What Is Coinbase?

Coinbase is a bitcoin broker that provides a platform for traders to buy and sell bitcoin with fiat money. In addition to its primary operation as a broker, Coinbase is also a bitcoin exchange and wallet provider.

Coinbase was founded by Brian Armstrong and Fred Ehrsam in 2012 and is headquartered in San Francisco, California. The platform was first launched as a digital wallet for users to store their bitcoins online before venturing into the brokerage space where users can buy and sell bitcoins. As of 2017, Coinbase is the largest bitcoin broker in the world and serves users in 33 countries.

Key Takeaways

  • Coinbase functions as both a broker and a wallet for bitcoin transactions, taking a percentage of each transaction.
  • The exchange platform that supports Coinbase is the Global Digital Asset Exchange, commonly known as GDAX.
  • Coinbase is commonly referred to as an exchange, but it, in reality, is only the brokerage/intermediary between buyer and seller.

How Coinbase Works

Any cryptocurrency trade requires a buyer and a seller. The buyer and seller need to be registered with a broker in order to carry out a transaction with each other. To ensure fair trade practices between both parties, an exchange is required to monitor all transactions. However, neither party can trade directly with the other using an exchange; that’s the purpose of a broker. Much like a stockbroker, Coinbase brokerage acts as an intermediary between the transactors and the exchange and provides an online system whereby buyers and sellers can conduct trades with each other, regardless of their geographical location.

The exchange platform for Coinbase is called GDAX, which stands for Global Digital Asset Exchange, formerly called Coinbase Exchange.

GDAX records every transaction including volume and price levels of not only Bitcoin trades but also Ethereum and Litecoin.

GDAX allows users to quickly engage in multiple trades without having to initiate bank transfers for each trade which could be delayed for a couple of days. The cryptocurrency exchange also has margin trading as an additional feature for institutional investors.

Buyers and sellers on GDAX are referred to as either makers or takers. Makers, the users who set a limit price on their orders, usually have their limit orders added to the order book. The order book retains the order until another trader matches the price; this trader is called the taker.

For example, a trader (maker) who places a sell order for 10 BTC and sets a limit price of USD 2,300 will have his order stored into the GDAX order book, until a buyer (taker) creates a market order which is matched to USD 2,300. Makers have no transaction costs applied to their orders, while takers are usually charged 0.25% of the trade amount.

Coinbase provides a mobile wallet and web wallet app, both of which sync with each other. By having a wallet and exchange under the same umbrella, users of Coinbase can conveniently transfer bitcoins between both platforms, which are initiated instantly and with no additional cost to the user.

While Coinbase is frequently referred to as an exchange, it is important to note that Coinbase operates more like a broker and wallet that tailors to retail and non-technical clients who want to buy, sell, and store cryptocurrency. GDAX is the exchange component of Coinbase that serves sophisticated and professional traders looking to trade digital assets.