Brian Armstrong on the Crypto Economy | Conversations with Tyler

hello everyone and welcome back to conversations with tyler today i am very honored to be here with brian armstrong who is the ceo and co-founder of coinbase brian welcome thank you tyler i appreciate it now on another podcast you said that coinbase employs about 60 or 70 lawyers what makes a manager good at managing lawyers in particular i'm not sure if it's too different from general management of people i think um you have to care about them and care about their growth and give them clear direction but also autonomy and accountability and all those things um yeah i'm not sure what is too different about managing lawyers i think they're they're people just like everybody else but there's a kind of tech caricature of say companies in the northeast that end up being run by their lawyers and you have a company with a lot of lawyers but it seems you haven't ended up being run by your lawyers yes well that's definitely true as a cultural thing i would agree with that um yeah there's there is really something really important i almost you want the engineers to outnumber the lawyers um one of the metrics that we track inside the company is the percentage of engineering and the trouble is if that falls too low um you start to have more people with ideas of what to do than people to actually go implement those ideas and the engineers get frustrated too because there's kind of just endless meetings about prioritization and rejecting roadmaps instead of spending more of your time getting the actual things done so i agree with that you do need to have you know that engineering culture and we also we also have something that we say which is that we're a product led organization so the the product managers are considered the the dris or the directly responsible individuals whose job is to go collect input from from legal from finance from engineering and they have to go render those final decisions so that things can keep moving forward and we don't get bogged down in bureaucracy now it seems to me that coinbase has had fewer regulatory issues and problems than in many of its competitors what have you done managerially to bring that about yeah so again i would say that's probably a cultural thing that came from the very early days of coinbase and we've had to reinforce it and persist at every opportunity that we've gotten so the the thing that we did early on was that we decided we were going to be reaching out proactively to regulators not waiting for them to come to us and when we reached out to them proactively we tried to be an educational resource and we tried to be um basically legitimate you know we'd put on a suit and tie and we'd go in there and try to you know it's amazing how basically if somebody reads something on the internet their default you know instinct is often like this is something bad and what are they up to but the minute they meet you in person they immediately trust it more and so that education advocacy outreach sort of approach bought us a lot of goodwill along the way and then that translated into a bunch of other things like we proactively went out and got licenses before it was even clear that we needed them and we were essentially pushing the industry forward and saying we think this should be a regulated trusted industry otherwise we felt like cryptocurrency was always going to be in the shadows or someone was going to try to shut it down now you've described yourself as an introvert which personality traits do you have that make you so good at reaching out to regulators that seems like a contradiction or is it that an introvert is better at doing that somehow well in the early days of a company i think you know as a founder you do a lot of things that don't scale so i was able to go reach out to some of those fred erissam who co-founded coinbase with me did a lot of it and he's probably more of an extrovert than i am but over time of course your job is to not do everything yourself but find the people who can go replicate that and do it even better than you can and so i'm kind of i'm a master of nothing but i i can dabble in almost any piece to fill in the gaps when the company is being built over time if you were to explain to our listeners in 10 words or fewer what is coinbase what's your answer let's see if i can do it in under 10 words the primary financial account for the crypto economy what is it that you know about how the company is a corporate form will change over the next 20 years because you work with crypto a lot of which is very decentralized but you're just a company right run by people in a sense you're a regular company so you straddle the two worlds what do you understand that the rest of us don't well i would hesitate to say that i know for sure anything's gonna happen in the next 20 years but i'll tell you where i think the corporation could go or it's really it may not even be a corporation traditional sense but it's an organization how people come together to get things done um so one of the brilliant things that's been created in crypto is this idea of a smart contract and it's instead of using lawyers to write on a piece of paper a contract between people you can essentially codify these these principles in software in code and run it on a global decentralized blockchain which is something that ethereum allowed us to do this idea of a smart contract so that's kind of a you know nebulous idea but what ended up happening in practice was people started creating these decentralized autonomous organizations or dows and um it allowed people all over the world to kind of come participate in uh in these groups and they started doing you know this is all very early stage stuff but they started for instance raising money and then having voting proposals about how to allocate that money and all happening in a decentralized way none of the participants even knew who the other people were in certain instances or some in some cases they raised a billion dollars in 17 minutes from you know 20 000 people all over the world and they had never even met and so these new kinds of things had had come together some of them exploded by the way in spectacular fashion um but it is creating a really new kind of governance model out there there's a one of the organizations that i like that sort of has a good demo of this is um it's called aragon and they've allowed anybody to kind of come in create one of these smart contracts in a very simple interface and you know you can you can set up the voting structure the governance how rewards might happen um how funds could be allocated and it's it's almost like a new jurisdiction you know a lot of companies or corporations in the us at least are incorporated in delaware um that's that's kind of the jurisdiction it has a lot of case law around it but you can almost think of these these dowels as operating in sort of a new online jurisdiction that doesn't have a direct link to somewhere in the physical world but there are of course real people in the real world all over the place interacting with them so that's kind of interesting exciting a lot of things could happen from that but you don't run coinbase that way right so why aren't you very skeptical of decentralized systems you still have the oracle problem how to connect the smart contract to actual events in the world and who verifies what has happened and then decentralized systems can be very slow to improve because no one owns the thing who can just come in and fix it just like the english language is a mess so aren't you actually just a lover of more or less centralized systems and in your bones you're skeptical about decentralization well i wouldn't say that um i mean when coinbase started of course ethereum hadn't even been invented so we started with the default path that was the best thing at that time and i do think that um decentralization is incredibly important so obviously coinbase is a centralized institution but we're one of many uh centralized institutions that are interacting with the decentralized crypto protocols and so they're all and they're all have some level of interoperability right so if you if you decide one day that you don't like coinbase or they're doing something that um is not in your interest then you can send your cryptocurrency off of coinbase and it's fully compatible with any other private company that might be interacting in that space so there's certainly trade-offs to decentralization you noted some of them um but i think it's an important component that helps preserve a lot of the great properties that have made crypto successful and the internet and any other decentralized organization now why do companies have mission statements at all so we would all agree well companies should stay within the law and then there's an obligation to maximize profits so what extra is the mission statement adding or is that a kind of straussian layering on top to make it all sound better so when we say oh company should stick to its mission what's wrong with just following the law and maximizing profits hmm it's an interesting philosophical question so to me the the mission serves a different purpose um let's just take for granted you're going to follow the law um and what you're really doing with the mission is you're saying um this company is aligned towards creating some good thing in the world and that what that's it's it's important for a few reasons one is that people don't want to work at a company that just is his only goal is to make profit right i think profit is incredibly important don't get me wrong but if that's the only thing that people are joining for it tends to be sort of like a soulless company or something like that so it's it's a weight and it's also like as a filter i guess you could say you want to make sure that people are coming into the company for the right reasons because as you hire more and more people you can't interview each of them yourself as the founder so you have to put certain structure in place to make sure the people who are joining are all aligned towards some common vision of the world that you all want to create and it creates that healthy that healthy culture and that selection of great people into the company along with the motivation so those are my high level thoughts i guess but say someone came along and offered you you know a million bitcoins to breed green rabbits and that would make the company a lot of money it's probably not in your current mission statement but at some margin you would consider doing it right so there's like a mission statement above the mission statement or how does one think about that yeah well so there's this inherent tension i think in all companies which is that you have this ultimate vision of the world that you want to see but you also need to hire a bunch of people and make payroll every month and the more people you can bring into the company to help you get there get you there faster so companies often have the thing that makes money and that's a step on the path to this longer term vision so of course google makes most of their money from adwords which you know selling ads is not like the sexiest mission in the world but they obviously funnel the revenue from that into many world-changing products or you know um tesla right they they want to eliminate the world's dependence on fossil fuels but they had to start by selling a car to rich people kind of to get the economies of scale working so you often have i would say that's somewhat true in our case for coinbase as well by the way most of our revenue today we make from uh trading fees um and it's not like i'm super passionate about um you know people investing in speculative assets or something like that um or trading just as a standalone business i'm passionate about it because i want there to be more economic freedom in the world and trading is one of those really important businesses we're making more of them with custody and all these other things so those are the things that are helping us get the thousands of people aligned and paid to go accomplish the bigger mission of the company now you've been critical of other companies for going beyond their mission statements and doing for instance politics but if it is the case that other values stand above the mission statement in any case and every company what's wrong with that why can't that be part of their meta mission statement i mean i think i think every company could do that on their own so i don't have any issue with other companies choosing to do that they might actually clarify that in their mission statement which is that their mission is to serve the ultimate human good or something more broad right which could include um activism or politics or something like that um in our case you know i my my view was that the the mission um which was to create an open financial system for the world that might involve interacting with governments in the sense of um if we need to go lobby for cryptocurrency policy or something like that but it didn't involve necessarily trying to solve every problem out there in the world and so that was me basically saying it feels like some of these companies are allowing themselves to be distracted and if you try to solve every problem in the world you're actually going to end up solving none and so there's real value in focus and in solving one hard problem do you think companies are letting themselves become more distracted by politics today as opposed to 30 years ago and if so what has changed to cause that well you know i think you could look over history probably in different times different places different countries there was various levels of this i wouldn't propose i wouldn't presume to look back 30 years but i would say just in the last 10 years or so in silicon valley it does feel like there's there's more focus on activism at companies and so that was a change that i was noticing but where'd that come from just out of the sky or people felt more guilty they became too rich or the kinds of people working at the companies evolved um you know i'm not really sure what the origin of it was to be honest others might have better thoughts on that um i do know that uh well i think one factor that might play a role there is that um silicon valley you know was had so much fierce competition over talent that um really companies were bending over backwards to kind of provide the most uh accommodation to people in any way they could that came in the form of compensation but also perks and um you know we were all really so scared of losing people because they all had you know they could go get three or four offers from another company tomorrow kind of the top people what's happened now is decent you know silicon valley has decentralized a little bit and started to be more remote first in their hiring it's broadened the talent pool and i think that has changed a little bit of that dynamic um if if the employees are really excited about you know taking the company a different direction the the management or the founders can kind of say no this company is about x and we're going to keep moving in that direction so that's one factor but there's probably many that are at play i would say now recently you cited an estimate that if bitcoin were priced at 200 000 that about half the world's billionaires would be from crypto how is that world different what does it look like how does it feel different from the world we have yeah that's a big question um i mean i guess the most honest answer is i i don't know for sure um one thought i've had though is that if there are more people who generate a lot of wealth with crypto which i think is it's already happening and it'll probably keep happening um most of the people who bought crypto early on they are they're believers in the power of technology to change the world they're they're interested in the ethos of crypto in many cases and i suspect that they would allocate their capital towards more um things in that vein so you could almost have this i don't know if you'd call it like a renaissance or a golden age or something of people who who are you know technology believers and they want to see a better future from coming from science and technology and they're going to use their capital for good in that direction so that could be one outcome now with some of your capital you started something called givecrypto.org why do that instead of giving the money to existing charities what's the advantage yeah well there's lots of good charities out there in fact some one of the ones that was give crypto was kind of inspired by was called givedirectly.org um and the main thing that i didn't see anybody doing that i wanted to try with with give crypto was the idea of these direct cash transfers but using cryptocurrency and one of the things that cryptocurrency is good at is making global cross-border payments especially in small amounts directly to the recipient and sometimes there's um you know fraud and there's middlemen like if you wanted to say send a hundred dollars to somebody in venezuela there's a lot of fees and and issues where people might skim that along the way before it gets into the hands of the actual recipient but crypto allows anybody with a smartphone to participate in the the global crypto economy and so it allowed us to do these kinds of experiments like sending direct cash transfers to people in those countries so that's that's what i wanted to try with that and it's it's been going well and we've been running some interesting experiments if that can work why isn't crypto more widely used for remittances western union and other companies as you know they take out big fees you don't get a great exchange rate but there is a last mile problem what's the reason to think that crypto can solve the last mile problem better than say money transfer offices yeah so um well i'm not sure it can so you know crypto is great when you're doing crypto crypto transactions but to your point if you need to convert do a fiat conversion on one side get it encrypted to crypto and then the fiat conversion on the other side you're going to encounter some fees there um i can tell you in the case for instance of of give crypto we were able to see that you know over 90 of the people who received the crypto were actually able to find a local exchange place or merchant who accepted it and so they were able to make that work but they were people who were very highly motivated right like um there are situations where remittance corridors are more efficient and and i guess crypto hasn't met the threshold where it's actually easier to use in those situations yet but it's the implication then that most philanthropy should flow to people who are very highly motivated because that would lower the cost of transfer um maybe i mean i like that you have it flowing to people who are highly motivated i'm not sure it would lower the cost of transfer in every situation because some of those markets are very inefficient as well but um yeah maybe how bullish or bearish are you about the future prospects of san francisco and the bay area as a home for tech um you know short-term bearish i would say it seems like it's um not in a great place right now and there are a lot of um talented people who are looking at other locations um but i suspect long term it will be okay it's probably gonna have a dip and a correction of some kind and have some sort of right revitalization but yeah short term it's not doing so well now i've seen estimates that about 20 percent of bitcoin has been lost or people don't have their passwords or it's somehow abandoned or whatever let's say that 20 were found those people would be better off right they'd have more wealth who was then worse off so i'm asking generally what is the incidence of crypto is anyone else worse off is everyone else worse off if i'd find a lot of paper money under my mattress while i'm better off other people are equally worse off right um yeah i suppose you have dilution right you have inflation if you're kind of increasing the money supply somehow like that yeah but then if we ask the general question that the social value of bitcoin bitcoin in general again clearly a benefit to the people who bought at low prices they in essence found bitcoin but if someone else in the system is losing an equal amount why think that the social value of bitcoin is positive well who's losing the equivalent amount in this case just so i understand well i don't know exactly who but someone else has less purchasing power right so bitcoin isn't apples you can't eat it for lunch so if i find some bitcoin clearly i'm better off but i'm commanding resources that would have gone to other people and it's not clear where the efficiency gain arises it's giving someone somewhere in the system more apples well um it's not clear to me that bitcoin is a zero-sum game i mean something new of value has been created which is that um we now have a global decentralized store of value and you know with other cryptocurrencies of course because it's not just about bitcoin now we have medium of exchange we have security tokens smart contracts so this is actually driving a lot of innovation and and new value i would say so yeah it's not clear to me it's zero sum i think i think there's something inherently of value that probably made people net better off overall there but what is that like when do i get my apples so to speak where do they come from um well i mean anybody can participate of course right so if you i'm not sure i'm answering your question super directly but yeah of course anybody can participate in this global decentralized network and it's um it's there to benefit anybody who wants to use it and i think now about probably 10 of americans and maybe 60 or 70 million people globally have have crypto so at least it's been growing a lot here's a question from a reader and i quote cryptocurrency fluctuates too much and too often to ever be a common medium of exchange why do you disagree unquote that's for you yeah well you have to realize that there's lots of different types of cryptocurrencies so um you know let's take bitcoin for instance and you know sometimes some people use it as a medium of exchange but as you pointed out it's kind of volatile so it's more often used as a store of value or an investment and in in an investment volatility can be a feature not a bug you actually when you buy it you want the value of it to change if it just stayed exactly the same forever that would be a bad investment now there's other cryptocurrencies that um people are starting to use more as mediums of exchange you could look at stable coins you could look at ethereum you could look at layer two solutions on top of bitcoin all these things um so i think there's many different types of cryptocurrency they'll fill different roles in the crypto economy and that's why by the way i like using that word the crypto economy because it's it really is almost like a new alternative economy that's being built where people are not just um trading bitcoin they're some they're earning a living they're launching new startups crypto startups they're you know get borrowing and lending they're doing all different types of economic activity buying products and goods and services that part is still newer most people come into crypto and they just trade a little bit as their first experience but that part is it's there and it's working and it's growing with things like defy and all the things we've seen in the last few years when they stop making more bitcoin what will happen to the net fees for mining what does that equilibrium look like or do you think it will fork and one branch of the fork they just keep on making more you know bitcoin new or whatever they call it oh well i don't think it'll fork at least no nothing nothing with substantial adoption um there will only be 21 million bitcoin and that's how it's how that's going to stay i feel pretty confident about that but you know so it depends what layer you're talking about if you're talking about the base blockchain layer of bitcoin um you know we're probably not going to grow the capacity of that to do tons more transactions and so it will only be used the base layer of the blockchain to move pretty large amounts infrequently that the transaction fees as more and more people use bitcoin globally could go up there but there's things called like layer two solutions which um would offer faster payments or there's other blockchains that are that are trying to target more that medium of exchange layer where fees could be very low forever and really focus on scalability so it's kind of like the internet had to move from dial up to broadband and enabled all these new applications there's a lot of people working on the you know the broadband or the more scalable versions of blockchains that could enable that medium of exchange use case but if we know the net mining fees are going up shouldn't our prediction for the long-term equilibrium be one a very low velocity and in some ways the uses of bitcoin will be more restricted than now and it will be quite inert it will be there as a thing in portfolios but actually in a funny way a little boring yeah i mean look i i think of bitcoin as being kind of like digital gold and so um it's not it may it may turn out that it's not going to be the medium of exchange right unless those layer two solutions start to really work um so if it's if we don't get layer two then i think bitcoin will probably stay as kind of like a digital gold and you're right it will it'll be large slow moving amounts it's kind of like the the the asset that people flee to in times of uncertainty um almost like the reserve currency of of the crypto economy so um i don't know if it's boring or not but it you may see lower uh you know movement of money and that kind of thing why isn't it a pareto improvement then to have a fork to give up on the old agreement have something called you know bitcoin new where they do create more than 20 million and that will keep the mining fees lower for bitcoin new and that will out compete classic bitcoin um well when you say mining fees do you mean the transaction fees keeping those lower well at some point you won't be able to pay people with new bitcoin to maintain the blockchain right because the queue the quantity hits the ceiling right what year does that happen i forget oh i mean i think the last it's a it's a kind of asthmatic curve but it's probably 80 90 100 years away or something like the the very last one i forget yeah but i think your point is when when the new bitcoins being issued per block starts to decline transaction fees are how the miners were going to get paid that's right yeah and and you're asking um why don't we make a new block why not scrap yeah make a new blockchain scrap the quantity limit on bitcoin and allow the miners to keep on being paid with the creation of this new asset called bitcoin new right well so there are other uh crypto assets that have different um inflation curves if you will and they have made a some of them have clarified that some of them have left the door open to it i should say but bitcoin and the community behind it feels very strongly that there should be a capped supply and i think it really is emulating gold in that regard that they're not gonna you know unless we start mining asteroids or something they're not gonna find more supply um and they the people behind it feel that that's important to have um i guess a you know deflationary asset and uh it's one of the components in this new crypto economy it's is it the one that people are going to use i guess the market will tell us what's the best model we have for how to think about the value of bitcoin the value of it um you know there's so many uh people sort of tie themselves into knots trying to think about like what is the intrinsic value of it um what do you what are you actually able to do you know you could think of it hypothetically as like it's almost like when you're spending minor fees or transaction fees it's like giving you right access to this global decentralized ledger or something like people come up with all these ideas but i think you know the simple answer there is there's probably not really like a true intrinsic value to bitcoin it's it's valuable because people think it's valuable and it's it has some use cases it's useful for some things after the ether 2.0 rollout what will i be able to do that i can't do right now what will that do for me yeah so ethereum 2.0 is um does offer a few things i think one of them is scalability is probably one of the most important and underrated things um so today as i mentioned the the transaction fees are a little bit high right and it's kind of like that dial-up going to broadband for the internet um whenever you sort of lower the friction of something it it kind of adds all these new use cases and so um just to give you a specific example today people in in d5 they're doing borrowing and lending marketplaces but borrowing and lending is something you do relatively infrequently so you know you might actually have to write something to the blockchain if you were if you were to borrow or pay it back but something if you imagine recreating like twitter or something like that on the ethereum blockchain the you'd have to write to the blockchain every time you tweet or every time you you know heart something or make some kind of an action like that and so you can imagine the number of actions per second would be you know hundreds of millions probably right at a certain scale so to get to eventually some kind of a scalability like that um we're gonna have to have applications like ethereum 2 go out there and you know that's one example is the scalability there's other things that could be improved along the way there in terms of privacy and usability so you know an example is today when you're sending to ethereum an ethereum you're sending to another ethereum address and it looks like this random string of characters you could say it's a machine readable address um but you know there can be this thing we call it decentralized identity that would allow you to send it to a kind of human-readable name so instead of going to an ip address you go to google.com well in this case you instead of sending to a random ethereum address you could send it to um you know tyler at tyler.com or something like that but is there reason to think there's currently a large suppressed demand for microtransactions if the main transactions costs to those are psychological and now i can do it sort of easily i don't have to plot my visa card uh i just connect through platforms built on you know on top of ethereum what am i going to use that for i can tweet now for free where do i get my apples again so to speak um i'm not sure if we understand the question can you repeat it the new transactions that will be enabled by ethereum 2.0 what exactly will i do with those so i understand if i have the suppressed burning desire to make micropayments like to read people's articles and pay them a fraction of a cent that this new platform might help me do that but i'm not sure i have such a demand uh what else can the platform do for me or do you think the demand to make micro payments is really very strong yeah so i mean i don't think there's anybody who's sitting around saying god i wish i could make more micro transactions i agree with that um but i think whenever you give developers and entrepreneurs new tools they tend to create new apps and they try to take advantage of that medium and do something new it's you know it's just like the early days of the internet a lot of people looked at it and they said um there's some kind of blinking text or there's a you know a video of a of a cat or something like this is a toy why would we ever use this why would people ever spend their time on it and that's not real and of course over time people made new things that took advantage of that medium that people really resonated with or you could say the same thing about smartphones or the same thing about movies you know versus the theater when when movies first came out they were kind of just like filming what might happen in the theater but they had to take advantage of that medium and do something new so um i think the same thing is happening here with crypto and that scalability is just one of those new tools that it's really hard to say what could come out of it but i do believe people will be creative and come up with new stuff now as you know central banks have started talking about doing electronic reserve currencies china might be the first to to do this sweden and singapore have at least raised the idea do you view that as a competitor to crypto or something crypto can somehow build upon or work with a compliment to crypto yeah so i think i think of central bank digital currencies as primarily complementary to to crypto um on the one hand you know it's a great sort of endorsement of this technology that central banks are starting to look at it and uh and they're showing that there there's things that they want to go build with it um on the other hand to me the thing that's more exciting is is really these decentralized cryptocurrencies because um if we want to use centralized or fiat you know currencies um we can do that today and sure blockchain might be able to improve some of the efficiencies around that like interbank settlement or um maybe foreign exchange or something like that but and by the way china is i think very far ahead on this with the digitized yuan um but the more exciting thing for the world is kind of to have um this global decentralized currencies it's kind of like if you know the country came out with their own private internet i'm more interested in the global decentralized internet i think that unlocked more innovation but if i could access an electronic reserve currency again black and gray market aside that i understand why for instance would i want to use a stable coin when i have some other system of direct digital transfer that i can just do yeah so stable coins are an interesting discussion um there are some use cases where they really make sense today for instance people are trying to make um you know they're making decentralized exchanges and various things where you want to have these currency trading pairs and you want to make something that's dollar or euro or yen denominated and so it makes sense to have a crypto asset that is one to one linked with um a fiat token underneath i will say in addition to that there's a lot of people who um you know they live in countries where they don't have stable currency maybe they want to have a dollar and they can't open a dollar denominated bank account for instance but they do they can they do have a smartphone so they can have a um usd coin you know denominated account on their smartphone so there's use cases like that but i but i agree with you i think longer term the more interesting thing are those decentralized crypto assets for people to really start to participate in a more global more free more fair economy and that might sound like a very niche thing today and um you know but i think over time it'll become bigger and more important what will happen with the facebook asset formerly known as libra now called deem which i think is a bad name but i still think of it as libra oh okay why do you so they rolled it out it confuses d-i-e-m and d-e-e-m and it looks like a vietnamese word and libra i thought was fine oh okay and it doesn't evoke anything the name of your company coinbase it's a great name right it base a solid coin money evokes notions of banking and payments and transfer and and funds management but what do you think of you think of like some obscure general in the vietnamese war in the late 1950s uh i think of like per diem or something like your daily payment you'd get but um but by the way naming things it turns out to be incredibly hard just because of global you know trademark issues and all these things and i'm you know it's so hard to find unused names that are good but um but what do i think will become of it so um you know look i i give them a lot of credit for being forward thinking on um on this they're of the big fang tech companies um facebook was really one of the first to go embrace this technology in a big way and see some of the potential of it and they've taken their own approach to it which now of course is not run by facebook it's it's this bigger organization of course they managed to upset everybody in dc pretty much by doing it which um i didn't think was totally fair uh you know as i mentioned earlier uh china i think is pretty far ahead in digitizing the yuan they've been working on this for maybe six or more years they have this thing working and there's people actually using it and um in the us we don't have necessarily state-controlled things we we try to rely on the private industry to innovate and that in my mind that was facebook trying at least whether they were going to succeed or not who knows but they were trying to kind of innovate there and do something that would help america and and globally um the us government had a pretty negative reaction to it i think because it was facebook but then once they realized that they were maybe potentially a little behind china the u.s treasury started to think about all right what is our solution going to be and they're now kind of looking up for that i think and i hope that they continue to make progress on that whether they use usd coin or dm or they create something entirely new themselves because it would it would be unfortunate to see um the yuan you know from a global perspective maybe who knows it would be bad but from a u.s point of view it it would be bad to see the us lose its you know reserve currency status or something like that over a miss in technology adoption who is satoshi give us your best guess yeah my best guess obviously i don't know who it is and it's definitely not me but um there's my guess is that there was a handful of people who came together to work on that and there might have been one or two um there's some good candidates out there you know hal finney and people like that um my guess is it was a collection of people that some of the early cypherpunks and they one or more of them wrote it and they decided they wanted it to stay totally disconnected from them now in all of these conversations we have a segment in the middle overrated versus underrated are you ready these are the easy questions first one city of houston underrated or overrated um underrated i think um you're asking because i went to school there at rice and um you know houston's a pretty great place it's the weather's not great but i it has an amazing economy it has great people great culture great food and a lot of really important industries and you know nasa and healthcare and oil and stuff like that it's and it's yeah it's a really cool place monty python overrated or underrated um i think monty python is pretty funny but it's i think that's a widely held view so i it's i don't i don't know it's probably a little underrated or something the movie director ridley scott um you know alien was such a breakthrough film um that it's hard to ever and i think blade runner right correct yeah i mean those are just incredible films that changed so many people's lives and i i think those will forever be underrated but some of the more recent films i just i've really struggled i'm not sure what's different in fact if i ever meet really scott for some reason i kind of want to ask them what was the process behind say prometheus versus some of those earlier films because it feels like something materially is different now chinchilliness the food from argentina chinchoulinas i don't think i know what that is oh they're they're kind of disgusting they're from the intestines of the cow okay and they serve them in buenos aires like tripe and that kind of thing okay it means something very specific but i couldn't tell you what i probably never tried it so i couldn't say that must mean it's underrated then right maybe we'll see what is the biggest obstacle to charter cities in today's world well yeah i mean i'm interested in charter cities i think one of the biggest obstacles of course is that all the land is claimed by a sovereign so it's hard to get one that's truly independent of um i guess the the legal system around it although i know there are people trying that like for there's one called prospero in honduras that's seems to have gotten an exception from the government for this area of land to run its own legal system and court system um there's some people doing really interesting work here in terms of uh trying to bring people together in the cloud so to speak initially because that's unclaimed land so to speak you basically got to see setting or go to mars it's probably easier to get people together in vr and or on a zoom call at least and then get in the cloud this community and then once you have some kind of critical mass happening and you might be able to go do collective bargaining and negotiate with a sovereign to get a little piece of land but that feels like the the hard part to me what was the best part about living in buenos aires um you know the best part was that i got to see a country that had gone through hyperinflation which might sound weird to say is the best part but what it ended up doing was it helped me really understand uh the potential for cryptocurrency later when i read the satoshi white paper it really going having a country that went through hyperinflation like that it affected really every part of the culture um you know just in terms of like people's optimism about the future sometimes it i think it it really harmed that it's almost like live today to the fullest because you know tomorrow it might all be gone it was almost like a this feeling that had lived under underneath that and only the richest people who were able to buy um assets that were that adjusted for inflation like real estate um they were able to survive through these periods where to get their assets outside of argentina and so it really that inflation was so insidious because you know it eroded the wealth of the poorest people who held their wealth in cash um so anyway just seeing that was obviously tragic but it led me to understand um and appreciate uh the potential for cryptocurrency more broadly let's say we had the potential to settle mars we had the technology and 5 000 people would go what principles would we use for choosing which people and what kinds of rules or governance structure should they live under let's say it's more or less self-sustaining when they get there solar power works there's some other source of energy they're not completely dependent on us and they're going to make their own way thousand people do they all come from one country is it all young people a lot of old people how do you do it yeah well this my first reaction is like why don't we let the market decide you know who who wants to buy a ticket who wants to go there um the market's good at as you've written about you know in other contexts and vaccines and all kinds of things the market is good at sending information transmitting it through through prices so i like the idea of of letting the market decide in terms of what governance system they would live under i mean i think there's some really interesting ideas about how to make the next version of democracy because you know democracy was such a breakthrough but it has some you know issues that are cropping up here and there that people are thinking about how to improve on it you know for instance um we sort of have this accumulation of laws in the u.s right and people are making these analogies to like tech debt in software and um like i think i think the irs or the the tax legal code is like 150 000 pages or something at this point it kind of it only grows and so one interesting idea for democracies right is that you kind of put like a sunset clause in every law where after four eight or ten years or something it sort of unless people actively go to re initiate it it sort of sunsets and goes away um i also think you know yeah it might be interesting to have um other ways to keep the amount of bureaucracy and overhead kind of low like uh you know it takes two-thirds to add a new law but it takes 50 only 50 or less to remove a law um i also think that a lot of laws like they have these issues where people the you know they want to add in all these additional special special interest things to get the votes to get it approved and so you get these laws that are like thousands of pages and they have all these kind of special interests inserted but if you if you had some rule that was like you know every law should only be two pages maximum otherwise it can't be a law you know you'd kind of break it down into these smaller chunks that would be actually the law itself and not these massive things that people didn't read before they voted on so i don't know i'm not an expert on this but there's lots of ideas about how we could probably iterate on democracy and mars might be an opportunity to do that if you could do one thing to accelerate progress in science what would it be um well you know i've thought about this a lot because i think it should become more like open source software basically and there's a lot of pieces that go into that um there's a project i've been working on called a research hub which is trying to help with this problem there's all kinds of issues in science around you know reproducibility and and funding and um why aren't there more you know scientific scientific research that translates into um products that can be commercialized right there's sort of i think there's this huge divide between academia and scientists and entrepreneurs and most entrepreneurs are starting companies that don't have any kind of scientific innovation behind it at all it's purely marketing or they're making some new beverage or clothing line or something like that and then most scientists are completely disconnected from business too and sometimes you know they'll try to leave academia to start a business but they're it's not what they're schooled in and so i want to try to help bring that divide together and some create some kind of a prioritization mechanism that's like if if you're the scientist who you know discovers crispr or something like that and a bunch of entrepreneurs can um license that and go commercialize it in various ways like you know that scientists should they should be a billionaire from that like those are the incredible breakthroughs that are really improving the world and improving people's lives or at least have the potential to so anyway i we have some first attempts at that research hub but it's a it's a much bigger problem to try to make science and engineering more efficient if genetic engineering of our children truly were possible would parents choose to have too many or too few autistic children you know i think a lot of people are worried about this idea that something like autism is a great example like you know it has some drawbacks but it has some incredible benefits and will people choose to just move away from these things um but the thing that they're not contemplating i think is that there's such great variety in human preferences and people have a desire for um uniqueness too it's almost like you see these avatars in video games right and when when you can dress up your avatar however you want um you know it gets boring to be the stereotypical you know tall or whatever kind of attribute you'd want to name and so people start to come up with the crazy wild things and so um i guess needs to get back to your question i think that i don't i don't think it'll be too many or too few it's like the people who are really interested in that might opt to move more in that direction the people who aren't will move in other directions and we'll just have more creativity and variety now the sector that coinbase works in in the longer run what will the regulation of that sector look like will you be regulated like clearing houses like banks like commodity brokerages how is that going to be well so of course crypto is really touching many different industries and they'll each be regulated a little bit differently right so there will be um custodians for crypto that are that are regulated like trust companies or banks and there will be brokerages for crypto that are regulated like brokerages they'll be exchanges that need to have you know an ats license um there'll be even payments and remittance companies um there will also by the way there will be some that are just not regulated like traditional financial services they're just like software companies so for instance if you're creating what's called a self-hosted wallet which means you the company never take possession of customer funds but you're just enabling people to store their own crypto and use it those i think will be regulated more like um like software companies which allows them to you know move quicker and launch in every country um on day one and and a lot of benefits like that so you know crypto is really touching many different industries and they'll each be regulated uh differently but should those wallets themselves then be regulated like banks and say forced to have capital requirements because i could hold the wallet i could make loans i could do something that would be a bit like taking deposits i could be transforming relatively illiquid assets into fairly liquid demand liabilities and we recreate the problem of runs what should regulators do about that if anything yeah so you know if you're talking about a crypto company that's actually storing customer funds and then you know the next question you have to ask is um do they have kind of a reserve ratio or are they you know like are they storing 100 of those assets or have they lent out a bunch of them and doing kind of more what so obviously if you're in a if you're in a world of fractional reserve then you would probably be regulated like a bank um if you are storing 100 of customer assets and you're not um in any kind of fractional reserve then you might be regulated more like a money transmitter or or someone like that so you know this is one of these fascinating things where whenever you're trying to create something new um in a regulated industry which is where a lot of the opportunities are for entrepreneurs um you know you always go to the regulators and they're like we have a box for this one for this and one for this and you come in you're like mine's kind of like none of those boxes it's should we make a new one or do we check the one that's kind of closest and that's always um most people in the world are not as excited as entrepreneurs to try to make the new box and so um you kind of sometimes have to there's such an art to this i actually feel like half the innovation we do is on technology and the other half we do is on regulatory compliance and policy and things like that just trying to explain it's not quite like any of those boxes and work with them to come up with a solution do you worry then though about regulation becoming counter-cyclical so say you issue some liabilities and you hold a bunch of assets when the value of assets is high it's like 100 reserves something bad happens to the economy the value of the assets falls you're now not really 100 reserves anymore so they come in and they regulate you more strictly and then the value of your own enterprise falls and then the problem becomes worse and the regulations have to keep on becoming worse um yes i i do think that as the crypto markets evolve um the regulation around it will also evolve and in fact we're seeing you know history repeats itself or but it does it what does that what is that phrase like it repeats but doesn't it rhymes but it doesn't anyway i'm forgetting exactly but um some of the regulation is happening like those traditional market structures we saw in financial services are in some ways being replicated in crypto but in some ways it's new um we're seeing things like decentralized finance decentralized exchanges that are um they can't really be regulated like the traditional way because they're they're running on some global decentralized computer there's no centralized entity to it um so i think in some ways look the same in some ways it'll it'll have to evolve and look new i was speaking to someone online a few nights ago and i suggested that maybe the crypto companies that make the most money will be those that learn how to work with regulated banks and to merge their products into that highly regulated structure agree or disagree um i disagree you know biology would tell you the opposite right the future is going to be some kind of radically decentralized setup that the regulators won't even be able to get at well so i i disagree that it'll integrating with the traditional banks would be the the best way to go forward and the reason is that um traditional banks are notoriously slow at adopting new technology and that's because they are so heavily regulated i think you know you could almost say they're like quasi-government institutions even in the united states um that their decision-making at the the top level is the board and the ceos and everything is it's largely about um how do we not get on the bad side of the regulators it's almost like a risk function is like the mindset at the very top and i know that that's probably not entirely true throughout their entire organization many of them are trying to become more like tech companies but i think it's hard to deny that banks are very slow at adopting um new technology so i think what's more likely is you're going to see um new companies like like coinbase right it's it's almost like um i don't know what's the analogy like the traditional uh newspapers when the internet came along there were very few newspapers that successfully made the transition to being online right you saw um social media and search engines basically like tech forward things that succeeded in that arena because jumping across that chasm was almost like too much of a divide are stable coins mostly about regulatory arbitrage because they're less regulated than banks but if they were regulated at the same level why would i want a stable coin rather than a traditional bank account yeah that's true i think if you needed to go through all of the overhead to open an account to store stable coins then it would lose a lot of the value i agree with that i think what's part of what's innovative about stablecoins is that um with a self-custody wallet you can be anywhere in the world just have a smartphone and open an account in a few minutes that's that's a big deal there's a lot of people in the world who wish they could open a bank account but they're unbanked they're underbanked you know all these kinds of words where do you think the changing regulatory landscape is headed so if you think about the bank company holding act of 1987 among other things that creates a certain separation between banks and commerce insofar as fintech and banks either work together or use each other's ideas that seems to break down the traditional separation between banking and commerce that in turn gets the fdic worried about the values of which assets they're actually protecting what's the long-run regulatory equilibrium there um i'm not sure i'm not sure that might be a little above my pay grade um i don't know but it's the world you it's the world you'll be living in right yeah arguably pretty soon so how coinbase positions itself imagine there will be some larger superstructure that tries to regulate everything in some way that's what i would expect it will be very hard for them to do that but if stable coins become larger say as plausibly they might at some point banks yelp community banks seem to be very good at winning political battles banks in general always get bailed out when they need to crypto politically is very decentralized and it's a lot of you might call them unusual outsiders who don't necessarily have political clout even if they have a lot of money so if crypto on average loses those battles and the fed fdic and other regulators try to bring you all under the same umbrella i would think personally that's the future and that actually coinbase is fairly well positioned for that precisely because you have fewer problems with the regulators but that's what i think about when i think about the future of your sector what that political equilibrium will look like i think it's true that companies like coinbase could be pulled into that those regulatory frameworks more and more especially if you look at the piece of our business where we actually are storing um customer assets and and looking more like you know at least a money transmitter if not a bank longer term um of course i should mention the parent company coinbase has different subs and one of those is a self-custody wallet which is it's regulated more like a software company than than a financial service company because it never takes custody of any customer funds and of course there's many other crypto companies who are following that model and so i think those will i don't really see a world where those would be treated like banks um that would have to be a massive redefinition of what it means to be a bank because you have to take deposits as you know and those companies are not really taking deposits in any sense of the word that i can think of um so those i i think would operate in a new regulatory environment and that's where you're probably going to see a big unlock of innovation um you know that this is like one of these trends of history right it's like whenever you see something like software or the internet or whatever that's operating out of uh outside of a massive regulatory oversight you see this kind of flourishing of innovation and so um i think you'll see that with the self-custody aspect of crypto as well now our final segment is about what i call the brian armstrong production function and here there is no room for modesty whatsoever so coinbase has been a big success what exactly is it about you that made that possible so yes you're smart or you worked hard or seven other things but what's actually the unusual side of you that accounts for the success of coinbase relative to your competitors hmm well let's see so there's there's one aspect um that i think was important which was um i don't have the same risk aversion i think as some people it's not it's not like i'm um i'm actually not very risk-loving in the rest of my life i don't really like you know do base jumping or any any extreme sports or anything like that but i also i've never really understood this um when i when i read the bitcoin white paper i thought about it for a few years and i said hey maybe there'd be something like a cool company that we built in this space that would help people use this and in my view i was like why don't i go try this this sounds really cool i'm interested in it but most people for whatever reason don't do that it's a kind of one of those entrepreneurial skill sets so that's number one i would say is just maybe some kind of risk aversion or willing to try something new even if i'm the only one who thought it was interesting in my friend's circle the second might be um determination and just kind of being relentless there is something about that where um you know i i'm kind of uh you know uncharacteristically um determined i just i there's building a startup is kind of like moving from one set back to the next with enthusiasm and you know you get you get sued by various people you know the employees quit like you're almost out of money um you get there's cyber security risks and like just one you know people have all these kind of people issues and fighting and um there's sort of just non-stop issues and so i've just always been very determined um you know having a little bit of a chip on your shoulder i think helps by the way with that people who want to go build new things it helps to kind of have something you need to go prove to the world i think there was a part of me maybe as like a shy introverted kid who always felt like you know what i have cool ideas but i'm not very articulate if people don't want to listen to me i gotta go show the world i can do something cool and i thought i thought it would be fun so um yeah those are those are a few ideas i'm sure there's lots more we could talk about in terms of how i prioritize my day or focus and those kind of things too but yeah those are a few ideas what's your greatest interpersonal skill what's my greatest interpersonal skill um you know i think i've done a pretty good job of hiring good people um and it's so i guess that's more of like an assessment skill of um understanding if i would work well with them and if they're um you know if they're good at their job across a diff a number of different disciplines um i don't i don't think i was always the most i'll tell you what i was not very good at i don't think i'm the most um inspiring or compelling person you know i've gotten a lot of practice at it over the years but in terms of the early days especially of coinbase in terms of fundraising and um pitching people and recruiting and i was never very good at that i i was i was kind of like b a b minus i was enough to get to the next stage but never i never ended up being world class at that what do you hope to learn from composing electronic music well um you know i always love learning new things it's uh it's kind of one of those things i'm addicted to that that's just fun and so that that's something i've been trying out recently is trying to learn how um some of these electronic music composition apps work and meeting some other artists who use it and getting some lessons from them has just been kind of a fun way to decompress on the weekend so that's my scratching my learning edge how do you overcome ceo loneliness uh what is ceo loneliness i guess maybe yeah well the people you work with clearly typically are your friends but there's a certain kind of distance that they're not quite in every way like the other friends you have but yet if you're determined and you're in some ways a workaholic you're spending an awful lot of time with the people you work with and that often breeds something that's been called ceo loneliness yeah you can't confide to them about every worry or trouble in the business for instance that you might have yeah that's true i mean the relationship with somebody you work with can be very build great friendships but it's you're right it is a little different if you're their boss i think the answer for me is that i've made friends with other founders and ceos um some of my best friends are people that you know in fact one of the things that's really helped me kind of stay sane over the years is i've built this group of friends that's you know it's about 10 friends we get together about once a month and go on a trip once a year and um they've all founded different companies and um they're most of them are ceos of it but it's that's been a great friend group and we all learn from each other various challenges we're each facing in our own companies i think but i think by the way maybe everybody should have a group like that of friends that you invest in i think it's been great and last question what is it you hope to learn over the course of the next year um i mean one thing i think is that as crypto keeps getting bigger and bigger there's going to be more and more scrutiny and attention on us from a government relations policy point of view so i'm learning how to build out a policy function i'm also learning how to build out our marketing function to date we have uh gotten to where we are largely based on just organic growth and people telling their friends and things and things like that and i think we're at a stage now where if we really get good at marketing and branding and everything like that we can even just throw fuel on the fire and so i i was never somebody who naturally understood marketing but i'm getting kind of a crash course and talking to a lot of people in the process of interviewing folks brian armstrong thank you very much thank you tyler

Channel: Mercatus Center

Views: 8,017

Keywords: brian armstrong, economics, crypto, bitcoin, coinbase, tyler cowen, management

Id: Iiny6KBekSc

Length: 60min 51sec (3651 seconds)

Published: Wed Feb 10 2021