December 30, 2021

Is Coinbase Safe?

Read more about Coinbase
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Coinbase is one of the most popular cryptocurrency exchanges out there. But is it safe? Read on to find out.

There are few cryptocurrency exchanges more popular than Coinbase, especially in the U.S.

With so many people trusting it with their money, you have to wonder: Is Coinbase safe?

Keep reading to learn whether Coinbase is the right place to put your money.

What is Coinbase?

Coinbase was founded in 2012. They're based in San Francisco, and available in over 100 countries.[1]

When they started out, their business was allowing traders to buy and sell Bitcoin through bank transfers. Since then, they've added dozens more cryptocurrencies, and expanded with an expert-level app, Coinbase Pro, and one for businesses, Coinbase Prime.

Coinbase offers impressive features, like the opportunity to get paid to learn about crypto, interest-earning accounts, and their Coinbase debit card.

Now let's get to the issue of safety.

Is Coinbase Safe?

Coinbase follows the same security practices as other major exchanges, including insurance, cold storage, 2FA, allowlisting and more. It's fairly safe to say you probably won't find an alternative that is substantially more secure.

If privacy is more your concern, you may want to look elsewhere. Coinbase has shown willingness to give up user information to government entities that not everyone might want shared.

Looking for a more in-depth answer? Or wondering if Coinbase has ever been hacked?

Find out all that, and more, in this detailed look at Coinbase.

Coinbase Security Features

Let's start by taking a look at what measures Coinbase is taking to protect you.

Security Features
InsuranceCoinbase has independent insurance for coins lost to cybersecurity breaches or employee theft, up to $250,000.
USD balances are FDIC insured for up to $250,000 through custodial accounts.
Cold Storage97% of customer funds are stored offline, meaning if there's a major breach, losses should be limited to only a small fraction of their holdings.
Two-Factor AuthenticationThis helps to limit unwanted access to your account and can be implemented via SMS or Google Authenticator.
Biometric LoginThis adds another layer of security and convenience to log in through your mobile device.
Address AllowlistingBy choosing which wallet addresses you allow withdrawals to, and which you don't, you can buy yourself a window of safety even in the case that your account is compromised.
KYCKnow Your Customer rules require users to verify their identities before using the platform, protecting against fraudulent behavior.
Encryption & Safe Data StorageAll personally identifiable information (PII) is stored offline and protected with AES-256 encryption. This data is split and saved in FIPS-140 USB drives with paper backups at a number of secure locations.

For what it's worth, some users have complained that the sign-up process takes longer and is more invasive than they would like. Some also argue that the lack of anonymity required by KYC goes against the entire ethic of cryptocurrency.

However, you'll find pretty much the same rules apply on all major exchanges, at least in the U.S. And it's worth remembering that they may also serve to protect you, the user.

Keep reading to learn more about Coinbase's security features.

One crypto exchange that does stand out for their commitment to security is Gemini. Find out how Coinbase and Gemini stack up in features, fees, and more in our head-to-head comparison.

Coinbase Insurance

When it comes to insurance, the question isn't as cut-and-dry as you'd think. Yes, Coinbase is insured. And thanks to their policy of keeping most of their crypto offline, most of it probably can't be stolen.[2]

However, if your account gets hacked, getting your losses covered depends on whether Coinbase thinks it was your fault.[3]

If you know anything about insurance companies, you know that they'll do everything in their power to blame the user.

That means if your password gets stolen, or you click a bad link, or fall for any of a number of increasingly clever schemes, there's a good chance it will be gone for good, insurance or no.

Coinbase Allowlisting

Address allowlisting is a feature where you choose which wallet addresses you will and will not allow withdrawals to.

Unfortunately, this feature is only available to users of Coinbase Pro in the form of their Address Book feature. For those that have it, this feature can be an excellent safeguard against attacks.

It ensures that withdrawals require 2-step verification, and adding new addresses incurs a 48-hour hold, giving you time to act if your account is compromised.

Coinbase Encryption and other security measures

If you choose to store your money on Coinbase, your wallet, addresses, and private keys are all encrypted.

Coinbase employees are also required to undergo criminal background checks, use devices with unique passwords and two-factor authentication, and encrypt their workstation hard drives.

Coinbase Privacy

While security and privacy may seem like similar issues, and they do often overlap in crypto, they ought to be thought of separately.

An exchange like Coinbase might be secure, but it's not private.

You might remember KYC - Know Your Customer. As soon as you sign up for Coinbase, they have a fair amount of your personal information on file, and they're required to report some of it to the government.[4]

Coinbase has a clear dedication to security, because their business requires it to function. However, their record on privacy is less than sterling. Whether that influences your decision to use the platform is up to you.

Coinbase has also been accused of tracking how users spend Bitcoin.

Coinbase acquired a Blockchain Tracking startup called Neutrino in 2019, whose goal is to tie specific identities to blockchain addresses.

Citing public records, The Block reports that Coinbase is selling its blockchain analytics software, Coinbase Analytics, to government agencies such as the Secret Service, and potentially the DEA and the IRS.

Accounts of users who employed privacy-enhancing software such as Tor have been frozen, and reports suggest Coinbase blocked anonymizing Bitcoin transactions referred to as "CoinJoins."

Has Coinbase Ever Been Hacked?

Unfortunately, the answer is yes, at least for some users.

While Coinbase does have a fairly good track history of protecting users from illegitimate losses.

In 2021, hackers found a vulnerability in Coinbase's multi-factor authentication system and stole assets from around 6,000 users. Coinbase was able to notify affected users, whom they believe were victims of a concerted phishing campaign that lured them into revealing login information.[5]

That said, given their large user base, the fact that the hack affected such a small fraction of Coinbase customers, and likely relied at least to some extent on phishing, suggests that their cybersecurity measures are largely effective.

Not sold on Coinbase after all? Check out our guide to the best Coinbase alternatives to find an exchange that's a better fit for you.

Bottom Line

Is Coinbase safe enough to trust with your money? Over 73 million users seem to think so. As well as at least 5 Fortune 500 companies, Tesla, MicroStrategy, and over 10,000 institutional investors, who've all used the platform.[6]

As far as security goes, Coinbase follows the same practices as pretty much every major exchange in the industry, and they've managed to capture a customer base larger than most of their competitors.

That's not to say a lot of people can't be wrong, but if you're concerned about safety, you're probably not going to find any alternatives that are substantially different.

Privacy is another concern. If that's your focus, you may want to look elsewhere, as Coinbase has shown willingness to give up user information to government entities that not everyone might want shared.

As always, remember that in the world of crypto, even in the best case much of your security is in your own hands. Be vigilant for phishing attempts, both via email and SMS, and if you do opt for Coinbase, make sure you follow their best practices for keeping your account secure.

References

  1. ^ Coinbase is available in 100+ countries, Retrieved 2/16/2022
  2. ^ Coinbase. Secure Bitcoin Storage, Retrieved 2/16/2022
  3. ^ "How is Coinbase insured?": Coinbase Help Center, 2021.
  4. ^ Coinbase Global Privacy Policy: Why We Share Personal Information With Other Parties, Retrieved 2/16/2022
  5. ^ California's Attorney General.Coinbase Notification Letter "Unauthorized Access to Your Coinbase Account", Retrieved 2/16/2022
  6. ^ About Coinbase, Retrieved 2/16/2022
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Jeremy Harshman is a creative assistant at CreditDonkey, a crypto comparison and reviews website. Write to Jeremy Harshman at jeremy.harshman@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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