Coinbase, Before It Was Inevitable

May 2013 was an exciting time for Brian Armstrong. His digital wallet startup had just won a bitcoin hackathon and snagged its first $5 million in venture funding. Olaf Carlson-Wee, who would later found Polychain Capital, had just joined Coinbase's scrappy “office” loft on San Francisco’s Bluxome Street.

It was exciting because Armstrong’s bid to bring bitcoin to the masses was taking off. Just nine months after pitching his startup, Coinbase, at a Y Combinator demo day, he and co-founder Fred Ehrsam had 109,000 users moving those $130-odd bitcoins 107,000 times a month.

He’d told demo day attendees that Coinbase would be the “easiest way to get started with bitcoin” – a gateway for a decentralized revolution in internet commerce that would cut out the credit cards, the banks, the middlemen and the fees.

“In my view, this is the potential of bitcoin,” Armstrong said on Y Combinator’s Hacker News forum, responding to a poster who said the founder of such an “interchange free system” might one day rank among “the wealthiest people in history.”

“I'm making a bet in this space,” Armstrong wrote, even as he doubted “a single company could pull it off.” 

Coinbase did not pull it off. Its founder’s goal of turning bitcoin into a global payment rail for storefronts and merchants has largely failed. But Coinbase did succeed in becoming a go-to service for crypto newbies investing in bitcoin as an asset; increasingly it's also a go-to for Wall Street firms betting big on digital gold.

With Coinbase's Nasdaq debut now in the rearview, Armstrong is set to become one of the richest people in the world, joining the ranks of Silicon Valley's mega-elite.

But back in the early 2010s, the picture was far from clear.

CoinDesk went digging through Coinbase’s earliest days to see how Brian Armstrong crafted his young company’s image online. There was no guarantee that prospective users would trust Coinbase with their cash or crypto. It was a battle Armstrong had to win over time. 

In Coinbase's early days, Armstrong was focused on many of the same issues that preoccupy him today: reaching a mainstream audience, tackling tricky legal questions and keeping customers happy.

One of Armstrong’s earliest bitcoin posts on Hacker News displays his primary fear: that navigating the legal landscape would be a bitcoin killer. The dilemma: Either play nice with the Feds and reveal customer identities, or risk alienating the pro-anonymity bitcoin fan base. 

“Anonymity … may not be as important to the masses. Not sure," he mused. He ultimately decided to play it safe and now he has 56 million registered users.

Coinbase made a big step in 2012, winning the right to link Coinbase customer wallets directly with bank accounts.

“You’re correct to be wary of entering bank info like this on any new service,” Armstrong told blog readers upon the launch of bank integration. But it was a huge step for the startup; now people could now buy more bitcoin more seamlessly (Coinbase’s goal from the start). Pretty soon, Coinbase users were buying and selling $1 million in bitcoin a month.

All that new bitcoin needed a safe place to go. After calculating that Coinbase needed only 13% of its stash online during the average week, Armstrong placed the remaining 87% on a trio of thumb drives destined for cold storage. His method of choice? A safety deposit box. “At an actual bank,” he wrote.

Coinbase now has a gigantic custody business and, at last check, had $223 billion in customer crypto. It is not clear if Coinbase retains the safety deposit box.

Keeping up with demand was hard and sometimes, as now, there were run-ins with irate customers. 

Back when a single rage-post could wreck a fledgling startup, the onus was on Armstrong to protect his growing brand. He did so through a hyper-personalized campaign to diffuse would-be haters, like in January 2013, when Coinbase tamed one disgruntled customer by feeding their hungry cats. Carlson-Wee took over customer service three months later. 

All the while, Armstrong was building a bitcoin-centered community around his fledgling business. 

Armstrong and co-founder Fred Ehrsam threw a bitcoin social at Coinbase’s apartment on Bluxome Street in the summer of 2013. That ever-more-cramped office would only last another year before Coinbase relocated to downtown San Francisco. Six years later, the company pivoted entirely remote. 

Armstrong had plenty of attendees the previous year’s meetup, too: “Was great meeting everyone at the bitcoin social tonight! This thing is really picking up steam,” the firm said in a tweet.

If the apartment office didn’t betray Coinbase’s scrappy early startup energy, then its three employees’ first website headshots – all repurposed, poorly cropped social photos featuring other people’s arms and shoulders – certainly did.

By the summer of 2013, Armstrong and Co. were getting serious.

Armstrong and Ehrsam ditched their upcycled headshots in July 2013 for more corporate-friendly fare. What happened in the two months preceding? They’d landed a massive $5 million funding round (the biggest ever for a crypto startup at the time) from VCs such as Fred Wilson, co-founder of Union Square Ventures and an investor in Twitter, Tumblr and other successes. It was time to look the part.

Coinbase’s road from Series A to Nasdaq had plenty of bumps, legal obstacles, customer spats and hacks. But Armstrong’s bitcoin wallet ultimately prevailed in becoming one of the most visible crypto firms in the world. 

For more on Coinbase's rise, see our comprehensive timeline here: Coinbase Listing: The Journey From Y Combinator to Nasdaq