Is Coinbase Becoming Crypto’s Federal Bank, And Should we be Worried?


Coinbase is a massive business. It is one of the biggest cryptocurrency businesses and has even gained recognition from Forbes for its work in the blockchain space. But is it becoming too big?

Coinbase is a centralized exchange and as such, shares a lot of similarities to a bank. With Coinbase being one of the biggest exchanges, it is also garnering the power that a Federal Reserve or Central Bank might boast. 

That is not to say that Coinbase is ‘printing’ cryptocurrencies, but it appears as if the major centralized exchange is holding such a vast amount of crypto under custody that it could start swaying the decentralized market. 

According to a recent post on r/Bitcoin with data from BitUniverse, Coinbase is far in the lead in regards to the amount of Bitcoin it is currently holding. The data suggests that it has almost 1 million coins under its custody. 

If one considers that there are just over 18 million BTC that have been mined and that the circulating figure is far lower – some estimate that as many as 1.6 million coins have been lost – then Coinbase is in charge of over 5 percent of all available coins. 

This is a concerning figure as it makes the exchange very powerful in a system that hinges on decentralization and distribution of the network. There are probably a few bigger individual whales out there, Satoshi Nakamoto, one of them, but this is an active, knowable entity that has a lot of Bitcoin liquidity. 

It also calls into question the centralization of other, smaller coins, where Coinbase would also presumably be holding a lot of sway. If Coinbase held large reserves of coins like Bitcoin Cash, Litecoin, and EOS, which all claim to be decentralized, it would dent those claims that one entity may hold 10, 15, 20, or even 25 percent of the available circulation. 

That is not to say that Coinbase would aim to do anything malicious with the coins that it holds, but it does show a lot about their power and influence over the cryptocurrency space. With many of the coins in this ecosystem basing themselves on their decentralization and distribution, it does not paint a good picture to see a bank-like entity holding so many reserves.

Darryn Pollock
Darryn has been interested in the blockchain and cryptocurrency space since he heard about Bitcoin in 2015. He then decided to use his journalism degree to report on this fascinating fintech space in 2016, and has not looked back since.

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