Coinbase Cloud will “assist in accelerating the Web3 development by enabling present and future creators of the crypto-economy. This is the direction in which the world of software is heading, and we’re thrilled to be leading the charge,” the division’s chief of engineering, Aaron Henshaw, said in a Dec. 2 blog post.
Henshaw is a co-founder of Bison Trails, the firm that provides the hosted infrastructure that powers Coinbase Cloud. Bison Trails continues to focus on environmentally friendly proof-of-stake blockchain technologies, but Coinbase Cloud now hosts APIs that enable customers to quickly develop and run payment and cryptocurrency exchange systems, among other things.
When Coinbase acquired Bison Trails in January, it compared the hosted infrastructure provider to dot-com-era managed infrastructure providers who “unleashed a wave of innovation… our strategy is to offer turnkey solutions to power distributed and scalable crypto infrastructure, enabling tomorrow’s innovators and builders to do what they do best: build.”
This, Coinbase noted, would move the company “one step closer to fulfilling our objective of establishing an open financial system.” While Coinbase Cloud currently holds a massive quantity of staked cryptocurrency, the company does not hold it in custody.
Nor does that $30 billion figure include the parent exchange’s custodian staking assets. Coinbase Cloud does provide more favourable conditions, taking an 8% portion of staking income instead of the exchange’s 25%. Staking is a passive investing strategy that enables holders of the native cryptocurrency token of a proof-of-stake (PoS) blockchain to lock their assets into the consensus process that verifies new transactions and adds them to the blockchain. It supersedes bitcoin’s energy-intensive proof-of-work (PoW) method, which creates new bitcoins as a reward for adding new blocks of transactions to the blockchain.
Coinbase has said that it envisions Coinbase Cloud as the Amazon Web Services of bitcoin, delivering blockchain infrastructure in a similar fashion to how AWS delivers hosted cloud computing and web APIs. Coinbase said that the success of Coinbase Cloud demonstrates “that cryptocurrency is gaining broad appeal,” adding that the cryptocurrency market valuation hit $3 trillion this year, with 16% of Americans investing in, trading, or utilising cryptocurrencies.
This includes the $250 billion locked up in decentralized financial networks, or DeFi.
“A increasing number of the world’s top corporations are incorporating cryptocurrency into their products,” Henshaw said. Recently, we’ve seen Stripe, Square, Reddit, and the NBA among others integrate cryptocurrency into their product lines, and this trend shows no indications of abating. They all have one requirement: they need infrastructure and tools in order to function and participate in the ecosystem.”
Coinbase Cloud now supports Diem, the successor to Facebook’s Libra stablecoin project, and Ethereum 2, a huge project that is replacing Ethereum’s PoW consensus mechanism with a staking-based system that is not just cleaner, but also much quicker.
That is one of the primary advantages of a blockchain based on staking: Ethereum can now process around 15-25 transactions per second, compared to Visa’s 1,700. This bottleneck is pushing transaction costs skyward, slowing the blockchain to a crawl, and essentially jeopardizing its position as the primary blockchain for decentralized applications ranging from exchange and gambling sites to DeFi protocols that are reshaping finance. Around $35 billion has been invested in Ethereum 2.0 – and it hasn’t even launched yet. This indicates that Coinbase Cloud has a very bright future ahead of it.