Brian Armstrong on the Crypto Economy


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TYLER COWEN: Hello, everyone. Welcome back to Conversations with Tyler. I am very honored to be here with Brian Armstrong, who is the CEO and co-founder of Coinbase. Brian, welcome.

BRIAN ARMSTRONG: Thank you, Tyler. I appreciate it.

COWEN: Now, on another podcast, you said that Coinbase employs about 60 or 70 lawyers. What makes a manager good at managing lawyers in particular?

ARMSTRONG: I’m not sure if it’s too different from general management of people. I think 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. I’m not sure what is too different about managing lawyers. I think they’re people just like everybody else.

COWEN: There’s a kind of tech caricature of, say, companies in the Northeast that end up being run by their lawyers. You have a company with a lot of lawyers, but it seems you haven’t ended up being run by your lawyers.

ARMSTRONG: Yes. Well, that’s definitely true as a cultural thing. I would agree with that. There is something really important — you want the engineers to outnumber the lawyers. One of the metrics that we track inside the company is the percentage of engineering.

The trouble is, if that falls too low, you start to have more people with ideas of what to do than people to actually go implement those ideas. The engineers get frustrated, too, because there are just endless meetings about prioritization and rejiggering roadmaps instead of spending more of your time getting the actual things done.

So I agree with that. You do need to have that engineering culture. We also have something that we say, which is that we’re a product-led organization. The product managers are considered the DRIs, or the directly responsible individuals, whose job is to go collect input 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.

COWEN: It seems to me that Coinbase has had fewer regulatory issues and problems than many of its competitors. What have you done managerially to bring that about?

ARMSTRONG: 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. 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. When we reached out to them proactively, we tried to be an educational resource, and we tried to be basically legitimate. We’d put on a suit and tie, and we’d go in there and try to . . .

It’s amazing how, basically, if somebody reads something on the internet, their default instinct is often like, “This is something bad. What are they up to?” But the minute they meet you in person, they immediately trust it more. That education-advocacy-outreach approach bought us a lot of goodwill along the way.

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. 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.

COWEN: 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?

ARMSTRONG: [laughs] Well, in the early days of the company, I think, as a founder, you do a lot of things that don’t scale. I was able to go reach out to some of those. Fred Ehrsam, 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. I’m the master of nothing, but I can dabble in almost any piece to fill in the gaps when the company is being built over time.

COWEN: If you were to explain to our listeners in 10 words or fewer, what is Coinbase, what’s your answer?

ARMSTRONG: Let’s see if I can do it in under 10 words: The primary financial accounts for the crypto economy.

COWEN: What is it that you know about how the company, as 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 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?

ARMSTRONG: Well, I would hesitate to say that I know for sure anything’s going to happen in the next 20 years, but I’ll tell you where I think the corporation could go. It may not even be a corporation in the traditional sense, but it’s an organization on how people come together to get things done.

One of the brilliant things that’s been created in crypto is this idea of a smart contract. Instead of using lawyers to write on a piece of paper a contract between people, you can essentially codify 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.

That’s a nebulous idea, but what ended up happening in practice was people started creating these decentralized autonomous organizations, or DAOs, and it allowed people all over the world to come participate in these groups. 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, all happening in a decentralized way.

None of the participants even knew who the other people were in certain instances. In some cases, they raised a billion dollars in 17 minutes from 20,000 people all over the world, and they’d never even met. These new kinds of things had come together. Some of them exploded, by the way, in spectacular fashion, but it is creating a really new governance model out there.

One of the organizations that I like that has a good demo of this — it’s called Oregon, and they’ve allowed anybody to come in, create one of these smart contracts in a very simple interface, and you can set up the voting structure, the governance, how rewards might happen, how funds could be allocated. It’s almost like a new jurisdiction.

A lot of companies or corporations in the US, at least, are incorporated in Delaware. That’s the jurisdiction that has a lot of case law around it. But you can almost think of these DAOs as operating in 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. That’s interesting, exciting, and a lot of things can happen from that.

COWEN: 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.

Aren’t you actually just a lover of more or less centralized systems, and in your bones, you’re skeptical about decentralization?

ARMSTRONG: Well, I wouldn’t say that. 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. I do think that decentralization is incredibly important. Obviously, Coinbase is a centralized institution, but we’re one of many centralized institutions that are interacting with the decentralized crypto protocols, and they all have some level of interoperability, right?

If you decide one day that you don’t like Coinbase, or they’re doing something that 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. There are certainly tradeoffs to decentralization. You noted some of them, 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.

On mission statements

COWEN: Why do companies have mission statements at all? We would all agree, “Well, companies should stay within the law, and then there’s an obligation to maximize profits.” What extra is the mission statement adding? Or is that a Straussian layering on top to make it all sound better? When we say, “Oh, a company should stick to its mission,” what’s wrong with just following the law and maximizing profits?

ARMSTRONG: It’s an interesting philosophical question. To me, the mission serves a different purpose. Let’s just take for granted you’re going to follow the law, and what you’re really doing with the mission is, you’re saying this company is aligned towards creating some good thing in the world, and it’s important for a few reasons.

One is that people don’t want to work at a company that just — its only goal is to make profit. 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 a soulless company or something like that.

It’s also like it’s a filter, 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 culture and that selection of great people into the company, along with the motivation. Those are my high-level thoughts, I guess.

COWEN: But say someone came along and offered you 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? There’s like a mission statement above the mission statement? Or how does one think about that?

ARMSTRONG: Well, 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 get you there, get you there faster. Companies often have the thing that makes money, and that’s a step on the path to this longer-term vision.

Of course, Google makes most of their money from ad words. Selling ads is not the sexiest mission in the world, but they obviously funnel the revenue from that into many world-changing products. Or Tesla — they want to eliminate the world’s dependence on fossil fuels, but they had to start by selling a car to rich people to get the economies of scale working.

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 trading fees. It’s not like I’m super passionate about people investing in speculative assets or something like that, or trading just as a stand-alone 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. 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.

COWEN: 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 in every company, what’s wrong with that? Why can’t that be part of their meta mission statement?

ARMSTRONG: 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 which could include activism or politics or something like that.

In our case, my view is that the mission, which was to create an open financial system for the world — that might involve interacting with governments in the sense of 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.

That was me basically saying it feels like some of these companies are allowing themselves to be distracted. If you try to solve every problem in the world, you’re actually going to end up solving none. There’s real value in focus and solving one hard problem.

COWEN: 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?

ARMSTRONG: Well, I think you could look over history probably in different times, different places, different countries — there was various levels of this. 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 more focus on activism at companies, and so, that was a change that I was noticing.

COWEN: Where did 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?

ARMSTRONG: I’m not really sure what the origin of it was, to be honest. Others might have better thoughts on that.

I think one factor that might play a role there is that Silicon Valley had so much fierce competition over talent that really companies were bending over backwards to provide the most accommodation to people in any way they could. That came in the form of compensation but also perks. We were all really so scared of losing people because they could go get three or four offers from another company tomorrow, the top people.

What’s happened now is, 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. If the employees are really excited about taking the company in a different direction, the management or the founders can say, “No, this company is about X, and we’re going to keep moving in that direction.” That’s one factor, but there’re probably many that are at play, I would say.

COWEN: 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?

ARMSTRONG: That’s a big question. I guess the most honest answer is, I don’t know for sure. 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 already happening, and it will probably keep happening. Most of the people who bought crypto early on — they’re believers in the power of technology to change the world. They’re interested in the ethos of crypto in many cases, and I suspect that they would allocate their capital towards more things in that vein.

You could almost have this — I don’t know if you’d call it a renaissance or a golden age or something, of people who are technology believers. They want to see a better future coming from science and technology, and they’re going to use their capital for good in that direction. That could be one outcome.

COWEN: Now, with some of your capital, you started something called Why do that instead of giving the money to existing charities? What’s the advantage?

ARMSTRONG: Well, there’re lots of good charities out there. In fact, one of the ones that GiveCrypto was inspired by was called The main thing that I didn’t see anybody doing that I wanted to try with GiveCrypto was the idea of these direct cash transfers, but using cryptocurrency. One of the things that cryptocurrency is good at is making global cross-border payments, especially in small amounts directly to the recipient.

Sometimes, there’s fraud and there are middlemen. If you wanted to, say, send $100 to somebody in Venezuela, there’re a lot of fees and issues where people might skim that along the way before it gets into the hands of the actual recipient.

Crypto allows anybody with a smartphone to participate in the global crypto economy, so it allowed us to do these kinds of experiments, like sending direct cash transfers to people in those countries. That’s what I wanted to try with that, and it’s been going well, and we’ve been running some interesting experiments.

COWEN: If that can work, why isn’t crypto more widely used for remittances? Western Union and other companies, as you know, 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?

ARMSTRONG: Well, I’m not sure it can. Crypto is great when you’re doing crypto to crypto transactions, but to your point, if you need to do a fiat conversion on one side, get it crypto to crypto, and then a fiat conversion on the other side, you’re going to encounter some fees there.

I can tell you in the case, for instance, of GiveCrypto, we were able to see that over 90 percent 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. There are situations where remittance corridors are more efficient. I guess crypto hasn’t met the threshold where it’s actually easier to use in those situations yet.

COWEN: Is the implication, then, that most philanthropy should flow to people who are very highly motivated because that would lower the cost of transfer?

ARMSTRONG: Maybe. I like the idea of it flowing to people who are highly motivated, but 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 yeah, maybe.

COWEN: How bullish or bearish are you about the future prospects of San Francisco and the Bay Area as a home for tech?

ARMSTRONG: Short term, bearish. I would say it seems like it’s not in a great place right now, and there are a lot of talented people who are looking at other locations, but I suspect long term, it will be okay. It’s probably going to have a dip and a correction of some kind and have some sort of revitalization. Yes, short term, it’s not doing so well.

On bitcoin features and bugs

COWEN: 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 percent were found. Those people would be better off, right? They’d have more wealth. Who is then worse off? 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?

ARMSTRONG: Yes, I suppose you have dilution, and you have inflation if you’re increasing the money supply somehow like that.

COWEN: 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?

ARMSTRONG: Who’s losing the equivalent amount in this case, just so I understand?

COWEN: I don’t know exactly who, but someone else has less purchasing power, right? Bitcoin isn’t apples. You can’t eat it for lunch. 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 that’s giving someone somewhere in the system more apples.

ARMSTRONG: It’s not clear to me that bitcoin is a zero-sum game. Something new of value has been created, which is that we now have a global, decentralized value — and with other cryptocurrencies, of course, because it’s not just about bitcoin now. We have medium of exchange. We have security tokens, smart contracts. This is actually driving a lot of innovation and new value, I would say. It’s not clear to me it’s zero-sum. I think there’s something inherently of value that probably made people, net, better off overall there.

COWEN: But what is that? When do I get my apples, so to speak? Where do they come from?

ARMSTRONG: Well, anybody can participate of course. I’m not sure I’m answering your question super directly, but yes, of course, anybody can participate in this global, decentralized network, and it’s there to benefit anybody who wants to use it. I think, now, about probably 10 percent of Americans and maybe 60 or 70 million people globally have crypto, at least. So it’s been growing a lot.

COWEN: 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?” That’s for you.

ARMSTRONG: Well, you have to realize that there’re lots of different types of cryptocurrencies. Let’s take bitcoin for instance. Some people use it as a medium of exchange, but as you pointed out, it’s volatile. It’s more often used as a store of value or an investment, and in an investment, volatility can be a feature, not a bug. 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 are other cryptocurrencies that people are starting to use more as mediums of exchange. You could look at stablecoins, you could look at Ethereum, you could look at layer 2 solutions on top of bitcoin — all these things. I think there are many different types of cryptocurrency that’ll fill different roles in the crypto economy.

That’s why, by the way, I like using that word, the crypto economy, because it really is almost like a new alternative economy that’s being built, where people are not just trading bitcoin. They’re earning a living. They’re launching new start-ups — crypto start-ups. They’re 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 — it’s there, and it’s working, and it’s growing with things like DeFi and all the things we’ve seen in the last few years.

COWEN: 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 bitcoin new or whatever they call it?

ARMSTRONG: Well, I don’t think it will fork, at least nothing with substantial adoption. There will only be 21 million bitcoins, and that’s how that’s going to stay. I feel pretty confident about that. It depends what layer you’re talking about. If you’re talking about the base blockchain layer of bitcoin, we’re probably not going to grow the capacity of that to do tons more transactions.

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. There are things called, like, layer 2 solutions, which would offer faster payments, or there are other blockchains that are trying to target more that medium-of-exchange layer where fees could be very low forever and really focused on scalability.

It’s like the internet had to move from dial-up to broadband and enable all these new applications. There are a lot of people working on the broadband or the more scalable versions of blockchains that could enable that medium-of-exchange use case.

COWEN: If we know the net mining fees are going up, shouldn’t our prediction for the long-term equilibrium be one of 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.

ARMSTRONG: Look, I think of bitcoin as being like digital gold, so it may turn out that it’s not going to be the medium of exchange unless those layer 2 solutions start to really work. If we don’t get layer 2, then I think bitcoin will probably stay like a digital gold, and you’re right, it will be large, slow-moving amounts. It’s like the asset that people flee to in times of uncertainty, almost like the reserve currency of the crypto economy. I don’t know if it’s boring or not, but you may see lower movement of money and that kind of thing.

COWEN: Why isn’t it a Pareto improvement, then, to have a fork, to give up on the old agreement, have something called 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.

ARMSTRONG: When you say mining fees, do you mean the transaction fees — keeping those lower?

COWEN: Well, at some point, you won’t be able to pay people with new bitcoin to maintain the blockchain, right? Because Q, the quantity, hits the ceiling. What year does that happen? I forget.

ARMSTRONG: It’s an asymptotic curve, but it’s probably 80, 90, 100 years away, or something like that — the very last one. I forget. I think your point is when the new bitcoins being issued per block starts to decline, transaction fees are how the miners were going to get paid. You’re asking why don’t we make a new blockchain —

COWEN: Why not scrap — Yes, 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. Call it bitcoin new.

ARMSTRONG: Right. Well, there are other crypto-assets that have different inflation curves if you will, and they have made . . . 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. I think it really is emulating gold in that regard, that unless we start mining asteroids or something, they’re not going to find more supply. The people behind it feel that it’s important to have, I guess, a deflationary asset, and it’s one of the components in this new crypto economy. Is it the one that people are going to use? I guess the market will tell us.

COWEN: What’s the best model we have for how to think about the value of bitcoin?

ARMSTRONG: The value of it. People tie themselves into knots trying to think about, like, what is the intrinsic value of it? What are you actually able to do? You can think of it hypothetically as . . . It’s almost like when you’re spending miner fees or transaction fees, it’s like giving you right access to this global, decentralized ledger or something that . . . People come up with all these ideas.

But I think the simple answer there is, there’s probably not really a true intrinsic value to bitcoin. It’s valuable because people think it’s valuable, and it has some use cases. It’s useful for some things.

COWEN: After the Ethereum 2.0 rollout, what will I be able to do that I can’t do right now? What will that do for me?

ARMSTRONG: Ethereum 2.0 does offer a few things. Scalability is probably one of the most important and underrated things. Today, as I mentioned, the transaction fees are a little bit high, and it’s like that dial-up going to broadband for the internet. Whenever you lower the friction of something, it adds all these new use cases.

Just to give you a specific example, today, people in DeFi — they’re doing borrowing and lending marketplaces, but borrowing and lending is something you do relatively infrequently, so you might actually have to write something to the blockchain if you were to do a borrow or pay back.

If you can imagine recreating Twitter or something like that on the Ethereum blockchain, you’d have to write to the blockchain every time you tweet or every time you heart something or make some kind of action like that. You can imagine the number of actions per second would be hundreds of millions, probably, at a certain scale. To get to, eventually, some kind of a scalability like that, we’re going to have to have applications like Ethereum 2 go out there. That’s one example, is the scalability.

There are other things that could be improved along the way there in terms of privacy and usability. 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, but there can be this thing — we call it decentralized identity — that would allow you to send it to a human-readable name. Instead of going to an IP address, you go to Well, in this case, instead of sending to a random Ethereum address, you could send it to Tyler@Tyler.coin or something like that.

COWEN: Is there a 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 easily — I don’t have to pull out my visa card; I just connect through platforms built 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?

ARMSTRONG: I’m not sure if I understand the question. Can you just repeat it?

COWEN: The new transactions that will be enabled by Ethereum 2.0 — what exactly will I do with those? I understand if I have this 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. What else can the platform do for me? Or do you think the demand to make micropayments is really very strong?

ARMSTRONG: I don’t think there’s anybody who’s sitting around saying, “God, I wish I could make more microtransactions,” I agree with that, 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 just like the early days of the internet. A lot of people looked at it, and they said, “There’s some kind of blinking text” or “There’s a video of a cat” or something. “This is a toy. Why would we ever use this? Why would people ever spend their time on it? And that’s not real.”

Of course, over time, people made new things that took advantage of that medium that people really resonated with. Or you can say the same thing about smartphones or the same thing about movies versus the theater. When movies first came out, they were just filming what might happen in the theater, but they had to take advantage of that medium and do something new.

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.

On central bank digital currencies

COWEN: As you know, central banks have started talking about doing electronic reserve currencies. China might be the first 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 complement of crypto?

ARMSTRONG: I think of central bank digital currencies as primarily complementary to crypto. On the one hand, it’s a great endorsement of this technology that central banks are starting to look at it, and they are showing that there’re things that they want to go build with it.

On the other hand, to me, the thing that’s more exciting is really these decentralized cryptocurrencies because if we want to use centralized or fiat currencies, we can do that today. And sure, blockchain might be able to improve some of the efficiencies around that, like interbank settlement, or maybe foreign exchange, or something like that.

By the way, China is, I think, very far ahead on this with the digitized yuan, but the more exciting thing for the world is to have this global decentralized currency. It’s like if a country came up with their own private internet. I’m more interested in the global decentralized internet. I think that unlocked more innovation.

COWEN: 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 stablecoin when I have some other system of direct digital transfer that I can just do?

ARMSTRONG: Stablecoins are an interesting discussion. There are some use cases where they really make sense today. For instance, people are trying to make . . . 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. It makes sense to have a crypto asset that is one-to-one linked with a fiat token underneath.

I’ll say, in addition to that, there’re a lot of people who 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 have a smartphone, so they can have a USD-Coin-denominated account on their smartphone.

There are use cases like that, 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. That might sound like a very niche thing today, but I think over time it will become bigger and more important.

COWEN: What will happen with the Facebook asset formerly known as Libra, now called Diem? Which I think is a bad name, but I still think of it as Libra.

ARMSTRONG: Okay, why don’t you like Diem?

COWEN: It confuses D-I-E-M and D-E-E-M, and it looks like a Vietnamese word. Libra, I thought, was fine, and it doesn’t evoke anything. The name of your company, Coinbase — it’s a great name. A base, a solid, coin, money, evokes notions of banking and payments and transfer and funds management. But Diem — what do you think of? You think of some obscure general in the Vietnamese war in the late 1950s.

ARMSTRONG: I think of it like per diem or something, like your daily payment you’d get. By the way, naming things turns out to be incredibly hard just because of global trademark issues and all these things. It’s so hard to find unused names that are good.

But what do I think will become of it? Look, I give them a lot of credit for being forward thinking on this. Of the big FAANG tech companies, 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 this bigger organization. Of course, they managed to upset everybody in DC pretty much by doing it, which I didn’t think was totally fair.

As I mentioned earlier, 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 are people actually using it. In the US, we don’t have necessarily state-controlled things. We try to rely on the private industry to innovate.

In my mind, that was Facebook trying at least. Whether they were going to succeed or not, who knows, but they were trying to innovate there and do something that would help America globally.

The US government had a pretty negative reaction to it, I think, because it was Facebook. But then, once they realized they were maybe potentially a little behind China, the US Treasury started to think about, “All right, what is our solution going to be?”

And they’re now looking out for that, I think. I hope that they continue to make progress on that, whether they use USD Coin or Diem, or they create something entirely new themselves because it would be unfortunate to see the yuan — from a global perspective, maybe, who knows if it would be bad — but from a US point of view, it would be bad to see the US lose its reserve currency status or something like that over a miss in technology adoption.

COWEN: Who is Satoshi? Give us your best guess.

ARMSTRONG: Yeah, my best guess. Obviously, I don’t know who it is, and it’s definitely not me. My guess is that there was a handful of people who came together to work on that. There’re some good candidates out there — Hal Finney and people like that. My guess is, it was a collection of people, some of the early cypherpunks, and one or more of them wrote it, and they decided they wanted it to stay totally disconnected from them.

COWEN: Now, in all of these conversations, we have a segment in the middle: overrated versus underrated. Are you ready? These are the easy questions.

ARMSTRONG: Yes, I’m ready.

On things under- and overrated

COWEN: First one: city of Houston — underrated or overrated?

ARMSTRONG: Underrated, I think. You’re asking because I went to school there at Rice [University]. Houston’s a pretty great place. The weather is not great, but it has an amazing economy. It has great people, great culture, great food, and a lot of really important industries, and NASA, and healthcare, and oil, and stuff like that. Yeah, it’s a really cool place.

COWEN: Monty Python — overrated or underrated?

ARMSTRONG: [laughs] I think Monty Python is pretty funny, but I think that’s a widely held view. I don’t know. It’s probably a little underrated or something.

ARMSTRONG: Alien was such a breakthrough film that it’s hard to ever . . . and I think Blade Runner, right?

COWEN: Correct.

ARMSTRONG: Yeah, those were just incredible films that changed so many people’s lives. I think those will forever be underrated. But some of the more recent films, I’ve really struggled. I’m not sure what’s different. In fact, if I ever meet Ridley Scott for some reason, I want to ask him what was the process behind, say, Prometheus versus some of those earlier films because it feels like something materially is different now.

COWEN: Chinchulines, the food from Argentina.

ARMSTRONG: Chinchulines — I don’t think I know what that is.

COWEN: Oh, they’re disgusting. They’re from the intestines of the cow. They serve them in Buenos Aires.

ARMSTRONG: It’s like tripe and that kind of thing? Okay.

COWEN: It means something very specific, but I couldn’t tell you what.

ARMSTRONG: [laughs] I probably never tried it, so I couldn’t say.

COWEN: That must mean it’s underrated then, right?

ARMSTRONG: Maybe, we’ll see.

COWEN: What is the biggest obstacle to charter cities in today’s world?

ARMSTRONG: Well, 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 the legal system around it, although I know there are people trying that. There’s one called Próspera in Honduras that seems to have gotten an exception from the government for this area of land to run its own legal system and court system.

There are some people doing really interesting work here in terms of trying to bring people together in the cloud, so to speak, initially, because that’s unclaimed land, so to speak. You’ve basically got to go seasteading or go to Mars. It’s probably easier to get people together in VR or on a Zoom call, at least, than in getting in the cloud in this community. Then once you have some critical mass happening, 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 hard part to me.

COWEN: What was the best part about living in Buenos Aires?

ARMSTRONG: The best part was that I got to see a country that had gone through hyperinflation, which might sound weird to say as the best part, but what it ended up doing was, it helped me really understand the potential for cryptocurrency later when I read the Satoshi white paper.

Having a country that went through hyperinflation like that — it affected, really, every part of the culture just in terms of people’s optimism about the future sometimes. I think it really harmed that. It’s almost like, “Live today to the fullest because tomorrow it might all be gone.” It was almost like this feeling that had lived underneath that.

Only the richest people who were able to buy assets that adjusted for inflation, like real estate — they were able to survive through these periods or to get their assets outside of Argentina. Inflation was so insidious because it eroded the wealth of the poorest people who held their wealth in cash. Anyway, just seeing that was obviously tragic, but it led me to understand and appreciate the potential for cryptocurrency more broadly.

COWEN: 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 governing 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, 5,000 people. Do they all come from one country? Is it all young people? A lot of old people? How do you do it?

ARMSTRONG: My first reaction is, why don’t we let the market decide who wants to buy a ticket, who wants to go there. The market is good, as you’ve written about in other contexts — vaccines and all kinds of things. The market is good at sending the information, transmitting it through prices. I like the idea of letting the market decide.

In terms of what governance system they would live under, I think there are some really interesting ideas about how to make the next version of democracy because democracy was such a breakthrough, but it has some issues that are cropping up here and there that people are thinking about how to improve on it. For instance, we have this accumulation of laws in the US, and people make these analogies to tech debt and software.

I think the IRS or the tax legal code is 150,000 pages or something at this point. It only grows. One interesting idea for democracies is that you put a sunset clause in every law, where after 4 or 8 or 10 years or something, unless people actively go to reinitiate it, it sunsets and goes away. It might be interesting to have other ways to keep the amount of bureaucracy and overhead low. It takes two-thirds to add a new law, but it takes only 50 percent or less to remove a law.

I also think that a lot of laws — they have these issues where people want to add in all these additional special interest things to get the votes, to get it approved. You get these laws that are thousands of pages. They have all these special interests inserted. But if you had some rule that was, every law should only be two pages maximum, otherwise it can’t be a law, you 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.

I don’t know. I’m not an expert on this, but there are lots of ideas about how we could probably iterate on democracy, and Mars might be an opportunity to do that.

COWEN: If you could do one thing to accelerate progress in science, what would it be?

ARMSTRONG: I’ve thought about this a lot because I think it should become more like open-source software, basically. There’re a lot of pieces that go into that. There’s a project I’ve been working on called ResearchHub, which is trying to help with this problem. There are all kinds of issues in science around reproducibility and funding, and why aren’t there more scientific research that translates into products that can be commercialized?

There’s this huge divide between academia and scientists and entrepreneurs. Most entrepreneurs are starting companies that don’t have any scientific innovation behind it at all. It’s purely marketing, where they’re making some new beverage or clothing line or something like that. Then most scientists are completely disconnected from business, too. Sometimes they’ll try to leave academia to start a business, but it’s not what they’re schooled in.

I want to try to help bring that divide together and create some kind of a prioritization mechanism that’s like, if you’re the scientist who discovers CRISPR or something like that, and a bunch of entrepreneurs can license that and go commercialize it in various ways, that scientist should be a billionaire from that. Those are the incredible breakthroughs that are really improving the world and improving people’s lives, or at least have the potential to.

We have some first attempts at that ResearchHub, but it’s a much bigger problem to try to make science and engineering more efficient.

COWEN: If genetic engineering of our children truly were possible, would parents choose to have too many or too few autistic children?

ARMSTRONG: [laughs] I think a lot of people are worried about this idea. Something like autism is a great example. It has some drawbacks, but it has some incredible benefits. Will people choose to just move away from these things?

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 uniqueness too. It’s almost like you see these avatars in video games. When you can dress up your avatar however you want, it gets boring to be the stereotypical tall or whatever attribute you’d want to name. People start to come up with the crazy, wild things.

To get back to your question, 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.

On the future of crypto regulation

COWEN: 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 clearinghouses, like banks, like commodity brokerages? How is that going to be?

ARMSTRONG: Well, of course, crypto is really touching many different industries, and they’ll each be regulated a little bit differently. There will be custodians for crypto that are regulated like trust companies or banks, and there will be brokerages for crypto that are regulated like brokerages. There will be exchanges that need to have an ETS license. There’ll be, even, payments or remittance companies.

Also, by the way, there’ll be some that are just not regulated like traditional financial services. They’re just software companies. 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 software companies, which allows them to move quicker and launch in every country on day one, and a lot of benefits like that.

Crypto is really touching many different industries, and they’ll each be regulated differently.

COWEN: 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 could 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?

ARMSTRONG: If you’re talking about a crypto company that’s actually storing customer funds, then the next question you have to ask is, do they have a reserve ratio? Or are they storing 100 percent of those assets? Or have they lent out a bunch of them and are doing more . . .

Obviously, if you’re in a world of fractional reserve, then you would probably be regulated like a bank. If you are storing 100 percent of customer assets and you’re not in any kind of fractional reserve, then you might be regulated more like a money transmitter or someone like that.

This is one of these fascinating things where, whenever you’re trying to create something new in a regulated industry — which is where a lot of the opportunities are for entrepreneurs — you always go to the regulators, and they’re like, “We have a box for this, and one for this, and one for this.” You come and you’re like, “Mine’s like none of those boxes. Should we make a new one, or do we check the one that’s closest?”

This is one of these fascinating things where, whenever you’re trying to create something new in a regulated industry — which is where a lot of the opportunities are for entrepreneurs — you always go to the regulators, and they’re like, “We have a box for this, and one for this, and one for this.” You come and you’re like, “Mine’s like none of those boxes. Should we make a new one, or do we check the one that’s closest?”

Most people in the world are not as excited as entrepreneurs to try to make the new box. There’s such an art to this. I actually feel like half of 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.

COWEN: Do you worry then about regulation becoming countercyclical? Say you issue some liabilities, and you hold a bunch of assets. When the value of assets is high, it’s like 100 percent reserves. Something bad happens to the economy. The value of the assets falls. You’re now not really 100 percent reserves anymore, so they come in, and they regulate you more strictly, and then the value of your own enterprise falls. Then the problem becomes worse, and the regulations have to keep on becoming worse.

ARMSTRONG: Yes, I do think that as the crypto markets evolve, the regulation around it will also evolve. In fact, we’re seeing history repeats itself. What is that phrase? Like it repeats but doesn’t rhyme. Anyway, I’m forgetting exactly.

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. We’re seeing things like decentralized finance, decentralized exchanges that are . . . They can’t really be regulated like the traditional way because they’re running on some global decentralized computer, and there’s no centralized entity to it. I think in some ways, it’ll look the same. In some ways, it’ll have to evolve and look new.

COWEN: I was speaking to someone online a few nights ago, and I suggested that maybe the crypto companies that make the most money would be those that learn how to work with regulated banks and to merge their products into that highly regulated structure. Agree or disagree?

ARMSTRONG: I disagree.

COWEN: Balaji will 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.

ARMSTRONG: [laughs] Well, I disagree that integrating with the traditional banks would be the best way to go forward. The reason is that traditional banks are notoriously slow at adopting new technology. That’s because they are so heavily regulated. You could almost say they’re like quasi-government institutions, even in the United States.

Their decision-making at the top level is the board and the CEOs, and everything is largely about “How do we not get on the bad side of the regulators?” It’s almost like a risk function is the mindset at the very top. 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 new technologies.

I think what’s more likely is, you’re going to see new companies like Coinbase. I don’t know what’s the analogy. Like the traditional newspapers when the internet came along — there were very few newspapers that successfully made the transition to being online. You saw social media and search engines, basically tech-forward things, that succeeded in that arena because jumping across that chasm was almost like too much of a divide.

COWEN: Are stablecoins 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 stablecoin rather than a traditional bank account?

ARMSTRONG: That’s true. I think if you needed to go through all of the overhead to open an account to store stablecoins, then it would lose a lot of the value. I agree with that. Part of what’s innovative about stablecoins is that 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 a big deal. There are a lot of people in the world who wish they could open a bank account, but they’re unbanked, they’re underbanked — all these kinds of words.

COWEN: Where do you think the changing regulatory landscape is headed? If you think about the Bank Company Holding Act of 1987, among other things, it creates a certain separation between banks and commerce. And so far 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?

ARMSTRONG: I’m not sure. That might be a little above my pay grade. I don’t know. Do you have a thought on it?

COWEN: It’s the world you’ll be living in, right?


COWEN: 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 would be very hard for them to do that. But as stablecoins 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.

That’s what I think about when I think about the future of your sector, what that political equilibrium will look like.

ARMSTRONG: I think it’s true that companies like Coinbase could be pulled into those regulatory frameworks more and more, especially if you look at the piece of our business where we actually are storing customer assets and looking more like at least the money transmitter, if not a bank longer term.

Of course, I should mention the parent company Coinbase has different subs, and one of those is a self-custody wallet, which is regulated more like a software company than a financial service company because it never takes custody of any customer funds.

Of course, there are many other crypto companies who are following that model. I don’t really see a world where those would be treated like banks. That would have to be a massive redefinition of what it means to be a bank because you have to take deposits. Those companies are not really taking deposits in any sense of the word that I can think of.

Those, I think, would operate in a new regulatory environment, and that’s where you’re probably going to see a big unlock of innovation. This is like one of these trends of history. It’s like whenever you see something like software or the internet or whatever that’s operating outside of a massive regulatory oversight, you see this flourishing of innovation. I think you’ll see that with the self-custody aspect of crypto as well.

On the Brian Armstrong production function

COWEN: Now, our final segment is about what I call the Brian Armstrong production function, and here there is no room for modesty whatsoever. Coinbase has been a big success. What exactly is it about you that made that possible? 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?

ARMSTRONG: Well, let’s see. There’s one aspect that I think was important, which was I don’t have the same risk aversion as some people. I’m actually not very risk-loving in the rest of my life. I don’t really do BASE jumping or any extreme sports or anything like that.

I’ve never really understood this. When I read the bitcoin white paper, I thought about it for a few years, and I said, “Hey, maybe there’ll be something like a cool company that’d be built in this space that would help people use this.” In my view, I was like, “Why don’t I go try this? This sounds really cool. I’m interested in it.”

Most people, for whatever reason, don’t do that. It’s one of those entrepreneurial skill sets. That’s number one, I would say, is just maybe some risk aversion or willing to try something new even if I’m the only one who thought it was interesting in my friend circle.

The second might be determination and just being relentless. There is something about that where I’m uncharacteristically determined. Building a start-up is like moving from one setback to the next with enthusiasm. You get sued by various people. Employees quit. You’re almost out of money. There are cybersecurity risks. And people will have all these kinds of people issues and fighting. There are just nonstop issues.

I’ve just always been very determined. 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 have something you need to go prove to the world. I think there was a part of me, maybe, as a shy introverted kid who always felt like, “You know what? I have cool ideas, but I’m not very articulate, and people don’t want to listen to me. I’ve got to go show the world I can do something cool.” I thought it would be fun.

Those are a few ideas. I’m sure there’re lots more we could talk about in terms of how I prioritize my day or focus and those kinds of things, too. Yeah, those are a few ideas.

COWEN: What’s your greatest interpersonal skill?

ARMSTRONG: What’s my greatest interpersonal skill? I think I’ve done a pretty good job of hiring good people. I guess that’s more of like an assessment skill of understanding if I would work well with them, and if they’re good at their job across a number of different disciplines.

I’ll tell you what I was not very good at. I don’t think I’m the most inspiring or compelling person. I’ve gotten a lot of practice at it over the years, but in terms of the early days, especially at Coinbase, in terms of fundraising and pitching people and recruiting, I was never very good at that. I was like B or B-minus. I was enough to get to the next stage, but I never ended up being world-class at that.

COWEN: What do you hope to learn from composing electronic music?

ARMSTRONG: Well, I always love learning new things. It’s one of those things I’m addicted to that’s just fun. That’s something I’ve been trying out recently, is trying to learn how some of these electronic music composition apps work. Meeting some other artists who use it and getting some lessons from them has just been a fun way to decompress on the weekend. Scratching my learning itch.

ARMSTRONG: [laughs] What is CEO loneliness?

COWEN: Well, the people you work with, clearly, typically are your friends, but there’s a certain distance that they’re not quite in every way like the other friends you have. 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. You can’t confide to them about every worry or trouble in the business, for instance, that you might have.

ARMSTRONG: Yes, that’s true. The relationship with somebody you work with can build great friendships. But you’re right — it is a little different if you’re the boss. I think the answer for me is that I’ve made friends with other founders and CEOs.

In fact, one of the things that’s really helped me stay sane over the years is, I’ve built this group of friends. It’s about 10 friends. We get together about once a month and go on a trip once a year. They’ve all founded different companies. Most of them are CEOs of it. That’s been a great friend group. We all learn from each other various challenges we’re each facing in our own companies. By the way, maybe everybody should have a group like that of friends that you invest in. I think it’s been great.

COWEN: Last question: what is it you hope to learn over the course of the next year?

ARMSTRONG: 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. 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 gotten to where we are largely based on just organic growth, and people telling their friends and things like that. 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 a fuel on the fire. I was never somebody who naturally understood marketing, but I’m getting a crash course and talking to a lot of people in the process of interviewing folks.

COWEN: Brian Armstrong, thank you very much.

ARMSTRONG: Thank you, Tyler.