Coinbase Users Could Loose Access to Their Funds

[myrdale]

https://fortune.com/2022/05/11/coinb...arnings-stock/

Coinbase has reported bad earnings for the first quarter. But more interesting is they pointed out that "IF" they were to file for bankruptcy, then all of the funds in user accounts on the site would be included in the bankruptcy and their users would loose access to them.

With Coinbase, they hold your private keys which means they hold your crypto.

This is a good example of the value of purchasing a cold wallet to maintain your own private keys. Personally I own a Ledger Nano X. Trezor is another popular brand, and there are many others.

Setup is easy. With the Ledger, your provided with a list of 25 random words. It's extremely important you don't loose or share these words. These are the seed phrase which is used to create your private key. You also create a pin number used to access the key stored on the Ledger. If you were to loose or damage your wallet, you simply purchase another one and input the same 25 words.

[kork13]

https://fortune.com/2022/05/11/coinb...arnings-stock/

Coinbase has reported bad earnings for the first quarter. But more interesting is they pointed out that "IF" they were to file for bankruptcy, then all of the funds in user accounts on the site would be included in the bankruptcy and their users would loose access to them.

With Coinbase, they hold your private keys which means they hold your crypto.

To mitigate this, a user could theoretically purchase one of those private key wallets, and transfer their crypto coinage to that new wallet.... correct?

Seems like a shady way for them to run their business, if their users' crypto currencies are in reality retained & owned by the company. If a proper bank were to go bankrupt, their customers' funds that they hold wouldn't go into the bank's bankruptcy, they'd be held under some form of conservatorship in the customers' names.

[james.hendrickson]

Is this for real? Whats the chance they could be bankrupt?

[myrdale]

Is this for real? Whats the chance they could be bankrupt?

My understanding is yes it's real.

They are not bankrupt. The article is a little click baity, but the concept it presents reinforces they idea of "Not your keys, not your coins".

On down in the article they have a quote from the founder / CEO who said that the disclosure of this risk is based on new rules. Presumably that risk has always existed.

I think this sort of risk is all around us, we just don't recognize it.

[myrdale]

To mitigate this, a user could theoretically purchase one of those private key wallets, and transfer their crypto coinage to that new wallet.... correct?

Correct.

[LivingAlmostLarge]

but why would you want coinbase? Is it because it's easier to trade? Also hypothetically isn't it the least likely to go BK compared to the millions of other Crypto not trading firms but just crypto out there?

[myrdale]

but why would you want coinbase? Is it because it's easier to trade? Also hypothetically isn't it the least likely to go BK compared to the millions of other Crypto not trading firms but just crypto out there?

James did an excellent job discussing Coinbase in his thread:

https://www.savingadvice.com/forums/...26705-coinbase

As he said, it's a good place to start.

The reason for posting the original article link thought was to spot light the possible problems of keeping your funds locked with their keys instead of your own.

As the Coinbase CEO said in the article, there is no danger of them going bankrupt at the moment. This is Coinbase providing the transparency of risk which the new rules require.

Your comment about comparing Coinbase to the other trading firms is interesting though. I mean in 1995 it was pretty obvious that AOL and Yahoo were the future of the internet right?

[james.hendrickson]

James did an excellent job discussing Coinbase in his thread:

I love the saving advice forums.

[LivingAlmostLarge]

I still don't get how BK can wipe out Coinbase if it's a trading platform

[QuarterMillionMan]

Yesterday when I learned about this on CNBC, I went into panic mode. First, I transferred out 1/2 of my Coinbase bitcoin ($10,000 out of $20,000) into Cash App, although Cash App could also go bankrupt, it gave me some relief. Yesterday also I did crash courses on Youtube learning about cold wallets such as Ledger and Trezor. I was going to order directly from their websites but shipping would take a few days and I didn't want to wait so instead I went to Best Buy and they had Ledger so I bought one. Last night I downloaded the software and experimented transferring small amounts of bitcoin. Today I'm getting the hang of it and transferred $500. Tomorrow and by this weekend I'll feel confident to transfer $1000's if not all of it out of Coinbase and onto my Ledger. That was a wake up call for me but it was my fault and I shouldn't have waited so long to own my own key. "No key, no coins."