Coinbase wants to make cryptocurrencies mainstream finally. Of course, Bitcoin and Ethereum are nothing new. However, the whole crypto madness is still pretty overwhelming and intimidating for most people, and Coinbase is working to change that.
They have big goals and big money. With more than 56 million users, the company just recently went public by getting listed in the Nasdaq stock exchange,
We often talk about companies going public in this show, but this is different because it is the first time a fully crypto-oriented company did it. As a result, many expect this unprecedented move to mark the beginning of a new era of legitimization and trust in the crypto industry.
By the way, no, Coinbase is not a cryptocurrency. Instead, it’s an exchange — a platform for investors and consumers of all kinds to buy, sell and trade these digital assets. Plus, it does many things that we’ll discuss in this article.
Their ultimate goal is to lead the crypto-economy revolution, to change the financial system as profoundly as the internet did with information and communication. They want to make digital currencies accessible for everyone to fulfill their financial needs, leaving conventional banks out of the equation.
But they’re not the first ones to go after this. Competition has increased, and there are even some iconic failures. Just look at the popular Japanese exchange Mt Gox, where some 850,000 Bitcoin disappeared in 2014. And that is just one example.
Things have changed quite a lot in the last seven years, but what is different about Coinbase? Is it going to become the next giant of the crypto era?
Brian Armstrong, the founder of Coinbase, first worked as a software engineer at Airbnb. He experienced the struggle to make money transactions between consumers and contractors internationally at a high rate.
That, alongside his previous bad experiences with the financial system, made him want to find a more effective way to make transactions.
Bitcoin was the first cryptocurrency made public in 2009. It was still pretty underground when Armstrong eventually got his hands on it. But we’ll cover things like cryptos or NFTs in more detail later. So stay tuned for that.
For now, let’s say that the blockchain technology that makes Bitcoin and other cryptocurrencies possible is a network that allows different value transactions directly between peers. Moreover, it’s possible to secure and oversee all the participants in the network instead of one prominent provider such as a bank or a government.
That simple fact can make cryptocurrencies transparent and more efficient than regular currencies, prone to bureaucracy and corruption.
The minds behind Bitcoin were a group of so-called cypherpunks, and they were all about disruption and digital justice. Right after the crisis in 2018, It was created as a technological solution to transparency and oversight in the financial system. However, that may be hard to tell apart from all the crypto craziness going on these days.
Still, Bitcoin and its philosophy fit like a glove to the problem Armstrong was trying to solve. So he joined forces with Fred Ehrsam, a former trader at Goldman Sachs, and they both founded Coinbase in 2012. The intention was to make cryptocurrencies available to more and more people and open up a new economy.
Around ten years later, and several hundred million dollars in funding, the company has made history by bringing cryptocurrencies into the mainstream financial markets.
On April 14, 2021, Coinbase got listed in the Nasdaq stock exchange, valued at a whopping $86 Billion. Mind you, that was more than the value of the New York Stock exchange, which had a $67 Billion market cap at the time. That is nuts.
But, how did Coinbase get there? Back in its early days, the company started up in the iconic Y Combinator program. It raised a first seed round of investment for around $600K in 2012. Later, in a series of investment rounds throughout the decade, they raised $547 Million.
At this point, you may be wondering: how does Coinbase make money? Well, it’s mostly through transactional fees. Every time a purchase, sale, or trade happens on the platform, they get a fee, which still makes up for most of their revenue.
They’re working to diversify that so that they don’t depend only on trading volume, which can be quite volatile still in the crypto world. But that was how they surpassed the $1 billion revenue mark.
Their rapid growth went hand in hand with the Bitcoin hype in the last few months. By April 14, the day Coinbase stock went public, Bitcoin was at an all-time high valuation of more than $64K per coin, after months of crazy hype.
That was wonderful for Coinbase and the crypto world in general. But just the day after Coinbase went public, Bitcoin started a downfall. Its price came from $64K in April, all the way down to $32K by the time we wrote this, in June. That means that Bitcoin can still lose around half its value in a matter of a few weeks.
And just as Bitcoin helped Coinbase climb in value, it also brought it down when it fell. Coinbase’s newly released shares started trading for $328 per share in April and went down to $224 in late June. That’s a considerable and fast drop in value for any stock.
And that right there seems to be the more existential challenge that Coinbase faces as a company. That is, being subject to the value and behavior of its underlying assets, the cryptos. In simple words, it’s hard to think of Coinbase succeeding if Bitcoin or more cryptos fail.
That also is a dilemma for investors who may rightfully wonder whether to invest in Coinbase or Bitcoin instead.
These digital assets have come a long way in over a decade. However, the wild ups and downs in value still make them highly volatile and risky for most people. There are thousands of digital coins now, so many are referred to as altcoins or alternative coins. And there’s everything in the mix, from serious companies to scams and jokes.
Coinbase supports 50 of those thousands of coins for now. They hope to grow that number and have more serious cryptos on the platform. Still, with all the craziness and the little regulation, they need to do it carefully.
But, most importantly, they need to create more products and services around cryptocurrencies so that Bitcoin’s swings don’t leave them out in the open.
For that, Coinbase is building an effective bridge between the traditional financial system and the new crypto economy — allowing wealth to move easily from one another.
A major factor in achieving that goal is smartphones. Now that billions of people can access the internet using their smartphones, Coinbase wants to get all of those people to use cryptocurrencies. It’s a long road, but they are en route.
A critical aspect of opening up cryptocurrencies includes allowing people to earn them by completing jobs or tasks with Coinbase Earn. That will enable more people to have cryptos and get involved, not just investors.
And they want to enable people to spend those assets, just like they would do with a regular bank account. So, as a result, more and more businesses now take cryptocurrencies as payment, which will only increase.
The company also has a Pro platform for more sophisticated investors to trade and manage higher volumes. In addition, they plan to enable things like borrowing and lending, an essential aspect of an economic system that would allow people to build new things on top of cryptocurrencies.
Coinbase knows it can’t create a new economic system on its own. So, they are investing in new companies and helping develop a new wave of crypto-native businesses. Like what happened with the internet, many traditional companies are finding their way to the crypto world. Still, most importantly, many are being created natively into the crypto space.
According to Armstrong, the company may eventually open up some of its internal APIs and become AWS for crypto companies. That would be huge and would allow many new companies to build on their infrastructure to create their products.
So, Coinbase is on its way to disrupting the economy, and they have support from investors, from individuals to institutions. But they need to incentivize new products and services to create a new financial system that is not so dependent on Bitcoin’s unpredictable nature.