tl;dr
Coinbase is implementing artificial intelligence (AI) to prevent downtime during market fluctuations. The AI model aims to predict and scale databases ahead of user traffic spikes, optimizing platform efficiency. This move comes in response to Coinbase's history of extended outages during volatile c...
Coinbase is implementing artificial intelligence (AI) to prevent downtime during market fluctuations. The AI model aims to predict and scale databases ahead of user traffic spikes, optimizing platform efficiency. This move comes in response to Coinbase's history of extended outages during volatile crypto market movements, leading to customer financial losses. The AI system is designed to anticipate traffic surges and adjust resources accordingly, but there are concerns about potential errors and increased costs. Additionally, Coinbase's focus on its Ethereum Layer 2 network, Base, and plans to introduce its own 'wrapped' BTC on Base have raised questions about its infrastructure management.
Coinbase (NASDAQ: COIN) is turning to artificial intelligence (AI) in a bid to fix the digital asset exchange’s habit of going offline whenever the ‘crypto’ market wobbles. On August 26, Coinbase announced that it has “developed and deployed a machine learning model that predicts spikes in user traffic and automatically scales databases, preventing downtime and increasing platform efficiency.” This model will allegedly allow the exchange to “optimize infrastructure costs by avoiding over-provisioning while ensuring their platforms remain reliable during unpredictable crypto market movements.” Coinbase is notorious for going offline for extended periods whenever the volatile ‘crypto’ market experiences sudden surges or equally abrupt nosedives in the fiat value of major tokens. Making matters worse, Coinbase sometimes issues announcements of “planned maintenance” even as it simultaneously acknowledges that it’s investigating why its systems are offline.
These exchange outages leave Coinbase customers unable to buy or sell their tokens or close out derivative positions, often leading to customers suffering significant financial losses. Even when Coinbase claims its systems have fully recovered, many customers still find themselves unable to withdraw.
It’s worth remembering that Coinbase cut its ‘Website Hosting & Infrastructure’ spending from $440 million in 2022 to $192 million in 2023. Yet it continues to dole out nearly $1 billion annually in stock-based compensation to its execs, who can’t dump these hot potatoes fast enough (766 insider sales worth nearly half a billion dollars and zero buys over the past six months). Not the best look for a team that allegedly believes its best days are ahead of it, and calls into question Coinbase’s historic tendency to penny-pinch on the infrastructure that’s supposed to preserve its customers’ access to their assets on the exchange.
Coinbase claims the traditional method of dealing with traffic surges isn’t “an instant process, starting to scale when traffic is already high is often too late.” The new AI model is intended to anticipate traffic spikes and scale up resources “before the traffic arrives.” Coinbase claims this new system “served us well” during a recent uptick in activity levels, ratcheting up resources “a few hours before peak traffic.” The goal was to have at least an hour’s lead time before traffic spikes, but Coinbase found that “by the time our systems begin to notice the start of a spike, it was too late to react.” So, Coinbase designed a longer-term model that considered a number of “external signals,” including fluctuations in the fiat price of BTC, ETH, and other prominent tokens, and tried to predict whether traffic would exceed a particular threshold.
Coinbase cautioned that its new system could still miss a traffic spike, which could result in more downtime. The system could also scale up based on anticipation of a spike that never arrives, which would cost Coinbase money.
Base, Coinbase’s Ethereum ‘Layer 2’ network, has garnered significant user activity and transaction fees. This has raised industry questions about Coinbase's focus on Base as an all-encompassing crypto platform and its plans to introduce wrapped BTC on Base. Furthermore, the integration of enterprise blockchain systems is crucial for the success of AI amidst evolving challenges.
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