- >The Value of Adoption: The History of Coinbase
The Value of Adoption: The History of Coinbase
Back in Bitcoin’s earliest days between 2009 and 2012, simply exchanging the currency was more difficult than it is now. The coins could be mined fairly cheaply compared to the present. However, exchanging Bitcoins and buying things with the cryptocurrency proved a challenge all on its own.
This hurdle in the path of adopting cryptocurrencies is overcome by a distribution network. In the case of Bitcoin, it wasn’t as easy as delivering the money to banks. Bitcoin users are their own banks, so the trick then becomes getting more banks to open. In 2012, Coinbase came up with a solution.
Michael Brown | Feb 11, 2021
The Founding of Coinbase
Coinbase was founded by Brian Armstrong and Fred Ehrsam. The Coinbase team enrolled in the 2012 Y Combinator startup incubator program. Later that year, Coinbase launched their services for buying and selling Bitcoin through bank transfers. The initial investments from the Y Combinator startup, and many investments that followed afterwards were critical in their establishment.
In under a year, Coinbase was selling over 1 million Bitcoins per month. In two years, Coinbase had over 1 million users and launched a vault system so that users could also secure their Bitcoin with their services. Coinbase also partnered with companies like Dell and Dish Network. This partnership would enable these firms to accept payment in Bitcoin. A huge step for acceptance of Bitcoin.
Growth and the IRS
Coinbase would later open a “professional” branch of the company to cater towards less casual, more full time investors. This would become known as the Global Digital Asset Exchange (GDAX).
GDAX still exists, however Coinbase has since rebranded it to become Coinbase Pro. What this offers is lower fees, legally backed insurance for all transactions, a more secure vault system, and a robust mobile app. In addition to this, they would also launch support for Ethereum in 2016. At the time of their launch, up until 2016, Coinbase only traded in Bitcoin. GDAX and Ethereum support would further push Coinbase into its top spot in cryptocurrency markets.
The year of 2017 would shape up to be a rough year for Coinbase as the IRS gets involved due to insider trading allegations. Coinbase would adopt Bitcoin Cash in December of 2017, after a Bitcoin hard fork in August of 2017. There was a short campaign announcing that they would be accepting the currency at some point, but could not do so right away. Bitcoin Cash’s value shot up about 300% on Coinbase. More than any other exchange.
The IRS would get involved in Coinbase’s business again, in 2018. The platform would require the data of about 13,000 users. This was a requirement after the San Francisco court ruled that the platform must report the identities of anybody making transactions more than $20,000 USD.
2019 Security Vulnerabilities
The year 2019 was a turbulent one for the cryptocurrency exchange. At the start of the year, Coinbase halted all trading of Ethereum Classic. There was suspicion of an attack known as a “double spend” on the cryptocurrency’s network. A double spend attack can happen when a miner is “ahead” so to speak in a timeline than most other miners. This gives the “ahead” miner the opportunity to alter where previous entries were spent, corrupting the blockchain.
After the Ethereum Classic incident, in February 2019, Coinbase announced that it had acquired Neutrino. A blockchain intelligence platform. This ended up being controversial, as a number of Neutrino staff members were allegedly part of a Hacking Team. They had faced scrutiny for providing authoritarian governments with tools for oppression. Coinbase made a statement about their new acquisition and confirmed that suspected employees would be transitioning out of Coinbase’s operations as they integrated with the new management.
Coinbase experienced another attack in June of 2019. The coinbase team was the target of a number of spear-phishing and social engineering attacks. The attempt from the hacking party was to use spear-phishing and social engineering in order to exploit a vulnerability in the Firefox browser.
The plot involved sending an email disguised as that of a Cambridge University professor, which would then install malware onto a user’s device when a given URL was clicked. From there, the malware would infect the browser, which was exploiting a flaw in Firefox the day it launched a new patch and security flaws had not risen to the surface. Attacks such as that, are not common and this was considered to be sophisticated in origin. Coinbase stopped the attack before it could damage anything. No currencies were lost and their network was not breached.
The Value of Adoption
Coinbase’s value comes from it’s simplification of cryptocurrency transactions. They provide a centralized “hub” for holders of cryptocurrencies to make their transactions. You can trade with other users on the site, or buy currencies directly from Coinbase themselves.
What this offers, is somewhere for the layperson to start and somewhere for investors to exchange. Fees are fairly minimal with Coinbase, compared to other services. In addition, this service is provided to institutions, allowing not just individuals to trade in cryptocurrency markets, but corporations and theoretically, even governments as well.
Whether this push for centralization is good or bad, is up for debate. There are those that are against Coinbase, because of the push to centralization that it represents. Sure, Coinbase may give you access to a large amount of other cryptocurrency traders and holders, but they are always charging that nagging fee for using their platform. Some warn this is a gateway for further centralization.
On the other hand, there are also those that are in favor of Coinbase and organizations like it, since it means more acceptance and adoption of cryptocurrencies, thus increasing their value. In October of last year, Coinbase announced they were offering a new visa debit card program. Enabling even more widely available spending of cryptocurrencies. Funny enough, Coinbase started off as “the PayPal of digital currencies”.
Coinbase Plays an Instrumental Role
Regardless of whether you’re for, or against Coinbase, the platform has been instrumental in putting Bitcoin and cryptocurrencies into the public consciousness. Coinbase has a track record that shows the faith in electronic currency that people have.
Finally, it has paved the way for future digital asset exchanges. Coinbase has created the much needed proof for the layperson and newcomers that anyone can be their own bank. There is indeed a method to the madness of the cryptocurrency craze.