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Coinbase is insured against hacking, internal theft, and accidental loss in an amount that covers maximum value of bitcoin we hold in online storage at any give

Coinbase is insured against hacking, internal theft, and accidental loss in an amount that covers maximum value of bitcoin we hold in online storage at any given time. When marketers advertise in bad faith, you could end up with a bad product. In this case, however, you could end up losing your money. Unless you have multisig control over your coins, do not put large sums into this exchange unless you want to lose your money. 98% of customer bitcoin is stored entirely offline. This means the vast majority of users don't have multisig control over their coins, since multisig-protected coins can't be put into offline storage. Let's recap Coinbase's technical problems over the years: Here's someone who sent $35k to Coinbase and never received coins until they made a big deal about it on HN: https://news.ycombinator.com/item?id=6929705 https://news.ycombinator.com/item?id=6929705 Here's someone with the same story, but $10k instead of $35k: https://news.ycombinator.com/item?id=6933360 https://news.ycombinator.com/item?id=6933360 Here's Coinbase leaking emails and full names: https://news.ycombinator.com/item?id=7507493 https://news.ycombinator.com/item?id=7507493 Here's a Coinbase engineer saying "there are a few lingering issues" in response to transactions being delayed for days (sometimes over a week) and BTC not being able to be withdrawn: https://news.ycombinator.com/item?id=5427985 https://news.ycombinator.com/item?id=5427985 And now they're trying to pretend like your coins are completely safe. They're not. If Coinbase becomes insolvent and goes bankrupt, you won't get your coins back. It happened to Mt. Gox, it sucked for me, and if it happens to Coinbase it's going to suck for you. Don't put more than a few bucks into this, or whatever you're comfortable with losing.

jgeerts 12y ago
You are completely right but from a legal standpoint their launch is very interesting either way.
jafaku 12y ago
> This means 98% of customers don't have multisig control over their coins, since multisig-protected coins can't be put into offline storage. What makes you think you can't use multi-sig and offline storage at the same time? That's just false. You don't need an internet connection to sign a multi-sig transaction. But I agree on everything else: 98% of funds aren't insured, and to me Coinbase has always been just another Rails startup (not necessarily a bad thing, but they made tons of mistakes typical of having web developer talent only).
- sillysaurus3 12y ago
  Well, the goal of multisig is to retain control over your own coins. If someone can take your coins offline, then you no longer have control over them. Here's an explanation of multisig: https://bitcoinmagazine.com/11108/multisig-future-bitcoin/ https://bitcoinmagazine.com/11108/multisig-future-bitcoin/ Multisignature escrow works as follows. When Alice wants to send $20 to Bob in exchange for a product, Alice first picks a mutually trusted arbitrator, whom we’ll call Martin, and sends the $20 to a multisig between Alice, Martin and Bob. Bob sees that the payment was made, and confirms the order and ships the product. When Alice receives the product, Alice finalizes the transaction by creating a transaction sending the $20 from the multisig to Bob, signing it, and passing it to Bob. Bob then signs the transcation, and publishes it with the required two signatures. In this case, Bob is Coinbase and Alice is you. Alice plus Martin always retain control over the coins, so Bob alone can't take them offline. The way that a multisignature wallet works is simple. Instead of the Bitcoin address having one private key, it has three. One private key is stored semi-securely, just as in a traditional Bitcoin wallet. The second key the user is instructed to store safely (eg. in a safety deposit box), and the third key is stored on the server. Basically, the user would be the one storing it in offline storage, not Coinbase. But since Coinbase is claiming 98% of coins are stored offline, that means at least 98% of coins aren't using multisig. EDIT: Thank you to kanzure's comment below. Updated.
  - kanzure 12y ago
    > But since Coinbase is claiming 98% of coins are stored offline, that means at least 98% of users aren't using multisig. Almost... you should say instead: "that means at least 98% of coins aren't using multisig" because without having their internal account metrics it is wrong to assume to that 98% of Coinbase users deposited 98% of BTC at Coinbase...
  - jafaku 12y ago
    The goal of multi-signature is to decentralize the ownership (or control) of the coins. In the case of Coinbase's offline storage, they could very well be using multi-signature (and they probably are) so that no single employee can run with the coins. Instead, every time they need to refill their hot wallet, the three or five or whatever employees needed to sign the the transaction have to agree and provide their signature. Edit: Actually, apparently they aren't using multi-signature internally: https://news.ycombinator.com/item?id=8948337 https://news.ycombinator.com/item?id=8948337
mikeash 12y ago
The insurance situation confuses me. The linked page seems to indicate that only their online coins (i.e. 2% of the total) are insured. If I then click "Read More" I get: "Coinbase is insured against employee theft and hacking in an amount that exceeds the average value of online bitcoin it holds at any given time." I think this means that the 2% is not insured, but that the 98% in offline storage is. What's going on?
- javert 12y ago
  Just looking at what you've quoted, I don't see what is confusing. Both statements say that the 2% that is stored online is insured. Specifically, in an amount that exceeds the average value at any given time. That average bit is a bit nebulous, but it doesn't make me think they are insuring the 98% but not the 2%.
  - mikeash 12y ago
    How could they lose online bitcoins beyond what they actually hold? Is the idea that if they normally hold X, and one day they hold 2X and it gets ripped off, they can get X back from insurance? Sounds pretty worthless if that's all it is. Edit: OK, I see where my confusion lies. I kept thinking that "insured... in an amount that exceeds the average value" means that they the insurance only applies to losses that exceed the average value, but they mean that the amount of insurance coverage is greater than what they typically hold in online storage, so insurance should cover any possible losses of online coins. In that case it all makes sense, although it seems crazy that their offline coins aren't also insured. (If offline means there's little risk of loss then the insurance should be cheap, right?)
    - deleted 12y ago
      [deleted]
    - javert 12y ago
      I am just a regular guy, but I would guess it would be super expensive and borderline impossible to insure offline coins. (a) Who in the "custom" insurance business would be comfortable with that and find it to be worth their time? Why not stick with well-understood risks, like insuring throats, fingers, humongous diamonds, and stuff like that? (b) More importantly, stealing bitcoins that are insured is almost the perfect crime. There is too much of an incentive for the insuree to steal the bitcoins and claim insurance. I do think these things could be overcome by an enterprising insurance agency, but insuring a huge amount of bitcoins is still going to be extremely costly.
javert 12y ago
I don't think this is reasonable. They have their online coins insured, so if they lose them, they can reimburse you. This is a serious, professionally-run company backed by a lot of VCs we all recognize, plus banks and the NYSE. And regulated. They also have an overall good track record for a small company (all such companies have some growing pains). They have everything to gain by honesty and everything to lose by committing fraud, including prison (and dishonesty is the only reason they would become insolvent). The whole situation could not be more unlike Gox, and it is not reasonable to judge them by that standard.
- sillysaurus3 12y ago
  They have their online coins insured, so if they lose them, they can reimburse you. That's a little irrelevant, because their hot storage wallet (their online coins) should be a small subset of their total coins. The whole point of a hot storage wallet is that if you lose them, it doesn't matter. So insuring those is pointless except as a marketing stunt to confuse people, which is why saying "We're insured" is bad faith. This is a serious, professionally-run company backed by a lot of VCs we all recognize, plus banks and the NYSE. Indeed, and if Coinbase loses all the coins, none of those people will step in to replace them, because nobody is going to put up hundreds of mullions or a billion dollars just to reimburse customers. They have everything to gain by honesty and everything to lose by committing fraud, including prison (and that is the only reason they would become insolvent). I disagree that technical problems can't make them insolvent. All it would take is an unhappy accident in their cold storage procedures. But beyond tech problems, consider a thought experiment: If you're a gambling person, would you trade 20 years of your life in exchange for becoming a billionaire? Banks are nice because if someone takes money, the money can be retrieved. Not the case for bitcoin. Someone is in charge of the cold storage procedures, so that person is in control over all the coins. If they decide to take all of them, there's nothing anyone can do about it except throw them into prison. Obviously, bitcoin may be completely irrelevant by the time you're out of prison. In fact, emptying Coinbase's cold storage reserves might even cause that. But money does strange things to people, and this technology has changed the power dynamic. Some of those changes are good. But are you sure you want to trust a single person with your entire fortune? Worse, you're trusting multiple people where any single person can take your fortune. Even if they require several people to sign off, that's a very small number of people in complete control of your fate. It probably sounds like I'm anti-Coinbase. I'm not. I'm pro-consumer. As soon as Coinbase insures all of their coins or offers true protection to consumers (by default!) then I'll be their biggest fan, because they'll have become an awesome bank.
vanzard 12y ago
> They're trying to pretend like your coins are completely safe. They're not. Nothing is completely safe, not even traditional banks. FDIC insurance has many limits and restrictions (eg. it does not cover safe deposit boxes). In 2014 the national bank in Bulgaria had a catastrophic bank run who left depositors like you and me unable to access their money (to this day they still don't have their money - http://www.forbes.com/sites/francescoppola/2014/08/18/the-bulgarian-banking-disaster/ http://www.forbes.com/sites/francescoppola/2014/08/18/the-bu...). In 2013 customers of the bank of Cyprus lost between 50% and 100% of their deposits over 100 000 euros (http://www.bloomberg.com/news/2013-07-30/cyprus-sets-levy-on-bank-of-cyprus-uninsured-depositors-at-47-5-.html http://www.bloomberg.com/news/2013-07-30/cyprus-sets-levy-on...). And so on. It is a good reminder that a crisis causing you to lose money can happen at ANY financial institution. Every year there are millions of people losing money who thought was "safe". That's why it is always a good advice to diversify, to not keep all your eggs in one basket, etc. Bitcoin is no exception. With that said, it is fair to remark that Coinbase is still probably one of the safest places to keep your coins "online" for day to day usage.
- pistle 12y ago
  There's 0% safe and 100%, for everything else it's equal? FDIC is tested and backed by something beyond corporate assurances about insurance policies. Does that policy pay out upon bankruptcy? Agreed. Diversify. But, US banks are still demonstrably lower risk (with stipulations) thanks to FDIC than, currently, a bitcoin exchange.
- mikeash 12y ago
  Diversification is a great idea and I think your advice is sound, but I'd also like to point out that there are limits to it. FDIC doesn't quite belong in the same category as Bulgaria or Cyprus. When small countries have a shock like that, it's bad for the people with money in their banks. If the same thing happened in the US, it would either happen because of a massive worldwide economic crisis, or it would cause one. I'm not sure there's anywhere you can diversify and be safe with something like that.
- deleted 12y ago
  [deleted]
kyledrake 12y ago
I think having healthy reservations about trusting central services is a good thing (read: don't hold all your money in a single place), but I also don't see centralized services going away. We can talk about "decentralizing exchanges" all we want, but at the end of the day, you need direct access to the ACH/banking networks to streamline transfers between the system everybody uses today, and the only way to do that is with a centralized service. Anybody that thinks the banking system is going to let a decentralized service pull money out of people's bank accounts needs to stop grinding up their copy of Atlas Shrugged and smoking it. I have my concerns about some of their tech choices (NONE of which involve security, except the simple fact of control of private keys), and I wasn't happy with the way they handled their tech interviews (I'm not going there, everybody learned from it, it's not relevant anymore). But I also see them doing a pretty good job overall, and I see all the other exchanges screwing up really badly. This move makes sense. They need a stable exchange service, they have the capacity to build one, and there's demand. So why not? I would have done the exact same thing. This also adds a lot of context to the recent raise, of course. Another less obvious thing that adds context is that Coinbase is now a very programmable fiat bank account, which is something that could, with a little work, put a serious dent into Paypal and the rest of the banking industry, which still does not provide good APIs for their banking services. Coinbase might not be a Bitcoin wallet (the provider not being able to read the private key is my personal standard for this), but Coinbase is becoming one hell of a Bitcoin/fiat bank account. And we need those, too. Even if Bitcoin fell apart, a pivot to a highly programmable fiat bank would be a cake walk for them, and there's plenty of money to be made. Probably worth the investment at this point in the game.
- deleted 12y ago
  [deleted]
- stream_fusion 12y ago
  > Anybody that thinks the banking system is going to let a decentralized service pull money out of people's bank accounts... I don't think that's completely clear. There will certainly be co-ordinated resistance from many entrenched interests, but that resistance also creates a profit-opportunity to break ranks to provide the service to customers who want it. It's more likely we'll see a split amongst banks and their policies to digital/alternative banking services.

jgeerts 12y ago

You are completely right but from a legal standpoint their launch is very interesting either way.

jafaku 12y ago

> This means 98% of customers don't have multisig control over their coins, since multisig-protected coins can't be put into offline storage. What makes you think you can't use multi-sig and offline storage at the same time? That's just false. You don't need an internet connection to sign a multi-sig transaction. But I agree on everything else: 98% of funds aren't insured, and to me Coinbase has always been just another Rails startup (not necessarily a bad thing, but they made tons of mistakes typical of having web developer talent only).

sillysaurus3 12y ago
Well, the goal of multisig is to retain control over your own coins. If someone can take your coins offline, then you no longer have control over them. Here's an explanation of multisig: https://bitcoinmagazine.com/11108/multisig-future-bitcoin/ https://bitcoinmagazine.com/11108/multisig-future-bitcoin/ Multisignature escrow works as follows. When Alice wants to send $20 to Bob in exchange for a product, Alice first picks a mutually trusted arbitrator, whom we’ll call Martin, and sends the $20 to a multisig between Alice, Martin and Bob. Bob sees that the payment was made, and confirms the order and ships the product. When Alice receives the product, Alice finalizes the transaction by creating a transaction sending the $20 from the multisig to Bob, signing it, and passing it to Bob. Bob then signs the transcation, and publishes it with the required two signatures. In this case, Bob is Coinbase and Alice is you. Alice plus Martin always retain control over the coins, so Bob alone can't take them offline. The way that a multisignature wallet works is simple. Instead of the Bitcoin address having one private key, it has three. One private key is stored semi-securely, just as in a traditional Bitcoin wallet. The second key the user is instructed to store safely (eg. in a safety deposit box), and the third key is stored on the server. Basically, the user would be the one storing it in offline storage, not Coinbase. But since Coinbase is claiming 98% of coins are stored offline, that means at least 98% of coins aren't using multisig. EDIT: Thank you to kanzure's comment below. Updated.
- kanzure 12y ago
  > But since Coinbase is claiming 98% of coins are stored offline, that means at least 98% of users aren't using multisig. Almost... you should say instead: "that means at least 98% of coins aren't using multisig" because without having their internal account metrics it is wrong to assume to that 98% of Coinbase users deposited 98% of BTC at Coinbase...
- jafaku 12y ago
  The goal of multi-signature is to decentralize the ownership (or control) of the coins. In the case of Coinbase's offline storage, they could very well be using multi-signature (and they probably are) so that no single employee can run with the coins. Instead, every time they need to refill their hot wallet, the three or five or whatever employees needed to sign the the transaction have to agree and provide their signature. Edit: Actually, apparently they aren't using multi-signature internally: https://news.ycombinator.com/item?id=8948337 https://news.ycombinator.com/item?id=8948337

mikeash 12y ago

The insurance situation confuses me. The linked page seems to indicate that only their online coins (i.e. 2% of the total) are insured. If I then click "Read More" I get: "Coinbase is insured against employee theft and hacking in an amount that exceeds the average value of online bitcoin it holds at any given time." I think this means that the 2% is not insured, but that the 98% in offline storage is. What's going on?

javert 12y ago
Just looking at what you've quoted, I don't see what is confusing. Both statements say that the 2% that is stored online is insured. Specifically, in an amount that exceeds the average value at any given time. That average bit is a bit nebulous, but it doesn't make me think they are insuring the 98% but not the 2%.
- mikeash 12y ago
  How could they lose online bitcoins beyond what they actually hold? Is the idea that if they normally hold X, and one day they hold 2X and it gets ripped off, they can get X back from insurance? Sounds pretty worthless if that's all it is. Edit: OK, I see where my confusion lies. I kept thinking that "insured... in an amount that exceeds the average value" means that they the insurance only applies to losses that exceed the average value, but they mean that the amount of insurance coverage is greater than what they typically hold in online storage, so insurance should cover any possible losses of online coins. In that case it all makes sense, although it seems crazy that their offline coins aren't also insured. (If offline means there's little risk of loss then the insurance should be cheap, right?)
  - deleted 12y ago
    [deleted]
  - javert 12y ago
    I am just a regular guy, but I would guess it would be super expensive and borderline impossible to insure offline coins. (a) Who in the "custom" insurance business would be comfortable with that and find it to be worth their time? Why not stick with well-understood risks, like insuring throats, fingers, humongous diamonds, and stuff like that? (b) More importantly, stealing bitcoins that are insured is almost the perfect crime. There is too much of an incentive for the insuree to steal the bitcoins and claim insurance. I do think these things could be overcome by an enterprising insurance agency, but insuring a huge amount of bitcoins is still going to be extremely costly.

javert 12y ago

I don't think this is reasonable. They have their online coins insured, so if they lose them, they can reimburse you. This is a serious, professionally-run company backed by a lot of VCs we all recognize, plus banks and the NYSE. And regulated. They also have an overall good track record for a small company (all such companies have some growing pains). They have everything to gain by honesty and everything to lose by committing fraud, including prison (and dishonesty is the only reason they would become insolvent). The whole situation could not be more unlike Gox, and it is not reasonable to judge them by that standard.

sillysaurus3 12y ago
They have their online coins insured, so if they lose them, they can reimburse you. That's a little irrelevant, because their hot storage wallet (their online coins) should be a small subset of their total coins. The whole point of a hot storage wallet is that if you lose them, it doesn't matter. So insuring those is pointless except as a marketing stunt to confuse people, which is why saying "We're insured" is bad faith. This is a serious, professionally-run company backed by a lot of VCs we all recognize, plus banks and the NYSE. Indeed, and if Coinbase loses all the coins, none of those people will step in to replace them, because nobody is going to put up hundreds of mullions or a billion dollars just to reimburse customers. They have everything to gain by honesty and everything to lose by committing fraud, including prison (and that is the only reason they would become insolvent). I disagree that technical problems can't make them insolvent. All it would take is an unhappy accident in their cold storage procedures. But beyond tech problems, consider a thought experiment: If you're a gambling person, would you trade 20 years of your life in exchange for becoming a billionaire? Banks are nice because if someone takes money, the money can be retrieved. Not the case for bitcoin. Someone is in charge of the cold storage procedures, so that person is in control over all the coins. If they decide to take all of them, there's nothing anyone can do about it except throw them into prison. Obviously, bitcoin may be completely irrelevant by the time you're out of prison. In fact, emptying Coinbase's cold storage reserves might even cause that. But money does strange things to people, and this technology has changed the power dynamic. Some of those changes are good. But are you sure you want to trust a single person with your entire fortune? Worse, you're trusting multiple people where any single person can take your fortune. Even if they require several people to sign off, that's a very small number of people in complete control of your fate. It probably sounds like I'm anti-Coinbase. I'm not. I'm pro-consumer. As soon as Coinbase insures all of their coins or offers true protection to consumers (by default!) then I'll be their biggest fan, because they'll have become an awesome bank.

vanzard 12y ago

> They're trying to pretend like your coins are completely safe. They're not. Nothing is completely safe, not even traditional banks. FDIC insurance has many limits and restrictions (eg. it does not cover safe deposit boxes). In 2014 the national bank in Bulgaria had a catastrophic bank run who left depositors like you and me unable to access their money (to this day they still don't have their money - http://www.forbes.com/sites/francescoppola/2014/08/18/the-bulgarian-banking-disaster/ http://www.forbes.com/sites/francescoppola/2014/08/18/the-bu...). In 2013 customers of the bank of Cyprus lost between 50% and 100% of their deposits over 100 000 euros (http://www.bloomberg.com/news/2013-07-30/cyprus-sets-levy-on-bank-of-cyprus-uninsured-depositors-at-47-5-.html http://www.bloomberg.com/news/2013-07-30/cyprus-sets-levy-on...). And so on. It is a good reminder that a crisis causing you to lose money can happen at ANY financial institution. Every year there are millions of people losing money who thought was "safe". That's why it is always a good advice to diversify, to not keep all your eggs in one basket, etc. Bitcoin is no exception. With that said, it is fair to remark that Coinbase is still probably one of the safest places to keep your coins "online" for day to day usage.

pistle 12y ago
There's 0% safe and 100%, for everything else it's equal? FDIC is tested and backed by something beyond corporate assurances about insurance policies. Does that policy pay out upon bankruptcy? Agreed. Diversify. But, US banks are still demonstrably lower risk (with stipulations) thanks to FDIC than, currently, a bitcoin exchange.
mikeash 12y ago
Diversification is a great idea and I think your advice is sound, but I'd also like to point out that there are limits to it. FDIC doesn't quite belong in the same category as Bulgaria or Cyprus. When small countries have a shock like that, it's bad for the people with money in their banks. If the same thing happened in the US, it would either happen because of a massive worldwide economic crisis, or it would cause one. I'm not sure there's anywhere you can diversify and be safe with something like that.
deleted 12y ago
[deleted]

kyledrake 12y ago

I think having healthy reservations about trusting central services is a good thing (read: don't hold all your money in a single place), but I also don't see centralized services going away. We can talk about "decentralizing exchanges" all we want, but at the end of the day, you need direct access to the ACH/banking networks to streamline transfers between the system everybody uses today, and the only way to do that is with a centralized service. Anybody that thinks the banking system is going to let a decentralized service pull money out of people's bank accounts needs to stop grinding up their copy of Atlas Shrugged and smoking it. I have my concerns about some of their tech choices (NONE of which involve security, except the simple fact of control of private keys), and I wasn't happy with the way they handled their tech interviews (I'm not going there, everybody learned from it, it's not relevant anymore). But I also see them doing a pretty good job overall, and I see all the other exchanges screwing up really badly. This move makes sense. They need a stable exchange service, they have the capacity to build one, and there's demand. So why not? I would have done the exact same thing. This also adds a lot of context to the recent raise, of course. Another less obvious thing that adds context is that Coinbase is now a very programmable fiat bank account, which is something that could, with a little work, put a serious dent into Paypal and the rest of the banking industry, which still does not provide good APIs for their banking services. Coinbase might not be a Bitcoin wallet (the provider not being able to read the private key is my personal standard for this), but Coinbase is becoming one hell of a Bitcoin/fiat bank account. And we need those, too. Even if Bitcoin fell apart, a pivot to a highly programmable fiat bank would be a cake walk for them, and there's plenty of money to be made. Probably worth the investment at this point in the game.

deleted 12y ago
[deleted]
stream_fusion 12y ago
> Anybody that thinks the banking system is going to let a decentralized service pull money out of people's bank accounts... I don't think that's completely clear. There will certainly be co-ordinated resistance from many entrenched interests, but that resistance also creates a profit-opportunity to break ranks to provide the service to customers who want it. It's more likely we'll see a split amongst banks and their policies to digital/alternative banking services.