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Coinbase from YC to DPO (ycombinator.com)
714 points by todsacerdoti 28 days ago | hide | past | favorite | 845 comments



This is pretty amazing.

Gary Tan made a YT video about his experience backing them very early and getting a 6000x return: https://www.youtube.com/watch?v=x5YApjnTG10

It's remarkable that Brian Armstrong gave up what would have been very valuable options in Airbnb—the most valuable YC company at the time—to found a new company that surpassed it.


Airbnb market cap is at 105 billion and Coinbase is currently at 86.

Personally I'm very sceptical that current valuation for Coinbase is justified. It is a great company for sure but there definitely arent similar network effects as with Airbnb. There's plenty of competition in the crypto exchange space.


I bet Brian owns a much larger stake on coinbase than on airbnb


also airbnb is not dependent on the value of a speculative asset. There will always be demand for rentals.


>also airbnb is not dependent on the value of a speculative asset.

What do you think US real estate is?


people need shelter, they do not need crypto . There is huge demand for housing in metro areas even in spite of Covid, and regulation and other restrictions make it hard to increase supply, and landlords generally want to lock-in long-term rents with good credit scores due to difficulty of evicting, meaning more demand for short-term rentals. .


Airbnb doesn't provide "shelter", it's for travellers.


Agree, AirBnB is essentially serving a luxury travel market.


I don't think that's really true as a blanket statement. I stayed in what turned out to be a depressing, small, rental apartment in Denver for a weekend via airbnb, because it was something like $20/night. The place smelled like trash and there was no laundry on-site.

You might say that any type of travel is a luxury. Ok, I guess. This trip was for a funeral. The flight was under $100. While I'm fortunate to be able to afford such a thing, no part of the trip was "luxury travel".

Airbnb serves a wide variety of customers, via a large range of temporary housing options.


Things precede shelter in the hierarchy of needs yet shelter is still valuable. Also there are shades of shelter. Most people might not want to live in the trailer park of money.


Bitcoin provides shelter for your wealth. Most people need that more than shelter for their person.


I can live in a house. I can't live in a Bitcoin.


Yes, but you also can't take your house with you stored in your brain if you have to flee the country.

Bitcoin as chaos insurance (or schmuck insurance as Chamath calls it) is the use case that makes the most sense to me.


do you really think if the sh*t hit the fan? the entire BTC network and the internet at large would still be working for you to transfer these units around?

this to me is where the comparison to gold falls off. i can hold physical gold and silver and trade it at will even without power, pricing updates, etc. this does not apply to crypto. considering cutting internet access is now a normal thing during unrest, being able to pay with anything that is not physical, probably wont work out.


It depends on the scale of shit hitting the fan.

If the global internet goes down and stays down, then I think it's safe to say that global civilization is permanently collapsing, in which case billions of people are going to die in the resulting famine and the survivors probably won't be able to maintain enough technology to survive long term as climate change continues to snowball.

In this scenario, yeah bitcoin is worthless. But so is gold. The only thing worth stockpiling for this scenario is brass and lead (and a strong local community of other preppers who can organize into a new micro state after the collapse). And even then, you have to ask if the reward of surviving is even worth the cost of prepping.


it wouldn't even take a global internet shortage, just your country to go offline, how you gonna pay someone to get you out(keep you safe, etc) if you cant transfer your crypto to them? A few ounces of gold on the other hand will take you anywhere you want to go. Crypto is far from a safe hedge in any type of crazy event.

you see, gold can still be traded without power and internet, as could cash or really anything physical, as the value is assigned by those trading it at that time for whatever use they have but BTC is totally useless, toilet paper would literally have more value. brass/lead(killing people) isn't the only way to survive.


just your country to go offline, how you gonna pay someone to get you out(keep you safe, etc).... A few ounces of gold on the other hand will take you anywhere you want to go

People keep using that argument about gold, but is it really realistic? If the SHTF and the USA goes dark for whatever reason, how good is gold really going to be?

First, how does someone know you're really giving them pure gold and not some worthless alloy that looks and feels like gold?

Second, how much is gold going to be worth? Will a gold bar buy you a house, or a loaf of bread? (probably not a good example, after a month or so, houses will probably be less valuable than food)

And without any government to enforce a stable market, how will you even trade safely when the guy who has all the stuff you want can just hit you over the head and take your gold and whatever other possessions you may have with you?

Eventually these things would be sorted out by forming some sort of communal groups for protection and resource gathering, and barter prices will eventually be set, but will the guy with the most gold be valuable, or the guy with real survival skills (or at least some more immediately usable possessions like weapons, farming tools, etc)?

For the short term disruptions that are far more likely (like a regional power outage), cash is probably going to be just as good or better than gold because it's got an accepted value and everyone knows what it is (product values may rise, but in a society that's not used to using gold as currency with infrastructure to do so, it's a lot easier to sell a loaf of bread for $60 than for a gram of gold)


gold was just an example used, because the BTC fans like to compare the two. but you are right, gold isnt overly tradable either, since it has very little day to day use. my point was just that BTC would still be useless as it cant be traded without an internet, miners, etc.


I don't particularly believe BTC is the messiah, but if the internet in your country goes down, how do you imagine you're going to get the money in your bank account? You might rush to an ATM before they get swarmed, but you're definitely not withdrawing all your money and transferring won't be an option.


Right, because gold is really going to help when there are no police going around arresting thieves and murderers. I'm sure the guy who tells you he can get you out is not going to take your gold and do nothing to get you out, assuming he doesn't just kill you and take your gold, shoes, weapons, and whatever other supplies you are carrying.

Get real. When governments collapse gold is not even remotely as useful as people seem to assume. There is no hedge against a failure of civilization. When things break down like that, you need to think on your feet and start organizing people (or joining up with a group someone else organized) to stand guard against the roving gangs of murderers, rapists, and thieves. "Trade" beyond the level of barter involving food, fuel, medicine, and weapons does not enter the picture until some new form of government can be established and some semblance of order is restored.


Guns, ammo, and gold aren’t bad choices to hoard for an end of the world situation, but if you want to make out like a bandit when the shit hits the fan just stockpile spices - when people start having to eat squirrels they’re going to want some pepper :-)


Also, drugs.

The caffeine addicts will be desperate when the beans stop flowing.


good point! a working still would probably be useful as well.


It doesn't need to be usable through the crisis to still have value. Holding the private keys will still help preserve some of your wealth through to the other side so you don't have to start over with nothing.

You can flee with some gold, but I'd expect that to all be taken from you by the border guards or smugglers you have to pay off to get out. They can't take your bitcoin if they don't know you have it.


Genuinely curious if you think the Bitcoin network (or any other crypto network) would be restarted after such a crisis and if anyone holding non-crypto assets would be interested in trading them for crypto post-crisis?


Blockstream has satellites in orbit for this eventuality.

[1] https://blockstream.com/satellite/


>If the global internet goes down and stays down

It doesn't take anything this drastic. All it takes is the country you are in deciding to cut off access. This has happened in various unstable countries many times over the last decade so it's not unprecedented.

The very time you would need something more stable than a currency is the time when the local telecom infrastructure would mean you can't transfer bitcoin.


The people who say that bitcoin is going to be useful when "shit hits the fan" have a very very specific definition of shit hitting the fan that is just so unrealistic.


Like hyperinflation and an economic crash? I'm not convinced either will happen, but they seem squarely within the realm of possibility.


...why would I want to accept Bitcoin in that case? Pretty sure I am going to want either some other country's currency -- because I still need to buy imported food or fuel or whatever -- or things have gotten so bad that I no longer hand reliable enough Internet service to make use of Bitcoin.


Because Bitcoin has not experienced the same inflation as USD? I'm not sure what point you're trying to argue honestly.

> Pretty sure I am going to want either some other country's currency -- because I still need to buy imported food or fuel or whatever

Explain why, just saying you want Euros or something isn't a very convincing argument. Importing cash Euros is non trivial, and good luck finding banks and credit cards that let you transact in them.


You really think the entire world would shut off the internet?

It is much harder to transport gold and silver, and those can be easily confiscated. A mnemonic seed can be stored in your head, and you can add a passphrase as a salt on top of that to create an infinite number of permutations, each being their own wallet, and provide just one of those if under duress.


What happens to crypto mining if electricity becomes 10x more expensive?


Then again, you rarely have to dig through a garbage dump for your house because you accidentally threw it out: https://www.cnbc.com/2021/01/15/uk-man-makes-last-ditch-effo...


True, but houses burn down all the time. Or get destroyed by "acts of god" that insurance won't cover.

If you backup your private key in a redundant way, multiple storage locations can be completely destroyed without any loss. If you were really paranoid, you could distribute it around the world to mitigate geographic and geopolitical risk.


People having to flee the country are not a big customer demographic for either of the companies.


In America, there may not be tons of people ready to flee, but we do have a culture of valuing the people having checks against government power (see second amendment).

So, that's what I think is more likely the mentality of western people holding long term. A check against incompetent government.


You can live in a car.

You can’t drive a house.


Motor home, then, to cover both bases.


Exactly! Airbnb is rent-seeking. Not adding any value just controlling and asset for yield. Same as Bitcoin and other crypto, pure speculation and the product of a decade of government money presses keeping inflation low.


Wealth shelters.


There is 20 trillion of negative yielding debt floating around in govt bonds, luckily we can hedge against these horribly mismanaged house of cards before they fall on us. The demand is real.


Bitcoin is worthless without dollars backing it. It’s because you can turn Bitcoin into dollars that anyone wants it.


You can make the same argument about any asset class. The path from Bitcoin/gold/real estate/crops to other goods or assets goes through dollars out of convenience (because your destination is purchasable in dollars). Don't confuse convenience with necessity.


Actually it is out of necessity on some level. My landlord needs me to pay rent with dollars, because my landlord needs to repay a loan to the bank and the bank will only accept dollars. The bank only accepts dollars because if my landlord defaults on said loans the bank will go to court to resolve the matter, and the courts only deal in dollars. Similarly, we all must pay taxes of one form or another, and we must do so using something the government will accept, which is dollars and not Bitcoin.

(You can adjust the currency for whatever country you might be considering if dollars are not the local currency.)

Don't kid yourself -- without exchanges of some sort (including payment processors) cryptocurrency is basically worthless.


The number of things I can exchange dollars for vastly outnumbers the number of things I can exchange Bitcoin for, by orders of magnitude.

In this case convenience is necessity, for practical, real-world definitions. Sure, in a theoretical sense, there is no reason why I couldn't use Bitcoin to buy food and clothing, make rent/mortgage payments, buy plane/train/bus tickets, buy furniture, tools, electronics, etc. But the reality is that I can't do it (with some narrow exceptions), and I don't see that materially changing within my lifetime, not to the point where using Bitcoin (or any other up-and-coming cryptocurrency) is more convenient that using fiat currency.


Yes but that would obviously no longer be true if dollars no longer "worked" (let's say 10k% inflation for the sake of argument). There would be _something_ of value that things could be exchanged for.


Bold assertion immediately following a pandemic in which the demand for rentals fell to... zero.

It took a significant pivot for AirBnB to recover and maintain revenues.


And yet the demand for rentals is recovering (I know someone whose Airbnb rental is already 85% booked through August), and will recover to previous levels. All that revenue will be back, and Airbnb will be more diversified in its revenue sources. Long-term (even medium-term) I think the pandemic will turn out to be a win for Airbnb.


Aren’t they firing a lot of folks due to the pandemic?


That was a year ago. Airbnb completely recovered and then some in terms of value. A few metro area like SF and NY were hit , but the overall picture is improving, and such setbacks will imho be temporary.


"Temporary value recovery" interesting way to contradict your original claim. All value fluctuates.


Coinbase is not just a retail exchange for crypto, just like your bank is probably not just a retail bank.

There is a whole professional services coinbase for institutional investors, custody, etc that has a huge potential.


you think coinbase is overvalued at those numbers but not airbnb? how do you justify airbnbs?


Airbnb doesn't have network effects, the value to users increases pretty linearly with the number of hosts, and doesn't really increase at all with the number of other users.


That's just cross-side network effects. More users is better for hosts which means more hosts which is better for users which means more users.

What you probably have in mind is "direct network effects", more like what you'd see with a chat app or social network (though social networks also have cross-side effects between users and advertisers).


Of course it does, the date of last written review is a pretty good signal whether something shady is going on with an apartment/hotel.

Hotels have much more guest nights than apartments, so the network effects are much smaller there.

There were companies trying to compete with AirBnB, but I'm not sure if they are still used, at the same time with hotel sites I just find the cheapest one for the hotel that I like.


Also ignoring most cities now are banning or highly regulating these illegal hotels in residential neighborhoods

Coinbase seems less threatened by regulations


Coinbase is directly and indirectly threatened by regulations. The direct threat is that the SEC, China, European regulators, etc. impose much stricter regulations on cryptocurrency exchanges like Coinbase, raising compliance costs until the business fails; indirectly, if the regulations are applied "downstream" to payment processors dealing in cryptocurrencies or to businesses accepting cryptocurrency payments. Another indirect threat is in the form of environmental regulations being more strictly applied to mining operations, which could be fatal for Bitcoin or any other PoW based system (yeah, sure, PoS, PoWhatever, but Bitcoin is half the market for cryptocurrency).

There is also an "inverse" regulatory risk for Coinbase. In the best case (where cryptocurrencies are actually being used as payment systems at any significant scale) cryptocurrencies fill a need that is not being filled by existing banks as a result of regulations on the financial industry. Instead of more stringent regulations being imposed on cryptocurrencies, less stringent regulations could be imposed on the mainstream financial system that would allow banks to create more convenient electronic payment systems. The need for a cryptocurrency exchange could implode if the relevant technologies (e.g. offline ecash) were deployed; you would "withdraw" or "deposit" money in the bank just like paper notes. There is even a case for such a system if banking regulations became stricter e.g. if banks were forced to deploy a less fraud-prone and more privacy-preserving system than the credit/debit card system in use today.


Generally speaking, regulation is most easily dealt with by the market leader. They have capital that can be used to meet requirements, and can engage with regulators to make sure the regulation can be achieved by them.

That actually improves the situation for them. (Similar to how GPDR improved Google and Facebook's position in the ad market against competitors)


Did you read what you were replying to? Regulations elsewhere in the market could threaten Coinbase, regardless of their ability to handle compliance costs in their own niche. In their own filing Coinbase admitted that the value of their company is highly correlated with the value of Bitcoin and other cryptocurrency -- so any regulation that impacts Bitcoin will likely impact Coinbase, even if the impact is indirect.


It's more than that in my mind. Coinbase is embracing regulation and leveraging it as a differentiator. They are going to be in a better position than anyone to close the loop to regulatory capture.


Coinbase is hugely threatened by regulations.


They are, but at the same maybe they’ll get big enough to get small fines for big crimes like HSBC helping out the cartels.


I hate this meme. HSBC used their judgement about something for which the law said they had to use their judgement. Then their judgement turned out to be wrong and apparently that's now a crime. Foreign exchange has legitimate use cases, it's not remotely comparable to cryptocurrencies.


Turning a blind eye to money laundering especially when given chances to fix it, and given that money laundering is enabling criminal enterprise that fucks up everyones life, from a household name bank that used to be my high school bank (point is how they market themselves as a nice bank) well I don’t know what to say. Not a meme though.


It's a meme in the sense that it's propagated virally and the story has mutated as it goes. There's no evidence that HSBC were wilfully blind to anything.


oh boy, wait until you hear about Tesla


Please don't post unsubstantive and/or flamebait comments. It causes threads to go to repetitive (and often inflammatory) places, which is a failure mode for HN.

https://news.ycombinator.com/newsguidelines.html


There's something pretty surreal about an actual multi-billionaire running the youtube investor guru schtick.


You know it's possible for people to start YouTube channels as a hobby/side project/whatever. Not everyone with a YouTube channel is trying to scam you. Billionaires are people too. Justin Kan has a YouTube channel for example. You should check it out :-)


At least he's not selling a course


"How I Made $2B By Doing Almost Nothing", on sale now for a limited time. Only $19.99! Order today. And don't forget to like and subscribe. That would really help me out.


The better title would be "How I made $2B on an educated $300k bet" because even the best startup investors will tell you that investing that early is essentially betting.

And early-stage help and intros are crucial for startups - between YC and Garry's network I'm sure a ton of that contributed to their success as well. At the end of the day still a bet, but just saying.


You're right, that would be a better title.


And in Brian had simply bought bitcoins with his $10.000 in 2012, when the price was $4-$12 per piece?

He could have bought 833-2500 bitcoins, with a current value of $5.2500.000 - $157.500.000.

He choose to do more than "HODL" and go through the hard work of building a product and a company, which in my book, makes him a true hero. Even though he went the casino/shitcoin rout later...


Would bitcoin be worth nearly as much as it now if Coinbase didn't exist?


Plenty of exchanges out there, so I would say yes.


but Gemini is the only other regulated US one. Coinbase is huge, even bigger than binance. Something like 50 million ppl have an account. Ppl wondered why the July 2020 Twitter hacker made so little. The reason is, coinabse blocked withdrawals to the hacker address, which if they hadn't, the hackers would have made 3x more..so let that sink in..


Isn't Kraken also based in the US? Last I heard they're in the process of getting a bank charter.


Sure, Google is also huge. Would that mean there is no search engine market when they wouldn't have been there?

Coinbase is huge because of the user demand, not the other way around.


Because Coinbase succeeded others didn't pop up. If they didn't exist others would exist.


But could he have held the BTC through all the crazy volatility since 2011?


Wow. Assuming he put in just $10,000 (and I imagine it was probably more than that), 6000x return would be 60 million dollars.

Any early companies out there right now seem like it could potentially offer even a 10th of that in ~5-10 years?


Well I bought BTC at $1 and so did many others, now it trades at $60k...


Did you cash in and get filthy rich? Or sell too early and mad ragrets.


Rich with ragrets rather than filthy rich.


Damn, no ragrets. Yo but how does it feel to be moderately rich off of crypto? I wonder if anything would change besides not having to work.


This is the biggest difference. Just not a constant stress of keeping up to ensure survival and fulfilment for the family. Now I wonder how best to allocate time and capital, and I have not come up with good answers yet, so I'm still working until I have a better answer. So really all that has changed is mental space has less stress, and I have a much more appropriate family car.


but did you hold it this long?


i dunno how people say VCs have a return of only 9% year when Ycombinator is absolutely crushing that even with a high failure rate. AirBNB, box, dropbox, coinbase, etc.

Paul stumbled on an absolute goldmine by just giving a bunch of promising companies with good founders 10k in exchange for a decent portion of equity and then some of these companies being worth billions.

NOw you know what those homes and are so expensive in Palo Also and elsehwre, You got of these guys making fortunes, and that money tricked down everywhere.


> i dunno how people say VCs have a return of only 9% year when Ycombinator is absolutely crushing that even with a high failure rate

YC is a massive outlier and they have insanely good deal flow because of their brand.


*and the people running it. The brand comes from the success of the companies which comes, in large part, because of the partners and network.

You won't find a better group of truly qualified, highly accomplished people giving advice to startups, holding talks for cohorts, etc. in any other accelerator anywhere, period.


There are a lot of VCs out there. Some do well, some don't.

But remember that unlike the stock market, investing in a VC means locking up your money for 10 years. Slightly beating the market is not worth the liquidity loss, you have to do a good bit better.


Yeah I get it, assuming I did it (which is a big, big if, I don't really trust my judgement to pick winning companies or there being some legal jiggery pokery or bad luck that makes me get nothing or almost nothing back), it would be something I do in addition to buying crypto/gold/silver and putting money into a 401k.


> by just giving a bunch of promising companies with

Selection bias. There are a heap of other companies that tried the YC model, and failed. It isn’t “just” good founders and 10k.


What is the return like for Ycombinator?


They currently take 7% of the company for $125k per https://www.ycombinator.com/deal/

I know in the past though that, at a minimum, the amount of money was different. I'd say it's still safe to assume they own 7% though - so more than a billion USD on paper, not bad.


He actually put in $300k, so his shares are worth around 2.4 billion now


Did he? If he simply bought bitcoins with his $300.000 in 2012 (average bitcoin price of $8) then his net worth now would be .... 37500 bitcoins or $2.362.500.000 ... 2 point 3 billion frigging dollars...


What do you mean? How is that any better than the 2.4 billion worth of Coinbase shares he has now?

You phrase it like he made a mistake and lost out on a huge profit but the ROI is exactly the same so really don't understand your comment.


Actually at one point Bitcoin had an equal fork, so that number should be double for Bitcoin.


Not quite equal. At its peak Bitcoin Cash was about 25% of Bitcoin, and at a much lower price too. If you reinvested it at exactly the right time, you could multiply total yield by 1.25, but that's a big if.


Yeah, Bitcoin Cash is nowhere near its peak ~4 years ago, when it was like $2500 (it's $824 a coin this morning). It has not kept up with Bitcoin at all this bull run (although it has gone up, just nowhere near at the same rate). So yeah it'd be nowhere near double today's Bitcoin value.


It is actually interesting thought pattern, which would be better investment? With owning private equity there is also lots of work involved I would guess, with BTC you just sit on it... Latter is of course very hard in volatile market, while PE you probably can't liquidate.


In theory yes.

In practice, cashing out billions of dollars worth of stocks is easier than cashing out billions of dollars worth of crypto.


You wouldn't be selling those on the open market, institutions have been able to acquire billions of dollars worth of crypto OTC without moving markets.

Another option is, now that it's becoming clear to people that Bitcoin is here to stay, you can just borrow against it to spend (avoid taxes, hold on to the upside). Case in point, this person/group borrowed 300M$ with about 1B$ net worth[1].

1: https://defiexplore.com/cdp/8463


> institutions have been able to acquire billions of dollars worth of crypto OTC without moving markets.

This is misleading. The markets definitely move, they just don't show a massive spike in the charts.


I still don't completely get the borrowing against your bitcoin. You'll end up having to pay that back with interest, so it's going to end up costing you more assuming the price stays the same.

Are people just banking on the assumption that it's going to go up higher than how much they have to pay back over time? What if that stops being true 5 years from now somehow, like another coin becomes dominant? Not saying it's likely, I do think Bitcoin will probably still be doing well in 5 years, but I'm not certain of it.


I'm new to this. Is the collateral locked into the contract and unspendable until the contract is closed?

It's also kind of unclear what the interest is from that page. edit: apparently it's 8.5% https://mkr.tools/governance/stabilityfee


The interest rate varies based on collateral: https://oasis.app/borrow/markets. Eth is between 3-9% depending on liquidation ratios, and wBTC is at around 4.5% and both of these numbers are drops in the bucket when you consider that the collateral has appreciated a lot more than that.

And one more thing, it's not technically an interest rate, it's a stability fee (which btw, gets burned, used to go back to stakers, but they removed that).


Okay, so I suppose the stability fee is paid in MKR, and Dai's stability ultimately is regulated by people who buy MKR, and because MKR is burned by the CDP, people who buy MKR receive the "interest" indirectly due to deflation of MKR? Though MKR is independently traded and seems to move far more from trading than deflation.


It's just a smart contact vault, you can put collateral, take it out whenever you want, you just need to make sure that at any given point in time you have at least 150% of your debts value in collateral in the vault. This person is at over 400%, so very conservative borrowing, can withdraw some collateral.

There are also centralized versions with blockfi if you prefer traditional loans.


150% collateral (66.7% LTV) seems fairly risky for an asset like Bitcoin tbh


It handled the black swan event of complete market crash at the beginning of the pandemic pretty easily. And the other thing is Bitcoin's market cap is well over 1T$ now, as expected the volatility goes down as the market cap goes up. I suspect those ratios are going to come down significantly within couple of years.


I read a bit online after this, and saw various recommendations for people with CDPs to keep more like 300% collateral.

If it dips below 150% the contract is automatically liquidated. Should give ample time for the creditor to get their money back.


How so? For example coinbase is happy to convert your early bought coins to fiat if you want, and these days the liquidity is billions.

I haven't looked at Coinbase stock liquidity, but I would be it is worse as BTC liquidity.


OTC private block trade

it's not like the btc must be sold on an exchange


Fun trivia: Brian Armstrong was looking for a co-founder on HN back in 2012: https://news.ycombinator.com/item?id=3754664


Credit to him for following through with his vision, and standing his ground in his replies to all the comments in that thread. Looking back now, it's certainly evidence of a group bias and the "If the opportunity was that great, X company would be doing it by now" way of thinking.

Props are owed for bringing some true innovation to the space.

I'd love to know how this turned out. Did he eventually find a co-founder? Or did he continue in his YC application as a sole-founder?

For those that don't want to click through: There are replies in that thread such as..

- "No thanks. I'd rather sell sugared water."

- "Because bitcoin worked out so well. Have fun with that, dude."


How did he follow thru with his vision? Read his other comments to get better picture - he was angry at the system of Credit Cards, PayPals etc that charge outraged fees just to be able to use their network. He wanted to build network that performs exchange at zero fee. Instead, he ended up building and owning one of the most expensive crypto exchanges in the USA.

Sure props to him to pull it off, you don't get net worth of $20B by accident or pure luck... but in terms of his vision of the world more united where it is easier to send and receive money without paying outrages fees, he definitely failed on that promise.


>> but in terms of his vision of the world more united where it is easier to send and receive money without paying outrages fees, he definitely failed on that promise. <<

It was Bitcoin that failed to deliver that promise, not him.


Or both. Bitcoin and Coinbase each have outrageous fees.


Depends on the kind of transaction you are doing. For bigger transactions it is actually nice not having to pay percentual fee as with Bitcoin. However with coinbase I believe they are high percentually.


You can pay 1$ for a BTC transfer, so outrageous.


I recently paid $50 for a BTC transfer, and it took 16 hours to get into a block.


You can easily buy fee free on coinbase if you use buy orders instead of market buys.


This changed in 2019 (https://ethereumworldnews.com/end-of-coinbase-pro-introduces...).

At this point, there is no way to trade for free on Coinbase or Coinbase Pro. However, maker orders do still have a lower fee vs taker orders on Coinbase Pro, depending on the pricing tier / how much you trade per month (https://help.coinbase.com/en/pro/trading-and-funding/trading...).


A lot of the US crypto exchanges have high fees. They can get away with it due to US laws preventing US citizens from legally trading on asian exchanges, which have much more competitive fees (i.e. Binance.com, not Binance.US). Gemini has even more ridiculous fees than Coinbase. Also if you use Coinbase Pro, which is more like a stock brokerage account for crypto, you get a lot better fees than Coinbase.com. Gemini also has an equivalent to Coinbase Pro, except they call it ActiveTrader. Kraken, another reputable US crypto exchange, has decent fees in general. US securities laws are preventing US citizens from getting the best deal and US crypto exchanges are getting away with higher fees based on that.


I regularly tell people this - that Coinbase really could have "died being the hero" but instead has "lived long enough to see yourself become the villain"


Now he charges 4% each way to buy and sell bitcoin..


>Did he eventually find a co-founder? Or did he continue in his YC application as a sole-founder?

IIRC, he did - they met on Reddit.


They met through a reddit post or some other way?


I spoke to him on the phone within a few hours of that post, as I had already prototyped an app to do what was described.

I didn't launch mine, nor participate in his (obviously). I suggested that a business in that space, if successful, would result in a similar outcome as happened to other founders of international money transmission systems that weren't under direct government control: i.e. swatting.

He was not dissuaded, to his credit. Score one for the "founders must have grit" camp.

To be honest, I'm still not sure why the hammer hasn't come down on something like Coinbase by now. It seems that cryptocurrencies in general are the exact opposite of the regime outlined by the BSA, PATRIOT, et c. My unsubstantiated theory is that it has something to do with pmarca, but that's just a guess. The founder of Kraken has expressed his feelings that it's coming soon.

I'm glad that Coinbase has permitted so many to participate in the ecosystem, but I wonder about how much of a benefit heavily regulated, custodial wallets bring to the ecosystem as a whole. It seems to me that Bitcoin existed to replace banks, and here we have a bank serving as the Bitcoin equivalent of gmail, re-centralizing everything in a place that is easily and instantly censored by the exact system it was built to replace. The fact that they're listed on a stock exchange and not as an ERC-20 or other permissionless token tells the whole story, in my view.

I have a special respect for those who can function in heavily regulated, guilty-until-proven-innocent style markets like financial services in the USA. I personally would not be able to handle it.


If the last few decades tell us anything, it’s once you’re large and have a lot employees, you’re above any regulation that would put you out of business. Slaps on the wrist are the worst you can expect.


My hunch is that it has more to do with the amount of money you've taken from prominent/powerful/connected Rich Guys than how strictly large you are or how many you employ.

There's a lot of hidden soft power in the USA amongst the ultra-wealthy, I've come to learn.

(Note that this is not a criticism specifically against Coinbase, per se; more an indictment of the lack of equal protection under the law in the USA in general. All animals are equal, but some animals are more equal than others.)


Arthur Andersen and their ~85,000 employees would like a word.


After rubber stamping the squandering of California's energy market into a complete fraud of a company. I think that's a very high bar to cross, requiring damaging a lot of rich people in the process to call attention to it, to be punished.


Backpage was pretty big when it was deep sixed by the Feds.


Did Backpage have institutional money behind it?


Wirecard did.


> I'm still not sure why the hammer hasn't come down on something like Coinbase by now

Perhaps you have a answered yourself: “re-centralizing everything in a place that is easily and instantly censored by the exact system it was built to replace”.


If compromising the permissionlessness of Bitcoin is the only way for Bitcoin to come to a certain market, then perhaps it would be better for companies like Coinbase not to exist, and people who want to use Bitcoin should have to take the steps involved in self-custody.

To me, it's a shame to see. Now that Gmail and Coinbase have captured so much of their markets, they (or anyone who can coerce them) are now free to start censoring what goes in or out, turning a federated, permissionless system into effectively a dictatorship.

https://cryptobriefing.com/bitstamp-begins-track-off-exchang...

I really hope that's not what ends up happening. It's a bummer that financial services in the global west engage in such legally-mandated gatekeeping, locking billions out of the most lucrative payments markets. The internet and cryptocurrencies present a new opportunity there, and re-using the same decades old regulation to segregate the technology into the haves and have-nots is, to me, a tragedy.


The coins stored on Coinbase (and other crypto exchanges for that matter) are at all time lows, people are self-custodying their coins and using them on decentralized protocols where they don't have to trust centralized 3rd parties. Coinbase is just one player in the whole space.


Coinbase is custodying 760k BTC or so... thats more than 5% of all BTC in existence.


They claimed that they were holding about 11% of crypto market cap on their exchange.


I hope you're a) right, and b) it stays that way.

I fear that neither is true.


>censored by the exact system it was built to replace

Bitcoin was designed to replace fiat money, it can't replace swats.


Charlie Shrem (BitInstant) was a bit less lucky, or maybe it was "too early"?


You see no benefit to a flat system in crypto where everyone can participate equally, vs traditional finance / stock brokerages where large institutions like hedge funds automatically get a better deal vs any retail trader?


Some observations:

1. Armstrong was so concerned about privacy that he used a throwaway, but ended up giving his identity away anyway.

2. Those responses! The negativity on Bitcoin has been there from the start on HN especially for some reason.

3. That whole payment angle has not worked out the way most people thought. Most enthusiasts in 2012 saw Bitcoin as a PayPal replacement. Instead, Bitcoin has taking its own path, confounding the predictions of skeptics, professional economists, and enthusiasts alike.


1. See 2.

2. Bitcoin was always a dumb idea from the perspective of building a business or an economy on it.

3. Anyone who really looked at Bitcoin in 2012 could see it was not a realistic replacement for PayPal unless you were thinking about paying on a place like SilkRoad.


Fiat systems have such infernal UX, bitcoin can win on that metric alone. The FUD spread by the regulator is the only reason we're here.


By infernal you mean they comply with AML regulations like KYC?

Not following the law is not a "metric" legitimate businesses usually brag about.

Anybody who use FUD as an argument for something is pushing some kind of snake oil. FUD stands for "Fear, uncertainty, doubt." Why does FUD exist? Because historically when we did dumb things there were consequences. Is fearing consequences an irrational thing?


Ah the good old days, when people talked about Bitcoin solving too high credit card fees. It’s now $15+ per transaction in fees but it’s now a store of value so it doesn’t matter!


The $15 is debatable, mempool.space is closer to $5 for confirming within 60 minutes, which is many factors faster than what Mastercard do in the traditional world.

I would argue though that the magic of Crypto isn't buying coffees. After Silkroad we have seen very little interest in using Crypto as money, and even with "high" fees, alternatives have not become desirable for their ability to transact cheaply. I would also point out that even the likes of Coinbase have a 0.5% fee before spreads. Using crypto over cash or card (at least in Europe) isn't a cheaper of faster process end to end.

IMHO Bitcoin IS an offshore account, and the ability to move wealth anywhere in the world, without a middle man, entirely permission-less and trust-less for even at $15 is a massive achievement. Don't get me wrong, it can be cheaper, but what Bitcoin can do, and how individuals from retail investors to publicly listed companies are holding Bitcoin its a massive signal in terms of whats actually desired.


There are other cryptocurrencies that have higher tps and lower per-transaction fees.

Bitcoin has low transaction fees compared to US domestic wire transfers or compared to using a credit card on a purchase of $1000 or more.


Thats cheap transaction fee for buying my yacht or private island with BTC


Amazing to see.

But what I find interesting is that his vision was way off- crypto is nowhere near replacing credit cards, now or in the future.

But he did build a huge company because crypto became a speculative asset bubble instead.


Scott Sumner has an interesting argument that it's not a bubble.

Similar for the so called 'tech bubble' around the start of the millennium: if you bought all the tech stocks back then and held them until today, you would have made an OK return.

(Of course, many companies have gone out of business, but there were a few outsized winners to make up for it.

Any individual tech stock was extremely risky, but the overall sentiment that 'tech is the future' was right on the money.

If anything, it's not the high valuations of the 'dot-com bubble' that seem off, but the low valuations of the bust.


Except 75% or so of this bubble is mined in China and more American firms keep buying into it...

This story doesn’t likely have a happy ending.


Proof of Work crypto is mined where energy is cheap.

And energy is cheap where it is subsidised or in abundance. The first is often 'China'. The second, currently often hydro.

A lot of mining is now moving to Iceland, Canada etc. Where energy is becoming cheaper than CPC funded energy.


> This story doesn’t likely have a happy ending.

And that's exactly what you would expect when extrapolating from the economic argument above!

To come back to the analogy with dot-com companies:

In a field where a winners might give you outsized 100x returns, you expect perhaps 99 out of 100 companies to be total garbage losers that go bust. So that the average return from investing in all companies in that field is something normal.

Otherwise, rational investors will keep pumping money into that field and funding more and more companies until that's true.

Same here: even if you believe that in 20 years cryptocurrencies will dominate the world economies (just like 20 years after the dot-com boom and bust, internet companies like Amazon and Google dominate economies), still most almost all cryptocurrencies will fail.

The political risks, that you are alluding to, fit this argument just like any other risk would.

Thanks to eg bitcoin futures, it's not relatively easy to go shortsell (something like) bitcoins, so I expect the market price to be roughly in line with the best forecasts possible.

(Only 'roughly', because the market for bitcoin is still pretty tiny, and not very developed, compared to eg US inflation forecasting markets like https://fred.stlouisfed.org/series/T5YIE )


Why doesn't it have a happy ending?


"China" isn't one people either.


Plus all the Tether shady stuff.


> crypto is nowhere near replacing credit cards, now or in the future.

Bitcoin - not. On the other hand, modern altcoins who are faster, PoS-based, low fees, etc are on the path to exactly this.


Which coin has a functional, non-exploitable PoS algorithm implemented?


Lisk. Though it's Delegated PoS.


Cardano, Polkadot?


Proof of Stake has yet to demonstrate as much resistence to adversarial attacks as Proof of Work.

An expert in the space, Andreas Antonopoulos, speaks to this topic here: https://www.youtube.com/watch?v=U0T49duRt74&t=2720s


There is a very strong incentive for Bitcoin proponents to push this narrative but it doesn't stand up to scrutiny.

Proof of Stake is more secure than Proof of Work because it's not possible to use external resources to take control of the system. The cost of hijacking PoS is exponential, not linear.

With PoW, someone who has no stake in the network could buy or rent mining hardware using fiat and take control of the network for a linear cost - This is because, unlike cryptocurrency tokens, hardware is not a scarce resource; it's always possible to produce more of it.

With PoS, the only way to take control of the network is to buy more than 50% of all tokens. The cost of acquiring 50% of all tokens is non-linear since tokens become more expensive as the attacker purchases more. This is because the attacker will generate continuous demand against fixed supply of tokens; in accordance with the law of supply and demand, the price will keep increasing as they buy more tokens. Also, the incentive to follow through on the attack decreases as the attacker accumulates more tokens.


This is interesting. I am curious, which PoS coin implementations do you like?

If an attacker wanted to not raise the price of a coin, couldn't they use crypto OTC markets to buy large amounts while not raising the price (i've seen OTC at least marketed that way)?

Aren't cryptocurrencies also only a scarce resource if they have a hard supply cap? Or do you figure in something like inflation vs coin burning to this as well?

I do understand your point that the incentive to follow through on the attack decreases as the attacker accumulates more tokens, since it would be in their interest for the network to function properly at that point due to how many tokens / how much stake they have in the network.

The only reason I could see the attack making financial sense at that point would be if it was a competitor who was trying to kill a competing PoS network and it was worth it to them to do so in order to promote their own network (or maybe it could be a government trying to protect their fiat currency)?


>> This is interesting. I am curious, which PoS coin implementations do you like?

I've been involved with Lisk (LSK) for several years. It's Delegated Proof of Stake though so you can use your LSK to vote for block forgers who offer a good % share of their block rewards and earn interest that way.

>> If an attacker wanted to not raise the price of a coin, couldn't they use crypto OTC markets to buy large amounts while not raising the price

Yes, that can happen in theory but in practice it's not feasible. In DPoS especially, whales would rarely agree to sell more than 50% of their own stake because if they did they could lose their forging delegate spot (which yields higher rewards than just voting). Because the blockchain is public, delegates all watch each other's on-chain activity and they can lose votes if they try to sell too many tokens (doesn't matter if it's OTC or exchange).

>> Aren't cryptocurrencies also only a scarce resource if they have a hard supply cap? Or do you figure in something like inflation vs coin burning to this as well?

If there is inflation, it doesn't affect the security of the blockchain because the attacker must acquire 50% of all tokens in any case. The more tokens there are in total, the more tokens the attacker needs to buy to get to 50%.

>> The only reason I could see the attack making financial sense at that point would be if it was a competitor who was trying to kill a competing PoS network and it was worth it to them to do so in order to promote their own network

Early days of any blockchain are always more risky. That said, the early days of most PoW blockchains are even more precarious than those of PoS. This is because with PoW, the community has no say over who can start forging blocks on its new blockchain (anyone who owns some crypto mining hardware can compete to produce blocks on potentially any PoW blockchain).

If just a tiny % of Bitcoin's miners were temporarily repurposed (e.g. minor software changes) to mine any new PoW blockchain, those miners could easily take over the new blockchain and create any transaction they want. With PoS, in the early days, the community gets to decide who will receive the initial tokens; so outsiders cannot highjack the network unless then find a way to buy more than 50% of the tokens from existing token holders.


Also, most of the drawbacks that Andreas mentioned in the video are not related to PoS in general; perhaps it is more specific to certain older implementations of it. Most current PoS blockchains do provide guarantees of immutability since all transactions must be signed and the signatures must match sender public keys.


PoS is not as secure as PoW. If it was, bitcoin's consensus algorithm could be changed as well. So, bitcoin wins anyway.


https://news.ycombinator.com/item?id=3755073

I wonder if he's kicking himself now for not taking the job.


kinda ironic how in his post he's trying to compete on fees


Coinbase doesnt have 2.5% fees so it is ironic that it is extremely competitive

Their retail platform has a 1% withdrawal fee unless you are using USDC in which case it is 0%

And their trading platforms have 20 basis points and less commissions


Coinbase charges a spread of about one-half of one percent (0.50%) for cryptocurrency purchases and cryptocurrency sales. However, the actual spread may be higher or lower due to market fluctuations in the price of cryptocurrency on Coinbase Pro between the time we quote a price and the time when the order executes.

We also charge a Coinbase Fee (in addition to the spread), which is the greater of (a) a flat fee or (b) a variable percentage fee determined by region, product feature, and payment type. The flat fees are set forth below:

If the total transaction amount is less than or equal to $10, the fee is $0.99 If the total transaction amount is more than $10 but less than or equal to $25, the fee is $1.49 If the total transaction amount is more than $25 but less than or equal to $50, the fee is $1.99 If the total transaction amount is more than $50 but less than or equal to $200, the fee is $2.99

Edit: There's another section about how they charge 4% to deposit dollars unless you use ACH (and wait 1 week) or wire transfer (then they charge you $10 to deposit or $25 to withdraw)


And then someone says "just look at Square or Venmo, they do fine connecting to your bank or whatever, adding Bitcoin to the mix just adds another layer of complication"


2nd post down... doxxed ooof.


Threads like that are a big reason I'm not very active here on HN anymore. So much negativity masquerading as "constructive feedback".


It's a tiny bit pedantic, but the Coinbase offering today was not actually an IPO, I learned, but a DPO (Direct Public Offering). It was not a fundraising event for Coinbase, only a liquidity event for shareholders, and unlike an IPO no explicit valuation process occurred to select an offering price.


Its not pedantic at all, it's the most interesting part of this IPO, because this is a new way to do IPOs.


Spotify and Slack went public through direct listings as well.


Yeah, I wonder if this will become a trend. I always thought the underwriting agency in an IPO was a form institutional gate keeping / toll booth on the road to going public.


It will be a trend for heavy VC funded companies that are not really profitable (not speaking about Coinbase specifically). DPO's allow VC to recoup investments at around the 10 year mark for company's that do not make financial sense on paper.


Why does that matter here? Profitability is not a prerequisite for an IPO, and any IPO let's investors recoup their money.


It used to be that you could not IPO unless you were profitable, and furthermore the point of an IPO was to raise money needed to fund growth. But today these companies have raised enough money from VC's that they don't need any more from the public markets. By listing shares and letting these insiders sell, there is more limited supply and great demand, so they can sell tiny stakes for inflated prices. It's really great for VC's and other insiders.


> It used to be that you could not IPO unless you were profitable

Citation please. Lots of companies IPO while losing money.

If this was a thing, it's ancient history and not relevant to IPO vs DPO discussion.


I don't think it matters. I think the main difference is an IPO is typically used to raise money to grow, where as a DPO is mainly used to shift risk from VC to the main street and allow VC to recoup money from a non profitable entity. A magic trick really. IPO's do that too, but with a DPO there isn't the expense and the risk dog and pony show. Similar but different.


Also Palantir and Roblox - I think it's the way forward for most companies. Spotify was the first and the others have had slight variation to terms, but the core idea is good.


1. Keep valuable growth companies private for as long as possible where only accredited investors (rich people) can invest in them.

2. Open up to the public market only once you've reached the max theoretical valuation. The company is still hugely overvalued on hype and future growth is unlikely. Ideally, you quickly make it into the S&P 500 so you can hand off the bag to passive index holders who have very predictable buy rate (mostly retirement savings).

3...

4. The rich profit of the plebs like always.


Let's start having companies mint fungible tokens so anyone can invest in them early on. It's like ICO's but hopefully it goes better this time


Yeah, capital > labor as Thomas Piketty pointed out quite nicely.


Just FYI, that's just a theory, and in the decade since his book was published, there have been several rebuttals and refutations pointing out that this theoretical mechanism doesn't match the empirical data.

https://www.imf.org/external/pubs/ft/wp/2016/wp16160.pdf

> Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of r-g.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3546668

> Recent influential work finds large increases in inequality in the U.S. based on measures of wealth concentration that notably exclude the value of social insurance programs. This paper revisits this conclusion by incorporating Social Security retirement benefits into measures of wealth inequality. We find that top wealth shares have not increased in the last three decades when Social Security is properly accounted for. This finding is robust to assumptions about how taxes and benefits may change in response to system financing concerns.

Auten & Splinter came out with the most widely accepted[1] rebuttal, which showed that Piketty's theoretical model was based on a reality that ignored major taxes and transfers, and once you account for those, the effect goes away completely.

http://davidsplinter.com/AutenSplinter-Tax_Data_and_Inequali...

> Top income share estimates based only on individual tax returns, such as Piketty and Saez (2003), are biased by tax-base changes, major social changes, and missing income sources. Addressing these issues requires numerous assumptions, especially for broadening income beyond that reported on tax returns. This paper shows the effects of adjusting for technical tax issues and the sensitivity to alternative assumptions for distributing missing income sources. Our results suggest that top income shares are lower than other tax-based estimates, and since the early 1960s, increasing government transfers and tax progressivity resulted in little change in after-tax top income shares.

[1] https://www.economist.com/briefing/2019/11/28/economists-are...


Thanks for sharing, I was unaware of that.

Capital > labor, still. But I guess not as badly as I thought.


It's actually debatable if capital is even > labor.

https://taxfoundation.org/labor-share-net-income-within-hist...


Also interesting. Although I mean in this case that I'd much rather be capital than labor if I had the choice.


its not interesting this is just another way stock markets are more about gambling instead of a way to raise capital. Previously you had startups doing their best to get sold to big companies instead of becoming profitable companies. Now they are going this route.


I don't know what your argument actually is, or what it has to do with what I said. You're just complaining under my comment because you objected to the word interesting.


What difference does it make? Shares trading openly on the market is as explicit a valuation process as it gets.


Banks rip off companies in IPOs by underpricing the stock so their investors get a kickback.

That's the least charitable way to write it, but it's somewhat close to the truth (the other part of the truth is that pricing is hard which is why we have markets).

DPOs allow companies to list at a reference price without losing out on money - they can sell at the true price later.

Banks naturally make up a bunch of reasons why this is bad, but it's mostly nonsense.

When one side does many of these types of transactions per year (banks) and one side may only do one or two in a lifetime (founders) expect the side with more experience to both tilt the deal in their favor and to have a compelling narrative of why it's actually better for you.

See: https://podcasts.apple.com/us/podcast/bill-gurley-direct-lis...

There's a funny story (I searched briefly, but couldn't find) that when Elon took Tesla public via an IPO and the bankers told him the initial price he just said "no, at least $XX or no deal". I think the bank price was $17 and he said at least $19, but I could be off on the numbers. They did his price and that price was still too low.

It's a mistake for any company to IPO from now on imo, SPACs are even worse really (unless you're running a fraud in which case SPACs are great).


DPO is the same though right? If you do the capital raise before the DPO or a capital raise in an IPO there isn't much difference.


If you're doing a capital raise privately before the public offering then you can set the terms you think are fair, but this isn't really required for a direct listing unless you need to raise money.

You can list and put up shares on the market later.

I think there's something new where you can list directly and then sell to the public too without the bank underwriting rip off thing, but that's the edge of my knowledge. I'm not super confident here, so definitely possible I'm wrong about specifics.


There are a number of important differences, in fact the only meaningful comparison is that they are selling shares to the public.

The title is wrong, there is no IPO. Presumably "IPO" is meant as "public offering." If there's a place to be specific about these things, isn't this thread it?


I don't know much about finance but based on what GP said, the biggest difference (aside from the acronym) is that one is a fund-raising event and the other is a liquidation event for shareholders. I read the latter as Coinbase's investors said at a board meeting, "Ok, we're ready to cash out now." so they held the DPO.


Kinda. In a normal IPO the big banks will agree to underwrite (that is, buy from the company and then immediately sell to investors) all the shares at an initial "offering price", and this is agreed upon in writing a little bit before the launch day. I don't believe this happens in the direct listing format, it just starts floating with no underwriting process.

So there is a difference in structure, but to your point immediately after launch it does not really matter to the general investing public


The basic difference:

In an IPO the company puts private shares in the open market and gets money from it, priced at the IPO price. Whoever has (private) shares now has public shares and can trade whenever they want.

In a Direct Listing the company often already traded shares "openly" but not in a "public" way, but now wants it listed publicly so retail investors can trade it, and there's no immediate need of capital so the objective isn't to get a funding from offering shares in an IPO.


A traditional IPO does not have to be a fundraising event. This was an IPO, just one structured as a direct public offering instead of negotiated sales the day before.


Doesn't the Coinbase treasury create/hold un-issued Coinbase shares? Do we know they didn't sell any of those?


If you have employee shares, it's very much not pedantic since there's no lockup period.


The distinctions you are making are not exclusive to IPOs

They just opened up a share selling shop on the stock exchange, instead of selling it to banks (that already have shops) at wholesale price.

Any shareholder can sell through that shop window, including the company.


Ok, we've DPO'd the title above.


Coinbase is definitely a success story in how to appeal to the masses. There were always alternatives, but coinbase always came out on top despite the high fees and poor customer service.

I think Coinbase as a publicly traded company will be very interesting to follow. Not only is it a massively cyclical industry, but the supposed point of crypto is to reducing the reliance on, and grifting from, companies like Coinbase. It's very success should be inverse to the goals of crypto, and over time, one would think the relationship can only get more fragile.


> the supposed point of crypto is to reducing the reliance on, and grifting from, companies like Coinbase

That was the pitch of crypto. In practice, people are buying it as a bet that it will go up. I suspect most people are only buying it because the value is going up. If bitcoin actually worked like a currency and traded between $8k and $12 for the past 5 years, no one would care.


Global wealth is $400T. All crypto currency combined is worth about ~$2T at this point. So to store 0.5% of the world's wealth, we are using 0.6% of the world's energy.

Banks obviously don't use anywhere near this much energy. Bitcoin is estimated to use more energy than all other server farms put together.

So we are using 0.6% of the world's energy to store 0.5% of the world's wealth. And < 0.6% of the world's energy to store the other 99.5% of the world's wealth.

Doesn't seem like the ideal wealth storage technology.


I would include the energy needed to maintain trust in other currencies including efforts to prevent counterfeits, which I might argue includes some portion of a nation's militaristic might. Trust is an even more ambiguous, yet crucial aspect of maintaining a currency's value, tied up in the "order" or predictability of the society using the currency, which involves various legal systems and at the most basic level, relationships between its peoples.

It takes a relatively minuscule amount of energy to maintain a database of numbers associated with certain people and entities, but quite a significant amount to make it mean something.


I don't really understand this argument. If militaries are part of the embodied infrastructure of a country's banking system, this would imply that replacing the banking system with something decentralized (like cryptocurrency) would cause countries across the world to reduce their military footprint.

I find it much more likely that military resources would be diverted to somewhere upstream of mining in the value chain. For example, if we continue relying on carbon-intensive proof-of-work blockchains, why wouldn't armies simply be diverted to secure energy resources?


Yes, similar to countries going all over the world to find gold in years past. In that sense, fiat would require less military since you don’t need to go conquer anyone, just being able to project enough of a threat to stop counterfeiting is enough.

Either way, it’s very convoluted and tough to tease out line item costs, but I don’t think comparing electricity usage is a good proxy.


My point is that, if a country no longer derives its power and wealth from controlling the banking system through military might, rather than freely giving up that power, it's going to flex that military might in other ways to ensure that it maintains that power and wealth. If crypto merely displaces military resources (as I think it would) instead of replacing them (as you seem to be arguing), then it's not really fair to count the military as part of the banking system's energy/carbon footprint.


If this were actually true, Coinbase would not need to exist with a market cap of $100B.


That's why we need centralized exchanges like coinbase to enable off chain transactions within their walled garden. Then we can have the worst of both worlds.


The energy spent on bitcoin’s proof of work is not tied to the volume of transactions though. At a technical/protocol level, the same amount of mining would be needed if there was $100 trillion being stored or $1 being stored.

Although higher prices make larger mining operations more enticing and profitable.


I like this reasoning in terms of global wealth


The energy is not spent on storing though, it's expended when verifying transaction, isn't it?


In the sense that verifying transactions is what keeps the bitcoin network alive.


Yeah but if people would mostly store their bitcoins, wouldn’t the energy needs go down?


Here is where Bitcoin's wasteful algorithm comes in. The vast majority of the energy expenditure comes from bitcoin miners burning compute cycles to bid for the right to add the next round of transactions to the ledger, which happens every 10 minutes. The more energy that the miner spends on computing SHA1 hashes, the higher the chance that they'll find a lucky hash that entitles them to a monetary reward from the transaction fees, plus freshly minted bitcoins.

The idea behind this proof-of-work scheme is that creating an alternative blockchain history becomes prohibitively expensive, pushing the network to achive a distributed consensus. However, it's tremendously wasteful because the energy isn't actually being spent on "useful" work.


> So to store 0.5% of the world's wealth, we are using 0.6% of the world's energy.

It's even worse in terms of energy per transaction.


Which is a useless metric because the energy usage doesn't scale with the number of transactions.


What's the total energy cost, including human capital, of keeping the petrodollar afloat via global wars/hegemony?


Even if it is greater than 0.6% (it's plausible) - dollar denominated wealth accounts for 25% or global wealth. Which is 52.5x the amount of wealth as all of crypto.

The US doesn't even use 20% of the world's energy. So you would need to think that 125% of the energy the US produces and consumes goes directly into fighting wars and "supporting the petro dollar" - which is absurd. Almost 50% of energy is spent on transportation and utilities alone...

In the most generous of worlds, Bitcoin is 10x less efficient than the current systems. It is probably closer to 1000x less efficient (or more).


Well the US has killed over a million people in Iraq, Afghanistan, and Syria in the current wars. How are you calculating the cost of that million lives to prop up the dollar?

This is one of the biggest selling points of crypto, it’s not tied to a government that may decide to commit mass murder for its sake.


This implies that the energy required to store wealth in centralized databases is easily calculable.

It also implies that the goal of storing wealth is optimizing for low energy usage, which seems less important than security/safety, ease of transfer, taxation, automation, and other factors.

I’m not making an argument for or against PoW. Just want to point out it’s possible >.6% of humans energy output may in fact go towards banking and payments.


This is a poorly reasoned comparison. The .6% figure was in reference to .5% of wealth; presumably much more energy would be required to store closer to 100% of wealth with crypto.

Given that we are nearing the irreversible destruction of our climate and that existing electronic systems offer all the benefits you mention, but with massively lower energy cost, your claim that energy “seems less important” is unsupported.


Sadly this is true other than "no one would care". Many would care, just mostly not in countries with stable fiat.

But the success of BNB which is basically just a corporate database on a blockchain shows there is a big part of the community that doesn't care about decentralization at all.


Yeah I believe you mean BSC


BNB is an ERC-20


Except currencies have much bigger market caps, it wouldn't have worked as a currency in that range (outside of a very small economy). We are now in the initial phase where it's being used as a store of value, but sooner or later, it's going to reach roughly it's true value at which point, you would expect it to behave more like a currency rather than an asset with a huge upside.


Currencies don't have market caps, assets have market caps. The fact that people talk about crypto's "market cap" is as clear an indication that it's not and never will be a currency.


Currencies definitely have total supplies which can be measured in USD. Let's not be finicky with definitions. https://fiatmarketcap.com/


Calling a country's M2 money stock "market cap" is exactly the kind of category error I expect in the crypto space.


You must be fun at parties


In the past, Bitcoin exchanges IMO felt shady. They frequently were run from foreign countries and got away with avoiding Know-Your-Customer banking laws.

Coinbase brought a true sense of legitimacy and trustworthiness to Bitcoin exchanging.


Yep. I always wanted to buy bitcoin way back in the day, it's just every time I almost joined an exchange (like Mt. Gox) they always made me feel really nervous and like I was going to lose my money (didn't help that several of them got hacked and did lose everyone's money).

Coinbase was the first company that made the whole process feel pretty safe and reliable.


> Coinbase brought a true sense of legitimacy and trustworthiness to Bitcoin exchanging.

I could be wrong but to me this makes every shill for crypto that says "it's anonymous!" a joke.

I had to provide a driver's license and do checking account verification to be approved on Coinbase. Does that not remove the anonymity or am I missing something?


It does remove any question of who you are for coinbase, but bitcoin was only ever pseudonymous transactions, not fully anonymous. We can all see how each wallet behaves.


and in an "audit" or "government" scenario, your Coinbase wallet is linked to your driver's license + checking account, right?

Do we know if Coinbase would cooperate with US government in such a situation? I would imagine they would.

I'd imagine they are also going to be sending IRS 1099-like forms for all crypto transactions, right?


Yeah - it's not anonymous, the shill people didn't understand the technology and are wrong.

Every transaction is part of the public ledger. If you ever want to get money in or out from fiat you need some point that is going to require ID.

You could try and avoid this doing in person and cash, but if make any mistake ever your entire history of transactions is known.

Some people have tried to do things to obscure this (coin mixing), some coins exist to do something clever to make it private, but BTC isn't and the other stuff doesn't really work.

Coinbase is great because the original exchanges like "Magic The Gathering Exchange" (Mt. Gox) were amateur hour, they were routinely hacked and lost everyone's money. Coinbase was the first real company that showed up and did what they were supposed to do. They also made things easy with good UI.

I think this is partly because in the Mt. Gox days it wasn't taken too seriously, (most) people were playing with it because they thought it was cool not because they expected it to grow in to a trillion dollar monster.


Bitcoin CAN be used anonymously if you never use an online exchange to convert fiat to Bitcoin or vice versa.

But yeah, otherwise I agree with you. Once you've bought your Bitcoin from Coinbase, your name is attached to a Bitcoin address. Law enforcement might not know where the coins go once you spend them, but they could subpoena you or otherwise make some sort of legal demand to know who you sent them to if they suspected you of buying illegal things.


> Bitcoin CAN be used anonymously if you never use an online exchange to convert fiat to Bitcoin or vice versa.

How do you get a Bitcoin wallet registered and get funds into it?


You don't need to "register" a Bitcoin wallet anywhere.

If you download the desktop client, you have a wallet, and you don't need to log in or register anywhere. You can then create a Bitcoin address and have Bitcoin sent to it.


One factor of that appeal in the US is that you have to provide your SSN to the exchange you're using. There's a lot of intangibles that Coinbase brings that overcomes the activation energy required to punch in those numbers on a web form.

Just an anecdote but, much to my chagrin, I've had a largely dormant Coinbase account since 2013 and haven't received any notable spam or evidence that my contact info has been handled sloppily.

Recently I started the enrollment process for a couple other popular exchanges and almost immediately start getting some gnarly spam of topical relevance.


> much to my chagrin, I've had a largely dormant Coinbase account since 2013 and haven't received any notable spam or evidence that my contact info has been handled sloppily.

> Recently I started the enrollment process for a couple other popular exchanges and almost immediately start getting some gnarly spam of topical relevance.

So...you're happy now, right?


lol Yes! I feel like a member of the economy now. A guid in a database somewhere...i have value.


>the supposed point of crypto is to reducing the reliance on, and grifting from, companies like Coinbase.

Not necessarily, the point of crypto is to reduce reliance on fiat money, due to the high fees of crypto it makes sense to build centralized services on top backed by decentralized cryptocurrencies, these exchanges dont hold real power, as you can just switch exchanges (unlike credit card processors). Bitcoin is like the internet gold, but you dont buy stuff with gold.


> coinbase always came out on top despite the high fees

Commissions tend to come down as markets mature (with some exceptions like real estate) so I will be curious to see if this occurs in the crypto market as well. I suspect that appeal to the masses will not be a long-term durable advantage.


Early on coinbase made it very easy to buy, even if it meant taking losses. They allowed people to trade with funds that were not yet cleared. This was a long time ago. Some ppl could withdrawal the coins and then cancel the deposit by contacting the bank. that did not last long.


> the supposed point of crypto is to reducing the reliance on, and grifting from, companies like Coinbase

Yes, that is still the case? Decentralized exchanges like Uniswap are dominating (over $1B volumes daily) and growing very rapidly. Crypto is and always has been about decentralization.


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