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

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

Bitcoin Video Crash Course 

Join over 94,000 students and know all you need to know about Bitcoin. One email a day for 7 days, short and educational, guaranteed.

We hate spam as much as you do. You can unsubscribe with one click.

229
Leave a Reply

avatar
 
133 Comment threads
96 Thread replies
32 Followers
 
Most reacted comment
Hottest comment thread
161 Comment authors
Julie LAsimdeposit but can't withdraw.Christian Tmichael ma Recent comment authors
  Subscribe  
newest oldest most voted
Notify of
Julie L
Guest
Julie L

DO NOT open an account with Coinbase!!! I made three deposits and purchases in early may and cannot withdraw or transfer my cryptocurrency to any other wallets OR transfer any money back to my bank account until the 46 day hold is complete! My first deposit was $220 and the other two were $1000. I did all of the verification steps and my deposits cleared my bank account either the same day or the very next day. Give me my money you crooks!!! I hope there is eventually a class action lawsuit against them for this because I’ll be the… Read more »

Asim
Guest
Asim

Hi

deposit but can't withdraw.
Guest
deposit but can't withdraw.

coinbase is worst of the worst don’t use coinbase if you don’t want to lost money like me .

Christian T
Guest
Christian T

Coinbase is bad news. My bank cleared funds 4 days ago on multiple transfers however Coinbase still hasn’t made my money accessable. Shame on you, that is not your money to hold and gain interest on you shady fools

michael ma
Guest
michael ma

coinbase can go fuck themselves. in february of this year visa charges on my account amounted to amost a 1000 cad for cash advances “fees” as well as coinbase fees. visa, and coinbase along with worldpay admitted to the errors across the globe but they basically went into my pocket through the night. i had to keep calling visa because coinbase didn’t help. after 12 hours of talking, the only thing i got was 300 dollars for being patient and kind. i was still out some money. i told them i didn’t mind the 99 cent charge when it was… Read more »

Chris B
Guest
Chris B

Coinbase is a joke, My funds were transferred from my bank account to coinbase on the 13th April, they said 3 to 5 days until i have access to them. Well now they have put a “temporary” 34 day hold on them, ( this is after 15 days of daily calls to them, (with 0 results) customer service said it is because their bank needs to release my funds , so i have a total of 46 day hold on my funds. I wish i would of found this site before i joined coinbase it would of saved me a… Read more »

Aaron
Guest
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
Guest
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
Guest
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
Guest
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 »