- Coinbase recently announced that 6,000 users had been affected by a hack earlier this year.
- Coinbase is still relatively secure, and users that use strong credentials should have little to worry about.
- Coinbase isn’t insured by the SIPC, but it does carry crime insurance that protects some digital assets from theft and cybersecurity breaches.
- Visit Insider’s Investing Reference library for more stories.
Few crypto-trading platforms are as popular as Coinbase. But like all other trading and investing platforms, it has its risks. Case in point: At least 6,000 Coinbase users were hacked and had funds stolen from their accounts earlier this year, the platform disclosed to customers in early October.
Instances like this serve to shake users’ confidence in platforms like Coinbase, which leads to an obvious question for many: Is Coinbase safe? For most users, the answer is “yes.” But as always, there are some things users should know in order to gauge the risk for themselves.
Is Coinbase safe?
In a general sense, Coinbase is safe to use — or, at least as safe as any other crypto-trading platform, says Roman Faithfull, a photon cyber threat intelligence analyst with Digital Shadows, a company specializing in digital risk protection. “It [entails] the same risk as investing,” he says.
To create an account on Coinbase, users need to supply some basic information, much as they would if they were opening a brokerage or bank account. For prospective users, that includes your full legal name, an email address, a password, a phone number, and a valid government-issued photo ID, which includes your date of birth, address, and the last four digits of your Social Security number, too.
Again, fairly standard stuff for opening an account of almost any type.
As for the rules and regulations that Coinbase abides by, it depends on the jurisdiction, according to the company. But in the US, Coinbase complies with the Bank Secrecy Act, the USA Patriot Act, and local state laws and regulations. “Aside from security protocols, cryptocurrency exchanges in the US and the UK must abide by anti-money laundering (AML) and know your customer (KYC) policies,” says Faithfull. This requires financial service providers to try and verify the identity of users.
Coinbase is not insured by the Securities Investor Protection Corporation (SIPC), like other cryptocurrency brokerages. It does carry insurance, but users who lose their holdings as a result of a third-party accessing their account as a result of a breach or losing their credentials are not covered.
The risks of using Coinbase to buy, sell, and trade crypto
As with any trading platform, there are risks associated with using Coinbase. Here are a handful of them:
- Cybersecurity threats: From losing your credentials in a phishing scam to a cyber security breach, there’s always a chance that users could end up having their information, or holdings, exposed to an unauthorized third-party.
- Questions abound regarding regulation: In the US, regulation regarding cryptocurrency is still up in the air. But at some point, new rules are likely to land, and depending on what shape and form those rules take, it could have big implications for crypto investors.
- Getting in over your head: While Coinbase does provide educational materials to users, it can be easy to get in over your head with little or no experience. For new users, or crypto newbies, take the time to learn the lay of the land, or consult a professional before making an investment.
- There are risks associated with cryptocurrencies: Crypto is inherently risky, speculative, and volatile. There’s a chance that your purchase today could plunge in value tomorrow. That’s an important thing to remember, especially for budding crypto investors.
Can you get scammed on Coinbase?
Yes, you can get scammed on Coinbase — and almost any other platform, too. That’s something to keep in mind: You’re almost always assuming some level of risk when using an investing platform, whether it’s concerning cryptocurrencies or stocks. But aside from that, experts say there aren’t necessarily special risks associated with using Coinbase.
“There’s no inherent risk” to using the platform, Faithfull says, adding that much of the risk users do assume mostly “depends on the credentials you use.”
This is what happened with the 6,000 users that saw their holdings and funds stolen earlier this year. Hackers used a tried-and-true method to do it, too: phishing. This allowed the hackers to exploit Coinbase’s two-factor authentication process and gain access to users’ accounts.
A phishing scam involves tricking unsuspecting users into supplying their usernames and passwords to a hacker, often using an email or text message that appears to be from a platform on which they have an account. While often not very sophisticated, it’s a common scam, and with a user’s username and password, a third-party can, in many cases, defeat the two-factor authentication system and access a user’s account.
From there, a hacker can change the account’s credentials or transfer the account’s holdings. And phishing is, of course, just one possible course for scammers. Faithfull says that using an authenticator app, along with two-factor authentication, could “significantly increase users’ security.” But even that wouldn’t be invulnerable, he adds.
The best and perhaps easiest thing to do to keep your account safe, Faithfull says, is to create a new email address — one that you don’t use for anything else — and a password you’ve never used before, anywhere. Also, he says don’t broadcast that you have crypto holdings. “It’s similar to bragging about having cash in your wallet,” he says, and could attract unwanted attention.
If you do find that you’re being targeted as a part of a phishing scam (or other type of scam), you can report it to Coinbase directly.
The financial takeaway
Coinbase is one of the biggest and most popular crypto-trading platforms out there, and in terms of safety, using it puts users at no more risk than using most, if not any other platforms. Users can take security into their own hands, too, by creating hard-to-crack passwords and using novel email addresses.
And while there’s always risks associated with investing (especially when investing in cryptocurrency), Coinbase users and prospective users would do well to research what they’re getting into before opening an account.