♪ david: this is uh my kitchen table. and it is also my filing system. over much of the past three decades, i have been an

investor. [applause] the highest calling of mankind i have often thought is private equity. [laughter] then i started interviewing. >> i watched your interview so i know how to make your interviews. david: i have learned, from doing my interviews, how leaders make it to the top. >> i asked him how much he wanted. he said 250. i said fine. i did not negotiate with him. i did no due diligence. david: i have something i would like to sell. [laughter] you don't feel inadequate being the second wealthiest man in the world? is that right? [laughter] about a decade ago, a young entrepreneur, brian armstrong, who was working at airbnb, left that company to start a company to trade cryptocurrency. the company he started, coinbase, became one of the hottest ipo's on wall street. this year, because of the ftx meltdown, coinbase has had some challenges. i sat down to talk with brian armstrong to talk about the future of his company. so, for those who don't know much about cryptocurrencies, what exactly is coinbase, and what does it do? brian: so, coinbase is the primary financial account for many people participating in the crypto economy. we help people buy and sell crypto.

we also help them use it in a variety of ways. they can use it to send money do commerce, borrow and lend. or yield on their assets. we think of ourselves as the primary financial account for people in that crypto economy. david: i know you are different than another company i will mention, but is this what ftx more or less did as well, theoretically, for its clients, was to enable them to trade? brian: ftx did one piece, which is the trading aspect, correct. david: what do you think happened to ftx? you have been quoted as saying you think there was more than just occasional bad bookkeeping. you think there was more to it than that, is that right? brian: that is right. and, you know, obviously, i am sitting here as an outsider, but it seems clear to me it was not just a run on the bank or poor management of funds. it appears they took customer funds from their exchange and actually comingled them or moved them into their hedge fund and ended up in an underwater position.

and that was, i believe, against their terms of service and i believe against the law. so from my point of view it looks like a massive fraud. we know that because of the withdrawals of customer funds which should have been held at one to one, unable to be withdrawn. that appears to be fraud from my point of view. david: in your view, will the ftx bankruptcy hurt the industry and maybe produce enormous amounts of regulation you may not want? brian: i think the ftx downfall is a bit of a black mark for the industry. it is not representative of the whole industry, of course. in traditional financial services, occasionally you see bad actors as well, like bernie madoff, or what happened at enron. in terms of regulation, i don't think it will be a bad thing. coinbase has been calling for clear regulation and trying to work with policymakers for quite a while. we have made some progress across various g20 countries. but i think it will serve as a wake-up call and a moment of catalyst where we will get more clear regulation in the united states, and i think that will be a good thing for coinbase and the whole industry.

david: for your company and people who are clients of coinbase, you reassure them, i assume, regularly, or they can find out for sure if their account is managed the way it is supposed to. and it is not being used for some additional purpose, is that right? brian: that is right. so, i mean, we are very different than what happened with ftx. for one thing, coinbase is based right here in the united states. we did not incorporate in an offshore jurisdiction like the bahamas. we are also a public company, which means we need to meet all of the audit requirements of a public company. and so, we show in our publicly audited financial statements, you know, corporate cash is separate from customer funds. and you don't have to take our word for it. a big four accounting firm has come in and proven that in these cases. there are other differences as well. we operate an exchange, but we have never created an exchange token like the way ftx did. we never operated our own market maker or hedge fund in the way ftx did, because we believe that that would be a conflict of interest. so the difference between the two firms, i think, cannot be overstated.

it is really a validation of the approach we have taken at coinbase over the last 10 years to build this business in a trusted and compliant way, as opposed to what happened with ftx. david: for people who may not be that familiar with what your service is, let's suppose i wanted to buy a stock. i would call a stockbroker or somebody, some market maker, say that i want to buy a certain share, and they say ok, you pay a commission. um, if somebody wants to trade a cryptocurrency, they in effect have an account with you, i assume, and they pay some kind of fee for the exchange. is that right? brian: that is right. trading fees is one of our major sources of revenue. and, yeah, we have begun to diversify that as well. we have a different category of revenue that we call "subscription and services" which has started to grow. so that is about 36% of our revenue in our last, in q3 of this year. david: but today, people who have accounts with you, they are clear that if they want to pull

their account out, they can get the money, i guess, because you are not subject to a run on the bank in effect. brian: that is correct. all customer funds are clearly segregated and assets are held one-to-one for customers. so there really is no such thing as a run on the bank in coinbase's world because we are not regulated as a bank, so we don't do fractional reserve lending. but also, 100% of customer funds are stored one-to-one. so if 100% of people want to come withdraw, they can do that. and we will have their funds for them. david: you started the company in 2012, and you took it public, i think, in april 2021. the ipo was an enormous success. and i think, at the end of the day, your company was worth $75 billion or more, and you were personally worth i think about $10 billion or more. the company's stock has come down about 80% in recent times, in part, because of ftx and other things that have happened in the crypto world. so how does it feel to be worth $10 billion one day and not too long after, a lot less?

brian: well, you know, it obviously has been a difficult market, not just for crypto, but really for all growth tech and biotech. we are in good company. netflix, spotify, all these companies have come down similar amounts. we knew that going public would not be an easy path, especially with, as, in a new industry being a leader, we wanted to be the first crypto company to go out there, and we assumed it would take three or four years to go through the cycle and begin to educate, build trust in the public markets, so that is the process we are going through now. my own personal net worth is not something that is particularly motivating to me in the sense of driving personal consumption or something like that. i am excited about building things with technology, and cryptocurrency is one of the most exciting areas out there right now. so, you know, i am going to keep working on this company for, hopefully, the next decade or two, and i think it is an exciting road ahead. ♪ david: so you told your parents

you're going to start a cryptocurrency exchange. what did they say? brian: i don't think they quite understood what it was in that moment. and, my mom asked me if i was going to have health insurance, which i learned, you know, i learned even if you are creating a new company, you can pay for your own health insurance. ♪

david: all right, let us go to talking about the time you started the company, and what you were doing at the time you started it. so you started it in 2012, as i mentioned. what were you doing before you started? did you know a lot about cryptocurrencies? where were you working? brian: before this, i was a software engineer and product manager at airbnb, the home rental company. and you know, i had studied computer science and economics in school. i tried creating a couple other startups that were not very successful. one of them in the education space. while i was working at airbnb, i kind of got to see -- they were trying to move money to 190 different countries all around the world, both collecting payments and paying out the people renting their homes. i was one of the engineers working on that, seeing how difficult it was to move money globally. both how opaque the fees were, how long the delays were, the chargebacks.

all kinds of things like that. so, you know, at that time, this was around december of 2010, i believe, i read the bitcoin white paper which came out. and really it captured my attention in a profound way. i remember reading it and thinking this might be one of the most important things i have ever read. and it was saying something -- it was describing something like the internet, which was global and decentralized, a new protocol. but instead of moving information around, this was for moving value around in different forms. and i basically could not stop thinking about this paper for the next six months after that. i attended some meet-ups in san francisco. some early bitcoin meet ups and met some of the early people working on it. i could not get this idea out of my head, and decided i had to try to build a prototype that would make this technology easier to use and trusted for the average person. david: so what was the valuation of your company for the first round from the first investors? brian: oh, well, i think y combinator probably got 7% of the company for $150,000. so, you know, not a very high valuation. i think the series a was, i think we raised $5 million and

$25 million post. so you know, obviously those investors did well. david: when the company went public, the return on the initial investments were staggering. i remember reading about it at the time. so, i guess they were happy with you at the time. i don't know whether they have sold their shares or still hold them, but it is still profitable, even at today's valuation, i assume. brian: yeah. that is correct. they earned it. right? that is the nature of these bets. if you can see something early on that most people are skeptical of, and you are contrarian, but right, you know, occasionally you get these massive wins that come out of it. and i think -- when coinbase went public, a thousand employees i believe became millionaires, and a lot of people wrote me incredible letters telling us how we had changed their life and all these things. so that was a really powerful moment.

david: is being ceo of a publicly traded company a pleasurable experience, or not? brian: before we went public, i did not know much about what it would be like. i went and did a bunch of research. my research played out roughly how i expected. i kind of enjoy being a public company ceo. it is a good forcing function for us to get feedback from the market, to get input from analysts and investors. i found their thoughts to be actually quite helpful in terms of operating our business periodically. and then, of course, i spend the vast majority of my time working with the team on how do we build better products for our customers? i don't want to lose sight of that as the primary objective. david: so, let's talk about yourself for the moment. earlier in your life, where were you born? david: i was born in san jose, california. in silicon valley. yeah. david: were your parents technology people working at tech companies or something like that? brian: something like that. my mom was a programmer and manager at ibm. we had a lot of the early ibm computers in our home and things like that. my dad is a civil engineer and

an environmental engineer. we definitely had a focus on stem and math and science and education in my household growing up, i would say. david: when you were growing up, what did you want to be when you were in high school? did you want to be an athlete or private equity investor, something important like that? or what? brian: you know, i don't think i knew exactly what i wanted to be in high school. i remember even in high school i was learning programming. and i was learning computers. i was fascinated with that. i built some early websites. i even started a little business with a friend of mine in high school. we were reselling computer hardware. so i don't think i knew i definitely wanted to be a tech entrepreneur, but looking back in hindsight, that is certainly where my energy and enthusiasm was. i was often staying up until 2:00 a.m. learning programming, linux and computers, and i would

be too tired to pay attention in history class the next day at school, but yeah, those were my early interests, for sure. david: where did you go to college? brian: i went to rice university in houston, texas. david: how long were you at airbnb, and how did you get that job? brian: i was at airbnb for a year and a half or so. i was employee number 40 when i joined, and when i left, there was maybe 600 people. so, it had gone through this incredible period of growth. i learned a lot from them, actually, just about how to run a great product building process with engineers, how to raise money, how to operate in silicon valley. how to meet people like at y combinator. so i learned quite a lot from that process. david: when you left to start your own company, did brian chesky, one of the ceos and founders there, tell you you were making a mistake, that you should stay at a stable company like airbnb? brian: well, my boss at that time was nate, one of the other cofounders, the cto. and i remember he was very supportive. obviously, they tried to get me to stay a little bit. but you know, generally there is

an incredible culture in silicon valley of employees who join these early startups, sometimes they go on to do their own startups. and it is very much a positive sum environment. one of the things i'm most proud of is that a lot of early coinbase employees have gone on to found other companies in crypto. that has been positive and rewarding for us to see as well. david: so you told your parents you were going to start a cryptocurrency exchange. what did they say? brian: well, i don't think they quite understood what it was at that moment. um, and my mom asked me if i was going to have health insurance, which, you know, i learned, you know, even if you're creating a new company, you can pay for your own health insurance, and there were little things like that that made her sleep better at night. but, i think ultimately, they trusted me and supported me, even if they did not quite understand what it was. and they said, well, you know, if this does not work out, hopefully you can get another job and he will be fine. they sort of knew i was always going to try new things like this. it was not worth trying to talk me out of it at a certain point.

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ahhhhhh ahhhhhh ahhhhhh david: so what do you say to some of the old line investors, meaning the people my age, or older, or slightly younger than me, who say that cryptocurrency really serves no useful social purpose, and all cryptocurrencies will go to zero ultimately? how do you respond to them? brian: yeah, well, look, i think there is a long history in technology of bubbles being created and then corrections. and, you know, there are hype cycles and doom cycles. and this has been true, obviously, with the internet in recent memory, but even if you go back to the railroads and the telephone and all these things, studying the history of this, you see that when a big technology innovation happens, early adopters come in. you see a bubble form. there is often times drastic

exuberance, and then a correction happens. ultimately, there is a breakthrough. sometimes it takes a decade or more for these benefits to come to fruition. so, that is exactly what is happening here with cryptocurrency. one in four u.s. households have now used cryptocurrency. it is not a niche thing. it does tend to skew toward a younger audience. so sometimes people who grew up, and their whole career was in traditional financial services, it is hard for them. this is the innovator's dilemma, right? if people are familiar with the clay christiansen book. it is hard for people to see this new thing coming along and seeing what the disruptive potential could be. and sometimes there is a little bit of blindness with that, but nevertheless, the change is happening, and more people are using crypto through every cycle that happens. david: well, before you started the company or while you were starting your company, coinbase, did you buy some cryptocurrency for self to show you were a believer in it? or did you not want to have a conflict by owning some of these cryptocurrencies?

brian: i mean, i really didn't have much money when i started coinbase. you know, i had just left airbnb. i had a little bit of money saved, but i wanted to exercise my options at airbnb when i left. and that actually almost cleaned out my bank account. i had $3000 or $4000 left over when i started coinbase. so, you know, i bought a little bit of bitcoin early on, but we are talking about a thousand dollars or something in that range. for the first five years or -- i mean actually, still to a large degree to this day, myself and other early employees, we took our salary in bitcoin, so you can imagine that had some interesting appreciation value. david: right. brian: we had to sell a lot of it to pay rent and things like that, so it was not like we were able to hold all of it, but yeah, they are definitely what -- there was definitely some appreciation there, but i wish i had more money in the early days, for sure. david: ok, so how do you respond to the idea many people don't know what they are doing when they are buying cryptocurrencies? they're not that well-informed, they're very young, and they're going to wind up losing their money because they are not

experienced? how do you respond to that concern? brian: i think that is a valid concern across any type of investment that people might make, not just in crypto, but in stocks and in everything. my perception is we do need more clear regulation that is crypto-specific. crypto businesses like coinbase were already regulated like a traditional financial service. and we have a cftc license and we are registered with fincen and have a new york that marked license and money transmission licenses, and that is just in the u.s., but i think we need more crypto-specific regulation in the u.s., both around stablecoins, how centralized exchanges and custodians are coming you know, the best practices they should have in place around audits and not co-mingling funds. many of those things we are already doing. and the big piece will be getting clarity around what is a commodity, what is a security, what is a stablecoin? and we need an updated version of the howey test which is something the sec uses that applies more to cryptocurrency. so there is a lot of legislation being put through congress now, and coinbase has been very active in d.c., working with

policymakers there. there is strong bipartisan support in the u.s. to get clear crypto regulation. the ftx situation created a little bit of a delay in the legislation i was hoping was going to be getting passed the next quarter or so, but i think within the next year we can hopefully get something in the u.s. and go for the rest of the g20 as well. david: sam bankman-fried was well known for giving money to politicians as campaign contributions and lobbying members directly on capitol hill. do you go to capitol hill very much to lobby directly for legislation of one type or another, or are you very involved in political contributions? brian: so, i go to d.c. historically, i have gone maybe two or three times a year. i imagine that may be more frequent in the next year or two. um, we have made small donations to certain candidates that are pro-crypto. but just standard stuff like $5,800 or these basic minimums. we have never made any kind of donations on the scale sam bankman-fried was doing through these large pacs.

part of it is how the game is played. you need to sort of make relevant donations. that is what all public companies do around policy issues. but it does seem like the way sam was doing it, where he was so visible in d.c., there was such a large amount of money. i think he was the second largest donor to the democratic party or something like that. it does seem like it was happening at a different scale. and, you know, i think there are some serious questions to be asked now about should some of that money be clawed back because it appears it was stolen from customers. david: so when you come to washington and you meet with members of congress, do they really understand cryptocurrencies, or you have to educate them a fair bit? brian: when i first started going to d.c., maybe eight or nine years ago, i think many of them did not understand crypto at all, and there were a lot of very basic conversations. i think that today, probably 80% of congress, maybe 70% to 80%, understands the basics and the potential of the technology.

it has a lot of innovation potential which you want to preserve, but it also has some risks. and unfortunately, it has attracted some bad actors to come into this industry to profit from it. so they recognize the balance, the need for both clear regulation and preserving the innovation potential. there is still probably 20% of congress where they are either just very hostile to it or just ignorant of it, but it is not the majority view at this point. i have actually been pleasantly surprised to see strong bipartisan support to get clear regulation, but help this industry grow, you know, here in the united states, in the financial center of the world, as opposed to it being built in these havens or offshore jurisdictions where we have seen that customers can get hurt, including u.s. citizens who may be attracted to those kind of products. david: suppose i say i listen to your interview and i would like to buy some cryptocurrencies. what would you recommend to somebody who does not know much about crypto about what they do

to get educated, and would you recommend to someone who is a young professional, and he or she has a modest amount of money in the bank, would you they put a specific amount in crypto? what would you recommend to people who want to invest in crypto? brian: we are not a registered investment advisor. i have to be a little careful. we're not giving investment advice to people. what i do personally, and what i would tell people personally is, if this is something new, don't invest in anything you don't understand. and if you want to learn about it, you can put 1% of your net worth into it, or something like that, that you would be ok if it all went to zero. but, um, if it is not, then that is a way for you to dip your toe in the water and hopefully own a little piece of the crypto economy that is happening more and more on the internet for the next five or 10 years. so, um, i am more in the mindset of -- personally, i don't actively trade crypto. i am more of a long-term holder. i just try to help the company build good products and

services. so i am not like an active trader of crypto personally. david: so for somebody that is a young person watching who would say, i want to be brian armstrong, i want to be a person who starts a company, very successful, a leader in his industry, what would you recommend is the skill set or the kind of things somebody should do to become you? brian: well, it is an odd question. i'm sure some people want to do that. not everybody wants to do that, but for the people who do, number one is study engineering, science, math, stem. i think that is the language of our future that you can have the most impact. and then i would say try building companies. i think that building technology companies is probably one of the best levers we have to improve the world, regardless of what problem we are talking about, whether that is climate change or fixing education, health care, anything like that. so, and, you know, starting companies is hard. i started a number of companies that did not work or they were barely successful in some small way.

and it was, you know, coinbase is probably the 10th idea i had that i tried and that ended up working really well. um, but there are others i hope to create in the future. maybe some will work, some will not. you have to be ok with failures and setbacks along the way. ♪

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