Bringing Bitcoin To Everyone

BY MICHAEL V. COPELAND

A neon sign sits on the floor of Coinbase’s loft-style office in  San Francisco. The curving orange and white tubes depict the distinctive B-symbol for the digital currency bitcoin, with the words “Accepted Here” beneath it.

The joke, of course, is that the sign is reminiscent of something that could be a regular part of the landscape, as commonplace as any “Bud” sign. And bitcoin at present is anything but commonplace.

But that is where Coinbase comes in, say co-founders Brian Armstrong and Fred Ehrsam, as the mechanism to take bitcoin out of the hackers and nerds-only realm. The plan is to make using the digital currency so easy and so routine, you’ll soon use it for every transaction, from buying electronics to paying your rent, even the next round of beers.

In very simple terms, Coinbase offers a service – really a layer that runs on top of the bitcoin protocol – that makes securely buying, storing and spending bitcoin no more complicated than executing a trade or transfer within most online investment accounts. Coinbase is designed to enable consumers with their bitcoin “wallets” to buy from a growing number of merchants and service providers working with Coinbase that accept bitcoin as payment.

Much has been made in recent months about bitcoin going “mainstream,” but it is hardly that. What it has been is primarily a speculative investment for a group of early adopters. Their number has been growing as the price of a single bitcoin has been on a somewhat bumpy rocket ride in the last year, from about $15 to as high as $1,200 per bitcoin.

“The rising value of bitcoin is driving interest and incredible awareness, but that is not the most interesting thing to us,” says Armstrong. “It’s this next phase on which we are focused, which is actually using it as a payment network. And we are starting to see signs that it is beginning.”

Indeed it wasn’t the speculative aspect of the digital currency, but Bitcoin’s advantages as a payment network that got Armstrong and Ehrsam (who coincidentally both studied computer science and economics on college) hooked on the digital currency in the first place. When you meet the two it makes perfect sense. They aren’t your stereotypical hoody wearing entrepreneurs. There is no other way to describe their vibe than “bankerly,” pressed shirts (tucked in no less), nice shoes, the whole nine-yards.

Armstrong was working on international fraud prevention in 2010 at Airbnb, when he read a paper on Bitcoin. “I got really excited about the potential,” Armstrong says. “This was the first open payment network for the whole world, but it was just way too difficult to use.” Indeed, unless you had a background in cryptography or a knack with building your own computer rig to “mine” bitcoin, it was out of bounds for almost everyone.

While Armstrong was pondering Bitcoin’s advantages and barriers, Ehrsam was a young foreign exchange trader at Goldman Sachs. He too started poking around in the digital currency.

“One thing that trading foreign exchange at an institutional level made me acutely aware of is it really not a democratic process,” Ehrsam says.  “It’s not difficult for high-net worth individuals or hedge funds to transfer from one currency to another, but when you think of the average person who needs to send money back to their family outside the United States it’s a very opaque marketplace, and the fees are significantly, significantly higher.” With Bitcoin, with its decentralized structure and no third party sitting in the middle of the transaction, the cost of sending the digital currency is the same as sending any data – virtually zero.

Ehrsam extended that advantage not just to the remittances, but also to say the razor-thin margins of the electronics business. Rather than paying the typical 2 percent-plus in interchange fees, a retailer that accepted bitcoin might get that down another percentage point or more.  “All of the sudden you can raise the profit on a given electronics purchase by at least 50%,” Ehrsam says.

It took more than a year of long-distance discussion, but after finding common ground around bitcoin, and realizing they made a good team, Ehrsam headed out to San Francisco to start building what would become Coinbase with Armstrong. They tackled the problems Armstrong saw – hard to acquire and spend Bitcoin – and leveraged the potential upon which both were focused.

Now 18 months after launch, Coinbase has  600,000 consumer wallets on the platform, 16,000 merchants and 3,000 developers building apps to offer a variety of bitcoin-based services. Users are growing at 31% month over month, and the people signing up come from all over the country. The number of women signing up for bitcoin wallets has grown 50 percent in the last six months alone.

All of which is to say bitcoin, with Coinbase in lock-step, might indeed be starting its next phase, away from the speculative and toward the transactional – even the commonplace. There is much still to be done. Regulations to hammer out, a public that needs to wrap its head around trusting what amounts to an opensource, math-based currency – rather than something that is backed by a government.

“This is the web in 1995, this is the Wild West right now,” Armstrong says. “But we will get the regulation, and we will get the trust.  It will happen because the entire world is moving toward this, and we will have to adapt.” Which is exactly where Coinbase hopes to help, as the trusted guide through this new world of digital currency. Just follow the neon sign.

Michael V. Copeland heads up a16z’s content strategy.