What s up guys! It s Jason here and welcome back to my YouTube channel, Cryoto Insight.
Coinbase s recent IPO saw the cryptocurrency exchange close its very first day of trading
on NASDAQ as COIN with a market cap of approximately $62 billion. It s every entrepreneur s dream
and it s even more incredible when we think back to 2011, when Coinbase founder and CEO,
Brian Armstrong, was an Airbnb software engineer. What s now the leading, mainstream cryptocurrency
exchange started out as Armstrong s solution to sending money via cryptocurrency securely
overseas. As of this year, Coinbase has 56 million registered users and processes trades
for $335 billion per quarter. So, how did Coinbase grow from Armstrong s late-night
project to the blazing success it is today? In this video, I ll break it down What is
coinbase, how does it work and the rise of coinbase today and the future of crypto with
the platform. By the end, you ll be a coinbase expert.
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Thanks for doing that and now let us continue on with what happened to coinbase.
Solving a Problem
Like many other entrepreneurs who turn out successful, Armstrong set out to solve a problem
he had noticed while working his day job. Having spent a year living in Buenos Aires,
Argentina to think about what he wanted to do with his life, Armstrong also had the chance
to witness hyperinflation first-hand. Coincidentally, while at Airbnb, he noted that the company
often had issues sending money securely to landlords in Latin America. He described that
process as having, High fees...long delay...opaque. We d try sending money to somebody in Uruguay
and didn t know how much would show up on the other side. In other words, it was inefficient
and was in sharp contrast to the more transparent and efficient financial system of the US.
Around the same time, Armstrong had an epiphany after reading the then-recently published
online manifesto by Satoshi Nakamoto that introduced bitcoin as a non-mainstream, but
reliable digital-only currency. Armstrong never joined the bitcoin mining craze, but
he saw an opportunity to create a transparent and efficient way to allow bitcoin and other
vetted cryptocurrencies to be traded. Creating that solution meant Armstrong used his coding
skills after Airbnb hours to build Coinbase. In 2012, a $150,000 grant from Y Combinator,
the famously selective and successful California start-up incubator, persuaded Armstrong to
quit his day job. Armstrong finally had the financial breathing room to focus full-time
on his venture. Luckily for him, Fred Ersham, an alum of Goldman Sachs, also joined Airbnb.
Ersham s vote of confidence allowed Armstrong to continue building out and refining the
product, while also lending credibility to the start-up. It meant Coinbase had a fighting
chance of persuading banks to wire money through it. In fact, as if out of a Silicon Valley
movie, Ersham and Armstrong actually met through Reddit.
Growing a Company
Coinbase started in earnest from a two person company of Armstrong and Ersham from a two
bedroom apartment that they even shared with another company. However, in the first two
years of it being in business, it grew to more than 1,000 employees. While it has only
gone public in 2021, it s ability to scale quickly has been fueled by several rounds
of venture capital investment. In 2013, it received its Series A investment of $5 million
from Union Square Ventures, as well as $25 million that same year from well-known VCs
Ribbit Capital and Andressen Horowitz. In 2015, Coinbase continued to make strides as
the preferred bitcoin exchange for companies ranging from Overstock to Expedia to Time
Inc and Dell. It also became the cryptocurrency processor for traditional payment companies
such as Stripe and PayPal. In 2015, Coinbase s demonstrated ability to push bitcoin into
the mainstream played a role in it securing even more funding of $75 million from several
banks, the New York Stock Exchange (NYSE), and venture capital firm Draper Fisher Jurvetson.
Continuous investment from the best-of-the best in venture capital names and even the
NYSE seemed to indicate that bitcoin was becoming more accepted among financial professionals.
It probably didn t come as any surprise to people in the know then, that in January of
2015, Coinbase began to offer Coinbase Exchange, for professional bitcoin traders. In 2016,
Coinbase changed the name of Coinbase Exchange to Global Digital Asset Exchange, and in 2021,
changed the name again to Coinbase Pro. Regardless of the name, the underlying message was clear:
Coinbase was trustworthy to not only amateur retail investors, but for people who traded
for a living.
Coinbase continued to see its growth in terms of revenue and users. In the second quarter
of 2018, for instance, Coinbase had 1.2 million users trading $12.9 billion, while by the
first quarter of 2021, it had more than 7 million users. Probably key to that growth
was Armstrong s unwavering commitment to make Coinbase and bitcoin legitimate and abide
by IRS and SEC rules, rather than challenge them. While some Coinbase users probably viewed
bitcoin and other cryptocurrencies as a challenge to the mainstream, Coinbase did comply with
the IRS 2017 order for the exchange to report any users who made transactions of more than
$20,000. That led to Coinbase telling about 13,000 customers in 2018 that they would,
indeed, be supplying the IRS with personal information such as taxpayer ID, birth dates,
historical transaction records, and names. It should have become clear from that point
on to all users that Coinbase was and intended to be the mainstream and legitimate cryptocurrency
exchange trusted by the IRS, SEC, and governments around the world, not an underground movement.
Guiding Principles of Growth
Armstrong has always been clear about his principles and why he even got into the crypto
business. No, it s not only to make a lot of money. Rather, Armstrong explains that,
I wanted the world to have a global, open financial system that drove innovation and
freedom. A lofty-sounding idea that would sound pretentious if it came from anyone except
Armstrong, who is actually doing it. Coinbase s strategy to cryptocurrency dominance seems
to be working with the system to change it, rather than protesting or revolting.
Ultimately, Armstrong wants individuals to be able to send or receive cryptocurrency
in a border-free world. It would mean that individuals are less reliant on banks, corporate
payment processors, and governments when deciding what to do with their money. Ironically, Coinbase
functions much like a bank, where its customers can store or withdraw money. It even has insurance
coverage from one of London s biggest banks --- Lloyd s. Like a bank, it has its own security
analysts and specialists, with about 41 employed as such in 2020, working to ensure that Coinbase
justly maintains its reputation as the most secure way to currently trade crypto.
The disruption of institutional and centralized finance, for now, involves coinbase developing
its line of corporate businesses who want to use blockchain technology. Chief Operating
Officer, Emily Choi, has grown that line of business, persuading more firms both in the
US and in China, to begin adoption and tweaking of artificial intelligence with cryptocurrency
trading.
In addition, Coinbase has been successful in being a leader in the debit card space.
In 2020, it was the first among its peers to have the ability to issue debit cards through
credit card company, Visa. The Coinbase-Visa partnership cuts out the middle-person who
would otherwise need to issue the debit card and accordingly charge a fee for doing so.
It makes it cheaper for the end-user and grants a sense of legitimacy to bitcoin, cryptocurrency,
and most crucially, Coinbase. Just how vast of a network does that legitimacy create?
It allows Coinbase debit card holders to use their card at 46 million locations, including
ATMs, that accept Visa.
As it works hand-in-hand with institutional forces, it s also changing the course of institutional
attitudes towards what counts as money and how it should be regulated. For instance,
last month, Coinbase launched the Crypto Council for Innovation with financial giants Fidelity
and Square, to have a well-funded and united stance on how to best support the crypto industry.
Only a few days before it went public, Coinbase also joined the DeFi Alliance, a Chicago-based
organization that specializes in providing support to decentralized finance (DeFi) start-ups.
Coinbase made it clear that it had not accepted funding from the DeFi Alliance, but that they
did share a mission in wanting to grow the DeFi industry legally.
Future Plans to Continue Growing
Brian Armstrong and his team want to continue growing Coinbase by expanding its international
presence, deepening its hold on the American market, and seemingly diversify its array
of products and services. As of 2021, Coinbase is an operational platform in more than thirty
countries, ranging from Italy to Malta and Switzerland.
In terms of trying to monopolize the American market, Coinbase could go about it in several
ways. The most obvious of which is simply by increasing the number of crypto products
offered on the platform, with Coinbase currently supporting 90 crypto assets. However, this
may be slow going as Coinbase has built its reputation as being secure and trustworthy,
partially because it is selective about which crypto assets it supports. It has been straightforward
that it lists crypto by being selective and deliberate, with the addition of new crypto
assets also being on a jurisdiction by jurisdiction basis. In an effort to streamline its process
and become as inclusive as possible while also being meticulous, Coinbase even created
an Asset Hub. It s a standardized way of allowing any crypto asset issuer to apply for approval
and check if their application has been approved or denied. It s part of Coinbase s overall
attempt to fulfill it s directive of, listing every compliant asset possible, according
to Surojit Chatterjee.
In addition to adding other crypto assets, Coinbase could also be considering creating
its own tokenized assets. Coindesk points out that in its S-1 filing, Coinbase alluded
to that possibility by writing that, ...our board of directors will be authorized, subject
to limitations prescribed by Delaware law, to issue common stock in one or more series...in
the form of blockchain-based tokens. Coinbase itself is not legally authorized to do so
because it is not licensed as a broker-dealer or an alternative trading system. However,
its subsidiary, Coinbase Capital Markets, does happen to be a SEC-registered broker
dealer, making a Coinbase crypto-asset a possibility. With its strong branding and marketing recognition
as a reputable platform, any Coinbase crypto-asset would likely face less scrutiny and skepticism
than meme assets like Dogecoin in its initial stages, at least.
Coinbase could also begin to offer ways for developers worldwide to integrate Coinbase
as a payment processor into their applications. It also fits into the main ways that Coinbase
already makes money: transaction and subscription fees. So much so that as of 2020, transaction
fees actually made up 86% of its revenue. In contrast, subscriptions and services accounted
for 4%. Those subscription and service fees are earned whenever Coinbase holds assets
under custody and validates crypto transactions. The company also earns licensing fees from
its data analytics tool, which monitors blockchain transactions. Mostly law enforcement and financial
institutions like banks use it. Though it s currently a miniscule percentage of its
revenue, it has grown 126% year over year. It s a one-time investment in its own brand
and software that could yield more revenue year after year, and allows Coinbase to have
more diverse revenue streams.
Key Takeaways
And that brings us to today. With the success of Coinbase, even if the company and its leadership
took its time to diversify its offerings and expand further intentionally, it would still
be a success story. Brian Armstrong started out as a 9-to-5 worker, albeit at a highly
coveted company, who made it. Let s think about every office worker who s wanted to
strike out on their own, but hasn t yet, or who has, but couldn t remain afloat financially.
Coinbase withstood the shock of bitcoin having gone to almost $20,000 in 2017 and then losing
almost a third of its value in just one day. In 2018, it sank to $3,122. Many Coinbase
users and investors probably doubted the long-term future of the company. At that time, even
a third of its own employees left. Armstrong, employees, investors, and users who stuck
it out may feel the better for it since bitcoin reached an all-time high of $61,712 this past
year. Whether or not Coinbase will ultimately help a decentralized financial system come
to fruition remains to be seen, but the platform has already helped a lot of regular investors
become far wealthier than they could have imagined without bitcoin and Coinbase. There
is also still the underlying problem as the common saying goes, Not Your Keys, Not Your
Coins, so the successful future of coinbase is not guaranteed as decentralized exchanges
take off.
So with that said, thank you so much for watching my video. There was a significant amount of
research and production that went into making this video possible. As this is a brand-new
YouTube channel I just started this year - if you enjoy videos like this, please click the
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As always, stay happy and healthy and stay tuned for another episode of Company Insight
next week.