Simple by Design: Coinbase Opens Its Doors

This week, a new company opened its doors with a simple promise: buying bitcoins should not be an act of bravery. Coinbase was founded by Brian Armstrong, a former Airbnb engineer, and Fred Ehrsam, a former Goldman Sachs trader, and the company's pitch was the easiest way to buy, sell, and store bitcoins, built for ordinary people in the United States. The first version of the product was a simple web wallet with a clean interface, and the company was just getting started. The ambition was bigger than the product: to be the on-ramp that the whole industry lacked. This is the June 2012 story, and the story is the lesson: ...

Simple by Design is the subject of this article: the moment a mainstream-minded company entered the world of digital money, and the problem it was built to solve. The founding is the anchor, the mission is the message, and the lesson is about the distance between a technology and the people who might use it.

1. The New Company

Coinbase had been incorporated in the summer of 2012, the founders had written the first version of the code, and the product that existed in late June was a web wallet with a clean interface and a promise. The founders called the company an on-ramp, the place where ordinary people could enter the world of Bitcoin without a guide. The product was deliberately small: sign up, connect a bank account, buy bitcoins, store them, sell them. The design was the philosophy. The interface was simple because the founders believed the technology should not require a degree in cryptography to use.

Bitcoin was four years old, the price had settled into a quiet range, and the industry was a collection of exchanges, forums, and experiments. The founders were not building for the speculators, who were already served. They were building for the people who had heard of Bitcoin, who were curious, and who had no idea where to start. The company was the first of its kind in the United States, the first to aim at the mainstream, and the first to make simplicity the product. The doors had opened, and the sign on the door said: this is for everyone.

2. The Problem

The problem was the experience of buying bitcoins in 2012, and the experience was terrible. The dominant exchange was Mt. Gox, a Japanese company with a reputation that the community accepted and everyone else feared. The process meant creating an account on a foreign exchange, transferring money across borders, waiting days for the transfer to clear, and then navigating an interface built for traders. The final step was managing the keys yourself: the wallet, the backup, the risk of losing everything in a hard drive failure. The process was not just hard. It was scary, and the scariness was the barrier that kept normal people out.

The founders had lived the problem, and the founders had built the solution. The wallet would hold the bitcoins, the company would handle the keys, and the customer would see a simple balance, the way a bank shows a balance. The signup would take minutes, the bank account would be American, and the interface would look like the products people already used. The word that the founders used was trust, and the trust was the product. The industry had been built by and for the technically fluent. Coinbase was built for everyone else, and the everyone else was the market the industry had never reached.

3. The Pitch

The people who wanted to try Bitcoin in 2012 had to be determined: they had to navigate the exchanges, the transfers, and the wallets, and the determination was itself a filter. The filter kept the community small, and the smallness kept the industry hobbyist. Coinbase wanted to remove the filter, to make the first purchase as easy as buying a book online, and to make the storage as easy as leaving money in a bank. The first version of the product was a web wallet, and the web wallet was the beginning of the plan: the wallet would be the entry, and the entry would be the habit.

The simplicity had a cost, and the founders accepted it. The customer who trusted the wallet was trusting the company, and the company was a startup with a handful of employees and a brand new name. The custodianship was the responsibility, and the responsibility was the risk. The founders argued that the risk was worth it, because the alternative was an industry that never grew past its own enthusiasts. The trade was the trade at the heart of every consumer product: the company would carry the complexity, and the customer would carry the trust. The pitch was simple, and the simplicity was the strategy.

4. The Founders

Brian Armstrong had worked as an engineer at Airbnb, the company that had turned the home into a platform, and he had seen what a well-designed product could do with a skeptical market. Fred Ehrsam had worked as a trader at Goldman Sachs, the bank at the center of the financial establishment, and he had seen the machinery of money from the inside. The combination was unusual: the engineer who understood product design and the trader who understood markets, both convinced that Bitcoin was the future and both convinced that the future needed a friendly face. The backgrounds were the evidence of the shift.

The shift was from hobbyist to professional. The early Bitcoin community had been built by programmers and libertarians, people who valued the technology for its own sake and distrusted the institutions that Coinbase wanted to work with. The new company was different: it was American, it was venture-minded, and it wanted to play by the rules. The founders were not rebels, and the rebellion was the point. The industry needed capital, customers, and credibility, and the founders had the networks to bring all three. The engineer and the trader were the first sign that Bitcoin was growing up, and the sign was the company itself.

5. The State of Bitcoin

The market that Coinbase entered was quiet, and the quiet was the context. The price of Bitcoin had settled near five or six dollars, a long way from the thirty one dollar peak of the 2011 boom and the crash that followed the theft at Mt. Gox in June of that year. The believers remained, and the believers were devoted, but the believers were few. The merchants were scarce, the headlines had moved on, and the industry was a collection of exchanges, forums, and early startups. The quiet was the opportunity: the noise had gone, and the building could begin.

The building was the work of a small world. The exchanges traded the coins, the forums carried the debate, and the startups were trying to find the products that the technology made possible. The community was technical, the culture was skeptical, and the newcomers were welcomed slowly. Coinbase entered this world with a product that the technical community did not need and a promise that the mainstream had not yet asked for. The bet was that the mainstream would come, that the quiet would not last, and that the company that built the bridge would own the traffic. The bet was early, and the bet was the company.

6. The Regulatory Posture

The company intended to operate within the United States money transmission laws, the rules that govern the movement of money, and the intent was reported as a founding principle. The posture was unusual in a community that had grown up in the gaps of regulation, and the posture was the strategy: the way to win the trust of banks, customers, and regulators was to invite them in. The company would register where registration was required, would follow the rules where the rules applied, and would build the business that the establishment could accept. The revolution, the founders believed, would come through the front door.

The choice carried costs, and the founders accepted them. The compliance meant lawyers, paperwork, and limits, and the limits were the friction that the industry had been built to avoid. The customers would have their identities verified, the transactions would be tracked, and the privacy that the community prized would be less absolute. The founders argued that the trade was necessary, that the mainstream would not use a product that felt illegal, and that the industry would only grow when the institutions stopped fearing it. The posture was the bet that legitimacy would be the competitive advantage. The bet was made in the first days of the company.

7. The Ecosystem

The exchanges were the floor, and Mt. Gox was the largest, the forum was the town square, and the startups were the performers. The ecosystem had grown in the years since the genesis block, and the growth had been the growth of a village: everyone knew everyone, the debates were loud, and the reputation was everything. The entry of Coinbase changed the village, because the company was not a trader or a forum: it was a product company, and product companies think in terms of markets, not tribes. The village was the past, and the market was the future, and the future was arriving.

The arrival was the beginning of the professionalization that the industry would need. The exchanges had the volume, the forums had the culture, and the startups had the ideas, but the industry lacked the pieces that every real market needs: the trusted custodian, the simple interface, the regulated institution. Coinbase was the first attempt to build those pieces in the United States, and the attempt was the significance. It was the first to treat Bitcoin as a consumer product, and the first to bet that the consumers would come. The ecosystem was small, and the company was the first of the big things.

8. The Lesson

Bitcoin was four years old, and the technology was real, and the people who could use it were the people who could code, trade, or tolerate pain. The barrier was not the technology. The barrier was the interface, the process, and the fear, and the barriers were the business opportunity. The founders had seen the opportunity from opposite sides of the economy, the engineer's side and the trader's side, and they had built the same answer: simplicity. The company was small, the product was simple, and the bet was enormous: that the mainstream would come if the door was easy to open.

The second lesson is about the direction of the industry. The village had been built by the enthusiasts, and the enthusiasts would always be the heart, but the future belonged to the people who could bring the outsiders in. The company that carried the complexity, invited the regulators, and built the trust would be the company that the industry remembered. The founding was the first step, and the first step was the direction. Simple by Design is the June 2012 story, and the story is the lesson: the technology is the promise, and the design is the delivery.

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