Is Coinbase Safe?

Cryptocurrency firm Coinbase, which runs one of the leading trading platforms for bitcoins and other digital currencies, reached a market value of nearly US$100 billion at its IPO in April.

The stock debuted on the Nasdaq for $381 but later closed below $330. The initial valuation put Coinbase ahead of many well-known companies, such as oil giant B.P. and significant stock exchanges.

The listing was seen as the latest step for cryptocurrencies to gain wider acceptance among traditional investors. The bitcoin price surged more than 300% last year and has risen further in 2021, as companies such as Tesla, Mastercard, and BlackRock revealed plans to incorporate digital currencies into their businesses.

Before Coinbase's IPO debut, the company hit a record high of over US$63,000. This record is not an isolated case among cryptocurrency platforms; even lesser-known digital currencies have also made gains, as was the case with dogecoin, which was created as a joke, and rose over 70% to around US$0.13 in a short amount of time.

Coinbase, based in the U.S., makes money primarily by charging transaction fees. Based cryptocurrency exchange makes money mainly by charging transaction fees and has benefited from the growing demand—"Barometer" of cryptocurrency. At the end of March this year, Coinbase, which was founded in 2012, had more than 56 million users in more than 100 countries and some US$223 billion in user assets. The company reported US$1.8 billion in estimated revenue in the first three months of 2021, more than its total for all of 2020, after interest in bitcoin and other digital currencies have surged.

Compared to 2018, when investors estimated Coinbase to be worth $8 billion during the private funding round, the company's value has increased more than 10-fold. At the current share price, Coinbase co-founder and CEO Brian Armstrong stand as one of the wealthiest people in the world. The 38-year-old, a former software engineer at Airbnb, owns approximately 21% of the company.

For outside investors, buying shares on Coinbase is seen as a potentially less risky way to take advantage of activity in the cryptocurrency market than investing directly in bitcoins or other digital currencies, something that has put financial regulators on alert.

But Jane Foley, an F.X. strategist at Rabobank, points out that if stricter rules are enacted, they could change Coinbase's prospects. "There's a lot of concern that at some point the regulators, the central banks, will just say, 'well, no,' and make this a lot harder, and a lot of people will then lose a lot of money," she told the BBC in an interview.

Last year, Coinbase's revenue reached US$1.3 billion, more than double that in 2019. In addition, profits were US$322 million, compared to a loss of more than US$30 million in 2019. Today, the company has a valuation of more than US$86 billion.

How Coinbase works

Coinbase can be used both on your mobile phone and through its website. On them, the first page you will see is the home page, where you will have all the information you need. For example, you can see the value in real money of your assets, the evolution of the value of the main cryptocurrencies, decide which ones you want to be shown, and see a summary of the most important news of the sector.

At the bottom of the app, you have the Trade button, which appears at the top right on the web. With the Trade option, you will buy, sell, or convert your cryptocurrencies into different ones. Before accepting the operation, you will always be shown the commission that you must pay to have everything clear in any of the cases.

You will see a bar with other options at the bottom of the app or the top of the web. The first one is the Portfolio, where you can know the status of your assets by visiting the money you have in the different cryptocurrencies and their evolution. On the Coinbase website, this information also appears on the home page, but it is deliberately on the Portfolio page in the app.

How reliable is Coinbase?

Is Coinbase a scam, and is it a safe broker? There is no evidence that Coinbase is a scam. The reviews of its users are very positive. The website is secure to buy and sell bitcoins and other cryptocurrencies. Coinbase has an excellent international reputation. Apart from licenses as a money transmitter, the company is registered with FinCEN.

So that there are no doubts about fraudulent uses, the company keeps the funds of non-US customers in accounts separate from those in which it holds its funds. This way, you can ensure that Coinbase does not use the money for anything other than your investments. In addition, at Coinbase, you can create what they call a Vault, where you can store your money with additional security measures so that no one can take out or invest that money without passing them. It is a way to have liquidity on the platform but has the money more protected.

Without doubting the different opinions expressed about Coinbase, our impression is that, in general, it is a reliable broker. The assets to invest with Coinbase are many cryptocurrencies that are gaining space among the preferences of investors. In addition, the company's reputation makes it very attractive on the international market, preferably in the United States, where it has gone public.

Safety and regulations

Apart from the vaults we discussed earlier, you should know that the website is encrypted with SSL technology and that you can set up a two-step authentication system so that anyone who wants to access your account must have access, apart from your password, to the authentication tool. So today, it is pretty standard on the network for transactions and communications that must be protected, and the opinions about the security of Coinbase are very positive in this regard.

The company's servers have AES 256 encryption, which the most secure companies use, such as banks. To increase security, and due to the attacks that have occurred to this type of system based on mobile phones, this company works with the Google Authenticator system, Duo, or Microsoft Authenticator, or any other app One-Time Password (OTP) system.

Laws applicable to the company include the Bank Secrecy Act, which requires them to verify customers and keep a record of activities, balances, etc., for five years. The USA Patriot Act requires an auditor to ensure they comply with all U.S. laws.