What is Coinbase, and how does it work?
Coinbase is one of the biggest cryptocurrency trading platforms in the world. Based in the US, it runs in more than 100 countries worldwide and trades over 240 decentralized cryptocurrencies, including Bitcoin, Ethereum, and Solana. Coinbase works on a centralized infrastructure, meaning it’s a peer-to-peer network operating without the interference of intermediaries.
One of the platform’s biggest advantages is that it made cryptocurrency exchange accessible to both crypto trade beginners and professionals. It’s praised for its easy-to-use interface and diversified services corresponding to the user’s experience level and amount of crypto assets. Coinbase also offers educational materials differentiated according to the user’s level of knowledge.
Coinbase platform works similarly to any other trading app or site for buying, selling, and trading cryptocurrencies. Once the user signs up, they can link their bank accounts or cards to exchange traditional currencies into cryptocurrencies. They can sell or buy digital currencies and later convert them to physical currency. Coinbase users can hold their crypto funds in specialized secure digital wallets.
However, since Coinbase’s establishment in 2012, some concerns have been raised regarding its safety.
Is Coinbase trustworthy?
Coinbase has built its reputation as a trustworthy, reliable, and secure crypto exchange platform. It uses robust security measures to protect its users from losing their funds or data to hackers. To name a few, Coinbase stores more than 90% of its customers’ funds in what’s called cold storage. In this context, “cold” indicates offline storage that is less susceptible to hackers’ attacks and online theft. Coinbase users have to pass two-factor authentication (2FA) before they can access their accounts, lowering the chances of unauthorized access and compromising the accounts. The platform also offers insurance against theft and cybersecurity breaches.
According to Coinbase, the company complies with multiple regulatory standards, including verification-related Know your Customer (KYC) guidelines, Anti-Money Laundering (AML) policies, and Securities and Exchange Commission (SEC) regulations, the latter regarding the issuing and trading of securities.
Coinbase pros and cons
As with any other online platform, Coinbase offers benefits to its users but also comes with some drawbacks. Let’s look into its features, both lauded and causing user dissatisfaction.
- Easy to use for beginners. Both Coinbase’s website and app are intuitive and user friendly, leading customers through the process of buying, selling, or exchanging their crypto money.
- Offers a selection of cryptocurrencies. Users can exchange over 240 different cryptocurrencies on the Coinbase platform.
- Ability to earn. Coinbase provides passive earning opportunities by offering its customers to enroll in Coinbase Learning Reward courses or earn interest on their balances.
- High fees. The fees for transactions on Coinbase are higher compared to other trading platforms.
- Low-quality customer service. Coinbase has gained a bad reputation for its poor customer service, which lacks urgency when solving issues related to security or complaints.
Does Coinbase pose any security risks?
The security risks that Coinbase customers should be aware of are the same threats that keep every existing online platform on its toes. The most prevalent security threats include:
- Phishing and social engineering attacks. Hackers use deceptive emails, malicious links, and other elaborate techniques to convince unsuspecting users to give away their login credentials or sensitive information. With personal data at hand, cybercriminals can compromise a user’s Coinbase account and attempt to steal from their Coinbase wallet.
- Data breaches. Coinbase is as susceptible to hackers’ attacks as any other company or online platform. If cyberattackers manage to gain access to Coinbase’s inner resources or user information, both user accounts, sensitive information, and other digital assets may be at stake.
- Regulatory changes. Coinbase claims to comply with a number of regulations that secure the platform and its users from various threats. However, these regulations are subject to change, which can affect the platform’s operations and services, making them less convenient for users.
- Third-party involvement. Like other crypto trading platforms, Coinbase uses third-party services to enable smooth operations. These may include partners for data processing, security maintenance, or cloud storage solutions. Dependence on outsourced service providers introduces additional risks because third-party vulnerabilities can compromise Coinbase.
- Investment scams. Malicious entities can approach users with convincing but fake investment opportunities that may lure them into malicious schemes that will empty their crypto accounts.
Past security incidents and breaches
Over 11 years of operation, Coinbase has experienced two major data breaches. In 2021, cybercriminals detected a flaw in Coinbase’s account recovery process through SMS. Exploiting the vulnerability, they were able to gain access to at least 6,000 Coinbase accounts and transfer funds associated with them to external crypto wallets. Coinbase was quick to fix the security flaw and reimburse its customers.
The latest security breach was carried out in February of 2023 by a hacker group called 0ctopus. Cybercriminals sent SMS messages to Coinbase employees urging them to click a link and log in to their accounts to receive an important message. One employee believed this to be a legitimate request and gave their credentials. However, hackers soon found out all employee accounts were secured with 2FA. Committed to carrying out the fraud, the hackers used voice phishing and convinced the employee to show them the dashboard with the company’s communication tools and employee contact information. However, the hackers were stopped by Coinbase’s security team before they were able to access customer data.
Is Coinbase wallet safe?
Coinbase digital wallets are considered to be safe because they are non-custodial, meaning the company itself cannot access them. This type of blockchain wallet gives users full control over the private keys used to access their cryptocurrency. The user has to create a master password to open their account, and only those knowing the password can access the funds. However, this security feature comes with a drawback – if the user ever loses or forgets their master password, they lose their access to crypto funds stored in the wallet.
Coinbase stores its user data, app information, and wallet addresses in offline wallets, less susceptible to online threats and hacker attacks than online ones. Users’ private keys are secured with AES-256 encryption, known for its high security level.
Remember that you should always keep your crypto in a self-custodial digital wallet rather than leave it on the exchange because your funds are more susceptible to online theft or fraud when left online.
How to secure your Coinbase account
Though Coinbase is considered to be a safe platform for crypto exchange, you should take additional steps to protect your cryptocurrencies. Follow this advice to secure your Coinbase account:
- Create strong passwords. Using a strong password to access your Coinbase account will significantly reduce your chances of falling victim to brute force or rainbow table attacks. Make sure to use a unique password consisting of at least eight characters with a mix of upper- and lowercase letters, numbers, and special characters.
- Use the Coinbase vault. If you’ve accumulated larger cryptocurrency holdings, it’s a good idea to use the Coinbase vault feature. It allows for delayed withdrawals that can provide more time for canceling unauthorized transactions and offers to set multiple parties’ approval before the funds can be moved from the vault.
- Stay aware of phishing attempts. Caution is the best measure against online scams. Beware of phishy emails that may contain crypto malware, and always closely check if the sender’s address is legitimate. Most importantly, never share your login credentials with anybody.
- Regularly update your software and hardware. Hackers are skilled in exploiting known and newly found vulnerabilities in devices’ operating systems. Updates are meant to patch security weaknesses and strengthen your resistance against cyber threats.