Nikhil KamathBrian Armstrong: Bitcoin, Banks & The New Rules Of Money | Nikhil Kamath | People by WTF
EVERY SPOKEN WORD
130 min read · 26,298 words- 0:00 – 5:12
Introduction
- NKNikhil Kamath
[upbeat music] [objects clanging] [dramatic music] [objects clanging] [upbeat music] So crypto is interesting. Everything from Bitcoins, blockchain, Solana, Ethereum. I'm no expert in these, but I've always wondered what, what the nuances of this industry are, and today is a, is probably a good day to find out. I am a critic. I have never bought any of these ever. I don't know if I'll remain a critic after this, but I suspect I will. So let's see how the conversation with Brian goes. I know he's gonna take the for side. Somebody has to take the against side. It probably has to be me, even though I don't know too much about it. So this should be fun. [upbeat music] How are you?
- BABrian Armstrong
Great. Good to meet you.
- NKNikhil Kamath
Good to meet you.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Come.
- BABrian Armstrong
All right. Yeah, not too far away. Got a big crew here.
- NKNikhil Kamath
Do you like coffee?
- BABrian Armstrong
Hmm. Maybe decaf or something, if you have that, or just water. Yeah.
- NKNikhil Kamath
Do we have decaf coffee?
- BABrian Armstrong
If not, I'll just do water.
- NKNikhil Kamath
Yeah?
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Do you drink matcha?
- BABrian Armstrong
Me?
- NKNikhil Kamath
Fruits and nuts or mint tea.
- BABrian Armstrong
Uh, mint tea sounds great, yeah. [laughs]
- NKNikhil Kamath
Is that, like, your diet?
- BABrian Armstrong
Well, I drink caffeine, but I try not to after noon, so it's easier to sleep, you know.
- NKNikhil Kamath
Mm-hmm. [clears throat]
- BABrian Armstrong
Yeah. Yeah.
- NKNikhil Kamath
A lot of the people I met who were into crypto, like, really into crypto, for the first time in a long time, they've become very dis-enfranchised in a way.
- BABrian Armstrong
I've heard that argument before, and, um, I don't really see it. I, you know, I'm gonna call that out. [upbeat music] Are you jet lagged? [laughs]
- NKNikhil Kamath
No, I was at, actually, uh, Ojai.
- BABrian Armstrong
Okay.
- NKNikhil Kamath
And I just drove back last night.
- BABrian Armstrong
Okay.
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
Were you doing, like, a retreat there or something? That's an interesting city.
- NKNikhil Kamath
Yeah. There's this pledge. So this was the three-day offsite.
- BABrian Armstrong
Yeah, thinking about how to do philanthropy effectively.
- 5:12 – 11:15
Income inequality and making everyone a capitalist
- NKNikhil Kamath
But if, uh, like you asked earlier about giving, if people live forever-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... or for longer-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... and they don't give, and if wage price inflation does not keep up with asset price inflation like it does not, even in America for the last 30, 40 years-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... what happens to income inequality? I've spoken a lot about this over the last week, 'cause I've been there listening to lectures around this. What do you think?
- BABrian Armstrong
Hmm. I mean, it's such a big question, right?
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
I mean, I think one way to solve it is to make everybody a capital, a capitalist, right? So you're not just working for labor. How do you make it so everybody, even if you have relatively low income, you can put a little bit of money aside to own- ... own stocks or-
- NKNikhil Kamath
Mm-hmm
- BABrian Armstrong
... you know, um, parts of other companies that can, that can grow, right? So there's something like four billion people in the world today who are unbrokered. They don't have any ability to buy equities. Um, and if you can democratize that, then everybody can become, have a piece of it, right? Like here in the US, there's an experiment that's being done right now with these Trump accounts. You probably saw that. So-
- NKNikhil Kamath
Brad Gerstner, I think.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
Brad Gerstner's been great on that, a- along with others, and just getting every kid $1,000 of the S&P 500 at birth can make them have skin in the game, right? So I think that's-
- NKNikhil Kamath
You know who I heard pitch this many years ago? Mike Milken.
- BABrian Armstrong
Oh, yeah?
- NKNikhil Kamath
He had this blueprint mapped out, and I think Australia does it in some way.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
Yeah, I mean, you could actually do it with a sovereign wealth fund as well. Some countries do that very effectively, and it, when you're born, you get a share of it, right? And then, and then it is, it's just like in a, any company like the one you ran or run or the one I run. Our employees get equity, and it's a beautiful alignment tool of, you know, we, we might not agree on everything, but we all own a piece of the same thing, so we're trying to work toward that. And then I think there's another interesting question, which is, is, is income equality the goal, right? We, I think we can all say income inequality makes people unhappy, but we don't want perfect income equality. That would destroy, you know, merit and progress and competition and all these things which are also good. So one way I like to think of it is, um, you know, it's like how do we just accelerate growth overall? Like, I think, um, a lot of people are looking at two different things. Like, they're saying, "How, how much better or worse is my life personally versus a year or a year or two ago?" And then they're also saying, "How much is, does my life better versus someone else?" The second one is envy, right? The first one is really competition versus, uh, yourself and are, is your own life improving. And I think we are also seeing an issue in society where people's own life is not getting better. Um, I think if, if, if the rising tide lifted all boats, you know, let's say everybody, even the bottom 10%, like their life was getting better, but there were some people getting way richer, they would still be o- mostly okay with that. It's if when their purchasing power or their wages are flat and then someone's getting much, much wealthier. That's what creates, like, the, the big- the biggest social unrest, I think.
- NKNikhil Kamath
It's an interesting thing to think about. If productivity were to go up and everybody's life gets better-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... but the rich get 10 times richer than they are today-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... I don't know if I can extrapolate that far, but I would still presume people would be unhappy because the very notion of wealth is relative. We all have a lot more today than we had 100 years ago-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... or 300 years ago.
- BABrian Armstrong
Yeah.
- 11:15 – 17:54
Inequality's magnitude and AI's concentration problem
- NKNikhil Kamath
Yeah. Income equality or inequality is an interesting question.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
I feel like it's not a problem in isolation. Uh, there will always... I'm a proponent of capitalism like I know you are, and I've heard you speak about Ayn Rand in a couple of places.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
Uh, I hear you when you say separate church from state and then separate church from, s-separate state from economics as well. But I think the magnitude of income inequality is somehow becoming a problem.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
It's probably smart for the beneficiaries of capitalism to also feign altruism because that allows for them to remain capitalist for longer.
- BABrian Armstrong
Fain- you're saying feign altruism?
- NKNikhil Kamath
Feign.
- BABrian Armstrong
Feign?
- NKNikhil Kamath
Feign, feign, feign altruism.
- BABrian Armstrong
Yeah, okay. Fake it, basically fake it-
- NKNikhil Kamath
Yeah
- BABrian Armstrong
... you're saying [laughs] . Okay.
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
Got it.
- NKNikhil Kamath
Right? Like when I remember the books of childhood, like I, I can't remember where I read the story, but in a kingdom, if the net produce is hundred-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... and the king has ten and the rest of the city has 90, it's okay.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
But when the king has a vast majority of the resources, at some point, the people come to his door with, I don't know, axes and try to take it away.
- BABrian Armstrong
Yep. Guillotines in some cases.
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
Yeah. [chuckles]
- NKNikhil Kamath
Is the world getting there?
- BABrian Armstrong
I mean, I think, um, you can look at... You know, there is a measure for income inequality, right? The Gini coefficient.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
And um, I haven't looked at it recently, but the last time I looked, I think we're not at like, um, all-time highs or anything like that. There, there have been periods of high... And you look at just different by country as well. Um, so it, it, it goes up and down. I think it's probably... My guess is it's up a bit in the last twenty years, but we're not at like all-time highs for the US, for instance. Uh, but yeah, definitely it creates feelings of unfairness, um, when that goes up, and I think we're seeing that now, um, with certain politicians getting elected, Mondami, like these kinds of folks.
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
And of course, AI is a big factor there too. Everyone's trying to think like, "Oh, is it, is it gonna take my job?" And you know. So those fears are totally natural. And then the question is, you know, what do we do about it, right? Um, you know, some people would say we should slow down. We should press a button to pause all AI development. And to that I would say, well, uh, how are you going to get the countries of the world to collaborate on that, right? Um, if the US does it, is China gonna do it? Uh, there, there's literally... There's people I've talked to who they're, they're like, "No, the US government should be meeting with the other, you know, India and China and all the superpowers and saying, um, 'We should collectively agree to do it.'" And I'm like, "Well, then how are you gonna guarantee that they do it? Are there's gonna be inspectors walking through the data centers?" You know, [chuckles] it's like you can't... You can... If you, if you're training like a new AI model on a data center, you can turn it off when the inspector is there, and ten minutes later, the thing is training a different piece of software, right? So it's hard for me to imagine a realistic scenario where the world collaborates to pause AI. So okay, I think that's off the table. Maybe, maybe you agree, maybe you don't. So we're, so we're in a world where we have to... The only way through it is forward. Like, we have to try to build it responsibly. Um, you know, we have to, uh, you know, um, try to leverage it for good in- instead of bad. Like, it's just like any technology, right? Fire or you could make up any example you want. Crypto is another good example, right? [chuckles] Like bad people have tried to use crypto. A lot of... I think it has a lot of benefits to update the financial system. We can talk about that. Uh, so I think the only way out of it is through it, and you have to just... Whoever in that moment is ready to step up and try to build something good in the world, they can sort of tell people about it and see if the world buys it or not. And people vote with their dollars too. You know, nobody wants to buy an AI model that is dangerous, that's inside their company, um, or that's against their values, right? Like i- if it's, um, if, if they think a company is evil or something, they're not gonna buy those products. So the free market is actually somewhat of a, um, a governor here on some of this. And then I think other people would say, "Well, the government should come in and do something," right? And then you have to kind of, uh... It raises the question of how competent do you think the government is on the frontier of technology? Um, at least in the US, sometimes I'm skeptical on that. [chuckles] You know, the Indian government has actually done some things very impressive, uh, working with, you know, like UPI and these things are incredible. So in some ways, um, we see competent government in some parts of the world.
- 17:54 – 24:28
Why AI agents will pay in stablecoins
- BABrian Armstrong
Well, you know, I think AIs are going to use a variety of things, but the, the reason why I think stablecoins in particular and blockchain are well-suited is that, um, you know, like an AI agent is gonna have a hard time, uh, signing up for a credit card at a bank, and you have to show an I... your ID, which, you know, h- only human beings currently can get this government-issued piece of paper. Um, but a AI agent can spin up a self-custodial crypto wallet with stablecoins. And, um, by the way, there should, you know, we sh- there should be a, a rupee stablecoin and everything. It can be fiat, fiat and country specific. Um, but the onboarding works without KYC, right? Um, and know your customer rules, which are present for most regulated financial service businesses. And then, um, they can-- Uh, the other thing is that the stablecoin rails have gotten very fast, cheap and global, right? So for these small transaction amounts, like you can send, uh, a payment anywhere in the world in under one second in, in one cent US. So we're seeing a lot of agentic commerce send small transactions, even a couple cents US to, you know, gather-- read this research paper or get through this paywall and, um, or just call another API query, that kind of thing. That doesn't really work with credit card rails, the small, small transaction amounts.
- NKNikhil Kamath
The need for KYC in a way is both a good thing and a bad thing, right?
- BABrian Armstrong
Sure. Yep. There's, it's-- Yeah, that's its whole own, own deep topic. I mean, um-
- NKNikhil Kamath
Especially when an agent does not need KYC.
- BABrian Armstrong
Right. Well, that's what we're, you know, that's the question mark, right? Is, um, those KYC rules are in place for good reason. They're trying to stop illicit activity. Um, a lot of firms have looked at this and researched, uh, you know, what has been the cost and the benefit of it, right? And, um, there is a pretty high cost for all financial services with that type of regulation. There's some estimates that only, uh, I think about one percent of all illicit activity is frozen or seized as a result of AM-AML activities globally. Uh, AML is anti-money laundering, as you know. Um, so look, I mean, we're, we're a regulated financial service business as well. We do, we, you know, we do this, uh, in the US and every country where we operate, and so we're happy to follow those rules as a regulated financial service business. Um, but I think, you know, it creates such a high friction in the economy that, um, it's like imagine, you know, like sending a WhatsApp message. It's free, instant, anywhere in the world. Um, the number of WhatsApp messages per day, I think, is in like the hundreds of billions or something. And, you know, when text messages cost thirty cents, there was on- it was only a one one-hundredth of that amount.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
So it's kind of a question of, you know, for agents on the internet, like how, uh, how, how, how much friction do we wanna introduce-
- NKNikhil Kamath
Mm-hmm
- BABrian Armstrong
... into the system? Um, and there's trade-offs around that for sure. So this, every democracy around the world, I think, trying to figure out what the regulatory framework should be, and that's something we've been working on in, in the US as well, um, getting hopefully this, uh, bill through Congress in the next couple months, hopefully. [chuckles]
- NKNikhil Kamath
When I send a WhatsApp message to you, I am subsidized the cost of sending the message to you by WhatsApp for business or the data being repurposed for different things by Meta.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
What is the equivalent when I send you a stable coin?
- BABrian Armstrong
Well, you're, you are paying a small transaction fee, so it might be about a tenth of a cent US, so that might directly cover the cost, um, of the people running the sequencers and the nodes and those kind of things. Um, you know, they're, they're-- the stable coin issuers, they actually are holding the, like in this case, the dollars, but it could be rupees or anything. They're holding them in US government, um, or government bonds, I should say, right? So that's the business model of these stable coin issuers. So there's the stable coin issuer who's holding it in government bonds. They, they pass along some of that economics to the customer, but not all of it, and they hold some for themselves. And then the blockchain itself is taking like a small transaction fee typically. Yeah, like in, on the base chain at least it's about a tenth of a cent US.
- NKNikhil Kamath
So Brian, I'm not an expert in this world.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
I know very little. So whenever I ask you a question, if I sound too much like an idiot, excuse me.
- BABrian Armstrong
[chuckles] No wor- no, um, I doubt that will happen, but yes, I'm happy to start it, start wherever you wanna start.
- NKNikhil Kamath
Yeah. So when I look at-- Okay, let's assume USDT or USDC is backed by short-term American Treasury-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... which yields about three, four percent. Now, if I take USDC from Circle and Coinbase-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... and Circle and Coinbase is earning four percent on it, when I in turn say pledge or utilize the USDC that I have and I monetize it further, say I make another three or four percent, Treasury can only yield once. Where is the additional money coming from?
- BABrian Armstrong
Right. Well, so in that case, um, Circle is the issuer. They're holding it in the short-term government Treasuries. Um, actually, if you're-- when, when people are holding those USDC on Coinbase, majority of that is actually passed to them, the economics. So maybe ninety percent of that, um-
- NKNikhil Kamath
Even with that, what the Clarity Act is for? Like I, I read parts of it-
- BABrian Armstrong
Yeah
- NKNikhil Kamath
... but it seemed like you're not allowed to pass it on, and after this act you can.
- BABrian Armstrong
Yeah. So this is being carefully, has been carefully negotiated in the Draft Clarity Act. Uh, the banks kind of made this concern out there in the world that, um, they didn't want any rewards to be paid on idle balances. So that made it into the latest draft of the Clarity Act. But as long as the customer is doing some sort of activity, like a payment or trading, then they would be eligible to get these rewards. So the customer can still, at least in the current draft, if it becomes law, um, and it's currently allowed under the, the Genius Act, which already became law, um, customers would get, you know, they could get the m- the majority of these, uh, benefits from the underlying dollars held in short-term US Treasuries. Um, so that's the current arrangement. And then you, you had asked about another three to four percent. I wasn't sure what, what that part was.
- NKNikhil Kamath
Like if I were to like lend my USDC, I can monetize it again?
- BABrian Armstrong
Yeah. That's correct. So customers can opt in and choose to lend USDC into, say, a DeFi protocol if they want.
- NKNikhil Kamath
Mm-hmm.
- 24:28 – 31:21
The risk and yield economics of stablecoins
- NKNikhil Kamath
Right. Now, if I were to buy USDC directly-
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
No, forget that. Actually, if I were to buy American Treasury directly-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... I have a certain amount of risk. Let's say there is crazy inflation, yields go up, I have a mark-to-market loss on the change in interest rates. Even if it's short-term paper. I'm not talking TBills, I'm saying six-month paper, one-year paper. Whenever there is a significant change in interest rate, as it has happened historically, I would lose some money.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
Why would I, for the same return as I would get if I bought USDC or DT directly, put an intermediary in between and add a layer of, an additional layer of risk to own the same instrument that gives me the same yield?
- BABrian Armstrong
The reason is you can use the stablecoin as a payment.
- NKNikhil Kamath
Hmm.
- BABrian Armstrong
Payment, uh, instrument, or you can use it for trading, and you can use it in DeFi. So in the traditional financial system, they have this separation, and they'll say, "Okay, well, here you can have your checking account, right? And that's for payments, but you, you don't earn anything on that. And then over here is your savings account or your money market fund, and that, we'll pay you some yield for that, but you can't spend it. You can't use your money market fund to pay for coffee or something." So in this new financial system, we're trying to update the financial system, w- we're saying, "Why do we force the customer to move their money between these two buckets? Why can't you just have one pool of money where if I wanna spend it, I can spend it, and if I wanna earn some yield, I can earn a fair rate?" So that's kind of the goal with stablecoins.
- NKNikhil Kamath
In a way, the reason banks do that is they can use your money to lend and monetize the money they have, right?
- BABrian Armstrong
Exactly. Yeah.
- NKNikhil Kamath
Fractional.
- BABrian Armstrong
They, they basically want to have the deposits in your checking account where they don't have to pay you anything.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
So the, in my view, you know, historically, they've ac- they've intentionally created this friction so that, um, they get a, a larger net interest margin spread, is what it would be called in the banking world. But if you-
- NKNikhil Kamath
So where's the spread for you guys, for Circle and Coinbase?
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
If you're gonna give out all the Treasury yield-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... while you take the underlying risk of a crazy spike in interest rate, where is the spread to make good for this equation?
- BABrian Armstrong
Yeah. So we keep, um... It's about 10% of the economics of the... It depends how much, um, you know, money people have, and the- people can negotiate different rates at different providers. Maybe the market will compress even more over time, I don't know. But currently today, it's about 90% of the, the economics, at least on Coinbase, are given to the user.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
So we are keeping, you know, the 10%.
- NKNikhil Kamath
Is that enough?
- BABrian Armstrong
Um-
- NKNikhil Kamath
If you were to say America has as much debt, does it have, as it does-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... and a lot of countries across the world are paring down their exposure to American Treasury because-
- BABrian Armstrong
Mm-hmm
- 31:21 – 38:09
Remittances, a digital rupee and tokenized gold
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
I tried for a little while a couple of years ago to figure out if there is a business to be built around repatriation of money back into India.
- BABrian Armstrong
Mm.
- NKNikhil Kamath
Uh, remittances are quite high.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Uh, I think the amount of money that goes back to India is about one fifty billion a year.
- BABrian Armstrong
Yeah. I, I think I read it's the highest remi- remittance ar- market in the world, right?
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Yeah. The problem is there, there will be-- There were no off-ramps back then in India for a stable coin per se, and the government, very rightly so, is disincentivized to provide a off-ramp for a stable coin that is backed by the American dollar in a way-
- BABrian Armstrong
Sure
- NKNikhil Kamath
... by virtue of what happened when the US sanctioned Russia and the SWIFT. I mean, you don't wanna-- I, I don't see where the incentive lies for the Indian government that runs a really tight fiscal policy by virtue of, you know, the oil shock and everything else that has happened in the recent past to allow for a ecosystem like that to foster. Because once you provide a off-ramp, you don't know if people start transacting in it. You, you can't really monitor USDC in that way.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
Yeah. So I don't know if that business opportunity is there. Have you guys considered Coinbase? I know you guys came into India at some point a few years ago, and you're probably coming back.
- BABrian Armstrong
Yeah. Well, yeah, so on the stablecoin point, um, yeah, I mean, I think every country has the right to, um, have sovereignty over their own money and, you know, I know, uh, India is very-- that's very top of mind for them. So every country in the world, like these major countries of the world, they're all creating digital versions of their own, uh, fiat currency, right? So the, a lot of stablecoins today are dollar-denominated, but there's euro stablecoins and yen.
- NKNikhil Kamath
But none of them are working.
- BABrian Armstrong
Um, well, I think that's-- you're right. Like the US has actually been forward-leaning on that, and, um, I would be certainly an advocate of India having a digital rupee that, uh, in a stablecoin format that has clear legislation backing it. That- that's what really caused it to take off in the US. Um, because without that, you're right, like people are gonna be tempted to have dollar-backed stablecoins. Um, and I think India should be f- forward-looking on that, just as they've been with UPI and all those things that they've-- It's kind of the envy of the world in terms of digitization in every other category, so they might as well have a digital rupee. Um, and you're correct. You know, Coinbase, actually, we did, uh, try to launch, uh, back a few years ago, and we had trouble accessing the UPI system, but we've got that fixed now. So we're actually planning to relaunch in India on Monday.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
And we-- I, I believe we're now the first, um, you know, international player in India that has a local license and o- access to the local payment rails and, you know, we registered with the FIU and, um, so we've got a local entity, local license. And yeah, I'm excited to have Coinbase live again in India.
- NKNikhil Kamath
Can I ask you like a far extrapolated question?
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
We have a need to get more dollars into the country in exchange for rupees.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
What kind of product or ecosystem under what you're building can help us foster that? Like I had this stupid idea at some point and I spoke about it somewhere that Indian households have a lot of gold.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Like insane amounts. This is all we've been buying from, you know, like if I can remember my grandparents and great-grandparents, it might have been a gram of gold, but people have been buying gold in, uh, all of our history.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
I was thinking of a coin where there is a clearing house in, say, every town and every district. Uh, people have, say, ten, twenty-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... thirty different pieces of jewelry that they can't use at one point. They can only wear one thing at a point. So you take what you own, go to this clearing depository custody place-
- 38:09 – 45:25
Bitcoin and blockchain from first principles
- NKNikhil Kamath
Can I lean on Professor Brian from founder Brian for a while and-
- BABrian Armstrong
[chuckles]
- NKNikhil Kamath
... go to first principles? What was Bitcoin? I read the white paper.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
It, it kind of was a protest around the banking crisis of 2008, right? When it came out.
- BABrian Armstrong
Yeah. Well, that was mentioned, yeah, in the first Bitcoin block, uh, this chancellor on the brink of bailout was the, the quote that was kind of enshrined in the first Bitcoin block. So that certainly spoke to, um, the motivation of the people or pe- or person who created Bitcoin. Um-
- NKNikhil Kamath
Is a very simplistic way to define Bitcoin when it began, at least the paper, it was trying to solve one core problem: how do two people send money over the internet without needing a bank, government, or company in the middle?
- BABrian Armstrong
That's right. Yeah. Peer-to-peer cash was what was described in the abstract and yeah, they were trying to eliminate intermediaries.
- NKNikhil Kamath
And why? Because the Fed was pr- printing excessively, and there was unlimited supply of dollars in the system, and they were inflating or deflating the currency without you having a say over it?
- BABrian Armstrong
Yeah. Well, I... So again, I, speculating, having not spoken to Satoshi Nakamoto [chuckles] but-
- NKNikhil Kamath
Yeah
- BABrian Armstrong
... just having read the paper and seeing some of the early internet forum discussions, I think, yeah, it was all of these things. So it was, it was an, it was to try to be a hedge against inflation and saying that people deserve sound money that c- that holds its value and can't be eroded by inflation. I think they were trying to reduce the s- the c- the cost of transactions. These intermediaries sometimes take high fees or introduce delays. And then I think there was really, like, a freedom argument underpinning it, which was that economic freedom is important, uh, for anybody to be able to live their life and start a business. And, you know, som- sometimes we talk about other freedom, you know, freedom of speech or to congregate, and if you can take away someone's economic rights, um, you can take away all their rights, really, because if you ca- if you don't have enough money to have transportation or food or housing, you'll, you know, you can't really express your other rights. And so economic freedom is this important thing that they were trying to guarantee with Bitcoin, and said anybody in the world, as long as they have an internet connection and a smartphone, can have access to sound money, and they can hold their wealth in a way that it can't be taken from them, and hopefully begin to participate in the global economy in a, in, in a more open way. So those were the principles that Bitcoin was founded on, at least in my view, and I think they're just as important today.
- NKNikhil Kamath
Can I ask you another first principles question?
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Can you explain blockchain? What is a blockchain?
- BABrian Armstrong
Yeah. So a blockchain is, um, it's a distributed ledger. So typically at an intermediary, uh, like a bank or something in the prior system, you'd have, uh, one company or person keeping an account of, you know, I'm gonna debit one, one rupee from Brian's account and give it to Nikhil. So I... Minus one and plus one, somebody has to record that as a single transaction to make sure that nobody double spent the money, right? Now, what a blockchain is, is it's a computer science breakthrough which allows a distributed set of computers to keep a ledger and come to consensus about who has how much at any given time, and that was a computer science breakthrough that really hadn't been solved before. And so it allows these peer-to-peer transactions to happen now without any intermediaries, and, um, this distributed set of computers, kind of like the internet, right, um, could now come to consensus about who owns what. And so sometimes people call Bitcoin and blockchain, they call it the, the internet of value, right? 'Cause the internet was a breakthrough in terms of democratizing publish- publishing of information, and blockchains were democratized, um, movement of value.
- NKNikhil Kamath
Another way to, like, when I'm trying to think of it, because I don't understand it truly-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... is I use Google a lot, like Google Drive.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
It's a Google Drive sheet, a Google Drive Excel sheet of a sort, where everybody has access to that Drive page, and when a transaction happens, we can all see it at the same time?
- BABrian Armstrong
Yeah. So I, I, I'll get into a little bit of the computer science under it, actually. Um, imagine many of your listeners are very technical, so [chuckles]
- NKNikhil Kamath
Yeah
- BABrian Armstrong
... um, and I actually would encourage anybody to go read the Bitcoin white paper. It's a little bit hard to understand the first time, but I think it's worth trying to read, and it's, uh, one of the most important documents, you know, written in financial history, right? So Okay, so the way it works is if you have a set of these computers on the network, anybody can generate a transaction and broadcast it, and they each kind of relay it to each other. So they're kind of gossiping all the computers and saying, "All right, what transactions have you seen?" And they're relaying that. So everybody has seen everything, but that doesn't mean those transactions are confirmed yet. So to, to confirm a transaction, because somebody might have said, um, "I have one, I have one rupee, I'm gonna give one to you, Nikhil, and one to somebody else." So I've, I m- I might have submitted two transactions and tried to double spend, right? Okay, so now all the nodes are aware of all the different transactions, and, uh, there, some of the nodes are miners, uh, Bitcoin miners, right? In this case, we're talking about Bitcoin, but there's other blockchains. And the miners, what they do is they package up a, a set of recent transactions, and, uh, they eliminate any duplicates, like somebody trying to double spend. And what they do is they do some work on the set of transactions. Um, this is called mining. And I can explain how it works, but basically it's almost like, um, searching for a rare number in mathematics that would, um, you know, make this block, um, coherent. It would be, in this case we're, they're look- So using a hashing function, you're looking for a certain number of zeros at the beginning of the hashing function. But the, the simple way to think of it is to say, um, any computer can package up the transactions and say, and search f- It has to do a lot of computational power to find one of these rare numbers. Now, if you find one, which is hard to find, you can broadcast that solution to the rest of the network, and it's very cheap for every other node to say, "Oh, that is, that's a real solution. I, you know, I verified it." Um, so it relies on this asymmetry of, like, difficult to find, easy to verify. And if the first person to announce one of those, that becomes the next block in, in the chain, and each block has a pointer to the prior block, so it's, that would be what creates the chain. And so you have this, uh, that's what they call proof of work. It's like basically the longest chain is, is the official record of the ledger, and it's, and it's has a lot of computational power embedded in it because it took a lot of work to make this long chain. Sometimes there's a fork in the chain, and whichever one is the longest wins, and the, the other one dies off. Um, and so it relies on at least, as long as fifty percent or more of the actors on the network are behaving in a good way, um, it works. And, you know, if you have a bad actor, uh, who tries to submit some invalid thing, they will get outpaced, uh, by the rest of the network. So that was the computer science breakthrough, really.
- NKNikhil Kamath
And when you do this proof of work and put a block on the chain-
- BABrian Armstrong
Yeah
- NKNikhil Kamath
... you get a reward which
- 45:25 – 51:09
Mining economics and the Michael Saylor playbook
- NKNikhil Kamath
is-
- BABrian Armstrong
That's right, yeah. So if you discover one of those new blocks, that's how new Bitcoin are created. And so you would init- and o- originally you would get fifty new Bitcoin by mining one of those blocks. Now, it, it gets cut in half every, um, four years or so. And so the amount of Bitcoin being released every, um, every ten minutes is sort of decreasing, like in asymptotically.
- NKNikhil Kamath
That's because there is a finite number, twenty-one million.
- BABrian Armstrong
Correct. Yeah.
- NKNikhil Kamath
I remember a time when people made a business out of just mining Bitcoins. Does that still work?
- BABrian Armstrong
Yeah. There's lots of Bitcoin miners around the world. I mean, it's the, it's a busine- we don't, we don't do that business, but, um, you know, you have to be very good at getting inexpensive energy, uh, for, to run the data center, and then using custom hardware, uh, like chips.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
Custom chips that are optimized for mining Bitcoin.
- NKNikhil Kamath
If I were to start a business around-- Because I go back to, like, people watching this want to start a business. If I were to start a business in mining today-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... by virtue of increased energy cost recently, what kind of IRR might I make? Say hardware being equal.
- BABrian Armstrong
Yeah. Well, it depends. Um, a lot of the successful Bitcoin mines are adjacent to, uh, power plants where there's certain times of day where they may have just excess capacity that would not get monetized. So you could almost think of the Bitcoin mine is like, um, it's like a floor on the price of electricity. So if it, if it ever dips low enough, then all that can j- be, the, the energy can be banked in the Bitcoin that gets mined [chuckles] if you, if you will. So it actually allows sometimes, um, it's a real benefit to people who are trying to underwrite the creation of new power plants 'cause they can say, "All right. I know that there's a floor on the price of energy," and it helps them with their modeling. I should, I should mention though, 'cause sometimes people have concerns about how much energy Bitcoin uses, and I, I know you're focused on climate, you mentioned, right? And, um, you know, Ethereum and other blockchains use a new, uh, system called proof of stake, which is actually ninety-nine point nine percent more energy efficient. And, uh, I can describe that algorithm too if you want, but it's, uh... Yeah.
- NKNikhil Kamath
Just before we move on to proof of stake and-
- BABrian Armstrong
Yeah
- NKNikhil Kamath
... proof of history.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Uh, if Bitcoin was initially built to transfer value from one person to another, it's not necessarily the most efficient at that if we call it digital gold today, right?
- BABrian Armstrong
Yeah, that's a great point actually. I, I would say that you're right. The Bitcoin white paper describes it as peer-to-peer cash.
- NKNikhil Kamath
Mm.
- BABrian Armstrong
Um, and money has multiple purposes. One purpose of money would be store of value. Another one would be a medium of exchange, which is, which is more like peer-to-peer cash. You're right. I think it's fair to say at this point that Bitcoin has succeeded as a store of value, and I don't think it has become a p- a, a medium of exchange. There's people who've tried to make that happen with the Lightning Network, was a, was a optimization layer on top of Bitcoin, but it never really took off. Um, it turns out that, um, when you have a deflationary asset like Bitcoin, that people think it'll go up in value over time. I mean, it's volatile. It's volatile, that's one issue for a medium of exchange, but the other one is people think it's gonna be worth more in the future, so they don't really wanna spend it right now. So we've actually seen massive growth of stablecoins running on blockchains, uh, fiat-backed stablecoins as the medium of exchange, and Bitcoin has remained the store value as digital gold. So- The way I think of it is we're almo-- it's like we're almost, like, creating this new financial system, and it has to... It, it, it's not a perfect match to the prior one, but it rhymes, right? Like, in the prior system, we had gold. Here we have Bitcoin. In the prior system, we had, I don't know, Visa and Swift and, you know, um, and here we have stablecoin, um, payments happening on-chain. So yeah. And then there's lending is being recreated, and insurance and, you know, s- capital formation with stocks. It's like everything is being recreated on-chain.
- NKNikhil Kamath
I used to watch these debates, I don't remember how many years ago, but Michael Saylor, uh-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... MicroStrategy. I think he put a lot of money in Bitcoins, and he would argue gold versus Bitcoin, overall market cap, what will happen tomorrow.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Do you agree with him? For a public company to put-- He somehow converted a public company into a fund which gives you exposure in a more tax-efficient way into the upside of Bitcoins.
- BABrian Armstrong
Right. Well, okay, so he did something really brilliant, which is, um, you know what, I think from a financial engineering point of view, it was brilliant, which is that a lot of different pools of capital in the world, um, they're able to buy public company stocks, but they were not able to buy Bitcoin. Um, you might be aware that recently there have become Bitcoin ETFs as well, which have become very popular. I think they were, like, the fastest growing ETFs of the last few years. Um, but Michael Saylor recognized that a lot of funds could just very easily buy a public company stock if they could not buy an ETF or, or Bitcoin directly. So he happened to make a public company that just was essentially one hundred percent exposure to Bitcoin, and that created a lot of people-- it created a lot of demand for that. And then he's using leverage in creative ways and things that I'm not entirely familiar with. But [laughs] yeah, I mean, I think we just need to make it easier for people to get access to d-digital assets, and there'll be various opportunities like that along the way.
- NKNikhil Kamath
Do you wanna move on to proof of work?
- BABrian Armstrong
Or proof of stake?
- NKNikhil Kamath
Proof of stake.
- BABrian Armstrong
Yeah. Sure, if you want. Yeah. Um-
- 51:09 – 56:52
How proof of stake secures a network
- NKNikhil Kamath
okay.
- BABrian Armstrong
Yeah. Um, yeah. So, okay. So I think when they were creating proof of stake, they said, "Okay, proof of work, um, the Bitcoin system, it's, it's very robust. It's-- It hasn't failed, right? And many people have tried to attack it in various ways. It never failed. So that's a great property. But it does use lots of energy. Okay, so how might we create a system that's equally robust but doesn't use so much energy?" So in this case, the nodes start off the same way. They're all re-- they're relaying the different transactions to each other, you know, gossiping and sending everybody's proposals. And again, um, some of them decide they want to try to propose the next block, okay? So in this case, um, what they do is they package up the, the transactions that they believe are valid and no duplicates and everything, and then, um, they have to... When they propose the block, they actually put up some money as well. This is the, the stake. Um, and it's almost like a bond or something like that in, in corporate finance. So you put up, you put up this money, and you say, um, "I believe this is the next block, and I'm willing to put some money behind it." And, um, and if other people agree, and it becomes the next block, and by the way, the other people can vote on it kind of with their own money-
- NKNikhil Kamath
Can I ask a stupid question here?
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
Say I stake thirty-five ETH or whatever to stake while I confirm the particular transaction. What if the value of the transaction is equivalent to fifty thousand ETH?
- BABrian Armstrong
The value of the transaction, but the st-- you're saying the stake is a lower amount?
- NKNikhil Kamath
It's just... Yeah. Yeah, exactly.
- BABrian Armstrong
Well, so everybody, this again, it relies on at least fifty percent of the participants of the network, hopefully much more, but at least fifty percent are good actors. They're not gonna allow you to propose a block that is, uh, that vi- that double spends money or does something bad.
- NKNikhil Kamath
So do I have to stake relative to something each time I stake a certain amount of ETH to confirm a transaction?
- BABrian Armstrong
I don't believe the stake is relative to the amount of money being moved. I think it's literally just, um, I think it's like how sure you are of that one, how much you wanna put up. Um, I have to go back and look at that as a detail actually. But, but basically what happens is, so you put your own money behind it. Other people can vote with their money and say, "Okay, I believe that'll be the next block, and I've, I've checked it. I think it's legitimate," you know. Um, and basically, the people who are right, they get their stake back plus interest, and the people who are wrong lose their stake. So you f- you forfeit it, right? So y- it's almost like a, it's like an investment that happens, a round of investment that happens every, um, like multiple times a second, you know, I believe [laughs] . And it, and, and, um, people are voting with their money, and they're saying, "Which one do I think is gonna be the next one?" And then if you're right, you get your money back with interest, and if you're wrong, you lose it. And so that allowed, uh, this, that, the network to reach consensus without having to use so much com-computational power.
- NKNikhil Kamath
Okay, please continue. Proof of stake then. Why do people even-- [clears throat] If proof of stake brought down the cost of transaction because energy was no longer required and people were staking by a magnitude of ninety-nine percent, why did that not really become a currency and people start trading on it? Also, maybe you can tell us about smart contracts a little bit.
- BABrian Armstrong
Yeah. Well, the Ethereum network, uh, which uses proof of stake, and there are others as well, I... I mean, I think a lot of people are trading it. I think it's been quite successful. Um, you know, uh, if there's some other part of your question I'm missing on that, though, just let me know. Are you asking-- Okay. So I think, yeah, I think the, the proof of stake networks have been quite successful. Um, and then you asked about smart contracts. So this is another thing that Ethereum really innovated on, was they said, "Okay, we don't want just, just to be able to move money from A to B." Uh, what if we could have programmable money? Okay, so what does that mean? It means that, um, we could put some sort of, you know, in, in the traditional world you'd use a, a lawyer to write up a contract, and, you know, maybe it would say, "Okay, I'm Brian, I'm gonna put a million rupees into Nikhil's company, and in exchange, Nikhil's gonna give me, uh, some shares of his stock and some voting rights." And, you know, we could write up- have a lawyer write up that on a piece of paper, and we could both sign it, and I give you the money, and I get the shares. In the Ethereum world, they said, "What if we could put the law or the, the contract into software, uh, on the blockchain itself?" And so they actually have like, um, a programming language in, in the, uh, the blockchain itself. And so we can make a, a smart contract where, um, you know, you publish it on, on the blockchain. Anybody in the world can see it, and you, and you say, "Hey, I'm raising money for my company, and if I, Brian, send money into that smart contract, I get the shares back." And so I don't have to trust, um, that lawyer who wrote it or some court in some country. Like anybody in the whole world can now participate in that smart contract. And there's been very, there's been very fascinating examples that have happened where somebody-- people who have never even met each other, you know? They've never-- They don't... There's no lawyers involved. There's-- They've never met, and they'll post, um, a smart contract, and like twenty thousand people around the world within five minutes will, uh, participate in that contract. And they'll somehow collaborate and do something in the world together. You know, go buy art or whatever they're doing. Um, and so that's a very fascinating thing. Now, smart contracts are very new.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
And there's been lots of, um, bugs in the software where people sometimes... It's very diff- It's-- There's not a lot of people who have experience writing these, so sometimes people will write one of these, and there'll be a, a flaw found, and, uh, people get money stolen. So it's, it's a very kind of new area, I would say. But, um-
- NKNikhil Kamath
Can you give me a simple example that I could use it for? Like if I need a smart contract.
- BABrian Armstrong
Yeah.
- 56:52 – 1:01:42
Smart contracts and DeFi lending explained
- BABrian Armstrong
Um, well, the-- I'd say like the most classic examples that people have done so far is that, like they wanna raise a venture fund.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
And so they, they have LPs, and so they, they'll publish to the world and say, "Here's what we plan to invest in," and everybody can, uh, wire in money, and then we can collectively decide to go buy things. Um, that would be an example. Um, another example would be, uh, right now we're making an on-chain payment protocol, and, uh, you know, in the world of payments, you need to think about how to handle things like refunds, and, um, you can authorize the card, but settle the funds later when, th-when the item ships, right? Or maybe you need to think about how to do subscription payments. So these are all things we can actually write into a smart contract.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
Um, and so those are, those are examples of the kind of things. It's, it, it's actually a, what would be called a Turing-complete language in the smart contract, meaning you can actually write any software. Um, it's, it's like a totally complete, just like, you know, C++ or JavaScript. You can write anything in there. Um, but usually people are trying to make a very specific, uh, thing. They're not trying to like make a whole computer in there [laughs] . Yeah.
- NKNikhil Kamath
So what are these being used for now? Say Bitcoin has become a store of value.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
What is being built on top of proof of stake?
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Like, what's the real world use case today?
- BABrian Armstrong
Yeah. Well, another example would be, um, borrowing and lending. So, you know, in many places in the world, it's kind of difficult for people to get access to credit. Um, and in the, in these-- People call these like DeFi protocols, like decentralized finance. Um, these are all using smart contracts. So in this world, um, you can have, uh, a number of people who or have money willing to lend and many m-money they wanna borrow, and you can have, um, uh, an interest rate that gets generated, right? Um, you know, you, you'd mentioned earlier people on Coinbase can actually choose to lend their money out and get, and earn these yields and things. That, that's using a DeFi protocol underneath. So some of these have reached maturity where, um... And it, and it's, it's, by the way, it's global, right? So anybody in the world can participate in this. Um-
- NKNikhil Kamath
How does it work? Like, again, again, a stupid question, but when I lend money to somebody-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... I charge a rate of interest based on the likelihood of him paying me back.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
So when I lend to somebody on proof of stake or DeFi protocol, how do I know if I lend to Brian, I should charge ten percent versus I lend to him, I should charge fifteen?
- BABrian Armstrong
Yeah. So there's, um, there's different pools of the, in these DeFi. You can choose, you know, it's kind of like in the traditional financial world, you'd have like a credit rating-
- NKNikhil Kamath
Mm-hmm
- BABrian Armstrong
... um, these agencies and things like that. So you can look at different pools and say, "Okay, this one, um, you know, the underlying pool is only being lent on Bitcoin with a fifty percent loan to value," or so- you know, different, um, characteristics like that. Other pools might have more risk tolerance and pay a higher yield. Um-
- NKNikhil Kamath
So they have to pledge something in order to borrow.
- BABrian Armstrong
Yeah, there's, there'd be collateral. Um-
- NKNikhil Kamath
There's no unsecured lending per se.
- BABrian Armstrong
Uh, the-- Not that I'm aware of. There might, there might be something I'm not aware of, but I think, yeah, the ones that we're doing today are all collateralized.
- NKNikhil Kamath
And if we can move on to Solana and proof of history, can you explain that as well?
- BABrian Armstrong
Yeah. Well, Solana is another blockchain-
- NKNikhil Kamath
Mm-hmm
- BABrian Armstrong
... um, that was built for more like high throughput, uh, speed, and low cost, and they've been very successful as well. So, um, yeah, I'd say that, you know, there, there was a-- For a while there, there was actually like dozens of these chains that were coming out, and, um, it's really kind of consolidated down where now the ch-- I'd say for store of value, it's Bitcoin, and for the, um, the utility layer or like, let's say, the medium of exchange with all the programmability, it's basically Ethereum and Solana. And even on Eth- on Ethereum, the, the most popular layer two solution is called Base, which is something we incubated. Um, so a lot of the activity is actually, it's really like Base and Solana, I think are the two competing to be the utility layer chains.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
Um, so we don't, we don't need too many, we don't need like dozens of blockchains. We need like a couple that work really well, and then there can be millions of different applications on top of those.
- NKNikhil Kamath
So stablecoins fit in where on this? They sit on which chain?
- 1:01:42 – 1:08:16
Creating entrepreneurs and India's fear of failure
- BABrian Armstrong
how do we create more entrepreneurs in the world? Let's talk about that, because, um, you know, I think part of it starts with education, right? Um, India has amazing universities. There's probably lots more could be done there. It... You know, I think AI will help a lot with education, by the way. That's, that's an important area. Um, and then there's like the financial markets, right? How do you get your first seed check? Because, you know, for me, that was a big deal. Like, I, I had a job and I had an idea, and I was kind of nights and weekends working on my idea. But I, but I didn't-- I wasn't gonna quit my job unless somebody gave me a seed check, you know? 'Cause I had to pay rent. I had to [chuckles] you know, I had to, uh, buy, buy food and things. So, um, in Silicon Valley, you know, there was... I went to Y Combinator, and they had a startup incubator there, and Paul Graham was the first person, he gave me 150K check and that allowed me-- gave me the confidence. Maybe someone believes in me and that's what caused me to quit my job and go try to really work on it. And then, and then good mentorship and everything that came along with that. We've, we've tried to do a little bit of this in India. Um, actually, the Base chain, we have this program called Base Grants-
- NKNikhil Kamath
Mm-hmm
- BABrian Armstrong
... and we've given, uh, like $10,000 grants to a, a bunch of different developers in India and, um, a lot of them, we actually fly them out to Silicon Valley and they do a session where they, um, get mentorship and pitch and everything, and then they go back to India and there's been, I think, maybe like 4,000 Base builders now in India, which has been really great. Um, but yeah, like what do you, what do you think we could-- what is the, what's, you know, the limiting factor? Um, I know E- Elon likes to talk about the limiting factor. So what, what's the limiting factor on more entrepreneurs, uh, in India, do you think?
- NKNikhil Kamath
Risk capital is one, definitely.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
There isn't very much available. I tried to copy Y Combinator and start our own version in India.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
It's called Foundry. We give about 20, 25 kids half a million dollars each-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... every, uh, every like six months, and they live in a house and try to build consumer companies together.
- BABrian Armstrong
Huh.
- NKNikhil Kamath
But barring risk capital, culturally in India, unlike the West, people have not yet learnt to appreciate failure.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
I think that needs to change. I don't know how somebody changes mindset enough, where somebody who tried something and failed is cooler than somebody who never tried. That distinction has to happen.
- BABrian Armstrong
Right.
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
What i-- what happens, um, culturally? Is, is it like it's looked down upon? It's a failure, it's a shame, or something like that?
- NKNikhil Kamath
Yeah. See, the thing is, a lot of this comes in societies with abundance where it's okay to fail once-
- BABrian Armstrong
Yeah
- NKNikhil Kamath
... because you can try again and again.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
It's harder there. Uh, it's changing, and things are moving in the right direction. I know the Prime Minister's launched this new fund for deep tech startups where a bunch of venture guys are getting money to then in turn put money into deep tech startups, and I think he's doing a great job with it. But the scale of India is massive. You know, like America has 300 something million people. India has 1,500 million people.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
Uh, to effect change, even in culture at that scale, is a significantly harder proposition.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
Yeah. But things like this.
- BABrian Armstrong
I mean, the, the popularity of your podcast tells me something, that, um, people in India look up to entrepreneurs. I mean, the, a lot of the best CEOs in Silicon Valley, you know, came from India and, um, I think e- even in India, there's actually a couple com- like we invested in, uh, CoinSwitch-
- NKNikhil Kamath
Yeah
- BABrian Armstrong
... and, uh, CoinDCX. Um, amazing entrepreneurs. You know, I think my sense is they're kind of like, uh, they're like heroes, you know, to many people there. Uh, rightfully so. Um, there's another thing I like about, um, I noticed about Indian culture, which is that I feel like engineering is really celebrated as well. Um, you know, in the US, like in our government, it's often run by lawyers, you know? And, uh, [chuckles] um, there's actually, I can't remember the name of the film. I, it was an Indian film I saw, but it was basically about three engineers and like they all-
- NKNikhil Kamath
Three Idiots.
- 1:08:16 – 1:15:56
India's crypto adoption and the leverage wipeout
- BABrian Armstrong
Yeah. And, um, yeah, I mean, I've spent some time in Delhi speaking with the government and in Mumbai and everything and just found them to be very engaged on, uh, crypto topics. And, um, you know, actually by most, uh, reports, India, believe it or not, is the number one, uh, crypto country in the world by a number of people who use it. Um-
- NKNikhil Kamath
I, I read that, but I don't know how.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
I, I read it, and I don't know if I believe it.
- BABrian Armstrong
Well, there's more trading volume in the US.
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
Um, but yeah, those are ... That ... I think Chainalysis published that, that report. Um, I ... Maybe you're not seeing it day to day. I don't know. But-
- NKNikhil Kamath
I don't see it.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
When I meet people, I mean, for ... unfortunately, this is true of the recent past, a lot of the people I met who were into crypto, like really into crypto, were also really levered on crypto.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
And I think in the last correction, for the first time in a long time, they've become very dis-enfranchised in a way. Uh-
- BABrian Armstrong
Yeah
- NKNikhil Kamath
... because I think it was sudden. Like, I remember all these guys telling me you need to create a hundred Bitcoin, a thou- whatever number of Bitcoin wallet when it was at about 110,000, 115,000, which is not a long time ago.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
But the last correction seems to have hit people hard.
- BABrian Armstrong
Yeah. Yeah. Well, crypto is down the last few quarters, um, for sure. One thing we've been doing is, um, just diversifying the set of asset classes that are-
- NKNikhil Kamath
Yeah
- BABrian Armstrong
... in ... You know, we're building the everything exchange, so you can trade stocks and commodities and, um, FX and everything, right? In, you know, index funds. So we, we see every asset class being tokenized and brought into on chain to, you know, 24/7 and global liquidity and all this kind of thing, which is much more efficient. But the other, the other thing I would say is crypto is not just about trading. I mean, it st- it started that way, and the first 10 years were mostly about trading. But now we're seeing stablecoins just grow like crazy, and it's totally uncorrelated with ... So even if the trading markets are down, um, stablecoins are growing like three or three or 4X per year. So I think that, you know, that'll balance things out, and people need to pay for things all the time. Trading ... In trading, something's always gonna be up, something's always down.
- NKNikhil Kamath
Yeah. When I think of stablecoins, I'm still not able to wrap my head around, like Satoshi's white paper started around protest against not being under government control in a way.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
Not being subject to excessive printing by governments. Now, it seems to have turned around 180 degrees where, you know, after the Genius Act, everything is backed by US Treasuries, and there is KYC at every point. Uh, blockchain is not really transparent because everybody can see. If I'm a central bank, and I'm adding allocation to a c- say I'm a foreign central bank, and I'm adding allocation to a particular thing on the blockchain, it's visible to others. There's no anonymity per se. It seems to have become the opposite of what it began as.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
Don't you think?
- BABrian Armstrong
I've heard that argument before, and, um, I don't really see it. Um, it's true that, you know, it started off as, like, very fringe and kind of renegade and, you know, anarchists and everything, and it is becoming more mainstream. So, like, now that we have regulatory clarity in some major markets, like in Europe and America and in Singapore and places, um, we are seeing more institutional money flow in. We're seeing the Bitcoin ETFs.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
So these ... In some ways, it's becoming, um, yeah, it's becoming more credible. But if you're, if you're a central bank moving money in Bitcoin, um, people might be able to see. The, the ledger is open, but you can't always see who the person is, right? Um-
- NKNikhil Kamath
But with KYC, you can't. Don't you know which-
- BABrian Armstrong
Well, law enforce- I, I ... So if you're using a centralized exchange that does KYC, like Coinbase in India and in America and other countries, um, we work with law enforcement. So if law enforcement sends us a subpoena, we're required to s- turn over that information. But, um, but it ... but the average person won't be able to see it.
- NKNikhil Kamath
Yeah.
- 1:15:56 – 1:22:13
Banks, stablecoins and the fractional reserve debate
- BABrian Armstrong
Well, um, yeah, so we are trying to advocate for our customers-
- NKNikhil Kamath
Mm-hmm
- BABrian Armstrong
... to have clear rules in America to have benefits from this new financial system, right? So that includes a whole variety of things, in- including what I shared earlier about we want people to be able to earn more money on their money.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
Um, some of the banks are thrilled with this. They're actually doing integrations with us. We, uh, we're doing stable coin integrations with five of the twenty largest banks in the world. Um, some of them are less happy about it. Uh, it's a little unclear to me why. I-- There's the reason that sometimes the bank-- It's not, it's actually not really the banks themselves. Usually, it's the bank lobby, uh, which a lot of b- industries have these lobbying groups in DC which become more protectionist sometimes.
- NKNikhil Kamath
But I get it. Like if-
- BABrian Armstrong
Yeah
- NKNikhil Kamath
... I were a banker, and if you park money with me, I get one percent, but if I park money in a stable coin, you get four percent, it's a problem.
- BABrian Armstrong
It's competition, right?
- NKNikhil Kamath
Yeah. It's, it's actually a problem, right?
- BABrian Armstrong
Well, it's a problem in terms of they're gonna have to improve their products and maybe offer more to their customers, but I don't see it as a problem systemically or something like that. So they're-- In my view, they're, they're trying to craft, um, arguments to instill fear in l- legislators and lawmakers and say, "Well, this is dangerous." And, um, you know, I, I don't think, I don't think there's any truth to it. Like the president's own, uh, Council of Economic Advisors pu- put out this report saying that the bank's concerns were illusory and fake, basically. Um, and they've, they've sort of made these claims like, "Well, if you wanna, if you wanna do this, you have to have a bank license like us." And that's not what the law says. The law says you, you need a bank license if you're gonna do fractional reserve lending, which we don't do. And, and the Genius Act, which passed in the US, already made this clear and legal that stable coins can be backed by u- short-term US Treasuries, a hundred, a hundred percent reserves, right? So-
- NKNikhil Kamath
I have another question here.
- BABrian Armstrong
Sure. Yeah.
- NKNikhil Kamath
Sorry. I'm gonna... When a bank is doing fractional reserve, wherein I need to keep a part of the money that you have and then lend it and all of that-
- BABrian Armstrong
Yeah
- NKNikhil Kamath
... and you get to keep a hundred percent, you have to keep a hundred percent of the money I park with you, banks don't-- Banks in their-- We call this CASA in India. It's current account to saving account, and how much money is there versus how much money is lent. I don't know what that word is in America.
- BABrian Armstrong
Mm.
- NKNikhil Kamath
But banks on pure banking alone do not make a lot of money. They make money out of a whole bunch of other things. But out of, if Brian gave me money, and I took the money and lent it to somebody at a carry of, say, two, three, four percent, depending on what I'm lending against, on that business, the NPAs, the, the percentage of loans which don't pay out and they go like defunct, cut my carry or my profitability to such a large extent that I'm, I struggle to make money as a bank.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
If a bank is going to struggle even with holding a fractional portion of the reserve, how will you do better holding a hundred percent of the reserve, needing a hundred percent of the reserve always to be parked?
- BABrian Armstrong
Yeah. Okay. So you can go look at the biggest, the big banks and kind of where is their revenue coming from, right? And some of it's coming from this fractional reserve, which they ca- you know, net interest margin, they call it. Some of it's coming from their payment businesses. Some of it's coming from asset management. There's lots of different types of banks and- Um, and so in this world, you know, in my view, we should have a financial system that does not have fractional reserve as the foundation because it's, it's not a secure foundation to build on, right? There's been many examples of these bank runs, for instance, and typically what happens is either the company blow- it blows up, and, um, even if there's FDIC insurance, the customer only gets a maximum of 250K or something. So there's either the customer loses money or the government has to come in and bail it out, and it creates this kind of adverse incentive for banks to take unnecessary risk. Occasionally, they blow up. I don't really see why we need a financial system based on that. If you're-- There can be an underlying layer of companies that actually just store... If, if you're paying, you know, I'm keeping my money with someone, why not ask them to keep 100% of it, right? Um, now, if, if, uh, in a stable coin world, these regulated stable coins, like they can be held in short-term US treasuries, that's-- the government has said that that's quite low risk. It's the risk-free rate, you know, some people call it. Uh, we can take a, a small percentage of that. We can provide products, uh, for people. If the, if the customer is choosing to lend out their own money, that's-- they're opting into it, right? It's not, um, something happening without their permission. Uh, we can take a fee on that. We can have a payment fee that's... It's again, it's probably a 10X improvement over the traditional financial system, but it's still a fee, right? Um, so we make, we make money on trading, um, stablecoins, you know, uh, custody fees like staking fees. We have a Coinbase card where you can spend stablecoins and crypto. So we're doing, we're doing great as a business, but our cost structure is just fundamentally different than the, than the big banks and traditional financial services companies. And so like any disruption that comes along in the world, like, you know, when you had newspapers and now the internet arrived or anything like that, and, you know, these, these-- the big banks, they're, they're great companies, they're smart CEOs. They're gonna adapt, and they, they understand this is an opportunity. They've survived many waves of innovation, you know, from the internet, um, to electronic trading and, you know, ATMs instead of having, uh, people at the branches working their bank tellers, right? So the best com- the best banks are leaning into this as an opportunity. We're working with many of them to power a lot of that tech. Um, and some of them are still trying to preserve the old way, and they're lobbying for, you know, firms and organizations are sort of doing a zero-sum kind of regulatory capture mindset. I just have, I have very little tolerance for that as a CEO. I, I believe that we all have responsibility to build the future, you know, accept that change is constant, and we should try to make better products for our customers and compete on a level playing field. Um, and, you know, if I see a, a company sort of, uh, trying to do protectionism, uh, you know, I'm gonna call that out.
- 1:22:13 – 1:27:50
The everything exchange and money as energy
- NKNikhil Kamath
In the direction that you're going in, especially when you mention the DeFi thing, will you soon become like Robinhood, or will Robinhood soon become like you?
- BABrian Armstrong
[chuckles]
- NKNikhil Kamath
It's starting to sound like the same. Um, I mean, the business-
- BABrian Armstrong
Yeah
- NKNikhil Kamath
... I have in India is a lot like Robinhood. We've been-
- BABrian Armstrong
Yeah
- NKNikhil Kamath
... discount brokers for about eighteen years now.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
And regulation is different. We can't fractionalize, we can't do a bunch of things that Robinhood is doing tokenized. But the, the path you're heading in and they're heading in seems to be converging at something.
- BABrian Armstrong
Yeah. Yeah. Well, I'd say that, um, lots of fintech apps and companies are adding more of these features, right? So they're-- they have customers who wanna trade not just stocks, they wanna trade crypto, they wanna trade commodities, they wanna trade, um, FX, like perpetual futures. So yeah, we've actually done a great job of that now, of you can trade all of those things on one platform at Coinbase and have, um, increasingly you can have global pooled liquidity and capital efficiency, uh, for traders who that's important to. We also want to become the primary financial account for people over time. So they're doing direct deposit, and they have a Coinbase card, and they can get a loan. So it's partly a, um, it's partly in a brokerage investment function. It's like, here's the pool of money I wanna grow over time and build wealth for myself and my family. Here's the money that I wanna use to like live my ordinary life and be safe and pay rent and, um, earn good rewards on that and m-maybe send money to my family as- abroad and whatever I need to do. So I think that we can use crypto to just... That, that's the main thing that I would say is different, is that we are-- we're the company in the world that stores more crypto than anybody else. We're crypto native, and we-- so we're leaning into crypto as the way to update these financial services and hopefully provide, um, you know, twenty-four seven global trading, faster, cheaper global payments, better rates on your loan, you know, better rewards on your, on your card. We wanna use crypto to improve the financial system. I think we're the best company in the world at that. But you will see lots of... I think every financial services company will integrate crypto in some way, shape, or form. Uh, we hope, by the way, to power a lot of that for other companies using our Coinbase developer platform, uh, which is kind of like our AW-AWS.
- NKNikhil Kamath
Mm-hmm.
- BABrian Armstrong
But, um, if, if they build it on their own as well, that's great, 'cause it's gonna take thousands of companies to update the financial system.
- NKNikhil Kamath
And even the banks will join this, I guess.
- BABrian Armstrong
Yeah, they are already actually. Um, we've-- I mean, we've announced actually, you know, integrations we've done with JPMorgan and Citi and, um, uh, a number of others that I probably... I'm not sure if I'm allowed to say. Yeah. [laughs]
- NKNikhil Kamath
You've now really gone from-
- BABrian Armstrong
BlackRock. We work with BlackRock as well to power their, uh, Bitcoin ETF and different things.
- NKNikhil Kamath
You know the best argument somebody made for crypto? I have a friend who runs a private equity fund in San Francisco called Mickey Malka. He has a-
- BABrian Armstrong
Yeah
- NKNikhil Kamath
... little bit-
- BABrian Armstrong
I know Mickey, yeah.
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
He's an early investor in Coinbase, actually.
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
So whenever I see Mickey, I, I saw him like some time ago, and we were having a meal, and he spoke about, he spoke about Bitcoins and crypto not as Things on the blockchain, but how they're inherently energy as the unit of transaction. He made a very nice argument for it. In the world that I live in, or we live in, it does seem to be going that way, that the future of transaction will not be what the central bank of our countries tell us is a unit equivalent to something, but some form of energy. And if-
- BABrian Armstrong
Hmm
- NKNikhil Kamath
... this can be considered that, it kind of starts to make a little bit of sense.
- BABrian Armstrong
Yeah, that's an interesting idea. I mean, I have heard people discuss this, that if AI and robots continue to accelerate at the pace that they are, and we live in this world of abundance where-
- NKNikhil Kamath
Mm-hmm
- BABrian Armstrong
... this bottle of water is essentially free or-
- 1:27:50 – 1:34:43
The AI bubble question and open source models
- NKNikhil Kamath
What do you make of it? Like, me, the stock trader investor, I'm starting to feel at this point that if I were to take every private company in AI and short their stock today, in five years, I might make money.
- BABrian Armstrong
[laughs] Okay. Why, why do you feel that?
- NKNikhil Kamath
Because-
- BABrian Armstrong
You think it's a bubble or what?
- NKNikhil Kamath
It feels a bit like the internet bubble. Uh, I'm not saying AI will not have a use case, but again, this is a very, like, immature understanding on somebody who does not, who's not an expert at the science. I'm not an engineer or in that domain. But I feel like all of these models will get to a point where they're very similar to each other.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
Uh, either by copying or reverse engineering or whatever, there will come a point where these models become so similar to each other that more countries will go the China way, where I think the world was getting globalized. The next phase is the world gets fragmented. India will have its own copy of the model. Another country will have its own copy.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
Uh, the tokens, the energy, all of that will sit domestically within our country. It might not be the, at the cutting edge, but it'll do the job. If the world goes in that direction, I don't see the reason to pay the multiples that these private companies have today.
- BABrian Armstrong
Yeah, I think I see what you mean. I, I think I probably somewhat agree in the sense that, I mean, right now, the, the, the demand for intelligence seems to be unlimited, so I think that's gonna continue. But, you know, the open source models are really, like, six months behind, and they're, like, ninety-nine percent cheaper or more sometimes for inference. So I think it's entirely possible that, um, a larger percentage of the workload goes to these models that are, like, ninety-nine percent cheaper. It's kinda like what M-Moore's law happened with chips, right? But even more dramatic. And, you know, the chip industry didn't, like... It's a, it's a very important industry. It's had a good run recently 'cause of this new wave, but it's not, um, just gonna grow infinitely forever, right? So there is gonna be some world we get to where, um, okay, there's, like, these very powerful frontier models that are useful for discovering new physics or something, but ninety-nine percent of people are just running on, um, like they become price sensitive at a certain point, and the models get good enough and cheap enough where you can run it on commodity hardware. Um, so yeah, I don't know what the terminal value of these AI company... And, and then it's just like any technology revolution. Like, where is the value gonna be captured? Is it in the, is it in the frontier models, or is it really in the people building chips and energy? I mean, the, the, the coding harnesses to me don't feel, like, that defensible. Um, you know, they're-- that you could-- Some of them have actually been leaked on the open source. I mean, you could actually, like... I think software is basically free, so you could recreate a coding harness, like the Anthropic coding harness, I think. Um, so it's like, yeah, I... You know, it makes me a little nervous when I see these valuations growing this fast as well. Like, I've, I've seen things like this happen before in crypto, and they, you know, they correct, and then they-- There's real value under it, so you, then they grow later. All markets seem to repeat these cycles with the internet and everything, even going back to railroads and-
- NKNikhil Kamath
Yeah
- BABrian Armstrong
... canals and everything.
- NKNikhil Kamath
I agree with that. In a way, I'm rooting for it.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Like a correction. The one thing I do hope... You know, especially in India, this is again personal to me, but since I am from there, I'm batting for that region. We had this phase where there was Microsoft available and there was Linux available. They were both-
- BABrian Armstrong
Yeah
- NKNikhil Kamath
... almost equally the same thing.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
But getting stuck with the Microsoft for a few years when they don't charge much takes you to the point where they begin to charge, and it becomes harder to move away from it.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
I hope people building in India pick open sourced over these models which are charging a fee because the last thing India needs is, you know, a kid paying $20 a month to another American company, especially if you're building a business which is an application layer on any of these models.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
You don't wanna be held hostage to these guys when tomorrow the, the thing that was six months behind has caught up, but you're stuck because they can get you stuck.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Yeah. I don't know how to, I, I don't know how to articulate this better.
- BABrian Armstrong
Yeah. I mean, I'm a fan of open source. I think, um, I'd like to see the open source models continue to evolve and build and get better and better. Um, yeah. So and then I also appreciate companies who put in all the time. There's like a thousand details to get right to make something good. You know, it's like, um, having macOS or something like that, you know, versus an open source that didn't-- it-- the-- I'm glad macOS exists, you know [chuckles] these kinds of things. So it's a good, it's a good, healthy balance, you know.
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
What are the-- Are, are there any companies in India focusing on open source models that are particularly good?
- NKNikhil Kamath
Building on-- building application on top of open source?
- BABrian Armstrong
Or, or, yeah, or making the models themselves.
- 1:34:43 – 1:40:01
Going to Washington and suing the SEC
- NKNikhil Kamath
I don't know disservice to who, but the American government is making the entire crypto world very American right now-
- BABrian Armstrong
Hmm
- NKNikhil Kamath
... either willingly or unwillingly. Uh, five years ago, when I thought crypto, blockchain, I thought democratic, open, free, accessible. When I think of crypto today, it's increasingly becoming-- the imagery in my mind is more Trump and President Trump and stuff like that. I don't know-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... I, I know it helps in the short run, and I know it's strange for you to be a engineer who has in some way become a lobbyist to a certain degree because-
- BABrian Armstrong
Mm-hmm
- NKNikhil Kamath
... you've maybe had to. Uh, it kind of works out in the short run, but long term, I don't know how it plays out.
- BABrian Armstrong
Yeah. Well, we-- you know, I certainly believe crypto is not, uh, about any particular political party. It has benefits for people on both all sides of the aisle, you know. Um, when I speak to Democrats, they're excited about it in terms of financial inclusion, and people, um, that they care about in certain communities are overrepresented in adoption of crypto, you know. And then, you know, Republicans or more conservative people are interested in it from, um, priva- privacy and freedom points of view or, you know, national security. So there's something there for everyone. I think, I think crypto is inherently apolitical. Um, it's true that Trump has really embraced it, right? Which has, uh-- Given that the prior administration in the US was so anti-crypto, that, that, um, you know, it was kind of a welcome, uh, relief. But we-- going forward, my hope is that both whoever is in power in the United States would be just recognizing you can't uninvent this technology. It's gonna clearly exist. We should just have a clear set of regulatory frameworks to make sure it's done in a trusted way, and then hopefully, you know, the US has an interest in having these companies built in the US for, uh, economic reasons and soft power reasons, just like I think India should have the same goal. Certainly, you know, China has their own, uh, motives here. Like, they certainly recognize the power of blockchain, um, and they've actually digitized the, uh, renminbi and made it like a central bank digital currency, which they, you know, has-- allows them to have more control-
- NKNikhil Kamath
Yeah
- BABrian Armstrong
... over the population. So the people in China actually love crypto. The government is nervous about it. So I think in democracies around the world, like, crypto, crypto will flourish.
- NKNikhil Kamath
Is there anything interesting you've learned about politics?
- BABrian Armstrong
Oh, sure. Lots of, lots of things.
- NKNikhil Kamath
[chuckles]
- BABrian Armstrong
I mean... So I-- you know, I'm an, I'm an engineer by background, so I-- and I, I never really had any interest in government. And my simple assumption as a young entrepreneur was that, um, you know, as long as I just follow the law, I don't have to inter-interf-interface with the government at all. Like, I just don't have to spend any time on that because I just follow the law, obviously. It's very simple. Well, it turns out if you're building in a new area, um, the law is awfully oftentimes unclear. [chuckles] And if your company gets big enough, you will, you will eventually intersect with government. Even if you have no interest in the government, the government will eventually develop an interest in you. And-
- NKNikhil Kamath
That's true everywhere in the world.
- BABrian Armstrong
Totally. Yeah. And so I was very naive on this, I would say. And at a certain point, my board started coaching me, and they're like, "Okay, we're at that point now. You might wanna start to go to DC, and these different, um... meet with the government in different countries where we're operating all over the world, and begin to develop a relationship and be in-- at the minimum, become an educational resource, right? And just put on a suit and be presentable and make sure you develop these relationships." Now, we started doing that, and I didn't-- I couldn't really tell if it was accomplishing anything. Um, and it wasn't until in the US, in the last administration, uh, the SEC chair, Gary Gensler, who is this, you know, kind of, uh, figure that-polarizing figure-
- NKNikhil Kamath
You sued them and you won.
- BABrian Armstrong
We did. We sued the SEC, we won. I'm glad you know that. Thank you. [chuckles]
- NKNikhil Kamath
[chuckles]
- BABrian Armstrong
Um, that was very-
- NKNikhil Kamath
No, it's a very inspiring thing. I hope more people can do that across the world in different ways.
- BABrian Armstrong
[chuckles] Well, you have to be-- Yeah, it's very contrarian to as, as a public company CEO to sue, sue your regulator. Um, most people told me, "Don't do that. That was a bad idea." Um, and I, and I think in general that's true. You shouldn't do it unless you-- it's existential and you're right, which we happen to be in this case. Um, if we had capitulated, it would have probably spelled the end of the crypto industry in the United States. So we took a stand, sued them, and we did, did eventually win. Um-
- NKNikhil Kamath
I think we have to take a break.
- BABrian Armstrong
Sure.
- NKNikhil Kamath
And after the break, maybe we can get a lit-- I'm gonna add two friends who know more about crypto than I.
- BABrian Armstrong
Okay. [upbeat music]
- NKNikhil Kamath
Okay, I introduced Aryan on a previous podcast, so I won't do it again. Aryan is my twenty-one-year-old chaperone in the US.
- BABrian Armstrong
Chaperone?
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
Okay. Making sure you stay out of trouble.
- 1:40:01 – 1:45:32
The rise of perpetual futures trading
- BABrian Armstrong
[chuckles]
- NKNikhil Kamath
So Hardik is a friend of mine. He makes a lot of money. None of us know how he makes money.
- BABrian Armstrong
Okay. [chuckles]
- NKNikhil Kamath
And people in India are always wondering because he has the things that w-- come with money, you know?
- BABrian Armstrong
Uh-huh.
- NKNikhil Kamath
Like from a, from the lens of viewing it from outside.
- BABrian Armstrong
Okay.
- NKNikhil Kamath
I finally figured he trades crypto-
- BABrian Armstrong
Ah
- NKNikhil Kamath
... not too long ago. And he's tried to explain a couple of times the different trading strategies and stuff like that. So I thought it'd be interesting to have somebody who does really well trading crypto on this.
- BABrian Armstrong
Great.
- NKNikhil Kamath
So he can ask you things that I did not, and so can Aryan. I think Aryan had a question on perps. Maybe you can start with that.
- SPSpeaker
Um, th-that's mostly because that's the most relevant part and most interesting part to me. I think hyperliquid has been like a-
- BABrian Armstrong
Mm-hmm.
- SPSpeaker
It's been on the rise for the last six months. Everyone in SF talks about it. All my friends have-- It, it's intriguing because equities that are-- used to be on five-day markets are now twenty-four seven. There's insane amounts of, like, volume that is floating around on these things. Um, and, and, and so it seems like we're going towards that direction. I think we've, like, soft agreed that everything becomes more tradable. We'll tokenize everything. We'll-- And I guess that's the direction Coinbase is going into. Uh, the thing that, that, that is-- the, the question that I had was, uh, there's-- A few months ago, there was a lot of talk around this, you know, degeneracy wave that will, you know, accelerate if everything becomes tradable and speculation just keeps growing. Because a lot of young people who would have chosen to build companies or they had a traditional path to wealth creation. Um, and on one hand, these things are great because I love prediction markets, I love the perps. I think they do a lot of good and, um, markets in general are good. But on the other hand, the more, the more this stuff proliferates, like, it seems like these are-- like, the traditional paths are shut down, so speculation and these lottery ticket-like mechanisms seem to be the only way to create wealth. Um-
- BABrian Armstrong
Mm-hmm.
- SPSpeaker
And so I'm just curious, like, if you were a young person today or, like, when you look at people like me who are, uh, you know, thinking about what they should do, is this net kind of positive for society? Do you think it's net wiring brains in slightly not great ways if speculation-
- BABrian Armstrong
Mm-hmm
- SPSpeaker
... sort of grows more than, uh, it should? Or, like, where is the boundary? Like, how-- If you were to lead these things or make decisions, how would you make decisions?
- BABrian Armstrong
Yeah. Well, you're touching on a couple great points there. So, uh, first, the rise of perpetual futures or perps is a big trend, and we've been working on that as well, especially trying to get it to be available in the US in a trusted, safe way, uh, that's truly twenty-four seven and with reasonable amounts of leverage. Um, so we actually just today got approval for crypto perps, uh, and options tradable by US people. Uh, I think we're the first regulated, uh, exchange in the US to do that. So that's been a bunch of policy work and, um, you know, hyperliquid has been amazing as well. And I think on-chain perps is a whole other big trend that's gonna happen, and we're gonna see some of that happen on Base and the whole thing. It's great. We, uh, we, we're gonna work with hyperliquid in a variety of ways, um, including with USDC. So that's all good. Now, I think your question is a really good one about just, you know, financial markets obviously bring a lot of value. Are there downsides as well? And I would agree, I, I think there are certainly downsides. Like, some of these things can become, uh, super high leverage. They can become... You know, I think at times where crypto was Uh, under threat from the government, um, the only things that were allowed were sort of sketchy things, and you saw the rise of, like meme coins and, and sort of, um, different things like that. Now, leverage and speculation is- has been in the traditional financial system for a long time, right? So it's not-- I, I don't think this is unique to crypto. Uh, you can, uh, trade stocks today that are regulated, you know, by the SEC, and it's-- but they, they went down ninety percent, right? There's lots of, you know, Spotify and, um, you know, uh, Figma went down, like eighty-five percent, right?
- NKNikhil Kamath
Yeah.
- BABrian Armstrong
So these are the blue-chip companies. Y- y- there's no such thing as investing without risk, so that's, that's important, uh, for people to understand. And, um, in the traditional financial system, there's been many examples where people got ex- excessive leverage and things blew up, right? Um, so I think that you have to approach this with caution and say, okay, um, what is the, uh, healthy mechanism, either from a regulatory point of view, um, or, you know, I actually think there's one nice thing about the crypto markets, which is there's, there's, there's not like a bailout coming, right? [chuckles] Like, you know, if you-- if, if something does take on too much risk and blow up, they, they suffer the losses. It's not the government that's gonna come on the taxpayer's dime, like bail it out. I think that's a feature, not a bug, so but it does mean you're gonna tolerate periodic failures. So o- o- one, one thing we've tried to do at Coinbase is just try to help the crypto ecosystem mature and be more legitimate, and we do that by, like cybersecurity audits on DeFi protocols. We do it, um, by being a little more hesitant sometimes on what we list on Coinbase and, uh, sometimes people are frustrated by that, that s- we're slower to adopt it. I think you're gonna find more reasonable levels of leverage and things like that, you know, um, than you might find in some of the unregulated offshore exchanges. So we're hopefully doing our part to make it legitimate and trading and is, is great for that. To, uh... We also need investing for just people to build wealth and then there's lots of other things in crypto just around payments and borrowing and lending that'll just-- everyday people can use that is not related to speculation at all.
- NKNikhil Kamath
Hardik, would you like to go next?
- 1:45:32 – 1:51:35
Bitcoin's psychology and fair market data
- SPSpeaker
Hmm. My question would be-
- NKNikhil Kamath
First, tell us a bit about what you're doing in crypto.
- SPSpeaker
I basically trade perps in a degenerate way. Like, I'm the one causing those liquidation cascades and stuff like-
- NKNikhil Kamath
[chuckles]
- SPSpeaker
... used to at that point. Uh, coming to context of this conversation-
- NKNikhil Kamath
Can I ask you another question?
- SPSpeaker
Sure.
- NKNikhil Kamath
When I trade equity-
- SPSpeaker
Mm-hmm
- NKNikhil Kamath
... I trade them based on the fundamentals of the company, the earnings-
- SPSpeaker
Yeah
- NKNikhil Kamath
... the industry, the sector.
- SPSpeaker
Mm-hmm.
- NKNikhil Kamath
When you trade the asset class that you do-
- SPSpeaker
Mm-hmm
- NKNikhil Kamath
... what do you base it on?
- SPSpeaker
Good question. So unlike traditional companies, which have like tangible hands going on doing work and stuff where, where you can quantify someone's work based on like how many human hours of input has been given, like an employee and stuff, and then you base and come to like a bias, which is usually a fifty-one forty-nine in favor of either going up or down, deriving value, like where is this company going in the future? Unlike that, BTC is like one unique asset which at all times has a fifty/fifty bias, which means that half the world thinks that it's going to the moon and half the world thinks that it's going to zero. So it's a very different asset to trade, and it's a very psychological asset to trade. Like-
- NKNikhil Kamath
A bit like gold.
- SPSpeaker
Bit like gold, yes.
- NKNikhil Kamath
If you remove jewelry from it.
- SPSpeaker
I mean, so the whole relationship between th- the gold, which is tangibly removed from the Earth, versus Bitcoin, which is also like a system that is mimic-- It's mimicking the digital proof of work system. It has very psychological impact. Like say for example, BTC is at whatever amount, like it can be at a million dollars and people will still think that it can go to zero and it can still go to ten million or a hundred million or a billion. So the, the way I trade this asset is, it's very psychological on a day-to-day basis, and it depends on a lot of geopolitical factors and how people derive that psychology. That one day I think that it can go up, one day I think it can go down. So the liquidity of Bitcoin or any other crypto asset is very different compared to a stock. Like, there's a fair value for a stock to buy and sell, but Bitcoin can have a million fair values in a, in a single day. So it's, it's very different from how you trade stocks.
- NKNikhil Kamath
You have a question for Brian?
- BABrian Armstrong
And I, I... Actually, I'm curious, are you using, um, AI agents at all to get-
- SPSpeaker
Absolutely
- BABrian Armstrong
... synthesize the psychology of the market and-
- SPSpeaker
Absolutely not.
- BABrian Armstrong
Hmm.
- SPSpeaker
I'm a very instinctual trader.
- BABrian Armstrong
What are you, what are you ingesting every day to, to feel the vibes of the market? [chuckles]
- SPSpeaker
Uh, my knowledge of American history-
- 1:51:35 – 1:57:25
Base and building the new financial system
- SPSpeaker
what you've done with Base and, and the reason like I care about that is my exposure to crypto. I have some assets in here, and I think I like playing around with everything, but, um, it's easy to build. It's permissionless. That was kind of the premise why this started. If I want to build a new kind of product where a yield product, any kind of transaction product, it-- I can go pull in a bunch of contracts, tie them together, and get going.
- BABrian Armstrong
Mm-hmm.
- SPSpeaker
Um, I, the way I see the most exciting part of this, just crypto sort of growing in the future, is more kinds of financial products being created by more parties and more participants because the traditional financial system, you guys spoke about regulation and licenses, like it's still somewhat gated, um, for the right reasons. But I think there is a lot of value to be created if you can, um, sort of channelize the free market and, and sort of let people go, uh, build whatever they want to build. Um, and, and so what, what-- where is Base headed? Like, if-- is this the direction, uh, like... Or maybe you have thoughts on how you think this should be steered in the future.
- BABrian Armstrong
Yeah. Well for, for anybody who doesn't know, B-Base is a layer two blockchain that we build on top of Ethereum, and it's gotten a lot of traction. It's the most popular layer two on top of Ethereum now, and it's-- people are using it for all kinds of apps to be built and payment stable coins and trading and A-AI agents, agentic commerce is happening on there. So you're right. One of the best things about it is it is a-- it's permissionless to build on top of it. Um, it's decentralized, so you don't need our permission to build on top of it. Um, and one thing we're doing is we, we've been progressively decentralizing Base over time to provide that as a guarantee into the future, right? To make sure that we fully don't control it. So we-- There's different stages of decentralization, you know, uh, that Vitalik has outlined in his, um, writing, and we, we've made it through stage zero, stage one. Um, we're partl-partway through the final stage of stage two. And to do that we've, um, we've explored issuing a Base token, um, and there's a path to de-- potentially decentralizing it over time, um, on that route. So that's what we need to do next to ensure that that permissionless, um, innovation is enshrined forever, like in a way that it-- we couldn't-- nobody in the future could change it. Um, and I think that we talked about earlier how we made some grants to different people, including in India, um, these Base grants of like ten thousand dollars, and people are building all different kinds of apps. There's about a hundred and fifty startups, I think, that have come out of in India building on top of Base, and a lot of-- some of the top ones we fly to the US to kind of meet with startup entrepreneurs, and then they fly back to India. So yeah, it's, um... Base is one of the things I'm most proud of 'cause it's, it's a public good, it's a public utility, and it's gotten a lot of adoption, and I hope we can just keep building that into the future.
- SPSpeaker
And just as a follow-up on this, like this is more a selfish question, but I think, uh, I think there's a world, like as just AI adoption increases, like financial services will structurally change because if the nature of jobs changes, if the nature of what people do day-to-day changes, like maybe credit changes, like lots of things have just s-s-structural changes in so-society will have downstream effects on financial services. And so if you, if you were building something like if you're twenty-five, twenty-two, uh, if you were building a financial services company today, um, maybe on Base, maybe not on Base, like using crypto rails, maybe not, like where-- what would you think about? Like what structurally changes in how financial services-
- BABrian Armstrong
Hmm
- SPSpeaker
...works today in the US?
- BABrian Armstrong
Yeah. Okay. So I'll, I'll just share a few ideas off the top of my head, but, um, you know, I think-- sometimes I think about the history doesn't repeat, but it rhymes, you know. So, so what is-- what needs to get built in this new financial system? And we talked earlier about some of the pieces, like digital gold is there, and now we have stable coin, stable coins and payments and... Okay, what are some of the pieces that are still missing? I mean, one of them that I see is actually like an on-chain, uh, credit score or reputation score, uh, something that can use all the data on the blockchain with a-- it's a, it's a graph structure, you know, like, um, in computer science, it's a graph structure like, like Google has a PageRank algorithm.
- SPSpeaker
Yep.
- BABrian Armstrong
There could be an equivalent to that on chain to decide how creditworthy someone is, or if I'm about to send money to buy, uh, buy something from a company, you know, is it-- what's the reviews on that company and, um- So I think an on-chain reputation or credit score could be interesting. Um, I think, like, there could be someone who builds an on-chain ad, ad network actually as well. This is basically monetizing, um, attention or distribution on chain. Like, and th- this is one of the best business models in Web2, right, with Google and Meta and everything. Um, people have lots of pluses and minuses to advertising, of course. But on chain, um, if I publish a smart contract or a DeFi protocol, and I want, um, to incentivize people to come use it, you know, there could be something I put in my smart contract, which is like a rev- a rev share or something. And any, any wallet or brokerage out there that wants to connect into it and send could get a percentage of it. And you could sort of see all this on chain of like, "Okay, where, where am I getting the best rates by sending my customers?" And, um, anyway, so an on-chain ad network would be another one. Um, I don't know. The last one I would just think about is, um, I think that, um, like special economic zones are very interesting-
- SPSpeaker
Mm-hmm
- BABrian Armstrong
... and how are people gonna do governance in these new worlds. Um, this is kind of crypto and blockchain going beyond just money and value to how we might do, um, on-chain voting or, um-
- SPSpeaker
Coordination
- BABrian Armstrong
... yeah, coordination, like tokenizing, uh, parcels, like cubic meters of land in like a new, uh, specially planned community or something.
- SPSpeaker
Mm-hmm.
- BABrian Armstrong
So like title, title, y- earlier you talked about doing insurance and things like, or, um, mortgages, you know, and this could be done in a, in a world where all the land in a certain area is tokenized. And, um, I think you could eventually have new forms of governance that emerge from that, and that would-- That's, that's a more ambitious long-term startup idea. [laughs]
- SPSpeaker
Hardik?
- 1:57:25 – 2:02:14
Whether Brian would run for president
- SPSpeaker
It's a very different question, uh, but, um, I've followed your journey from the beginning. It's quite commendable, and you've always fought for what's right. So my question is, is Brian for president in the future?
- BABrian Armstrong
[laughs] Well, thank you for asking that. Uh, it's the first time I've been asked that. Um, you know, so I don't think I would be a very good politician, but l-let me first say what, what you're... I've always fought for what's right. I, I think that that is-
- SPSpeaker
That's what would make you a great politician.
- BABrian Armstrong
Hopefully, yeah. I mean-
- SPSpeaker
The one that thinks that they cannot be a great politician always are the greatest politicians.
- BABrian Armstrong
Ah. Well, that is, that is a good insight. I... That is true of managers too, by the way. A lot of the best managers are people who, like, they don't wanna be managers.
- SPSpeaker
Yep.
- BABrian Armstrong
They're just really good engineers-
- SPSpeaker
Yep
- BABrian Armstrong
... or something like that. Um, I do think that we have-- That's a defining characteristic of Coinbase.
- SPSpeaker
Mm-hmm.
- BABrian Armstrong
You know, when, um, we published the Mission First blog post-
- SPSpeaker
Yeah
- BABrian Armstrong
... about not having political activism in the workplace or when the SEC tried to kill the industry in the US-
- SPSpeaker
Mm-hmm
- BABrian Armstrong
... and we sued them and won, or even this most recent bill in the US, the market structure legislation-
- SPSpeaker
Yeah
- BABrian Armstrong
... where the bank lobby is trying to, you know, take away people's, uh, rights and things. I-
- SPSpeaker
Mm-hmm
- BABrian Armstrong
... you know, we've fought back against that. So I appreciate you saying that. Um, I've got to spend more time in DC, uh, you know, working on some of these things.
- SPSpeaker
Mm-hmm.
- BABrian Armstrong
And it's definitely-- I would say it's less-- it's not as fun of a job as being a CEO because as, as a CEO, you have all kinds of problems, but you, ultimately, you can listen to everyone's input on your team and your board and your investors, and you get to make a decision, and you go. And if people don't like it, they can leave, obviously.
- SPSpeaker
Yeah.
- BABrian Armstrong
But, um, at least someone makes a decision, and you get-- But in, in-- by design, the government is-- the Founding Fathers intentionally put this in there. It's kind of hard to get anything done, so nobody can have, you know, unilateral power. So anyway, the Senate and the Congress, it's just like, it's like herding cats and f- you know, a hundred kings and queens to try to get them to align on something. It's pretty hard to get stuff done.
- SPSpeaker
I think it's persistence, and you have it.
- BABrian Armstrong
Yeah.
- SPSpeaker
I've had-
- BABrian Armstrong
Well, we have been working on this legislation for, like, five years.
- SPSpeaker
Yeah, I've had, like, my multiple US bank accounts shut 'cause of, like, on-ramp and off-ramp and stuff, and if it wasn't for you, we wouldn't be sitting here with, like, such easy access to it-
- BABrian Armstrong
Yeah
- 2:02:14 – 2:08:50
Sleep, health and advice for obsessive traders
- BABrian Armstrong
Well, [laughs] okay. So, yeah, broadly, I mean, I'm just interested in how you, how to use technology to improve the world, right? And, um, you know, getting some liquidity from Coinbase has allowed me to think about how to invest in other companies. And I actually think, you know, s- fortunes are being made in software and in crypto and everything, so it's, it's on all of us to think about how to put that capital into hard tech problems, which are sometimes more risky and, um, I was very inspired by, you know, what Elon did a- with his companies after PayPal and things like that. So anyway, I, I did co-found this biotech company in the longevity space and invested in it, called New Limit, and they're doing something called epigenetic reprogramming to try to find new drugs that restore function your cells had when they were younger. Company's doing really well. The, the first drug trials will happen, uh, next year. Um, and they've been do- doing a lot of cool stuff with AI to disc- discover these new drug candidates and whatnot, so that's been really fun. I, um, I invested in this company called Research Hub, which is trying to make o- uh, scientific research more like open source software. Um, so that company's been really exciting and gotten good traction. And, you know, I- recently I've invested in a couple of, um, companies doing, uh, reproductive tech. Um, so this is helping people... You know, everyone knows about, like, IVF and things, but there's these frontier, uh, these biotech companies that would allow you to sort of, um, create egg cells, egg cells out of skin cells and reprogram them or, um, you know, even have, like, artificial wombs and there's all kinds of people doing interesting, um, things, like even embryo editing, there's a company I invested in. So I think that that will be an interesting area. Um, yeah, I, I guess, like, you know, there's lots... I, I hope that everybody sort of picks an interesting trend on the horizon that they're particularly excited about and goes and tries to build a company in that space. I think that's the best way to improve the world, have a fulfilling life, build wealth, um-
- NKNikhil Kamath
But you didn't answer my question, Brian.
- BABrian Armstrong
Which part? [laughs]
- NKNikhil Kamath
What is the one thing I should take?
- BABrian Armstrong
Oh, the part you should take.
- NKNikhil Kamath
Eat, ingest.
- BABrian Armstrong
Um, well, okay.
- NKNikhil Kamath
[laughs]
- BABrian Armstrong
So I'm not, I'm not a doctor, but I... The, the general ones are-
- NKNikhil Kamath
Hmm
- BABrian Armstrong
... I actually think, like, you know, sleep, if, if sleep was a drug on the market-
- NKNikhil Kamath
I agree
- BABrian Armstrong
... it would be, like, the most effective-
- NKNikhil Kamath
Yeah
- BABrian Armstrong
... drug on the market. Y- and it's free. So it's nice. Everyone should probably get better sleep, track that, um-
- NKNikhil Kamath
So I love supermarkets. Wherever, whenever I travel, the first thing I do is go to a supermarket.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
I went to Erewhon-
- BABrian Armstrong
Uh-huh
- NKNikhil Kamath
... and they had these, like, jellies called Sleep. They have melatonin, theanine, and GABA.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
So you're meant to take one. I've been taking four, five, six.
- BABrian Armstrong
Okay. [laughs]
- NKNikhil Kamath
And sleep is solved.
- BABrian Armstrong
Okay.
- NKNikhil Kamath
Even with the jet lag and day being night.
- BABrian Armstrong
Well, don't, don't overdo it. I mean [laughs] yeah. But that-
- NKNikhil Kamath
What, what can happen with theanine and GABA and a little melatonin?
- BABrian Armstrong
I mean, those are over the counter, like non-prescription, probably on the safer side. But yeah, I mean, do you know how many milligrams of mel- of melatonin you're, you're taking?
- NKNikhil Kamath
Each, each one has one. Each sachet has one.
- 2:08:50 – 2:13:34
Bitcoin versus gold and remittance opportunities
- NKNikhil Kamath
The thing with Bitcoin versus gold-- See, I have never traded a Bitcoin, ever in my life. Never bought one. So I feel comfortable taking the contrarian view because somebody here also has to.
- BABrian Armstrong
Yeah.
- NKNikhil Kamath
Uh, the thing with gold is it's not replicatable today.
- BABrian Armstrong
Mm.
- NKNikhil Kamath
At least to the layman, when I think of it. Uh, I know nuclear fusion has some by-product, which is a part gold, but it's a lot more expensive to make gold that way than it is to buy gold.
- BABrian Armstrong
Mm.
- NKNikhil Kamath
I can't go and create twenty-one million more bricks of gold and call it not Bitcoin, but Catcoin. But with Bitcoin, I worry is what if there is another Satoshi with a similar white paper, and he creates another product like that tomorrow?
- BABrian Armstrong
Well, if it's, if it's not, if it's undifferentiated, Bitcoin will, I think, stand as the original, right? People give credit to the first thing that is a breakthrough, and Bitcoin was certainly a breakthrough. But if somebody puts out a new white paper of something that's differentiated and better, then yeah, it should get attention and peop- investment should shift there.
- NKNikhil Kamath
And from our conversation, I've learned that it is not the most efficient of mechanism to store value, because if I have to send Aryan a Bitcoin, I need to spend a lot of energy and hurt the world and a bunch of other things just to be able to do that.
- BABrian Armstrong
Yeah. I mean, layer, layer one Bitcoin transactions are still a little bit expensive and slow. Um, but you know, the lightning network lets it move faster. We talked about how a lot of the activity is moved to stablecoins on Ethereum and Solana, um, and Base. So yeah, I think the Bitcoin, um, chain is okay with that. They're not intending it to be used for high volume payments. They're digital gold. Maybe it shouldn't be moved too often.
- NKNikhil Kamath
Mm. From you guys, anything else for Brian? We wanted to talk about one more thing. More opportunities for young people to start a business around this ecosystem. Uh, you know, the intent of doing this every time is somebody goes back home and starts a business.
- BABrian Armstrong
Mm-hmm.
- NKNikhil Kamath
Even you guys can come up with ideas. What can young people back home start as a business, very well understanding the regulation and compliance requirements around it in India?
- SPSpeaker
I mean, I've kind of identified a little bit of a gap, I think at least in term, terms of our country. I think the biggest advantage of this system lies in remittances. Like, majority of our foreign earning population have no clear ways of sending money cheap and fast, even today. So I think whoever today builds that remittance and ramp system is sitting on a goldmine.
- NKNikhil Kamath
We spoke about this, though. They will not allow an off-ramp. Also, it doesn't make sense for the government to. I mean, say what you may about the Indian regulator, the one thing... It was one thing when the price was at one twenty.
- SPSpeaker
Mm.
- NKNikhil Kamath
Now it's seventy-five after a recent correction. They seem to have preempted a bunch of turmoil and saved-
- SPSpeaker
So I'm not necessarily talking about Bitcoin. I'm talking about like stablecoin.
- NKNikhil Kamath
Yeah.
- SPSpeaker
Uh-
- NKNikhil Kamath
But it doesn't have off-ramp, right? Anything dollar denominated will not have off-ramp.
- SPSpeaker
I said, I'm, I'm not saying it was easy-
- NKNikhil Kamath
Mm
- SPSpeaker
... but I think that's the opportunity. 'Cause if the opportunity, that's the hard part. But if someone figures out an entire on-chain payment system that can then lobby into like our banking system and provide easy access of like overseas transfers, fast and easy and cheap, and at par with the daily currency pairs and stuff, I think that's a huge opportunity in today's world, at least for our country.
- SPSpeaker
I think all this agentic finance stuff is, is, like, it's clearly going to happen. Uh, the form factors are unclear right now, but if there is, there are more things that are tradable on-chain, the best place to build agentic finance should be on-chain because you can just connect a system to-
- SPSpeaker
I agree
- SPSpeaker
... a bunch of places. You can trade. You have perfect-- You don't have perfect information. You have a lot of transparency. You, you have clear even competitive data. Um, and I think partly if, uh, like new versions of financial advisors and, uh, if I have a goal and I s- I sort of build a strategy around the goal, in the next five years I want to get to that goal. Like, lots of products around, I think, advice and just agentic finance that is financial advisor-like, I think will be interesting next four or five years.
- NKNikhil Kamath
Brian, any ideas?
- 2:13:34 – 2:19:13
Agentic commerce, moats and capital formation
- BABrian Armstrong
I think agentic commerce is gonna be big. I mean, um, I don't know. The, like, one of the most reliable ways to start a company is-- I think there's two ways. One, you can identify some technology on the horizon or thing that you just think needs to exist in the world, um, and ma- sort of do it mission focused. It's like, okay, we need to radically extend human health span. Why do people die after such few number of years? Or we need to become an interplanetary species and make, you know, SpaceX. So you can start with like a big giant mission Um, and then work backwards from that of like, okay, if that's, that's crazy and lofty and maybe, okay, what would I have to do to make that possible and that possible? And then there's like a small thing you would do today to try to make your first, you know, bit of revenue in the, in the first three to five years or something. So you can do a company that way that's like going after a big mission, which I like. The other way you can do it is just solve a problem that you have yourself, right? It... You can start to notice these problems all around you, and there's probably people living their life in India where they've encountered these issues, um, whether it's in crypto or not. And if you go build a problem, or a solution to a problem you have yourself, at least you know there's a customer of one, and it's like you're not trying to build for some hypothetical other person. Tends to be a lot easier to build that way.
- SPSpeaker
I force every guest I ever have to pick a stock that is not their own-
- BABrian Armstrong
Oh, yeah?
- SPSpeaker
... to buy if they only had $1 to allocate to something.
- BABrian Armstrong
Huh.
- SPSpeaker
What would you buy?
- BABrian Armstrong
Oh, well, I mean, so the, the, these... You're not gonna hear something like totally novel here. I think, like, you know, obviously SpaceX is getting a lot of attention right now that just has a natural moat. Like the best moat of all time would be like, how do you get from Earth to space, you know? [laughs] And like if they're doing 90% of that, that's, that's powerful. Um-
- SPSpeaker
But you can't buy S- SpaceX 'cause it's still not listed.
- BABrian Armstrong
Uh, right. But you can, you can buy SpaceX, uh, perps.
- SPSpeaker
[laughs]
- BABrian Armstrong
So pre- pre IPO, pre IPO perps. Um, it's a new emerging category.
- SPSpeaker
Mm.
- BABrian Armstrong
Um, yeah, I mean, I think Google is just got a lot of... It's incredible, like the breadth of the... They've got chips, like leading AI models, massive user base, you know, um, like any company, probably lots they could be doing better, but they're just in such, such a good position.
- SPSpeaker
It's funny how many people say Google.
- BABrian Armstrong
Yeah. Um, yeah, so I, I... You know, in any given day, there's probably something that's totally undervalued, but, uh, if you're talking about like longer term bets, these are some of the things.
- SPSpeaker
Yeah. Anything from you like you'd like to speak about last five minutes or two minutes?
- BABrian Armstrong
I just, I hope more people go create companies in the world and try it. It's very fulfilling. I think if you, if they don't work, you learn a lot, and it actually makes you even more valuable as an employee at the next company you join to go learn, and then you can go do your next one and try again. And the, most of the entrepreneurs that I know, the first thing they tried didn't work, the second, the third, oftentimes the tenth thing they tried didn't work. So they have to just keep showing up, keep trying more things. And if you do that and you have an inclination to do it, you can end up creating a lot of value in the world for other people. Um, you can create a lot of wealth for yourself. Um, and you can think about how to help put it back into the next thing to help society advance, um, be on... It's a g- it's a good way to be on team human and like, you know, advance everything in the world civilizationally.
- SPSpeaker
Thank you, Brian. Thank you for doing this. This was fun. Thank you, guys.
- BABrian Armstrong
Thanks, Nikhil. No, of course.
- SPSpeaker
Super. Thank you. Cheers.
- BABrian Armstrong
Yeah, that was great.
- SPSpeaker
Yeah.
- BABrian Armstrong
Yep.
- SPSpeaker
It was okay?
- BABrian Armstrong
Yep.
- SPSpeaker
I think, I, I would think, like for people like us, like when I moved to the US like seven years back and set up a bunch of like companies and stuff, like if it wasn't for Coinbase, like it wouldn't be so easy for me to do the amount and sheer scale of things in businesses that I do because of transfers.
- BABrian Armstrong
Yeah.
- SPSpeaker
Yeah.
- BABrian Armstrong
Yeah, you were saying out there you're, you're doing your venture investments through Coinbase.
- SPSpeaker
Yeah, yeah. I mean-
Episode duration: 2:19:13
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