(Before I start this topic, I just want to say that I don't want to pick on Coinbase here specifically, but they are the biggest with over 10% of all Bitcoin being held for customers, so they are a good example--but assume here that this question could apply to any digital asset custodian).
Today, Coinbase is holding over $100 billion in Bitcoin.
While I am sure they go to great lengths to secure this money (!), we'd have to concede there is a non-zero chance they could lose some or all of this Bitcoin to theft or simply losing it.
And then what?
Coinbase offers this vague promise on their website that they are "partially insured", but does anybody know what that actually means? If they are hacked and the addresses get destroyed or stolen (we'd never know which), then... where would that leave Coinbase depositors?
Today, Coinbase is holding over $100 billion in Bitcoin.
While I am sure they go to great lengths to secure this money (!), we'd have to concede there is a non-zero chance they could lose some or all of this Bitcoin to theft or simply losing it.
And then what?
Coinbase offers this vague promise on their website that they are "partially insured", but does anybody know what that actually means? If they are hacked and the addresses get destroyed or stolen (we'd never know which), then... where would that leave Coinbase depositors?
There's no guarantee users of the platform will get their money back in case of hacks, theft, or bankruptcy. Coinbase is NOT FDIC insured (unlike banks). I guess people will proceed with a class action lawsuit if something unexpected happens in the future. If you want to play it safe, self-custody of your crypto would be the way to go. I'd quickly buy BTC or any other cryptocurrency from Coinbase, and store it in a wallet whose private keys/seed I control. Most people want convenience, so they'll prefer to leave their coins in the hands of a custodian (or middleman).
Fortunately for us, crypto regulations are getting stricter. So exchanges will think twice before "running away with the money". Both Mt Gox. and FTX customers are being compensated for their loss (reimbursement). Perhaps, Coinbase will do the same in case something bad happens in the long run?
