The 31-year-old CEO of Coinbase, Brian Armstrong, on his plan to becomethe world payment processor for the virtual currency. Could this be the end of credit cards?
As I drive into San Francisco to meet tech entrepreneur Brian Armstrong, reminders of the California Gold Rush pop up everywhere, from Levi Strauss to the San Francisco 49ers. Various modern gold rushes have periodically swept the area for the past few decades, and the 31-year-old Mr. Armstrong is at the forefront of the latest frenzied scramble: virtual currency.
Bitcoin is the dominant player in the field, and Mr. Armstrong, as the CEO of Coinbase, thinks he has found a rich vein to mine. He wants to be the Visa and MasterCard of Bitcoin payment processing, taking those behemoths out of the picture as merchants and customers move to virtual transactions.
Credit-card companies "collect $500 billion in fees" today, he says confidently as we meet in the company conference room overlooking San Francisco Bay. As commerce eventually turns increasingly virtual and credit-card fees drop to match cheaper technology, he says, "it's going to be $50 billion."
But wait . . . Bitcoin? A lot of people still aren't sure what a virtual currency is, much less what a "Bitcoin wallet" like Coinbase might be. Mr. Armstrong offers a working Bitcoin definition for starters: "It's a distributed digital currency. There's no central authority. It's based on a consensus of people working on this around the world. It's both a currency and a payment method and a protocol, a commonly agreed-upon language so that computers can talk to each other and exchange currency or payments, at least at first."
The number of Bitcoins is capped at 21 million (about 12 million have been generated so far by an algorithmic method using Bitcoin's agreed-upon protocol), making them immune to the sort of government money-pumping or -restricting policies that can send real-world currencies up or down. Bitcoins are simply worth whatever those who trade in them agree they're worth.
The peer-to-peer payment system has suffered some public-relations disasters: In 2013, the FBI shut down the platform Silk Road, which may have earned $80 million in commissions from allegedly facilitating more than $1 billion in drug trafficking. The biggest Bitcoin exchange—Mt. Gox in Japan—collapsed in February. In the process Mt. Gox lost $450 million in Bitcoins, though they seem to have been later rediscovered—it's still not clear, which reflects the moving-target reputation of Bitcoin that still makes many investors wary.
Still, the buzz continues: Earlier this week, investors including billionaire Richard Branson and Yahoo co-founder Jerry Yang put $30 million into BitPay, a payment-processing rival of Coinbase. Mr. Branson's Virgin Atlantic airline accepts Bitcoin and uses BitPay for processing. World-wide, about 20,000 merchants accept Bitcoin, stored by customers in virtual wallets like Coinbase's. In December, Mr. Armstrong's company raised $25 million thanks to the heavyweight venture-capital firm Andreessen Horowitz. There's gold in them hills.
"There are still people who we meet who say there is no way the government is going to let this happen," Mr. Armstrong says, "but they don't have the information we have." So far, he seems to have embraced the prospect of regulation in a nascent industry with an all too Wild West reputation.