Coinbase is currently one of the largest crypto exchanges in the world and the largest crypto exchange in the US, with more than 100 million customers.
It is a platform that stands shoulder-to-shoulder with other giants like Binance and Kraken. Over the years, the company has entered into partnerships and made deals with heavy-hitter names like Dell, Time, and Overstock. Since its birth in 2012, the platform has solidified itself as a reliable and dependable crypto exchange.
That’s not to say the exchange hasn’t been met with its fair share of controversies. Before we get into the nitty-gritty of the controversy surrounding Coinbase, we need to see if their security meets the standards of other premium crypto service providers, such as eToro (read this review by Cryptovantage to learn more about the platform).
Guarding the Mother Lode – Security Features Offered
Being the largest publicly traded company in the world, Coinbase offers a fair degree of transparency regarding its statements or infrastructure. With the grand title of ‘largest public exchange,’ the company is expected to have state-of-the-art security.
Every account a user possesses comes with a 2-step verification process, providing an extra layer of security over your password. Your passwords are also encrypted so nobody can read them.
In case of any suspicious activity, you can choose to tell Coinbase to lock your account. Once they do, any and all activity on your account will be terminated until you say so. Coinbase also provides a Vault system that stops crypto from being drawn immediately without some extra security hurdles. Along with that, Coinbase stores most of its users’ assets in offline cold storage, which hackers can not access.
Using machine learning, users’ transactions are evaluated, and they are given the option to cancel the trade before it enters the blockchain. Third-party data breaches and darknet markets are also monitored for any looming threats. While this all sounds very high-tech, it seems the company has still fallen short on a lot of occasions.
The Situation of Scamming
Over the past year, thousands of Coinbase users have lost tens of millions in crypto, if not more. Last year, social media platforms like Facebook and Instagram were invaded by scammers who tried convincing people to download Coinbase Wallet. Once the wallet was downloaded, they would receive links to fraudulent websites from the scammers, attempting to influence them to purchase vouchers from these websites. The scammers claimed the vouchers to be a safe transaction protected by an authorized platform; turns out they were lying.
In reality, these vouchers gave the scammers complete access to the contents of the wallets of the users, not requiring authorization for withdrawal. Over 100 people globally have been scammed out of millions of dollars. The number of users now suing Coinbase have collectively lost $21 million.
Most of these victims hold Coinbase accountable, saying the company did nothing to protect them. For months, they allegedly warned the platform of this apparent security flaw. They claim they notified the company, begging to have the Coinbase Wallet software fixed so that scammers can no longer have unrestricted access to these wallets.
But Coinbase paid them no heed, the victims say. According to an arbitration demand that was recently filed, the victims state that Coinbase “took no remedial steps to fix the security flaw or even warn customers about this major problem, despite warning customers about other security risks.” Eric Rosen, an attorney from Roche Freedman LLP- the law firm currently representing the scam victims – told The Washington Post, “They didn’t even appear to try. Of course, scammers quickly picked up on this and directed victims to download the Coinbase Wallet.”
The law firm has since posted this on its website: “Coinbase continued to allow these apps to remain on its platform, failed to correct the problem, and failed to notify the Wallet holders for months about this significant security issue. Had Coinbase done so on a timely basis, millions of dollars in losses would have been avoided.”
Since being threatened with legal action, Coinbase has changed its security system and now provides users with a warning when a website requests to withdraw a large sum of currency from an account. This is a feature that has been mandatory in many competitors like MetaMask and Trust Waller since day one. Jordana Haviv, another Roche Freedman attorney, told a crypto news outlet, “In our view, this is effectively an admission that Coinbase previously wasn’t doing enough to protect its customers.” The arbitration demand says that the scammers directed customers specifically to Coinbase Wallet due to their pathetic security.
Undeserving of the Crown?
While this news plastered the airways only recently, Coinbase has been marred in controversy for much longer. And although this doesn’t undermine the platform’s security, it does make you wonder whether the entire platform is one big scam. In August of this year, Coinbase was sued for fraudulent and misleading claims about the operation of their company. Two different firms sued the company, claiming their clients were affected by its failure to register a few particular assets as securities.
Following this, the company came under investigation by the SEC for the potential sale of unregistered securities. Allegedly, it allowed users to trade said unregistered securities without informing them.
Between February and June of 2022, during a crypto market crash, Coinbase also silently withheld price change notifications to its users because market crashes are always bad news for exchange platforms- investors get scared, try to cash out, and cut their losses. An article published in 2022 elaborates further on this topic.
Being one of the most populated crypto trading platforms right now, there’s no denying that Coinbase does a lot of things right, including its security. No doubt, the company is a secure platform. However, the recent scams have shined a bad light on it, making people question whether the platform prioritizes users’ security. Add to that the many controversies surrounding the company, and you’re left to wonder whether Coinbase is safe at all.