Coinbase Safe in 2023? What to Watch Out For
Is Coinbase safe to use and what regulatory challenges is it facing?
Let’s dive in!
Coinbase has played a significant role in promoting the mainstream adoption of Bitcoin and cryptocurrencies by providing easy access to digital assets. The platform has expanded its offerings beyond just trading, launching additional services to cater to the evolving needs of its users.
Is Coinbase safe? Is it still a premier exchange choice?
The exchange provides a user-friendly interface and a range of services catering to individual investors and institutional clients. It has gained popularity among retail investors and institutional players, establishing partnerships with major financial institutions and expanding its presence globally.
Coinbase Wallet: A digital wallet for securely storing cryptocurrencies.
Coinbase Pro: A platform designed to cater to experienced traders who require more sophisticated trading tools than what is offered on Coinbase’s basic platform. Pro provides a range of features:
Advanced order types
Real-time market data
Coinbase Custody: Offers secure storage solutions for institutional investors and high-net-worth individuals. It is designed to meet clients' needs requiring a highly safe and reliable custodial solution for their digital assets.
Regulatory Compliance: Legal adherence
Security Measures: Robust protection
User Funds Protection: Asset safeguarding
Customer Support: Assistance and guidance
Coinbase is a regulated and licensed cryptocurrency exchange. It has made efforts to comply with regulatory requirements in its operating jurisdictions.
Recent Compliance Issues
Coinbase has faced numerous potential regulatory issues in recent months. The exchange was issued Wells’ Notice by the U.S. Securities and Exchange Commission (SEC) on March 22nd.
While Coinbase has obtained various licenses and registrations to operate as a cryptocurrency exchange and comply with relevant regulations, the SEC recently sued the exchange for operating as an unregistered broker-dealer and allowing its customers to invest in several likely unregistered securities.
** UPDATE: It was reported on July 31st, ahead of initiating legal proceedings against the exchange, the US Securities and Exchange Commission instructed Coinbase to halt trading in all cryptocurrencies except for Bitcoin. This move indicates the agency’s intention to exert regulatory jurisdiction over a broader section of the market.
According to Brian Armstrong, the CEO of Coinbase, the SEC provided this recommendation before taking legal action against the company, which is listed on Nasdaq, for its failure to register as a broker.
As the regulatory landscape shifts, it’s wise for investors to consider safeguarding their holdings by moving them from Coinbase into secure cold storage. Additionally, converting altcoins to Bitcoin and opening an account with a Bitcoin-only company could prove to be a strategic move in light of these changes.
In a positive development for Coinbase, on August 16th, 2023, it received a green light to provide cryptocurrency futures to retail customers in the United States. This significant regulatory achievement comes as the company faces a legal challenge from the SEC.
This development enables Coinbase to directly provide Bitcoin and ether futures to eligible retail customers in the U.S. Previously, these trading products were exclusively available to institutional clients.
Coinbase is registered as a Money Services Business (MSB) with the Financial Crimes Enforcement Network (FinCEN) and holds licenses to operate as a cryptocurrency exchange in several states.
Unlike E-Money Services, Digital Currency Services are not regulated by the CBI. Coinbase Europe is not a regulated financial services provider. Coinbase Europe is based in and provides its services from Ireland.
Coinbase has acquired licenses from the Financial Conduct Authority (FCA) in the United Kingdom.
At Swan, we believe using a Qualified Custodian and withdrawing into self-custody is the best framework to minimize custody, bankruptcy, and regulatory risk.
Coinbase has halted new user sign-ups for its exchange in India while affirming its commitment to the country. This decision follows recent emails to some Indian customers stating that exchange operations would cease after September 25, 2023, affecting only those who didn’t meet updated standards.
“Please note that you will be able to access Coinbase.com or Coinbase app until September 25, 2023, and should withdraw funds held in your account by such date.”
Coinbase has faced challenges with local authorities since its launch in India over a year ago, citing informal pressure from the Reserve Bank of India as a reason for halting trading services. Indian authorities have maintained a cautious stance on cryptocurrencies, emphasizing the need for international cooperation in regulating digital assets.
Learn more about Swan partner custodians here.
Coinbase has implemented several security protocols and practices to protect user funds and safeguard against hacking attempts and cybersecurity threats.
Two-Factor Authentication (2FA): Coinbase encourages users to enable 2FA, which adds an extra layer of security by requiring a unique code generated on a mobile device and a password.
Some Coinbase users have reported problems resetting the 2FA, including requiring multiple rounds of ID verification and the process taking a long time to complete.
Swan also encourages our customers to use 2FA to secure their accounts using an authenticator app. Adding 2FA authentication greatly improves its security if your email account gets compromised by attackers.
Bitcoin at our custodian is secured using a geo-distributed quorum of multi-party computation (MPC) wallets. This technology does not keep a key online that can be stolen, lost, or hacked.
Instead, in real-time, an attacker would have to compromise a large percentage of the human/device quorum across a large geographical area. The time they have to perform such an attack is limited, as the key shares are rotated frequently.
Secure Infrastructure: Coinbase employs industry-standard security practices to protect its infrastructure and systems, including firewalls, intrusion detection and prevention systems, and regular security audits.
Employee Access Controls: The platform has strict access controls in place to limit employee access to sensitive customer information and funds. Access is granted on a need-to-know basis, and all employee actions are logged and monitored.
However, in an industry first, Ishan Wahi — a former Coinbase Product Manager, was sentenced to two years in prison for insider trading. Additionally, his brother, Nikhil Wahi, also agreed to be permanently enjoined from violating Section 10(b) of the Securities Exchange Act and Rule 10b-5 and to pay disgorgement of ill-gotten gains.
Bug Bounty Program: Coinbase operates a bug bounty program, incentivizing security researchers and ethical hackers to report any vulnerabilities or weaknesses they discover. This helps identify and address potential security issues before they can be exploited.
Third-Party Audits: Coinbase undergoes regular security audits conducted by reputable third-party firms. Audits help identify security weaknesses and areas for improvement to ensure adherence to industry best practices.
However, specific details about these audits remain largely private due to security concerns and the sensitivity of the information involved.
Offline Storage (Cold Storage): Coinbase employs multiple layers of security to store and secure user funds. The majority of customer funds held by Coinbase are stored in offline, cold storage wallets. These wallets are not connected to the internet, making them less vulnerable to hacking attempts and online threats. This offline storage strategy helps protect user funds from unauthorized access.
Multi-Signature Technology: Coinbase previously offered a multi-signature mechanism for its wallets. However, it no longer provides this service.
Swan does utilize a multi-sig tool. In March 2022, Swan acquired Specter Solutions. This acquisition gives customers a seamless stacking experience in their Bitcoin wallets with multi-sig cold storage capabilities.
Insurance: In case of a security breach or loss of funds, Coinbase has certain options available to users. It provides insurance coverage for cryptocurrency holdings stored in its custody provider.
Account Recovery: Coinbase has account recovery procedures in place to help users regain access to their accounts in case of unauthorized access or loss of account credentials. Users can follow the account recovery process, which typically involves identity verification and account ownership confirmation.
If Swan users lose their phone, access to 2FA, or it’s not working for whatever reason, we have a backup way to recover your 2FA (6-digit pin codes).
While Coinbase has a generally positive reputation, it has not been without controversies or customer complaints.
Customer Support: Coinbase has a set of customer support protocols.
However, Coinbase has a notorious reputation for its poor customer service. Many users have reported issues with frozen or suspended accounts without explanation and no ability to receive personalized responses.
Customers regularly complain about this on Twitter, Trustpilot, and forums like Reddit. The platform offers no live chat feature other than a bot with limited capabilities.
Many users have to wait several days for answers, if they receive them at all.
Coinbases Trustpilot Reviews: Coinbase’s Trustpilot rating is only 1.5 / 5 stars out of nearly 8,500 reviews. 79% of these reviews received a 1-star rating.
In contrast, Swan boasts a nearly opposite Trustpilot rating, with 78% of customers rating their experience as 5-star.
In 2021, hackers stole crypto assets and user information from at least 6,000 Coinbase customers.
Frozen and Suspended Accounts: Coinbase has frozen or suspended user accounts in certain cases due to suspected fraudulent or suspicious activity. Many users have expressed frustration over account freezes, citing difficulties in resolving such issues.
Swan customers can easily unlock frozen accounts by following these simple steps.
Help Center: Coinbase provides a ‘Help Center’ on its website, which includes a comprehensive knowledge base with articles and guides addressing common questions and topics. Users can search for relevant information and troubleshoot steps to resolve their concerns. The exchange also offers customer support through email and a ticketing system.
However, as previously mentioned, many Coinbase customers complain about the abysmal service and response time they receive from the Help Center.
In July, the DeFi platform Curve experienced a $73 million exploit, causing temporary price irregularities. A trading bot seized the opportunity, paying 570 ETH to capitalize on this unique arbitrage situation.
The Ethereum validator responsible for receiving this payment was reportedly operated by Coinbase, making the exchange an unintentional beneficiary of the incident. Alchemix, the victim of the exploit, approached Coinbase to request a refund for affected parties, but Coinbase has yet to return the funds.
Coinbase is considered a secure cryptocurrency exchange with multiple security measures, including 2FA and industry-standard protocols. It complies with many regulatory requirements and provides transparency about its security practices.
But is Coinbase Safe? It depends who you ask.
However, many customers find it difficult to use the exchange once problems or issues arise with their accounts, and addressing these problems is challenging.
If you care about customer service, education, integrity and want a committed team of experts in your corner, available to help you whenever you need it, Swan is the best option to buy and hold Bitcoin.
So, if you are a current Coinbase customer unhappy with the platform, check out our Swan as an Alternative to Coinbase article for fees and other relevant comparison information.
Once you are ready to transition away from the exchange altogether, we’ll walk you through how to complete this process, remove your digital assets from the platform, and start securing your Bitcoin future today.
Swan IRA — Real Bitcoin, No Taxes*
Hold your IRA with the most trusted name in Bitcoin.
More from Swan Signal Blog
Thoughts on Bitcoin from the Swan team and friends.