Looking ahead to 2020 | Coinbase: What have cryptocurrencies experienced over the past 10 years?

Written ahead: This article was written by Coinbase CEO Brian Armstrong. At the end of Bitcoin's first decade, he wrote this article, reviewing the development of the industry in terms of regulation, stablecoins, and applications.

The following is the original content:


The first time I read the Bitcoin white paper was in December 2010, when I was at Christmas at home.

As we end this decade, here are my simple views on the progress of the industry.

1. Bitcoin has not failed (as many have predicted)

It's easy to forget, but for most of the past 10 years, people have often discussed whether Bitcoin will continue to exist. Maybe a flaw is found in the agreement, it may be declared illegal, or it may be reset to zero because it has no intrinsic value (of course, cryptocurrency enthusiasts quickly point out that the US dollar has no value support). More than 379 articles prematurely declared the end of Bitcoin. Not only did Bitcoin survive, it also thrived and became the best performing asset in a decade. Opponents have proven to be wrong, and we have learned an important lesson from humanity: most major breakthroughs are thoughts against the trend, and people will ignore and ridicule them in the first place.

2. Coinbase did not fail (as many predicted)

When I was thinking about doing Coinbase, some people told me that my attempts to create cryptocurrency wallets and exchanges were crazy. The best hackers in the world are trying to break into the cryptocurrency exchange system, and MtGox and many other companies have been attacked. Through a combination of luck and skills, Coinbase successfully defended against a string of attacks and created many new key storage methods that are improving every year. In the process, we made cryptocurrency easier to use and introduced this new technology to tens of millions of people. This allowed us to build a company with 800 employees and ample cash flow that withstood the ups and downs of the crypto market and continued to invest in new products to help the ecosystem grow. For those who want to store their own keys, we have even launched an unmanaged wallet that continues to focus on trust and ease of use.

3. Factions and internal struggles

For a new industry, with the discussion of protocol changes and the introduction of new currencies (either through forks or new projects), there have been many internal fights. Many groups became radical and locked themselves in the echo chamber (that is, they could only hear their own voices). I think this is more mean than other technical debates I've seen (such as iOS vs Android), because once people hold a certain currency, there is an inherent conflict of interest that is controlled by emotions. Instead of trying to find the truth, we start talking about our own things. On the plus side, compared to monoculture or single currency monopolies, having many competing groups drives a lot of innovation. As for which blockchains will affect 100 million or 1 billion users, this competition is still fierce, and I expect that there will be some mergers of cryptocurrencies eventually, similar to the merger of other industries.

4. Bubbles (and crashes)

The entire industry has gone through five bubble periods, each crashing after a bubble (but falling at a higher point than the previous low). In other words, the industry has been growing, but this is a very bumpy process. This means that a lot of discussion and media attention are focused on the price. Day trading attracts short-term thinking, sometimes close to gambling. At the same time, investors who have adopted a long-term investment strategy (for example, averaging positions over many years in USD costs) have achieved incredible returns. Bitcoin is the best performing asset in a decade and even beat some unicorn companies with a market value of more than $ 100 billion. At this moment, Bitcoin has become the choice of savvy investors, who will allocate 1% -10% of Bitcoin in their portfolio.

5. Applications came later than expected

When I first learned about Bitcoin, I thought it would be no more than 5 years away from its application in the real world (after the initial investment / speculative phase). With a few exceptions like CryptoKitties, Dapps were barely used at first, and Defi didn't really start to develop until last year. This is mainly due to scalability issues, volatility, blockchain scripting language limitations, and usability issues for consumer products. Defi seems to be a successful use case, even on the limited scale of today's blockchains, because borrowing has less demanding transaction throughput compared to games or social networks. In terms of merchant acceptance, Coinbase and BitPay have invested heavily in this area, signing contracts with merchants such as Overstock.com, Dell, Expedia, Microsoft, Reddit, and Wikipedia. But the actual transaction volume is initially much smaller than many merchants imagine (although it is steadily increasing every year). This means that trading and speculation have been the main uses of cryptocurrencies for the past ten years, and the practical phase has come later than many expected.

6. ICO

When the ICO boom started, we saw a potential need for startups to raise funds from uncertified investors. All previous crowdfunding records have been erased, and now 8 of the 10 largest crowdfunding projects are related to cryptocurrencies. The trend of ICOs has attracted the anger and attention of the US Securities and Exchange Commission (SEC), who have slowly but firmly started to take enforcement action in this area. There is a heated debate about which cryptographic tokens are securities and which are not. Organizations such as the Cryptographic Council (CRC) have begun to provide clearer information with industry involvement. In the end, as usual, the startup raised too much money, which would actually hurt the company. Many ICO projects sit on huge amounts of cash but fail to launch real-world products (slowly, some of these projects are starting to look like investment companies, not real product companies).

7. The exchange gets most of the value

Perhaps apart from the agreement itself, the best business models in the cryptocurrency field over the past 10 years have often been exchanges and brokers who sold "shovels" during the gold rush to trade this new asset class. Some miners also have good earnings, but the volatility of cryptocurrency prices makes it difficult for them to survive the capriciousness of the market. In the past few years, a large number of high-quality teams and startups have entered the field, and a large amount of venture capital is still flowing to crypto startups (for example, our own small fund Coinbase Ventures has invested in the past few years (60 crypto startups).

8. Stablecoin

In addition to scalability and availability, one of the challenges limiting the popularity of cryptocurrencies is instability. While volatility is good for investors and speculators, it is not good for those who want to use it as a medium of exchange. Bitcoin's volatility has declined over time, a long-term trend, but one seems to want cryptocurrencies to stabilize more quickly. Over the past few years, stablecoins have received a lot of adoption. In a way, this has led to more common blockchains in banks and governments than Bitcoin's mentality to find an exit. From JPMorgan to China, everyone has announced that they will work hard to launch stablecoins. This has also led to controversial stablecoins such as Tether to provide trading pairs without the entry of fiat currencies, and also allowed more stablecoins such as Dai to be supported by cryptocurrencies. Facebook's Libra plan has provoked the anger of almost everyone in Washington, D.C., but as China intensifies its digitization of the yuan and invests in blockchain technology, the United States is caught off guard and is busy digitizing the dollar. The USD Coin, a stablecoin created by the CENTRE alliance, is linked one-to-one with the US dollar in bank accounts, and has grown into the second largest stablecoin (other than Tether). I believe it may achieve further popularity in the United States.

9. Institution

Ten years ago, cryptography was just a purely individual activity between enthusiasts and early adopters, but ten years later, there was a clear trend that institutions began to intervene. Not necessarily a large traditional institution-although they all seem to have teams exploring this technology. Hundreds of crypto funds appeared at the same time (interestingly: the three major crypto funds-Paradigm, Polychain and A16Z Crypto were all created by former employees or board members of Coinbase). We also see hundreds of institutional customers choosing Coinbase escrow services. Over the past 18 months, the size of Coinbase escrow has increased from $ 0 to $ 7 billion, becoming the world's largest institutional password escrow agency.

10. Supervision

This decade of cryptocurrency began with total unregulation. (As far as I know) Coinbase is the first cryptocurrency company to really take regulation seriously because we think it will promote long-term adoption.

Starting around 2013, we started applying for money transmitters in the United States. Since then, we have obtained eMoney licenses in Europe, Bitlicense in New York, registered as an MSB through FinCEN (Financial Crime Enforcement Network), and started applying for additional licenses from other agencies. We communicate with a number of regulators around the world every week, hoping to help them better understand the industry.

At the end of these 10 years, I can confidently say that cryptocurrency is a regulated industry (at least in First World countries) and it will continue to grow rapidly. In the past 10 years, whether passwords will be managed as currency, commodities, securities, property or other completely different things is a big question that is still pending.

The US Internal Revenue Service (IRS), the United States Securities and Exchange Commission (SEC), the United States Commodity Futures Trading Commission (CFTC), the New York Financial Services Agency (NYDFS), FinCEN and other agencies have issued guidance (this is only in the United States). Regulators in Singapore, Switzerland and the Cayman Islands have all become quite sophisticated in cryptocurrencies and are starting to attract good startups to register there.

It turns out that there is no unified solution for how to regulate cryptocurrencies, because there are too many types of cryptocurrencies! In a way, everyone is aware that we are rebuilding almost every part of the existing financial system, and this will require many different types of regulators. At the same time, the decentralized side of cryptocurrencies continues to grow rapidly, and the use of unmanaged wallets, DEX (Decentralized Exchanges), Defi, and dapps has increased. Although exchanges that provide fiat currency entry and escrow wallets may be subject to similar regulations as traditional financial systems, the decentralized nature of cryptocurrencies may lead to the need for a new regulatory framework (ideally, the less regulatory intervention, the more innovative The bigger).

In summary, in the past ten years, it has been a very pleasant thing in the crypto industry. After many ups and downs, this is a very unstable industry. I am proud that Coinbase has been financially sound during this period, with more than 800 employees, and has helped build the infrastructure that will allow the industry to continue to grow. We will continue to focus on the reliability and ease of use of all products and believe that this will bring 100 million or even 1 billion users to the cryptocurrency in the future. We cannot achieve this without the help of our great staff, board of directors and investors.