Google allows crypto payments with new Coinbase deal

Important takeaways

• Google and Coinbase have signed an agreement that will see Google accept cryptocurrency for some of its cloud computing clients
• It’s a move that will allow Google to go after cutting-edge crypto and Web3 companies that want to use digital currencies as a payment method
• Coinbase will receive a percentage of these payments and that will allow them to continue to diversify away from revenue based on trading volume

While Google’s Cloud Next conference may not draw the crowds like Apple’s annual presentation or even Tesla’s AI Day, there have still been some interesting developments coming out of this year’s event.

Given that Google is now one of the aging stalwarts of the tech industry, it may come as a surprise to some that it plans to start accepting crypto as payment for some of its cloud computing services.

They will rely on Coinbase to facilitate these transactions, which are expected to be operational in early 2023.

This has the potential to be a huge boon for both companies as they look to expand their offerings and diversify their business models. For Google, it gives them access to fast-growing companies operating in the Web3 space, which many believe still has great potential despite recent hiccups.

From Coinbase’s perspective, it will give them a revenue stream that is not directly tied to trading volumes. This is crucial to the stability of the company, which recently laid off over 1,000 employees due to falling trading volumes due to the crypto winter.

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What we know about the deal

Google’s cloud computing business is seen as a key factor in their future success. The sector is constantly growing, very lucrative and allows them to diversify their income away from advertising.

This deal with Coinbase allows Google to fill a gap in the market by allowing companies in the crypto space to pay for their cloud storage using digital currency. Currency, there are no major competitors that allow companies to do this.

It’s a big deal because the philosophy of many crypto and Web3 companies is a fundamental philosophy that wants to move away from using fiat currency like the US dollar. Given the opportunity, many of these businesses would choose to use services that allow payments in crypto, but right now they simply don’t exist at the scale required.

The offer will not be widespread to begin with. Google plans to offer the service to a select number of Web3 customers whose payments will be routed through Coinbase Commerce. This platform accepts ten different digital currencies that include all the names you would expect such as bitcoin, bitcoin cash, ethereum, litecoin and yes, even dogecoin.

So for Google, it allows them to offer an offering they currently don’t have the capacity for, which will expand their user base and increase their revenue. For Coinbase, they will charge a percentage of the fees that go through their platform and will diversify their own revenue stream away from retail fees.

It is similar to the way any other payment provider works, be it Apple Pay, Amazon Pay or even Visa and Mastercard. All these networks work by taking a small percentage as payment to facilitate the transaction.

The only difference here is that these transactions are denominated in cryptocurrency instead of fiat currencies.

Future cryptocurrency plans on the table

This could just be the beginning of Google’s foray into the crypto and Web3 world. They have also stated as part of the new partnership that they plan to consider ways to get involved in helping other organizations manage their crypto portfolios.

This is still an area in its infancy, but hardcore Bitcoiners believe that over time we can expect to see more and more companies holding bitcoin on their balance sheets. So far, the use of this strategy has been limited to a small number of, albeit quite large, companies including Tesla, Coinbase, Microstrategy, Block and Riot Blockchain.

The challenge for these companies is how to store these assets. Traditional finance relies on trusted intermediaries to hold assets on a company’s behalf. Companies such as Amazon, Apple and Microsoft have billions of dollars in cash at any given time, and this is held in accounts with major banks such as JP Morgan Chase, Goldman Sachs and Bank of America.

These institutions are highly regulated and trusted, meaning companies can expect their money to be safe. Things get a little complicated with crypto.

Digital currencies are by definition decentralized. This means that there are no trusted third parties required to facilitate transactions and generally the holder is responsible for the security of the assets.

There are options available, such as holding assets on exchanges, but the sector has been famously involved in many high-profile collapses where investors have lost millions.

Similar to the gap in payment services that Google wants to fill, there is a potential opportunity to insert a trusted third party into the storage of crypto. Quite ironic when you consider that Bitcoin was created to avoid just that.

Coinbase already offers a service that facilitates this through a program known as Coinbase Prime. It will be interesting to see if Google decides to push this service and if it will entice more conservative organizations to dip their toes in the crypto waters.

The battle for cloud market share

Cloud computing is becoming the next big battleground in big tech. The industry has grown dramatically in recent years and is now worth a combined $203.5 billion. Cloud computing is an IT service that allows companies to offer resources such as data storage mainly on a rental model.

Essentially, it works exactly the same as your iPhone cloud or Google Drive. By downloading your photos or documents to Apple’s or Google’s servers, it means you can still access the files without having to increase the storage space on your phone or laptop.

For businesses, it is the same. Instead of having to build out huge server rooms to store all their data, they can simply rent more and more storage from a cloud computing provider as they grow. This means they don’t have to pay for storage they don’t yet need and can scale up quickly as their business grows.

It’s a profitable business, and the list of companies dominating the market share of the cloud computing space is a who’s who of Silicon Valley.

Amazon Web Services is the dominant player with 34% of the market, followed by Microsoft’s Azure with 21% and Google Cloud with 10%. Alibaba, IBM, Salesforce, Tencent and Oracle together make up another 17%.

This growth is expected to continue, with some reports suggesting the industry could be worth $1,143 billion by 2028. That’s a compound annual growth rate of 15% per year.

What does this mean for investors?

This is yet another example of the innovation potential in the technology industry. As long as technology continues to evolve and develop, companies will find new services to offer and efficiencies to share that will generate new sources of revenue.

Cloud computing is still relatively new, and yet it is now an industry worth over $200 billion.

That is one of the reasons why the technology industry can be such an attractive investment. However, that doesn’t make it easy. The sector has experienced enormous volatility recently, and one of the characteristics of the industry is the opportunity for new players to enter and disrupt the status quo.

Stock picking in any industry can be challenging, but in technology it is even more difficult. That’s why we created the Emerging Tech Kit. This investment kit uses the power of AI to predict which sub-sectors of big tech are most attractive and rebalances across these verticals every week.

These four verticals are large tech companies, smaller tech companies, tech ETFs and cryptocurrency via public trusts. This gives investors exposure to the best of the technology industry, with the power of AI guiding investment decisions.

We also offer Portfolio Protection for this set, which implements sophisticated AI-driven hedging strategies that aim to reduce volatility and provide downside protection. It’s the kind of thing that’s usually only reserved for high-flying hedge fund clients, but we’re making it available to everyone.

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