Will Coinbase Become the First Bank of the Future?
When someone mentions a crypto exchange, most people will first think of Coinbase. This is a single exchange that has become a representative of the industry, much like Bitcoin became synonymous with the word cryptocurrency.
Now, Coinbase continues to progress, and its business is expanding from its regular retail user base and is slowly gaining institutional investors as well. In fact, it even acts as a host that provides custodial services for various institutional hedge funds. The only condition is for these hedge funds to invest $10 million or more right off the bat.
As the evolution and development of crypto and blockchain technology continue, Coinbase's development and growth will follow. Eventually, the exchange will become a new type of bank, which we currently call the bank of the future.
When we take a look at the standard definition of a bank, it clearly states that this is a financial institution that has a license that allows it to make loans and receive deposits. Additionally, banks may be providers of other services, such as currency exchange, wealth management, and alike.
How do Banks and Exchanges Differ?
It's amazing to see what Coinbase managed to achieve in only a few short years. It went from simply a digital wallet, with some elements of a crypto exchange, to the biggest exchange in the world, a custody provider, and possibly a futuristic bank. Of course, it differs from traditional banks by exchanging and holding decentralized assets. This means that its users have a lot more flexibility when it comes to the ways in which they manage their money.
Additionally, it doesn't matter how big the exchange eventually grows — it will never be able to take control over the money that flows through it. This goes for every other crypto exchange as well. However, traditional banks are different in that regard, and their collaboration with Federal Reserve allows them full control of fiat currencies.
Such a large amount of control is generally seen as a bad thing, which has inspired the creation of cryptos in the first place. Due to too much power, the bank's do not care about the consequences of their actions, since nobody can touch them. Crypto exchanges, on the other hand, are not fail-proof, and can easily be destroyed if they start making all the wrong moves.
Another thing that differs crypto exchanges like Coinbase from traditional banks is the fact that they can appeal to institutional and retail markets with a minimum amount of friction. All that is necessary to sign up is a username, password, and a piece of ID verification. Decentralized exchanges require even less, which makes them much more user-friendly and interesting.
On the other hand, most big banks and traditional financial institutions completely ignore large parts of the retail market. They do so due to large costs that are simply not worth the deposits that they would gain in each account. As a direct consequence, we still have over 2 billion unbanked people around the world. While this mostly includes developing countries in South America, Asia, and Africa, the fact remains that almost a third of the world's population has no access to banks.
Banks are not interested in them because they can't make a profit out of them. Crypto exchanges, on the other hand, can do it with no issues. What's more, while most of these people are unbanked, a large number of them has a smartphone, which is all they need to join crypto trading. Right now, Coinbase alone has more than 20 million accounts.
Even More Differences Between Banks and Crypto Exchanges
Now, when it comes to transition from a regular bank to a crypto exchange, most people will first need a few big catalysts. To start off, let's talk about efficiency. Traditional banks often take days, and sometimes even longer to complete a single transaction. This depends on several factors, but the fact remains — the process is long and inefficient, especially today when living fast is all that matters. Crypto exchanges, on the other hand, can complete such transactions in a matter of seconds. Even if there are additional complications, and a few minutes are needed for a transaction to complete, it still beats hours or entire days of waiting.
Next, we have transparency. This is important so that the customers would know that they are not being charged additional, hidden fees just so that the bank could earn some more. The entire crypto world is based upon transparency, and this is something that the crypto exchanges like Coinbase have adopted as well.
Finally, we have autonomy. The user needs to know that their money is truly theirs and that they can do whatever they want with it. They can deposit it, spend it, or withdraw it, all according to their wishes. The exchange won't ask suspicious questions or have any sort of overreaching reaction, which is not something that you could say about most banks.
In the end, the only conclusion is that crypto exchanges are faster, more transparent, and they will not try to trick you into paying more or control your funds. This already makes them far better than banks, and they will only continue to grow and develop. In the end, the banks as we know them today might even become completely obsolete. However, that is for the future to decide.