The (Future) Most Valuable Company In The World

I was recently asked, “who do you look up to?” I hesitated to answer because there are so many incredible minds in the crypto ecosystem that it is truly a tough question. I thought about who is doing the most to bring the decentralized ecosystem to the masses. Who is staying true to the core values that cryptocurrencies and blockchain technology represent? After some minutes of deep thought, I landed on my answer.

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Brian Armstrong had a vision in early 2012, before any of the hype, before any of the ICOs, back when there were only a handful of coins in existence. His vision was to enable people to purchase bitcoin as easily as one could buy stocks online. In 2018, that sounds like a no-brainer; but, back in 2012, being able to connect your bank account to an online brokerage and purchase bitcoin was unheard of. As the vast majority of bitcoin trades were done in-person, enabling people to buy bitcoin from the comfort of their own home was a game changer.

Brian Armstrong — https://twitter.com/brian_armstrong

Brian Armstrong and his co-founder, Fred Ehrsam, started Coinbase in 2012 with the goal of making cryptocurrency as accessible as listed equities. That goal has largely been achieved and has evolved into a larger vision that is clarified in their new mission statement: “To Create an Open Financial System for the World.” In September of 2016, Armstrong clearly laid out this vision for an Open Financial System -

Phase 1: Develop the protocol (1M people)
“Coinbase works closely with the open source communities around each protocol, contributing financially in some cases, but we did not play a major role in this phase.”
Phase 2: Build a digital currency exchange (10M people)
“In this phase, we’ve built Coinbase for consumers and GDAX for institutions and pro traders. This is our core business today, and we’ll use the revenue from this phase to invest in the later phases while continuing to expand our core businesses to more countries.”
Phase 3: Build a consumer interface for digital currency apps (100M people)
“Coinbase will participate here by building or investing in teams who are working on this application.”
Phase 4: Build the apps of an open financial system (1B people)
Loans (mortgages, small business lending, micro-lending, etc)
Venture Capital (seed, traditional VC, venture debt, etc)
Investing (stocks, index funds, savings accounts, etc)
Identity & Reputation (IDs, authentication, credit scores, etc)
Remittance (sending money cross-border)
Merchant Processing (point of sale, internet orders)
“Coinbase will participate in this area by buying, building, or investing in various companies. We will also build developer tools and work with regulators to craft appropriate regulation in this space.”

Let’s see how Armstrong is positioning Coinbase to achieve this vision.

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From 2012 to early 2018, Coinbase only added support for five cryptoassets to their platform: Bitcoin, Ethereum, Litecoin, Bitcoin Cash and Ethereum Classic. This slow and steady approach was unlike that taken by the majority of other exchanges that list hundreds of tokens (many which have no purpose) with higher trading demand than those listed on Coinbase. This discretion was due to a multitude of factors ranging from regulation, safety, and the simple fact that there were not many good cryptoassets out there. However, this judicious approach wouldn’t stop Coinbase from being affected by the mania of 2017.

For Coinbase, and many other crypto projects alike, 2017 is when things really kicked into high gear. Bitcoin and Ethereum were skyrocketing, the ICO craze was in full swing, and Coinbase would shut down seemingly anytime one needed to place a trade. Obviously, internal operations needed an upgrade. In June of 2017, in the run-up to peak crypto hype, Brian released a blog post stating his determination to go back and focus on the core fundamentals.

In Q3 we’re focusing on the fundamentals

Instead of adding new features, or new assets, Coinbase would put their energies towards building a robust and lasting infrastructure.

While, in hindsight, this strategy may seem self-evident, Armstrong was making an astute decision to forego millions (perhaps billions) in near-term profits to build a customer experience that would ensure the longevity and sustainability of his product. He could have easily decided to list 10–20 additional assets, not focus on scaling server capacity, not hire additional support staff etc, and just print money. Not many people turned away the opportunity for “easy money,” but this seemingly simple decision shows Armstrong’s absolute dedication to the long-game.

When cryptoasset valuations started to decline in early 2018, Coinbase kicked it into overdrive.

(“One louder” — from the movie Spinal Tap )

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March 2018 — Launch of New Tax Tools

As many of you are keenly aware, figuring out your tax liability with crypto, goes together as well as talking politics at Christmas dinner. Coinbase was the first platform to tackle this problem and implement stronger reporting tools for its users.

Coinbase Ventures mission statement

April 2018 — Coinbase Ventures Launches

Coinbase’s venture capital arm launched and got right to work. As of December 2018, Coinbase Ventures has invested in 23 companies.

May 2018 — Coinbase Ventures Invests in Open Sea

A noteworthy first investment, Open Sea is a marketplace for digital collectibles. Non-fungible tokens (NFTs) will play a major role in the future crypto ecosystem, so acquiring a piece of the NFT marketplace is essential.

May 2018 — Opens Chicago Office.

Chicago is the trading mecca of the world. With its long history of trading options, commodities and everything under the sun, Chicago has the talent and infrastructure already in place for Coinbase to take advantage of in order to rapidly scale their operations. Back in May of 2018, Coinbase stated that their new “Markets” division would be headquartered in Chicago and focus solely on building out the trading infrastructure for all Coinbase products.

May 2018 — Acquires Decentralized Exchange Paradex.

Decentralized exchanges (DEX) allow for the trading of assets without a centralized entity. Coinbase acquired a DEX, which sent a loud message that they are willing to disrupt themselves if it means furthering the open financial system vision.

May 2018 — Opens NYC Office

New York City is the headquarters for the Coinbase Institutional Coverage Group. This arm of Coinbase will focus on servicing institutional investors. By setting up this office in NYC, the financial capital of the world, Coinbase is perfectly positioning themselves to onboard major institutions.

June 2018 — Opens Portland Office.

The office in Portland focuses on business-related functions such as customer support, compliance, IT and HR. Outsourcing administrative functions to an area with a much lower cost of labor, compared with San Francisco, is a smart decision to reduce G&A.

June 2018 — Acquires Broker-Dealer, ATS and RIA.

The acquisition of Keystone Capital Corp, Venovate Marketplace Inc, and Digital Wealth LLC enabled Coinbase to acquire a broker-dealer license (B-D), an alternative trading system license (ATS), and a registered investment advisor license (RIA). These licenses are essential for trading SEC-registered securities in the United States. With these pieces in place, Coinbase now has the ability to list security tokens on their platform.

July 2018 — Launch of Coinbase Custody

Having a qualified custodian is a requirement for many major institutional investors. Although Coinbase Custody launched in July of 2018, it wasn’t until October that they received their license, to act as a qualified custodian, from the New York Department of Financial Services. This license means that Coinbase can now custody assets from major institutions from all over the world, potentially unlocking trillions in value.

August 2018 — Educational Asset Pages

With the addition of educational materials onto Coinbase, a strategy many in the space are attempting, they seek to broaden their customer base and be a gateway for the uninitiated into crypto. Providing free education is a vital step in the right direction, as educating people on this technology and its capabilities are essential for the ecosystem to mature and thrive.

August 2018 — Coinbase Wallet (Formerly called “Toshi”)

Coinbase Wallet is the ultimate portal to the decentralized web or “Web3.” A Dapp browser, mobile crypto wallet, and identity/reputation system all in a single app? This application will have incredible ramifications for our Web3 future, becoming the “Google Chrome” of Web3. This excerpt, from a December 2017 blog post, explains the ultimate vision for the Coinbase Wallet (then called Toshi).

While an incredibly optimistic vision for a single application, I truly believe that Coinbase will usher in Web3 via the Coinbase Wallet because of their massive reach and the app’s ease of use. To learn more about Coinbase’s vision for Web3, checkout Emre Tekisalp’s blog post.

Sep 2018 — New Listing Process

With trading volumes drastically lower than the same time last year, and stiff competition coming from all sides, Coinbase announced a new listing process that would enable assets to be listed in a secure, compliant, and rapid manner. It seems that Coinbase is following this statement to the letter, as we have already seen the addition of two new assets (ZRX and BAT) since the blog post was published. I wouldn’t be surprised if, by the end of 2019, Coinbase has 20+ assets trading on their platform.

October 2018 — Lists ZRX

As previously mentioned, Coinbase listed ZRX on their professional trading platform (Coinbase Pro/Prime) and their retail platform (Coinbase Consumer). It was the first ERC20 asset to get listed, and I expect many more to come.

October 2018 — Launch of USDC Stablecoin

The launch of the USDC stablecoin on Coinbase means that people will finally be able to enter the cryptoasset markets and not have to deal with much of the extreme volatility. This is a huge step forward for getting regular people and traditional industries introduced to the ecosystem.

October 2018 — Receives Qualified Custodian License

Coinbase received a qualified custodian license in October allowing them to onboard institutional clients that need such to operate.

October 2018 — Opens Dublin Office

With a 12.5% corporate tax rate and a member of the European Union, all great American tech companies have their European subsidiaries headquartered in Ireland. Ireland acts as the perfect springboard to enter the EU market.

November 2018 — Lists BAT

Only a few weeks after the ZRX listing, Coinbase added support for the BAT token on the Coinbase Pro/Prime and Consumer platforms.

November 2018 — Lists ZEC

Coinbase adds ZEC, two assets in the same month! (I thought that was impressive when I first wrote it but then had to add the next line.)

December 2018 — Announces Exploration of +30 New Assets and Lists Four New Assets.

Wasting absolutely no time, Coinbase announces they are looking at a multitude of new assets. And on the same day, announces the listing of four ERC20 based assets. Surely a drastic alteration to their slow and steady approach.

As described above, Armstrong and Coinbase are executing at a furious pace and laying the groundwork for long-lasting success. Now, I would like to speculate on what the future of Coinbase might hold.

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Future

Staking-as-a-Service (Saas)

I believe in 2019 staking will become mainstream and dominate much of the conversation around cryptoassets. Coinbase is perfectly positioned to take full advantage of the coming wave of tokens with staking mechanisms. With their Custody department now fully licensed and operational, we can expect that they will offer Staking-as-a-Service to their institutional clients and hopefully to their retail clients as well. In a blog post back in May 2018, Coinbase General Manager David Farmer stated:

“Our vision is to give customers the ability to participate in services like staking and protocol voting that are distinct to crypto.”

https://custody.coinbase.com/

Also, Coinbase Custody recently updated their custody website to show a section that talks about “Network Participation.” We can expect much more to come from that arena in 2019.

The Global Financial System, on Coinbase.

Exchange, Loans, Derivatives

We have not yet heard much about Paradex, and this is pure speculation, but I can see a future where the decentralized exchange is up and running while offering on-chain loans via Dharma and a plethora of crypto-derivative products via dYdX.

Dharma is an open-source protocol for building lending products. It was founded by Nadav Hollander, a former software engineer at Coinbase.

dYdX is an open-source derivatives protocol built by Antonio Juliano, another former software engineer at Coinbase.

Coinbase could onboard these protocols to their platform, with Paradex offering the associated products all on-chain. Replicating core operations of the financial industry in code and on Ethereum: mind-blowing stuff.

But wait, there’s more!

Crypto Bank Account?

When Coinbase launched USDC, a “stablecoin” pegged to the US dollar, it created a cryptoasset that is free from the high volatility of other cryptoassets. Furthermore, it created a better US dollar with 24/7 access, extremely fast transfers, and high programmability. No longer will people have to wait for banks to open to transfer their “dollars.” And these dollars can be sent to anyone in the world for fractions of a penny. The remittance business will likely face major disruption due to pressure from stablecoins like USDC. Additionally, the programmable nature of this “currency” allows future upgrades to be continually adopted over time. Overall, stablecoins will lead to massive efficiency gains and provide banking services outside the traditional financial system.

In May of 2018, Coinbase Ventures invested in Compound Labs (parent company of Compound). Compound is an open-source money-markets protocol that allows you to earn interest on your cryptoassets. Compound currently only works with five ERC20s (WETH, ZRX, BAT, REP, DAI) but is working on adding additional assets. Coinbase could eventually integrate Compound with their platform, allowing users to earn interest on idle cryptoassts, similar to traditional banking.

Securities Platform?

With Coinbase Ventures recent investment in Securitize and acquisitions of Keystone Capital Corp, Venovate Marketplace Inc, and Digital Wealth LLC (gaining them a BD license and ATS), one can speculate that Coinbase has plans to become the home for trading security tokens such as:

(Source — https://www.tokensoft.io/)

Coinbase may decide to complete the full vertical integration and become a platform to launch compliant token sales. They have the regulatory and crypto-specific infrastructure in place to do so. Beyond crypto-native securities, Coinbase could offer traditional securities that have become tokenized. Coinbase Ventures recently invested in RealtyBits which is a “blockchain based finance platform to invest in US commercial real estate” (Source — Crunchbase — RealtyBits)

Brian Armstrong is positioning the company to become the one-stop-shop for all of your future financial needs. Whether it’s the trading of crypto-native assets (and future tokenized securities), the staking/lending of idle tokens, the custody of digital assets, or the spreading of crypto knowledge, Coinbase is going to do it all.

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Coinbase Culture

Brian Armstrong is cultivating a culture of excellence, constant improvement, and long-term focus. Brian himself is constantly learning and striving for his own self-betterment. He has reflected on this drive in multiple blog posts about his role and the culture he hopes to foster. He has written about the different types of CEOs and explained what type he is (hint: Product focused CEO). He has penned thoughts on corporate culture and even authored a post about 36 ways to hire, develop, and retain great people. 36!! I would be happy with just 10.

The continuous focus on the long-term strategy is what sets Coinbase apart from its peers. Whether it be the powerful company mission, focus on corporate culture, or excellent hiring standards, Brian has a maniacal focus on the future and understands the compounding effects of his near-term actions.

It is this type of self-awareness, and incessant need for development, that will not only lead Coinbase to greatness but also inspires an endless number of tremendously intelligent people to join the company. The title of one Brian’s blog posts sums up the Coinbase hiring standards quite nicely.

“Bar Raisers at Coinbase: If you’re not a hell yes, you’re a no”

The “bar raisers” that are hired not only do great work for Coinbase but many have actually left to start their own companies in the crypto ecosystem. By actively encouraging people at Coinbase to be entrepreneurial, he can attract the absolute best talent. This sentiment is atypical for most firms; but, as shown below, Coinbase’s alumni network continues to grow and launch amazing projects.

Coinbase Alumni

Many more to come…

In recognition of this fact, the inaugural blog post by Coinbase Venture stated:

“We also have a strong Coinbase alumni network, which we’re very proud of. People who have worked at Coinbase are encouraged to think entrepreneurially, and you can expect that we’ll enthusiastically invest in ideas from our own alumni network.”

And they have followed through with that statement by directly investing into two of their alumni’s companies. But it’s the alumni themselves, particularly those with investment funds, who have invested most heavily into their former coworkers’ companies, thus expounding the strength of this network even further.

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Centralized Company Leading Decentralized Future?

It may seem counter-intuitive that a centralized company is going to lead the charge towards our decentralized future, but the fact is that centralized systems are still more efficient and practical today. No need to wait for various scaling solutions to be implemented on your favorite blockchain, AWS servers work just fine and underpin the vast majority of online businesses functions.

Keep in mind that this is only how things stand today, and technological advancement is not some static force but an unstoppable steamroller. Our future IS headed down the path towards decentralization, whether it takes 5 years or 50. As Coinbase drives forward the leading edge of global blockchain adoption, its own services will require increased decentralization of governance and design to effectively mirror the developing ecosystem.

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Ten Years From Now

Ten years from now, Coinbase will be one of the most valuable companies in the world and Brian Armstrong will be one of the wealthiest people in the world. (As long as he stays in charge of the company).

Some key factors for success are lining up perfectly:

  • Timing — Distrust of the financial system is at records levels, and there is growing resentment towards the tech oligopolies that control all of our data. People want change.
  • Product — Cryptocurrencies and distributed ledgers represent a generational technology shift that will radically transform every aspect of our lives.
  • Leader — Brian Armstrong, endlessly striving for improvement and always playing the long game.
  • Mission — Every great company needs an equally great mission, and what is better than “Creating An Open Financial System for the World.”

It will not be an easy feat, and the next ten years will present a myriad of unforeseen challenges. But when all is said and done, not only will Armstrong have connected and inspired a generation of millions around the globe, he will also have shown them a different path. This path is the one that is controlled by networks of people rather than centralized, often exploitative, systems. Let’s hope he pulls it off and is able to show us what distributed ledgers and society at large can accomplish together.