Brian Armstrong

Buterin and Armstrong reflect on proof-of-stake shift as Ethereum Merge nears

Two influential figures in the cryptocurrency space unpack their individual journeys to understanding the promise of proof-of-stake as The Merge approaches for Ethereum.

Ethereum co-founder Vitalik Buterin and Coinbase CEO Brian Armstrong believe that a gradual mind shift and important community contributions led to their backing of Ethereum’s upcoming move from a proof-of-work (PoW) to aproof-of-stake (PoS) consensus.

The two industry titans joined Coinbase protocol specialist Viktor Bunin on the Around the Block podcast for an enlightening discussion centered on The Merge, which is set to take place in mid-September 2022.

Buterin reflected on his history of considering proof-of-stake as a potential consensus mechanism for the Ethereum blockchain, which was initially met with skepticism due to a number of unsolved problems that made it seemingly unviable.

According to the Ethereum co-founder, one of the project’s first blog posts in 2014 proposed an algorithm called slasher, which introduced the concept wherein a node would be penalized for voting for contradicting actions:

“This was my attempt at making inroads in solving what proof-of-stake critics call the “nothing-at-stake” problem. In proof-of-work if you want to build on top of two blocks you have to do double the work but in proof-of-stake you can just sign as many things as you want.”

Buterin believed that introducing an explicit penalty for signing contradictory actions would be a viable option. Research continued through 2014 to explore the security assumptions that Ethereum would have to rely on with PoS and if it could be more secure than PoW by making slashing penalties eat into staked deposits rather than staking rewards.

Buterin then reflected on a concept introduced at the end of that year called “weak subjectivity.” He explained that for a PoS network to benefit from the full security guarantee of the mechanism, a node has to be online at fairly regular intervals.

Related: Lower costs, higher speeds after Ethereum’s Merge? Don’t count on it

This could be every week, month, or year, with longer time periods becoming more inconvenient for stakers from a liquidity perspective. Buterin believes this was the critical consideration that set his mind on the transition to PoS:

“Ironically enough for me, it was realising that that was an unavoidable tradeoff that actually made me comfortable with it. It made me realise that this is the weakness and at the same time I felt confident that it’s all that there is.”

Armstrong entered the conversation, admitting that he had reservations about PoS when he first heard about it and it took a couple of years to change his perspective:

“When people started talking about a Turing complete language on a blockchain, I was like this sounds so easy to attack and so I was initially just skeptical.”

The Coinbase CEO began to explore the concept again after explaining that his initial belief that Bitcoin would serve as the main blockchain in the ecosystem had its limitations. The success of decentralized applications (DApps) running on Ethereum led Armstrong to have a more open mind around the transition to PoS:

“Just seeing Vitalik make progress on it and the DApps that were coming out, we eventually came round to the idea at Coinbase that we’re going to have to be agnostic to every chain and token that is coming out, we can’t sit here in our ivory tower only focused on one asset.”

Buterin went on to unpack his belief that PoS is more robust and decentralized than PoW, with the ability for an Ethereum validator to be set up anywhere in the world. An individual only needs a computer and an internet connection to do so.

The pair also weighed in on the United States Treasury’s move to sanction USD Coin (USDC) and Ether (ETH) addresses connected to Tornado Cash, while also noting that Coinbase would rather stop its staking operation to preserve the integrity of the overall network in the hypothetical situation that it was required to censor transactions.

Coinbase would rather shut down staking than enable on-chain censorship — Brian Armstrong

With the ban on Tornado Cash, many DeFi proponents are worried that crypto exchanges, which are also the key validators of Ethereum, will succumb to pressure and impose protocol-level censorship.

In light of the recent ban on crypto mixing tool Tornado Cash and the subsequent arrest of the Tornado Cash developer, there has been a growing debate over whether crypto services providers would choose decentralization or censorship as  form of compliance.

The question has become more prominent as Ethereum is moving from its current proof-of-work (PoW) blockchain to a proof-of-stake (PoS) mining consensus. With the transition less than a month away, a user pointed out that more than 66% of validators on the Beacon Chain (Ethereum PoS chain) will adhere to the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) regulations.

When asked whether Coinbase and others would choose to adhere to compliance requests and impose protocol-level censorship or shut down staking services, Brain Armstrong, the CEO of Coinbase, chose the latter. Armstrong said:

“It’s a hypothetical we hopefully won’t face. But if we did we’d go with B I think. Got to focus on the bigger picture. There may be some better option (C) or a legal challenge as well that could help reach a better outcome.”

There was growing speculation about the actions of Coinbase, Kraken and other prominent crypto exchanges that are also key ETH validators on the Beacon Chain.

Related: Tornado Cash ban could spell disaster for other privacy protocols — Manta co-founder

Many believed that centralized crypto exchanges would take the easy way out and impose protocol-level censorship rather than block individual transactions from banned crypto mixers such as Tornado Cash.

The current dilemma comes from the OFAC sanctions that have deemed all Tornado Cash transactions illegal. However, decentralized finance (DeFi) experts believe it has complicated the issue. Instead of sanctioning a particular address or country, the regulators have decided to ban the protocol.

Experts believe a decision to ban would discourage many protocols and exchange operators from engaging with anything related to Tornado Cash, including ETH transacted through the mixer, which could lead to unnecessary censorship.

Why Coinbase is banning slide decks and ‘endless meetings’

Coinbase CEO Brian Armstrong is looking for enhanced efficiency from its internal teams, noting that rapidly growing firms often become complacent and slow.

Crypto exchange Coinbase is getting rid of slide decks and “endless meetings” as a way to improve productivity following the purge of roughly 18% of employees last month.

In a July 13 blog post, Coinbase CEO Brian Armstrong noted that the company is currently focused on “driving more efficiency” as it continues to scale, pointing to a 200% year-on-year employee growth over 18 months that had started to put a strain on the firm’s organizational structure.

He suggested that many major firms experiencing rapid growth generally end up becoming complacent and slowing down, while great companies do the opposite:

“While this trajectory is natural, it is not inevitable. Every great company, from Amazon to Meta to Tesla, found ways to retain their founding energy in conjunction with appropriate controls, even as they scaled to be much larger than Coinbase is today.”

As part of the focus on efficiency, Armstrong stated the firm is “experimenting with banning slide decks in product engineering reviews” to speed up the product development process.

“Inside growing companies, there’s a danger that product and engineering teams start shipping great slide decks instead of great products,” said Armstrong.

Slide decks are essentially a series of slides used for visual representation when presenting ideas. They are very popular ways to communicate big ideas but have a reputation for frequently not being realized.

“But our customers never see the slide decks we create. They only see the product.”

Armstrong says that he wants his employees to instead show realistic previews of how the products work in real-time using dashboards with metrics, product mockups and the actual product itself.

“The important thing is to get hands-on with the product, see what the customer is seeing (or is about to see), and make it better,” he said.

The crypto exchange boss says he also wants to scrap internal meetings among its product and engineering teams, as Armstrong said they often get bogged down with “endless meetings around prioritization and feature requests.”

The firm will instead be moving to a model where all product and engineering teams will publish APIs under an internal API catalog that will provide “consistent libraries and languages for authentication, logging, instrumentation, etc.”

Such a feature will help different teams benefit from each other’s work “without ever needing to schedule a meeting.”

“In other words, they need to productize their services and allow other teams to use them in a self-service way,” he explained.

Related: Risk profile of crypto markets similar to oil and tech: Coinbase

Armstrong also outlined that the company will be organizing its teams into “small pods” of 10 or fewer people who will be assigned to a specific feature or area, give more decision powers to directly responsible individuals (DRIs) and provide information sharing services between product teams.

This year, Coinbase launched a nonfungible token (NFT) marketplace, an upgraded mobile wallet app, expanding staking offerings to Solana (SOL) and also has plans to offer futures trading to its clients if its application to operate as a futures commission merchant (FCM) is approved.

The price of Coinbase’s stock COIN has seen a challenging year, however, crashing 78.21% since the start of 2022 to sit at $54.24 at the time of writing, according to data from TradingView.

Crypto exchange Coinbase slashes staff by 18% amid bear market

After initially slowing down hiring, Coinbase announced plans to reduce its headcount by 18%, with the CEO citing a starting economic recession.

Coinbase CEO Brian Armstrong officially announced on Tuesday that he made a “difficult decision” to reduce the size of the Coinbase team by about 18% due to a starting economic recession.

“We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter, and could last for an extended period,” Armstrong wrote. He added that the trading revenue significantly declined during past crypto winters, noting that Coinbase has survived through four major crypto winters since its foundation in 2012.

Armstrong emphasized that the firm has been growing “too quickly,” with Coinbase’s headcount reaching 1,250 employees as of early 2021. According to the CEO, the team has grown four times in the past 18 months and their employee costs are “too high to effectively manage this uncertain market.”

According to the announcement, all departing employees will receive support in finding a new role, including a minimum of 14 weeks of severance as well as an additional two weeks for every year of employment beyond one year. Additional support includes four months of health insurance in the United States and four months of mental health support globally.

Coinbase’s massive layoff announcement came shortly after Armstrong took to Twitter on Friday to criticize its employees for issuing a public petition to remove some senior Coinbase executives in a vote of no confidence. The petition specifically called for the removal of chief operating officer Emilie Choi, chief product officer Surojit Chatterjee as well as chief people officer LJ Brock.

According to the petition’s authors, Coinbase’s executive team has been making decisions that were “not in the best interests of the company, its employees, and its shareholders.” The petitioners argued that those decisions led to results like the failure of the Coinbase NFT platform, toxic workplace culture and an apathetic attitude exhibited by senior management and others.

Major United States-based cryptocurrency exchange Coinbase is cutting its headcount amid Bitcoin hitting its two-year lows around $21,000.

Coinbase previously announced in May that it would slow down hiring and reassess its headcount to ensure it continues operating as planned.

In announcing a new massive layoff, Coinbase joins the growing list of firms that had to cut their staff amid the ongoing bear market, including Winklevoss brothers-founded Gemini, crypto-friendly trading platform Robinhood and the BlockFi trading platform, which said it was laying off 20% of its staff on Monday.

Crypto.com CEO Kris Marszalek also took to Twitter on Saturday to announce that the Singapore-based exchange would lay off 260 workers, or 5% of its workforce.

Related: FTX will not freeze hiring amid layoffs at other crypto firms, CEO states

Despite some crypto companies increasingly reducing the size of their teams, others continue hunting for new talent. Binance, one of the world’s largest crypto exchanges, is still hiring, having more than 2,000 roles open for engineers, product, marketing and business developers.

“The crypto space is still in its early stages, and bull markets tend to care more about price while bear markets have more value-conscious teams that continue to build the industry. We see this as a great time to bring on top talent,” Binance CEO Changpeng Zhao said.