Coinbase Apocalypse, The American Dream of Cryptocurrency Starting with an 11-page PowerPoint

Original title: "The Coinbase Apocalypse, The American Dream of Cryptocurrency From Eleven PPT Pages."

Original source: Deep Tide Techflow

A moment of history is upon us, as Coinbase will make its debut on the Nasdaq (symbol COIN) on Wednesday, marking a milestone in the cryptocurrency world.

According to Bloomberg, Coinbase could be valued at around $100 billion, which would be more than the combined market capitalization of the parent companies of the Nasdaq and the New York Stock Exchange.

Coinbase, which was founded in 2012, doesn't have much of a wild growth legend. If the global cryptocurrency exchange is a classroom, then Coinbase is a typical "docile-student" : In the early stage, the performance was mediocre. There were many exchanges with larger trading volume than Coinbase and numerous exchanges with more innovations than Coinbase. However, Coinbase was honest and obedient, which was deeply liked by teachers.

In the end, it was Coinbase that came center stage.

Start with an 11-page PowerPoint

On Christmas Day 2010, Brian Armstrong accidentally read the Bitcoin white paper, which opened the door to cryptocurrency. He bought more than 1,000 Bitcoins for $9. When the price of Bitcoin dropped to $2 at one point, Armstrong didn't leave the market. Instead, he's been writing code to buy Bitcoins, and in the meantime, he sees an entrepreneurial opportunity. Maybe he can start a Bitcoin company himself?

Two summers later, Brian founded Coinbase with his partner Fred Ehrsam, in the form of a wallet.

The pair envisage Coinbase becoming a bitcoin marketplace where people can buy cryptocurrencies. Later, they enrolled Coinbase into the Y Combinator startup incubator program. On the YC roadshow day, Brian Armstrong used 11 pages of PPT to describe the ideals and vision of Coinbase, "What Coinbase is to Bitcoin, What iTunes is to MP3."

In 2017, when Brian Armstrong reviewed the eleven pages of Pitch Deck, he wrote the following words:

All great things begin from humble beginnings.

Most of what you see around you starts out as a simple idea and a rough prototype that takes five to 10 years to turn into an "overnight success" and dozens of setbacks and course corrections along the way.

So pick something you're passionate about and get started.

The speed and slowness of compliance

Duan Yongping once said, "Slow is fast."

Coinbase is not a case of rapid, wild growth. Rather, despite its early beginnings, its trading volume has been outpaced by its predecessors.

If the global cryptocurrency exchange is a classroom, then Coinbase is the quintessential "good student" : an obedient and well-liked teacher with mediocre grades.

At the crossroads of speed and compliance, Coinbase chose compliance.

Coinbase has invested heavily in securing regulatory licences, holding a Money Transmitter License in all 50 US states and becoming one of the few exchanges to hold New York State's BitLicense for digital currency exchanges. Obtain the license to legally trade fiat currency in 33 countries and open up payment channels.

In addition to the exchange business, Coinbase also applied for and acquired licenses on a large scale in the upstream and downstream of the industry chain. Currently, Coinbase owns a series of financial licenses including payments, savings, loans, financial derivatives trading, alternative asset trading, brokerage trading and investment adviser.

According to internal employees, Coinbase's compliance team once accounted for nearly a third of the company, taking up a lot of resources, which led to Coinbase's high fees and insufficient investment in technology, operations, and user experience.

Because of compliance, Coinbase is unable to offer much currency trading or derivatives trading, such as contracts, leaving it far behind its peers outside the United States in terms of volume.

Former Chief Legal Officer Brian Brooks played a pivotal role in Coinbase's compliance process, working with various regulatory agencies to lead the development of the industry confederation Crypto Rating Council (CRC).

In 2020, Brian Brooks was hired as the head of the Office of the Comptroller of the Currency (OCC), which oversees the U.S. banking industry.

Coinbase focus on compliance management strategy does not make it to achieve in the short term trading and financial aspects of exponential growth, but because of its compliance management, and regulated, it in terms of access to mainstream financial sector is well ahead of other similar companies, laid it medium and long-term development of a solid foundation in the us market.

After completing the infrastructure for compliance, delayed gratification Coinbase is finally reaping its bounty in 2021.

Coinbase, which has a long history of being a big seller, turned a profit for the first time only in 2017, Posting a net loss of $30 million in 2019, before turning a profit of $322 million in 2020, when the bull market hit.

In the first quarter of 2021, Coinbase was in full swing, with revenue of $1.8 billion, up 844% from the same period last year, and net income of nearly $800 million.

All of this can't be done without Coinbase's early compliance building.

The construction of the future

The slowness and stability of Coinbase also stem from Brian Armstrong's long-term plan. The exchange business is the means rather than the ultimate goal and destination of Coinbase.

In 2016, Brian Armstrong predicted the development of blockchain in the next few years according to the historical development rules of the Internet. He divided the future of his blockchain world into four major stages, and formulated the development blueprint of Coinbase in the next ten years according to what Coinbase could do in each stage.

Phase 1 (Agreement Phase) : Development Agreement (to serve 1 million people)

At this stage, new protocols (Bitcoin, Ethereum, etc.) are created and people begin to improve these protocols.

The open source community develops around each of these protocols, and in some cases, these protocols are sponsored and assisted by enterprises. The protocol race is on, and it remains to be seen which of these protocols can be expanded to appeal to app developers.

Coinbase will not be involved in this phase of development, but will work closely with some of the best players.

Phase 2 (Infrastructure) : Establishing a digital currency exchange (serving 10 million people)

According to Brain Armstrong, investment or speculation is an indispensable mechanism for the establishment of the future blockchain payment network, so the exchange business is indispensable.

Initially, Coinbase was just a wallet. Later, the GDAX exchange for institutional and professional investors, now known as Coinbase Pro, formed the core of Coinbase's business, and Coinbase would use the proceeds from this phase to invest in the next phase of its plan. We will continue to expand these businesses to more countries.

Phase 3 (user entry) : Build entry points for digital currency applications (serving 100 million people)

When consumers start using blockchain applications (dApps), what they need is a simple user interface and entry point. The entry point in the Internet world is HTML and a Web browser, which is built on top of the TCP/IP protocol.

In the blockchain world, Coinbase thinks it will be the undeveloped equivalent of a WEB browser, with an underlying wallet that is entirely controlled by the user.

This will lower the threshold for ordinary people to use it and make it easier to develop blockchain applications.

Coinbase will participate in this phase by building or investing in relevant teams.

Phase 4 (Decentralized Apps) : Build an Open Financial System App (Serving 1 Billion People)

Brian Armstrong believes that the existing traditional financial system will be rebuilt into an open network accessible by global users. Future applications will include:

Loans (mortgages, small business loans, small loans, etc.)

Venture Capital (seed investment, traditional VC, risky debt, etc.)

Investments (stocks, index funds, savings accounts, etc.)

Identity and reputation (ID card, identity authentication, credit score, etc.)

Remittance (Cross-border Remittance)

Merchant processing (retail, online orders) & NBSP;

Coinbase will participate in this phase by building teams, acquiring and investing in various companies, and will build developer tools and work with regulators to craft a regulatory approach that is appropriate for the industry.

To sum up, in Brian Armstrong's plan, the exchange is only the first step to build the ecology, and continue to use the money made by the exchange to participate in the next stage of infrastructure construction and investment, so as to finally occupy a place in the open financial system for one billion people.

In 2016, Brian Armstrong thought they were at the end of Phase 2, but still in the early stages of blockchain.

Since then, Coinbase has stuck to that plan, upgraded the GDAX deal to Coinbase Pro, built institutional users, and continued to expand its boundaries through acquisitions:

Created the Wallet app Toshi, later renamed Coinbase Wallet;

Acquisition of Ethereum dApp browser and Cipher Browse wallet;

Acquisition of Ethereum P2P trading platform Paradex;

Acquisition of Xapo's hosting business;

Acquisition of Tagomi, a leading broker platform for digital asset trading;

Acquiring RouteFire, a crypto infrastructure provider;

Acquired Bison Trails, a blockchain infrastructure provider;

Buy cryptocurrency mission site Earn.com...

Acquisition of three licensed financial services companies, securities trader Keystone Capital, Venovate Marketlpace and Digital Wealth LLC.

...

Going public is not the end or the end of Coinbase. What Coinbase is doing is still preparing for the fourth stage, which is to build the open financial system of the Coinbase ecosystem.

Cryptocurrency's 'American Dream'

Coinbase's success will be hard to replicate.

Lei Jun often said, standing in the tuyere, pigs can fly, standing in the tuyere of cryptocurrency flying pigs have a lot, but Coinbase only one, because it is in the United States, why China, Japan, South Korea do not have "Coinbase"?

The United States retains monetary supremacy, is the center of global capital markets, and has gradually gained pricing power over Bitcoin.

In terms of supervision, China, the United States and Japan have different regulatory ideas.

After the Ninety-fourth Movement, "heavy chain and suppression of currency" has become the main melody of the Chinese blockchain world.

China defines blockchain as an information service technology, supervised by the Cyberspace Administration of the CPC Central Committee, and supervised by the People's Bank of China regarding the financial risks that blockchain and cryptocurrencies may pose.

Regulators in the United States mainly include the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC).

For token issuance and exchange, the United States does not adopt a one-size-fits-all approach. Instead, utility tokens and security tokens are separately included in the corresponding regulatory system. The issuance of securities tokens needs to be registered in accordance with the securities law, while the operation of exchanges needs to obtain a license.

At the same time, the SEC of the United States frequently to crack down on all kinds of illegal ICOs.

Although Japan is the world's few offer one of the legal protection for digital assets, encryption currency exchange set up operations also can be completely legal compliance, however due to the regulation of rigid, on Japan's exchange no currency authority, which leads to the difficulty of the domestic project financing and transaction, to some extent hindered the development of innovative projects.

Today, Coinbase is something of a test case for the balance of cryptocurrency regulation in the United States.

Second, as the world's largest economy, the United States offers Coinbase a lot of space. When Wall Street embraces Bitcoin, Coinbase has become the "Bitcoin steward" for institutions due to its compliance advantage. Coinbase currently has 870,000 Bitcoins on its platform, far outnumbing Binance (215,100) and Huobi (252,300).

Behind the rise of Coinbase is the decline of the pricing power of bitcoin in the eastern world, and the western world centered on the United States has gained more chips and the right to speak.

Whether it's the focus of business or the moat, Coinbase is inseparable from the US regulators and the US market behind it. Coinbase is not an ideal story of decentralization, but more of an "American dream" of cryptocurrencies.

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