Two Industry Leaders
In this article, we’ll take a look at two giant exchanges in the cryptocurrency world. Binance took the crypto world by storm with tremendous growth in a short period of time and Coinbase has been a key player in the industry since its inception in June 2012.
Binance and Coinbase Started Differently
Binance and Coinbase used very different means of raising funds for their businesses. Binance is itself an ICO. The funds for starting the exchange came from the July 2017 Initial Coin Offering. The sale of the BNB token brought in $15 million.
Conversely, Coinbase has repeatedly used the traditional investment sector for raising funds. In its startup days, Y Combinator was the source of funds. Since then, there have been a number of rounds of investments from venture capital firms like Union Square Ventures, Andreessen Horowitz, Draper Fisher Jurvetson and Ribbit Capital.
Listed Cryptocurrencies and Userbase
Coinbase has been the go-to place for newcomers to conveniently purchase Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and now Bitcoin Cash (BCH). Even though the exchange has been relatively slow to add more cryptocurrencies, there has been talk of adding support for more cryptocurrencies in the near future to expose their users to more options. These days, the listing of new tokens and coins cannot be done without taking regulations into consideration. For instance, exchanges in certain jurisdictions have to stay away from listing securities tokens.
Binance, however, wasted no time in getting as many coins as possible listed from the very beginning. With the exchange still less than a year old, it already has over a 100 listed cryptocurrencies.
Both exchanges were able to add to their number of users at an exponential rate in the year 2017. Coinbase currently has users in 32 countries. The chart below from statistica.com shows the rate at which the number of Coinbase users grew in 2017.
Coinbase is said to have over 13 million users currently.
Still on users, one of the highlights from Binance’s March monthly report was an increase in the number of registered users from 1 million to 7.9 million. One possible contributing factor is the coin of the month competition the exchanges organizes. Allowing the cryptocurrency community to vote on which coin to get listed next on the exchange leads to the cryptocurrencies with larger following getting listed on Binance.
More than Cryptocurrency Exchanges
More users for a product or service often translates into more profit and an increase in the valuation of a business. This has been the case with both Coinbase and Binance. In January 2018, Recode reported that Coinbase had earned over $1 billion in revenue in 2017 alone. This is approximately twice the expected revenue for that year. The article further stated that the unexpected great performance in terms of revenue led to an increase in the value of the company and left investors scrambling to get a piece of the company to no avail.
Binance being around for less than a year has not stopped it from also making astronomical profits. The profit from the second quarter since the company’s inception was around $200 million. Interestingly, this figure surpasses that of Germany’s Deutsche Bank from the same period. It is important to note that the top German bank is 146 years old and has over 100,000 employees.
With more resources, both firms are expanding into other areas and providing services other than their exchange platforms. We have Binance coming out with Binance Labs and Binance education amongst other initiatives.
Binance labs is an incubator that would provide blockchain related startups the necessary support for them to get on their feet. Work has already begun on MobileCoin, the first project of the incubator. Binance labs would keep Binance involved with innovations in the cryptocurrency community if successful.
There is also the Binance education initiative. With this program, Binance seeks to provide education on blockchain technology and cryptocurrencies for the general public. On their platform, users would be able to submit educational videos on a wide range of topics. The information in these videos is expected to be neutral and accurate.
Coinbase has also been expanding in its own way. Apart from the trading platform, custodial services for institutional investors have been announced. With this new service, the company targets big institutional investors who would want to be relieved of the difficult task of safely keeping large amounts of cryptocurrencies.
There have been a number of acquisitions over the years. The most recent acquisition by Coinbase is Paradex, a cryptocurrency trading platform. Other acquisitions from the past are Blockr , the blockchain explorer, and Kippt, a web bookmarking company.
Coinbase also recently applied to secure a banking license. With this move, they are expected to gain more legitimacy as a regulated exchange and help keep the operations of the company on the right side of the law.
Some individual users on Coinbase have fallen for social engineering attacks and lost their cryptocurrencies on the exchange as a result. There was also the issue of some customers being overcharged a few months ago. Coinbase itself has not been hacked yet and maintains the reputation of being a safe and convenient place to trade cryptocurrencies as compared to other exchanges.
Binance, on the other hand, has had a couple of security issues they have had to resolve. In March 2018, the exchange was able to successfully resolve a phishing and stealing attack on the exchange that involved the cryptocurrency known as Viacoin. In the end, the attack was not profitable for the hackers and users did not lose their funds.
Public Perception, Regulations and The Future
Coinbase has in recent months been called out for some actions members in the cryptocurrency community considered questionable. For instance, many felt as a leader in the industry, Coinbase should have come out to condemn the Segwit 2x fork instead of issuing a statement to say that it was going to take a ‘wait and see’ approach to decide which fork to support as the real Bitcoin. There was also the controversial addition of Bitcoin Cash to the listed coins without any prior announcements. These actions got a number of community members enraged and led to calls for more competition for Coinbase.
Binance, on the other hand, has enjoyed considerable support from the community. As a matter of fact, it has its own following since the exchange has its own token.
Both exchanges have been responsive to calls from regulators and have done their best to meet requirements. Coinbase has been doing okay in the U.S.A in this regard. They were also able to secure an E-Money license from the UK Financial Conduct Authority in March 2018. The license is also useful for their operations in all member states of the European Union.
For Binance, it has been about searching for friendly regulatory environments. The company had to move its headquarters from mainland China to Japan in anticipation of the September 2017 China ban on exchanges. There has also been talk of moving to Malta amongst other places after some pressure from Japan’s FSA.
Dealing with regulators would be one the main headaches of both exchanges as they progress. For now, they seem to be doing an okay job.
The two companies appear to be in the lead not only in terms of being the best cryptocurrency exchanges but also as one of the leading cryptocurrency businesses. However, in a fast-moving space like the cryptocurrency one, no position is guaranteed forever and there is no such thing as “too big to fail.” To remain ahead, Coinbase and Binance would have to continue doing better than the competition when it comes to serving their customers while protecting and promoting the interests of the crypto community in general.