Coinbase Crypto Exchange Is Warning Bankruptcy Could Wipe Out User Funds

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Coinbase Global, the US’s largest cryptocurrency exchange that also has an investment wing, reported a quarterly loss of $430 million and a 19% drop in monthly users. In the event Coinbase goes bankrupt, it says its users would be considered to be “general unsecured creditors” and might lose all the cryptocurrency in their accounts if it is stored in a wallet controlled by the exchange company. Coinbase holds $256 billion in both fiat currencies and cryptocurrencies on behalf of its customers. Coinbase stock prices hit $429 per share on the day of its initial public offering just 13 months ago — it is now $53 per share. Cryptocurrencies have recently lost value under the threat of increased regulations.

Hidden away in Coinbase Global’s disappointing first-quarter earnings report—in which the U.S.’s largest cryptocurrency exchange reported a quarterly loss of $430 million and a 19% drop in monthly users—is an update on the risks of using Coinbase’s service that may come as a surprise to its millions of users.

In the event the crypto exchange goes bankrupt, Coinbase says, its users might lose all the cryptocurrency stored in their accounts too.

Coinbase said in its earnings report Tuesday that it holds $256 billion in both fiat currencies and cryptocurrencies on behalf of its customers. Yet the exchange noted that in the event it ever declared bankruptcy, “the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings.” Coinbase users would become “general unsecured creditors,” meaning they have no right to claim any specific property from the exchange in proceedings. Their funds would become inaccessible.

That shouldn’t happen.

An individual’s ownership of cryptocurrency is supposed to be immutable and absolute; that’s one of the key selling points touted by blockchain evangelists everywhere. But when a user creates a Coinbase account, they often end up storing their cryptocurrency in a wallet controlled by Coinbase, which means the individual is giving away at least part of their control over their own funds.

Access to a crypto wallet is governed by a private key, which is a long string of characters that effectively acts as a password. Without the key, the cryptocurrency in the wallet can’t be accessed. On Coinbase, the exchange holds the private key and lets users access the funds within the wallet using a more conventional password. The setup makes it easier for users to enter their accounts, by remembering an easier password.

Yet it means that when push comes to shove, Coinbase ultimately governs whether a user gets access to those assets.

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Entrepreneur:   https://entrepreneur-360.com/how-does-coinbase-make-money-15269

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Agoristocrat
Agoristocrat
3 days ago

All the doom and gloom regarding crypto just proves how vital a tool it is. Central banks fear it. That’s really all you ever needed to know.

Ragnar D.
Ragnar D.
3 days ago

If you buy any Bitcoin on an exchange, take it off the exchange and put it into your own “cold storage” wallet which is an electronic wallet not connected to the internet. If you don’t hold the Bitcoin in your own wallet, then you don’t really own it. It’s kind of like your grandparents storing a bunch of cash in a coffee can buried in the backyard. They knew not to trust the banks.