other people have a more libertarian mindset and say, 'Absolutely, we need that as a check and balance against bad government.' So you can see how it might have started to polarize people.
I see.
And then what happened next?
I raised the $600,000, fell short of the million. The Y Combinator folks told me to get back to work with $600,000 and keep making progress. At that time I was lucky enough to find a co-founder. I'd been trying to find one for about a year unsuccessfully. Just making a little progress — raising that $600,000, getting the product out there — caused the right person to reach out to me. That person was Fred Ehrsam. He messaged me cold. He had seen a prototype of the app I had put out on Reddit. I was going through this process that a lot of early entrepreneurs do: talk to a few customers, improve the product, try to find product-market fit. Fred reached out and we went for a coffee in San Francisco. He had studied computer science and economics at Duke, but he had worked at Goldman Sachs, so he had more of a financial background. After a few meetings, we decided to try working together for a few weeks and see what happens. Immediately I noticed a few things. One, he had incredible work ethic — we were there till midnight every day. Two, he would challenge me on things and be right. I'll give you an example. We were there at 10 or 11 PM one night and he came over and said, 'I've been going through the entire way that people buy Bitcoin on the app and I'm pretty sure we're losing money on every trade.' I said, 'How could that be? We're charging a fee.' He walked me through it and he was right. There's a heuristic I've come to appreciate: you want to find someone to co-found with that you're a little bit intimidated by — you're a little afraid of saying something dumb around them, or they can challenge you and be right. That's probably true in a lot of partnerships, business, marriage, whatever. He was definitely that — pushing me on things, and I'd think, 'Oh, okay, that's true, but have you thought about this?' We were making each other better. The early stages were a lot about trying to get product-market fit — the hard thing is to get anybody to even care about the thing you've put out in the world. There was a moment that flipped into having clear product-market fit, and I can tell that story too if you want.
Yeah. What was the first time that anybody cared?
The initial version of the app was a Bitcoin wallet. We put it out on Reddit and whatnot. A hundred people would sign up, but none of them would come back to the app. This is a common experience for a lot of people building products. Following the advice of Y Combinator, I emailed three or four people who had signed up and said, 'Hey, I built this app and I'd love to get your feedback. Can I get on the phone with you?' One of the people I spoke with said, 'The app was cool, but I just don't have any Bitcoin right now. I was just checking it out.' After a few of these conversations, a light bulb went off. I asked, 'If there was a button to buy Bitcoin in the app, would you have used that?' He said, 'Probably.' It sounds so simple and obvious now, but at the time, you couldn't actually buy Bitcoin inside Coinbase's app. So we had to figure out how to make a simple buy experience. It was non-trivial. We had to get bank rails and payment methods. There was a whole legal question about whether we were a money transmitter, with a licensing regime. We had to get these things done. At one point, we had a decision about whether to get a money transmission license. Our lawyer told us it would cost $5 million and take four years to get licenses in all 50 states. I said, 'We've only raised $600,000.' We found a law firm — the bank told us we couldn't process payments unless we either had the license or convinced them we didn't need it. We found a lawyer who argued there was a possibility we might not be a money transmitter if we did certain things. He said, 'I'll write you a legal opinion letter, but it will cost $30,000.' I thought, 'You've got to be kidding me. For a three-page piece of paper, you're going to charge me $30,000?' Now we probably spend hundreds of millions a year on legal. But after working it through and getting advice from Y Combinator, they said, 'If it lets you open the bank account, process payments, and launch your product, pay the $30,000 out of the $600,000 you've raised.' So we did that. We put the buy button live. Every day thereafter, more people came in to buy than the previous day, and we weren't doing any marketing — it was all organic, word of mouth, the easiest way to buy Bitcoin at that time, especially in the United States. We quickly had a whole different set of problems: how to keep up with demand, answer customer support tickets, hire a team, raise more capital. Our bank started calling us frantically, saying, 'You guys are moving tens of millions of dollars a day in volume and you only have $500,000 in your account. If there's a single error, you're insolvent. You need to go raise money or we're going to close your bank account in the next seven days.' Those were the kinds of calls that started happening.
Who were you getting the Bitcoin from at the time?
We were sourcing it from an exchange called Mt. Gox, which famously blew up. So we were not an exchange at that time — we were really like a wallet or a brokerage interface. Subsequently, we decided we had to build our own exchange because Mt. Gox was blowing up. We knew the infrastructure just wasn't there. But at that time we were using Mt. Gox.
Was the original plan only to be a wallet?
Yeah, it sounds silly in hindsight. It was purely to be a Bitcoin wallet, and then we realized trading was actually the best business model.
Yeah. It evolved from there. It's so interesting how now looking back it seems so obvious, but at the time, unless you get that feedback, it's impossible to know.
Yeah. And the lesson I take away from that is just get started. You can sit in analysis paralysis forever. There's a lot of value in stepping into the unknown. Paul Graham has a great saying: 'Action produces information.' That was very true for us.
What do you think it is about you that feels comfortable stepping into the unknown, whereas many people are terrified of doing that?
Yeah, I think that's one of the key things worth cultivating as an entrepreneur. I've asked myself that question. I do think I'm more comfortable doing it than most people. One theory I have is that I think I'm somewhere on the spectrum for autism. I've never been formally diagnosed, but I've taken online tests and I usually score on the spectrum. I think there's something about autism that's correlated with tech entrepreneurs. One way it can show up is that you're a lot less concerned with social pressure or social norms — let's say social cohesion. Sometimes I'm completely oblivious to it, but other times I'm aware that what I'm about to do would be considered like asking a really dumb question in the room. I realize most people wouldn't do that, but I don't care. I just genuinely want to know the answer. So there's an aspect where I'm okay trying ideas on for size or stepping into a project with full acceptance that it might not work nine out of ten times because I'm trying to find interesting opportunities. I don't really care about looking dumb as much as the average person. I probably still have some of it, but I don't have complete ego death or something.
You think it has to do with confidence in the ideas, or not necessarily?
No, because I'm usually very unconfident in the ideas. A lot of the ones I'm trying on, I think, 'This might have a five or 10 percent chance.'
So do you think it's more a curiosity of wanting to see if it can work?
Yeah. To me, I'm a little confused about the opposite. Sometimes people try an idea and it doesn't work and they get really down on themselves. But that was just the first thing you tried. You could try 10 or 100 more things. I think there's something about my psychology that makes me more willing to do that. From an evolutionary psychology point of view, it would be dangerous to have too much of that because if you're just trying ideas, you might offend the wrong person and the tribe leader kills you. There have been people in history — was it Galileo or Copernicus with the heliocentric version of the universe? The church killed him, I think. Even Alan Turing was chemically castrated by the government. So there is a danger from an evolutionary psychology perspective in being too open-minded about new ideas — they can be taboo, they can offend people. But society needs those kinds of people to advance.
Do you think there's some aspect of it that's similar to gambling?
No, I think it's a different thing for me, at least. I actually don't gamble. I hate Vegas. When I go there, I never play craps or anything. I just watch other people do it. I don't get a high off of gambling. I love looking for opportunities to optimize and improve systems, especially the big meta problems in the world. If I see a problem, solving it could solve a whole other category of problems. For example, if I was frustrated with the global financial system, one way would be to start my own bank and make it a better-run bank. But the thing that got me excited was what if there was an entirely new system that could exist outside of that and operate on a different paradigm? That would be really cool. I co-founded a longevity company called New Limit. What got me excited about that was that all these major diseases are correlated with aging. If we could restore function our cells had when we were younger, maybe it would automatically knock out a bunch of these diseases that happen later in life. So you treat the root cause rather than the disease. I get excited about those kinds of things.
How is Bitcoin different from all other crypto?
Well, Bitcoin is special and unique in the sense that it is like digital gold. It has the highest trust because it's the original incarnation of crypto. It was truly a computer science breakthrough. Also, we don't know who the founder was exactly, so it was a very fair launch of the coin into the world. It's not like if someone starts a project today and says, 'I'm going to own 20% and the rest will be distributed.' There are some original Satoshi coins, but they've never been moved, and most people believe they're lost and will never be utilized. So I think Bitcoin is digital gold. I don't see that ever changing. It's kind of the original one, so it has the most trust. Then there are lots of cryptocurrencies built as derivatives with other purposes.
And what's the status of Bitcoin today compared to over its history?
It's doing great. It has roughly a $2 trillion market cap, about 10% the size of gold, I'd say. It's probably been the best-performing asset class over the last 10 years. Recently, with some legislation passing in the US, it's become more established. There are Bitcoin ETFs. The United States government now has a Bitcoin strategic reserve, which I wasn't expecting to happen quite so soon. So it's quickly gone from people laughing at it 10 years ago to becoming a major asset class that governments and financial institutions around the world are using. Even BlackRock and JP Morgan — it's become mainstream.
Would you say it's living up to its promise?
It is living up to its promise in the sense that it's still quite decentralized. There's no entity that controls it. I would say it's doing a pretty good job of holding value. It still has some volatility, but a lot less than 5 or 10 years ago. It's becoming more like gold in that regard. I think it has some challenges ahead. Because it's truly decentralized, if it needs an upgrade — say quantum computing comes on the horizon — it will need an upgrade to the protocol, which can be achieved through consensus of all the people. But getting everyone around the world to agree on the best implementation is like herding cats. However, I think it can overcome that. Everyone's incentives are aligned — nobody wants it to remain unsafe. Everybody wants it to be upgraded.
Just how to do it.
What causes Bitcoin volatility?
Some people think of Bitcoin as a high-growth asset and hold it like Nvidia. If Jerome Powell says they're going to cut rates, it can move the market in stocks and crypto. Other people think of Bitcoin specifically as an asset to flee to in times of uncertainty, like gold. So it has multiple properties. People react to and trade Bitcoin just like they do with any kind of macro events around the world. Regulatory clarity is another one that tends to move the market a lot. There's also something called Bitcoin halving events, which happen every four years, where the rate at which new Bitcoin are mined is halfed. So there tend to be trading events around those moments.
But if it's halved, nothing really happens.
Well, it halves the rate at which new Bitcoin is issued into the world. Not to get too into the details, but whenever the network mines a new Bitcoin block, the miner is awarded new Bitcoin. That gets halved every four years. So it's like an asymptotic curve — the maximum supply will ever be 21 million, but it will take about 100 years to get to the last bit. Basically, there will be less and less supply in the market every day, which you can predict into the future. But many markets aren't rational — people trade based on what they think others will do.
Stablecoins are the next big product-market fit for crypto after trading. People started tokenizing the dollar.
If you have a dollar in a bank account, you can issue a token on a blockchain that represents that dollar. So it's a one-to-one representation. You might ask, 'Why do that? I can already send dollars around.' That's true, but the traditional financial system is pretty inefficient. Only 4% of the global population lives in the United States, for one thing. There are billions of people around the world who have high demand for the dollar because their local currency has high inflation. In Turkey or Nigeria, inflation was 50 or 70% last year. People there really want to hold dollars but can't open dollar-denominated accounts. With stablecoins, anybody with a smartphone can hold a dollar-denominated account and send them instantly anywhere in the world for less than one cent. Previously, using Western Union or MoneyGram, you might pay anywhere from a few percent to as high as 10 percent. Using stablecoins, it's less than one cent, and it's instant. That's a massive improvement.
From like 5 to 12% fees, or people who are sending money home to their family in other countries. This is a very high fee, delay-type environment. And with stablecoins, they can now send it instantly, like under one second anywhere in the world, for less than 1 cent. There's no other payment rail globally that can do that. You can compare it to credit cards or bank wires, and crypto rails are the only ones that are global, cheap, and fast. They check all three boxes. So that turned out to be a big use case for payments. There's something like $40 trillion a year of volume for cross-border payments, and I think 70% of that is for business-to-business payments. They've been an early adopter of stablecoins. So not just people sending money home to family, but B2B transfers, like buying goods from Asia to sell in my shop. So stablecoin payments have been on a tear. They're growing enormously. It's like water flowing to the path of least resistance. Payments will flow to the lowest friction payment rails: cheap, fast, global. So it's making that part more efficient as well.
If the dollar is backing a stablecoin, and if now the stablecoin flows easier than a dollar ever did, it seems like that strengthens the dollar. It doesn't hurt the dollar. Is that correct?
That's correct. People I speak to in the US government are thrilled about stablecoins. You may be aware that in the United States, they just recently passed legislation called the Genius Act, which established a regulatory framework for dollar stablecoins because they wanted to ensure these get more widely adopted. It's a huge part of American soft power to export the dollar and dollarize these economies around the world. Now, the rest of the G20 countries are scrambling to get their own equivalent stablecoin legislation because they see it as a threat and they don't want their economies to be totally dollarized. They want some sovereignty. So crypto is helping the dollar. I also think Bitcoin in an indirect way is helping the dollar.
People sometimes say, 'Isn't Bitcoin a threat to the dollar?' I would say it provides a check and balance on the dollar. If there's too much deficit spending or inflation in the US, people will flee to Bitcoin in times of uncertainty. Democracies around the world, including the United States, are trying to figure out how to fix deficit spending. The incentives are just not aligned to actually balance the budget. It might be okay to have 2 to 3% inflation if the economy is growing 2 to 3%, but if your inflation outstrips the growth of the economy, you'll eventually lose the reserve currency status. That would be a massive blow to the United States. China and other superpowers are competing for that over time. So I actually think in a strange way, Bitcoin is helping extend the American experiment.
It creates competition with the dollar in a way that's healthy for the dollar.
You said it better than I could. I sometimes wonder if the founding fathers, reading the Federalist Papers, were geniuses. I wonder if they would have written something in the Constitution around a balanced budget. Warren Buffett famously had this quip: you have to pass a constitutional amendment that any member of Congress who votes for an unbalanced budget should be ineligible for re-election. Instantly you'd get a balanced budget every time. People have proposed ideas like if America had a sovereign wealth fund, and every citizen when you're born gets a share, and when there's a budget surplus it pays a dividend. Suddenly everyone would want to run a surplus. But currently, the more the government spends, you get more free stuff, and that's how you win elections.
No incentive to balance a budget.
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How are the stablecoins minted?
They are minted by centralized entities. Private companies. USDC, for instance, which is the largest regulated stablecoin in the US, we work with them. Circle is the issuer. They store a bunch of dollars in banks in the United States. They actually buy US treasuries to earn a little bit of yield, and then they mint or create a token on these blockchains that is one-to-one backed. You have to trust them that it's one-to-one backed. They can pass an audit from a big four accounting firm. They're a trusted, legitimate public company now. So we can believe that it's 100% there, but it is a centralized entity doing the minting and burning, with traditional checks and balances from big four accounting firms auditing them.
How is Bitcoin truly decentralized?
Anybody can run a Bitcoin node, which is a piece of software you can run on your own computer or in a data center. This node talks to all the other Bitcoin nodes.
It's been years since I looked at this. There are people running nodes that are just relaying messages, others are doing the mining. It's a complicated question, but let's say 5,000 to 10,000 at least, probably more. There's always an argument about what is sufficiently decentralized. If you only had five people globally doing it, could they be co-opted or collude? But if you get into tens of thousands, it's hard to imagine collusion happening. Your question is more complicated because the hashing power can be more concentrated.
Okay. Let's just say for now just number of nodes.
These nodes are all sending messages to each other about transactions being generated. The question is how do you come to consensus about who spent what, because any node could just say anything. The brilliance of the Bitcoin whitepaper algorithm, I'll give you a simplified version. Any node on the network can package up the current list of pending transactions into a block and determine the order. To certify that block as the official one, any node can do some computational work and search for a very rare number in mathematics that would certify that block. It's not free to certify; it takes work. This is called a proof-of-work algorithm. It's why it's called crypto, because it's like cracking a code each time.
This gets into hashing, but the simple way to think of it is finding a rare number in mathematics.
The only known algorithm is to have a computer iteratively search through every single one until you find it. Once one of these nodes finds it, they broadcast it to the rest of the nodes, and it's very cheap to confirm. It's hard to find but easy to confirm. That's a key property. So now everyone agrees that block is the next one, and they start working on the next block. It's a lottery based on how much computational power you have to win the race to find the next block. The reward is that's how new Bitcoin are issued. They get the block mined and new Bitcoin rewarded. These are the Bitcoin miners. This is key because it's truly decentralized. There's no central authority, but the network comes to consensus. As long as 51% or more of the network is operating in a benevolent way, Bitcoin continues to function. You could have a single bad actor spamming invalid blocks or trying to fork things, but it relies on the idea that at least 51% of the world have good intentions. It's big enough now that even a state actor like North Korea trying to spin up a huge data center to attack Bitcoin would not get to be more than 50%. It's beyond the reach of any sovereign entity from a resource point of view. It got big enough where it's defensible in numbers.
The fact that stablecoins are minted by private companies, why is that different than if the government minted them?
Stablecoins do not have the same guarantee around decentralization that Bitcoin does. That's an important distinction. You are relying on trust in that company, the auditor, and the banks holding it. You are trusting a centralized entity with stablecoins. Not to get too in the weeds, but there are people trying to create decentralized stablecoins as well.
The guy I mentioned at the beginning of the story, Brandon, my friend who co-founded a company, is working on this exact problem.
The company is called Ampleforth. They created a decentralized stablecoin called Spot. It has held its value pretty consistently over the last five or six years. The way they do it is a little complicated. I'm not sure I can give a concise explanation live, but it involves tunching.
I don't know what that is.
It's a more complex financial instrument. I believe they did it correctly, but it's so complicated to explain that they've had a hard time getting people to adopt it.
It's gone through lots of ups and downs over the last six years and held its value. So I think they may have cracked the code, but it's hard to explain, and that creates a hurdle to trust.
Who are the big players in stablecoins?
USDC, which we're partnered with Circle, is the largest regulated one in the US. There's one that's bigger globally called Tether, and then a number of others that are much smaller.
It's moved around a bunch. I want to say El Salvador or something like that now. It's one of those looking for the right jurisdiction to land in.
How are the stablecoin players different from each other?
A lot of companies have tried to issue their own stablecoin as a business opportunity. There is some network effect: if I'm sending one and the merchant wants to receive one, it's better if it's the same one. A lot of companies are creating their own stablecoin to have something branded to their platform and generate income. Tether is a competitor, so I don't want to say anything too critical, but they started offshore and identified that people in emerging markets have high demand for the dollar. USDC is based in the United States and has more buy-in from US institutions and is regulated under this new US law. So there's the big international one and the US one, those are the two big players right now.
But if they're all representing a dollar, if you have a blue dollar and a purple dollar, it's still a dollar. Why would it matter?
You can exchange one into another, and it trades almost exactly at a dollar. There are minor differences in fine details about how you might evaluate one versus another, like trading between the dollar and the euro. But to simplify, they are mostly just a dollar underneath, so they trade almost exactly at a dollar.
What's the EU's position on crypto?
The EU actually got legislation out before the US. Sometimes Europe is not great at tech entrepreneurship compared to the US, but they put out a lot of regulation. They put out legislation called MiCA, which helps regulate crypto and stablecoins, about a year ago. We were able to get a license in Europe and establish an entity in Luxembourg, which is a financial hub. There are a lot of financial service companies based there that you can use to passport around the EU.
How are stablecoins and Bitcoin related?
Bitcoin I think of as digital gold. That's useful as a store of value.
Digital gold versus digital dollars. Is that the difference?
Exactly. Somebody might want gold for store value. It's deflationary. Nobody is going to print a ton of it. There's not somebody with their finger on the dials who can find a bunch more gold. Dollars you'd use for payments, as a medium of exchange. So Bitcoin is like digital gold, your store of value. Stablecoins are for payments and medium of exchange. If the dollar is worth less over time, the stablecoin is worth less over time because it reflects the dollar.
Correct. What's the role for banks moving forward?
I think banks are still going to have a very important role to play. Many of them probably look at crypto still as a toy, but the really smart ones are all doing things in crypto now. They realize this is an important trend. For one thing, they are storing the reserves behind stablecoins. They're still providing the payment rails between fiat and crypto. We work with banks all over the world. Many are deep partners of ours. What a lot of them are now doing to get ready for the next 5 years is their clients want to trade crypto in their private wealth management divisions. They want to send payments with stablecoin because it's faster, cheaper, and more global. Coinbase is now powering crypto integrations for a pretty large number of banks. Some we can say publicly: JP Morgan, PNC Bank. We just announced a partnership with Citi to do payments with stablecoin. Coinbase is not just a retail app. We also have a crypto infrastructure business, like AWS at Amazon. We have 264 institutions now building on top of our platform with crypto.
So you're bringing them into the future basically.
How do you personally use Coinbase?
I use it to invest. I increasingly use it for payments.
How do you use it to invest?
In crypto assets. A big trend we're working toward is what we call the everything exchange, which means every asset class is coming on chain. Stocks are coming on chain. Prediction markets are already on chain. That's the big third product-market fit. First it was trading, then payments, now prediction markets is the next big one. People are trading commodities, borrowing and lending. I use the Coinbase app increasingly like a bank replacement. I can get a loan, have the credit card, do direct deposit, invest in any asset class, and send money instantly anywhere in the world. It's getting to be more of a bank replacement for some people.
Tell me about prediction markets.
These have really gone mainstream. The big moment was the last US election where people started to track this as a signal on what was going to happen. In a prediction market, anybody can place a bet on the outcome of something: a sports game, an economic indicator, or whether the Suez Canal will be reopened. Some people think of it as another trading use case, but for 99% of people who never trade prediction markets, they are using it to figure out what's going to happen in the world. It's almost more like a competitor to the New York Times than to the NASDAQ.
And it's got no agenda because it's only people betting against each other.
They all have skin in the game. It's not an expert pontificating with an agenda. It's someone betting on what they believe will happen. It tends to be much higher signal about what's really going to happen. An interesting topic is whether insider trading should be allowed in prediction markets. In the stock market, insider trading is prohibited for good reason. In commodities like copper or wheat, there's no centralized entity, so the rules are not as strict. Someone in the US government asked me this. I'm still making up my mind. If you're optimizing for it as a trading asset class and want to preserve market integrity, no. But if you're optimizing it as a source of news about what will happen, you 100% want insider trading because that's where you get real signals. For the Suez Canal example, there's probably a Navy admiral on a ship who knows where the Houthis are. You want that person betting on that market because that's the real source of truth. I love how innovations break the mold and don't fit cleanly into boxes.
Where do you think it's going to go?
We're going to see prediction markets on the long tail of things, not just big elections and sports games.
It wasn't started for elections. Elections just became part of what it does. I don't think that was initially in the thinking.
The history goes back quite a ways. I don't know the full history, but people have been thinking about variations for a long time. Some probably thought about it for elections, others for different things. One interesting use case that hasn't happened yet is making policy decisions. If you're a government leader or legislator, you could say, 'If this policy were enacted, what do you think GDP or unemployment will be?' The market can tell you. You could make better policy decisions this way. The limits haven't been fully explored yet. It's early days.
Would you say better policy decisions or popular policy decisions?
Whether it's better or worse, they're trying to win money on what's true. I think it would give you more accurate signal into reality. Everybody has biases and stands to benefit or lose based on policy. They make clever arguments for or against it, but the prediction market is a truth serum. It cuts through the noise.
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What do you think the promise of Bitcoin is to shape the future? What can it do that it hasn't done?
The ultimate potential of Bitcoin is that it's going to unbundle the state. We rely on the government to issue money. If we don't need it to do that, what about identity? We rely on the government to issue driver's licenses and passports. Crypto is coming out with decentralized identities where you have ownership. A really smart guy who used to work at Coinbase named Balaji Srinivasan wrote a book called The Network State. His view, which I tend to agree with, is that people will eventually have a greater sense of identity with internet communities than with their country of origin. There's a hierarchy of tribes: my religion, my city, my state, my country, my sports team, my military unit. People are inherently tribal. Historically, people identified most strongly with a religion, then the state, then the country. I think for a lot of people, government has taken the top spot. His theory is that as the state gets unbundled, the latitude and longitude I happen to be in is not the most important part of my identity. People might start to think of themselves as global citizens, internet natives. People have made quips that Facebook has two billion citizens, more than any country. How much allegiance do you feel to Facebook? It's not quite there yet, but I feel a strong sense of identity to Y Combinator because they gave me my big break. It's a global community. I'm pretty patriotic about the US too. We need this as a bastion of freedom in the world, and it's under threat. But more and more of our lives is happening on the internet. People are going to form digital communities where freedom can exist on the frontier. That is the potential of Bitcoin: unbundling the state, shifting power from the state to individuals who will form new tribes.
Related to free speech as well. Would you say?
Somewhat. Crypto is the freedom stack to build all kinds of things. Certainly economic freedom with your money, not having it taken without permission or eroded by inflation. There are people building decentralized social networks on top of crypto that guarantee free speech. When Elon took over X, this was a big focus. He looked at whether we could build the next version of X on blockchains to guarantee these principles. The true test is you don't want Elon being the last bastion of freedom. If he got hit by a bus, how could you guarantee freedom of speech was maintained? The blockchain is the right solution. At the time, blockchains were not scalable enough. There are now projects on the cusp of making this work: the Farcaster protocol, Zora. We're launching a base app to make this easy to use soon. We're experimenting in this realm, but it's earlier days.
Something happened in the last few years where big companies got sucked into politics. It seems like that never used to be the case. You seem to avoid that at Coinbase. How were you able to do it?
