Understanding Coinbase
diff.substack.com
diff.substack.com
Uniswap airdropped its token $UNI to all users on Sept 17, 2020. Uniswap is already at a $17 billion market cap. Coinbase is expected to IPO at ~$100 billion.
[0] https://www.theblockcrypto.com/data/decentralized-finance/de...
In my POV, there's only two ways to get into crypto:
- Centralized exchanges with KYC
- Mining
Coinbase is a KYC centralized exchange and enables people to turn their bank account $$s into crypto. Uniswap and Sushiswap are only relevant once someone has crypto and needs to exchange between various tokens.
[0] within margin of error
I also should note that for work done for clients outside my country of residence, I preferred crypto payments because local exchanges allowed me to have the payment in my bank account, in local currency in minutes 24 hours a day, any day of the week, as opposed to waiting 24 hours or even days by any other non-crypto payment method
My assumptions:
You may save a miniscule amount on transaction fees.
For your customers It’s just a new hoop they have to jump.
Does it worth it?
Imagine now your customer is in a non-US country, and you are in another non-US country with another currency. Using USD wire transfer is jumping through hoops in this context, and might not always be fast, cheap, or possible at all with some pairs of countries.
In this scenario, would one's rate be set in BTC, or fiat?
I'm struggling to understand how a (non-crypto) business could want to hire a contractor at - let's say - 0.016 BTC/day, then watch the real (fiat) cost of that rate change value as the crypto markets move.
"We hired a contractor at what was $100/day but right now it's costing us $1000/day because we agreed to fix her rate in BTC" ?
Isn't this essentially like agreeing to pay someone in gold, or any other random commodity?
You set the rate in USD, and do the currency conversion upon sending.
> I'm struggling to understand how a (non-crypto) business could want to hire a contractor at - let's say - 0.016 BTC/day
You’re right, BTC is too volatile to set the price in it in advance. But it is a perfectly good payment method.
It’s true that if you need the money you receive in BTC to feed your family tomorrow or they starve, then BTC is not convenient and too risky due to price fluctuations. But if you’re a reasonably compensated professional or a business with healthy margins, there’s very little downside in receiving 10—20% of money as crypto, and potentially very high upside.
If you don't possess the BTC on the day you signed the contract then you basically created an option with a zero dollar strike price. You aren't truly using the currency the way helloworld1 and others imply.
They do so because it gets the job done.
You'll get really tired from all of these gymnastics trying to convince everyone already using cryptocurrency that nobody's using cryptocurrency.
Iykyk
that isn’t new with crypto
Coinbase itself has a debit card that deducts directly from your crypto balance and allows you to swipe the card anywhere that normally takes Visa. They're even a card issuer for Visa in their own right, so they don't have to do it through partner banks.[0]
Spending crypto is easy, whether the vendor opts into using it or not, so if you do get paid in it, it's easy to use.
[0] https://cointelegraph.com/news/coinbase-becomes-direct-visa-...
The sad reality is that governments fail to do so. The irony behind your comment is that if they could, they would have stopped a long time ago.
I don't see how that's "failing to do so" if "so" refers to "printing away the value of their money"?
But you're also forgetting P2P crypto marketplaces like LocalCryptos[1], which (for Ethereum) allows you to have smart contract escrow and therefore the middle-man is only really required in the case of disputes. I personally have transacted > $100k with LocalEthereum, not once having an issue with a trade, and most settling in under 30min.
Taxes are owed in income or capital gains, whatever form that income or capital takes, but taxes can only paid in legal tender. Until the IRS et al hang out a wallet address for payments you will still need to touch the ordinary financial economy.
But yes, that was more talking about the future. That is the matter at hand, after all – Coinbase's future (or lack thereof).
"People who pay no income tax" absolutely can apply to people using cryptocurrencies.
[0] https://www.nerdwallet.com/article/taxes/capital-gains-tax-r...
Every time I have a discussion about crypto on HN I want to go buy lots of crypto because there are clearly still some smart people that really don't get it, to the point of seeming deliberately obtuse.
You can try to make it out to sound really widespread if you want, but the facts don't support you.
And the fact that people with lower incomes stand to benefit more from crypto than people of higher means who already have access to reliable banking systems is part of the point.[1]
[0] https://www.census.gov/library/publications/2020/demo/p60-27... [1] Bitcoin's genesis block, which cites the bailout of banks at the expense of sound money.
If I make less than $40k a year, I pay 0% capital gains? But what about income tax? You have to have some form of income, which will be taxable. I don't see how to keep that so low your effective taxation will be 0% while having enough money to live on? Am I missing something? Forgive my unfamiliarity with the tax regimes here.
I did totally forget to mention local exchange
I'm kind of at a loss for how to do this...
Given the choice, I would immediately choose the option where I can pay in CAD and not BTC.
On the OTC side (which I guess you’re referring to?, CB sets their own spread , which makes it more akin to a fee. Even if CB is technically correct saying “0 fee”, they can still charge any price they want for buying vs selling.
Owning the actual asset and not just an IOU
You can seamlessly link your exchange account and your Wallet account so you can move the money right into your own Coinbase Wallet with your own private keys as soon as you're done with the exchange.
I'm not sure the parent comment meant that wallet, but Coinbase does "give you a wallet" if you want, complete with your own private keys.
At that point, Coinbase wallet is the equivalent of Metamask et al
Coinbase does "provide you a wallet." It just isn't part of the exchange.
Personally, I think unless coinbase pivots, their current business model is not sustainable in the long term. But right now, coinbase is capturing value in a way that the early majority of crypto's adoption curve can digest.
but yeah buying from miners/mining is the safest way to get into crypto
The question is when? After what BTCUSD price? We’ll probably run the bull a few more months and then crash.
And then start all again.
Are we talking fees for coinbase pro, or the spot price offered by coinbase on their website? The prices for the former are already pretty low, with most exchanges charging around 0.2% on their lowest volume tier. The prices for the latter might be high, but I can totally imagine it staying high considering that forex rates at your local bank is equally as bad (around 1-2%). As a point of comparison for both, transferwise charges 0.4% for converting euro to usd.
At some point the ecosystem needs to interact with banks for on and off ramps, and that is where Coinbase excels.
It also works the other way, so they are an on-ramp, just with a slightly higher fee. However i wouldn't 100% rely on these regulated stable coins as an off-ramp if the crypto market implodes and everybody runs for the exit.
I've been using a bitcoin debit card for years.
I've also purchased thousands of dollars of stuff, from NameCheap renewals, Vultr hosting, to Amazon gift cards.
AKA being overcharged to spend fiat.
Couldn't agree more.
2) Coinbase do on/off ramp which you can’t do with uniswap
This is like saying the biggest threat to Microsoft is Linux.
Linux is also not a good analogy IMO, because Uniswap has a lot of direct retail/consumer usage whereas Linux isnt used directly by the average person.
Yeah, assuming gas fees ever come down to something halfway sensible. A _minimum_ of $50 both ways to trade is a tough pill to swallow.
Your argument can easily be used to dismiss the early internet.
It's more like early TCP where you have to install and set up the whole network stack of the month than early WWW to me.
Also I don't think even the earliest of networking was as weird (but I could be wrong).
The fact that something requires specialist understanding at its most basic levels does not in any way prevent building upon it and simplifying it until it reaches such a level of abstraction that any layperson can use it even though they don't understand it.
1. Download Metamask.
2. Deposit your tokens, or purchase them from metamask.
3. Go to Uniswap.
4. Swap.
Or stocks, I suppose, but at least they have revenue.
I don't know what you want to be holding if/when that happens, but I'd like to own some provably scarce resource that can be transmitted digitally.
Fiat will always be backed by military force.
If a crypocurrency becomes popular in another country using another currency to on- and off-board, see my comment.
It would take a miracle for cryptocurrencies to suddenly replace fiat without being bound to any fiat currency. Essentially, all the world would need to switch trust at once.
Biggest threat is L2 exchanges. CEX-style speed and convenience and DEX-style non-custodiality. My money is on Nash since they went the legal path plus fiat on-ramping, i.e. actually competes with Coinbase's main source of profit.
These are more like ballast systems, yes, as seen in large ships, than anything else I could describe.
It has revolutionized trading and liquidity without exactly being a panacea, but its pretty damn close.
They’re pretty good, and it is an active area of development to be better. Transaction fees can range from $.01 to $150.
can you elaborate on this?
So this pool is really two pools, in the ballast analogy think of each as two separate silos next to each other filled with liquid evenly. When someone outside of this wants the LINK token, they must bring Ether, which adds Ether to the Ether silo, and subtracts Link from the Link silo. Despite the quantity changing, value wise the remaining Link has gone up in value proportionally, which is kept track of simply because the system understands that the ratio has changed. The ratio winds up matching market prices everywhere. It will match the price of Link priced in Ether priced in dollars on all the other price tracking services. So that's pretty genius.
User experience wise, every order is essentially a market order, as there is no way to have different sized orders at certain price levels get matched. (you have to understand how posted-order exchanges work to understand that sentence, in traditional markets, volume has nothing to do with price movements it simply winds up having a 99% correlation by coincidence.) In AMM systems every trade moves the ratios based on the size of the order, and how big the silos are to begin with.
But that's where there is the permissionless nature of anyone being able to join the liquidity pool, and earn a portion of all trades that pass through it. So this aspect is more advanced than requiring professional market makers (or pretending they don't exist in crypto while being extorted by all centralized exchanges to contract with them, but never admitting to your community that they're there so that the regulators don't curb stomp you and your project).
So now, any community that wants liquidity can just create a liquidity pool, instead of begging exchanges to list their token and spamming Coinbase and Binance's twitter and telegram all day forever. It is completely permissionless, but now you've reached the edge of what that system can do. The further advances are all external, for example, you absolutely can create limit orders by just monitoring the ratio of a liquidity pool, the ABI of those smart contracts have a convenience function you can call. And also joining liquidity pools are incentivized by third parties, and this is what yield farming is. It is all the craze because it is intrinsically linked to the growth of AMM system's liquidity and volume. When you join a liquidity pool, you receive a liquidity pool share which is a new token that represents your % of the pool. The "LP" acronym is ironically the exact same function as a Limited Partner in a pe/hedge fund. This share is a bearer asset which can be deposited in other places that let you earn third party tokens that have their own utility and price. This is farming. You plant your share and earn a yield.
The final thing to point out is that the liquidity pools have cross liquidity pool routing.
So back to our example, Lets say you have Tether instead of Ether. The AMM systems will take your tether, route it through an existing Tether/Ether liquidity pool, your the Ether through the Ether/Link liquidity pool and give you Link. They will do 4-5 hops or more and judge the most liquid route.
So yet again, more advanced than posted-order exchanges because you don't have to beg for any particular trading pair, and you don't have to switch assets in advance manually.
If you understand this then you've made it to last summer. Where we are at now is that there are plenty of services that let you trade using liquidity between multiple AMMs, 1inch exchange is the most popular for that, the current developments are the ability to trade across multiple AMMs on multiple blockchains. But note, individuals build their own bots to do it whether a big project has made this easy for others or not.
They lack the ability to save destination addresses and hide the destination address while you input your 2FA code, so you can always enjoy wondering if you will actually get your crypto.
If they ever sort out ACH and card payments for the U.S., I don't see what keeps them from taking a huge bite out of Coinbase's U.S. retail customer base.
Of course, nobody wants to send diffs to each other, that would just be silly. We only want the option to do so. So now that we can mirror and switch to GitHub or Bitbucket to our own Git servers, we ask for centralised systems to handle our decentralised version control.
I think crypto will go the same way. It’s nice to have the option to be completely decentralised and run your own node and network and what not, but the number of people running the networks are likely to be the same proportion as the number of people running their own git servers.
A system that is capable of easy decentralised is better than one that isn’t, but we choose central hubs or bases either way for day to day use.
I think "nice" downplays the importance of the possibility of self-custody. Despite the majority of people perhaps not opting to control their own keys, the mere possibility has interesting game theoretical implications that will keep neobanks like Coinbase in check.
When washing machines became available, people didn't buy them because they were expensive, unreliable, and required a lot of repair and maintenance. Ultimately, the washing machines became cheap, reliable, and low maintenance, and now most people use washing machines.
I think the analogy to github and personal servers is clear.
Washing isn't inherently collaborative, and the more one looks at the specifics, the more divergent the situations seem.
For example, Git(hub/lab) offer free project hosting while running one's own server would incur costs. This can be a big deal for open source, because paying bills or handling money tends to force a more complex structure on your "organisation".
For project hosting, there are network effects in terms of project discoverability, user account management, operational convenience (data durability, patching, ensuring uptime), consistency of interface and third party integration which tend to make using a centralised service more attractive than running your own, all else being equal.
It seems to me that only quite bad mismanagement of the major project hosting services could reverse this trend.
My point is that, besides legal issues that you point out, personal adoption of these services will grow a lot more, if hosting your server was actually easy. Right now, it is not, not by a large margin.
Kraken USD deposits have to be made by wire, but Kraken's fees[0] are lower than Coinbase Pro's fees[1] at most levels.
[0] https://support.kraken.com/hc/en-us/articles/360048917612-Fe... [1] https://help.coinbase.com/en/pro/trading-and-funding/trading...
I dont think that this is what open source is about. I dont think that comparing Microsoft and OpenOffice is a relevant statement. I mean at least one means LibreOffice, and furthermore there is no competition to Microsoft, they satisfy different objectives.
Secondly, decentralization is not about moving business value from one entity to 'the masses,' it is about agreeing to a protocol and establishing that protocol in a trustless implementation.
Buying Bitcoin most certainly does effect the dollar exchange rate of Bitcoin balances and that is the only thing that really matters because there is not a Bitcoin economy independent of the fiat economy.