Does Coinbase Represent the Banks of the Future?
Coinbase is one of the most established cryptocurrency exchanges in the world, and it is slowly expanding from its retail user base to institutional investors. The exchange now hosts a custodial service for institutional hedge funds and other clients to deposit a minimum of $10 million.
As blockchain technology and cryptocurrencies evolve to make mainstream adoption easier, services like Coinbase will begin to assume the role of banks in their own way.
The standard definition of a bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services, such as wealth management, currency exchange, and safe deposit boxes.
Started as a wallet, now has over 20 Million accounts
Coinbase started off as both an exchange and a digital wallet for storing funds. Now with their custody service, they appear to be expanding into wealth management as well. What makes Coinbase different to traditional banks is that the underlying asset they exchange and hold is decentralized, meaning their users have far more flexibility regarding how they can manage their own money.
Regardless of how massive Coinbase and other exchanges grow; they will never be powerful enough to control the currencies that flow through them. The same cannot be said for major banking institutions and their collective control of fiat money in collaboration with the Federal Reserve.
It is due to such over-centralization that banks were labeled as ‘too big to fail’ during the financial crisis of 2008. Once an institution is too big to fail, no amount of wrongdoing will ever force it to face to the consequences that a normal business should in a free market. The banks were bailed out by the government, but in the world of crypto, exchanges like Coinbase function with the understanding that they are not immune to failure, and can easily be outcompeted by other emerging exchanges like Gemini.
Also unlike traditional banks, Coinbase is capable of appealing to the retail and institutional market with very little friction. Signing up to the exchange just requires a username, password, and, some ID verification, although this is not required for decentralized exchanges, which makes them even easier to adopt.
Most major banks completely dismiss large segments of the retail market because the onboarding costs are not worth the size of the deposits that would be stored in each account. This is why in 2018 we still have as many as 2 billion “unbanked” people in the world, mainly in poorer parts of South America, Africa, and Asia. Despite the volume that 2 billion additional customers would bring to the traditional financial system, banks simply cannot manage the costs of setting up new accounts in the same way that a crypto exchange like Coinbase can (Coinbase currently has over 20 million accounts, more than Fidelity and twice that of Charles Schwab).
No Hidden Fees
For the average citizen, the transition from a traditional bank to cryptocurrency exchange will require a few major catalysts. The first is efficiency, the ability to send money from one location to another within minutes/hours as opposed to days.
The second is transparency so that customers are not being slapped by hidden fees simply for making inquiries or exchanging currencies. And finally, the third is autonomy; knowing that your money is yours to deposit, withdraw or spend without suspicious questions or overreaching restrictions from your bank.
Crypto exchanges such as Coinbase seem to be on their way to developing a service that will trigger all of these catalysts for the average bank holder in the coming future, making it one of the most promising services that will help push cryptocurrencies into mainstream adoption.
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