Amidst Broad Regulatory Crackdown, Coinbase Moves Forward With Lightning Network
By Landon Manning
While Coinbase and other exchanges have been engaged in a legal battle with U.S. financial regulators, the firm has made a major advance for its users by adopting the Lightning Network and declaring a firm support for Bitcoin as the leading cryptocurrency.
This announcement comes from a tweet made by Coinbase’s CEO and co-founder Brian Armstrong, who took to the platform to announce Lightning Network integration, asking for patience as he explained that implementation would take time. Critically, Armstrong also added that “Bitcoin is the most important asset in crypto and we're excited to do our part to enable faster/cheaper Bitcoin transactions,” signaling a clear maximalist attitude in the company. This announcement comes after earlier discussion in July, as Armstrong claimed that Coinbase was “looking into” the possibility of adding Lightning Network support.
A wildly popular protocol built on top of Bitcoin’s blockchain, the Lightning Network seeks to solve the scalability problem in Bitcoin by using a mesh network to carry out small-denomination trades and resolve them using fewer operations of the main network. In other words, Bitcoin’s trustless and decentralized system requires large amounts of energy and time to process transactions, but the Lightning Network can allow users to spend tiny amounts of bitcoin on a daily basis without any hassle. In terms of making Bitcoin practical for ordinary adoption, the Lightning Network is truly revolutionary.
This development takes place within a particularly fraught moment inside Coinbase, as the company has found itself the target of what CNBC calls a “crypto crackdown” carried out by the SEC. The SEC filed a lawsuit against the company in June, claiming that Coinbase was operating an unregistered exchange, and in turn Coinbase’s legal team was quick in its attempt to have the lawsuit dismissed. Coinbase is not the only major exchange targeted by the SEC, as Binance, the world’s largest crypto exchange, has also been put in its crosshairs.
With a lawsuit also filed against Binance in June, this company seems to be facing a very similar legal battle, albeit with less success. The SEC demanded further cooperation from Binance in mid-September, claiming that Binance has been resistant to providing critical documents, either denying that they have these documents or sending “incomprehensible screenshots and documents lacking dates or signatures''. Amidst this worrying situation, the bombshell dropped on September 12 that Binance.US’ CEO was resigning, and a third of its employees were being laid off. In light of these troubled operations, on September 15 the SEC moved to unseal relevant documents that it initially sealed through an agreement with Binance, and it seems as if the case for prosecution will continue regardless of Binance’s willingness to cooperate.
Coinbase, meanwhile, has seen no major development from its own legal fight, issuing public statements on the 11th claiming that “regulation by enforcement” will have a negative impact on wide swathes of the American economy, and Armstrong urging on the 13th that DeFi (decentralized finance) businesses should take regulators to court to “establish precedent”. He further added that “the courts have proven to be very willing to uphold rule of law.” Other than this moderately aggressive posture, Coinbase has seen no further massive developments in its own fight, largely making headlines through its new Lightning Network policy.
There is a lesson in how these two firms have responded to a similar challenge from institutions of the US federal government, and it’s a simple one: regulation is coming. By proving to be recalcitrant in its legal approach, Binance has brought down even further scrutiny onto possible poor business practices and may seriously jeopardize the wider crypto ecosystem. Coinbase, on the other hand, has been confident in its ability to prove that the SEC’s accusations are baseless and that all operations have adhered strictly to legal practice. With the pressure from the government reduced, it has been free to pursue bold new initiatives like Lightning Network adoption, that will leave it more able than ever before to expand its services and user base after the dust settles. Binance, on the other hand, may not be standing at all.
It is the simple contrast between these two very similar businesses that illustrates how exchanges can hope to move forward in this environment. Although Binance has historically held much larger trading volumes than Coinbase, it is the smaller company that has been able to substantially offer new services and rally opposition to the SEC’s crackdown. Over the years, certain exchanges have frequently been involved with underhanded business practices, but powerful regulators are always ready to go on the attack. By playing by the book and anticipating regulation, Coinbase may be ready to take over the top spot in the near future. And with its maximalist outlook, the gains for Bitcoin could prove substantial indeed.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
