As Coinbase prepares to go public on Wednesday via direct listing on the Nasdaq, the company has taken pains to present a professional, buttoned-up image. Indeed, its cautious approach to things like security and regulation is a big reason Coinbase has become the household name among crypto companies—but this image is also a far cry from Coinbase’s early days, when its mantra was to “run through brick walls.”
In the course of researching my book about Coinbase, Kings of Crypto, I unearthed some secrets from the time when Coinbase was a young startup. (Now it’s a company that in Q1 reaped $730 to $800 million in profit on revenue of $1.8 billion.) Unlike today, early Coinbase operated in an environment of adrenaline and aggressive risk-taking—and made some choices that its founders would come to regret. Here are just a few of the juicy stories from the company’s freewheeling early days.
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1.Coinbase tricked Apple—and got kicked out of the App Store
In 2013, many established companies regarded Bitcoin as too risky to touch. This included Apple, which refused to approve apps that allowed live cryptocurrency trading. To get around this obstacle, Coinbase’s founders found a clever workaround. They blocked users from accessing the app’s trading feature, but only in a very specific geographic area: Apple’s hometown of Cupertino, California.
This meant that, as far as Apple’s staff could see, Coinbase allowed no trading even as the rest of the country could buy and sell Bitcoin. It was a clever trick but Apple soon caught on and, months later, temporarily booted Coinbase out of the App Store altogether.
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2.Early employees had to answer riddles to get hired
Just as Google once used mind-bending math problems in its interview process, the founders of Coinbase required job applicants to answer riddles before they could be hired. Some were fiendishly difficult. For instance, the company’s first hire, Olaf Carlson-Wee, had to solve the following in only a few minutes:
100 students approach 100 lockers. Student 1 opens all of them, starting with locker 1. Student 2 goes down the line and closes every second locker, starting with locker 2. Student 3 changes the state of every third locker, starting with locker 3 – if it is open, it gets closed, and if it is closed, it gets opened. And so on, until all one hundred students have taken a turn changing the state of the lockers. How many lockers are open at the end?
Carlson-Wee figured out the trick, which involves perfect squares, and answered in time.
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3.Coinbase got hacked early on
Coinbase employs elaborate measures to safeguard its huge hoards of Bitcoin, Ethereum and other cryptocurrency. The company has a well-deserved reputation for security, and some supports boast that it has never been hacked. But this isn’t exactly true.
In 2013, when Coinbase consisted of just five people, hackers broke into one of its online wallets and started siphoning out Bitcoin. Early Coinbase employee Charlie Lee frantically changed the password to lock out the hackers—but not before they had made off with around $250,000 of Bitcoin. It later turned out that the hackers had compromised one of Coinbase’s vendors, leading the company to launch an audit and introduce new security measures.
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4.The company’s original office was a 2 bedroom apartment
Coinbase only acquired a real office in 2015. Until then, the staff crammed into an apartment on San Francisco’s Bluxome Street across from The Creamery, a legendary meeting for venture capitalists and tech entrepreneurs that closed last year.
For important meetings, Coinbase had to borrow office space from other companies—including that of Lending Club, which is where Coinbase met to raises its Series A funding round—an event that led the tabloid site Gawker to sneer “VC dumps $5 million in real dollars into Bitcoin hysteria.” (Coinbase is today valued around $100 billion.)
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5.Coinbase’s own bank cut it off
Every startup needs a bank and, in the case of edgy tech startups, they typically turn to Silicon Valley Bank (SVB), which is willing to take on companies that have unusual business models. That was the case with Coinbase as SVB gave it an account when no other bank would.
But in 2014, a right-wing publication reported on a presentation by Coinbase co-founder Fred Ehrsam had explained how countries could use Bitcoin to evade sanctions. The report came after a series of other indiscretions, leading SVB to give Coinbase six months to find another bank. The situation was a near calamity—Carlson-Wee described it as “an existential moment”—but Coinbase was able to find another bank in the nick of time.
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6.CEO Brian Armstrong cut out Coinbase’s original cofounder
According to Coinbase lore, the company was co-founded by Brian Armstrong and Fred Ehrsam.
In truth, Armstrong had an earlier co-founder—a coder in the U.K. named Ben Reeves, who was supposed to join him to attend the startup school Y Combinator. But as first reported by Wired, Armstrong locked Reeves out of Coinbase’s accounts just days before the start of Y Combinator, telling him “Cofounding is like a marriage … we don’t work extremely well together.”
As I described in Kings of Crypto, Brian made the decision at the prompting of the power brokers at Y Combinator, who feared Reeves privacy-first ideology would impede Coinbase’s chance for success. But in the long run, both Armstrong and Reeves have enjoyed fabulous success—the latter as founder of rival crypto company Blockchain, which today is worth billions.
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7.Coinbase nearly cut 40% of its staff amid crypto winter
“Crypto winter” usually refers specifically to early 2018, when Bitcoin tanked 65% after it had soared in late 2017. But the term can also refer to any past (or future) sharp downturns in the Bitcoin economy. One earlier winter, from late 2013 to early 2015, saw Bitcoin’s price get pummeled by 80% and Coinbase’s transaction base fall off a cliff.
This led Armstrong and Ehrsam to come within a hair of executing an emergency plan to lay off 40% of the company’s staff in late 2014 in order to preserve a two-year financial “runway” the company has always made a core part of its operations. Today, of course, Coinbase employees are sitting pretty as the company is set to go public and make many of them millionaires—or in a few cases, billionaires.
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