Ethereum: What Happens to the Coins You Buy on Coinbase?
Coinbase is a popular online platform known for allowing users to buy, sell, and hold cryptocurrencies like Bitcoin, Ethereum, and more. But have you ever wondered what happens to the coins your money buys on Coinbase? In this article, we’ll dive into the world of cryptocurrency trading and explore where Coinbase gets its coins from.
What is Coinbase?
Coinbase is a digital currency exchange platform that allows users to buy, sell, and hold cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and more. The company was founded in 2012 by Brian Armstrong and Fred Egraham, and has since grown into one of the largest and most reputable online cryptocurrency platforms.
How does Coinbase make money?
Coinbase makes money through two main revenue streams: fees and interest.
- Fees: Coinbase charges users a flat fee for each transaction, which is typically around 1-5% of the amount they buy or sell. This fee is usually deducted from the user’s wallet.
- Interest: Coinbase also earns interest on the cryptocurrencies it stores. The company holds coins in custody and earns interest on them, which can range from 0.5% to 3% per year.
Where does Coinbase get its coins from?
Coinbase does not mine or produce new cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH). Instead, it buys and sells existing coins on the open market. Here’s how it works:
- Buying and Selling: When you buy coins on Coinbase, they are typically sourced from a variety of places, including:
- Stock Exchanges: Coinbase can purchase coins directly from stock exchanges like the NYSE, NASDAQ, or AMEX.
- Cryptocurrency Exchanges
: Coinbase may also acquire coins through other cryptocurrency exchanges that have been sold or delisted (removed) from the market.
- Mining Pools: Some Coinbase users may be part of mining pools, which are groups of individuals who pool their resources to mine cryptocurrencies. In some cases, Coinbase may purchase coins directly from these mining pools.
- Storage and Custody
: Once Coinbase purchases coins, they are typically stored in a secure custody solution, such as:
- Cold Storage: Coins are stored in “cold storage” (offline) accounts that use advanced security measures to protect them.
- Hot Storage: Coins can be stored in online wallets or digital currency exchanges with faster access times.
Conclusion
In conclusion, Coinbase makes money through a combination of fees and interest earned on the cryptocurrencies it holds. While the company doesn’t mine new coins like Bitcoin or Ethereum, it does buy existing ones from various sources on the open market. By understanding how Coinbase works and what happens to the coins your money buys on the platform, you can better appreciate the inner workings of the digital currency ecosystem.
Disclaimer: This article is for informational purposes only and should not be considered investment advice. The cryptocurrency market is inherently volatile and the value of coins can fluctuate rapidly. Always do your own research and consult a financial advisor before making any investment decisions.