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There is something that feels extremely fishy to me about what has happened at coinbase over the last few days. For years I've told people to just store their

by blhack 9y ago

There is something that feels extremely fishy to me about what has happened at coinbase over the last few days. For years I've told people to just store their coins on coinbase. I've been a big fan of their "vaults", and I've been saying that they are the shining beacon of legitimacy in this whole thing. I honestly don't know that I still agree with that. This whole rollout of BCH has made me honestly start questioning if I can trust coinbase anymore. I expect stuff like this from sketchy exchanges like what btc-e was, but not coinbase. That makes me really sad, since they were (still are, for now) such an incredible success story. I think there is going to be a lot of regulation coming and I'm not entirely sure that that is a good thing. It makes me pause for the same reason I wouldn't be sure that regulators telling me what webservers or programming languages I'm allowed to use would be a good thing. I really hope all of the "never keep anything on an exchange!" people aren't proven right again by coinbase of all people.

wu-ikkyu 9y ago
What advantages are there to storing BTC on Coinbase vs. your own wallet
- minimaxir 9y ago
  User experience, which is important when you're trying to appeal to non-techies, like the ones fueling the Bitcoin spike in the first place.
  - sdenton4 9y ago
    Just remember that "everything was great until the normies arrived" is equivalent to "our shit didn't scale well."
- blhack 9y ago
  A few days ago it felt so much easier to answer this question, haha. Coinbase puts a lot of work and effort into their security models. Storing coins yourself means that you now have to: 1) Physically secure your private key 2) Secure the machine that you use to interact with that private key 3) Ensure that that private key was generated in a secure way 4) Ensure that the ways that you interact with that private key don't cause any problems. etc. Storing your own keys is a bet that you are better at security than coinbase's team. That's not a bet I necessarily want to make.
  - jsmthrowaway 9y ago
    Or, just buy a Ledger Nano S, which handles all of that for you. For serious crypto one uses hardware keys, and cryptocurrency is no different.
    - mr_spothawk 9y ago
      s/Ledger Nano S/Trezor
      - jsmthrowaway 9y ago
        Both work just fine, when compared to DIY. Playing favorites is not how to advocate to people not in the know; I happen to have a Ledger, so it's what I typed.
  - amenghra 9y ago
    If you have small amounts of crypto currency and want a secure machine and don’t want to buy a hardware wallet: You can take your old phone or tablet, apply any available upgrades, factory reset it, use it only for crypto currency stuff. Our mobile operating sysmtems are pretty secure (in the grand scheme of things)
    - TheDong 9y ago
      Until you lose it or drop it in a lake or it doesn't boot one day or the flash memory corrupts. All these people recommending phones or hardware wallets as being easy, and not mentioning the complexity and opsec of offsite backup....
      - jsmthrowaway 9y ago
        Hardware wallets come with a passphrase mnemonic that completely restores them. Write it down, put it in a safe deposit box, you're done. You can then take an acetylene torch to your hardware wallet, buy a new one, restore from the passphrase, and have everything back. Hardware wallets are far easier to back up offsite than key management on a computer, though a SmartCard-HSM comes close. (Hardware wallets are the same principle as an HSM.) Since you're probably wondering, the passphrase mnemonic on my Ledger is a group of 24 words that represent a translation of the primary secret key. All accounts on my Ledger are derived from it. I've tested wiping and restoring, and the passphrase now lives in my bank deposit box. By the nature of cryptocurrency, if you had all the public keys from your hardware wallet you could use it as a bank by dropping the wallet itself in a safe deposit box. You don't need it in your physical possession to receive, only send. I'm considering buying a second for exactly this purpose, though at that point, a paper wallet would be just as functional.
- EngineerBetter 9y ago
  Great question. I bought into BTC in 2011, not using an exchange. I'm wondering how much of a pain it'll be when I eventually want to sell them.
- inciampati 9y ago
  Coinbase brings a bank-level cryptocurrency consumer experience to the masses and provides a safe interface to an environment where you otherwise can easily shoot yourself in the foot. All you have to do is verify your identity and you can recover "lost" currency. The alternative is losing access if you misplace your paper wallet. Except this isn't even remotely true! This is the sloppiest and most scammy financial institution that I've ever interacted with. They claim to abide by KYC guidelines then happily ignore your identity when you come to recover the account they gleefully have locked you out of. Every user, on a long enough timeline, will experience some kind of lockout. Then you will have to work ceaselessly to try to recover access. Actually that crumpled paper wallet that's been through the wash and was forgotten in a random drawer in your old house will be much safer to use than this company's support. And this screed doesn't even touch on their incredibly shady exchange practices. They have how many VCs backing them and couldn't manage to make an exchange that scaled to meet demand at a crucial juncture? Either their funders haven't done due diligence or the technical faults were all part of their plan.
  - retube 9y ago
    yeah but it's not like running a trading platform is trivial. even the big conventional established exchanges occasionally have outages
frgtpsswrdlame 9y ago
You think it's fishy and you have no way to know if something is going on behind the curtain at coinbase but you don't want regulation? Regulation is what lets you peek behind the curtain and know that Coinbase is or isn't doing something fishy.
- conanbatt 9y ago
  Thats not what bank regulations have achieved.
  - davidw 9y ago
    Compare and contrast to hypothetical banks with no regulations at all? Maybe they're not perfect right now, but it could be a lot worse, too.
    - ethbro 9y ago
      I'd certainly agree that at least in the US, regulation has greatly increased banking transparency. There are still edge cases, but capital ratio requirements and accounting standards, compared to none? Huge difference.
  - quickben 9y ago
    They have achieved trust is system. If my bank stops existing right now, I still have any money. If <exchange> gets hacked, tough luck.
    - cmurf 9y ago
      It depends on the holdings, not everything you can have in a bank account is FDIC insured. Update: By "everything" I mean not all kinds of financial instruments are insured by the FDIC. They do not cover mutual funds, annuities, bonds, etc. They cover pretty much just cash and cash equivalents.
      - ceejayoz 9y ago
SilasX 9y ago
Coinbase had four outages in June that corresponded to unusually high volume. That didn't scare you away? That was when I was initially setting up accounts, and it was enough to scare me away. I use Gemini. They've had unplanned outages too, but they're much rarer -- only one that I recall over the same timespan (against 10+ for Coinbase).
- dahdum 9y ago
  Every exchange has gone down, Kraken is far worse than Coinbase. Poloniex used to go down constantly, but they are holding up remarkably well lately. Gemini's spread used to be pretty bad and they didn't do much volume outside their daily auction. They really aren't focused on retail investors so they don't see the same scaling issues as Coinbase.
  - burger_moon 9y ago
    Even now Gemini's volume is pretty low. I just checked and BTC is 36k, last time I saw GDAX today (won't load for me now) was around 88k I think.
    - SilasX 9y ago
      So a 2x volume justifies 10x outages?
fullshark 9y ago
What fishy thing happened re: the bitcoin cash rollout? I know there is speculation of insider trading from individuals at the company but was there anything the company itself did that’s sketchy? They said BCH was coming after the fork and then they delivered it as far as I can tell.
- ceejayoz 9y ago
  They rolled it out without warning, the price spiked massively, they froze everything, and then revised the pricing charts to hide the $8500 price it peaked at. Their charts now falsely show the high price was only around $4000. All this has caused a lot of speculation about insider trading.
  - deleted 9y ago
    [deleted]
brndnmtthws 9y ago
Storing your coins on coinbase (or any other exchange) is pretty much always a bad idea. If you don't own the private keys, you don't own the coins. Coinbase is not immune from failure, government intervention, or fraud. The insurance no doubt has limits, and if you've ever filed an insurance claim you'd know that if something goes wrong you'll probably be up a creek without a paddle. Insurance companies almost always win, that's how they make money.
- 659087 9y ago
  > Storing your coins on coinbase (or any other exchange) is pretty much always a bad idea. If you don't own the private keys, you don't own the coins. The problem here for most of the people currently FOMOing in, is that there are no "good ideas" as far as coin storage goes. Storing on shady exchanges is risky, but due to lack of knowledge / technical skill, many/most would also be at risk of losing their coins one way or another if they held the keys themselves. What this tells us, is that this technology isn't ready for mainstream use.
  - brndnmtthws 9y ago
    The technology is there, it's simply a matter of disseminating knowledge. It's not as if people are born with innate knowledge of personal finance skills. These are skills which must be learnt like anything else.
- akhatri_aus 9y ago
  > Insurance companies almost always win, that's how they make money Not exactly. They make money off pricing their insurance higher than the chances of it happening.
  - brndnmtthws 9y ago
    Yes exactly. They make money by a) charging enough in fees to cover the risk and b) limiting the amount they have to pay out. Just look at how health insurance works: without government regulation, most of the day to day healthcare you actually need isn't covered under the terms of the insurance. For example, contraceptives.
AndrewUnmuted 9y ago
But why were you ever telling people to store anything on coinbase? That is downright terrible advice to be giving anyone. One of Bitcoin's selling points is that it's decentralized. By keeping coins in a cloud operated wallet that you don't fully control, you're willfully giving up control over your own wealth, and needlessly putting your coins at risk.
- matt4077 9y ago
  You're comparing coinbase to an idealised version of a private wallet–which doesn't exist. In reality, a lot of money was probably lost to hard drive failures and other human errors. We just never read about it in the news, because each individual case is too small to warrant news coverage.
  - AndrewUnmuted 9y ago
    There are several reputable apps for both iOS and Android that provide secure, easy to use wallets, which do not centralize the storage of a user's coins whatsoever. I've told friends for years about Bread[0], a wallet app for both smartphone platforms that I've used before with great success. [0] https://breadapp.com/ https://breadapp.com/
    - ceejayoz 9y ago
      That's just changing the threat from "compromised exchange" to "compromised phone". I'd trust Coinbase to get it right before I'd trust the average Android phone not to be hacked. Only 0.5% of Android devices are running the latest OS. https://developer.android.com/about/dashboards/index.html# https://developer.android.com/about/dashboards/index.html#
      - edejong 9y ago
        It’s all about opportunity, risk and reward. Hack a phone and you win some bitcoins. Quickly patched. Hack an exchange and you’re rich beyond belief.
thisisit 9y ago
I posted my comment before I read this. So repeating from here: https://news.ycombinator.com/item?id=15988939 https://news.ycombinator.com/item?id=15988939 It seems Coinbase's go to strategy every time markets are volatile. In case people are wondering why is this a recurring problem - this simply perils of Market Making in a volatile market. As a market maker for customer orders Coinbase needs to fulfill both sides. So to make money they buy from customers at low price and sell back at a high price. So they are collecting spread between bid and ask to make money. But what happens if the market moves rapidly in one direction? They end up selling low and buying high. So, they need to reset the market making algorithm. Or shutdown the site for a "fix", long enough that the volatility comes back in their range. And what was wrong with the BCH rollout?
- smaili 9y ago
  So this essentially implies Coinbase needs to manipulate the market in order to ensure their profitability?
  - thisisit 9y ago
    How does it implies any kind of manipulation? Check out these videos for what a market maker actually is: https://www.youtube.com/watch?v=QqK6H1JPjv0 https://www.youtube.com/watch?v=QqK6H1JPjv0 https://www.youtube.com/watch?v=Guqs3eOgm6o https://www.youtube.com/watch?v=Guqs3eOgm6o
    - smaili 9y ago
      But what happens if the market moves rapidly in one direction? They end up selling low and buying high. So, they need to reset the market making algorithm. Or shutdown the exchange for a "fix", long enough that the volatility comes back in their range. Disabling a feature during live trading in order to ensure your company doesn't lose out on profitability, which in effect impacts market trend and activity implies manipulation. As a neutral platform whose sole purpose is to provide a place for people to buy and sell, you're essentially influencing the market by disabling/enabling buy/sells, especially at heightened times of flux.
deleted 9y ago
[deleted]
zeep 9y ago
Since the beginning, Coinbase has been kind of fishy... Every time Bitcoin would drop sharply in a short period of time, it would shut down all transactions (not sure if it happened today, I haven't been following closely)... In 2012 or 2013, they canceled an order I placed because the price of Bitcoins was too low. I use GDAX to buy coins but I transfer them out right away. Now they stopped BCH/BTC trading and it appears that they also freeze the prices to control drops (https://www.reddit.com/r/CryptoCurrency/comments/7lch2d/coinbase_is_currently_pegging_the_price_of_btc/ https://www.reddit.com/r/CryptoCurrency/comments/7lch2d/coin...).

by blhack 9y ago

wu-ikkyu 9y ago

What advantages are there to storing BTC on Coinbase vs. your own wallet

minimaxir 9y ago
User experience, which is important when you're trying to appeal to non-techies, like the ones fueling the Bitcoin spike in the first place.
- sdenton4 9y ago
  Just remember that "everything was great until the normies arrived" is equivalent to "our shit didn't scale well."
blhack 9y ago
A few days ago it felt so much easier to answer this question, haha. Coinbase puts a lot of work and effort into their security models. Storing coins yourself means that you now have to: 1) Physically secure your private key 2) Secure the machine that you use to interact with that private key 3) Ensure that that private key was generated in a secure way 4) Ensure that the ways that you interact with that private key don't cause any problems. etc. Storing your own keys is a bet that you are better at security than coinbase's team. That's not a bet I necessarily want to make.
- jsmthrowaway 9y ago
  Or, just buy a Ledger Nano S, which handles all of that for you. For serious crypto one uses hardware keys, and cryptocurrency is no different.
  - mr_spothawk 9y ago
    s/Ledger Nano S/Trezor
    - jsmthrowaway 9y ago
      Both work just fine, when compared to DIY. Playing favorites is not how to advocate to people not in the know; I happen to have a Ledger, so it's what I typed.
- amenghra 9y ago
  If you have small amounts of crypto currency and want a secure machine and don’t want to buy a hardware wallet: You can take your old phone or tablet, apply any available upgrades, factory reset it, use it only for crypto currency stuff. Our mobile operating sysmtems are pretty secure (in the grand scheme of things)
  - TheDong 9y ago
    Until you lose it or drop it in a lake or it doesn't boot one day or the flash memory corrupts. All these people recommending phones or hardware wallets as being easy, and not mentioning the complexity and opsec of offsite backup....
    - jsmthrowaway 9y ago
      Hardware wallets come with a passphrase mnemonic that completely restores them. Write it down, put it in a safe deposit box, you're done. You can then take an acetylene torch to your hardware wallet, buy a new one, restore from the passphrase, and have everything back. Hardware wallets are far easier to back up offsite than key management on a computer, though a SmartCard-HSM comes close. (Hardware wallets are the same principle as an HSM.) Since you're probably wondering, the passphrase mnemonic on my Ledger is a group of 24 words that represent a translation of the primary secret key. All accounts on my Ledger are derived from it. I've tested wiping and restoring, and the passphrase now lives in my bank deposit box. By the nature of cryptocurrency, if you had all the public keys from your hardware wallet you could use it as a bank by dropping the wallet itself in a safe deposit box. You don't need it in your physical possession to receive, only send. I'm considering buying a second for exactly this purpose, though at that point, a paper wallet would be just as functional.
EngineerBetter 9y ago
Great question. I bought into BTC in 2011, not using an exchange. I'm wondering how much of a pain it'll be when I eventually want to sell them.
inciampati 9y ago
Coinbase brings a bank-level cryptocurrency consumer experience to the masses and provides a safe interface to an environment where you otherwise can easily shoot yourself in the foot. All you have to do is verify your identity and you can recover "lost" currency. The alternative is losing access if you misplace your paper wallet. Except this isn't even remotely true! This is the sloppiest and most scammy financial institution that I've ever interacted with. They claim to abide by KYC guidelines then happily ignore your identity when you come to recover the account they gleefully have locked you out of. Every user, on a long enough timeline, will experience some kind of lockout. Then you will have to work ceaselessly to try to recover access. Actually that crumpled paper wallet that's been through the wash and was forgotten in a random drawer in your old house will be much safer to use than this company's support. And this screed doesn't even touch on their incredibly shady exchange practices. They have how many VCs backing them and couldn't manage to make an exchange that scaled to meet demand at a crucial juncture? Either their funders haven't done due diligence or the technical faults were all part of their plan.
- retube 9y ago
  yeah but it's not like running a trading platform is trivial. even the big conventional established exchanges occasionally have outages

frgtpsswrdlame 9y ago

You think it's fishy and you have no way to know if something is going on behind the curtain at coinbase but you don't want regulation? Regulation is what lets you peek behind the curtain and know that Coinbase is or isn't doing something fishy.

conanbatt 9y ago
Thats not what bank regulations have achieved.
- davidw 9y ago
  Compare and contrast to hypothetical banks with no regulations at all? Maybe they're not perfect right now, but it could be a lot worse, too.
  - ethbro 9y ago
    I'd certainly agree that at least in the US, regulation has greatly increased banking transparency. There are still edge cases, but capital ratio requirements and accounting standards, compared to none? Huge difference.
- quickben 9y ago
  They have achieved trust is system. If my bank stops existing right now, I still have any money. If <exchange> gets hacked, tough luck.
  - cmurf 9y ago
    It depends on the holdings, not everything you can have in a bank account is FDIC insured. Update: By "everything" I mean not all kinds of financial instruments are insured by the FDIC. They do not cover mutual funds, annuities, bonds, etc. They cover pretty much just cash and cash equivalents.
    - ceejayoz 9y ago

SilasX 9y ago

Coinbase had four outages in June that corresponded to unusually high volume. That didn't scare you away? That was when I was initially setting up accounts, and it was enough to scare me away. I use Gemini. They've had unplanned outages too, but they're much rarer -- only one that I recall over the same timespan (against 10+ for Coinbase).

dahdum 9y ago
Every exchange has gone down, Kraken is far worse than Coinbase. Poloniex used to go down constantly, but they are holding up remarkably well lately. Gemini's spread used to be pretty bad and they didn't do much volume outside their daily auction. They really aren't focused on retail investors so they don't see the same scaling issues as Coinbase.
- burger_moon 9y ago
  Even now Gemini's volume is pretty low. I just checked and BTC is 36k, last time I saw GDAX today (won't load for me now) was around 88k I think.
  - SilasX 9y ago
    So a 2x volume justifies 10x outages?

fullshark 9y ago

What fishy thing happened re: the bitcoin cash rollout? I know there is speculation of insider trading from individuals at the company but was there anything the company itself did that’s sketchy? They said BCH was coming after the fork and then they delivered it as far as I can tell.

ceejayoz 9y ago
They rolled it out without warning, the price spiked massively, they froze everything, and then revised the pricing charts to hide the $8500 price it peaked at. Their charts now falsely show the high price was only around $4000. All this has caused a lot of speculation about insider trading.
- deleted 9y ago
  [deleted]

brndnmtthws 9y ago

Storing your coins on coinbase (or any other exchange) is pretty much always a bad idea. If you don't own the private keys, you don't own the coins. Coinbase is not immune from failure, government intervention, or fraud. The insurance no doubt has limits, and if you've ever filed an insurance claim you'd know that if something goes wrong you'll probably be up a creek without a paddle. Insurance companies almost always win, that's how they make money.

659087 9y ago
> Storing your coins on coinbase (or any other exchange) is pretty much always a bad idea. If you don't own the private keys, you don't own the coins. The problem here for most of the people currently FOMOing in, is that there are no "good ideas" as far as coin storage goes. Storing on shady exchanges is risky, but due to lack of knowledge / technical skill, many/most would also be at risk of losing their coins one way or another if they held the keys themselves. What this tells us, is that this technology isn't ready for mainstream use.
- brndnmtthws 9y ago
  The technology is there, it's simply a matter of disseminating knowledge. It's not as if people are born with innate knowledge of personal finance skills. These are skills which must be learnt like anything else.
akhatri_aus 9y ago
> Insurance companies almost always win, that's how they make money Not exactly. They make money off pricing their insurance higher than the chances of it happening.
- brndnmtthws 9y ago
  Yes exactly. They make money by a) charging enough in fees to cover the risk and b) limiting the amount they have to pay out. Just look at how health insurance works: without government regulation, most of the day to day healthcare you actually need isn't covered under the terms of the insurance. For example, contraceptives.

AndrewUnmuted 9y ago

But why were you ever telling people to store anything on coinbase? That is downright terrible advice to be giving anyone. One of Bitcoin's selling points is that it's decentralized. By keeping coins in a cloud operated wallet that you don't fully control, you're willfully giving up control over your own wealth, and needlessly putting your coins at risk.

matt4077 9y ago
You're comparing coinbase to an idealised version of a private wallet–which doesn't exist. In reality, a lot of money was probably lost to hard drive failures and other human errors. We just never read about it in the news, because each individual case is too small to warrant news coverage.
- AndrewUnmuted 9y ago
  There are several reputable apps for both iOS and Android that provide secure, easy to use wallets, which do not centralize the storage of a user's coins whatsoever. I've told friends for years about Bread[0], a wallet app for both smartphone platforms that I've used before with great success. [0] https://breadapp.com/ https://breadapp.com/
  - ceejayoz 9y ago
    That's just changing the threat from "compromised exchange" to "compromised phone". I'd trust Coinbase to get it right before I'd trust the average Android phone not to be hacked. Only 0.5% of Android devices are running the latest OS. https://developer.android.com/about/dashboards/index.html# https://developer.android.com/about/dashboards/index.html#
    - edejong 9y ago
      It’s all about opportunity, risk and reward. Hack a phone and you win some bitcoins. Quickly patched. Hack an exchange and you’re rich beyond belief.

thisisit 9y ago

I posted my comment before I read this. So repeating from here: https://news.ycombinator.com/item?id=15988939 https://news.ycombinator.com/item?id=15988939 It seems Coinbase's go to strategy every time markets are volatile. In case people are wondering why is this a recurring problem - this simply perils of Market Making in a volatile market. As a market maker for customer orders Coinbase needs to fulfill both sides. So to make money they buy from customers at low price and sell back at a high price. So they are collecting spread between bid and ask to make money. But what happens if the market moves rapidly in one direction? They end up selling low and buying high. So, they need to reset the market making algorithm. Or shutdown the site for a "fix", long enough that the volatility comes back in their range. And what was wrong with the BCH rollout?

smaili 9y ago
So this essentially implies Coinbase needs to manipulate the market in order to ensure their profitability?
- thisisit 9y ago
  How does it implies any kind of manipulation? Check out these videos for what a market maker actually is: https://www.youtube.com/watch?v=QqK6H1JPjv0 https://www.youtube.com/watch?v=QqK6H1JPjv0 https://www.youtube.com/watch?v=Guqs3eOgm6o https://www.youtube.com/watch?v=Guqs3eOgm6o
  - smaili 9y ago
    But what happens if the market moves rapidly in one direction? They end up selling low and buying high. So, they need to reset the market making algorithm. Or shutdown the exchange for a "fix", long enough that the volatility comes back in their range. Disabling a feature during live trading in order to ensure your company doesn't lose out on profitability, which in effect impacts market trend and activity implies manipulation. As a neutral platform whose sole purpose is to provide a place for people to buy and sell, you're essentially influencing the market by disabling/enabling buy/sells, especially at heightened times of flux.

deleted 9y ago

[deleted]

zeep 9y ago

Since the beginning, Coinbase has been kind of fishy... Every time Bitcoin would drop sharply in a short period of time, it would shut down all transactions (not sure if it happened today, I haven't been following closely)... In 2012 or 2013, they canceled an order I placed because the price of Bitcoins was too low. I use GDAX to buy coins but I transfer them out right away. Now they stopped BCH/BTC trading and it appears that they also freeze the prices to control drops (https://www.reddit.com/r/CryptoCurrency/comments/7lch2d/coinbase_is_currently_pegging_the_price_of_btc/ https://www.reddit.com/r/CryptoCurrency/comments/7lch2d/coin...).