Bitcoin Forum

I am rather new to BTC and choose Coinbase to be my online wallet.  Coinbase has all my bitcoins.  Now I fear that wasn't the best move as they are within the United States and report to various government agencies.  Should I be fearful about this?   

Thank you for reading and I look forward to your responses.

I use Coinbase. I haven't seen any significant reason to be distrustful of them. Even if they "report to government authorities" why is that a problem unless (1) you are doing something illegal and (2) it somehow involves bitcoin?

I would encourage you to look at cold storage and offline wallet solutions, but you'll find yourself needing to use online exchanges like Coinbase from time to time anyway. The time may come when the government utilizes their influence over corporations to oppress bitcoin users, but there's little point in short-changing yourself today based on what _might_ happen in the future. Just keep your eyes and ears open and have a plan in mind for if things do start to head south.

>report to various government agencies

Certainly true, but that's not really a good reason to worry at this point. More important is the risk that CB can lock you out of your coins at any time at their discretion. This has happened with me due to a technical error, and it took a week to get it fixed.

I recommend Trezor / Electrum / Breadwallet in that order of security, and only use CB to buy and then immediately transfer BTC.

This concern is with US taxes.  Do I have anything to worry about?  I can't report this as property (according to the IRS it is property).

I'm also curious on the tax aspect as far as Coinbase goes. Do they report purchase/sales etc?

The more I think about it the more I worry.  :(  At least I didn't buy and sell all too much with them.

You should never keep your BTC on private keys you don't exclusively control. You're economically suicidal to use ANY online wallet based in ANY country.

I wouldn't go as far as "suicidal"... ::)

I've made purchases of BTC but not redemptions of BTC for Fiat at Coinbase. So I'm not certain. But I made some purchases last year and haven't gotten any mail/email/communications regarding taxes or tax reporting from them that I can recall.

Even if someone did both purchases and redemptions there, it would not be clear to Coinbase or anyone else how to conduct the taxes on the capital gains from those events. As I understand it you have to decide how you are accounting for your purchases and which coins you are selling to calculate the capital gains. That is, you can choose to either sell the latest coins you purchase, or the earliest coins you purchased. And since you can be buying coins from multiple sources and Coinbase would not know, neither they nor the IRS would know what sort of capital gains to calculate for any given BTC sale.

At most, they or the IRS might inquire about the possibility of a capital gain (or loss), noting the sale of the coins. But I would be surprised if they are following up on anything but perhaps the largest transactions at this point.

If I muddled anything here, feel free to correct me. Taxes are not an area I claim expertise in!

If you only buy and never sell (meaning you only transition into BTC ecosystem, and never transition back into the deprecated fiat ecosystem) you have no tax liability. There are several threads here about how to address taxes, but I think in general if you sold BTC for fiat and made a net profit during the fiscal year you'll have to report that as income on your taxes, as capital gains or however you normally treat securities.

Depends? Are you laundering money, cheating on your taxes, funding a terror group?

If you are just using bitcoin in a legal way then you SHOULD be using an above board operation. You could find some "dark" exchange that avoids legal compliance. But all you will ever know about the people who run it is that they are criminals. Would you feel safer leaving your money with criminals who could take it at any time and leave you with absolutely no legal recourse? 

Once you've decided to use an online "wallet" at all, it almost doesn't matter which one you pick because it's a bad idea all around.

If you want convenient spending, you can get that from a mobile wallet, or a browser-based wallet.

What is a browser-based wallet you speak of?  Thanks for all the replies guys.  :)

Kryptokit and Dark Wallet are two examples.

Go for a blockchain.info wallet instead. Not actually sure where it's hosted but I trust it and it's very secure if you take advantage of all the security features. If you're worried about snooping or safety of the sites you use I'd just recommend keeping your coins on a desktop wallet instead.

Do never store your wealth with a third party.

This is why bitcoin was invented. Download electrum or use a paperwallet, and be the sovereign of your money.

Ughh.... have you somehow missed all the threads of people getting hacked and losing their BTC at Blockchain the last 3 months due to poor security there? They are literally at the very bottom of my list of sites to trust at this point.

Have you somehow missed all the threads about people getting hacked and losing their BTC from their desktop wallets? Blockchain.info is very safe if you set up 2-factor. These idiots who get hacked never have it set up and usually log straight into a fishing site. It has nothing to do with poor security on blockchain.info but poor security on the users end and these people would lose their coins eventually on whatever wallet they stored them on.

...

Well I had a problem with a blockchain.info wallet, and it had 2FA.  I was able to get my BTC back from them, however, after a little back-and-forth (hey, it was THEIR fault).

As an aside, I was never able to get 2FA to work smoothly with my wallet (Google Authenticator).

So now I keep (another) blockchain.info wallet, but only to use for small transactions or to mix coins with their SharedCoin service.  My current balance is about $7.00 worth of BTC.

I would recommend keeping larger amounts in a trusted hardware wallet.  I am happy using Trezor and Ledger Nano, both seem to be excellent.

Well, the only time you would fear is that when you can a lot of BTC. If thats the case, then you should definitely, transfer some to a local wallet and make a paper wallet out of it, and leave it there.
No point in leaving all your BTC on coinbase.

Also they are not worth recommending until they stop reusing addresses.

Nooope.

https://bitcointalk.org/index.php?topic=40264.msg10604310#msg10604310



Make up your mind!

Trezor. problems solved. ;)

I advise people to take extra steps beyond simply having a desktop wallet, such as using multisig, or M of N security, or using a paper wallet or other cold storage option. But a good offline security setup will be inherently stronger than using a 3rd party site, especially one with a history of hacks.

As I understand it the fellow in (https://bitcointalk.org/index.php?topic=875805.0) had 2FA set up with Blockchain but still lost ~$70K. It was circumvented within the Blockchain system somehow. That said, I use 2FA for all online exchanges and consider that a basic security precaution. Just be sure you have a  way to recover in case your 2FA device is lost/stolen/damaged. (I explain how to recover using Google Authenticator in https://bitcointalk.org/index.php?topic=962306.msg10557511#msg10557511)

Not worth it dude for people that me that have smaller amount of BTC.

I agree. It probably makes sense for some people, but it's a step away from the idea that BTC is a cheaper alternative to banking with fiat if you have to pay a goodly sum for a hardware wallet.

What is the security situation with a hardware wallet if someone steals the physical wallet? I assume they would still need a password to access the bitcoins?