Coinbase Cloud Aspires to Be Blockchain’s AWS

Coinbase has had some grandiose things to say about its Coinbase Cloud division in the past year.

Expect that to increase now that the turnkey infrastructure’s clients have more than $30 billion staked on the 60,000 hosted nodes it manages for more than 30 blockchains.

“By empowering current and future builders of the crypto-economy,” Coinbase Cloud will “help accelerate the Web3 evolution. This is where the world of software is going, and we’re excited to lead the herd,” said Aaron Henshaw, the division’s head of engineering, in a Dec. 2 blog post.

Henshaw is a co-founder of Bison Trails, the hosted infrastructure company that is the core of Coinbase Cloud. Focused on environmentally friendly proof-of-stake blockchain protocols, Bison Trails still exists, but Coinbase Cloud also hosts APIs that allow clients to easily build and host payment and cryptocurrency exchange platforms, among others.

When Coinbase purchased Bison Trails in January, it compared the hosted infrastructure firm 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 the innovators and builders of tomorrow to do what they do best: build.” That, Coinbase added, would drive “us closer to achieving our mission of creating an open financial system.”

No Custody

While Coinbase Cloud now hosts an enormous amount of staked crypto, the firm does not take custody of it.

Nor does that $30 billion include parent exchange the assets of Coinbase’s custodial staking service. Coinbase Cloud does offer better terms, taking an 8% cut of staking rewards, rather than the exchange’s 25%.

Staking is a passive investment that allows holders of a proof-of-stake (PoS) blockchain’s native cryptocurrency token to lock their assets into the consensus mechanism that validates new transactions and adds them onto the blockchain. It replaces bitcoin’s power-hungry proof-of-work (PoW) mechanism by which new bitcoins are “mined” as a reward for adding new blocks of transactions to the blockchain.

Coinbase has said that it wants Coinbase Cloud to be the Amazon Web Services of cryptocurrency, providing blockchain infrastructure in much the same way that AWS provides hosted cloud computing and APIs for the web.

Staking Grows Exponentially

Coinbase said the success of Coinbase Cloud is more proof “that crypto is gaining mainstream appeal,” noting that crypto’s market cap reached $3 trillion this year, with 16% of Americans either investing in, trading or using cryptocurrencies. That includes the $250 billion locked into decentralized finance, or DeFi, platforms.

“A growing number of the world’s largest companies are looking to integrate crypto into their applications,” Henshaw said. “Recently, we’ve seen Stripe, Square, Reddit, the NBA and others introducing crypto into their product lines with no signs of this trend slowing down. They all have one thing in common: a need for infrastructure and tools to operate and participate in the ecosystem.”

Among the blockchains that Coinbase Cloud supports are Diem, the successor to Facebook’s stablecoin project Libra, and Ethereum 2, the massive project that is replacing the No. 2 blockchain’s PoW consensus mechanism with a staking-based system that is not only cleaner, but also far faster.

That is one of the main benefits of a staking-based blockchain: Currently, Ethereum can handle about 15-25 transactions per second, compared to Visa’s 1,700. That bottleneck is driving transaction fees through the roof, slowing the blockchain to a crawl, and effectively threatening its place as the main blockchain for decentralized apps, ranging from exchange and gaming platforms to DeFi protocols that are changing the face of finance.

There is now some $35 billion staked on Ethereum 2.0 — and it’s not even up and running yet. That suggests that Coinbase Cloud has a very bright future indeed.