Coinbase Review: 6 Controversial Issue You Have to Be Aware Of

Last updated on February 16th, 2018 at 02:22 pm

February 2018 Update – Coinbase admits it overcharged a large number of users multiple times due to a bug in their system and are currently working on a fix. If you were affected you can email [email protected]

Coinbase is reputed to be the world’s largest Bitcoin broker, currently serving a total of 32 countries (although this may soon drop to 31 as Vogogo, their Canadian payment service, shuts down).

In addition to direct sales of Bitcoin at, or close to, the current average market rate (plus 1.5% fee), Coinbase facilitates low fee (0.25% for takers) trading of both Bitcoin and Ethereum on its exchange platform, GDAX (the Global Digital Asset Exchange).

Coinbase offers the following additional services and benefits:

  • Instant purchase of up to $1000 worth of BTC per week for verified credit card holders.
  • A wide variety of fiat deposit and withdrawal options.
  • Instant transfers between Coinbase users.
  • A well-documented API for developers.
  • Well-designed and intuitive user experience.
  • Insured Bitcoin deposits.
  • A debit card from Shift Payments linked to your Coinbase balance.
  • Online and mobile wallet services, with multi-signature security option to prevent unauthorised movement of funds.

Coinbase is often recommended to newcomers as one of the easiest ways to acquire their first bitcoins. The company has invested a lot of time and money into making their user experience smooth and painless. Their extensive banking partnerships allow transactions to be made via EFT payment, ACH / SWIFT / SEPA transfer and, as a recent introduction, major credit cards and PayPal.

For these and similar reasons, Coinbase has experienced rapid growth since its founding in mid-2012 by Brian Armstrong and Fred Ehrsam. The following stats from Coinbase’s landing page speak for themselves:

Coinbase stats
If Coinbase is so successful, why does it have such a bad rep?

It’s no secret that Coinbase attracts a lot of animosity, if not outright hostility. A “Coinbase” search query on Reddit’s r/bitcoin soon reveals endless user complaints, interspersed with relevant news. In response to either such post, no shortage of anti-Coinbase vitriol will be detected from the commentariat. The situation is similar on the BitcoinTalk forum and other discussion venues; mention Coinbase to Bitcoiners in person or on IRC, Twitter or Slack and you’re about equally likely to hear criticism as praise.

Now, a lot of people love Bitcoin for offering sanctuary from the grand and petty tyrannies of the banks and corporate payment services. Any company which re-introduces such “user experiences” will inevitably encounter heavy flak. In short, Coinbase is punished for often behaving like the most sinister of banks.

Such views must be tempered by the fact that, for years, Coinbase has served the market more reliably and faithfully than many (ex-)exchanges, failed or as-yet-unfailed, which could be mentioned. However, Coinbase has also pulled its share of questionable moves over its lifetime.

Here are a number of good reasons to regard the company with some scepticism:

The 6 Major Reasons for the Coinbase Controversy

1) Closed and Frozen Accounts

locked account coinbase
The dreaded Coinbase “freeze notice.”

Forcible account closures are probably the most commonly held grudge against Coinbase. Due to the company’s tight integration with traditional banking laws, such closures are inevitable. For better and / or worse, Coinbase prides itself on its legislative compliance.

Coinbase was first to receive US regulatory approval. As a result, Coinbase has AML (Anti-Money Laundering) and KYC (Know Your Customer) practices much like any bank. You’ll have to provide a lot of personally-identifying information if you wish to avail yourself of Coinbase’s service.

Many Bitcoiners value privacy and object to such invasive measures. To quote a recent tweet by Andreas Antonopolous: “The biggest money launderers have banking licenses. The biggest terror financiers are states. Don’t buy the lie of KYC/AML.”

Expect Coinbase to track how you spend “their” coins and to summarily shut your account for the following activities:

  • Transactions related to adult services,
  • Bitcoin gambling, including skill-based gaming,
  • Sale or purchase of contraband through darknet markets,
  • Resale of coins on other exchanges, particularly those without AML / KYC,
  • Other arbitrary reasons which rub their algorithm the wrong way.

While your money will almost certainly be returned to your bank if Coinbase shuts your account, it will likely prove to be an inconvenient, frustrating and potentially costly experience.

Coinbase is also a member of the Blockchain Alliance, which aims to combat the use of Bitcoin for illegal (or unlicensed) purposes. As such blacklisting measures degrades Bitcoin’s fungibility – an important property of sound money – Coinbase’s policies are a matter of legitimate grievance to Bitcoin holders.

Note: if you enjoy the convenience of buying bitcoins from Coinbase but want to avoid blacklisting, check out our guide to anonymizing your Bitcoin spending!

2) Volume of Complaints

If Coinbase gets anything like their claimed number of 4 million customers, it stands to reason that they’ll receive a proportionally high number of complaints. As a recent example, many users expressed their dissatisfaction with GDAX bugs and outages. Such complaints tend to spill over into social media due to the perception that Coinbase’s support staff will expedite their responses to publically-voiced grievances.

Complaint Department

The unanswered questions are whether Coinbase receives proportionally more support tickets than its competitors, how many tickets are resolved to their customers’ satisfaction and how long it takes for the average ticket to be closed. From personal experience Coinbase’s support answered 99Bitcoins’ claims once every 48 hours on average. To its credit, in addition to its email support service, Coinbase also provides a comprehensive FAQ section page and a helpful support forum.

3) Close Ties to the Banking Establishment

It’s no secret that Coinbase received millions in venture capital funding, totalling $106 million, received over 4 funding rounds from 23 different investors. Their seed round was in late 2012 and in early 2015 it had a Series C round. The identity of Coinbase’s investors, BBVA in particular, goes a long way towards explaining their close ties to traditional financial firms. Fred Ehrsam himself is a former Goldman Sachs trader. Naturally, such relationships do not sit well with certain, shall we say, “zealous” Bitcoiners, who consider banks the disease and Bitcoin the cure.

4) Affiliate Rewards abuse

Coinbase formerly offered a generous affiliate program, whereby $75 was paid to anyone who referred a customer who went on to purchase $100+ worth of Bitcoin. However, Coinbase reneged on this deal without warning. Many hard-working affiliates, including 99Bitcoins, received a pittance for promotional work conducted for Coinbase.

5) Ill-Fated Political Interventions

For whatever motive, both Brian Armstrong and Fred Ehrsam (Coinbase’s founders) felt compelled to wade into treacherous PR waters, to the detriment of their firm’s reputation. Their first major mistake was involving Coinbase in the acrimonious block size debate and their second was actively promoting Bitcoin’s main rival; the troubled, “Turing-complete” Ethereum.

Coinbase unwisely pledged its support to the failed Bitcoin XT / Classic project. Brian Armstrong raised hackles across social media with a number of ill-advised comments and announcements.


Coinbase tweets

Armstrong’s top-down approach was not well-received by the wider Bitcoin community.

Next, Fred Ehrsam proclaimed the superiority of Ethereum, shortly before the spectacular failure of the DAO and Ethereum’s subsequent price crash.

It’s hard to imagine what Brian and Fred hoped to gain from their controversial statements and decisions but the resultant PR backlash will likely see them charting a more neutral course in future.

6) Blockchain Patents

Perhaps most egregious of all their transgressions are Coinbase’s 9 patent filings for cryptocurrency-related “innovations.” These applications include the following:

  • “Bitcoin exchange,”
  • “hot wallet for holding Bitcoin,”
  • tips button,” etc.

Such patents are obviously not Coinbase innovations and obviously clash with the open source nature and the philosophy of Bitcoin. Brian Armstrong apparently expects people to trust Coinbase, and to refrain from using any such patents to block competition. Frankly, no company, agency or entity can or should be trusted with legal authority over any aspect of the Bitcoin ecosystem. Bitcoin was designed to obviate the need for such trusted parties.

Bottom Line: Should You Use Coinbase?

At times, it appears that Coinbase is more in the business of attracting investors than servicing clients or wisely developing Bitcoin. Given the foregoing, it’s impossible to recommend Coinbase without some caveats:

You should never rely on Coinbase to act as your wallet. This applies equally to every other exchange and third-party service offering to store your coins. The oft-repeated maxim is: if you don’t hold the private keys, you don’t own the bitcoins.

While Coinbase’s multi-sig Vault offers some extra security, as get to retain at least one of the keys, it’s still nowhere near as secure as storing your bitcoins personally. If you’re uncertain as to how to properly store your bitcoins in a cold wallet, consider the purchase of a suitable hardware wallet.

Don’t use Coinbase if you intend to use your bitcoins for anything “naughty.” To avoid future legal entanglements, your best option a decentralised exchange, such as LocalBitcoins or Mycelium Local Trader.

Finally, if you’re a Bitcoin holder or believer, before using Coinbase you should consider whether their actions, affiliations and incentives are properly aligned with the cure principles of Bitcoin, such as openness, decentralisation and fungibility.  While Coinbase may be a cheap, popular and convenient option, they’ve demonstrated a disturbing lack of regard for those unique properties which ultimately give Bitcoin its value.

Coinbase is not for Bitcoiners

It’s an admitted simplification to say that Coinbase isn’t for Bitcoiners but instead for cryptocurrency newcomers, Ethereum enthusiasts, venture capitalists and those with an abiding sentimental attachment to the reassuringly blue corporate colour schemes and wealth-peacocking of traditional banks.

A lot of people feel more comfortable entrusting their money to a service which makes Bitcoin appear more conventional and familiar. This is justifiable given that the surplus of investment in Coinbase (supplemented at the time of writing by a $10.5 million injection from the Bank of Tokyo Mitsubishi UFJ) implies that the company is well-capitalized; a rich exchange tends to be a sound exchange. If you’re wary of leaving substantial sums of fiat or crypto on an exchange, Coinbase is probably one of the more secure options, although a thorough audit is the only way to prove that for a fact.

Coinbase

Coinbase
7.8

Fees

8.9 /10

Ease of use

9.0 /10

Support

5.3 /10

Reputation

7.8 /10

Pros

  • Easy to understand
  • Great UI for beginners
  • Relatively low fees

Cons

  • You don't control your private keys
  • Accounts are monitored
  • Poor support
  • Funds can be delayed for up to 72 hours

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223 Comments on "Coinbase Review: 6 Controversial Issue You Have to Be Aware Of"

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Aaron
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Aaron
Coinbase absolutely sucks. They locked my account without warning and told me to withdrawal my Btc, etc. They gave me no warning as to why, and when asked why (repeatedly) only give a standard answer of … “We regret to inform you that we are no longer able to support your Coinbase account as well as any other accounts you may have created.” Again … why?! All they had to do was look at my 6 month history to know I’d been a good customer. If they have concerns or issues, they won’t bother informing you of the concern or… Read more »
darrin pavey
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darrin pavey
I have had exactly the same disgusting customer service, I initially only put £100 in to try it and was asked to give them proof of ID (drivers License) which I did and deposited via my debit card. When i tried to withdraw after losing £13 I was told i would need to provide a bank account and make a SEPA payment of 6 euro to verify, I then did this as I had no-one I could speak to as they will only deal via e-mail. After completing this and the payment coming back to my account i still cant… Read more »
Chris
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Chris

I had my account locked over 3 months ago and still have not had any contact from technical support. There call center reps have no connection to the Tech agents that actually fix things. So in short DO NOT USE COINBASE. It is now worth the risk. Their support is absolutely dismal and inadequate. They are not interested in keeping existing customers as much as they are in getting new customers. Use any other service…spare yourself the frustration.

Jon
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Jon
This “exchange” is a joke. They hold your money for far longer than it takes for them to recieve it. Funds cleared my bank account in a day and it took 6 days to get my ETH. In that timeframe I watched as very welthy customers were able to short large amounts of ETH,$350K and more, driving the market down into other large orders sitting waiting to buy. Short selling is selling something before you actually have any to sell. This is done by borrowing them from someone and giving them back when you are done. On Coinbase you need… Read more »
Alan
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Alan
Coinbase is a scam company! Someone stole my phone when i was Europe and I was able to lock my account. That was in Late Jan. Its now April and I still do not have access to my account! At one time I had over 35K worth of BTC in there, who knows what its worth now. But they keep giving me the run a round, even tho I did everything they wanted for me to verify who I am. And now, I’ve been calling in to support every other day and they say the same shit. “We can’t handle… Read more »
Johan
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Johan
Coinbase are cheaters. They say they ask 1% of the transaction that you make, but in fact they take a lot more money, sometimes to € 100,-. When you complain about that you get an mail that it is because the value of the LHC was reduced at that moment, but that was not true. When I sold LHC’s, the value of the LHC’s increased that hour. If you show them screen shots about it, they send you the same answers. They look like robots. I’ll try to save my money as soon as possible now, looking for another way… Read more »
Nicholas Friedl
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Nicholas Friedl

The mafia. I was sceptical about crypto but still decided to invest 1700 Euro in February. This transaction went through quite quickly. Then days later I put in 1700 Euro again. Now after waiting 2 weeks still no sign of my money. It is hopeless to get an answer by phone. After many emails somebody finally contacted me and i sent all the transaction details and the money was taken out of my bank account. Now I have had no more contact from them but just a lot of stress. I really feel I am dealing with the mafia.

Brian
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Brian
I’m getting ready to buy bitcoin through Coinbase and they quote the price consistently $150 higher at any given point in time. I watch bitcoin’s price go up and down on a real time ticker, while refreshing my buy screen on Coinbase, and the purchase price always moved so it stayed $150 more. Not only that, there’s a fee for each purchase, how about one or the other, NOT both. And another jab to customers is the almost $4 worth of charges they put on your card for verification. Who needs to invest in crypto when you can just nickel… Read more »
Tommy
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Tommy

Real crooks! I can see everywhere there are many people who are ripped off! Stop this business!

Marylyn Adelaide
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Marylyn Adelaide

Total scammers… I have a lot of proof. They tell you a lot of beautiful things until you deposit, then everything change and you lose your money. For example they told me they will give me the commission fees back until i deposit, then i lost all my money only for commissions, nothing about markets. The commissions was more than my total balance only in one trade.
Then i claim for my commissions back as they promised me and nothing… i have been scammed and i have proofs. ***Link Removed***