Coinbase, a decentralized or centralized company?

Issue: 035

Goldman getting into crypto assets

Goldman Sachs announced this week they will be opening a trading desk to start trading crypto asset related contracts with their clients. The company will not be holding or trading actual bitcoin, although they are open to navigating the regulatory and custodial risks necessary to handle actual bitcoin in the future.

Coinbase reveals some of their longer term strategic moves

First, the company doubles down on a compliance first ethos. Chief Legal and Risk Officer, Mike Lempres, explains how Coinbase works with regulators to comply with necessary laws, including their proactive letter addressed to the New York Attorney General Virtual Markets Integrity Initiative outlining their processes. Given this outline, it will be interesting to see how they do or don’t add support for ERC20 tokens, given the recent confusing statements made by SEC Commissioner on whether ether itself is a security + further comments suggesting that every token built on Ethereum looks like a security.

Further, Brian Armstrong discussed how he and the company think about Coinbase in terms of a centralized entity working in a decentralizing industry. Brian believes that both centralized and decentralized products and services are necessary, hinting at the company’s longer term strategy. The company is building on-ramp products from fiat-to-cryptocurrency exchange, which inherently have to be centralized services dealing with banks and government, and decentralized products like their Toshi wallet where users control their own funds. Coinbase is actively thinking about their long-term role in the industry and how they plan to diversify from their core centralized product with more decentralized products and services.

Finally, Coinbase announces their intention to support block trades for larger institutional investors — a similar move that Gemini made recently. One road block for larger institutions to get into crypto assets is the physical ability to purchase large stakes all at once without ‘manipulating’ the market. This move fits with their custody service offered late last year allowing customers with large holdings to have Coinbase hold their assets for a fee. Coinbase sees an opportunity helping institutional investors access crypto assets more easily.

Lightning Labs reveals new roadmap features

Lightning Labs outlined their roadmap and dreams for a world where users can use the lightning network easily and for all their spending needs. You can read more about the new features in Aaron van Wirdum’s post on the lightning network roadmap.

Blockstream and Lightning Labs also announced a new feature, called Eltoo, with a major improvement to the current lightning network implementation. Lightning users currently lose all of their bitcoin if they post an older balance on to the blockchain when the counter party can prove that is actually not the latest balance in their lightning channel. While this mechanism was to prevent cheating the system, sometimes posting an older balance is an accident and losing all of your bitcoin from that channel is a harsh punishment. Eltoo solves this problem by only spending funds from previous lightning channel balances. If somebody posts an older balance, the counterparty has time to post the updated balance without the original user losing all of their bitcoin. Eltoo does require a softfork, but no time table has been given for this update to take place.