Coinbase might be the sole reason why Bitcoin is slow - they are spamming the network 😠
I just came across a very interesting article on bitcoinist.com, which describes how Coinbase alone might be responsable for keeping the Bitcoin mempool overfilled, and is thus the reason why the Bitcoin fees are so high.
NO SEGWIT
Even though Segwit, Bitcoin's first scaling solution, has been around for more than half a year the adoption rate is very low. Segwit basically makes transactions smaller by removing unnecessary information, so that more transactions can fit in a block. This way Bitcoin can do more transactions with the same system than it could do before. The only thing that's keeping it back is the adoption rate: funds have to be moved to a so-called Segwit address and 'old' addresses don't have this enhanced functionality yet.
Coinbase, being the largest FIAT gateway for Bitcoin in the US (the world? dunno), is actually holding a very large part of the Bitcoin people possess and is being criticized for the fact that they have not adopted Segwit and are thus keeping the Bitcoin network from scaling, since they are such a large player.
NOT BUNDLING TRANSACTIONS
Another criticism of Coinbase is that they don't bundle their transactions. Instead they send out a separate Bitcoin transaction for each user that withdraws, whereas other exchanges bundle them into single transactions. This not only reduces the cost but also puts significantly less strain on the network. It's also kind of dumb.. Why would they want to not reduce the transaction fees ?There is some speculation that this has to do with Coinbase's stance during the BTC/BCH fork and that they don't really like or want to use Segwit.
PROOF?
A user on Twitter who has been very observant has kept a chart of the Bitcoin mempool. Interestingly, recently Coinbase had suspended sending Bitcoin for a short time, and a significant reduction of the Mempool was observed, all the way up until Coinbase reinstated Bitcoin sending.
(source: Twitter)
Looking at the above chart it certainly looks like the mempool is reducing at a rapid pace when Coinbase suspends transactions. A little while longer and it could be completely empty... which could mean very cheap or even free transaction costs.
And I can imagine that if the biggest Bitcoin exchange in the USA doesn't bundle transactions but instead sends out thousands upon thousands of transactions individually per day, as well as not upgrading to a cheaper, more scalable Segwit.. then yes, I suppose there might be some merit to the criticism. Whether the mempool would empty entirely, I'm not sure. Surely Coinbase's large userbase, even with better scaling, would put some strain on the network obviously. It's obvious that if you cut off the majority of hodlers in the USA and Britain, and they cannot transact, then of course the mempool reduces. Cutting out 80% of the people does not prove much.
COINBASE FINALLY CAVING
Still, I think it would have a significant effect if they did implement these scaling solutions and I do think the criticism is warranted. There's no reason to hold back on this.Fortunately, Coinbase has finally come around and agrees. Perhaps because of this increasing criticism? Brian Armstrong, co-founder and CEO of Coinbase recently Tweeted this:
So hopefully it's coming soon, and it will be very interesting to see what happens to the transaction fees once they do implement these new features! it might have serious implications on the price if Bitcoin transactions were to become a lot cheaper all of the sudden. And one might also wonder if that is so, what the 'economic damage' has been because of Coinbase's unwillingness to take these steps until now. In a non-crypto world, I think lawsuits would be pretty much a given. But, of course, this is crypto, where anything can happen.
Click here to read the article on Bitcoinist.com
Recently I've been using Gemini and I like it so much better than Coinbase. I think the only reason Coinbase was successful is because they were pretty much the only player to get into crypto with fiat during the early years.
Haven't heard of Gemini before? What's different between them and Coinbase?
Gemini is the exchange created by the Winkelvoss twins. They have very cheap trading fees and you can link your bank account to them directly. They also have futures if you interesting in that type of investing.
I agree! It's a good thing more options are becoming available! Decentralization is the word!!
It only shows that Coinbase gets too much say when most people trade through their exchange.
I agree!
"Spamming transactions" with those pesky actual transactions. heh
Well.. bundled transactions are actual ones too. They're simply sending a ton of transactions, and making the customer pay for it through the withdrawal fees. Which should, incidentally, be a lot lower if the mempool wasn't so spammed.
The mempool isn't spammed. The block size is too small. Even with lightning network you will still need bigger blocks.
Thanks for posting this is an important aspect of the network for us to monitor and be aware of. I'm curious if you know of any way to track large chunks of crypto-capital (10s/100s of millions) flowing into and out of the space, either at the exchange level or the individual coin level. The flash crashed that occured the other day represented 108+ billion moving out of the markets in a 4 hour time-frame. So I'm wondering if there's anything we can do to figure out how this happens.
The blockchain is completely transparant and you could try investigating yourself through a blockchain explorer. There are also rich lists around, and usually the biggest accounts belong to the exchanges. I think if you search on google you may find some people who did prior research: I've come across addresses which people claim belong to Bittrex, Binance or Coinbase. Once you have those you can simply see every transaction made to, and from it. Also in a historic sense, so you could theoretically investigate the exact period you're describing. In reality I imagine that so many transactions make it into and out of Coinbase at any given time, that it'd be like sifting through a haystack
If Bitcoin went back to being transactionally viable the price would go down. At the end of each biz day, the proverbial coffee shop would sell its Bitcoin for fiat. This has been true all along and Bitcoin price has benefitted mightily from logjam.
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