- Coinbase, the $1.6 billion cryptocurrency exchange that took bitcoin mainstream, will add support for ERC20 tokens.
- ERC20 is the technical standard behind Ethereum blockchain tokens, which make up the majority of so-called altcoins — alternative tokens that might be embraced by cryptocurrency enthusiasts, but that generally aren’t in the mainstream.
- Coinbase hasn’t said which of the hundreds of ERC20 tokens it will trade on its platform, if any. But it plans to start the months-long process of building out its infrastructure just in case.
Coinbase just made a major move that could lead to much wider adoption for a whole slew of digital tokens down the road.
The $1.6 billion cryptocurrency exchange announced Monday that it will add support for ERC20— the technological standard that allows developers on the Ethereum blockchain, who are mostly startups, to develop tokens for use within their products.
The company doesn’t have plans to add any specific ERC20 tokens to its exchange at this time. But it’s building out the technological backbone to do so, if it chooses.
“This is an infrastructure upgrade that will enable us to support many more assets in the future,” a Coinbase representative told Business Insider. “It will likely take several months of engineering work. Additionally, we will also be waiting for regulatory clarity before moving forward with adding any assets to our products.”
Coinbase’s influence on the cryptocurrency community is large, and its support for a coin or token could have a massive impact on price. When Coinbase enabled trading for bitcoin cash in late December, the price of the currency jumped from less than $2000 to $9,500, even as its price hovered around $3,600 on other exchanges.
The price of Ripple’s XRP coin had a dramatic uptick recently, on mere rumors that Coinbase might add support to its platform. Coinbase has since denied the rumors.
Now, Coinbase could theoretically give the same pop to a whole bunch of smaller tokens.
Ethereum tokens aren’t cryptocurrencies, but people trade them
Coinbase currently only lets its users trade four cryptocurrencies: bitcoin, bitcoin cash, ethereum and litecoin.
While ethereum is a cryptocurrency in its own right, a token is slightly different. Most tokens are best thought of as gift cards, or loyalty points. They are valuable within a specific platform, but can’t be used outside of that ecosystem. It’s kind of like how you can’t pay a parking ticket with store credit from Target.
Yet, with the recent cryptocurrency craze, many traders have found value in purchasing tokens during a company’s initial coin offering, or ICO, and then trading them on exchanges the way you might trade stocks.
There are almost 700 unique tokens listed on Coin Market Cap, and the vast majority are built on Ethereum. Most of them aren’t worth much against the dollar, but still have their fans and enthusiasts. They’re all used by different companies for different purposes; all they have in common is that almost all of them are based on blockchain tech.
Ethereum is not the only blockchain out there, but many of the tokens sold by blockchain companies in initial coin offerings are built using ERC20, which Coinbase just adopted.
Take Dragonchain, for example, a project designed to create a blockchain that can compete with Ethereum for commercial users.
Dragonchain sold ERC20 tokens in its ICO in order to raise money to build out its product. People who own the coins will, theoretically, be able to use what they own to buy commercial blockchain services from Dragonchain once its own alternative is off the ground.
But on the secondary market, the Dragonchain coin is worth around $0.75 a piece.
Vice Industry Token (VIT), designed to encourage people to consume more adult content, is also an ERC20 token. Also theoretically, people will earn it by watching pornography on select websites. Then, they would be able to use the tokens to access premium content. The tokens aren’t currently sold on any exchanges.
The most established ERC20 tokens, however, are EOS, which has a $4.65 billion market cap and costs over $6 a coin; Tron, which has a $2.9 billion market cap and costs $0.04 per coin; and VeChain, which has a $1.55 billion market cap and trades at $2.98 per coin.
Coinbase is probably waiting for direction from the SEC
Coinbase has historically taken months to make changes because of its scale, and the high security risk that comes with running a crypto-exchange.
In February, discussing Coinbase’s implementation of the bitcoin code update known as SegWit, Coinbase general manager Dan Romero told Business Insider that the company takes its time with technical changes because its “very much a measure twice, cut once culture — and in some cases maybe it’s measure three times and cut once.”
“We’re holding billions of dollars in customer digital currency. Any change we make to that core business structure has to be thoroughly tested both from the implementation, to make sure it’s working, standpoint, but also some serious security considerations,” Romero said at the time.
But when it comes to ERC20, Coinbase has another consideration: the Feds. The Securities and Exchange Commission is still figuring out whether or not tokens are considered securities and how it intends to regulate such coins. Some states are also starting to clamp down on ICOs.