7 secrets of Coinbase’s beginnings »Crypto syringe

As Coinbase getting ready to go to the pubII On Wednesday, via a direct listing on the Nasdaq, the company made an effort to present a professional, button-down image. Indeed, its cautious approach to things like security and regulation is one of the main reasons Coinbase has become the household name for crypto companies, but this image is also far removed from the early days of Coinbase, when its mantra was to “cross brick walls”.

While researching my book on Coinbase, The kings of crypto, I unearthed some secrets from when Coinbase was a young startup. (Now it’s a company that made $ 730-800 million in first-quarter profit on $ 1.8 billion in revenue.) Unlike today, the early Coinbases were operating in a adrenaline rush and aggressive risk-taking environment, and made choices its founders would regret. . Here are some of the juicy stories from the early days of the freewheeling company.

In 2013, many established companies considered Bitcoin like too risky to touch. This included Apple, which refused to approve apps that allow live cryptocurrency trading. To get around this hurdle, the founders of Coinbase came up with a nifty workaround. They blocked users from accessing the app’s trading feature, but only in a very specific geographic area: Apple’s hometown of Cupertino, California.

This meant that, as far as Apple staff could see, Coinbase wouldn’t allow any trading, even though the rest of the country could buy and sell Bitcoin. It was a nifty trick, but Apple quickly caught on and, months later, temporarily started Coinbase out of the App Store.

Just as Google has used mind-boggling math problems in its interview process before, the founders of Coinbase asked job applicants to answer puzzles before they could be hired. Some were devilishly difficult. For example, the company’s first employee, Olaf Carlson-Wee, had to solve the following problems in just a few minutes:

100 students approach 100 lockers. Student 1 opens them all, starting with locker 1. Student 2 moves down the line and closes every other locker, starting with locker 2. Student 3 changes the status of every third locker , starting with locker 3 – if it is open, it closes, and if it is closed, it opens. And so on, until the hundred students have taken turns changing the status of the lockers. How many lockers are open at the end?

Carlson-Wee got it the trick, which implies perfect squares, and answered in time.

Coinbase uses elaborate measures to protect its huge reserves of Bitcoin, Ethereum, and other cryptocurrencies. The company has a well-deserved reputation for security, and some media claim to have never been hacked. But this is not quite true.

In 2013, when Coinbase had only five people, hackers broke into one of its online wallets and started siphoning off Bitcoin. First Coinbase employee Charlie lee frantically changed the password to lock down the hackers, but not before they left with around $ 250,000 in Bitcoin. It later turned out that the hackers had compromised one of Coinbase’s vendors, which led the company to launch an audit and introduce new security measures.

The company’s original office was a 2-bedroom apartment

Coinbase only acquired a real office in 2015. Until then, staff had crammed into an apartment on Bluxome Street in San Francisco across from The Creamery, a legendary gathering for venture capitalists and entrepreneurs. technology that closed last year.

For important meetings, Coinbase had to borrow offices from other companies, including Lending Club, where Coinbase met to raise its Series A round-the-clock, an event that led tabloid site Gawker to mocking “VC Throws $ 5 Million Real Dollars Into Bitcoin Hysteria.” (Coinbase is worth around $ 100 today billion.)

Every startup needs a bank, and in the case of forward-thinking tech startups, they usually look to Silicon Valley Bank (SVB), which is ready to take on companies that have unusual business models. This was the case with Coinbase because SVB gave it an account when no other bank would.

But in 2014, a right-wing publication reported on a presentation by Coinbase co-founder Fred Ehrsam, who explained how countries can use Bitcoin to evade sanctions. The report came after a slew of other indiscretions, leading SVB to give Coinbase six months to find another bank. The situation was almost a calamity – Carlson-Wee described it as “an existential moment” – but Coinbase was able to find another bank in time.

In the tradition of Coinbase, the company was co-founded by Brian Armstrong and Fred Ehrsam.

In truth, Armstrong had an earlier co-founder – a coder in the UK named Ben Reeves, who was supposed to join him to attend the Y Combinator startup school. But as first reported by WiredArmstrong kicked Reeves out of Coinbase accounts just days before Y Combinator started, telling him “Co-founding is like a marriage… we don’t work very well together.”

As I described in The kings of cryptoBrian made the decision at the instigation of Y Combinator’s energy brokers, who feared Reeves’ privacy-driven ideology could hinder Coinbase’s chances of success. But in the long run, Armstrong and Reeves have both enjoyed tremendous success, the latter as the founder of rival crypto firm Blockchain, which is now worth billions.

“Crypto winter” generally refers specifically to early 2018, when Bitcoin fell 65% after skyrocketing in late 2017. But the term can also refer to any past (or future) sharp downturn in the Bitcoin economy. An earlier winter, from late 2013 to early 2015, saw Bitcoin’s price drop 80% and Coinbase’s trading base fell off a cliff.

This led Armstrong and Ehrsam to move closer to executing a contingency plan to lay off 40% of the company’s staff by the end of 2014 in order to preserve a two-year financial “trail” the company has always done. integral part of its operations. . Today, of course, Coinbase employees are sitting tight as the company is on the verge of going public and making many of them millionaires – or in a few cases, billionaires.