Coinbase: America's Child

History

Brian Armstrong grew up in California, in the family of an engineer and a teacher. In high school, Armstrong became interested in programming and started making simple websites. After high school he went to Rice University, where he received two graduate degrees: economics and computer science.

Brian had to deal with the awkwardness of online payments twice: when he founded UniversityTutor.com, a tutor matching service, and, later, when he worked at Airbnb.

"When sending $100 to Uruguay, you never know how much of it will be received on the other side, and the intermediary companies simply refused to disclose that information."

So when Armstrong came across a document online by the anonymous bitcoin inventor Satoshi Nakamoto describing how cryptocurrencies and the blockchain worked, he was thrilled.

Around the same time another American, Fred Ehrsam, was also thinking about the prospects for bitcoin. Fred was a Goldman Sachs trader and had a passion for cryptocurrency. In October 2012 he came across Armstrong's post on Reddit, where he described his prototype of a cloud bitcoin wallet.

A few months later Ersam wrote to Armstrong - it turned out he had already developed a wallet and was selected for the Y Combinator business incubator. After a personal meeting, Armstrong invited Ersam to join him as co-owner of Coinbase.

In the same year, Coinbase launched services for buying and selling bitcoins through bank transfers. And in 2013, the project received its first investments - $5 million from Union Square Ventures, $25 million from one of the largest Silicon Valley funds Andreessen Horowitz and from a number of other investors. This was the largest venture capital investment in a cryptocompany at the time. Since then, Coinbase has already raised more than $500 million.

The 2013 bull market was a powerful impetus for Coinbase's development. Within a year, the price of bitcoin rose $10 to $1100. During this period, Coinbase absorbed several related services, introduced value insurance for bitcoins stored on exchange servers, and launched a secure cryptocurrency storage system. All this generated trust and provided the exchange with an influx of new customers.

In November 2013, the founders brought in another "bitcoin-obsessed" partner, Adam White, an engineer who served five years in the U.S. Air Force and then graduated from Harvard. He was given the ambitious task of finding ten companies with sales of more than $1 billion each and signing contracts with them to accept bitcoin payments. Two months later, Coinbase had a signed agreement with Overstock.com. Bitcoin transactions made by a large company through Coinbase "opened the floodgates" to other corporate clients, White recalls. Soon giants like Expedia and Dell began working with the startup, which boosted confidence in Coinbase and cryptocurrency in general. Today, thousands of large companies and small merchants already accept bitcoin payments through Coinbase.

Coinbase has also signed agreements with traditional payment systems Stripe, Braintree and PayPal, which, thanks to Coinbase, were able to process bitcoin transactions.

One of Coinbase's principles that sets the company apart in the sprawling market for cryptocurrency exchanges is its strict adherence to U.S. laws and increased attention to suspicious transactions. If, in the opinion of exchange analysts, a user's wallet is used for suspicious transactions, the exchange can demand explanations from the wallet owner or close the account.

Coinbase has repeatedly drawn the ire of Reddit users, who accused the startup of behaving like a "big brother," "spying for the U.S. government," and "using Gestapo tactics.

Forbes quoted one of the disgruntled users:

"Wow, someone obviously forgot why people use bitcoins in the first place. If I wanted to be asked about the origin of every transaction, I'd have the IRS audit me."

Financial success and a growing customer base helped Coinbase make a round of investments at an almost unprecedented $100 billion valuation for the IT market. The success prompted Armstrong to go public - but not through an IPO process, but as a direct listing on Nasdaq.

Fred Ersam, who resigned from the Coinbase founders in 2017, believes that this is far from the limit for the development of the project and the crypto market as a whole.

"If you told someone in 2012 that bitcoin's capitalization would exceed $1 trillion, as it did at one point last week, people would think you were completely insane. The idea of new digital money seemed strange to most people simply because new money has never appeared in our lives, at least in the lives of Americans. But these stereotypes are easily shattered. It just takes time for such a powerful new idea to penetrate society and gain its trust.

"The Coinbase Effect."

You know that phenomenon where the price of a coin or token goes up a lot after it has been listed on an exchange? Well, there's a name for it!

The Coinbase effect is a short-term change in the price of a cryptocurrency (usually upwards) that occurs after the announcement of its listing on the platform.

This is due to several reasons.

1. the Exchange keeps a relatively small list of traded crypto-assets.

2. information about the start of trading new coin is kept secret until the last moment.

As Coinbase is one of the world's largest digital currency trading platforms, its listing is perceived as recognition of the project's high quality and high attractiveness of its cryptocurrency.

However, sharp price rises are often short-lived and lead to equally sharp pullbacks. Much depends on the dominant market trend and liquidity of the coin.

In April 2022, Coinbase decided to change its listing policy. Now the platform publishes an open list of applicants in advance to ensure fairer terms. But what cryptocurrencies from the list will eventually be added to the exchange is not known in advance.

Features of the exchange

For traders

For professional traders there is a version of the platform called Coinbase Pro with additional features, and for institutional clients - the Coinbase Prime section.
"Coinbase offers Chits the best possible mediation terms, liquidity for transactions, marketplace data and other services.
As of May 2022, over 170 crypto-assets are available on Coinbase and 250 on Coinbase Pro. The platform supports accounts in fiat currencies - U.S. dollar, British pound and euro.

Services

Coinbase Wallet. Wallet with support for about 500 cryptocurrencies. Available as a browser extension and mobile app.
NFT Marketplace Coinbase. A marketplace where you can issue, buy and collect NFTs. Marketplace is in beta version and supports ERC-721 and ERC-1155 standards on Ethereum network.
Coinbase Commerce. Provides online stores with the ability to accept payments using various cryptocurrencies and their conversion into fiat money.
Coinbase Custody. A cryptocurrency custody service for institutional clients regulated by the New York State Department of Financial Services.
Coinbase Card debit card. Issued based on Visa, it syncs with an exchange account and allows you to pay for goods and services with cryptocurrencies. In June 2021, Coinbase added support for Apple Pay and Google Pay for its card.
Coinbase Earn is an educational project where you can get a small amount of coins for watching videos about cryptocurrencies and answering questions about them. At different times, Stellar (XLM), ZCash (ZEC), 0x (ZRX) and other crypto projects participated in the program.
Coinbase Ventures is a cryptocurrency venture capital unit. At the moment there are more than 250 projects in the fund's portfolio.

Regulation

The number of verified Coinbase users is more than 98 million people from 100 countries around the world, including Europe. However, the exchange does not operate beyond its borders, including Russia, Ukraine, and Belarus.
In early 2022, the exchange joined sanctions against Russia and announced it was blocking 25,000 addresses, which the administration said were "engaged in illegal activities."