How an early bitcoin leader is staying relevant in a blockchain frenzy
Coinbase is more bullish on bitcoin than ever
If you are interested in dipping a toe in the waters of the digital currency bitcoin, the easiest way is to buy some bitcoin, and arguably the best-known service for that is Coinbase.
The company launched four years ago today, and was one of the earliest bitcoin wallets—that is, simply, a place to buy and hold bitcoin. By being early to the craze, Coinbase became one of the most recognizable and respected brands in the bitcoin industry, it raised nearly $107 million in venture capital (by far the most raised by any bitcoin startup until 21 Inc. came along), and its co-founders, Brian Armstrong and Fred Ehrsam, became influential names in the business.
Lately, the narrative about the bitcoin world has shifted to blockchain, the decentralized, peer-to-peer, open-source technology that powers bitcoin. (For an explainer, check out this video.) The idea of blockchain came about side-by-side with bitcoin in 2009, but now major banks and financial institutions are gaga over the idea of using blockchains to speed up their transaction processing—closed, private blockchains without bitcoin.
Now some of the hottest startups that started out as “bitcoin companies” have subtly edged away from bitcoin in their marketing. Bitreserve, a cloud bank that allows you to hold funds in many different currencies, changed its name to Uphold; Circle, which started as a bitcoin payment app, added the ability to deposit funds in U.S. dollars, and no longer mention bitcoin on its home page. Many bitcoin companies are focusing on blockchain and working with new partners who, in many cases, have no interest in a volatile cryptocurrency.
But Coinbase and its leaders are more bullish on bitcoin than ever.
“I think the whole narrative of blockchain without bitcoin will amount to very little,” declares Fred Ehrsam. In an interview with Yahoo Finance during the big bitcoin conference Consensus this month, Ehrsam compared the current craze over blockchain to corporations that rushed to create “intranets” in the early days of the Internet—they were closed networks, accessible only to one company’s employees. And while those still exist at some companies today, most people eventually realized that they didn’t need to create private corners of the Internet, because the large, open Internet is good enough.
It is a popular comparison among bitcoin believers at the moment. Many people on the banking side of things, in visits with Yahoo Finance, have been dismissive of that dismissiveness. They see potential in blockchain technology to reduce friction in payments overseas, and maybe even speed the settlement of stock purchases.
Ehrsam’s point is that the bitcoin blockchain can already do that. A former Goldman Sachs (GS) foreign exchange trader, Ehrsam brings financial chops to bitcoin, a world which many of the most fervent supporters got into because they are anti-banking and anti-government. Ehrsam has said he aims for Coinbase to be a Goldman Sachs of cryptocurrency. Some in bitcoin would say it’s already there.
Coinbase has grown far beyond a mere bitcoin wallet: It has more than 2 million users; it is now operable in 32 countries; it recently launched the ability for U.S. customers to buy bitcoin instantly using a debit card (previously you had to link up a bank account and wait a few days, which was a nice illustration of the sluggishness of traditional banking); and most significantly, last year it launched an entirely new business: a bitcoin exchange.
Coinbase has major competition among bitcoin exchanges. Many, many exchanges have sprung up in the past two years, including one from the Winklevoss brothers, Gemini, which last year scored regulatory approval from the New York Department of Financial Services to operate as a trust, and this month got new approval to add the ability for customers to trade Ether, a much-hyped alternative digital-currency to bitcoin. Coinbase, in contrast with Gemini, did not wait for regulatory approval in New York before launching. But a report just this week from Reuters suggests the NYDFS is set to grant Coinbase a BitLicense anyway, which, if true, will certainly make Coinbase look like it was smart not to wait. After a little over one year in business, Coinbase says it has the most liquid bitcoin exchange in the U.S.
Meanwhile, Ehrsam and Armstrong have become key voices in a wonky internal debate in the bitcoin world over whether to increase the block-size limit of bitcoin’s blockchain. In simplest terms, transactions are recorded on the blockchain in bundles called blocks, but the blockchain has slowed down recently under the weight of larger transactions. Some in bitcoin want to raise the limit to allow for larger blocks, while others don’t want bitcoin mining to get to a point where a personal laptop can’t handle the data. Ehrsam and Armstrong are in the former camp, and Armstrong has written publicly on the block size debate.
To be sure, many titans of Wall Street are still certain that while blockchain technology is heating up, bitcoin, the currency, is on its way to the grave. JPMorgan (JPM) CEO Jamie Dimon has called bitcoin "doomed." Nonetheless, Ehrsam is laser-focused on a business plan that depends on people like Dimon being very wrong. The value of bitcoin, by the way, is up 91% in the last year.
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Daniel Roberts is a writer at Yahoo Finance, covering technology and sports business. Follow him on Twitter at @readDanwrite.
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