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

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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% 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.

Find the best exchange to buy Bitcoins


Steven Hay

I'm a former futures trader. My keen interest in matters financial, economic and political eventually led me to conclude that the current, debt-based fiat system is broken. It was a natural step from there to investing in gold and, in early 2013, Bitcoin. Although I'm not very technical, I've learnt about Bitcoin through study, asking questions, running ecommerce and marketing sites and working as a journalist. I've always loved writing and my current focus is on creating guides which inform others about Bitcoin's advantages.

Coinbase

Coinbase
8.15

Fees

9/10

    Ease of use

    9/10

      Support

      7/10

        Reputation

        8/10

          Pros

          • Easy to understand
          • Great UI for beginners
          • Low fees

          Cons

          • You don't control your private keys
          • Accounts are monitored
          • Poor support

          17 Comments

          1. CoinBase SERVICES are UNAVAILABLE when you need them most!

            It’s friday 10-3-2017 bitcoin crashed just a half hour ago (at 22:45!) almost € 200,- and as I was expecting this i sold my coins a view days ago. And now when I want to buy my coins back and gain almost €500,- of profit, the site is UNAVAILABLE!!!

            SERVICE UNAVAILABLE !!!! SO DON’T GO FOR COINBASE !!!!

          2. worse customer service its terrible its absolutely terrible. My buy/sell has been blocked. I have been going back and fourth with them for weeks. At first they said that the email that I contacted them from was not associated with any coinbase account so for some reason i had to screen shot my information from coinbase and send it to them through email. They said the reason why my account was blocked was because I had to fill out a questionnaire here I am a month later the questionnaire is filled and I am still waiting for a fucking email from coin base. Its a good service so far they seem pretty secure and they do deliver coin but man the customer service is so fucking shit its terrible. And its slowing me down from turning coin and making profit!!!!

            • Zsofia - 99Bitcoins support on

              Thanks for the feedback R, sorry to hear about your struggle with the customer service.

          3. Coinbase is a site of Criminal Thieves that will steal your money. STAY AWAY!!!
            Coinbase is not to be trusted. As with many other complaints I have seen. They have lost/stolen $190.00 from me, they have no Phone number posted anywhere to contact them, they will not answer to any complains you have from the website, or if they do eventually answer to a problem from the website after several weeks, they will just tell you there is nothing they can do.
            I am contacting any and every review site I can find to warn as many people as I possibly can.
            I am opening a case with the Better Business Bureau, and any other authority I can contact.
            DO NOT USE COINBASE… STAY AWAY!!!

            Anyone who has any way of contacting them directly or found a way of getting results, or anyone from the coinbase corporate office that wants to contact me, write me at [email removed - you can reply to this comment and it will reach the comment author]

            • Thanks for the feedback Rich and sorry to hear about your bad experience with Coinbase. We removed your email since we don’t allow personal details to be posted on the site however if anyone replies to your comment you will receive an email notification.

          4. I just got my first email from them in regards to a warning for using some Bitcoins on a gambling site. Yes I did do that and it is my damn right. I quickly withdrew all my coins and transferred them to my computer cold wallet to ensure safety! :-)

            Use Coinbase if you are a beginner with Bitcoin. As the article mentioned, if you want to do buy something naughty, transfer to your computer cold wallet, then purchase. Not a 100% sure on that statement, but much safer than sending coin from Coinbase->target purchase, instead Coinbase->Your personal cold wallet->target purchase.

          5. Perry Latour on
          6. Greg Weimer on

            Okay, I’m Newbie…..This may sound uninformed, don’t know!

            I’ve been told for example : Coinbase to buyer, like me, that’s public record, so to speak. If I wanted to buy something “seedy,” use a mixing service and purchase is practically untraceable?

            Do I have to learn from the beginning again?
            Thanks….

          7. burningserenity on

            Does Circle pull any of this nonsense?
            I love the convenience of Coinbase over something like Local Bitcoin Exchange, but c’mon… Even my fiat bank wouldn’t ban me for buying porn with my debit card.

            • Ofir Beigel on

              I don’t know but my bet would be yes. Mainly due to the fact that these companies comply with all sorts of AML compliances and other regulations.

          8. I wish you would preface articles like this with, “If you wear a tinfoil hat, then this article is for you.”

            For the newb who’s just getting into bitcoin and isn’t very up on the issues of what doomsday preppers, dark webbers, and/or FIAT collapse wackjob would already know, this article is pretty low on the value add.

          9. there is no real volume on coinbase .. tell me how 4milj users could not trade more then 20k coins in massive peak moments.. and there’s a lot of ppl buying and selling the same coins over and over again so imagine so that makes real coins /fiat sitting on exchange even less.. 20k volume / 4milj users = 0.005btc a user traded LOL if i trade a few times around a day.. i know pll who have more coins then daily agv volume in total on coinbase.. they are just small fish in the world of exchanges.; very small the numbers dont lie.

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