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Bitcoin’s Guardian Angel: Inside Coinbase Billionaire Brian Armstrong’s Plan To Make Crypto Safe For All

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Near the foot of San Francisco’s California Street stand the august stone pillars of a bank dating to the 19th century. A few paces away sit the offices of Coinbase, the largest American exchange for cryptocurrencies like bitcoin. It’s a beehive of software engineers and young marketing executives. There, the worlds of by-the-books banking and crypto-anarchism collide. 

In style and philosophy, Brian Armstrong, the 37-year-old billionaire cofounder and CEO of Coinbase, is in the camp of the financial anarchists. He sits, jammed alongside lieutenants, in a row of tiny desks resembling library carrels. He wears a black T-shirt, black pants and shiny white sneakers. He talks about a brave new world in which we are liberated from the shackles of giant banks and government-controlled money supplies. During an expansive interview, this usually reserved and press-shy entrepreneur declares why he got into this business: “I wanted the world to have a global, open financial system that drove innovation and freedom.”

In following a business model, though, Armstrong fits in with the pinstriped financiers working down the block. Eight years after its start, his firm has opened 35 million accounts, presides over $21 billion of assets and is on target, we estimate, to top $800 million in revenue this year.

That success comes from acting like a bank. Coinbase draws in customer funds via bank wires. It stores its assets—numerical keys that unlock coins—in vaults. It boasts of insurance coverage from Lloyd’s of London. It has a security staff of 41, including an Iraq War veteran assessing perimeter risks and a Ph.D. cryptographer doing the same for mathematical assaults

The selling proposition here is security—security conspicuously lacking at some of the exchanges with which Coinbase has competed. The Mt. Gox exchange in Japan went bust in 2014 after hackers spirited away coins worth $480 million. Customers of QuadrigaCX, which was one of Canada’s largest exchanges, have been unable to retrieve $150 million in crypto since the founder supposedly died suddenly in December 2018, holding the only set of keys to unlock their money. They now want the body exhumed. 

Chief Operating Officer Emilie Choi has led Coinbase Ventures to invest in 60 blockchain and cryptocurrency startups. ETHAN PINES FOR FORBES

In order to capture a gilt edge, though, Armstrong has had to veer away from the antiestablishment ethos that got bitcoin going. He plays ball with government inspectors, for example. 

The Coinbase compliance staff, already numbering 55, is expected to grow to 70 by quarter’s end. They comb through transactions looking for money laundering. They will conform to a controversial new rule that mandates a paper trail when customers move coins from one exchange to another. Coinbase dutifully sends 1099-K reports to the IRS on traders who in one year do 200 or more trades involving a combined $20,000 or more in proceeds. 

Given all this snitching, how does Coinbase appeal to diehard crypto fans? One way is by having a menu that includes 26 newer currencies, some of which are explicitly designed to offer more privacy than bitcoin does. The other is a service, introduced in August 2018, that enables a customer to move bitcoin into a personal wallet exempt from know-your-customer and anti-money-laundering regulations.

“If you are an individual and you want to store your own cryptocurrency, you’re not a financial service business,” says Armstrong, mindful of any U.S. Financial Crimes Enforcement Network cops who might be listening. “And there are companies, including us, who provide tools for people to store their own cryptocurrency and use it.” 

orn near San Jose to engineer parents, Armstrong displayed an entrepreneurial streak as early as grade school. He recalls being hauled into the principal’s office on charges of operating a candy-reselling venture on the playground. The business flings continued with a scheme to resell used computers and, after he earned a master’s degree in 2006 from Rice University, a startup that matched tutors to students. He worked on the education venture while living in Buenos Aires. “I had just decided, I’ve never been to South America. I want to travel for a year and try to work on this remotely as an adventure. Figure out what I want to do with my life,” he says. “[It] was an interesting experience to see the financial system in another country like that, that had gone through hyperinflation.” 

Later, as a coder at Airbnb, Armstrong had his crypto epiphany. His employer was sending money to landlords in Latin America. He describes the process this way: “High fees . . . long delays . . . opaque. We’d try sending money to somebody in Uruguay and didn’t know how much would show up on the other side.” 


“I wanted the world to have a global, open financial system that drove innovation and freedom.”

Brian Armstrong

In 2010 he read the manifesto, published by a person (or persons) under the alias Satoshi Nakamoto, that proposed bitcoin as an underground currency. Its transactions are recorded on a ledger called the blockchain, maintained in duplicated computer files by a band of self-appointed guardians called nodes. Disputes about transactions and ground rules are resolved by majority vote. The nodes are kept honest, and trouble-makers at bay, by requiring a participant in the network to engage in some arithmetic busywork before certifying a batch of transactions. A node who completes the arithmetic task is awarded a few new coins. 

The busywork, called mining, did not interest Armstrong. But he did see an opportunity in the business of safeguarding the keys to the coins and setting up transactions. Anybody can do that with some readily available software, but if you mishandle the protocol your coins will be stolen or lost. 

Armstrong took a flyer on bitcoins, buying $1,000 worth at $9 a coin. The price sank to $2. He kept the faith. 

Working weekends and late nights, Armstrong wrote code in Ruby and JavaScript to buy and store coins. He was doing for the bitcoin network what an earlier generation of programmers had done for the internet by creating browsers. 

It was fun. Was it worth quitting his day job? A $150,000 capital infusion from Y Combinator, source of seed funding to Airbnb and many other illustrious startups, answered that question in 2012. Fred Ehrsam, a Goldman Sachs alum, joined the venture and gave Coinbase credibility with the banks that would be wiring money to it. 

Venture capitalists, led by Andreessen Horowitz, have showered half a billion dollars on Coinbase. “It’s like if Google made Gmail for bitcoin,” says Chris Dixon, an Andreessen partner who serves on the Coinbase board. “And that’s literally the way they described it.” 

Its last round of funding valued Coinbase at $8.1 billion. Ehrsam, 31, has since left Coinbase but retains a stake; he keeps busy arranging venture capital for startups that aim to use cryptocurrencies and blockchains to build transaction networks for corporations. 

Chief Financial Officer Alesia Haas admits that Coinbase’s monthly profitability swings with price of bitcoin. ETHAN PINES FOR FORBES

The essence of what Armstrong has in mind can be captured in the word defi, which stands for decentralized finance or, if you prefer, defiance of authority. Defi is supposed to reach into all aspects of wealth; someday, supposedly, blockchains will support trading, peer-to-peer lending and loan collateralization without the usual financial institutions as intermediaries. Intriguingly, Coinbase has a broker/dealer license. Could it someday end-run stock exchanges? Maybe. 

If the grand vision for Coinbase is to be a gateway to decentralized finance of all sorts, the revenue for now is coming from more mundane things like trading commissions. Coinbase allows amateurs to go in and out of crypto, or swap one crypto for another, for fees and spreads that come to 2% or so. At archrival Binance, these small-fry speculators would pay 90% less, but they’d be dealing with a firm that mostly inhabits the shadowy world of offshore finance. Malta-based Binance has only a small presence in the U.S. 

Serious traders get a better deal. They use Coinbase Pro, a different platform that replicates the bid-and-ask order book of a stock exchange; here the combined buyer and seller commission ranges from 1% for small trades down to 0.07% at the $100 million level. 

Somewhat more than half of Coinbase Pro’s trading volume comes from algorithmic trading. Furious trading doesn’t look socially productive, but it lubricates the capital markets. Bid/ask spreads on bitcoins, now worth $9,300 apiece, are measured in dimes. In percentage terms, the crypto spread competes with the spread on the very liquid SPDR S&P 500 ETF. 

The trouble with commission income is that it’s extremely sensitive to crypto prices. When bitcoin collapses, as it did in 2018, trading volume shrinks and the dollar revenue from each coin goes down. 

So Coinbase is trying to create stable revenue streams to balance out the commissions. A big one, says Alesia Haas, the company’s chief financial officer, is coming from a custody operation for institutional clients. This digital warehouse, greatly expanded by Coinbase’s acquisition last August of Xapo’s institutional business, holds $8 billion of bitcoins and other cryptocurrencies.

“We’d try sending money to somebody in Uruguay and didn’t know how much would show up on the other side.”

Brian Armstrong

A new revenue source is “staking.” Here, the holder of certain coins, such as tezos and EOS, collects fees for confirming transactions on the network. There is no electricity-gobbling busywork calculation as with bitcoin, but some finesse is needed, because messing up the recipe causes the player’s stake to be confiscated. Coinbase handles the details and splits stake revenue with its customers. It’s rather like a stockbroker lending out your margined securities to short-sellers, except that there you’re unlikely to get cut in on the revenue. Click here to read more about the tax implication of crypto investing.

Another Coinbase product, called USD Coin, developed in partnership with cryptocurrency exchange Circle, lets customers put up U.S. dollars in exchange for a cryptocurrency that has the same value but can be traded more quickly. The dollars in question earn interest that Coinbase shares with its customers. 

Coinbase says it handled $80 billion of transactions last year. (Binance boasts of a daily volume that annualizes to $1 trillion.) Is that enough for a profit? CFO Haas allows that the bottom line flits in and out of the plus column from month to month. But, she adds, if you exclude non-cash items like charges for goodwill amortization and the hypothetical value of employee options, Coinbase has been solidly in the black for several years.

In a firm fixated on growth, the money goes out the door almost as quickly as it comes in. Coinbase has quadrupled its staff to 1,000 since hiring chief operating officer Emilie Choi two years ago. At headquarters, construction workers can barely keep up with the new hires streaming out of the onboarding room. There are offices in New York, Dublin and Tokyo. And then there are bets on the future. 

Choi, who came to Coinbase after doing business development at LinkedIn, has taken the venture capital portfolio from nothing to 60 firms. It includes Bison Trails in New York City and Alchemy in San Francisco, both aiming to help corporations use blockchains, and Amber Group in Shenzhen, China, which is applying artificial intelligence to cryptocurrency trading. Says Choi: “A lot of the stuff that we’re doing in the venture side of the house is things we probably wouldn’t do as a principal but that we think are really interesting.” 

Armstrong adds, “These venture bets could be huge, but we don’t know if they’re gonna work. And they actually should have a pretty high rate of failure. Otherwise, we’re not thinking big enough.”

Brian Armstrong at Coinbase’s new headquarters in San Francisco’s financial district. 
JAMEL TOPPIN FOR FORBES

Crypto has been condemned as rat poison by Warren Buffett, as a fraud by Jamie Dimon and the mother of all scams by doomsday economist Nouriel Roubini. Where’s the payoff to the economy? 

It’s coming, Armstrong says. He posits a future in which thousands of startups use crypto to raise capital in a global marketplace no longer controlled by Wall Street firms. Within a decade, he predicts, the number of people participating in the blockchain economy will explode from 50 million to 1 billion. We are destined to enjoy a financial system that is “more global, more fair, more free and more efficient.” 

There is an emotional component to the quest for financial liberation. Coinbase’s newly hired chief product officer, Surojit Chatterjee, talks about what happened when India all but destroyed currency holdings in a surprise attack on the money supply. His 80-year-old father spent five hours in line to retrieve the equivalent of $30.

Many countries, including Mexico, Argentina, Russia and Cyprus, have perpetrated wealth confiscations of this sort, in which some store of value is frozen or forcibly converted into something less valuable. The U.S. is an offender, too. FDR seized gold in 1933, replacing it with pieces of paper that have since lost 95% of their value. 

Like gold, bitcoin is too cumbersome to be used as a means of exchange. The convoluted mechanism for adding transactions to the ledger means it takes 10 minutes to confirm a payment and that only four transfers can take place per second. You can’t run a global economy on that. 

Solutions are on the way, Armstrong says. One is to consider bitcoin a store of value and add a layer atop it for transactions, much the way a quiescent base of vault currency and Federal Reserve deposits supports a torrent of checks and electronic payments in the banking system. The other is to create new digital currencies built with transaction speed in mind. Among the ones Coinbase supports are litecoin and bitcoin cash. 


Coinbase has a broker/dealer license. Could it someday end-run stock exchanges?


In December, Coinbase got a first-of-its-kind authorization from Visa to issue debit cards that allow holders to make purchases at the 46 million locations (including ATMs) that accept Visa, and have the money drawn from a Coinbase account holding cryptocurrencies. Initially, these debit cards will be available to residents of 29 countries, but not the U.S. Still, Coinbase could eventually develop its Visa authorization into yet another business line: issuing credit cards on behalf of other crypto exchanges. 

Banks, meanwhile, aren’t missing the opportunity to redesign payment networks using old-fashioned dollars. Zelle, an instant-payment system run by a consortium of big banks, ran $187 billion of traffic last year, putting it well ahead of PayPal’s Venmo. Zelle is mostly aimed at retail clients doing things like splitting dinner tabs, but has handled transactions as large as $3.2 million. 

No question, disruptive technology is coming to the banking system, and Coinbase will be a part of it. It is the only outfit to appear on both the Forbes Fintech 50 and Blockchain 50 lists. But Armstrong is going to have plenty of competition, starting with central banks, which are plotting their own digital currencies. Facebook hasn’t given up on Libra, which is intended to be a globally accessible digital currency backed by assets like dollars and euros. 

Let a thousand flowers bloom, says Armstrong. “When I started Coinbase, most people thought [blockchain] was crazy. Governments and the old guard, the blue chips, are now investing in this technology. So let’s just say that’s a very good thing.”

Cover Photograph by Jamel Toppin for Forbes.

Michael del Castillo, Forbes Staff, Crypto & Blockchain

William Baldwin, Senior Contributor, Investing

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Apple Is Donating 9 Million Masks To Combat The Coronavirus

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Topline: Apple will donate 9 million N95 protective masks to combat the coronavirus, Vice President Mike Pence said on Tuesday, making Apple one of several California tech companies pitching in as hospitals across the country report a shortage of protective gear.

  • Pence thanked Apple for agreeing to donate 9 million N95 respirator masks to healthcare facilities across the country during a press briefing on Tuesday.
  • Pence’s remarks come after Apple CEO Tim Cook tweeted over the weekend the company was “working to help source supplies for healthcare providers fighting COVID-19” and “donating millions of masks for health professionals in the US and Europe,” but did not offer more specifics.
  • N95 respirators are masks that form a protective seal around a wearer’s mouth, filtering  out at least 95% of particles in the air, according to the Centers for Disease Control, which makes them necessary to protect healthcare workers from being exposed to the disease from patients.
  • Facebook has also said it is donating its stockpile of 720,000 masks purchased during the California wildfires last year, which degraded the air quality in the San Francisco Bay Area.
  • Apple did not immediately respond to a request for comment from Forbes asking if all of the donated masks were stockpiled because of the wildfires or if the company got them from somewhere else.

Chief critic: Teddy Schleifer, a reporter at Recode, wrote that health systems shouldn’t rely on the generosity of big tech companies to make up for the failures of the federal government. 

“But there is a risk in relying on corporate philanthropy—rather than the government—in solving this problem. For starters, it depends on the voluntary generosity of these companies to deal with an unprecedented emergency, an altruism that could vanish at any time,” he wrote.

Crucial quote: “And I spoke today, and the president spoke last week, with Tim Cook of Apple. And at this moment in time Apple went to their store houses and is donating 9 million N95 masks to healthcare facilities all across the country and to the national stockpile,” Pence said.

Key background: Apple is one of several California tech companies to give away N95 masks. In addition to Facebook, Salesforce, Tesla and IBM have also announced mask donations.

News peg: Doctors and nurses are sounding the alarm that they don’t have enough masks to protect healthcare workers. Not only does inadequate protective gear put important frontline health workers at risk, public health experts say, any situation endangering medical personnel may only further depletes the U.S. health system which already doesn’t have enough capacity to handle a surge in cases. State officials in New York and Illinois have criticized President Donald Trump for not stepping in to force companies to manufacture masks or allocate masks from private companies to ensure that states don’t outbid each other for the same supplies.

Rachel Sandler, Forbes Staff, Breaking News

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Video Games Are Being Played At Record Levels As The Coronavirus Keeps People Indoors

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Topline: With school closures, mandatory work-from-home policies and lockdowns taking place in the U.S. as a result of the Covid-19 coronavirus pandemic, gaming has seen higher engagement, especially over this past weekend.

  • Steam, the most popular digital PC gaming marketplace, reached new heights Sunday, drawing a record 20,313,451 concurrent users to the 16-year-old service, according to third-party database SteamDB.
  • Counter-Strike: Global Offensive, released by Steam-owner Valve in 2012, seems to be the top beneficiary of the increased engagement, breaking it’s all-time peak on Sunday with 1,023,2290 concurrent players, topping its previous peak last month by a million, which itself beat the record set in April 2016.
  • Like other esports, CS:GO has had to cancel events due to the virus, particularly the Intel Extreme Masters in Katowice earlier this month, though its peak viewership reached over a million, making it one of the most watched tournaments in the esports’ history.
  • Activision Blizzard’s new free-to-play battle royale spinoff Call of Duty: Warzone, launched March 10 on PC, Xbox One and PlayStation 4, is also likely benefiting, drawing in a staggering 15 million in three days, besting the record 10 million in three days by last year’s battle royale sensation Apex Legends.
  • These new heights follows similar effects of the virus on China and Italy: Telecom Italia’s CEO told Bloomberg it saw a 70% increase in traffic over its landline network, with Fortnite playing a significant part, while Chinese live-streaming service Douyu experienced increased viewership of the country’s most popular games, according to market analyst Niko Partners.
  • While gaming was considered “recession proof” during the 2008 market crash, stocks aren’t immune to the current historic drops: software developers like Activision Blizzard are facing a 9% decrease in price year-to-date, while hardware companies that rely on Chinese manufacturing like Nintendo are seeing bigger drops of 24%.

What To Watch For: If these records keep rising as the closings and lockdowns continue. Arriving this week is Nintendo’s long-awaited Animal Crossing: New Horizons for the Switch console, a relaxing “life-simulator” that’s set to have a big day with many fans not-so-jokingly asking Nintendo to launch early.

Surprising Fact: Plague Inc., a game that tasks players in creating a virus that wipes out humanity, surged in popularity late January, becoming the top-paid game on the Chinese app store at one point, but the game has now been removed in China at the direction of the government.

Further Reading: So You’re Suddenly Working From Home And Want To Try Gaming? Here’s How To Get Started.

Matt Perez, Forbes Staff, Innovation


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Amazon Hoping To Hire 100,000 New Employees To Deal With Coronavirus Demand

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Topline: Amazon announced Monday that it would be opening 100,000 new full-time and part-time positions to deal with increased buying demand as people practice social distancing during the Covid-19 coronavirus pandemic.

  • The company will also increase pay by $2 in the U.S. from its current $15 an hour, £2 in the UK and €2 in Europe for those working in fulfillment centers, transportation services, stores or people making deliveries, amounting to a total of $350 million.
  • Amazon last Friday shared that the increase in online commerce has unsurprisingly resulted in shortages for household essentials and delays in shipment times.
  • Monday’s statement also noted that “We continue to consult with medical and health experts, and take all recommended precautions in our buildings and stores to keep people healthy. We’ve taken measures to promote social distancing in the workplace and taken on enhanced and frequent cleaning, to name just a few.”
  • Last week, Amazon told all of its employees to consider working from home if they could, according to CNBC; for its fulfillment centers and delivery services, it also launched a $25 million relief fund that lets workers diagnosed with the coronavirus apply for  grants equal to two weeks pay, as well as unlimited unpaid time off for all hourly employees until the end of March.
  • Amazon currently employs 250,000 people at 110 fulfillment centers.

News Peg: According to Johns Hopkins, 181,200 people have been infected with the coronavirus, with 7,115 deaths reported. School closures, lockdowns and curfews have been put in place to promote social distancing, with the White House today recommending to avoid groups of more than 10 people.

Matt Perez, Forbes Staff, Games

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