"Teasing" Apple, firing co-founder... Unveiling 7 stories from Coinbase's past

This article is from Block Impression.

On Wednesday, Coinbase made its highly anticipated debut on Nasdaq.

In the past, Coinbase has maintained a cautious approach to security and regulation, leaving a professional and conservative image. However, this image is far from Coinbase's early slogan "run through brick walls."

Unlike today, Coinbase's early operations were filled with excitement and a spirit of adventure, such as "messing with" Apple, which resulted in being kicked out of the App Store.

In the book Kings of Crypto, the author interviewed many early Coinbase employees and uncovered some little-known stories from Coinbase's past. Here are 7 interesting anecdotes:

1. Coinbase "messed with" Apple and got kicked out of the App Store

In 2013, many large companies considered Bitcoin too risky to associate with, including Apple, which refused to approve apps related to cryptocurrency trading.

To bypass this obstacle, Coinbase's founders came up with a "run through brick walls" idea. They used a technology called "geofencing" to block users in certain areas from accessing the app's trading features, and the restricted area was limited to Apple's hometown: Cupertino, California.

This meant that only users in Cupertino could not trade Bitcoin on the Coinbase app, while users in other parts of the U.S. could still buy and sell freely.

At the time, Apple's app reviewers discovered that the app indeed complied with policy regulations and did not support Bitcoin trading, and thus Coinbase's app was launched in the App Store.

A few months later, this little trick was uncovered by Apple, and the Coinbase app was taken down.

2. Early employees had to "solve problems" to be hired

Just like Google used to ask perplexing math problems in interviews, Coinbase's founders required job applicants to answer math questions before being hired. The questions were often difficult, such as the following, where candidates were asked to find the answer within a few minutes:

There are 100 students and 100 lockers. Student 1 starts with locker 1 and opens all the lockers in order. Student 2 starts with locker 2 and closes every other locker. Student 3 starts with locker 3 and toggles every third locker (if it's open, close it; if it's closed, open it). Student 4 starts with locker 4 and toggles every fourth locker. This continues until all 100 students take turns toggling the lockers.
How many lockers are left open at the end?

Coinbase's first employee, Carlson Wei, perfectly answered this question. (Those who know the answer can leave a comment at the end.)

3. Coinbase was hacked

Coinbase has always been renowned for its security, implementing very tight measures to protect its large cryptocurrency reserves. Some supporters boasted that it had never been hacked, but that was not the case.

In 2013, the Coinbase team had only five people when a hacker breached Coinbase's hot wallet. Initially, the hacker stole a few Bitcoins, but grew increasingly greedy. During the third theft attempt, Coinbase's early employee Charlie Lee (who is now the founder of Litecoin) frantically changed passwords in an attempt to prevent further losses.

This hack resulted in a loss of $250,000 for Coinbase. Later investigations revealed that the hacker obtained the password by breaching an IT vendor associated with Coinbase. This method of theft is common in cybersecurity, where hackers view external vendors as weak links in a company's network.

After this incident, Coinbase's CEO ordered a comprehensive security review, requiring any company working with Coinbase to use Chromebooks provided by the company.

4. Coinbase's initial office was a two-bedroom apartment

Coinbase only acquired a proper office in 2015. Before that, employees were crammed into an apartment in San Francisco.

To hold important meetings, Coinbase had to borrow office space from other companies, including Lending Club, which was also where Coinbase held its Series A funding round.

Not everyone was optimistic about Coinbase's Series A funding; at the time, a tabloid website mocked, "Venture capitalists threw $5 million at the crazy Bitcoin." Today, Coinbase is valued at around $100 billion, while that tabloid website no longer exists.

5. Coinbase almost lost its banking services

Every startup needs a bank to conduct business, and for cutting-edge tech startups, they often turn to Silicon Valley Bank (SVB) — which is usually willing to accept high-risk startups that other banks would not. Thus, Coinbase chose SVB.

However, in 2014, a media outlet published an article titled "How Coinbase Promoted Cryptocurrency as a Tool to Evade Sanctions Against Iran," thrusting Coinbase into the geopolitical spotlight. SVB decided to cut off Coinbase's services and gave Coinbase a six-month grace period to find another bank.

This was Coinbase's darkest moment, as many operations had to come to a halt, because running a cryptocurrency service without a bank is like selling ice cream without a freezer.

Fortunately, Coinbase found another willing bank just in time.

6. Coinbase's founder "fired" a co-founder

Officially, Coinbase was co-founded by Brian Armstrong and Fred Ehrsam.

In fact, there was initially another co-founder — a British programmer named Ben Reeves, who originally planned to join Brian in taking Coinbase's concept to the renowned startup incubator Y Combinator.

Reports indicated that just days before entering Y Combinator, Brian locked Ben out of the Coinbase account and told him: "Co-founding is like a marriage… our partnership isn't working well."

In fact, the two parted ways due to differences in opinion. They disagreed on whether "Bitcoin holders could recover lost keys," with Brian advocating for Coinbase to keep backup copies of the keys, fearing that Ben's "privacy-first" mindset would hinder Coinbase's chances of success.

Looking back, both Brian and Ben have achieved success — Ben is the founder of Blockchain, which is now valued at several billion dollars.

7. Coinbase almost laid off 40% of its employees

From late 2013 to 2015, Bitcoin's price plummeted by 80%, and Coinbase's trading volume significantly declined.

Brian and Fred managed Coinbase's finances to provide a two-year cash buffer in case of worsening conditions, but the bear market dragged on. In one meeting, they realized that unless they laid off 40% of their employees, they would struggle to survive.

Brian and Fred compiled a long list of potential layoffs, just shy of executing it. In late October 2015, things took a turn when Bitcoin's price broke $300, and by December, it approached $500. The sustained price increase meant higher commissions for Coinbase, and extensive media coverage attracted many new customers.

Of course, today Coinbase's employees are doing much better, as the company has gone public, and many will become millionaires, with a few becoming billionaires.