Financial Times on Coinbase: “the Bank” which wants to create an open financial system?


Financial Times on Coinbase: “the Bank” which wants to create an open financial system?

The Financial Times in the category of “living commentary on the markets,” criticized an article from the latest issue of Fortune magazine with the strange name “Coinbase wants to be too big to fail” (Coinbase wants to be too big to fail is a reference to the popular quote attributed to economist Hyman Minsky). It describes how the crypto currency exchange, supported by venture Fund Andreessen Horowitz, “became Wells Fargo during the cryptocurrency rush.”

A large part of the article devoted a 35— year-old head of Coinbase Brian Armstrong, who, according to Fortune, is “almost pathological” self-improvement. (“Last year he got a pilot’s license and almost immediately lost interest in flight, satisfied with the fact that he can now fly a plane.”)

In this passage we learn how Armstrong got in tryptomer:

Wandering around the Internet during Christmas 2009 at his parents ‘ house, he came across a nine-page document prepared by Satoshi Nakamoto. The idea that there is described (a global currency is not available for banks or governments), so impressed him that he has read the white paper again and again, not reacting to the mother’s requests to join the festive dinner.

Fortune continues:

Like other early proponents of bitcoin, Armstrong fell in love with the idea of a financial system, which could minimize the influence of middlemen and politicians. His belief in this has become even more solid after a trip to Argentina. He recalls sitting in a restaurant in Buenos Aires, where the prices on the menu were covered with stickers that were changing almost daily: inflation destroyed the savings of ordinary people. Bitcoin, in his view, was a way to store or transfer wealth outside the control of greedy States. It was digital gold.

Later in the article, Fortune describes how Armstrong, in an effort to minimize the effect of mediators and politicians, he decided to become the biggest provider in kryptomere (mostly through friendship with other intermediaries and policy makers).

Article with an ambiguous title, published in the ten-year anniversary of the outbreak of the global financial crisis exposes the basic contradiction in the industry of cryptocurrency.

It assumes that a key feature of bitcoin and other cryptocurrencies is that they operate outside of banks and governments. And yet to someone in real life can use them, require that enterprises which resemble banks, has evolved, but without protecting clients ‘ balances and checks. And to have the opportunity to work in the legal system, these “banks” are asking the government to support them.

There is a mismatch between the slogans of cryptomeria and what she’s doing. Mission Coinbase, as we suggest, is to “create an open financial system for the whole world”, but then refers to global hegemony:

The company’s founder, an obvious introvert, sees kleptomania 2017 one of the chapters of a longer story. Armstrong belongs to a generation of popularizers of cryptocurrencies, which are considered and blockchain technology as the tools that will allow you to invest, borrow and save money faster, cheaper and more egalitarian. And he wants Coinbase has become a banking Empire that is promoting these tools to the masses.

Nowhere explained how Coinbase will make this new system more egalitarian, that is equitable and fair. The company earns money each time a transaction is committed on its exchange. Actually, a lot of money. According to Fortune, Coinbase charges a fee of 1.99% per transaction, and the company reported about $1 billion of revenue in 2017 (the most recent valuation of the company is $8 billion).

Maybe Coinbase really wants to make money “free” before it will do someone else, but, according to the following quote, the company is not too focused on this:

Over the past year, such FINTECH companies like Robinhood and Square, as well as the European broker eToro has provided a cryptocurrency investors the opportunity to trade with low fees or none at all. These alarm bells talking about the urgency one of the greatest missions Armstrong — Coinbase transformation into a diversified giant blockchain-banking, which does not depend solely on trading income.

So many missions! So many contradictions! So little time.

The article has an accompanying video in which we hear Armstrong tells us that Satoshi white paper is the most important thing he had read in the last five years. We also hear Emily Choi, Vice President of Coinbase, corporate and business development. She says:

In cryptogra people have different motivations. Some may be motivated by technical breakthroughs, others with privacy issues, as well as philosophical or political issues.

The impression that Emily forgot about one very popular motivator. She continues:

It’s cool that we work together to achieve this goal — the creation of an open financial system for the world, no matter what motivates you. It is important that you move to this decentralized future.

The irony that the company which boasts that it has over 20 million users, at the same time tells us that it is motivated by the creation of a “decentralized future”. The statement that Coinbase is working on “creating an open financial system for the world” is inherently contradictory. If you want to have an open, decentralized financial system, then it should not be any huge company which has this system built.

Coinbase seem to be very willing to cooperate with the government and regulators.

In July, the company filed a public submission on the creation of his political action Committee (PAC) for the upcoming elections. PAC is the organization in USA who collect donations of at least $1000, especially in order to influence the results of elections and campaigns in support of various initiatives or bills. Coinbase also recently became one of the founders of Blockchain Association to “promote policies that will harness the potential of our ecosystem”.

But it is worth noting that the company was not always so committed to the observance of laws. In the presentation of 2015, published by the Washington Free Beacon, Coinbase boasted that one of the biggest advantages of bitcoin is that you can use it to bypass international sanctions. The then principal officer compliance officer (compliance with internal and external requirements and standards) Martin, Nejedlik resigned after the publication of the presentation and the ensuing criticism. Coinbase commented on the resignation of Martin need to spend more time with family.

Tim Swanson, who runs a consulting company Post Oak Labs, spoke about the situation with Coinbase:

They present themselves as white knights, but only after the fact… First the lack of compliance was issued for the innovation. They moved from cryptoanalysts to reality: “Now we are the white knights”… change is not bad, but what’s the point of a new financial order when it is exactly the same as the old ones, but with less accountability?

The Financial Times criticized the company, which States that “compliance was a mission-based Coinbase from the beginning.” In conclusion, the publication writes that, according to Fortune, Coinbase is now “very close to obtaining a license for broker— dealers from regulatory authorities.” But Armstrong is still revolutionary! He has a new product!

A quote from Fortune:

As for global scriptorially, Armstrong has not lost the ideal of a global payment system that is independent from banks and governments. With this purpose, Coinbase creates software called Coinbase Wallet to help ordinary investors navigate the world of tokens. And Armstrong remains more ambitious than its investors. He says: “I really want to see in the next five years a cryptocurrency will be used by billions of people.”

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