Only a few crypto-trading platforms are as popular as Coinbase. But, as with every trading company, Coinbase is not without risks. For example, in early October 2021, accounts of at least 6,000 users were hacked, and their entire funds were stolen.
Instances like these tremble users’ confidence even in the most popular platforms. Which leads us to the obvious question: Is Coinbase Safe?
But, first let’s start with the basics.
What is Coinbase?
In a very short amount of time, cryptocurrency has skyrocketed in popularity, with an estimated market capitalization of 2 trillion dollars combined.
This sudden surge of crypto traction has opened a path for many crypto-trading and exchange platforms to foster, the most popular of which is Coinbase.
Founded in 2012, Coinbase is a crypto investment and trading platform that allows users to trade, exchange, and purchase more than 100 tradable cryptocurrencies, including Bitcoin, Ethereum, and Dogecoin. As one of the largest companies in the cryptocurrency space, Coinbase has over 73 million users and 255 billion dollars in assets on its platform.
For simple crypto buy and sell orders, beginners may prefer Coinbase’s original platform. However, the Coinbase Pro service is also available to Coinbase users who would like access to more advanced features and ordering options.
In general, cryptocurrency is a new asset class that carries a risk of volatility, and volatility can make it unsuitable for many. Nonetheless, Coinbase is a great option for beginners and veterans alike if you’re interested in cryptocurrency.
The Risks to Crypto Buying, Selling, and Trading
Cybersecurity Threats: From phishing scams to cyber security breaches, there’s always a risk, where users’ information or holdings could be compromised.
Getting in over your head: Though Coinbase does provide educational materials to its customers, anyone with little to no experience can easily become overwhelmed. Therefore, consider consulting a professional before investing if you are a new user or a crypto newbie.
Regulations: Cryptocurrency regulations are still up in the air in the US. However, there will eventually be new rules, and depending on how they are drafted, they could have important implications for crypto investors.
Risky cryptocurrencies: Crypto investments are inherently speculative, risky, and volatile. The value of your purchase today could plummet tomorrow. For budding crypto investors, that’s an important point to keep in mind.
Is Coinbase Safe?
It is natural to be concerned about the safety of Coinbase, especially for large-scale investors. However, as with cryptocurrency, Coinbase is a relatively new trading and investing platform.
Creating an account on Coinbase is similar to opening a brokerage or bank account, where users need to enter some basic information. For example, a prospective user needs to provide their full legal name, telephone number, email address, password, and a valid photo identification card showing their date of birth, address, and final four digits of their Social Security number.
Coinbase’s rules and regulations are determined by the company’s jurisdictions. But in the US, Coinbase complies with the Bank Secrecy Act, the USA Patriot Act, and local state laws and regulations.
Unlike other cryptocurrency brokerages, Coinbase is not protected by the Securities Investor Protection Corporation (SIPC). Even though it does carry insurance, users are not covered if their holdings are lost as a result of a third party breaching their account or losing their credentials.
While the security measure, including multiple-level user authentication, makes Coinbase comparatively less impervious to attacks, a quick online search will reveal a number of overnight account draining cases.
However, alternatives like non-custodial wallets can make things even more challenging for potential hackers. Hardware wallets are another possibility.
There are different types of wallets. So, you don’t have to rely only on Coinbase to store your money. Instead, a crypto wallet allows you to store your own crypto on an app, a piece of software, or hardware. Therefore, even if someone gets access to your Coinbase account, they will not be able to access your wallet, where your cryptocurrency is actually stored.
This approach has the downside of remembering your private key, also known as a password. In the past, people have lost millions after being locked out of their cryptocurrency wallets. Therefore, despite being a more secure method, you have to be responsible for ensuring you can access your wallet.
How Safe is a Coinbase Wallet?
Coinbase wallet, wallet address, and private keys of every user are encrypted. In addition, Coinbase’s data management policy allows the brokerage to keep personally identifiable information (PII) and other critical account information offline.
Personal data is encrypted using AES-256 encryption and stored on FIPS-140 USB drives and paper backups to ensure redundancy. These copies remain in various secure locations.
To ensure the security of its customers, the Delaware-based company uses more encryption on its website and mobile apps, as well as Bcrypt to hash passwords before storing them.
Can You Get Scammed on Coinbase?
Yes! You can. Despite being one of the top crypto-trading platforms, Coinbase is not fully-proof against scamming.
You should always keep in mind that when you use an investing platform, whether for stocks or cryptocurrencies, some level of risk is always there. However, aside from that, experts say Coinbase does not necessarily pose any special risks.
This is what happened to the 6,000 users last year who lost their funds and holdings. Hackers used phishing and succeeded. By exploiting Coinbase’s two-factor authentication process, the hackers gained access to users’ accounts.
Often, phishing scams use emails or text messages that appear to be from a platform for which the victim already has an account in order to trick the user into supplying their usernames and passwords to the hacker. Although not very sophisticated, it is a common scam. Usually, with the user’s password and username, a third party can circumvent the two-factor authentication system and access the account.
Now, with the account credentials in the scammer’s hand, they can withdraw all your assets to their account. But, phishing is, of course, not the only course for scammers.
So, how to stay safe?
Creating a new email address – one you don’t use for anything else – and creating a password you haven’t used anywhere is the easiest way to keep your account secure. Additionally, you shouldn’t advertise your crypto holdings.
Furthermore, Coinbase advises you to immediately file a report if you ever find yourself engulfed in a phishing scam (or any other type of hacking).
Coinbase: The Cold Storage Enhancing Security
Coinbase’s web wallet is one of the safest you can use since it stores 98% of its assets in cold storage that cybercriminals cannot access.
Furthermore, Coinbase doesn’t only store the client crypto assets offline in cold wallets, but the platform also takes the extra precaution of dispersing these wallets around the globe.
Only about 2% of the entire Coinbase assets are available on the platform in an online hot wallet system, and the company ensures those assets against loss. This way, if a hacker were to steal money from Coinbase, it would be refunded to the user.
Additionally, Coinbase has FDIC insurance covering deposits up to $250,000 per account. These coverages, however, apply only to US customers holding US Dollar deposits. Finally, and more importantly, crypto assets are not covered by insurance.
Additional Security Measurements
Aside from keeping most of its confidential and hacking-sensitive information in cold wallet storage, Coinbase has also implemented various internal security precautions to ensure the system’s safety.
Some of these prevention measures include:
- The devices used by employees have two-factor authentication (2FA) and a unique password.
- Employees must pass a criminal record check.
- To access workstation hard drives, employees must encrypt them, and only those with solid passwords are allowed access.
Platform users are also encouraged to use 2FA. For now, there are three types of 2FA are available for customers:
- SMS/Phone: The least safe method, but better than single-factor authorization. Every time a user logs into their account, a one-time passcode is sent to their phone, verifying their identity.
- Physical Token: A hardware key is a physical token similar to a flash drive to provide additional authentication when logging into a system. Trezor and Ledger are some of the popular hardware keys.
- TOTP authenticators such as DUO or Google provide random codes that must be used during login
Ledger, which specializes in multi-currency hardware wallets used to store cryptocurrency private keys offline, was recently attacked, exposing sensitive customer data to hackers.
Although your funds can be kept in cold storage, your personal information can nonetheless be obtained outside of exchanges, putting your assets at risk.
Thus, all Coinbase users are advised never to outsource their assets’ security and be vigilant with their investments.
The Bottom Line
Coinbase is a convenient way to get started for those unfamiliar with cryptocurrency. Thanks to its simplified user interface, people can buy and sell crypto with just a few clicks. Though it does not support all types of cryptocurrencies, there are many of the most popular ones.
It is well-known and trustworthy for its strict token onboarding policies; therefore, Coinbase only accepts crypto projects that adhere to its incorporation policies.
The launch of Coinbase Prime by Coinbase institution, aims to offer the highest quality services to investors interested in the digital asset sector.
The platform has been tirelessly deploying tools to make its platform more appealing to institutional investors and retail investors while retaining a vast user base of 43 million. To date, the crypto exchange platforms have sustained these high standards by:
- Maintaining a highly regulated platform
- Securing cyber-security measures
- Adopting the latest technology
- Securing the funds of customers, encrypting all critical information, and protecting their data
The company features a top platform for buying, selling, storing, and exchanging cryptocurrencies. It’s a great choice for beginners to trade cryptocurrency who don’t want to worry about the complexities of decentralized exchanges and external wallets.
Given the sensitivity of the crypto market, Coinbase is considered a safe and secure way for retail investors and institutional investors to engage with digital assets.
Unfortunately, Coinbase’s customer service and pricing structure are its biggest disadvantages. Nevertheless, for anyone looking to get involved with cryptocurrencies, Coinbase is an excellent choice if you can manage your account independently and are okay with the fees.