Kings of Crypto

1. Coinbase seized the open secret of making bitcoin accessible

Brian had grabbed an open secret of his own. He knew bitcoin could be a world-changing technology, but that buying it—for most people—was a confusing, convoluted experience. What if he could make it simpler?

Simplifying bitcoin access. Brian Armstrong recognized that while bitcoin had revolutionary potential, it was too complex for mainstream adoption. He built Coinbase to make buying and selling bitcoin as easy as online banking. This insight allowed Coinbase to grow rapidly as interest in cryptocurrency surged.

Early challenges. Despite its user-friendly approach, Coinbase faced significant hurdles in its early days:

• Skepticism from traditional financial institutions
• Regulatory uncertainty around cryptocurrencies
• Technical difficulties in securely storing and transferring digital assets
• Competition from established exchanges like Mt. Gox

The company overcame these obstacles through persistence, strategic partnerships, and a commitment to compliance. By positioning itself as a legitimate bridge between the traditional financial system and the world of cryptocurrency, Coinbase was able to attract both retail and institutional investors.

2. Regulatory challenges shaped crypto's early growth

Haun soon realized her FNU LNU was not a criminal mastermind, and that bitcoin was not intrinsically bad or good. Bitcoin was like another once-novel technology: paper money.

Evolving legal landscape. As cryptocurrencies gained popularity, regulators struggled to classify and govern them. Different agencies had conflicting views:

• IRS: Treated crypto as property for tax purposes
• SEC: Considered many cryptocurrencies to be securities
• FinCEN: Viewed crypto businesses as money transmitters
• CFTC: Classified bitcoin as a commodity

This regulatory uncertainty created both challenges and opportunities for companies like Coinbase. By proactively engaging with regulators and prioritizing compliance, Coinbase was able to build credibility and gain a competitive advantage over less scrupulous operators in the space.

Balancing innovation and regulation. The crypto industry had to navigate a fine line between pushing technological boundaries and adhering to existing financial regulations. This tension shaped the development of cryptocurrency businesses and infrastructure, forcing companies to innovate not just in technology, but also in legal and compliance strategies.

3. The block size debate sparked a civil war in bitcoin

The dispute between the big-blockers—those in favor of 2MB blocks—and small-blockers—who opposed them—soon devolved into an online version of salted-earth warfare.

Technical limitations fuel ideological divide. As bitcoin's popularity grew, its network became congested, leading to slow transaction times and high fees. This sparked a heated debate over how to scale the network:

• Big-blockers: Wanted to increase the block size to allow more transactions
• Small-blockers: Feared larger blocks would lead to centralization

The debate went beyond technical considerations, revealing fundamental ideological differences about bitcoin's future. It highlighted the challenges of governance in a decentralized system and the difficulty of achieving consensus among diverse stakeholders.

Consequences of the schism. The block size debate ultimately led to:

• Multiple hard forks, creating new cryptocurrencies like Bitcoin Cash
• Damaged relationships within the bitcoin community
• Increased competition from alternative cryptocurrencies
• Development of Layer 2 scaling solutions like the Lightning Network

This conflict demonstrated both the resilience and the limitations of bitcoin's decentralized governance model, shaping the future development of the entire cryptocurrency ecosystem.

4. Ethereum and ICOs fueled a speculative crypto bubble

In 2017, the media reported the arrest of the Dread Pirate Roberts—the mastermind behind the global drug bazaar known as the Silk Road. In a fit-for-Hollywood moment, disguised FBI agents tackled the Dread Pirate—aka Ross Ulbricht—in a San Francisco library and, critically, snatched away his laptop before he could close the cover and encrypt all the data it contained.

Rise of alternative cryptocurrencies. Ethereum's launch in 2015 introduced the concept of smart contracts, enabling a new wave of blockchain applications. This sparked the creation of hundreds of new cryptocurrencies and tokens, each promising revolutionary use cases. The ease of creating and selling these tokens through Initial Coin Offerings (ICOs) led to a speculative frenzy.

Bubble dynamics and consequences:

• Astronomical price increases: Bitcoin reached nearly $20,000 in December 2017
• Proliferation of dubious projects and outright scams
• Regulatory crackdown on ICOs and increased scrutiny of crypto exchanges
• Eventual market crash, with many cryptocurrencies losing over 90% of their value

The ICO boom and subsequent bust highlighted the volatile and speculative nature of the crypto market. It also drew increased attention from regulators and traditional financial institutions, accelerating the industry's maturation process.

5. Coinbase's success bred complacency as competitors emerged

"Coinbase got too comfortable," he adds. "At a board meeting, it was all about, 'How are we going to spend all this money in order to avoid a tax liability?'" In Olaf's view, Coinbase should have been exploring the new frontiers of crypto rather than perfecting its corporate finance game.

Challenges of rapid growth. Coinbase's early success and dominant market position in the U.S. led to a period of complacency. The company focused on:

• Improving internal processes and corporate structure
• Expanding into traditional financial services
• Maintaining regulatory compliance

While these efforts were important, they came at the cost of innovation and agility. This allowed new competitors, particularly Binance, to gain market share by offering a wider range of cryptocurrencies and more advanced trading features.

Binance's disruptive approach. CZ's exchange quickly overtook Coinbase in trading volume by:

• Offering a wider variety of cryptocurrencies
• Creating its own token (BNB) to incentivize usage
• Focusing on crypto-to-crypto trading to avoid regulatory hurdles
• Maintaining a lean, fast-moving organizational structure

Coinbase's slow response to these competitive threats highlighted the challenges of maintaining innovation and startup culture as a company grows and becomes more established.

6. Internal power struggles threatened Coinbase's dominance

Realpolitik replaced the idealism Brian had always tried to impart. This became even clearer in early 2019, when the company set out to buy a blockchain analytics service.

Competing visions for Coinbase's future. As the company grew, internal conflicts emerged between different factions:

• Crypto idealists vs. traditional finance professionals
• Focus on retail users vs. institutional clients
• Rapid expansion of cryptocurrency offerings vs. cautious regulatory approach

These tensions culminated in power struggles between key executives, including COO Asiff Hirji and CTO Balaji Srinivasan. The conflicts led to high turnover in the executive ranks and strategic inconsistencies.

Consequences of internal strife:

• Delayed product launches and missed opportunities
• Damaged company culture and employee morale
• Strategic missteps, such as the controversial Neutrino acquisition
• Forced Brian Armstrong to reassert control over the company

The internal conflicts at Coinbase reflected broader debates within the crypto industry about balancing innovation with regulation and maintaining core principles while pursuing mainstream adoption.

7. Bitcoin proved resilient as the broader crypto market matured

Bitcoin's resilience—the network has run without interruption for over ten years—resulted in yet more memes. "The Fed Wire is Down. Bitcoin is never down," tweeted a crypto fund manager and social media personality known as Pomp. He followed this with: "The stock market is closed. Bitcoin never closes."

Bitcoin's enduring dominance. Despite challenges and competition, bitcoin maintained its position as the leading cryptocurrency:

• Survived numerous price crashes and regulatory challenges
• Attracted institutional investors and corporate adopters
• Developed a robust ecosystem of supporting technologies and services
• Maintained its core value proposition of decentralization and censorship resistance

Bitcoin's resilience reinforced its status as "digital gold" and a store of value, even as other cryptocurrencies struggled to find sustainable use cases.

Maturation of the crypto industry. The experiences of the boom and bust cycle led to significant developments:

• Improved regulatory clarity in many jurisdictions
• Development of more sophisticated trading and custody solutions
• Increased interest from traditional financial institutions
• Growth of decentralized finance (DeFi) applications
• Emergence of stablecoins as a bridge between crypto and traditional finance

These developments set the stage for potential mainstream adoption of cryptocurrencies and blockchain technology, with companies like Coinbase playing a crucial role in bridging the gap between the crypto world and traditional finance.

Last updated: April 5, 2025