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A Coinbase perspective: Creating an open financial system

Creating an open financial system

A Coinbase perspective: Cryptoassets create a huge opportunity to potentially revolutionize the financial sector: to create a truly open global financial system.

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Creating an open financial system

The current global financial system faces a number of challenges. For one, access to financial services is not guaranteed everywhere. In the U.S., we have a stable store of value in the dollar, banks, and payment rails that allow us to purchase goods and services and the ability to transfer funds from our phones.Let's take the example of Argentina, where they currently see hyperinflation. A globally accessible, decentralized store of value could have a significantly stabilizing impact on the country's economy. Bitcoin could potentially represent such a store of value in the future. Interestingly, even though there are large price fluctuations with Bitcoin, it is not inherently volatile. The supply is in fact fixed and algorithmically secured. It is the demand that is fluctuating and this could eventually stabilize as the market matures.

Another challenge that the financial sector faces is in accessibility to payments networks. The current payments system has a lot of inefficiencies and intermediaries that make moving money around the world quite difficult because of the use of proprietary, bespoke payment networks that do not always interact with one another. Why is it faster to take out $10,000 in cash, buy a plane ticket, fly to Australia, and hand the cash to someone than it is to wire those funds?

Coinbase considers a truly open global financial system as one that is not controlled by any one country or company. As a result, it drives greater economic freedom, innovation, efficiency, and equality of opportunity for the world.

Crypto may help overcome many of the problems of the existing financial system. They generally are not controlled by a central bank or authority they are exchanged on a peer-to-peer network that allows anyone to access them, invest in them, and exchange them. In addition, the open protocol design of crypto will encourage the technological innovation necessary to create a fast, inexpensive payment network that connects anyone, anywhere.

There has also been an explosion in cryptoassets with a lot of innovation and experimentation happening in this space. Developers continue to flock to the space to build applications and services on top of various blockchains. Within the next couple of years, Coinbase expects to see the broader use cases that will natively use crypto to democratize access to services. Examples of current use cases being worked on include tokens being used for distributed file storage and processing and even reimagining the way users pay for generating and consuming online content.

Blockchain technology can do for value what the internet did for information. To achieve the vision of a truly open global financial system, it is not enough for a few hundred, thousand, or even million individual consumers to adopt this new technology.

The path forward

Coinbase believes crypto will mature in three stages: investment/speculation (which the industry is currently in), institutionalization, and utility. The institutionalization and utility phases may happen concurrently. But, to move from investment/speculation to utility, crypto needs to become more liquid, trusted, and accessible.

Institutionalization of crypto

Unlike most other asset classes in the modern financial system, crypto did not start with institutional adoption but rather with retail trading. Consequently, the platforms and products were largely built and designed with retail customers in mind. To encourage institutional adoption, Coinbase is building the infrastructure required for large players to enter the space such as a high-frequency, low latency matching engine, transparent and efficient price discovery tools and a qualified custodian that allows the safe storage of assets in a compliant manner. Institutions have a different set of requirements than retail consumers and need to see a focus on compliance, transparency, and governance to comfortably use and transact with crypto. Institutional interest is growing, and many of the world's largest financial institutions are beginning to actively trade crypto or at least consider it.

Regulatory agencies are also beginning to seriously discuss cryptoassets, which could help drive institutional participation, encouraging the marketplace to think about how engagement with these assets fits into both existing rules and regulations and new frameworks that may be needed for crypto. The focus on crypto innovation must not come at the expense of security, compliance, and consumer protection. Leaders in the crypto space, including crypto entities and industry partners, have a responsibility to help influence and educate key legislators and regulators to advance the overall governance and enforcement framework. In many ways, leading crypto companies should aspire to meet the standards and leading practices established by traditional financial services companies. We believe this will help promote trust and accelerate the adoption of crypto by investors and institutional clients.

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