Protocol | Fintech

Blockchain.com’s CEO is playing the long game

Peter Smith founded his crypto startup before Coinbase or Binance existed. Will his go-slow approach win in the long run?

​Blockchain.com CEO Peter Smith

Blockchain.com CEO Peter Smith got an early start. Now he has to catch up.

Photo: Blockchain.com

Blockchain.com had a solid head start in the world of crypto. It didn't hurt that it had a catchy domain name.

But while Blockchain, which launched in 2011, is considered a crypto pioneer, it's been overshadowed by younger, more richly-valued rivals like Coinbase and Binance.

CEO Peter Smith argues that that's a good thing.

Blockchain.com is a major player in the bitcoin blockchain. About one-third of transactions in the most popular cryptocurrency take place on the Blockchain.com network. The company has created 76 million crypto wallets and has 35 million verified users in more than 200 countries.

The company was recently valued at $5.2 billion after raising $300 million in March in a series C round — GV is a backer — and there's speculation that it could follow the lead of Coinbase by going public.

But Smith is not in a hurry, embracing a slow and steady approach to a controversial industry that has roiled regulators worldwide and got major players in legal trouble.

Binance, the world's biggest cryptocurrency exchange, has been banned from any regulated activity in the U.K. by the Financial Conduct Authority. Regulators have also barred the company from operating in Japan, Canada and Italy. This week, Coinbase blasted the Securities and Exchange Commission for blocking its plan to roll out a crypto lending product.

Blockchain has generally avoided such skirmishes, which Smith attributes to a core company principle: Play the long game.

"When you have that sort of big lens, you're sitting there thinking, 'OK, how do we do what's best for the long term, not just what's best for this market cycle?'" he told Protocol. "That leads to a different strategy, a more principled, and at times, slower approach."

Smith elaborated on Blockchain.com's game plan in an interview with Protocol. He also talked about the startup's recent decision to move its headquarters from New York City to Miami, his views on the clamor for more crypto regulation and rivals Coinbase and Binance.

This interview has been edited for clarity and brevity.

You recently moved your headquarters to Miami. Why?

We want to be where communities are really excited about crypto. And what we were seeing in Miami was a part of the U.S. that was really excited to be part of the crypto revolution over the next 10 years. We wanted to be there for that. And then from a simple, tactical side like there's just a lot of talent in Miami now in crypto. So you've seen a lot of crypto people move to Miami, as well as having a huge amount of interest in crypto from folks who are already living in Miami.

You launched an exchange in 2019 when there were already other marketplaces that were growing and well-established. What was that transition like?

We mostly launched the exchange to give our customers another way to trade crypto. We have a very large wallet in retail brokerage, 35 million verified accounts, likely the second-largest user base in crypto.

A lot of our customers, we could see them buy some crypto, start investing, and then a small subset of them would become active traders. And when they become active traders they would need to go to another company to get an active trading product. And so we wanted to build a product that would satisfy that customer's need to actively trade their crypto.

How has it impacted the other segments of your business?

The wallet has been the core of our business for a long time since we launched a product that made it easy for anyone in the world to custody their own bitcoin and later, purchase their first crypto, trade crypto between dozens of assets. We've added about 30 million customers to the verified side in the last three years. That's been really phenomenal to see.

The other way that you can publicly look into our business is our share of on-chain transactions. On-chain transactions are expensive, which means you can't really fake them. In 2014, we were about 14% of on-chain [bitcoin] transactions. Today, the consumer business accounts for about 30% of all on-chain transactions.

What are some of the trends in crypto investing that you're closely watching?

I'm watching the DeFi space very closely. We're a very large participant in the DeFi ecosystem. It's fascinating what's going on there. It represents a huge opportunity because we have the single largest user base of users with their own private key. You can't interact with DeFi at all without your own private key, and that's a really key differentiator for us that I think isn't well understood by the market.

At the same time, before we could really open up access to DeFi, we had to make sure that those networks would scale. What's really interesting that's happening now is the successful rollout of a lot of scaling solutions whether these are Gen 2 blockchains that have higher scaling at their core protocol level or scaling solutions for Ethereum which I think are probably the most exciting thing in the crypto market today.

Did you, like Coinbase, suspend trading in XRP when the SEC filed a lawsuit against Ripple in December?

We did. We suspended trading in XRP and off-boarded those assets.

Regulation seems to be a constant conversation in crypto now, not just in the U.S. but in the U.K., Europe and China.

The bulk of our business is in Europe. And so we're always much more engaged with EU regulators. And we've had a really long and productive dialogue with the FCA [in the U.K.] for many years now and BaFin [in Germany]. Those are the two regulators at the forefront of crypto in the EU. They are taking a very pragmatic approach to crypto and crypto regulation. Ourselves and other crypto firms are working through their new licensing frameworks.

I actually think it's probably a positive for the market from a stability and consumer protection standpoint. So we work really closely with them. I don't see this as a net bad thing.

The U.S. is more tricky. We have a business in the U.S. And while it's a minority of our business, it's still an important business to us. The thing that makes the U.S. complicated is the diversity of regulators. You have a lot of regulators in the U.S. There isn't a consensus between them about who should be regulating crypto and how they should be regulating crypto.

And it's not just regulation at the federal level. You also have to think about state regulators. Was that a factor for choosing Miami and Florida, for instance?

The regulatory environment in Florida is good for crypto companies. It's regulated. You need a license, which we have, but it's a positive, productive dialogue. And I think that's what you're hoping for with regulators.

How has the conversation related to crypto taxation — which has become prominent in the pending infrastructure bill — impacted your business? There's a lot of debate about language that would require blockchain coders and miners to report their transactions for taxation purposes.

Yeah, that's an interesting one. That's one where that clarity point I was making is relevant. We're very engaged as the bill goes to the House. It's a big industry effort. We're hoping to get that updated to be a bit more clear, and a bit more workable, particularly around protocol developers. You've seen both sides of the leadership on the Hill say that it's not intended to cover that.

Have you been beefing up your presence in Washington?

For sure. A few quarters ago we added Jim Messina as an independent board member. He was the campaign manager for Obama and was very senior in the Obama White House. And he's worked closely with Biden and his team for many years. He was a key part of our government affairs strategy, and we've recently begun to hire into a D.C. government affairs office as well.

Can you comment on your major competitors? Let's start with Binance, which has been facing a lot of pressure overseas, especially in the U.K. and Western Europe.

I think Binance has made a lot of business decisions that we wouldn't have made. You've never seen a regulator push back on us like that. Nor have we ever paid a fine or had an enforcement action. That's because we take a slower, very principled approach to rolling out products and protecting consumers as well as being very engaged with the regulators. In terms of how it will impact us, it's probably mostly positive.

Why positive?

The big split in crypto is the offshore versus the onshore. When you're onshore and regulated, it's tough to roll out as many products — as many risky products — as quickly because you are within that rules and regulatory framework, as well as your banking partners. These offshore venues don't have banking partners. When you have banking partners, that restricts some of your flexibility, because your banking partners are regulated as well.

As we see regulators gradually clamping down on offshore venues, it's mostly a positive for the folks that are onshore and have been pursuing a slower, more principled path.

Would you say you've taken a more cautious approach to expansion?

Yeah. One of our core six values is being long term. And what that means to us is, first and foremost, taking care of our customers. So just because you can make a bunch of money offering 100x leverage doesn't mean it's a good idea, because you're gonna end up taking most of your customers' accounts to zero.

Just because you can get a bunch of trading volume on a coin that may or may not be a scam and make fees on it, doesn't mean it's a good idea to roll it out to your customers. Just because going offshore can help you maybe temporarily evade regulation, doesn't mean it's good for your customers in the long term.

How did you react to the Coinbase IPO?

I'm really proud of them. Huge hats off to them. It's monumental to pull off an IPO for any company. But for a crypto company, it's even harder. They built a phenomenal business over there, and we have really good relations with the Coinbase team and have known the founders a long time. They've done a phenomenal job of advancing the whole industry.

In our case, we will go public someday. We're venture-backed, but we are minority investor-owned. We are very lucky to have investors that are focused on the long term. We're under no immediate pressure to go public. At the same time we're constantly asking ourselves: When is the right time? You know, from a financial metrics perspective, we can certainly go public today.

I'm assuming that one of your goals right now is to expand your footprint in the U.S.

Our goal in the U.S. is to serve inbound customer demand. But we don't plan an aggressive [expansion]. We're not trying to eat into anyone else's business in the U.S. We are very excited about a lot of other markets around the world. We're seeing huge growth in places like Eastern Europe and Latin America, and a lot of growth in the U.S. as well.

What is the biggest hurdle for you right now, the thing that you think about most?

Payment rails. Very unsexy answer for you. One of the most important things when you're running a very consumer-focused product is: How do you make it easy for people to get into crypto? And that is a much harder challenge than I think most people realize. You're dealing with different payment providers, state-level differences, fraud models. It's a fun and very multivariate challenge.

What are you most worried about?

Crypto is now at an awareness level. That gives us the chance to make crypto a daily part of life for hundreds of millions of humans around the world in the next five years. Today we're probably a daily part of life for maybe, at best, a million humans around the world, the whole industry. And we have this opportunity to become a daily part of life for hundreds of millions. That's only going to happen if we treat customers well. And if we build products that are useful to them on a daily basis.

And we've got to do that. If we don't do that, crypto doesn't really matter to the average person five years from now. And we won't have achieved our mission of building an open financial system for the internet. And so it's both a huge opportunity. Now's the time where we have to really make it back out. And that's what I think about a lot at night.

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