Coinbase wants to reject politics. It should already know how risky that is.
This is the web version of The Ledger, Fortune’s weekly newsletter covering financial technology and cryptocurrency. Sign up here to get it free in your inbox.
Is it possible to be apolitical in today’s America? Coinbase, the largest cryptocurrency exchange in the U.S., is about to find out.
Brian Armstrong, Coinbase’s CEO and cofounder, wrote in a blog post this week that his company would “focus on being the best company we can be, and making progress toward our mission, as compared to broader societal issues.” The post laid out, among other things, clear limits on Coinbase’s corporate charitable efforts and political engagement, and guidelines for employees that include not debating politics internally. Instead, Armstrong wrote, Coinbase will maintain singular focus on creating a blockchain- and crypto-based alternative to the current financial system.
Armstrong is standing athwart recent trends at the highest levels of corporate America. Those are exemplified by efforts by the Business Roundtable group to advance what it calls ‘stakeholder capitalism.’ Stakeholder capitalism is an attempt to walk back ‘shareholder theory’, also known as the Friedman Doctrine, after economist Milton Friedman. Friedman famously argued corporate ethics could be boiled down to one principle: generating money for shareholders.
There is growing consensus, both among the American public and its corporate elite, that adherence to the Friedman Doctrine has had toxic social effects over the past half-century. Because it discourages consideration of the secondary impacts of a corporation’s actions, the doctrine is arguably at the root of phenomena, such as offshoring and contingent labor, which have frayed the social fabric of America and the world.
Armstrong’s call for a focus on Coinbase’s core business is in large part a rejection of stakeholder capitalism and a defense of the Friedman Doctrine. And there are good arguments for that: initiatives like the Business Roundtable’s have yet to show they can produce real change, instead of just good public relations. Because stakeholder capitalism is so often gauzy and pro-forma, it can boil down to empty gestures like handing cash to nonprofits that have their own structural issues.
If you’re trying to change the world, it’s much more durable to do what Armstrong says he wants to do at Coinbase: make money from a product that inherently helps people and society. That’s why Fortune recently named a group of startups to what we call the Impact 20, companies focused on fixing social problems and making money doing it. If you believe that cryptocurrency has benefits for human freedom, Coinbase fits neatly in this group.
All that said, Coinbase has seen firsthand that turning a blind eye to politics can lead to huge business blunders.
In early 2019, Coinbase acquired a company called Neutrino, a so-called blockchain analytics firm developing tools to track and trace transactions in Bitcoin in other cryptocurrencies. This was dicey enough, because many crypto fans are privacy-focused, and would rather such companies didn’t exist at all.
Things got worse fast, though, when critics (including me) highlighted that the executive team at Neutrino had, at a previous company called Hacking Team, provided spy tools to heinous authoritarian regimes, including some engaged in the harassment and even murder of journalists. The head of Hacking Team had also expressed fascist sympathies.
If there’s anything Bitcoiners dislike more than being monitored, it’s overt authoritarianism, and a ferocious outcry ensued, organized around the hashtag #deletecoinbase. Coinbase ultimately fired all former Hacking Team members, likely torching much of the reported $13.5 million spent to acquire Neutrino’s technology and team. Coinbase admitted that in looking at Neutrino, “we did not properly evaluate everything from the perspective of our mission and values as a crypto company.”
This, in a nutshell, is the risk of explicitly silencing internal political dissent at a company. While Coinbase’s executive team didn’t see the risk in the Neutrino acquisition, it seems likely that at least a few of the company’s dyed-in-the-wool crypto-native employees did.
If they’d been heard, it might have saved Coinbase not just several million dollars, but significant reputational damage. Because of Neutrino and similar incidents, many of the most dedicated champions of cryptocurrency now openly disdain Coinbase, which they see as having little real commitment to the values that inspired Bitcoin. In other words, by ignoring politics, Coinbase actually damaged its core mission. But instead of fostering employee input, Coinbase is now going the opposite direction, even offering severance packages to usher dissenting voices out the door.
So, can a company be apolitical in today’s America? It may be appealing in theory. But in practice, an organization with its head in the sand is going to have some trouble navigating our tumultuous times.
David Z. Morris
The ISO 200220 standard will revolutionize bank payments by 2030 ... Crypto exchange Gemini expands into the U.K. ... Visa execs detail the payment processor's blockchain strategy ... Kid-focused fintech Greenlight hits $1.2 billion valuation ... Bitfinex launched stock index derivatives trading ... Private equity firm Valentus Capital to raise funds through digital token sale ... JPMorgan calls senior traders back to the office, but consumer reps will stay at home.
Amnesty International leaves India, claiming the government froze its bank accounts ... Study finds low financial literacy correlates with owning cryptocurrency ... Major crypto exchange KuCoin hacked for as much as $279 million ... Consumer credit risk innovator Petal closes $55 million Series C (led by the same fund that led its series A and B) ... Whistleblower warned auditors of Wirecard fraud four years ago.
FOMO NO MO'
“Whoever asked this question, we’re going to track them down,” Sun seethed, before threatening “to kill their entire family.”
From a new Verge profile of Justin Sun, founder and CEO of Tron, who has built a clone of Ethereum into a global player. Sun has long been knocked as a shameless hype man, often touting inflated or deceptive claims about Tron's popularity (in practice, it's mostly a decentralized scamming and gambling platform). But the profile shows a new side of Sun - Justin the grandiose, megalomaniacal, rage-spewing bully. After a catastrophically bungled Tesla giveaway in 2019, Sun screamed and kicked doors. One employee witnessed Sun physically assaulting Tron's lead engineer. More tragicomically, Sun reportedly delivered a lengthy diatribe about a company driver who accidentally trapped him in a car by activating its child-safety locks.
And reporter Chris Harland-Dunaway writes that his sources, including 18 current and former Tron employees, agreed that "the cornerstone" of Tron's business is "using marketing to extract money from users." It's all very reminiscent of the defining businessperson of our generation, Donald Trump. And like Trump, according to one former employee, “Justin doesn’t care about how to actually run a business.”
THE LEDGER'S LATEST
IRS adds cryptocurrency question to 1040 form - Jeff John Roberts
Was German ransomware attack the first one to cause a death? - Robert Hackett
Trump missed $114 million in gains after cashing out his stocks - David Z. Morris
The controversy over Coinbase's anti-activism stance - Lucinda Shen
Amazon's new pay-with-your-palm technology - Phil Wahba
The startup turning limited-edition music and shoes into tradeable crypto - Jeff John Roberts
Gold bugs are on the back foot - Bernhard Warner
MEMES AND MUMBLES
A stunning chart of two decades worth of Donald Trump's profits and losses, from the New York Times' analysis of Trump's tax records. The splashiest takeaway is that Trump's actual business earnings were minuscule before he started playing a business mogul on TV. But the timeline also shows how the financial crisis, which was caused in part by his chronic enablers at Deutsche Bank, dealt Trump's fragile business a blow from which it has never recovered.
This edition of The Ledger was curated by David Z. Morris. Contact him at email@example.com