A Major Coinbase Milestone: 1 Million Consumer Wallets

http://blog.coinbase.com/post/78016535692/a-major-coinbase-milestone-1-million-consumer-wallets

by wglb • 12 years ago

74 67 12 years ago

blog.coinbase.com

joezydeco2• 12 years ago

I realize it's all startup-y to pat yourself on the back about growth, but aren't you painting a target on your back for those that want to perform the next heist?

dangrossman• 12 years ago

Pretending they're tiny and poor isn't a long-term strategy for becoming a mainstream, trusted brand in e-commerce. Security is one front they need to win on, just like every other successful payment processing business; they can't hide and become big at the same time.

ceejayoz2• 12 years ago

I'm pretty sure anyone interested in heisting Bitcoin had Coinbase on their radar already.

joezydeco2• 12 years ago

True. So let's go with the hubris angle, then. Like others have said below, we trusted that Gox was secure as well.

BlackDeath32• 12 years ago

If you're avoiding press for security reasons, you may be doing it wrong.

singularityyy2• 12 years ago

No security is perfect of course, but Coinbase has over 98% of the funds in cold-storage. See: http://antonopoulos.com/2014/02/25/coinbase-review/

waterlesscloud• 12 years ago

Gox claimed 95% of their coins were in cold storage.

Unproven claims aren't worth much.

grey-area• 12 years ago

That's what mtgox said too, I believe their figure was 98%:

On average 98% of customer bitcoins are held in cold storage...Offline wallets are generated from an offline system and kept in paper format in three separate locations, using a technology based on raid.

https://bitcointalk.org/index.php?topic=23938.40

http://www.managementtoday.co.uk/bulletin/mtdailybulletin/ar...

But of course, they weren't really in cold storage or offline after all, because somehow they all disappeared...

Not that I mistrust coinbase specifically, but without insurance, audits and regulation (i.e. without a banking license), I'm not sure I'd trust anyone to store significant amounts of money.

patmcc• 12 years ago

Banks that hold large amounts of cash either insure it against fire/flood/theft or self-insure with other assets - what is Coinbase's plan if these cold-storage coins are destroyed, either by malicious attempt or disaster? That link shows the coins are locked away, are apparently not accessible, but how safe are they against actual loss?

TacticalCoder• 12 years ago

As I understand it if security is done correctly then "stealing bitcoins" amounts to breaking strong cryptography. At this point nothing indicates that the elliptic curves or the cryptographic hashes (SHA-256, RIPEMD-160) used in Bitcoin are at risk.

Under the assumption that the crypto used in Bitcoin is safe, there's, for example, nothing an attacker can do to spend the coins in offline wallets. Not even a 50%+1 attack that'd be sustained for days...

If anything, the recent fiasco with Gox (which is more than shaddy) gives me lots and lots of confidence in Coinbase to do "the right thing".

Now I'm not saying they'll never get pirated or anything like that. But Bitcoin implemented correctly seems to be very safe and there are many people out there who have bitcoins which are "sleeping" safely on offline wallets in deep cold storage.

Most people holding bitcoins and most companies like Coinbase only need a fraction of their bitcoins "online" to be able to operate. And even for those bitcoins I take it Coinbase is taking security very seriously.

MichaelGG2• 12 years ago

Yeah, we'd hope they have some serious M-of-N key system in place to safeguard access to the wallets.

The biggest thing that gives me pause about Coinbase is their decision to use MongoDB. There may be a reason, but I certainly can't find one. Their use case is perfect for proper, old-fashioned, reliable RDBMS. They've also had a fair amount of customer service issues, including "we rebooted and our job queues didn't run anymore" problem where they tried to rip that guy off.

Even so, the security of the offline wallet is so important, you'd think their investors will have insisted on some auditing and third party implementation. Maybe some of the big wallets are even partially held by outside people.

thinkcomp3• 12 years ago

That's one million consumer accounts with no FDIC insurance, no surety bonds, and no other backstop in the event of a problem.

I'd love to see a Coinbase blog post about why Coinbase doesn't need to be licensed like every other MSB registered with FinCEN.

mulligan• 12 years ago

yeah, but just think of how much they save on transaction costs when they buy something online [without the ability to chargeback]!

lmg643• 12 years ago

I've often wondered the same. Section 1.1 of their user agreement:

"1.1 Coinbase helps you make payments to and accept payments from third parties. Coinbase also provides a bitcoin wallet service where you can store your bitcoin. Coinbase also allows users to buy and sell bitcoin. Coinbase is an independent contractor for all purposes. Coinbase does not have control of, or liability for, the products or services that are paid for with Coinbase services. We do not guarantee the identity of any user or other party or ensure that a buyer will complete a transaction. Coinbase is not a money transmitter. Coinbase assists its users in Bitcoin transactions."

https://coinbase.com/legal/user_agreement

You hook up a bank account, "transmit" funds from a bank, receive virtual currency (and in reverse) but they are an independent contractor, assisting with the process. Very interesting approach.

A simple person might say the service very much looks like a money transmission, money exchanging business. The fees for acting as a money transmitter without licenses is supposedly up to $1k/incident.

thinkcomp3• 12 years ago

"Coinbase is not a money transmitter" is a demonstrably false statement in violation of the Lanham Act, 15 U.S.C. § 1125(a)(1)(A). You can find Coinbase's registration with FinCEN as a Money Services Business at:

http://www.fincen.gov/financial_institutions/msb/msbstatesel...

Just search for Coinbase. They provided the address of their statutory agent in Delaware even though they're in San Francisco.

natrius2• 12 years ago

FDIC insurance is aimed at banks that make loans, which Coinbase does not.

erikpukinskis2• 12 years ago

This is the correct answer. FDIC insurance is needed because when you give your money to a bank, they turn around and lend it out to other people, so when you want to withdraw they may not be able to collect enough to pay you out.

I suspect when you deposit 10 BTC in Coinbase, they actually just hold it for you. Honestly, given how volatile Bitcoin is, and the general upward trend, it would basically be insane for them to try to invest it in any other assets.

BlackDeath32• 12 years ago

That's a million wallets that can instantly, pseudonymously send money to some random dude halfway around the world.

baddox5• 12 years ago

That's one million consumer accounts with no FDIC insurance, no surety bonds, and no other backstop in the event of a problem.

All of which were created voluntarily by customers, which indicates that there is demand in the market for different types of asset/currency, some of which might not have FDIC insurance or any of those things.

lectrick• 12 years ago

There's nothing stopping someone from insuring Bitcoins.

http://www.businessinsider.com/as-bitcoin-grows-in-popularit...

I have personally never understood the criticisms of new things of the form "<new thing> doesn't provide the service that we've had for years with <old thing>!" IT'S NEW AND DIFFERENT, GIVE IT A CHANCE.

sillysaurus32• 12 years ago

Quick question: What's preventing Coinbase from shutting down operations tomorrow and walking away with everyone's money, as MtGox walked away with mine?

Or, what if the founders orchestrated some sort of disaster wherein all of the coins are claimed to be lost, but in reality they're simply transferred to the founders?

I know they wouldn't actually do that. My question is, what's stopping them? Why wouldn't someone try to do that, other than their morals?

thinkcomp3• 12 years ago

Nothing. And good luck finding their worldwide "cold storage" locations. They're apparently not in the United States, and not required to disclose them to any regulator.

devindotcom2• 12 years ago

The promise of future profits amounting to more than what they would walk away with today, gained in a somewhat more respectable fashion. If they become the leading wallet in the world, they're sitting on a goose laying golden eggs. Doesn't make sense to slaughter it today for dinner.

These guys are known — like the guys at Mt Gox. They're not anonymous, and they would run a real risk of bodily harm by such a public crime.

sillysaurus32• 12 years ago

The promise of future profits amounting to more than what they would walk away with today

That's exactly the same argument I used to justify why MtGox wouldn't shut down, almost word for word. It's the same argument I used to convince myself why they wouldn't shut down. They still shut down.

They're not anonymous, and they would run a real risk of bodily harm by such a public crime.

So we're relying on mob justice? Also, Mr. Karpeles hasn't been harmed and probably won't be.

diego3• 12 years ago

Nothing, so most people should use Coinbase the same way they use a grocery store: buy what they need and take it somewhere else. Unfortunately most people do not know enough to do that. I wrote a blog post about it if you're interested.

http://diegobasch.com/do-you-know-enough-to-securely-own-bit...

gnaritas5• 12 years ago

Nothing

False. Theft is against the law. Bitcoins don't magically avoid being subject to existing law. The owners are known and subject to US jurisdiction, you have legal recourse through the courts should they try and steal your funds.

mbesto• 12 years ago

Simple - because YC, a16z, USV, SV Angel, etc all have skin in the game.[0] There are some serious people with some serious money who have reputations to uphold. AFAIK Mt. Gox had none of that.

[0]http://www.crunchbase.com/company/coinbase

granfalloon• 12 years ago

Because they would go to jail for a very long time?

baddox5• 12 years ago

Because they run what I suspect to be a fairly lucrative business which, if operated competently, should make them a lot more money in the long run than if they just stole everyone's bitcoins?

panarky• 12 years ago

The fact that the identities of Coinbase people are known, and apparently you can hire a hitman with Bitcoin. If you have any Bitcoin left.

Seriously, though, Coinbase and other online wallets and exchanges need to get with the program and prove they're not running a fractional reserve.

Radical transparency is a big part of the answer, and it's much more feasible with Bitcoin's public blockchain than with the dinosaur monetary system.

dangero• 12 years ago

Third option would also be actual negligence which is an interesting case because people are used to dealing with banks and do not realize that they will not get their money back. Im not suggesting FDIC style protection for Bitcoin exchanges is a good idea, but that is just what people are conditioned to expect and I think that is why so many people leave their money in exchanges like Coinbase or MtGox.

baddox5• 12 years ago

I'm not sure what your point is. My best guess is that you're implying that the only reason people don't do things that are illegal is the fact that they are illegal. If I'm wrong, please correct me, and disregard the next paragraph.

I see two problems with this point. Firstly, while I'm not entirely sure how the legal system in the US works, but I suspect it would be illegal for Coinbase to shut down and run away with everyone's Bitcoins. I doubt that USD is the only asset that is legally protected from theft/fraud. Secondly, I suspect that Coinbase has a huge incentive to not do this even if it were legal to do so. Namely, they should be able to make a lot more money by conducting their business legitimately and continually than if they ran off with one lump sum.

jmulho• 12 years ago

they should be able to make a lot more money by conducting their business legitimately and continually...

You're not the first person to make this point. It is not necessarily true. What if the amount they could run off with is huge and their margins are tiny, or they are losing money?

corford• 12 years ago

Why put yourself in a position where you need to worry about that happening?

Keep the bulk of your BTC in a private wallet under your exclusive control and only use the intermediary provided wallet when you need to make a trade through their platform/exchange. You're still exposed while a trade is being executed but your maximum exposure is never more than the amount you are trading at that time.

You wouldn't deposit your life's savings with a new, unknown bank based out of a tiny island state with lax/non-existent regulation. Don't do the same with your BTC.

ojr• 12 years ago

enough with this fear, uncertainty and doubt, Mt Gox should not be placed in the same sentence as Coinbase, Coinbase is a lot more transparent...

smtddr3• 12 years ago

Here are my reasons:

- They are in SF so I can walk/bike/bus to their office; for whatever good that does me. Didn't do that one dude any good going to MtGox's Japan office. =/

- They are YC backed, so that means pg knows about 'em. That adds a "gold star" in my book in that they must have passed some kind of filter to get into YC; that they're not just plain scammers, unprofessional or woefully uneducated about security on the interwebz.

- I feel very confident about this video: http://techcrunch.com/2013/12/17/foundation-brian-armstrong-...

All that said, you still shouldn't leave a huge amount of coins on an address that you don't exclusively hold the private key to. 1 or 2 bitcoins, meh. Day-trading with 50 BTC? Risky, but okay I guess. Those crazy amounts I saw on that gox-horror Reddit thread, like 100+? Some people in the THOUSANDS?!!! That was a bad decision. That needs to be some place else. Coinbase.com may have the most honest people in the world, but I also believe hackers are extremely talented people and hundreds of bitcoin is adequate motivation for a certain subset of hackers to pour all their energy into breaking coinbase. I'd love for Coinbase.com to talk about all the strange hack attempts they must see against their service every... minute.

I day trade on btc-e.com with 1k USD and my rule is to never have more that 2k on there. If I reach 2K, I buy 1k's worth of bitcoin --> send to coinbase.com --> cash out. Repeat again with the 1k remaining. I could try and turn 2k into 4k, but that's a risk I'm not willing to take. I'm happy with my 1k units of profit.

mcherm• 12 years ago

Other than their morals?

Well, I suppose there are legal implications: that's known as "theft". Also there are the morals of every other employee... I believe Coinbase is set up with standard controls so no one person can steal funds without it being obvious to (and preferably requiring the cooperation of) other employees.

I would ask a similar question: What's preventing Nationwide Insurance, Chase Bank, and e-Trade from shutting down operations tomorrow and walking away with everyone's money? The biggest difference between these institutions and MtGox is that these institutions all have regulators who have the power to (in extremis) take over the operations of the institution if it begins to show the same kinds of trouble that MtGox showed for quite some time before its collapse. Coinbase is not currently subject to any such regulation.

singularityyy2• 12 years ago

Considering any positive comment will be buried deep under in HN, I think it's important to celebrate this success. Price of Bitcoin is meaningless, all other metrics seem to point to higher and higher adoption of this new technology. Great news!

cassetti• 12 years ago

The main reason I chose to buy BTC through Coinbase is because they're funded by A16Z and USV. Very prominent and influential investors that would also come under scrutiny if anything nefarious happened internally.

panabee• 12 years ago

how are they able to guarantee an exchange rate? aren't they exposing themselves to the huge fluctuations in bitcoin price (though the price seems to have stabilized recently)? for instance, there were some days this month where the price fluctuated by more than 40%. somehow the price and volume must work out where this is a calculated risk to cultivate the broader bitcoin ecosystem. would love to see some numbers if anyone has any ...

erikpukinskis2• 12 years ago

I suspect they don't need to expose themselves because they are holding large amounts of both Bitcoins and cash, so they can simply sell them to people at whatever price they want to. It's not like they take your USD and then have to run out and buy Bitcoins to cover them. They do have to worry about the value of their Bitcoin and USD holdings becoming worthless, but that's something all Bitcoin and USD investors have to worry about.

If they are taking some risk, by making commitments that they don't have backed with currency, it's trivially easy to calculate their exposure and figure out how high their fees need to be to cover it. That's a problem actuaries solved decades ago. Currency exchange is not a new business.

wmf2• 12 years ago

They don't guarantee anything; if they don't feel like processing your trade they'll just cancel it.

Istof• 12 years ago

I have a few empty (never used) wallets

A Major Coinbase Milestone: 1 Million Consumer Wallets

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