Coinbase Goes Down When Bitcoin Goes Up

It seems there is a correlation to Coinbase having network issues every time there is a Bitcoin bull run. It just appears to be a certainty at this point:

“When Bitcoin goes up, Coinbase goes down”

During the Bitcoin rally in 2017, when Bitcoin price value approached an ATH of $20K, Coinbase also experienced connectivity issues and trading was halted. This was the time Bitcoin suddenly surged and then came crashing down as soon as traders hit the exchange. It seems that the Coinbase system was not designed to accommodate or scale to handle millions of new users. That should have been a lesson to resolve the problem over the years.

It has not been solved. The most recent bouts of network outages and downtime have been occurring on and off. Between March and November of 2020, Coinbase has had a series of problems with their network. It may have affected the trading of Bitcoin in some way or another. No one is reporting the exact reason for these problems, but there have been reports of outages from Coinbase’s cloud provider AWS.

During a brief Bitcoin surge in November 2020, and also during an XRP rally, Coinbase suddenly goes down. It is frustrating traders who could have sold or bought more assets, but instead the system crashes. If it were a universal problem, it would also happen at the same time to other exchanges like Binance and Kraken. They all have to deal with issues on the network, but never at the level of Coinbase.

Coinbase CEO, Brian Armstrong, tweeted (in response to the problems):

“We’re working hard to add additional capacity (both in servers and customer support) to deal with increased traffic. Thank you for your patience during this time. And thank you to the team at Coinbase working hard to serve our customers! Bull runs can be exciting and stressful.”

— Brian Armstrong (@brian_armstrong) November 18, 2020

From an IT and network engineering perspective, the problem has to do with scalability and contingency. While AWS has autoscaling capabilities, if the whole infrastructure is affected, it will have an effect on Coinbase. There are other cloud IaaS (Infrastructure-as-a-Service) providers like Microsoft Azure and Google Cloud, which allows operations to continue in the event that one provider is down. For contingency, a more distributed and decentralized system would have kept the system operational to handle enormous workloads. Perhaps Coinbase had planned for capacity, but not agility.

A more distributed system can prevent downtime, but doesn’t totally eliminate it. If a server malfunctions it will go down and there is nothing that can be done to prevent it. However, the contingency in place is to plan for fault-tolerance and redundancy. Other IT professionals have aired the same opinion, like Hashoshi on his “404 Logic Not Found” section.

Coinbase has been a pioneer in the cryptocurrency space. It would be sad to see their trading business affected by downtime and outages. They have enabled millions to get into cryptocurrency as an onboard to more decentralized financial instruments. There are more options available for traders to buy/sell crypto, including the Robinhood app and even PayPal. They still need exchanges like Coinbase to convert cryptocurrency. Hopefully they can work things out, or else traders will flock to other digital exchanges or DEXes for their business.

Did Vitalik Buterin propose Bitcoin Cash As A Scaling Solution to Ethereum?

For those who have been in the cryptocurrency space for a long time now, you know how tribal things are. Schisms like the Bitcoin and Bitcoin Cash hard fork due to ideology is common. There have also been splits due to consensus disagreements like the resulting Ethereum and Ethereum Classic split to the DAO hack. The tribalism in the cryptosphere does not really foster much collaboration, though there are now proposals for inter-blockchain communications. It is going to be inevitable with the thousands of blockchain projects out there. The best way for cryptocurrency to be utilized is through some form of interconnectivity that would allow atomic swaps and quick conversions.

It seems that the development community and token holders don’t exactly approve of other blockchains they don’t support. Recently, Ethereum’s founder Vitalik Buterin proposed a way to use another blockchain to provide a scaling solution to the current Ethereum blockchain. The benefits are an increase in transaction velocity that can deliver faster speeds than the current Ethereum blockchain (currently between 15 and 30 transactions per second). There was plenty of shock and disapproval of Vitalik’s proposal, even among those who work in the Ethereum development community. You can check on Twitter since that is too long to discuss about in this article.

It does sound crazy though coming from the founder of Ethereum. He could have framed it in a way to not make it sound like Ethereum’s blockchain is useless. It sounded like he was saying another blockchain should be used to scale Ethereum. In other words it seemed like he was going to replace Ethereum’s own blockchain. If that were the case, why even use Ethereum? It was taken out of context, I felt. What Vitalik actually meant is that the Ethereum blockchain can use another blockchain to help scale only as a temporary solution. Eventually Ethereum 2.0 will resolve the scaling issue by gradually shifting from PoW to PoS as the consensus mechanism on the network.

What made Vitalik’s statement more unpopular was the proposed blockchain he had mentioned which was Bitcoin Cash. According to Vitalik, the proposal was meant to be a sort of fix for Ethereum until its developers have finished working on Ethereum 2.0. He wrote about this in a post on the Ethereum Research Forum you can read more about from this link. The author is without a doubt Vitalik Buterin himself. Does it really make sense? Let me discuss what the explanation for using Bitcoin Cash was from Vitalik’s own research.

The benefit of using Bitcoin Cash’s blockchain are its larger block size. Larger blocks can hold more transactions and thus the potential to increase the transaction rate per seconds. What Vitalik likes about the Bitcoin Cash blockchain is the higher data throughput it produces at 53.3 KB/sec compared to Ethereum’s 8 KB/sec. According to Vitalik, the Ethereum blockchain will be used as the computation layer while Bitcoin Cash provides the data layer.

Another thing about Bitcoin Cash that Vitalik likes is the lower transaction fees per byte. One reason for using Bitcoin Cash is that it has lower transaction fees since they have larger block sizes to process more transaction volumes. That makes more efficient use of bandwidth since you can process more transaction per unit of time or seconds. At the moment, transaction fees may have stabilized for many cryptocurrency but they can still be high. It would make sense for Ethereum to use a lower transaction fee for their blocks in order to save users on gas.

One problem with Bitcoin Cash though is since it is a fork based on Bitcoin, it requires the same 10 minute block propagation time. This is where the community really criticized Vitalik for proposing Bitcoin Cash. Aside from that, some also pointed out that there are inherent flaws with the Bitcoin Cash blockchain that would make Ethereum susceptible to these vulnerabilities. Vitalik actually suggested that using the Avalanche pre-consensus algorithm could improve block propagation times on the Bitcoin Cash blockchain. With that in place, Vitalik then explains:

“If these techniques become robust for the use case of preventing double-spends, we could piggy back off of them to achieve shorter finality times …..”

It also seems that Vitalik had no problem with the 10 minute block time propagation since Avalanche pre-consensus is complicated to implement.

“Though this technique may be too complex to implement in practice, and we may want to just settle for being okay with 10-minute block times for a full general-purpose VM until eth2 comes out.”

It is true that Vitalik proposed Bitcoin Cash as a temporary solution to Ethereum scaling. Bitcoin Cash is not replacing Ethereum, this was just a proposal to address current limitations in their blockchain. The Ethereum 2.0 blockchain will eventually implement PoS using the Casper protocols and sharding.