Got it. That's excellent information. So Coinbase isn't what I want. I'll research alternatives. Anyone using Darkwallet? I realize it too is quite risky at it's present stage, but just curious if anyone has experience with it.
OK, I'm going to back up a little. As suggested by kpitti, I'll stick with one question/topic at a time. Seems like a reasonable approach.
I have been using Coinbase since it seemed to be the easiest to use for people like myself, but I really don't feel secure with it - or any other exchange bc I don't understand the technology. I thought I was correct in trusting that my bitcoins were totally secure on a paper wallet, barring my losing it or letting someone get ahold of it or my key. But I'm not sure about that. For example, if Coinbase goes the way of Mt. Gox (some people lost everything gox was holding for them, right?), are my bitcoins lost to me for good? Or is the paper wallet (or equivalent, i.e. usb storage etc.) proof of my btc on the blockchain itself and therefore title to those bitcoins? I apologize if my understanding of all this is totally erroneous!
ps - I'm in the middle of Digital Gold right now, trying to get some sense of the evolution and terminology...
With coinbase, your bitcoin are not necessarily safe. Coinbase has control of your private keys, which means that they can also spend your Bitcoin. If they should scam, or be hacked, someone could spend your bitcoin for you and you would lose all of it.
However, if you use a desktop wallet (or any wallet that is not a web wallet), then a paper wallet backup will be safe.
Coinbase is insured for insider job and outside hacking. So just telling someone their BTC is at high risk at Coinbase is inappropriate. It cannot be as secure as a proper solo offline setup. But the second you decide to trust a 3rd party, Coinbase is probably the best;
"Coinbase is insured against theft and hacking in an amount that exceeds the average value of bitcoin we hold in online storage at any given time. The insurance covers losses due to breaches in physical or cyber security, accidental loss, and employee theft. It doesnt cover bitcoin lost or stolen as a result of an individual users negligence to maintain secure control over their login credentials."
It is a good online wallet. But what it's fair to say it does not cover personal compromise. For example just your account get's hacked from phising or something and you lose coins.
Since it was something you did and not others it is not covered. So there is possibility to still lose coins. Yes cold storage is still much better overall if done right.