Like so many other entrepreneurs, we are fascinated by cryptocurrencies. We’re partly drawn to the technology because we believe it has the potential to cause some serious disruption in the financial sector, as well as being an interesting retail investor option.
You might recall that a few years back we interviewed Nathaniel Popper about his book Digital Gold, which chronicled the origins of Bitcoin.
Today’s guest has written what feels to us like the next logical chapter of that story.
Jeff joins us this week to talk about how the book came to fruition, crypto’s evolving place within corporate finance, the ideological battles happening within the space, and much more.
See the full transcript below
Listen to this week’s show and learn:
- How Jeff’s book came to fruition. (4:39)
- What sets Brian Armstrong apart from other Silicon Valley figures. (8:52)
- Coinbase’s mission to make cryptocurrency more accessible (20:54)
- How Coinbase differs from similar companies in the cryptocurrency space. (30:42)
- Jeff’s opinions about the future of cryptocurrency and global finance. (43:00)
Mentioned in the episode:
Before the Exit – Our New Book
Partner With Us
The Dynamite Circle
Tropical MBA on YouTube
Post a Remote Job
Kings of Crypto by Jeff John Roberts
Jeff John Roberts
Digital Gold by Nathaniel Popper
Shoe Dog by Phil Knight
Thinking Like Your Editor by Susan Rabiner
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Dan & Ian
Jeff: What China’s doing, you know, reinventing their currency as a digital Yuan is just a lot more efficient way to move money around. And they’re using that for geopolitical power in part to dislodge the US dollar as the sort of primary means of Global Exchange. And of course, you just Treasury Department doesn’t want that to happen. Because the US dollar is one of this country’s biggest strategic assets. But blockchain presents this existential threat to that.
Dan: Happy Thursday morning. Before we get started today, I just want to let you know, I’m going to zoom back in at the end with some news updates about what we’re up to, especially Dynamite Jobs. And with an investing challenge. I want to hear from you about your investing knowledge. So if you’re a visionary investor, I’d love to receive an email from you. So stick around to the end, and I’ll share with you what I’m talking about there.
Now, today’s conversation is all about crypto. And you all know I’m interested in crypto, I have holdings myself. And there’s just a variety of reasons. So many people that I respect are into it. It has this incredible potential to be a massive disrupter in, frankly, the way the world works. But also, frankly, selfishly, it’s just been one of the most amazing sort of retail investment opportunities that I’ve ever seen. But I also truly believe that not only will cryptocurrencies reshape global finance in the future, but also just create some amazing stories, one of which we’re going to tell today.
You know, a while back, we interviewed Nathaniel Popper, the author of ‘Digital Gold’, about the origins of Bitcoin just read like an incredible nail biter, which involved among other things the Silk Road drugs website, and the eventual arrest of one of its masterminds Ross Ulbricht who went under the name Dread Pirate Roberts. I mean, this is real stuff.
No wonder some people are scared of Bitcoin. And recently, I’ve picked up a book that reads in a similarly compelling narrative way about one of the key next chapters in Bitcoin the book is called ‘Kings of Crypto: One Startup’s Quest To Take Cryptocurrency Out of Silicon Valley, and onto Wall Street’. And its author is ‘Fortune’ senior writer, Jeff Roberts, who got amazing access into the crypto exchange ‘Coinbase’, which I personally use, because basically ‘Coinbase’ makes it easy to buy and own Bitcoin. Now, that can be controversial as some people feel that really if you are a true believer in Bitcoin, you should hold it for yourself. We’ll get into a little bit of that later. So for this book, Jeff interviewed many of the leading figures in the story, including ‘Coinbase’ founder Brian Armstrong. He also has some great stories from iconic figures, like the co-founder of ‘Union Square Ventures’, Fred Wilson, and ‘JP Morgan’s Jamie Dimon.
Not only did Jeff get amazing access into ‘Coinbase’, which is, you know, one of the most important exchanges in the world of crypto. But that vantage has given him what I think is a really common sense, sane perspective on all this craziness that’s happening. So in the conversation coming up, we’re going to get into crypto’s evolving place in mainstream finance, some of the ideological battles that are happening within the space, as well as Jeff’s take on why governments are simultaneously so unsettled by the concept of crypto, but also the changes they are making to address the so-called threat, also the planning to adopt the technology themselves. I really enjoyed this conversation. Jeff, as you’ll hear, tackled this story via access to the principal actors, which is not so easy to achieve, especially in this space. enormous respect for him. I appreciate him taking his time today. So let’s get into it. I started out by asking Jeff, where the idea came from.
Jeff: The genesis of the book was, I’ve covered crypto for a long time on and off. But I wanted to find a new way to tell the story. And one of my favorite business books is a book called ‘Shoe Dog’ by Phil Knight, who started Nike. And it’s an interesting account of Nike, but also a great way just to learn about the growing athletic footwear industry. So I wanted to do that with crypto, find a company that could help me tell the story of what’s going on. And Coinbase’s journey is really interesting because startups are full of kind of drama and infighting and hacking and backbiting. So it has all that, but also they did it, they became the preeminent crypto company, and in telling the story is able to tell the larger story of Bitcoin in a way that I hope a lot of people can relate to.
Dan: Was this your first big book?
Jeff: It was, yeah. I don’t recommend undertaking these things lightly. There is a lot of work. But it was a lot of fun. I’m glad I did it. Um, it grew out of a feature I wrote for ‘Fortune’ magazine a couple of years ago,
Dan: Can we take a moment to talk a little bit about your career, because a lot of our listeners are creators and writers and publishers. And so I think that they would be curious about how you took the project on, how you funded it. And why you thought it was essentially a good idea.
Jeff: Yeah, writing a book is a lot bigger endeavor than I thought it would be but people have been saying that for mid-career people, writing a book is a good way to kind of level up your career and to sort of do something new. And when I wrote the magazine feature I also had the good fortune to be approached by a literary agent who’s like, ‘Hey, there’s some potential here’. And I was like, ‘Oh, great’. And I thought, ‘Okay, cool, I’ll get some money, write a book’. It’s not that easy that what happens is you have to do a proposal. And I wrote a proposal like, ‘Hey, here you go’. And she sent a reply saying, ‘Well, nice try. But here’s what a real proposal looks like’ and sent me these documents that were like 60 to 100 pages long. So the proposal itself is almost as much work as writing a book. But once you have it the agent can sell it to publishers, and I was, you know, fortunate to get a good one in Harvard Business Review who decided to buy it.
Then when that happens, you get a contract, then they give you some money upfront, and which is good. But then you have to write the book. And if you don’t write the book, you have to give the money back. So that’s a pretty good incentive. So that’s how that came together. I spent a lot of time traveling and doing interviews, and pulling it together. But my one tip for anyone who might be in this process is momentum is such a big part of it because if you step back from it, it suddenly becomes this daunting, impossible task. But if you just go back to it every day, you kind of have some momentum, it builds on itself. And it’s even fun sometimes.
Dan: What was that key moment in the book for you, that made you feel like you had a real story on your hands and not just a magazine feature?
Jeff: I was fortunate to get access to a lot of senior executives in the financial and crypto business. And I started hearing all these untold anecdotes about the civil wars inside ‘Coinbase’, about an unreported meeting between Coinbase’s CEO, and Jamie Dimon who’s the CEO of JPMorgan Chase. So it just realized I had all these great little nuggets people hadn’t heard of before. And then it was a matter of just fashioning it into a larger arc. And there’s a very good book called ‘Thinking Like Your Editor’ out there, that like, like a lot of writers, I think, you know, I have a bit of an ego and think I know it all already, but I really didn’t. And just in terms of structuring a book, and part of it is from you know, narration momentum this and this happened, but then you have to, especially with a subject as tricky as crypto, you have to step back and explain to people what the heck this is all about. So that book, ‘Thinking Like Your Editor’ was a very good way to conceive of the different chapters and what each would do. Some are simply rushing forward telling the story, but then some are kind of ‘hit pause’ and step back and tell the larger story of how Bitcoin came to be, law enforcement’s response to it, the broader industry. So, that book was really key in helping me figure out how to go about this.
Dan: The book opens up with Brian Armstrong, who’s our main character, can you describe a little bit about him, especially in that time, pre ‘Coinbase’, what he might have been like?
Jeff: Well, I mean, Silicon Valley founders are sort of special individuals, to put it politely, and I admire CEOs, I’m not one of them never will be because they have this sort of like iron will and dedication that will just power them through anything. And Brian Armstrong certainly has that. Other CEOs are able to kind of do what they do in part by charisma, you know, people like Steve Jobs, Elon Musk are larger than life. They’re extremely charismatic. Other CEOs, like the Google founders, like Brian Armstrong or not, they are introverts, they’re nerds, they have trouble relating to people. So I think both then and now, you know, now he’s had a whole bunch of coaching, but it still hasn’t really helped him, you know, avoid these, you know, PR pitfalls. But he made up for it through sheer kind of like determination, which I sort of admired about him, because he couldn’t get by on his charm and his savvy and charming the press. He did it through just you know, relentless drive and guts.
Dan: Digging around the web a little bit, it seems like before ‘Coinbase’ Brian Armstrong was something of a lifestyle entrepreneur, like, ‘I’m happy to work from home, like, I’ve gained my personal and financial freedom’. How does someone like that, with that sort of message, go-to running a billion-dollar company?
Jeff: That’s something else that fascinates me about CEOs because I meet these people who start like, not one, but you know, two, three, four, five companies, they’ve got more money than they’ll ever need, or what’s called in the valley, ‘FU money’, and you know, I mean, if I woke up with, you know, 10 million or 15 million in my bank account tomorrow, I would do something but I would not be, you know, want to go kill myself to build a company, I’ll tell you that. So. And in Brian’s case, I mean, he started I think, like a, you know, small tutoring company with moderate success, then he was an executive at ‘Airbnb’. And I think probably watching the founders of ‘Airbnb’ made him want to have it himself because part of its power and control. And I think that’s part of what made him tick. Like other CEOs, he has a ruthless streak that helped him build what he did.
Dan: What are some examples of that ruthlessness?
Jeff: I think in the opening chapter, you know, I can’t take credit for reporting this, ‘Wired’ magazine was one who found this out, but he went to a school called ‘Y Combinator’, which in Silicon Valley is very famous. But normally, you’re supposed to do it with other founders. And he was supposed to do with this, you know, this guy he’d met named Ben Reeves, who became a successful entrepreneur in his own right. And this guy Ben Reeves actually bought a ticket to show up at ‘Y Combinator’ with him. And a couple of days before Brian was like, ‘Hey, this isn’t working out’, locked him out of all the ‘Coinbase’ accounts, and basically got him, you know, kicked out of ‘Y Combinator’, which is pretty damn cold. But he believed it had to be done. And also people on the inside of ‘Y Combinator’, were whispering in his ear to do it. So, you know, that’s sort of, you know, betrayal and ruthlessness is part of, you know, CEOs toolkit, I think, most CEOs have done something like that. But I think for other people that’s something that would keep us up all night, and you’d feel terrible for weeks. But for people like Armstrong, it’s just something you have to do and they move on.
Dan: It’s interesting, like, you know, Fred Wilson becomes a character here. And obviously, the group at ‘Y Combinator’ talking to Brian about needing to make this ruthless move. And on the internet, these people are all presenting their ideas, it feels very Kumbaya if you read Fred Wilson’s blog. But if you hear stories about him, it reminds me more of Gordon Gekko, this guy just cutting deals, like it’s sort of this interesting mix in Silicon Valley. They present this Kumbaya attitude on their blogs, but then it seems in the back rooms they’re business people. They’re absolutely focused on the bottom line.
Jeff: That’s a great observation. And I find it so funny with Silicon Valley, they are always framing themselves to this, like saving the world and anti-corporate culture and all this. And that’s where, you know, I almost prefer the New York-style bankers who, you know, will, you know, happily shot you to, you know, in the front rather than the back, and don’t pretend to be saving the world. You’re exactly right. I mean, people like Fred Wilson are ice-cold, ruthless business people. But it’s not like they don’t care about humanity or thinking about the bigger picture. But they also have this ruthless streak that is common to successful business people.
Dan: It is an interesting dynamic that emerges in the book and that you paint really nicely, this idea of like, the New York folks think the San Francisco folks just don’t know how to have fun. And San Francisco folks think the New York folks are dinosaurs. Can you explain that dynamic and why it’s so critical to the ‘Coinbase’ story?
Jeff: I think that encapsulates this best is the co-founder of ‘Coinbase’, a guy called Fred Ershum. I mean, he’s not really a co-founder, but Brian brought him in after he was down the road, because part of the narrative of Silicon Valley is, you know, co-founders, you’re not just supposed to be a single person. But anyways, Fred was a ‘Goldman Sachs’ trader, he was a professional video game player, he’s kind of an intense guy. And so he’s working at ‘Goldman Sachs’, which is a good gig, he was a forex trader there, a lot of money, a lot of prestige. You know, if you’re a young guy in New York doing that too you, you know, you’re a very successful dating life. But he got frustrated because he saw the software revolution coming and a lot of the old school traders wanted nothing to do with like, you know, high-frequency trading and writing algorithms and stuff because that was a different generation.
When I first learned about finance, I heard an interesting story that you see movies like ‘Wall Street’ and you picture guys in a pit, yelling over each other and stuff. So the guys who used to be the best traders were athletes, hockey players, football quarterbacks, guys who are able to keep their cool with a bunch of people yelling around them, and also quite physically strong. They’ve become kind of dinosaurs replaced by people who are very good at coding. Fred Ershum was someone who fits both camps. He was a competitive lacrosse player, but also a sort of computer geek and video game champion. So when he was at ‘Goldman’, he was frustrated, he was like, ‘We can replace half these traders with algorithms’. But they didn’t want to do that, they wanted to protect their own interests, they wanted to protect that culture. That’s actually sort of disappearing a bit from Wall Street now. So Fred Ershum, to his credit, he quit. I mean, he was making tonnes of money, and he was on the right path to move up at ‘Goldman’. But as he put it to me, all the managing partners saw the computer engineers as like the ‘IT department’ not realizing they would come to eat lunch. So I mean, that’s I think the tension of the heart of the book is – you need Silicon Valley-type to rewire the financial system, but you also have this very old Wall Street culture. And Wall Street is still where the money is, that’s where the hedge funds are, it’s where the family offices are, that’s where the billions of dollars of capital are. So the cultures are so different, but they’ve had to kind of come together and learn about each other, and sort of forge a new identity for finance.
Dan: That’s interesting, I remember that line in the book where it’s like, they referred to them as ‘IT’.
Dan: Why would Fred want to talk to you? What does that situation look like? You call him up and say, ‘Dude, I want to write, I want to ask you a bunch of intense questions and put it out there’.
Jeff: I was fortunate in that ‘Coinbase’ kind of gave me access to everyone because, you know, like a company like Apple, their, you know, PR department is vicious, if they don’t want you going anywhere near the company, they will like, anyone who’s worked there for 10 years won’t talk to you. So to Brian’s credit, he gave me the green light, he believes in transparency. So he was like, ‘Sure, talk to everyone’. They didn’t have to, but then people like telling this story. So once they agreed to talk, you know, it’s they often tell you more than they should. And that gave me a lot of good nuggets from the book which was pretty fun. But in terms of meeting him, yeah, it’s a trip because, at this point, Fred Ershum is like, you know, worth 10s of millions. And he’s hanging out with Kayne West. So I met him in his penthouse in San Francisco. And he’s wearing like these fur moon boots and like this crazy vest and I was like, ‘Dude’. But was very candid. He’s a self-aware guy, and he just told me his story, including, you know, what personally drove him, which was a father, who was a Harvard MBA, where nothing was ever good enough. And, you know, I think what makes a lot of people tick is trying to please their parents. In his case, he acknowledged that’s what it was, and he compared it to video games. He was a national champion, video game player, but even in video games, you get really good at them but then the levels get even harder. And he sort of found that with his own family. So, you know, I was surprised to the degree to which people shared personal insights like that, with the exception of Brian Armstrong, who just sort of seemed almost incapable of that sort of introspection.
Dan: Do you think that’s been to the detriment of ‘Coinbase’?
Jeff: I think once upon a time, you probably could run companies a bit like the military. And some companies still are that way, some of the old telecommunications companies operate that way. But you know, with the kind of kinder, gentler generation, you need more emotional intelligence. And also, diversity matters a lot more than it did, if you have a bunch of white dudes, you know, it’s easier to kind of build a kind of common culture, but that’s not how the world works anymore, especially when your customer base two are increasingly diverse. You need women you need, you know, people of color to understand what the world looks like. And if you’re not good at understanding people, it can be harder to build the culture. And that’s why we’re seeing ‘Coinbase’ roasted in the ‘New York Times’ lately for, you know, creating an atmosphere where black employees didn’t feel like they wanted to work. And that’s a problem. You know, in the past, you could say, ‘Who cares?’ and move on, but I think not just your customer base and the media, but I think a lot of people who work at these places want to work at a company with values, you know, to a degree that can be BS and most people are interested in money but, increasingly, I do think people don’t want to work for icky companies.
Dan: I just want to read a couple of quotes from you. First is “for people with ordinary tech-savvy, the difference between ‘Coinbase’ and managing their own Bitcoin was like the difference between learning to drive an automatic Toyota Corolla, compared to a stick shift 18 Wheeler with 10 speeds and two reverse speeds, a Corolla might be boring, but anyone could drive it”. So this quote really frames up the central thesis of ‘Coinbase’. At the beginning, could you lay out what that vision was when they walked into ‘Y Combinator’?
Jeff: It’s just making Bitcoin accessible because Bitcoin is basically a tribe. And a way to sort of have status in the tribe is to have real tech knowledge, and to run your own keys and run your own node. In the course of my job, I’ve had to learn how it all works. And I’ve dabbled with all this stuff. I’ve used, you know, my own private wallets. And that’s what all the hardcore crypto people are about. But the reality is – it was complicated. It’s kind of cool, but I didn’t want to deal with it, but for the fact that I had to for my job. And that’s the reality is, that’s what most people are, you know, you have to make things easy, usable, doesn’t mean they’re stupid, a lot of people if they really wanted to probably could figure out how to like run their own private wallets, but it’s just not worth it to them.
They just want to be able to own Bitcoin. And that was the insight that Brian Armstrong had, let’s make Bitcoin accessible to everyone. And he did you know. Thanks to ‘Coinbase’, he opened the door for, you know, that’s why places like ‘Robin Hood’ and ‘Square’, and ‘PayPal’ are now selling Bitcoin too because people want it, you have to make it easy. There’s a whole ideological dimension to Bitcoin and cryptocurrency, you know, being your own bank, creating a form of money that’s not tied to the Federal Reserve. I think that’s super cool. And I agree with a lot of it. But for everyday convenience, you know, it just makes more sense to let ‘Coinbase’ deal with the security of it than it is for me to have to keep track of wallets and private keys and things that might get lost. So, that’s how ‘Coinbase’ did it. They made it accessible in a way that no one else had before.
Dan: You also wrote ‘in the early days, for instance’, and you mentioned security, ‘a chunk of customer Bitcoin resided on a USB drive in Brian’s pocket’.
Jeff: That’s a sort of funny anecdote, that’s the fun thing doing this book, they tell you these little tidbits. He was, because Coinbase basically got all this, you know, in the early days, and now they own, you know, trying to remember how many Bitcoins they have, I think over a million of them or more. And that’s worth, you know, vast amounts of money, but where do you store it, and now there are these complex ways to, you know, sort of put it on keys and if you know, the Horcrux and Harry Potter, where you break up the key into six different parts and hide it all over the country. That’s literally what ‘Coinbase’ does. And they have to because, you know, that’s, that’s worth the billions of dollars. But the early days ‘Coinbase’ also had other people’s Bitcoin and they had to find ways to store it. And at one point, a bunch of it was on a USB drive and Brian’s pocket and he describes flying into Customs coming back from a trip and they’re like, ‘Oh, do you have anything to declare?’ And there’s that question, ‘Do you have over $10,000’ and he just was like, ‘No’, you know, simpler than saying, ‘I’ve got the stick with 10 million in Bitcoin in my pocket’.
Dan: A question that might not be totally fair to ask you, but I’ll ask anyway, which is like how secure is ‘Coinbase’? Because that really is, I think, the crux of the consumer question, and we can get to like the religiosity stuff. But when I talk to like hardcore Bitcoin guys or gals, they’re basically like, you know, ‘Holding your Bitcoin on Coinbase flies in the face of all the all the belief systems and all the coolest features of Bitcoin’, right? Which is the sovereignty stuff. But as a consumer, the one I care about the most is security. So what’s your sort of take, am I more secure on ‘Coinbase’? And I would be if I was managing my own keys?
Jeff: I would say yes because I’ve had my own keys. And the problem is you forget where you put them in, you forget the code and stuff. In the early days, a big part was something called ‘exit scams’, you invite people to use it and invest in it, and then you basically take the money and disappear. So that’s a big problem. And then there’s getting hacked, which is you’re sloppy, don’t invest in security. But at this point, I mean, Bitcoin’s have been around for over a decade. They have to get get the stuff right. And you still have hacking here and there, but in the case of ‘Coinbase’ I’ve met their security team, I mean, the head of it is a former Army Ranger who used to do computer programming in Afghanistan or somewhere. These are hardcore people, you’ve got literally Special Forces guys as part of the security operation. And, in terms of the custody thing, it would sort of be like saying, ‘Can you rob a bank?’ Yeah, you probably could, you know, there are banks like ‘Lloyd’s of London’ that store gold bullion?
And could you get it? Probably, if you have an army at your disposal, but for practical purposes, no. These banks have been doing this for a long time, they know how to secure their assets. Likewise, with ‘Coinbase’. I mean, there’s probably a ‘Black Swan’ event that could see some of the stuff get hacked, but they’ve been thinking about it constantly since the beginning. Although in the book, I reveal that ‘Coinbase’ always boasted it has never been hacked, it did get hacked in the early days, they lost a quarter of a million dollars because one of their vendors – I used to cover cybersecurity. And inevitably, that was sort of the weak underbelly of any company is work done with outside vendors, you burrow in that way. And that’s what happened. They had some contractors, one of the contractors’ laptops got compromised, and someone started robbing Bitcoin from their main stash. But that was within the first year or something. And since then, they’ve learned the lesson. And now I mean, yeah, ‘Coinbase’ might get robbed of a million here or there. Although even that seems very unlikely. But the chance of someone plundering all of Coinbase’s Bitcoins is I’d say, impossible now.
Dan: It’s like this weird situation, I feel as just a moderate everyday person who wants to diversify into crypto because I believe in the general religion, I just don’t want to be a priest. I feel like I’m being made fun of and belittled because I use ‘Coinbase’. But I feel like a lot of these people use ‘Coinbase’ too.
Jeff: But you don’t look like you have something to prove. Do you know what I mean? It looks like you have something going on besides your cryptocurrency identity. But for a lot of these hardcores. That’s who they are, you know, you remember these people from high school who get really into their skateboard, or a goth identity, or whatever it is, and a lot of crypto is just sort of a subculture. And it’s a cool one, I admire it, a lot of really smart people, and the philosophies behind it are super interesting. But, you know, for someone like me, I don’t know, I have a wife and kid and a job and stuff, I think crypto is cool, but I don’t build my whole life around it. And if I want to own a little bit of it, it makes a lot more sense for me just to buy a little bit as an investment than it is to kind of go all-in on this stuff. But despite me keep saying this, you know, those who are curious about this: try it out. It’s not that hard. Get a wallet, you know, play with it. That’s the only way you really understand the implications of being your own bank and a sovereign financial system. Do that by all means, but I don’t think you have to feel sheepish about doing it the easy way.
Dan: Can you bring us into what the block size debate was all about? Because this is something that I didn’t really understand at the time it was happening.
Jeff: What a blockchain is – it’s a ledger. It’s, you know, basically a common computer program run on many computers, that registers every transaction that happens on Bitcoin. So I send you, you know, 10 bucks of Bitcoin that will show up on the blockchain, and the blockchain is built by, you know, every 10 minutes or so, a new block is added. And those blocks are just a pack of computer code that say, ‘Here’s all the transactions’, including Jeff sending Bitcoin to Dan. The problem with it is, its original architecture, it was only built for a relatively small amount of transactions. So when a whole bunch of people rush to add transactions, it means the transaction normally would clear in 10 minutes. But if there’s a high volume, it might take 20 minutes or an hour. Or the height of the Bitcoin boom, like a day. And that makes it very impractical. Because right now, if I use the Visa network, Visa clears it within seconds, or even like a debit card can do the same thing. But if you’re using Bitcoin as a payment mechanism, it’s very impractical, because you have to wait a long time for the transaction to clear or you can pay a big fee to get your transaction, make sure it shows up in the next block. So that’s sort of the block size debate. And what do you do about the situation?
And there was a faction of programmers and entrepreneurs that were like, ‘We need bigger blocks, let’s start creating instead of one-megabyte blocks, two-megabyte blocks’, which is logical enough. But this created a big ideological debate between people who were like, ‘No, if we do bigger blocks, that’s going to favor you know, big corporate interests over the libertarian, independent people who built Bitcoin in the first place’. So that led to this faction that split off called ‘Bitcoin cash’, which is a different blockchain built off the original Bitcoin blockchain that has bigger blocks. This gets really kind of arcane and technical, but it led to a civil war in the community and people hacking each other and dissing each other on Reddit all day long.
Dan: What were the implications then for, you know, Coinbase was a big corporation at the time in 2017. And they essentially lost this debate. It sounds like?
Jeff: They did, ultimately, you know, Brian picked a side and he picked the losing side in the debate. But all it meant was, Bitcoin is still one megabyte a block, and it created a lot of hassles for trying to process these transactions. On a practical level, things are getting better in that there are certain new technologies to package the transactions more efficiently or add external software layers. And then the other thing you know, too, is the case of ‘Coinbase’, in a ‘Coinbase’ to ‘Coinbase’ transaction, we’re both using Bitcoin but what they do is they just packaged it all up into one big transaction and process it that way. It gets tricky if you want to send it to someone who’s not at ‘Coinbase’. And that means your transaction can be slow during times of peak hype, like right now. But this is stuff that continues to evolve. Bitcoin software technology is getting better and better. So the sort of terrible delays that really hurt Bitcoin in 2017 are less prevalent.
Dan: Can you talk about‘Coinbase’s interaction with ‘Binance’.
Jeff: ‘Binance’ is the biggest crypto company in the world, they came out of nowhere. And they’re sort of like many of the early crypto companies kind of have a cowboy mentality. There are rumors going around that if the CEO or some other executive set foot in the US they might face arrest or sanction from the ‘Treasury Department’, or the IRS and stuff like that. ‘Binance’ is a very innovative company because of course, there’s more than one cryptocurrency. There’s Bitcoin, but there are all sorts of other ones. But ‘Binance’ did a good job of adding them a lot faster and letting people trade them for lower fees. And they also didn’t do much to scrutinize customers, because Bitcoin is all about, you know, ‘defy the government, be your own bank, blah, blah, blah’. But the reality is, you know, the US ‘Treasury Department’ is not going to let this stuff fly. That’s why you have ‘know your customer’ laws and anti-money laundering laws. And for good reason, too. You don’t want to make it too easy for you know, drug cartels, and, you know, other bad actors to be able to operate with impunity.
Dan: So let me interrupt there for a moment because there was a moment in time when I remember – there were question marks around ‘Coinbase’. And like how nicely it would play with the US government. And then when I start to see their interaction with ‘JP Morgan’, bringing the adults into the company, that’s when I started using ‘Coinbase’ and thought like, this is on the record, where it sounds like by ‘Binance’ took this opposite approach, we’re like, we’re gonna continue with the cowboy hats offshore, hardcore bunch of different random shit coins. Whereas it seems like ‘Coinbase’, like put on the suit and tie and said, ‘We’re going to be a legitimate platform bank here’.
Jeff: It’s like you have to both cater to your base and also to the broader market and by putting on a suit tie and jacket and playing nice the IRS and ‘Treasury Department’ that alienated some of the more kind of hardcore believers who also wanted to trade these new assets and ‘Coinbase’ was seeding a lot of the market to them, so they had to scramble to find a way to kind of reinvigorate themselves while also walking the line. But you know I’ve also had some sort of long term Bitcoin people. There’s a guy named Wences Casares who is famous in Bitcoin circles as one of the first Bitcoin evangelicals who really helped popularise it. And he told me you know, I mean he’s got absolute cred in terms of old school Bitcoin people he says Binance is likely to crash and burn, like other cowboy operations before it. And the reality is too I mean, Bitcoin people always defensive when you say, ‘Oh, this is used by criminals’, then they’ll say, ‘Look, criminals use $100 bills and Apple gift cards’, and they’re right, but the reality is a lot of criminals do use Bitcoin. Every ransomware you read about is Bitcoin. So, hackers in Russia or North Korea lock up your computer and say, ‘We’re gonna freeze all your files until you pay us a ransom’, that ransom is almost inevitably paid in Bitcoin, likewise for you know, too, you might remember the ‘Silk Road’ this famous marketplace described in a book where you could buy any drug on the internet and it was just this massive criminal marketplace, Bitcoin powered that too. And you know, the thing is, this doesn’t mean Bitcoin’s bad. You and I might own a little bit of Bitcoin and so do a lot of your listeners. But the reality is criminal use of Bitcoin is still a big problem to US law enforcement and ‘Binance’ has a reputation for not looking too closely who their customers are, so that could bite them in the end.
Dan: Speaking of putting on a suit and tie, one of the most interesting moments in the book is when you describe the interaction between ‘JP Morgan’ and the higher-ups at ‘Coinbase’. Can you describe what their relationship is?
Jeff: One of the most famous enemies of Bitcoin is Jamie Dimon, the CEO of ‘JPMorgan Chase’, he’s called it every name in the book, I think in 2017 he said he’d fire anyone stupid enough to trade it, he called it a fraud. He called it worse than tulip bulbs. And Dimon’s a very charismatic guy, and a lot of people look to him. And over the years, he’s sort of softened, and I mean, he’s still not in it. But what’s super interesting was in, you know, 2016, while Jamie Dimon’s running around bashing it, he’s secretly meeting with Brian Armstrong of ‘Coinbase’. And that culminated in ‘JP Morgan’ becoming ‘Coinbase’s banker because even though ‘Coinbase’ is kind of a bank itself, it still needs someone to do its banking operations.
Dan: I don’t quite understand why ‘Coinbase’ would need ‘JP Morgan’, I can guess. But can you help?
Jeff: Well, in the early days, they had ‘Silicon Valley Bank’, every business has a bank, right? Because you have your deposits, your payroll, you have all stuff like that. Perhaps even your podcast has something, anyone who has a company often has, you know, someone, you know, a commercial bank to do that stuff. And it’s essential. You need banking. For illicit industries like cannabis, and for while cryptocurrency, it’s a big problem not having access to banking. But as Bitcoin and ‘Coinbase’ became more mainstream, they were able ultimately to partner with ‘JPMorgan’, because a big bank, like ‘Bank of America’ or ‘JP Morgan’, they give you a bank account, but they also provide access banks to giant companies as well like ‘Nike’, and you know, ‘Best Buy’ and stuff like that, and ‘Coinbase’.
And so that was a key relationship for ‘Coinbase’ to lock up because it described in the book to where ‘Silicon Valley Bank’, which specializes in tech startups and sort of unconventional companies, got uncomfortable and actually booted ‘Coinbase’ and forced them to find another bank, which is, you know, a calamity in a sense. Luckily, they give him six months to find another one. But if you’re a business and suddenly you don’t have a banking relationship, you’re really screwed. So it’s just been interesting watching how in the early days Coinbase had to scrounge to find anyone to bank them and then ultimately, who’s their banker but Jamie Dimon.
Dan: But the coolest thing about what you revealed is like this guy Jamie, who everybody looks to, is a really charismatic character, says ‘Just Bitcoin’s a piece of shit’. And then he puts the microphone down, closes the door and has a secret meeting with ‘Coinbase’ about doing business with them. So this is like the ultimate hardcore business person story. I love it.
Jeff: Oh, totally. Yeah, yeah, just what you do publicly and privately.
Dan: He was throwing his competition off the scent too kinda.
Jeff: Yeah, because while he’s out there publicly bashing, he’s got a research lab experimenting with blockchain technology. And then he’s bringing Brian in. You know, there are a couple of layers to that meeting. One of it was, I think Jamie Dimon wanted to hedge against the future, make sure he’s up on stuff. But part of it, I think too, is just a simple courtesy of a young CEO asking for the advice and mentorship of one of the most famous, well-respected CEOs in the country. So I think that’s probably part of it as like, you know, ‘Hey, kid, sure. I’ll give you some advice, you know, CEO, to CEO’, and then also the very pragmatic business reasons you’re describing.
Dan: Was it Brian who revealed this information to you?
Dan: What was that meeting like?
Jeff: I confess, like, I was pressing someone else at ‘Coinbase’, who helped me line up these interviews, he had mentioned it, and then I sat down with him and was like, ‘Hey, is this true?’ And he told me about it, and what it was like. Brian’s kind of nice, personable guy. If you can find time to sit down with him. He’s also unusual in that he doesn’t like the media. A lot of CEOs really bask in the attention and press conferences and can’t do enough of them. Brian, he’s a very kind of empirical, engineering-minded guy. And he just makes an assessment, whether it’s worth his time or not. He even has, like, I think, an algorithm to determine it, because we’re trying to get him to come to one of our conferences in Montauk in the Hamptons in New York. And, you know, it’s like, surely he’s got to come, I’m writing a book about him. He’s like, ‘I’m sorry, I put my algorithm about how to spend my time and this doesn’t have the like requisite payoff’. So yeah, this is a very Silicon Valley approach.
Dan: It is a very Silicon Valley approach. One of the final things I wanted to ask you is about, you’ve become like a bit of a liaison between this difficult to understand world, you become like a ‘Coinbase’, what ‘Coinbase’ is for brokerages you become for information, you know, and so when people in your life sort of ask you like, should I buy Bitcoins? Or should I learn more about this? What is the message you tell them?
Jeff: That’s flattering. Thanks for saying that. And yeah, that’s what I try to do is to be a translator between the weird world of crypto and the ordinary world. And, on a good day, I do that, on a bad day, the crypto people hate me because they think I’m not informed enough. And then mainstream people say, ‘Why are you messing with this’? But, in answer to your question of like, you know, what should ordinary people do in terms of buying Bitcoin? I mean, I think, you know, I’m not advising anyone to buy Bitcoin, but there does seem to be a growing consensus, you’re seeing this from, you know, financial advisors, and the market as a whole, saying, putting a little bit of your holdings into cryptocurrency isn’t a bad idea. I mean, I’m talking about putting one or 2% of your net wealth, not, for God’s sakes, don’t put 20% or 50%, or anything like that, because Bitcoin has crashed repeatedly in the past, and probably will again. But I think that common advice is just set up a service with, you know, ‘Coinbase’, or ‘Robin Hood’ or ‘Square’ to buy like 50 bucks a month or 20 bucks a month, then you can build up some wealth in that form of money, just as you would with gold or shares or Vanguard. I’m not a financial advisor, and I encourage all your listeners to talk to someone else and double-check this, but that seems to be the emerging consensus for how people should approach Bitcoin,
Dan: If we’re going to give a beneficial reading to some of the enthusiasts’ critiques of your work. What are the problems they have with the way you speak about crypto and what’s behind some of their critiques?
Jeff: Part of it’s turf guarding too, I write about other things like the Supreme Court. I write about big companies. So there are some nuances I don’t understand and I don’t pretend to understand. So I’m not kind of one of the ‘in club’ as some of these critics are. But then my response is, I tell people, ‘Do you want to be a subculture? Or do you want to be a mainstream financial technology?’, and if you want to be the latter, if you really want this to go mainstream, you’re going to have to learn to operate in the real world a bit. It’s fun to go to crypto conferences, it’s fun to chat on Telegram all day, and you know, diss your rivals and praise your friends and try to make money but you know, that’s a lot of that is very cliquey and subculture like. There’s nothing wrong with that you can still be part of it, enjoy it’ There’s a lot of really tremendous cool, super-intelligent people in crypto. But the industry has to acknowledge that they have to learn to present themselves to the real world a little better sometimes.
Dan: It’s almost like you can keep hanging out in the dingy club, listen to the ‘Velvet Underground’, or you can write Teen Spirit..
Jeff: Exactly. And Velvet Underground, some of my favorite bands for what it’s worth too.
Dan: I always think about that, like your wholesale, like insider bands versus, you know, what became the retail bands that everybody could, you know, gain access to.
Jeff: It’s funny, sounds like we’re almost the same generation. I remember because I grew up in the Pacific Northwest with Grunge all around and Nirvana would play Vancouver where I grew up. And it was all about seeing them when they were underground. And then, you know, of course, when they got popular it became cooler to diss them as having sold out and gone mainstream, I was always like, ‘Come on, guys get over it. It’s still good music’.
Dan: So the final question, then Jeff I have for you is to just take a look at ‘Coinbase’s secret master plan’, and it’s something I’ve come across a few times. And it’s exactly what you’re talking about this idea of, for the promise of mainstream adoption. And so Brian laid this out on his blog, I love how you reference, like, he feels comfortable on this blog, because that’s exactly how I try to communicate things is like, I just go to my blog, like, it’s the way I talk. But the idea is essentially that Coinbase ‘represents’ the second phase of a sort of crypto world domination or adoption phase, which is an exchange and secure storage that sits on top of the protocol itself. And we’re still waiting on the third and fourth phase kinda. It’s distributed Lee here, but you know, we’re not looking at like, sort of cellphone worldwide adoption, we’re kind of in the ‘BlackBerry phase’ of cryptocurrency, what’s your take on this? I mean, do you think that cryptocurrency is going to take over the world, takeover gold, takeover money?
Jeff: No, I don’t because I mean, give me a break. While Crypto is cool, you know, there are limitations to who’s going to adopt it. And then they’re also facing competition from, you know, governments, I mean, the US Treasury does not want Bitcoin to take over, Bank of England doesn’t want that either. But we’re heading into a fascinating period where other companies are spinning up cryptocurrency like Facebook’s ‘Libra’. You know, I’m just sure that Apple is going to get into this game at some point just because blockchain such as superior technology that you’re going to start seeing, you know, blockchain-based money of all sorts appearing.
And then the US is getting kind of into the way big picture. But what China’s doing, you know, reinventing their currency as a digital Yuan is just a lot more efficient way to move money around. And they’re using that for geopolitical power. They want their trading partners in Africa and Latin America to use it, in part, to dislodge the US dollar as the sort of primary means of Global Exchange. And of course, US Treasury Department doesn’t want that to happen. Because the US dollar is one of this country’s biggest strategic assets. It lets us borrow for almost nothing, it can be used everywhere. But blockchain presents this existential threat to that, whether it’s China minting its own currency on that, whether it’s Bitcoin. So we’re heading to a very interesting few years in terms of what the future of money is going to be. Remember it all used to be pegged to gold. And then we went off the gold standard, now it’s floating. And I think we’re at kind of the tipping point of another sort of tumultuous transition into what money is going to be. Is Bitcoin and crypto going to be part of it? Yeah, it’s gonna be a huge part. But I mean, are dollars and gold going to go away? No, not anytime soon. But there, there will be big changes coming?
Dan: Do you see rumblings in the US government of people who are focused on this existential threat to the currency?
Jeff: Absolutely yeah. I mean, you talk to people in, you know, the defense industry and high up economists, they’re very aware of this, you know, and you know, trying to figure out how to respond to it. Because it’s a dilemma for US policymakers, you start empowering Bitcoin too much, you’re going to accelerate the decline of the dollar. But conversely, if you ignore it, and are hostile to it, the technology is so powerful, you’re going to start seeing it built up in Asia as it is already in Switzerland and England. And you don’t want to forfeit the technological advantage. Like when the internet arrived, the US did a very good job of writing laws to facilitate it. And that helped build Silicon Valley. And now the question is whether they can do the same again for you know, what they call the ‘Internet of money’ and cryptocurrency.
Dan: It’s interesting because we do have vested interests, as you know, Walmart’s not going to jump online right away because they have the most store coverage. So it’s really hard. It feels like the US is in a similar bind, where, man, we’ve kind of won the last battle, it’s sort of tough to innovate ourselves out of the lead position.
Jeff: Oh, totally. Yeah. It’s a classic innovator’s dilemma, you know, for whatever reason, the technology called the US dollar is, one, it’s a market leader. But you know, as we know, from business, you know, no one owns the market forever.
Dan: A big thanks to Jeff Roberts, his book, really enjoyed it, it’s called ‘Kings of Crypto: One Startup’s Quest To Take Cryptocurrency out of Silicon Valley, and onto Wall Street’. And I think it’s not just of interest to crypto investors. But to anyone interested in the way the world of capital and finance is evolving, and even a little bit of geopolitics. And I also want to give a shout out to one of the show’s regular crypto mavens, Bitlift’s Greg Gerber, for helping me out with some research for this interview. He gave us some really interesting thoughts and perspectives to raise during the interview and certainly looking forward to having Greg back on the show at some point in the near future.
At the top of the episode, I mentioned I wanted to issue a challenge. The challenge is essentially this and targeted at those of you who are financially literate and enjoy picking investments. I would love to hear essentially what you think is the next Bitcoin? I don’t want the answer to be Bitcoin. But here’s basically the challenge, open up that phone, pull out your email client, type in my email address, Dan at TropicalMBA dot com and email me what your pick is for a retail, passive investment, that someone is looking for a high upside too and say, you know, we’d invest like 1% of our net worth in. The type of challenge that you would give Bitcoin as an answer to five years ago? I’d be very curious to hear what your answer is to this question.
And by ‘passive’ and ‘retail’, I mean anybody off the street could purchase this investment within one or two hours of setting up an account or understanding the basics of how to buy whatever it is you’re going to mention. That’s one of the things ‘Coinbase’ did for Bitcoin is they made it easy for folks off the street to get involved in these sort of newer asset classes. And I’m curious if you see anything like that, whether it be a stock pick or a currency or a new cryptocurrency or anything, just as long as it’s not Bitcoin, I’d love to hear your answers. And then if I get some interesting ones, I’ll share them here on the show.
I do recall a story of me pleading with my friends to take it a little bit more seriously because I did see the opportunity in Bitcoin. And it’s just been incredible to see what’s happened over the past 10 years there. And I’m curious if you have a perspective about what could behave similarly in the future. Now, investing isn’t the name of the game here at the pod. One of the amazing things about being an entrepreneur is that we can build our own assets, we basically can all be little insider traders.
One more thing for those of you keeping score at home, I wanted to give some updates about Dynamite Jobs, there’s a lot going on there. In fact, today, we just launched a new product. So basically we have three product categories right now. The new product is called ‘Candidate Pro’. It’s basically like a boost product designed for candidates, seekers of remote jobs to speed up their job hunt. So probably not super relevant to most people listening today. But if you are looking for a remote job, and you want our team to help you move along faster, check out Dynamite Jobs and Candidate Pro.
I mean, basically what we found is that, in our database, our internal ranking says that only 5% of our database is actually hireable. It’s a little bit of a, you know, moving bar because that’s a judgment. But the kind of challenge of the product is, ‘Well how can we expand that 5% figure to help more and more candidates basically express themselves in ways that are compelling such that they can get the conversations with hiring managers and founders they want so they can ultimately get employed’. So that’s Candidate Pro, which launched today. I won’t have results for you on that.
The product we’ve been speaking about, which is Hiring Pro, we’ve almost reached $2,000 a month MRR on that product. So continue to have momentum there and sales coming in nearly every day. That’s essentially unlimited, full and part-time job posts, plus a bunch of other features, the ability to browse our platform, and things like that. So appreciate those of you checking that out. And the final bit is – our custom hiring services. We continue to have really interesting high growth companies come to us and basically say, ‘Hey, we need tech people or we need a Head of Marketing’ or, you know, we have these key hires, and we need to speak with people who know what’s going on. And essentially, these are just custom services, which we continue to do because frankly, we get really interesting clients, we charge a flat fee, and they seem to be going pretty well. So we’re going to continue with the services. So far, Dynamite Jobs had a pretty interesting last month. So you know, we’ve only really had the subscription product live for four weeks now. We got a new product today and the services keep going in.
So I just wanted to give you guys a little update on how things are going at Dynamite Jobs. So next week, we’re going to be heading into the festive season by reflecting back on what we’ve covered on the pod in this one of the strangest years … it’s definitely the strangest year I’ve ever lived through. We are incredibly grateful that you all stuck around and listened to us, journeyed with us through this crazy year. So that’s it, stick around for that one. And also shout out to our sponsor SPP dot co that Service Provider Pro, you can find them at SPP dot co. That’s it. We’ll be back as usual next Thursday morning, holiday time.