Is Coinbase insured? | Bitcointalksearch.org

YOSHIE

legendary

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Quote from: legiteum on September 27, 2024, 12:48:45 PM

Coinbase offers this vague promise on their website that they are "partially insured", but does anybody know what that actually means? If they are hacked and the addresses get destroyed or stolen (we'd never know which), then... where would that leave Coinbase depositors?

Although the Coinbase exchange offers insurance, elsewhere I saw, that there is no guarantee for users about their assets, in case of hacking or theft.
This is stated as follows.

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Your fiat wallet is not a deposit, transaction, cash management, or investment account, which means that any cash balance you hold on Coinbase is not insured, protected, or covered by any collateral, including (but not limited to) FCS.

And elsewhere also mentions the same thing.

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Coinbase is not a depository institution, and your USDC balance is not a deposit account. Your USDC balance is not insured by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC).

From some data that I read about security or insurance made by Coinbase, the conclusion:

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It’s important to note that while Coinbase and other cryptocurrency platforms implement security measures, by the nature of a cryptocurrency exchange, they are all centralised entities. Therefore, the risk of a hack or cybercrime exists.

So whatever system is implemented by the exchange, risks still exist, so consider the risks that might occur to our assets on any exchange.

BlackHatCoiner

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Quote from: Abiky on October 02, 2024, 07:55:58 PM

Either way, you're still trusting a custodian with your crypto. The risk of loss is still there.

Yes, but it's treated as with every other property, if it's ETF. If you invest a million dollars in gold using a third party, even if the gold is stolen, you get your money back in fiat. Currently, if you have 100 BTC in Coinbase, and it gets hacked, you'll not get even 10% of it.

But, I absolutely agree with you. You should self-custody your Bitcoin. If you want to throw a few million dollars in there, at least take some hours to learn how to secure it.

Abiky

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Quote from: BlackHatCoiner on October 02, 2024, 12:08:53 PM

Investors who merely want the fiat gains can just buy the ETF and be safe from hacks, as when investing in any other asset on paper, but if people want to buy actual bitcoin, regulations won't ever protect the consumer, because that's just the nature of Bitcoin; it is easy to compromise and transactions cannot be reversed.

Either way, you're still trusting a custodian with your crypto. The risk of loss is still there. That's why self-custody is a must these days. Especially if you have large amounts of money invested into crypto. But not everyone is willing to do this. It's much easier to trust a company with your investment, than doing everything (managing and securing crypto funds) yourself.

I'd say insurance is a must to help bring confidence among skeptical investors (usually the wealthy like Warren Buffet) into this nascent industry. With tightening regulations, anything's possible. I'd expect Coinbase to last for a long time. After all, it's the custodian of choice for spot ETFs. Cheesy

legiteum

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Quote from: BlackHatCoiner on October 02, 2024, 02:43:07 PM

Quote from: legiteum on October 02, 2024, 02:04:38 PM

When you buy any stock through a normal major broker in the US, you are covered by SIPC, which covers up to $500k. However, that is covering your stock certificate, not the thing backing it. In other words, if you invest in some stock and it goes bankrupt, then you aren't covered. It's only covered if the broker somehow loses your actual position.

Yes, we're referring to the same idea. I'm not sure a billionaire would use a broker, since they could buy stocks directly to avoid the risk of broker failure. However, if they wanted to invest in Bitcoin, it might be more practical for them to use an ETF instead of managing their own private keys.

That said, a very wealthy individual likely owns a significant amount of real estate. If they chose to self-custody their Bitcoin, they could set up a secure multi-sig, ensuring protection without relying on the state.

I suspect it's both--and maybe even within the same billionaire sometimes (i.e. they diversify between methods).

One thing no rich person wants is to be killed or extorted (or the same for loved ones) based on their personal guarding of keys. People like that are already targets for more petty criminals after a million or two in ransom, so the last thing they would want is to gather the sort of expert criminal gangs you would if the prize was hundreds of millions. And also, people like this have a thousand things to think about on any given day, so the last thing they feel like dealing with would be physically securing their keys.

I suspect somebody like Musk would have a few million in keys on his person, but that's probably it.

BlackHatCoiner

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Farewell, Leo

Quote from: legiteum on October 02, 2024, 02:04:38 PM

When you buy any stock through a normal major broker in the US, you are covered by SIPC, which covers up to $500k. However, that is covering your stock certificate, not the thing backing it. In other words, if you invest in some stock and it goes bankrupt, then you aren't covered. It's only covered if the broker somehow loses your actual position.

Yes, we're referring to the same idea. I'm not sure a billionaire would use a broker, since they could buy stocks directly to avoid the risk of broker failure. However, if they wanted to invest in Bitcoin, it might be more practical for them to use an ETF instead of managing their own private keys.

That said, a very wealthy man likely owns lots of real estate. If they chose to self-custody their Bitcoin, they could set up a secure multi-sig, and ensure protection without relying on the state. (Or the insurance from a company.)

legiteum

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Quote from: BlackHatCoiner on October 02, 2024, 12:08:53 PM

Quote from: legiteum on September 30, 2024, 10:24:14 AM

Anybody with any significant amount of wealth is a target. The world we live in is not safe. That's just reality.

Perhaps the ETF is the way to go for those with significant amount of wealth, since I think this is insured with fiat currency, but in general, regular people who just save up in bitcoin should absolutely not risk all their life savings in a centralized exchange.

When you buy any stock through a normal major broker in the US, you are covered by SIPC, which covers up to $500k. However, that is covering your stock certificate, not the thing backing it. In other words, if you invest in some stock and it goes bankrupt, then you aren't covered. It's only covered if the broker somehow loses your actual position.

In the case of the Bitcoin ETF, if the ETF issuer lost their Bitcoin, then you'd be out of luck: the price of the ETF would be marked to zero and your position would be worthless.

So yes, buying BTC with the ETF incurs the same technical risks as (say) buying your Bitcoin on Coinbase: in both cases you are trusting the company to make sure they carefully guard their keys.

BlackHatCoiner

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Farewell, Leo

Quote from: legiteum on September 30, 2024, 10:24:14 AM

Anybody with any significant amount of wealth is a target. The world we live in is not safe. That's just reality.

Perhaps the ETF is the way to go for those with significant amount of wealth, since I think this is insured with fiat currency, but in general, regular people who just save up in bitcoin should absolutely not risk all their life savings in a centralized exchange.

Quote from: Abiky on October 02, 2024, 06:54:27 AM

It'll be up to "crypto lobbyists" to do their thing for the good of the industry. Regulations are constantly changing, so fingers crossed investors will have better protections in the long run.

Investors who merely want the fiat gains can just buy the ETF and be safe from hacks, as when investing in any other asset on paper, but if people want to buy actual bitcoin, regulations won't ever protect the consumer, because that's just the nature of Bitcoin; it is easy to compromise and transactions cannot be reversed.

legiteum

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Quote from: Rikafip on October 02, 2024, 10:24:18 AM

Quote from: Abiky on October 02, 2024, 06:54:27 AM

If crypto exchanges had a similar coverage, things would've been better. It'll be up to "crypto lobbyists" to do their thing for the good of the industry. Regulations are constantly changing, so fingers crossed investors will have better protections in the long run.

As far as I know, in order for crypto exchanges to get a license to operate in Japan, they have to able to secure user's funds so in case of the hack or something similar, users are safe. Thanks to Mt Gox, Japan learn their lesson and sooner or later that will come to other markets as well.

Many won't be happy with stricter regulations, but at the moment, centralized exchanges bring worst of both worlds.

This kind of insurance would definitely not be free though. Because it's so new, and so risky (compared to say storing USD which has been done for over 200 years), we would be talking about a much more complicated kind of insurance, so the regulations would be much more complicated as well.

In the US, we have FDIC insurance, but that comes with a lot of strings attached. Being an FDIC-insurance bank is very expensive and cumbersome.

You are probably right about government lobbying: the way of modern capitalism is, "privatize the profits and socialize the losses"

. In other words, maybe Coinbase will try to get the US to insure them in case something goes wrong, and they will try to pay as little as possible for that insurance using their lobbyists.

Rikafip

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Quote from: Abiky on October 02, 2024, 06:54:27 AM

If crypto exchanges had a similar coverage, things would've been better. It'll be up to "crypto lobbyists" to do their thing for the good of the industry. Regulations are constantly changing, so fingers crossed investors will have better protections in the long run.

As far as I know, in order for crypto exchanges to get a license to operate in Japan, they have to able to secure user's funds so in case of the hack or something similar, users are safe. Thanks to Mt Gox, Japan learn their lesson and sooner or later that will come to other markets as well.

Many won't be happy with stricter regulations, but at the moment, centralized exchanges bring worst of both worlds.

Abiky

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Quote from: Minor Miner on October 01, 2024, 05:53:07 AM

Having more regulations and management from the government will help us minimize the risks when using CEX, but we should not be complacent that the government will always be on our side if an accident happens. Like banks, many customers are not protected by the government when banks lose their customers' money.

When the government intervenes, they probably won't run away with our money but it's horrible when they hold our assets for 10 years like MT.gox did. Mt.gox has compensated the victims after more than 10 years but I wonder how many people can wait and receive that money, and how they have lived for the past 10 years. So the best way is never to give our assets to any third party, it is best that we protect our assets ourselves.

Do you mean governments will bail out exchanges just like they've bailed out banks in the past? I doubt it. But with crypto entering its way into politics (especially in the US), things could change in the future. It's unfortunate to see how creditors are paid back only a portion of what they've had in the first place. Not like banks which have greater insurance coverage. Bank deposits in the US are insured by the FDIC up to $250k.

If crypto exchanges had a similar coverage, things would've been better. It'll be up to "crypto lobbyists" to do their thing for the good of the industry. Regulations are constantly changing, so fingers crossed investors will have better protections in the long run.

sunsilk

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Quote from: Abiky on October 01, 2024, 02:36:29 AM

Fortunately for us, crypto regulations are getting stricter. So exchanges will think twice before "running away with the money". Both Mt Gox. and FTX customers are being compensated for their loss (reimbursement). Perhaps, Coinbase will do the same in case something bad happens in the long run?

And before that happens, as a user do ourselves a favor for any counter measure and the best thing to do is to avoid anything at all.

Stop depositing huge amounts on them. There could be 'fund safu' just as Binance and coinbase but we can learn from FTX and Mt.gox that it takes time for them to refund all of the affected users.

Quote from: Minor Miner on October 01, 2024, 05:53:07 AM

Having more regulations and management from the government will help us minimize the risks when using CEX, but we should not be complacent that the government will always be on our side if an accident happens. Like banks, many customers are not protected by the government when banks lose their customers' money.

That is true, they minimize the risk but nothing is still guaranteed even if the government is there.

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Quote from: Orpichukwu on September 27, 2024, 01:29:27 PM

You don't need to wait for what before you take action; all that's needed is safety. Never hold your coins on a centralised exchange or a custodial storage. Be your own security boss, and that will save you from the stress of thinking about what might happen later.

Just as Coinbase advised their users to use whatever security means necessary to protect their credentials from being accessed by thiefs since they won't be held responsible for any loss incurred by such action customers, as you need to be responsible for your own security; in other words, they should not hold anyone responsible other than themselves.

I agree with what you said, in the crypto world do not ask for responsibility to others for the losses we receive. In general, centralized exchanges will not be responsible for something that happens to their consumers who lose Bitcoin or Altcoin that is hacked. It is better for us to store the Bitcoin or Altcoin that we have in a hardware wallet so that it is safer and not easily hacked, only we supervise and are fully responsible for the security of the hardware wallet that we have.

Minor Miner

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Quote from: Abiky on October 01, 2024, 02:36:29 AM

Fortunately for us, crypto regulations are getting stricter. So exchanges will think twice before "running away with the money". Both Mt Gox. and FTX customers are being compensated for their loss (reimbursement). Perhaps, Coinbase will do the same in case something bad happens in the long run?

Having more regulations and management from the government will help us minimize the risks when using CEX, but we should not be complacent that the government will always be on our side if an accident happens. Like banks, many customers are not protected by the government when banks lose their customers' money.

When the government intervenes, they probably won't run away with our money but it's horrible when they hold our assets for 10 years like MT.gox did. Mt.gox has compensated the victims after more than 10 years but I wonder how many people can wait and receive that money, and how they have lived for the past 10 years. So the best way is never to give our assets to any third party, it is best that we protect our assets ourselves.

Japinat

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Quote from: shield132 on September 30, 2024, 03:15:24 PM

But at the same time, this protection doesn't apply to non-US citizens and for such citizens, there is a different insurance.

It’s really disappointing that this exchange only encourages deposits from U.S. citizens since they’re the only ones covered by insurance (up to $250k). For non-U.S. residents, all they get is the assurance of a strong security system--is that really it?

The insurance policy feels quite unfair since it's the same money and value. I haven’t seen any insurance policy like this, because in banking, all deposits are insured up to a certain amount, regardless of the depositor's nationality. It almost makes Coinbase's policy seem discriminatory.

Abiky

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Quote from: legiteum on September 27, 2024, 12:48:45 PM

(Before I start this topic, I just want to say that I don't want to pick on Coinbase here specifically, but they are the biggest with over 10% of all Bitcoin being held for customers, so they are a good example--but assume here that this question could apply to any digital asset custodian).

Today, Coinbase is holding over $100 billion in Bitcoin.

While I am sure they go to great lengths to secure this money (!), we'd have to concede there is a non-zero chance they could lose some or all of this Bitcoin to theft or simply losing it.

And then what?

Coinbase offers this vague promise on their website that they are "partially insured", but does anybody know what that actually means? If they are hacked and the addresses get destroyed or stolen (we'd never know which), then... where would that leave Coinbase depositors?

There's no guarantee users of the platform will get their money back in case of hacks, theft, or bankruptcy. Coinbase is NOT FDIC insured (unlike banks). I guess people will proceed with a class action lawsuit if something unexpected happens in the future. If you want to play it safe, self-custody of your crypto would be the way to go. I'd quickly buy BTC or any other cryptocurrency from Coinbase, and store it in a wallet whose private keys/seed I control. Most people want convenience, so they'll prefer to leave their coins in the hands of a custodian (or middleman).

Fortunately for us, crypto regulations are getting stricter. So exchanges will think twice before "running away with the money". Both Mt Gox. and FTX customers are being compensated for their loss (reimbursement). Perhaps, Coinbase will do the same in case something bad happens in the long run?

shield132

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Quote from: philipma1957 on September 30, 2024, 11:44:48 AM

Coinbase is FDIC for 250,000 that is exactly the same as a bank for a US citizen. Same program.

So if you read what I said you would know that coinbase is great for setting a buy the Dip with cash since the cash is insured.

Ie
I have 48.1k price point for 2000 usd
I have 42.1k price point for 2000 usd

as long as we do not ever drop to those buys my cash is as safe as a bank as I am USA based.

BTW if you have cash and do not do something like I did for some of your cash it is plain dumb.

My cost for that buy the dip is I lose bank interest as coinbase does not provide interest on USD.

I am willing to do that.

I lose about 4.3% in a year as I can get 4.3% in my PayPal bank account which is also FDIC

Enlighten me if I am wrong but as I understood, Coinbase is great for US citizens because it offers FDIC insurance up to 250K USD when Coinbase's US citizens keep dollar on their website. Once they buy crypto, they are not insured other than crime insurance and in the best case an user should withdraw coins immediately from Coinbase. If an user wants to trade, then they deposit, exchange and hold USD on their account for as long as they wish because they are FDIC protected. Am I right? But at the same time, this protection doesn't apply to non-US citizens and for such citizens, there is a different insurance.

legiteum

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Quote from: philipma1957 on September 30, 2024, 11:44:48 AM

Coinbase is FDIC for 250,000 that is exactly the same as a bank for a US citizen. Same program.

That is only for USD that you store on the platform, not digital assets. If Coinbase lost their keys, most likely you would lose all of your crypto you have stored there and there would be no way of getting that money back.

philipma1957

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Quote from: legiteum on September 30, 2024, 02:50:14 AM

Quote from: BlackHatCoiner on September 30, 2024, 01:46:53 AM

Quote from: legiteum on September 29, 2024, 11:02:40 AM

Storing your wealth in the safest available way is certainly not irresponsible. I think it would be the opposite.

Giving your wealth to a stranger, with a history full of strangers going bankrupt and getting hacked, is certainly not the safest.

Sure. But nobody here is talking about giving your wealth to a... stranger (?).

Quote from: legiteum on September 29, 2024, 11:02:40 AM

Meanwhile, storing your own physical keys involves risks, and people lose their Bitcoin this way all of the time.

Because they do it the wrong way. They are reckless and store them on Internet connected devices, with closed-source operating system, potentially affected with malware, and do not even verify the binaries. People who secure their wallet, the right way, and have lost them due to $5 wrench attacks are outnumbered by the number of victims who lost all their savings on Mt. Gox, FTX, BlockFi, Kucoin, Bitfinex and an endless list of others.

I get that, but lots of people don't want to be bothered with all of that stuff and would rather pay somebody to do it for them. That's why people don't store their life savings in paper bills in their own home and there are these things called "bank"

.

All things being equal, something secured by highly paid experts who have millions of dollars in resources and intense processes to help them should be far more secure than what any individual could possible come up with.

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You're mistaken in the sense that you think a third party safeguards your wealth with legislation, as with houses or bank accounts, but this is different. It's easier to steal, and there is no insurance.

That was actually an implicit point of my OP here: that Coinbase could never be as safe as storing your USD in a US bank since they are not insured. No digital asset (or indeed, no thing at all) is as safe as USD in a US bank under the insurance max. But perhaps Coinbase (or some competitor, or some government) could offer such an insurance and that would be a valuable thing since it would make digital assets as safe as USD potentially.

Coinbase is FDIC for 250,000 that is exactly the same as a bank for a US citizen. Same program.

So if you read what I said you would know that coinbase is great for setting a buy the Dip with cash since the cash is insured.

Ie
I have 48.1k price point for 2000 usd
I have 42.1k price point for 2000 usd

as long as we do not ever drop to those buys my cash is as safe as a bank as I am USA based.

BTW if you have cash and do not do something like I did for some of your cash it is plain dumb.

My cost for that buy the dip is I lose bank interest as coinbase does not provide interest on USD.

I am willing to do that.

I lose about 4.3% in a year as I can get 4.3% in my PayPal bank account which is also FDIC

Topic: Is Coinbase insured? (Read 821 times)