Coinbase was founded in June 2012 and is the largest digital currency platform with over 15 million active users and an exchange platform (GDAX) that regularly sees 24 hour trading volumes in excess of $300m. The platform is most popular among new users who are looking to access a handful of the major cryptocurrencies quickly and with ease. Coinbase also features a number of extra security layers for their users including a Vault system that helps protect user funds. There have so far been no successful hacks/thefts at the Coinbase exchange.
In March 2018 Coinbase announced a partnership with UK banking giant Barclays. This partnership has allowed individuals in the UK to access GBP markets for the cryptocurrencies listed on Coinbase. The partnership has also been seen as a major milestone in legitimizing cryptocurrencies as an asset class.
Coinbase is located in the USA and serves customers across the world with a handful of excluded countries which can be found further below.
Cryptoasset traders should always remain highly sceptical when dealing with online exchanges; the number of successful cryptocurrency hacks that have taken place since 2010 has been astonishing with hundreds of millions of dollars being stolen over the years. Coinbase is very conscious of the level of security that they need to provide to their users and as such they have approached this area with a great deal of transparency. Here are some of the key takeaways with regards to Coinbase’s security:
Coinbase is a licensed money transmitter in dozens of US states. A full list along with a copy of each license can be found in Coinbase’s licenses page.
Coinbase maintains 98% or more of customer digital currency in cold storage. Cold storage is a term used to describe the offline storage of coins, often in a physical safe/bank vault and with multi-signature requirements. The past exchange hacks have been coins held in insecure “hot wallets” rather than cold storage.
For customers who store fiat currencies (USD, EUR, GBP) in their account, Coinbase ensures that these are kept separate and untouched at all times. This cash is then insured up to an amount as outlined by the Federal Deposit Insurance Corporation (FDIC) which currently stands at $250,000.
Coinbase follows a strict “Digital Asset Framework” to help decide which cryptocurrencies will be added to their service. Currently Coinbase only offers a handful of the most popular cryptocurrencies for users to buy and sell, however this list is anticipated to grow extensively in the future. A full breakdown of the cryptocurrencies accepted at Coinbase can be found below.
Coinbase has varying payment methods depending on the country from which an investor is purchasing cryptocurrency. Bank Transfers, Bank Wires and Debit/Credit Card payments are accepted in most countries with PayPal being accepted for withdrawals only. Customers are required to add photo ID in order to purchase cryptocurrency on the platform.
The process for buying cryptocurrency at Coinbase is straight forward. Anyone familiar with using PayPal or other online payment applications will be able to purchase Bitcoin, Ethereum and others with ease. The following screenshots will help describe the exact process for setting up an account and the documents that you will need for verification.
1. Register an Account
Coinbase allows users to register as an individual or business. For the purposes of this walkthrough, the focus will be on the individual registration processes.
2. Verify Email and Phone
Following the account creation step, an email will be sent to the registered email account to validate ownership. Once an email has been validated, the user must then validate a phone number. Phone number validation is an important step to offering better security for the user (2-factor authentication) as well as helping Coinbase to comply with KYC.
3. Payment Methods
With an account now created, it is possible to setup a payment method – typically by linking a Bank Account or Credit/Debit Card. Card payments will be credited to your Coinbase account immediately and Bank Account transfers will typically take 1-2 days depending on your location.
4. Making a Purchase
With funds (USD, EUR, GBP) loaded into a Coinbase account, they can then be spent to purchase any of the cryptocurrencies listed on Coinbase. Each purchase will list clearly exactly how much fiat currency is being spent, how much cryptocurrency is being bought, the Coinbase fee and the total amount of cryptocurrency to be credited. Transactions are executed immediately.
Coinbase is regularly expanding their product offering to include other useful tools beyond the simple buying and selling of cryptocurrency. These include:
Due to the volatility of cryptocurrency prices, many investors choose to “dollar cost average” their purchase. This term describes the purchasing of an asset in chunks over a period of time. For example, someone wishing to invest $1,000 in Ethereum may buy $200 amounts every 1 week for 5 weeks. By creating a recurring transaction like this, it is possible to lessen the effect of short term price volatility and to enter the market using the average price over a given time period.
Coinbase users are able to access price alerts easily from the Coinbase mobile app. These price alerts can be set for each cryptocurrency listed on Coinbase and a push notification is sent to the user once the price has been triggered.
For customers in the USA, Coinbase provides some tax tools which help users stay on top of their tax affairs. The IRS is particularly strict on cryptocurrencies and these tools help users to stay compliant. Full details surrounding the tax tools available on Coinbase can be found here.
Coinbase provides an extensive knowledge base for users who need straight forward questions answered quickly. Alongside their knowledge base is a chat bot – an automated live chat system which attempts to answer simple questions or direct users to the appropriate support topics. A more robust support option – Cases – is available for all registered users and allows individuals to raise support tickets. These cases can be tracked and updated from the user’s My Cases page and support staff typically reply within 48 hours.
Coinbase also offers a US phone number for telephone support which can be called from anywhere in the world. Phone support has been a major source of reassurance for users who have been caught up in a number of infamous withdrawal delays. The company has since hired dozens more support staff and the customer service team continues to grow rapidly.
The platform also has a regularly updated blog which provides news about the company’s direction as well as product launches.
The Coinbase Vault is a freely available secondary account for all Coinbase users that grants the ability to lock away funds more securely. Along with a standard Coinbase Wallet, a user can choose to also create a Vault. Any coins deposited into this vault will have additional security features applied:
When a withdrawal is initiated the user is notified by email and a “grace period” of 48 hours is set. The user can then cancel the withdrawal at any point during this 48 hour period.
A user can choose to setup a separate email address at which the withdrawal will also need to be approved. This ensures that a malicious attacker would also require access to both the user’s Coinbase account and an associated email address
Going a step further, individuals can choose to create a Group Vault whereby a number of parties will have to verify any withdrawal. This can be done as “2 of 3” or “3 of 5” which references the number of parties (out of a total) required to sign and verify a withdrawal.
If the above security measures are in place along with 2-factor authentication (recommended) then the ability for an attacker to steal funds is near impossible. The final responsibility is then left with Coinbase to secure the funds with which an investor’s account references. Given that Coinbase claims that 98% of their funds are stored in cold storage, this risk should be – for all intents and purposes – fully mitigated. The only missing guarantee from Coinbase is a full and transparent audit of their cold storage funds.
Regardless of these security processes, a user will always need to place some trust in the Coinbase platform. To mitigate this risk entirely, a user can store their coins on a cold storage wallet that they fully own. Details of this can be found in the guide below.
Coinbase’s custodial service is not relevant to investors as the service is focused entirely on institutions, however it is a good demonstration of the company’s maturity and the significance of its role in the ecosystem.
Coinbase Custody is an arm of Coinbase which has been setup to secure digital assets for institutions. This custody ensures that institutions investing in cryptocurrencies can store their investments securely and with strict financial controls. Coinbase currently secures billions of dollars worth of cryptoassets and have several hundred employees with dedicated representatives for those institutions with large enough investments to warrant this custodial service. Coinbase is working hard to position themselves as the most trusted exchange available and its track record so far has certainly suggested it is more than capable.
Coinbase is without a doubt one of the leading cryptocurrency exchanges, however it is not without its problems. The unprecedented rise in the popularity of cryptocurrencies throughout 2017 took Coinbase by surprise, requiring the hire of over 100 new employees, many of whom were dedicated support staff. This popularity and lack of preparedness resulted in major delays for customers with some withdrawals reportedly taking as long as 3 months to process.
These problems have plagued Coinbase for some time, but the platform has continued to operate in a professional and honest manner. The CEO, Brian Armstrong, has tackled these challenges head on and attempted to provide as much transparency as possible to their customers. These problems are now somewhat mitigated, however it is worth noting that Coinbase can be a victim of its own success – struggling to fulfil orders in a timely manner can be the difference between an investor’s short term profit or loss.
Coinbase is not available to users from the following countries:
Aland Islands, Andorra, Argentina, Bahrain, Barbados, Brazil, Brunei, Cayman Islands, Chile, China, Curaçao, Dominica, Dominican Republic, Ecuador, Estonia, Faroe Islands, French Polynesia, Germany, Gibraltar, Greenland, Guadeloupe, Hong Kong, Iceland, India, Isle of Man, Israel, Jamaica, Japan, Jordan, Kuwait, Lebanon, Lithuania, Luxembourg, Madagascar, Maldova, Martinique and St. Maarten, Mexico, Montenegro, Mozambique, New Caledonia, New Zealand, Paraguay, Peru, Puerto Rico, Qatar, Romania, Réunion, Saudi Arabia, Serbia, South Africa, South Korea, Taiwan, The Bahamas, Trinidad and Tobago, Turkey
Since Coinbase began operating in 2012 it has suffered no major hacks or thefts. Coinbase maintains 98% of all funds in cold storage, meaning that the likelihood of a large scale theft is near impossible. Coinbase also offers a free Vault service which allows users to deposit cryptocurrencies into a wallet with additional security features. These features include time delayed withdrawals and multi-signature verification. Coinbase has demonstrated itself to be one of the most secure exchanges available to consumers, however it cannot guarantee absolute safety of funds.
Users who wish to secure funds themselves (and thus ensure the maximum level of security) can do so using hardware wallets like Trezor or the Ledger Nano S.
The trading fees charged at Coinbase vary from country to country and range from 1.49% to 3.99%. Fees may also be charged on the depositing of funds – particularly with credit card. Users who wish to withdraw a currency that is not supported will also need to pay a conversion fee.
The cheapest way to use Coinbase is to deposit funds via bank transfer which is free in most countries. A trade to purchase cryptocurrency can then be made with a rate between 1.49% and 3.99% depending on your country of origin. Withdrawals to a bank account are then charged at a few cents. Users who wish to do engage in a high volume of transactions should avoid using Coinbase as the fees become extremely expensive over time. Users who wish to complete a one-time trade will find that Coinbase offers a very good solution.
Funding an account on Coinbase can be instant when using a Credit/Debit and bank transfers may take a few days. Once an account is funded on Coinbase a purchase of cryptocurrency can be made instantly.
An alternative option is to use a Coinbase “Instant Buy” which allows individuals from certain countries to buy cryptocurrency directly using a debit card. These purchases are immediate, however they do come at the cost of an additional 2.5% fee.
Coinbase accepts credit card deposits from most countries including the US, Canada, Australia, Signapore, UK and the EU. Depositing funds via a credit card incurs a fee.
Coinbase holds a number of state licenses to operate as a money transmitter in the USA. Coinbase is not regulated outside of the USA however in March 2018 a partnership was formed with the UK bank Barclays to provide more accessible GBP markets to UK customers.