An employee asked me recently how we’re creating an open financial system if we’re a centralized company.

It’s a good question and here was my answer.

People need to be able to do both of the following:

Get access to cryptocurrency — this tends to be more centralized Use cryptocurrency — this tends to be more decentralized

Coinbase has products in both of these areas, and the first one helps the second one happen.

Allow me to explain….

Adoption of cryptocurrency will happen in several phases.

In the investment phase people speculate and try to make money on crypto. This is where 90% of activity is happening today, primarily via centralized exchanges.

In the utility phase people begin using crypto as a payment network, transacting for real goods and services, interacting with dapps, etc. This is where about 10% of activity is happening today, primarily via decentralized (user controlled) wallets.

In other words, the investment phase draws enough people in that a critical mass of people is reached to spark the utility phase, or come for the tool, stay for the network.

Fiat-to-crypto exchanges tend to be more centralized because they integrate with the traditional financial system. For example, Coinbase and GDAX makes it easy to connect your bank account and buy crypto. This means we work closely with banks and regulators to build the most compliant systems. There is a lot of interaction with the “real world” in each country to make this work.

Crypto-to-crypto wallets, by contrast, are more decentralized. The customer controls their own funds. For example, Toshi and Coinbase Commerce use a user controlled wallet.

There are exceptions to each of the above. For example, decentralized exchanges, and centralized wallets both offer compelling advantages, even if they are less popular today.

The overall point is that there will be both centralized and decentralized products which help create an open financial system, just like ISPs (centralized) and browsers (decentralized) both play a key role in the internet ecosystem. It’s a false dichotomy to pit one against the other because both are a part of the solution.

Coinbase will continue creating both centralized and decentralized products that help accelerate the adoption of an open financial system.