Cryptocurrency that's Bitcoin ethereum and all the others cryptocurrency and spinach how are they like you either love them or you hate them the late billionaire investor Charlie Munger on cryptocurrency quote this is a quotation I hate it close quote which brings us to our guest today who loves it the co-founder and chief executive officer of coinbase one of the biggest crypto exchanges in the world Brian Armstrong On uncommon knowledge [Music] now welcome to uncommon knowledge I'm Peter Robinson the son of two Engineers Brian Armstrong grew up in San Jose California went to high school at
bman prep down the road from this studio a Jesuit boy school and then attended Rice University where he earned both a bachelor's and a master's degree in computer science Mr arm surong worked for IBM for deoe and for Airbnb and then In 2012 at the age of not quite 30 as I make it out he founded coinbase the cryptocurrency exchange of which he remains chief executive officer coinbase now has a market capitalization of some 52 billion dollar Brian welcome thank you for having me okay we have to begin with this I'm going to quote a
Twitter post X post as it's called now from something called coinbase support and this is a post a few days ago and we're talking in early March this is from the Very end of February quote we are aware we at coinbase we are aware that some users may see a zero balance and may experience errors in buying or selling our team is investigating your assets are safe close quote service interruptions at coinbase what's going on yeah well For Better or Worse crypto continues to go through these cycles of massive run-ups and then a correction down
and then another you know massive runup to the next cycle and so basically Over the last year when crypto was down we started to plan for when this next cycle would happen and we we load tested our site assuming you know a 10x of traffic could come in at any moment which is pretty unheard of in most Industries usually you might see a 20 or 30% increase a 10x is pretty is pretty massive tsunami so yeah and when when the Bitcoin price kind of surpassed the previous all-time high in the last few weeks we saw
more than a 10x come in in In as little as an hour and so there were some display errors that occurred on the site and things like that but it didn't affect any of the assets held underneath and unfortunately now that people are really relying on us not just for people who use the coinbase app directly but actually like you know M massive financial institutions are building on top of our infrastructure we've really got to keep investing in that infrastructure to get to the next Level so okay so so this is this is this is
a this is a glitch all in all in lowercase letters this was not an important event well it was important from our customers point of view is and the the other companies that rely on us so you know there's no excuse for it but this the one you're referencing was a display error yeah okay yeah all right listen I want to get to all kinds of things that are really profound and fascinating in my opinion but first i'm Conscious because I've been asking friends all week what do you make of crypto what do you make
of I am conscious that at least I am of a generation in which if you say what do you think of crypto you'll get some people who love it and some people who hate it just like spinach but you'll also get some people say well I've never really understood so can we just quickly do the basics what the heck is a cryptocurrency yeah so when people talk About crypto I mean it's such a broad term crypto is really a technology that can be used to update the financial system in a bunch of different ways and
people have built many different things but maybe let's start with maybe the first and the most important thing that crypto was able to build which was Bitcoin and you know Bitcoin you should just think of it as digital money it's decentralized so there's no country or company that controls it um it's a Little bit like gold in that sense it's it's there's no Central Authority and so it's it's decentralized it's provably scarce like gold and people are really treating it as this new form of digital money and so that alone is a really powerful breakthrough
which kicked off this whole industry we can talk about some of the other things things that have come subsequently to that but I think that's a good start starting place for crypto so can I you gave me a few Reading assignments and I have to say as I got into the technical aspects of hash Mar hashing this my head almost exploded yeah but I found this passage from a piece that Mark andreon one of your board members wrote quote cryptocurrency at its most fundamental level is a breakthrough in computer science one that builds on Decades
of research and cryptography it's a way for one internet user to transfer a unique piece of digital property to another interet user Such that the transfer is guaranteed to be safe and secure crypto gives us that for the first time okay now why did I find that striking because cranky old guy that I am I was thinking I found myself I had bought into this oh it's some crazy thing the kids have invented that's not so cryptocurrency is built on cryptography which is an intellectual discipline goes back at least to the Second world war to
Bletchley Park and and the efforts to break the naziis codes and so forth so what we're dealing with here so let me try this out on you if you take Mark andreon at his word here and I assume you tend to do that because he's on your board yeah he's saying that crypto that the the technology that makes crypto possible the code that makes crypto possible possible belongs right up there Well in the 20th century we invent rockets that can go to space and computers and in the 21st century we in we've invented crypto it
belongs right up there with as as a major human achievement now is am I allowed to believe that or is that getting a little overheated I think that's a very fair statement um I think crypto is as important of of an invention as the birth of the internet um and it truly is a computer science breakthrough now it The the research paper the Bitcoin white paper that was published happens to be published by an anonymous person so yes we don't actually even know who wrote it which is its own fascinating topic but if we did
know I I feel pretty confident that person probably would have been a touring Award winner which is kind of like you know the Nobel Prize for for computer science and so what it did maybe a simplified way to think of the computer science breakthrough underlying It is that um prior to that paper things in the digital world it was very easy to make copies right so if you know if I take a photo on my phone I can send it to you I can send it to my mother whatever in you can make infinite copies
of that image for free um the Bitcoin white paper showed a way that you could have a digital item that's provably unique that's a powerful idea because now you can inforce scarcity and you can start to represent Assets whether that's money digital gold Commodities stocks you know you can start to digitize these things in a way that are provably unique people can't just make make infinite copies of it and it really allowed there to be this new you can enforce property rights is one way to think of it yeah that's that's exactly right okay okay
all right one other basic um coinbase is an exchange what's an exchange yeah well I usually like to say That coinbase is the easiest way that people can they can buy and sell crypto they can store it safely but they can also use it for increasingly more and more things and so U but just to touch on the exchange point because that's often the first way that people get involved they have to come in and buy a little bit of it to understand it and start to use it so an exchange is really just um
maintaining a list of people who at any given moment they want to buy or Sell a particular crypto asset and um you're making an order book so it's a little bit like the NASDAQ or the New York Stock Exchange and if you have bid you know they call them bids and asks in this order book and anytime somebody is willing to pay more than the person who's willing to sell it for the least you the the prices cross and a transaction occurs and so operating and exchange is certainly one of the things we do okay
all right So so I I'll just I'll just here's my experience with with coinbase about five years ago may have been six years ago a friend convinced me to buy a tenth of a Bitcoin he said don't buy a whole Bitcoin you'll just buy a tenth of a Bitcoin so I went to I set up an account on coinbase and I tried to buy a tenth of a Bitcoin I think the Bitcoin was then at about 11 so I tried to spend $1,000 roughly and you guys had controls in place that that Day I could
only spend 700 MH because you had to verify my credit card you'd only let me spend 700 so I spent 700 on bitcoin and I got up the next morning and it was worth 300 MH and I thought God did not put me on Earth to invest in Bitcoin so I forgot about Along Comes Brian Armstrong the date for this show and I thought I wonder by a miracle I had saved my password I checked my account it's still there how much is and now it's worth a little over $3,000 okay and not only that
the displays I mean it's attractively done and what got my attention I'm used to this old notion of if you're in a mutual fund you mark to Market every day MH but there's a little window there where the value of my 10th a coin of a Bitcoin goes up or down it's adjusting by a few pennies I think at intervals of about 3 seconds or so so you get the this is not marking to Market at the end of each day this is marking to Market every three SEC it's an astonishing thing yeah I mean
the market for it is it's 247 365 there are people constantly trading these these things and crypto has been especially you know Bitcoin all these assets they've been pretty volatile over the last 10 years it's it's a nent asset class but I'd say over the last 10 years it's got less and less volatile if you look at the the extremes like the peak to trough um it's just partly because there's more and more people coming in To trade it now there's about 52 million Americans who've used crypto at this point and I think if you
look at the last 10 years or maybe even go back three years five years 10 years each of those I think it was the best performing asset class over that time so it's pretty remarkable it it has been volatile but it's started from a small base with wild swings and now it's it's become the best performing asset class of the last decade best performing would Also the even as the volatility decreases the bounces decrease now to be clear it's still a lot more volatile than say you know GM GM yeah or um a major fiat
currency or something like that for Bitcoin um but I I think that over time as you get to I don't know a billion two billion people who have used this thing it'll start to approach probably the volatility of like Bitcoin will probably approach the volatility of gold um and then it may actually even Get less volatile than that now there's no there's no Central Bank no Authority who's kind of changing um interest rates to try to dampen the swing so I don't think it'll be maybe as less like the US dollar at some point but
it'll be closer to Gold probably okay all right we we'll come to all that founding coinbase yeah in 2008 this Anonymous person who calls himself I'm not sure I can pronounce this Brian so correct me Satoshi Nakamoto that's right Satoshi is what Everybody calls him right and it we don't even know if it's a him or her we know nothing about this person publish is a fairly elaborate but I mean technically elaborate but quite brief white paper and a couple of which describes the technical basis for this new thing that the unknown person is calling
Bitcoin and a couple of years later you read that white paper and what goes off in your head yeah I mean this was a really Interesting moment so I was home for the holidays on December of 2010 and um you know sometimes get a little overwhelmed with all the family bustling around the house so I just kind of retreated to my room and started reading some things on the internet and I happened to come across this Bitcoin white paper and as you said it's pretty dense u i remember I had a master's degree in computer
science and you're the son of two Engineers as well I mean this is you Grew up in a household where people understood this kind of stuff well I had certainly read research papers in college and I and I had a degree in E bachelor's degree in economics so I had some Basics but it's a dense even for me it was like dense paper but as I was reading it I remember having this thought where I was like this is really interesting in fact this might be the most interesting important thing I've read in a long
time um and it was Describing this kind of crazy idea which was that well we have the internet and the internet is a decentralized thing that no country controls and that's really democratized how we move information around um but what if we had a similarly decentralized protocol that democratized how we move value around and this comes to that idea of provable scarcity of digital assets um it's not just information which can be duplicated everywhere it's actually value because Each of these can be provably unique and I remember all these thoughts kind of went through my
head I had to reread that paper probably four five times by the way um but I remember thinking would anybody actually use this why would they trust it would governments try to shut it down could there be some flaw in the cryptography that would kind of blow the whole thing up and I kind of just couldn't stop thinking about it for about six months and I started to go to These um early Bitcoin meetups around the Bay Area and I can tell you that that was quite an experience too if you want to talk about
that so yeah that was how unusual people in the early days yeah it the people who would show up there so I I kind of lovingly say like half of them were like computer science phds that were really interested in this cryptography and whatnot and the other half were kind of like anarchists and um there was even I think some homeless People who showed up that were just kind of like you know just wanted free drinks or whatever and so it was a really like rag tag crew I mean did you ever see those photos
of um the computer club with like Steve wnc and they're all like have huge beards and they're wearing sandals and um it was felt a little bit like that it was like a very Hacker House kind of um it was not it was not JP Morgan I'll just put it that way okay got it got it got it and and so okay From reading the paper excuse me from reading the paper you found you co-found coinbase that's a story in itself but you've already told that story and I I want viewers to know this it's
a fascinating story but you've told that story to Guyz RZ in his series of of podcast called how I built this so I won't take you through all that although it's fascinating yeah but I do want to stress this this is from a blog post you wrote A couple of years ago this is Quoting you from the earliest days I built coinbase to harness the power of cryptocurrency to create more freedom in the world Silicon Valley I understand to make more money but to create more freedom in the world is an unusual idea explain yeah
um I I am very passionate about this idea of economic freedom and I think that if you go look at what that even means because most people don't Even know what that means you know it it's sort it's a term that economists use to look at the different countries of the world and they kind of look at different metrics like is there sound currency are there property rights that are enforced right you know how prevalent are corruption and bribery and can people engage in free trade it's all this kind of wonky stuff but I think
to me it it's very important because it basically touches on this idea of if I Try to do something good for the world um can I be rewarded for that and actually keep it right and if and if that's true like property rights these very right you know then people will try to do more good stuff and I um I you if you look at the data this is actually highly correlated with really positive things that you want in society so high economic freedom countries they have not just higher GDP growth and and things like
that but they have higher Self-reported happiness of citizens better treatment of the environment less corruption CLE air cleaner water better schools it even correlates with like having less war and um you know so and and I had seen a little bit of this like I spent a year living in in Argentina and buen aurus and I got to see a country that used to be one of the top 10 countries of the world this kind of Paris of South America and it essentially through a series of um these Negative government actions like had fallen to
maybe you know in 120th places in the world and it was this society that had really been ruined by you know High inflation and Corruption and really a lack of property rights I mean people's assets could just be seized at a moment and the poorest people in society were kind of having their wealth eroded because they they were holding cash and so I I kind of I had I was very much a student of that and very excited About it and I'd seen some of your interviews with Milton Friedman and all these things and so
um when I first saw the Bitcoin white paper it took me a little bit to get to this conclusion but I think the thing that excited me about it that I was later able to articulate was that I I said this actually might be the most important technology that could increase economic freedom around the world because it would essentially take anybody who had a smartphone which Increasingly was everybody in the world right um and said if you just have a smartphone and internet connection no matter what country you live in if you're in a corrupt
regime or whatever you know you can have access to Good Financial infrastructure you can have access to sound money that can't be inflated away you can have access to property rights and if if we could inject that good Financial infrastructure into the countries all Over the world um it would actually lift the world out of poverty we'd see more Innovation and so I got really excited about thata so so this this one of the things you mentioned that really fascinates me so I want to take you back to it and not go through it too
quickly you spent a year in Argentina after graduating from rice and you were down there to do what you were just traveling to see the world well yeah I was basically I was working on a startup at The time in the education space and I could live anywhere while I was doing that and so I had never really done like a semester abroad or um I was never in the military or anything and so I felt like somehow I was trying to figure out what I want to do with my life and I somehow was
like okay I need to get out of my comfort zone and go see the world and not live a sheltered life and so I just moved there kind of on um on a whim and I was like okay I'm going I I wasn't Planning to live there I was basically just planning to show up and maybe do a month in different cities around the world and um yeah I was trying to put myself out of my comfort zone figure out what I wanted to do so I've only been de boy I was once but I
I imagine it's a similar experience that you had you walk around buenos and you're looking at buildings that were built when the so when the country was wealthy and and and Self-confident it's a it's a city that you look around you think this is a what the city displays is shabby gentility there was a time when it must have glowed right okay and then you become aware because it's in the press and it's in the streets actually it's particularly in the streets if somebody you're an American at Hotel somebody's going to approach you and and
offer to do a deal with between pesos and doll so you say to Yourself a currency that's unreliable Bitcoin could fix that a corrupt establishment Bitcoin could fix that M insecure property rights Bitcoin could reassert property rights so this all of this is going through your head the experience in Argentina is in your head as you're reading the white paper and thinking wait a minute I've been in a country that could have been transformed if it had all right Okay so coinbase goes public in 2021 Brian I have you news for you you now have
a fiduciary responsibility to your shareholders your job is not to expand freedom in the world your job is to make your shareholders the highest returns you can so isn't there a tension now between the stated Mission which as I understand it is still very much the mission still emphasize this the State admission and just plain old what Corporate America and your investors are Going to expect of you actually I don't think so I think they're very much aligned um I think great companies should have a big important mission in the world that's beyond just making
money um but usually the only way to actually go accomplish that mission is you need a lot of capital and you need a lot of really talented people right and so how do you do that I mean you've got to you've got to have a great business business model Um and you've got to generate a profit and then you got to be able to use that Capital to apply it towards even more important things so you can you can grow and make progress towards that mission so you know example would be in the US for
instance we operate a tra our trading business right which is very profitable and and we we help a lot of people get fiat currency into cryptocurrency and that that's good it just it helps grow the crypto ecosystem Now sometimes there's areas of the world like in Emerging Markets where we say well it's not that there's a huge Market there um maybe people don't have as much money but there's a high need from a mission point of view of they would benefit enormously from cryptocurrency I mean people people in the US would benefit from it somewhat
and in some of these areas if they're experiencing 140% inflation a year or confiscation of their wealth it's like a it's a Existential problem for them and so we've tried to build some products which actually um serve Emerging Markets too and I think those could be interesting businesses over time but we have to be appropriate capital allocators and make sure we're investing in the so that we have it throws off enough cash so we can do the next adjacent business and some some Venture bets but you don't want to get too distracted and have the
Venture bets become the B the main thing because You'll you'll run out of money and you you'll never accomplish the mission okay so you're a businessman with a mission but you're a businessman sure okay and and and by the way that's how you attract the best people in the world to come work for you too you have to have an important Mission that's about something bigger okay yeah one more question about the founding of coinbase I I want to ask some questions about the current culture Of coinbase but one more more question about the founding
um The Wall Street Journal not long ago did a profile of you in which they called you I think I'm quoting this exactly the last man standing and we know why that is that's because Sam bankman freed who founded FTX a gigantic crypto exchange blew up and is now in prison and because Chang Pang Xiao who founded binance or bance binance which I Think is the biggest crypto Exchange in the world and he has now pled guilty to violating US money laundering laws and he awaits sentencing so I'm I I want you to address this
because in the backs of their minds people who are aware of these two cases and everybody's aware of them they were huge news still will be huge news Jang Pang Chow is awaiting sentencing how can you convince me that coinbase is just fundamentally Different well I think seeing those two two of our major competitors really stumble in a massive way it was really validating of this strategy that we've taken over the last I don't know 11 12 years now both FTX and binance are relatively new companies um coinbase has been around a long time and
we've seen lots of ups and downs of these cycles and unfortunately in the up Cycles we tend to see new entrance come in and sometimes especially the offshore Unregulated exchanges there's a little bit of like a like cut Corners break Break The Rules you know get rich or die trying kind of vibe that happens and we see sometimes companies like these startups offshore that'll Rock It Up in popularity but then they'll kind of blow up in spectacular fashion as well so coinbase has taken a very different approach over the last 11 years you know from
the earliest days we said all right I want to build this company in America I'm an American citizen um it was always obvious to me that um you have to follow the law that that exists today we're probably going to need new laws for cryptocurrency because there's a couple areas of the law where it's a little unclear but in the absence of that Clarity you know don't try to steal a base try to do something reasonable that you think uh would be the right thing to do in the absence of clarity and so the earliest
days we went and met with Regulators you know I put on put on the suit and tie and we kind of advocated for C clear legislation we got all the licenses that were available to us at the time did that now in more and more markets around the world so I think the last few years have been very validating of that strategy it by the way if you're going to follow a regulated compliant approach you can't always move as fast and that's that was sometimes like really difficult to see especially in Like 2021 when these
competitors were rocking up rocketing up and our you know investors and people would ask us like well why haven't you launched that and that and that right and so there it required a certain amount of discipline to say no to those things at that time okay coinbase culture I've already we've already talked about this mission of freedom but there's a story about coinbase in 2020 that I've heard because It's a famous story now in Silicon Valley and I want to hear it from you it's the Autumn of 2020 and this is a vexed moment in
the United States of America The Death of George Floyd has led to protests riots at a coinbase company meeting some of your employees demanded demanded that you and the company formally in one way or another support black lives matters this is the way the story has come to me Y and what happened Next says something about how you built coinbase what did happen next yeah so this was a very interesting leadership moment for me as a as a new CEO and I had never really received a demand from employees like that before um in the
past the sorts of questions that we'd get at Town Hall meetings and it was like you know how are we going to beat this competitor how are we going to comply with this regulation business questions yeah how do we how do we Advance the mission and and the product and I noticed around that time I started getting more and more questions at these Town Halls that were really about broader societal issues that were not even really related to our product or our mission and it was uncomfortable I have to say in fact I almost feel
like um there was a little bit of a feeling of how do we make the Executives like squirm on stage with like the most difficult pressing questions of our time And you know I certainly don't claim to have an there's a lot of hard problems in the world that um coinbase does not focus on I'm I'm I I'm interested in those I sometimes have opinions I sometimes don't but I don't think that it's my job to solve those and um it's also okay if everybody in the company has sometimes different points of view on how
to do that now of course it's kind of like a politeness thing right if you're at the the dinner table you know At Christmas with all your relatives is like you know try to stay out of like religion and politics or whatever if people are um a little bit controversial or they get triggered by all these things so it's like my my perspective was we're here to work on work we're here to work on the mission of the company but increasingly I was getting people getting into massive debates with each other and upset with each
other and it and it culminated in this walk out Actually where I think like three or 400 employees kind of walked out of the company refused to work in protest because we because we hadn't decided whether we wanted to support BLM I later found out things which caused me a lot of concern about BLM but at the time I didn't really know very much about it and so um at that it was a really stressful moment I and I so we got the team together and we said okay let's get let's get people back to
work and I kind Of said okay we'll look into this and we'll you know we'll uh support it in some way shape or form kind of non-committed but after a few months went by and this was really eating at me and I was like something I I failed to create Clarity in the company I'd always been kind of walking on eggshells when people got got got into these topics and I realized I'm failing as a leader if I don't create Clarity In This Moment about what this company is all about and Where we're going and
so I I wrote this blog post which kind of um got circulated around silon Valley that about being a mission first company and I essentially told the employees um look we're we're going to be an apolitical company we're not going to engage in broader societal issues or employee activism unless it's related to our mission which is purely about crypto and economic freedom and um you know I failed to make that really clear to Everybody in the past I'm now making it clear if you feel like that's not what you signed up for um here's a
exit package that you can take I think it was you know 3 to five month Severance based on your tenure and um about by the way a number of employees and PE uh Executives kind of told me oh my gosh like don't publish this it's going to be super controversial like nobody no you know underrepresented person will ever work at this company again people told me all Kinds of things and I went to talk to the different employee groups and they I wasn't hearing that from them and they were telling me you know I just
want to show up at a place where I can do good work and learn contribute towards something important s kind of like every whatever else wants so I made a very contrarian but I think right decision at that time which was um I'm going to post it and I knew that there was going to be a firestorm and it was be controversial Um but it actually turned out to be I think one of the best decisions I ever made for the company because after that 5% of employees resigned they they took the exit package they
said that's not what I signed up for I said great thank you very much and goodbye and goodbye and after that the company was aligned we were we didn't waste all these time all this time in like unnecessary debates about whatever controversial topic of the day uh we said hey we're Going to bring in people from all different backgrounds and different beliefs but we're all unified in our belief about cryptocurrency and economic freedom we're going to focus on that at work and um I have to say the job as CEO got a lot easier um
a lot of other Fortune 500 CEOs called me and and kind of said like oh my gosh how did you do this we want to do the same thing they were all feeling under so much pressure like there's just so much activism we Can't get anything done and I mean you're seeing elements of this still happen to this very day like you know inside Google Etc and so I I I think and I hope it'll be a playbook for other companies to follow we were early we got a lot of hit pieces on it but
I think in hind now where people are they've realized that that was probably the right thing to do that says something about coinbase if I may It also says something about you you seem like a Peach of a guy you also have to be tough because all of Silicon Valley was moving in One Direction and Brian Armstrong said nope not coinbase we're going to do business yeah uh okay all right I just I'm making a mental note don't cross this guy uh okay so this brings us to we've got culture we've got your management technique
we've established that you're you can be strong and this brings us to coinbase and the Securities and Exchange Commission so give me a Moment to set this up SEC commissioner Gary Gensler has called crypto quote exceptionally risky and often volatile and he has compared crypto exchanges to again a quote the Wild West Congress has never enacted anything like a comprehensive regulatory framework for crypto so Gary Gensler has been attempting to bring crypto under the sec's regulatory Ambit by lawsuit he is bringing he is engaging in regulation by Enforcement I think is the term that's used
in Washington one lawsuit after another so you find out what the regulation is when the SEC sues you MH the central question here as I understand it I'm setting this up correct the setup if you need to when when I get to the question do cryptocurrencies represent Commodities or Securities to put it extremely crudely are they more like pork bellies or like Stock in General Motors Gensler insists that most cryptocurrencies are indeed Securities which gives the SEC the right to regulate them and Brian Armstrong has said no I don't think so and you not you
coinbase has sued the Securities and Exchange Commission which forces me to remind you of another rule of running a public company which is you keep the SEC off your back whatever you Do what are you thinking what are you doing well I think we certainly don't relish being engaged in any litigation with the SEC or any one of our regulators and I think you're right the the general rule and this was the advice everybody you know said like especially I don't know more three or four years ago up until then was the norm was yeah
you always just go in work with the SEC say yes settle it out of court um I think under this SEC by the way we're Not alone there's a lot of people engaged in litigation with the SEC now and it's gotten to a place where they're really just not engaging in in all cases in good faith with the industry there is a um there is a requirement that actually they have around rule making it's something called the administrative procedures act which is if they're going to make a new rule they have to um engage in
a comment period and then publish what the rules are and then if You publish what the the rules are and people aren't following it then of course there should be enforcement actions right but if there's if there's no clear rules how can you go right to enforcement action that's actually against the law and um unfortunately I think you know by the way Gary gendler is a smart guy he actually taught a class at MIT on crypto and blockchains if you go watch those videos he knows he understands he understands the potential Of this technology he
even says in those videos that some of these are Commodities some of them are securities um and it was only when he became SEC chair and I think there could be his own you know political motivations for this or career motivations but he then suddenly became very you know sure that suddenly these were all Securities that's not what he said previously um and I think the reason is that in the US we have two Federal Regulators we have The cftc for Commodities the SEC for Securities by the way in the UK they don't have this
issue there's just one regulator the FCA and when I go there they the regulator never talks about this difference of Commodities and securities They Don't Really Care It's all under one regulator same thing in Singapore the US for historical reasons has to and so suddenly it's become this massive Turf War and issue about which ones are which so your substantive Argument coinbase's substantive argument is doesn't go to this question of Commodities and securities it goes to the question of procedure is that right have I got it right that you're arguing in court that the SEC
doesn't get to make up the rules by seeing suing people it gets to make up the rules the way the commission makes up rules comment period publish the rules yeah if you publish the rules then people will follow them yes that's the argument that you're Making in court it is and and by the way my point of view is that there are some cry is like I said it's a technology that can be used to update the financial system I think that can be used to update crypto Commodities there's a lot that are probably should
be Commodities I think it could be interesting for crypto Securities too it could make the how Securities are traded in capital formation a lot more efficient but there needs to be a process to actually go Register these Securities with the SEC which in my view they don't have at all today um and so it should be both crypto could create interesting Commodities and securities in the absence of this Clarity again we took a very conservative Approach at coinbase we we evaluated thousands of different crypto assets we rejected I think roughly 90% of them we said
it's a little unclear but these 10% um they're very they very clearly fit into the the what a Commodity how it would be defined and you know we worked with outside Council and we had committees a pine on this and we wrote all kinds of paper you spent money on it stacks of paper for every so yeah I think we showed a lot of good faith effort and so you know for the SEC to come in and say um well these are all Securities and we'll say well how did you get to that conclusion you
know which which ones and why and it was just we were just met with silence I think we Met with them 30 different times over a period of a year never got a single piece of feedback about them and so it was really like there the message I was kind of hearing from them was basically shut down the whole thing or you or you'll get an enforcement action um and and then the rules were never clear and so it was kind of an easy decision to go to court because you know I think that we're
right on the facts and we're right on the law and the only other was to Kind of stop doing the business so I want to come to the question of Regulation apart from the SEC in a moment but you've got this case making its way through the court it feels to me and according to the reading I did other people agree this feels like the kind of thing that could go all the way to the Supreme Court so do you have some notion of how long it will take to get a resolution in this case
this could go on for years it feels like to me yeah well It's so so it depends um I mean we recently filed a motion to dismiss it's rare for things to get dismissed this early um in the case but I think you know people looking at other judges that have ruled on other cases at this moment they're kind of saying wow I think coinbase has a really good chance of winning this so whether we win it kind of earlier or we win it later I feel pretty confident we're going to win it it'd be
interesting if it went to the Supreme Court we we'd probably have to see different opinions in different um you know districts but I I think under this supreme court that actually would be a good outcome for us um you know I think we like our chances even better if it went there so the SEC probably doesn't doesn't want that okay so now while we're still on this question of Regulation because what's impressive to me is on the one hand you say uh I got interested in this when it was a bunch Of crazy Libertarians MH
and I'm interested in promoting Freedom that sounds like you're a crazy libertarian yourself or start it out that way then you say but what distinguishes coinbase from these offshore crazies is that we're good guys yeah we try very hard to obey the regulations we develop relationships with The Regulators um and over the long term we're American Patriots we believe that the that the industry needs a sane regulation we Don't so this so regulation matters to you okay so imagine for a moment that we had a functional Congress and who knows maybe after the election we
might imagine we had a functional Congress that did its job and did enact a regulatory framework for this growing and exciting new sector of the economy cryptocurrency and then the SEC didn't need to engage in in in regulation by enforcement because Congress would have Done its job what should that regulatory framework look like this is a great question I mean this is exactly what by the way the rest of the G20 countries are all doing at this point like Europe has actually already passed this legislation called ma um you know Singapore Australia Brazil Canada they're
all in various stages of doing this so the US is is actually kind of behind on this process which gets to some of the dysfunction Happening in in DC but I I believe it'll come together there's there's political will and there's 52 million Americans who now actually want to elect Pro crypto candidates that understand you have to balance like The Innovation potential of this with protecting consumers so we need we need a comprehensive framework we can't we can't have a politicized sec just trying to shut it down or something right um okay so what what
should that framework Look like so some areas of the law around this are actually already clear I don't think they need an update so for instance um anti-money laundering rules um the way that sanctions are enforced um things you know you can you can create like a a trust company or get money transmission licenses these things can be useful already for all types of financial service companies including crypto companies the part of the the law that's really the least clear is what we Touched on earlier it's which of these are Commodities which of these are
securities assuming we're going to continue to have two Federal Regulators that you know we need to sort of clearly delineate sometimes um something could start as a security but become a commodity over time once it's sufficiently decentralized and those are the really the kind of key questions that need to get this so that we don't have um occasionally a politicized you Know regulator try to weaponize the lack of clarity that's what Congress needs to do and I should say there's actually two bills going through the house committees that got bipartisan support already and I think
um you know some of those may come to a full house floor vote maybe this year if if that goes well they could go to the Senate next year so we're you know we along with a bunch of people the industry are trying to help make that happen so as you work this Along it sounds to me as though you think it'll be a singled digigit number of years before we get the SEC settle down and get regulation that makes sense you see it coming together I do think over the next few years we'll see
a lot more clarity and the reason is that we have a couple horses in this race so one is the court case what one way to get clarity is actually just to create case law and in some ways it doesn't even matter what the outcome of the court Case is we just we start to get you get clarity yep you can point to what a judge ruled and the judge and the you know the the the court system can overrule the SEC right so that that starts to get clarity um the other option is Congress
so these bills can start making progress um you know we could have a different Administration different SEC heads that could or cftc heads that could start to come out and put um Clarity out there um so there's a Few options like that um that could I think help I think we'll start to get more and more clarity another example is like we just got these ETFs approved for Bitcoin and the exchange traded fund is what ETF stands for yeah and so the you know the SEC had to approve that um they did that very grudgingly
though grudgingly yeah the court the courts really had to compel them to do it but it's an approval nonetheless and so now all these new pools of capital are Coming in so we're just kind of moving the ball forward one yard every day and I think it's on the right track even if it's frustratingly slow okay Brian May I play devil's advocate for a moment sure and when I say Devil's Advocate what I mean is I'm going to assume the role of Warren Buffett and the late his late investing partner Charlie Munger and and uh
Warren Buffett and Charlie Munger make the point often that you can't use this stuff this You can't use Bitcoin in transactions and I even a moment ago I quoted a piece by Mark andreon one of your board members he wrote Mark andreon wrote critics point to limited usage by ordinary consumers and mergence but that criticism was leveled against PCS and the internet at the same stage every day more and more consumers and Merchants are buying using and selling Bitcoin Mark andrees wrote that 10 years ago and transactions are still at a very very Low level
how come well I'd say it's actually grown a lot since 2014 if that's if that's when it was written I think but I you know at that time there was probably only um you know maybe single digigit millions of Americans who had used crypto at that time there's now about 52 million and so by the way globally I think it's probably about 400 million or so people have used it so often times people go through um I think partly that criticism is correct by the Way let me just acknowledge that I think you can't buy
nobody nobody pays for groceries with crypto or tanks up with crypto right okay yeah so everyday items especially um kind of in retail merchants in the United States they're not going to be the the earliest adopters of this the the more early adopters of it are people um it's basically digitally digital payments so online and then it's in emerging markets and I and I will say if if you had asked Me 10 years ago I I actually would have thought we would had made more progress to now so you would have expected more yeah like
you and Mark Andre were together okay and I can talk a little bit about why I think that is um but still I I just I I don't want to fully acknowledge the point that there's it's very small because I think getting 400 million people in the world to use anything is actually like a really great step if you zoom out 10 years and look At the trajectory of the internet kind of through the 80s and 90s and um so people start often using crypto they they want to buy a piece of it to sort
of hey this is interesting I might want to own a piece of the future it's a little bit like when domain names first came out in the internet and some you know people like up for fun yeah yeah who knows maybe this will be valuable someday right that was kind of the early days it's often still people get their Feet wet then we saw people start to use um crypto for payments and especially with um US dollar back stable coins and what's called Layer Two which is allowing um payments to be faster and cheaper you
know we've started to see actually quite a bit more activity in the payment space especially in Emerging Markets which I can talk about if you want um and then more recently we've seen people start to use crypto for um a few things one of them is called nfts Which is essentially artists who are trying to publish their work in a digital way that they can have a relationship with their fans directly for monetization um things like decentralized social media have just gotten started where it's um it's censorship resistant so you you know you're not going
to get censored by big Tech or something but it's also a way where you can actually monetize um Social media and so directly and not you know have ads put on top top of it by the platform so anyway there's a lot of utility that we can talk about that's emerging um I think if you make an analy to the internet the internet had to do a few things first you know people don't remember this the internet started off with just IP addresses and those are kind of machine readable but they're not human readable so
we needed domain names um to make to translate to IP addresses To get that to be kind of human readable and email addresses and things like that that you know we could remember not just a series of numbers crypto again started off with something kind of like IP addresses like Bitcoin addresses just look like a random string of characters um we now have things that are more human readable and I can talk about what some of those are so we had to make make the names and addresses human readable the second thing we had to
do was Actually get it to be more scalable so the internet remember it kind of went through dialup to broadband right and um you know you could load like a page of text or something on dialup but on on broadband you could start to have more interactive applications crypto is going through its own kind of dial up to broadband moment but which is in crypto it's called going from layer one to layer two and then the other big thing that needed to get the internet to Broad Adoption was was the web browser right you know
average people they didn't really want to be on a command line you know typing in commands um once there was a web browser anybody could use it they didn't know underneath they were using these internet protocols like HTTP and SMTP but they didn't know that they just want to click the link and and so there was this moment with Netscape and the early browsers that kind of opened up the aperture of how many people could Use the internet without even caring about the underlying technology and so crypto is I think it's yet to maybe have
that moment where how do we make this easy and accessible to a broad range of people and that's part of what coinbase is trying to do with our our self- custodial wallet which I can talk about if you want but anyway I think those three pieces are going to probably when we look back on crypto in five 10 years we'll say those were kind of similar Moments that led her to okay eventually we got to a billion a couple billion people using it every day okay thank you and now that was Warren Buffett now a
couple seconds of Charlie Munger his late investment partner by I I don't know if that answer would have helped Warren Buffett but um I mean his I think his point of view may actually I I haven't met him personally but I think his point of view might be a little bit more like the dollar is King and yeah Here's Charlie muger in second place it's evil because it undermines the Federal Reserve System and the national currency system which we desperately need to maintain its integrity and government control and so on okay so that that's a
serious accusation that's not just this thing isn't useful Charlie Munger says the late Charlie Munger says that as crypto grows more people hold crypto fewer people hold dollars that limits the Ability of the Federal Reserve to control the currency manage the economy keep employment up keep inflation down all of that and so what you're doing as I understand Charlie Munger and Warren Buffett their ordinary view would be oh what the heck Let Brian Armstrong play with coinbase and see what em what emerges that's the way the economy works we take bets on things we see
what ha but you're posing a threat to the Currency of the United States and he even goes far as far as to call it evil how do you answer that one so I think this is actually a really the Crux of the argument and this is where people's views um May diverge but here I'll give you my perspective on it so I think that one of the most patriotic things you can do for America to ensure that Western Civilization continues to flourish and the dollar remains relevant and everything is to Have a check and balance
on deficit spending and high inflation um you know in 1971 we kind of went fully off the gold standard with with Nixon and because the dollar was no longer backed by any any hard commodity it allowed essentially unlimited inflation of the money supply and since then um I think America has started to see challenges right there's actually a really great website it's kind of I think it's called WTF happened in 1971 Want it just shows a whole bunch of charts um that happened at that time and the troubles that started when we decoupled from gold
right all right and so um you know I I'm I'm a US Patriot I think that um America is a great country I chose to build you know coinbase here in this country I think that if we don't have a check and balance on the dollar um there is not a incentive basically incentive is for the supply to just be inflated away and you can look at the History of this you know Ray Doo has a great book on this but essentially great Empires fall when you know they lose um the financial discipline with the
currency and they lose the reserve currency status and so so Brian could I yeah I was thinking about Charlie because when he he said uh crypto is evil I thought where does that even come from well he died last year at the age of 99 and what that means is that he was old an old enough man so That a formative experience in his in his life was The Depression mhm the Great Depression and like a lot of people I'm doing this because I my my parents a lot of people who grew up during that
period the government in one way or another was important in getting us out of it and in one way or another the feds the Federal Reserve the banking system finally figured out what to do so that we don't have to go through that again I just wonder the Whereas if you take where recording this at Stanford University you take the kids around here since Joe Biden became president uh inflation's eroded 20% of the value of the dollar in other words if you're a younger person and you watch this happened you don't think the FED is
that great in the first place is it is there some generational problem here yeah I mean I think that you can look at it in The data there's all these polls that show like a loss of trust in our in our major institutions but I think you're right like a well a well-run Fed could um actually manage the shocks in the system and the ups and the downs and it's not just the fed by the way I think you know they've done actually a reasonable job all things considered it's also just the the way the
incentives are set up in Congress right there's really no party right now that Wants to pass a balanced budget and so this is this is the not just unique to America by the way it's true of every great Empire if you go back and look at the British and the Dutch and and China Etc um they once you have the reserve currency status you're temptation is to abuse it and to inflate and um eventually you go too far and you lose trust in the system and um so I think there needs to be an alternative
and people are kind of waking up to that That um Bitcoin is provably scarce you don't have to trust the good intentions of man or or or mankind or women or anything it's it's you're trusting the laws of math right they're they're unbreakable in that sense and so it always kind of felt a little bit odd to me or just it didn't feel right that there was a very small number of people with their fingers on the dials of you know changing interest rates or the money supply r large and U but it but it
The PO it's like the ring of power like you know it there's the potential for abuse is too tempting and we're all human after all even Jerome Powell is Human After All yeah and he's sub it's not just him I think he's a reasonable person I you know but it's it's the system and the incentives are set up wrong right and Argentina is just a hundred years further on this history but you can see that America America is still I think the strongest Country in the world and it's the best place to do business and
everything and I I think it's there's nowhere else I'd rather be but you can see some of the strain on the system and I do think that the best way to ensure the survival of the the the dollar and um making sure that that that's a source of soft power for the you know the us we need a digitized dollar the way to ensure the survival of America is to ensure that the currency is strong and we continue This American experiment I actually think Bitcoin and crypto is really essential to that got it you have
a company to run so last questions here um you've run the company since it was founded that's 11 years now you're at a position in life in which you could go off and do anything else you wanted to do but you have let it be known that you're going to continue to run coinbase for some undetermined period of Time it's 11 years let's take another decade into the future what is it left for coinbase to achieve I I mean I actually feel like we're very early on our mission right um we the last 10 years
have been great we've gotten a great exchange and cust custodian and some of this you know utility applications off the ground but how do we get to a billion or more people benefiting from this technology every day you know earning a living with It um paying for goods and services paying friends and family maybe even doing all kinds of things Beyond Financial Services which I alluded to you know with you know artists and businesses having direct relationships and um basically you know all the pieces of financial infrastructure that could help bring this economic freedom to
the world so I don't feel like the job is really done till we get you know at least a Billion people using it every day so um Brian when I began prepping for this show I didn't I didn't understand it and the other thing that just threw me was I tend to defer to someone whose Judgment of the markets has made him a billionaire but on on crypto there are billionaires on both sides but I go through my reading list which you kindly provided and you know what a very strange thing Happened I began to
see that certain Arguments for crypto are really strong so let me just go through through a couple of these because there's a question at the end transactions if you're a merchant over here in the shopping mall every time somebody uses a credit card you end up paying the cred credit card company 2% mhm you could drop that to almost zero by using Bitcoin or another crypto yep security here's a headline from The New York Times online just a couple days ago that I noted Cyber attack paralyzes the largest healthc care payment system the hacking caused
Financial chaos from large hospitals to singer doctor practices the judicious use of crypto would have made that impossible or extremely unlikely from the point of view of securing payment Financial systems the benefits are enormous right and then here's the one because of my background Writing um the old journalism model has just collapsed you used to sell the news against ads but now Google has taken all the ads away so you're Wall Street Journal and the New York Times are selling subscriptions and they sell and sell and sell and they can't get over two or three
million people when you know that in a country of 330 million there are many tens of millions who'd be interested in this article or that Article maybe not a subscription that costs several hundred dollars a year but and with Bitcoin or other cryptocurrencies you can do microtransactions so I can pay 10 cents because that article interests me or a penny Okay you begin to see the things that crypto makes possible and you end up with the question why hasn't this been more widely adopted already mhm and so so that's the question the the Arguments in
favor of this stuff are really quite powerful in specific ways that I would have expected to have built political I'm thinking in the terms of the politics now political constituencies pushing for wider acceptance greater use and for the SEC and Congress to get its act in order Okay so are we simply up against are we are is the slowness of the adoption of crypto for transactions for example the Slowness of the political system to respond is this simply a measurement of human inertia is that what's going on or is there something that I'm missing here
are there deep suspicions reasons to be cautious about this some kind of financial precautionary principle that I'm just playing missing I mean you're getting into an interesting psychology question about how progress happens really I mean so Part of it is generational I do think that um the 18 to 40 year old demographic is actually much more interested in crypto they they're already using it more actually the the majority of people in that age group in America are actively looking for alternatives to the existing Financial system they don't think it's working for them the fees are
too high there's there's delays there's unequal access so there and when I go to meet with members Of Congress that are over 40 which is the majority of them often times uh they haven't personally used crypto but their kids do and their staffers do and so part of it is generational and then I think you're right um there's a lot of people in America still paying their rent with paper checks and so um change does and and by the way you know our system of government like you talked about you Know it's it's a feature
and a bug right that we want to have um different branches of government so nobody can have unilateral power but what it means is it's political you know you have to form these alliances it takes a small miracle to get new laws passed and so the government moves very slowly and that's certainly been a barrier to um to Innovation Ina in some cases we've seen active resistance you know in the cases we talked about um but young people want This they clearly understand this is the future and there's Now 52 mil million Americans who've used
it and so they're going to as a as a constituency by the way that's like 3x the number of people who who hold a union card it's 5x number people who own an electric vehicle I think the the generation in DC is is actually just starting to take notice of oh my gosh this is a massive voter base and um it's just bad politics to be anti-crypto you're not going to win any Votes by being anti- crypto you're actually going to turn off um 52 million Americans so I think this election in November is going
to be really interesting there's there's organizations like stand withth the largest super packs now so this is going to be a massive issue in this November election and I think uh DC is going to recognize that um it's a it's political suicide to be anti- crypto essentially at this point okay I have Two last questions here's one you're still only 41 yeah you've already accomplished more than a lot of people even hope to accomplish with their whole lives you are to put it crudely forgive me to but to put it crudely you're rich you're really
rich I also to put it crudely if I were in your position I would be on a beach right now not about to get back in a car and go off and run a big company what's the rest of your life For that's a great question so you know once I had some amount of wealth built um I think this was a great question I had to ask myself it's like what do what do I want to spend my time on right and I not all parts of being a CEO are fun you know just
like any job to try to do something important is going to be some parts of the work that oh my God this is going to suck um but I'd say if I zoom out I do find it to be at the Very least very fulfilling and at times it's very fun I mean I get to have cool conversations like this you know you you wouldn't be talking to me if I was just some Beach Bum or whatever right even if I had a lot of money so I I also feel there's a certain sense of
responsibility that people have to society if if you if you you know we're living in a golden age of software Innovation and fortunes are being made if you're lucky enough to be one of the People who does generate a lot of wealth from software or and building a company I like I really like this idea of taking some of that capital and applying it to hard tech problems or um you know going after things which could really move the ball in society because there's with a with a startup like um a software company you know
you can raise relatively small amounts of money and High margins and it's a no no business is easy but it's easier to be successful In software if you want to start you know doing rockets and cars and things or hard um you know there's a company that I invested in it's a biotech company that I'm helping out called new limit um working on longevity there's um a company I invested in called research Hub that's trying to help um accelerate scientific research so I'm I'm very much a believer in the power of technology and science to
make The Human Condition better to grow the economy improve all Of these things and crypto is one of those most important ones for economic freedom but how do we how do I take some of that Capital that I've generated and try to um make the future happen even faster you know that's really exciting to me and I think I would I think I'd be really bored in fact I sometimes I try to go on vacation for a week and I feel kind of like stressed and anxious at the end of it I'm like I don't
know I kind of want to get back into it and do Something so my personality wise I don't think I'll ever really retire I'm always going to be working on something I think the Jesuit father fathers down at Beller would be very proud of you well yeah I mean Beller some sense of responsibility here what do I do what do I do with this belt that's good right yeah I mean the motto of bellerin actually is is you know men for others and I have to say at the time as I was going through high
school I didn't really think about it That much you know we would do some volunteer work and things like that but I was very much focused on like I don't know I don't feel like I have time to think about other people I just I need to get to college I need to make some money I need to you know do whatever my goals were but I have to say I don't know if it was just from that but that as I got older um it started to play up play more in my mind and
I started to think about um yeah how do I try to do Something good for team human um Capital helps team human um last question there's a camera right here what would you like to say to Warren Buffett well I mean I have a lot of respect for him um and everything he accomplished in his career and I've read lots of his books um and or at least his his letters and things like that um you know I don't feel like I need to convince him I mean he he is a very sweet old man
and you know I I it's not My I don't feel like I need to go around and convince everybody about crypto I think this trend will play out over time and there's a little bit of there's a little bit of this innovators dilemma right that's like the incumbents um like I don't expect every big Bank CEO who I meet to just like instantly fall in love with it although the Smart Ones are actually integrating it because they recognize they need to have a plan for it um I more just want to focus on our Customers
and growing making crypto more useful make it more scalable um if we get if we get a billion people using it every day these are all going to be non-issue everyone's going to have to admit okay okay begrudgingly I guess it did it did provide something valuable in the world so I try to mostly Focus there and for fun at dinner parties I debate people sometimes but it's not my primary focus okay Brian thank you Brian Armstrong Founder and chief executive officer of coinbase thank you for uncommon knowledge the Hoover Institution and Fox Nation I'm
Peter [Music] Robinson
