Is Coinbase insured?

[legiteum]

I don't know if I'm right or not but I heard somewhere that Coinbase's most Bitcoin's lie in their offline cold wallets that no one can hack unless they get to it physically get access to it. And, that could be true for this statement as well. If they have stored most of their Bitcoin assets to offline wallets then that's a good security measure and somewhat hack proof.

Let's say if 10% or $10 billion of their Bitcoin assets are available at their hot wallet and it somehow gets hacked then that could cause huge problems for them and also for the market in general. That could have very hard impact on the value of Bitcoin in general as most of the weak hands will keep dumping their Bitcoin at market.

I could see that. Let me be clear here that I would almost guarantee that Coinbase tries very very very very hard to keep their keys secure, and surely they have a lot of detailed governance processes to make sure the system is very safe.

But it will never be as safe as holding USD in an American bank because of FDIC insurance...

[BlackHatCoiner]

I don't know if I'm right or not but I heard somewhere that Coinbase's most Bitcoin's lie in their offline cold wallets that no one can hack unless they get to it physically get access to it.

Which is completely possible. There have been entire banks robbed in the past. It'd be completely feasible for the same thing to occur in Coinbase. (And I highly doubt all their assets sit on airgapped wallets.)

Unless they have a SAFU fund like Binance and publish their audits on their website for everyone to see (unlike Binance [until very recently]), you should always assume that they are not insured.

How's Binance different? It does have as well most of its assets in crypto. If they're compromised, they cannot pay their clients back, just as with Coinbase.

[Russlenat]

yes they are insured but up to $250k only per account.

Our custodial accounts have been established in a manner to make pass-through FDIC insurance available up to the per-depositor coverage limit then in place (currently $250,000 per individual).

So make sure your deposit doesn't exceed their insurance limit. It’s always wise not to keep your Bitcoin on an exchange since you don’t own the keys. Exchanges are mostly for trading purposes only, so as long as your capital isn’t too large, your funds should be safe as long as they don't exceed the coverage ceiling.

This insurance only covers cash balances deposited through bank transfers, debit cards, PayPal, etc. For crypto, according to their TOS, it's covered by crime insurance, though they haven't specified the exact coverage amount. If a substantial amount is lost, like in the billions, only a portion might be covered. But since it's a regulated exchange, they could seek government support to track any hacked funds. I’m sure they don't keep all their funds in a single cold wallet either—they likely have risk management strategies and solid internal controls to minimize risks. Of course, no exchange is hack-proof.

As for Binance, the amount that was hacked before was manageable, given their massive daily trading volume. Currently, they're number 1 on the list (https://coinmarketcap.com/rankings/exchanges/) with $8 billion in volume, so they might earn a minimum of $5 million per day just from trading fees. The SAFU funds (a percent of their revenue) are internal funds specifically set aside for these situations; I’m not sure if Coinbase has a similar setup.

[PX-Z]

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?

It's a business, a risky one with one of targets of hackers, and so yeah they probably has reserve fund for this incident and insurance in case such thing happens. But as for other businesses like banks, they probably have maximum amount to be recovered say only $250,000 just like FDIC insured banks, more than that will be considered as thank you and goodbye. That's why, "not your keys, not your coins" slogan are always used and reminder.

[FinneysTrueVision]

An old blog post from 2019 states that they have a policy which covers up to $255 million for their hot wallets.
https://medium.com/the-coinbase-blog/on-insurance-and-cryptocurrency-d6db86ba40bd

This would be enough to cover a hack the size of the WazirX hack from a few months ago. When other major exchanges like Bitfinex and Binance were hacked they have been able to recover eventually. Coinbase is big enough that even if their insurance coverage is not enough they would probably still have enough revenue to make up the losses and customers would eventually be made whole.

[legiteum]

An old blog post from 2019 states that they have a policy which covers up to $255 million for their hot wallets.
https://medium.com/the-coinbase-blog/on-insurance-and-cryptocurrency-d6db86ba40bd

This would be enough to cover a hack the size of the WazirX hack from a few months ago. When other major exchanges like Bitfinex and Binance were hacked they have been able to recover eventually. Coinbase is big enough that even if their insurance coverage is not enough they would probably still have enough revenue to make up the losses and customers would eventually be made whole.

Coinbase has something like $120B in Bitcoin keys. That's like having no coverage at all, basically .

[Japinat]

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

You got source they are hodling his huge amount of bitcoin?

[FinneysTrueVision]

Coinbase has something like $120B in Bitcoin keys. That's like having no coverage at all, basically .

Almost all of those funds are held in offline storage where the risk of thefts is significantly lower compared to hot wallets. I’m sure they’ve eliminated any single points of failure, so it would require multiple people colluding with each other to pull off a heist. Even with insider collusion, forensic analysis would identify the culprits. The odds are not in the favor of the thieves being able to pull it off without facing significant legal consequences.

In the extremely unlikely event that all $120 billion was drained from cold storage all at once, I can only speculate on what would occur. They might not be completely ruined but it would destroy their reputation and credibility. They still have a lot of altcoins and fiat, which could cover some of the losses but it would take a long time to fully restore customers’ balances.

[legiteum]

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

You got source they are hodling his huge amount of bitcoin?

$134.5B :

https://river.com/learn/who-owns-the-most-bitcoin/

Coinbase has something like $120B in Bitcoin keys. That's like having no coverage at all, basically .

They might not be completely ruined but it would destroy their reputation and credibility. They still have a lot of altcoins and fiat, which could cover some of the losses but it would take a long time to fully restore customers’ balances.

I agree it's pretty unlikely, but... they would be completely ruined if they lost $120B in customer assets. There's no way they would ever be able to restore even a fraction of customer balances if that happened.

[PrivacyG]

In the extremely unlikely event that all $120 billion was drained from cold storage all at once, I can only speculate on what would occur. They might not be completely ruined but it would destroy their reputation and credibility. They still have a lot of altcoins and fiat, which could cover some of the losses but it would take a long time to fully restore customers’ balances.

Gox was a HUGE disaster and it is no where close to the monster Markets and their Reputation or Business will have to confront in case of such a significant drain.  It would destroy Coinbase forever, there is no way so many people would be stupid enough to continue allowing them to handle their Money after one such catastrophe.

[Ziskinberg]

I agree it's pretty unlikely, but... they would be completely ruined if they lost $120B in customer assets. There's no way they would ever be able to restore even a fraction of customer balances if that happened.

They are regulated, so before they were given a license, regulators required them to have a system in place and continuesly monitoring them to ensure that any entrusted bitcoins would be safe. Aside from crime insurance, which partially covers any lost BTC, they also have highly sophisticated security measures.

how they secure the bitcoins,

Coinbase has strong security measures in place to protect crypto funds in users' wallets. Most notably, Coinbase stores 98% of user funds on cold storage. In this context, cold means offline. Funds stored on offline hardware are much more secure against cyber threats, such as hacking. Coinbase also uses 2-factor authentication (2FA) for logins and other actions within the site, which greatly reduces the likelihood of an account being compromised.

So only the 2% that's kept in hot wallets is more prone to hacking. The rest is stored in cold storage, making it much safer from cyberattacks.

[legiteum]

They are regulated, so before they were given a license, regulators required them to have a system in place and continuesly monitoring them to ensure that any entrusted bitcoins would be safe. Aside from crime insurance, which partially covers any lost BTC, they also have highly sophisticated security measures.

Yes, as I've said here several times now, clearly Coinbase has very, very good security measures, like any bank or financial institution has. I would trust Coinbase much more than I would trust holding my own personal keys, for instance.

But even with the use of cold storage, there is a non-zero chance of them losing their Bitcoin keys, or for them to be lost or destroyed. Again, just like any bank: it's extremely rare that a bank will lose people's funds, because their license requires strong safety standards (27001 for instance).

I'm only saying that, in the case of an FDIC insured bank, then if the unthinkable happens, then customers will not lose money. That is not the case for coinbase.

So only the 2% that's kept in hot wallets is more prone to hacking. The rest is stored in cold storage, making it much safer from cyberattacks.

Ah, okay, so 98% of their Bitcoin keys are "hack proof". "Absolutely impossible" to steal or destroy. If you make an absolutist statement like that in front of any serious infosec expert they will probably throw something at you . Security is not an absolute thing. I'm not saying you shouldn't trust Coinbase in the same way you get on a commercial airliner and feel safe, but never say "never".

(As a side note, in case anybody was wondering: yes, I am in this exact business with Haypenny. Like any digital currency we have to worry about infosec, and we take very strong measures to secure our data including keys physically held by two different roles that are kept physically apart. However, we also have mitigation plans in case of a catastrophic hack that would limit damage to a tiny fraction of customers).

[DaveF]

It's not even 'hack proof' or 'theft proof' or anything like that.
It's the security is good enough that the time and effort that it would take to get to the BTC makes it an uninviting target.

Yes people will keep trying, but there reaches a point that it's better to go after a bunch of smaller less secure places then try to get at their funds.
And to make it even more interesting, is that they might not even all be stored the same way so now after getting the prize you find that it's not all of it.

Still Not Your Keys, Not Your Coins. Just because your BTC is safe and secure, that does not mean they will give it to you.

Full disclosure: I do use CB and don't worry about leaving funds there for a while at times. But that's my risk tolerance.

-Dave

[legiteum]

As a side note, I started this thread to ask a question about Coinbase and those like them, and also to possibly get people thinking about the subject of deposit insurance in general. I never meant this to be a thread about bashing Coinbase, and as others have mentioned, I would be fine putting some of my money in Coinbase, in the same way I get on a commercial airliner even though it's theoretically possible it would crash (although the scenario we are talking about here would be akin to all of American Airline's planes crashing all at once ).

In particular, despite the risks, I would say that putting your Bitcoin in Coinbase is far safer than physically holding your own keys since the risks of that are far greater than storing your keys with Coinbase. Holding your own physical keys for significant amounts of your savings, in fact, is downright dangerous and I wouldn't suggest anybody do it, despite any systemic risks with Coinbase.

(As for other brokers besides Coinbase, that would of course need to be decided on a case-by-case basis).

[BlackHatCoiner]

In particular, despite the risks, I would say that putting your Bitcoin in Coinbase is far safer than physically holding your own keys since the risks of that are far greater than storing your keys with Coinbase. Holding your own physical keys for significant amounts of your savings, in fact, is downright dangerous and I wouldn't suggest anybody do it, despite any systemic risks with Coinbase.

This is simply irresponsible. There’s no insurance if Coinbase goes bankrupt. Instead of taking responsibility for your own money --Bitcoin's very purpose-- you’re trusting a broker that has every incentive to gamble with your funds.

The right approach is to learn how to properly set up an airgapped wallet and educate yourself on security. Relying on trust in others is unforgivable, when history is filled with breaches of that trust.

[legiteum]

In particular, despite the risks, I would say that putting your Bitcoin in Coinbase is far safer than physically holding your own keys since the risks of that are far greater than storing your keys with Coinbase. Holding your own physical keys for significant amounts of your savings, in fact, is downright dangerous and I wouldn't suggest anybody do it, despite any systemic risks with Coinbase.

This is simply irresponsible. There’s no insurance if Coinbase goes bankrupt. Instead of taking responsibility for your own money --Bitcoin's very purpose-- you’re trusting a broker that has every incentive to gamble with your funds.

The right approach is to learn how to properly set up an airgapped wallet and educate yourself on security. Relying on trust in others is unforgivable, when history is filled with breaches of that trust.

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

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

You are basically making the case that you should fly your own airplane to travel even though, statistically, you are far safer in a commercial airline. If you know "exactly what you are doing" then you can, individually, perhaps beat the odds. But generally that's not the case.

Your airgapped wallet can be breached by any rubber hose cryptoanalysis, and the idea of storing one's life savings physically in their own home, which could get invaded by men with guns who would come and kill you for this money, is pretty terrifying to most people.

Understand, by the way, that all of the rules change between "small" money and "big" money. I talked about this in the Anon Paradox: the way you treat the cash (e.g a "cache") in your personal physical wallet is very different than how you treat your life savings--or at least it is for most people.

[AVE5]

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 absolutely no 100% exchange to say it's 100% trusted because there're really ways which could lead to the lost of funds.
Coinbase is being sincere in letting you know that custodial risks can erupt where investors could lost their funds if paraventurely the exchange encounters bankruptcy also, if we must understand the high tendencies of scammers intelligences and tools used to crack privacies, of course despites how strong the security measures of the Coinbase maybe, it can be compromised if a right and advanced malicious hacking tools attacks it.
So believe it that anything is possible to happen with your funds at any exchange at all and then you personally could be more cautious with your security keys.

[8rch7]

I don't know more about Coinbase insured or not but its very important part regulation of exchange how to avoid bad possibilities in the future such as FTX and MtGox exchange. For my local Indonesian exchange market seems all insured and not scare when bad happening one day later because have third party will responsibility and refund all our assets back.
Have many exchange easily become scam although success become top trusted exchange like FTX, I think OP ideas about insured for exchange very good ideas and want to see which one top exchange global market have insured to protect bad thing happening in the future and all user assets keep secure under third party side controlling.

[ChiBitCTy]

I know you mention you don't want to pick on Coinbase specifically, but I do.  I'm not sure there's a worse exchange out there.  Maybe some of the very tiny newer exchanges that aren't known very well.  Coinbase has both screwed me and countless friends of mine over.  I wonder if there exchange still freezes all the time like it use to during any period of high volatility.  I felt that they were doing plenty of front running during this time.

[Justbillywitt]

Coinbase carries only crime insurance. If they experience data breaches or attack and you lose money because of that, they'll give you a refund but Coinbase doesn't claim how much money they'll refund.

They also don't say how much money they have insured, so, if you lose $1000 because of their mistake, you might receive $1000 or $200 or nothing, no one knows exactly because even if they partner with other insurance companies and are insured, there aren't guarantees that insurance company will cover the losses. There have been many cases when insurance company turned into a scam in the end.

Okay but... what good is that?

They are saying they will "partially" make you whole, but they don't say what "partially" means? So somewhere between 99% and 0.01%? That is the same as no promise at all.

I won't see it as a no promise, there is actually a promise there. Although we don't wish for something like that to happen, but if in the eventuality of things that it does happen, Coinbase saying they will make their customers partially whole, simply mean that, instead of you losing everything, they will give you certain amount to cover your loss. Though it might not be 100% recovered but something closer to that. I think it's a good assurance for Coinbase customers. It is better than those other exchanges that got hacked and their customers got nothing in return as a measure to recover their loss. So if you look at the word technically you will see that there is indeed a promise there.