1) A multi-sig product, meaning you can store money using their product purely as a software layer. You control the private keys and you have full autonomy. If they disappear or go bankrupt your money is still as safe as you kept it.
2) USD wallets are kept in an FDIC insured bank account. As a money transmitter without the proper licenses they're not allowed to invest custodial funds or use them to finance business operations.
3) They're pretty reputable. Fred Ersham is one of their principle agents and on their board, just like Chris Dixon. They've got a great legal team, guys from big startups like Facebook or AirBnb as well as big finance firms like Goldman Sachs and Visa. They've received $106m in funding at close to half a billion in valuation and partner with Paypal and process payments for fortune 100 companies worth tens of billions of dollars, their investors include top VC firms, the New York Stock Exchange, a megabank and one of Japan's largest telecom companies. they're registered with Fincen and have licenses in 15+ states. That may not protect them from tech failures, but these aren't the type of people who operate an anonymous company that's super shady and will disappear and leave you with no recourse.
4) They store the vast majority of funds in cold storage. I can't argue how safe this is as not much is disclosed. But I do know that cold storage is pretty easy to set up and that their basic descriptions include a lot of redundancy and distributed trust. The gist of it is that keys never hit any network (not hackable) and are stored physically, encrypted, in locked vaults in the same banks we've trusted with storage of value, and require multiple people in different geographical locations to unlock funds. No system is perfect but this is a very secure system. 97% of funds are stored in this way, you can read a bit about it here:
5) Their bitcoin funds are insured. The insurance includes cyber security, accidental loss and employees going rogue. Insurance is through Aon ($11b revenue in insurance premiums) and they claim only to use A+ underwriters according to S&P ratings.
Again, they're not perfect and there are certainly issues I can point out and more details I'd want to receive more information on. But if I could make a bet on (or an investment into) Coinbase I'd be very comfortable making it.
I do share the sentiment that many exchanges and bitcoin services just aren't anywhere close to bank-grade security. That's just a function of a new and nascent ecosystem. It happens in every industry and it takes a long time to get up to speed. The problem is that bitcoin is extremely sensitive because it's about carte-blance value tokens essentially, it's an extremely sensitive industry for this reason, so there's not much room for amateur-hour. But I think Coinbase, and the likes of say Xapo or Circle, and potentially Gemini, show that we're seeing an entirely different class of entrepreneurs from the likes of say last year's Mt. Gox, already.
Completely holding judgement on Gemini. I know the twins are going to strive for complete regulatory compliance, and that they're already rich and want to build a solid long-term reputable business, not a get-rich-quick scheme, and that they've got the funds to hire the right people and besides financial capital have some human capital in the VC/Tech space in their networks. So there's certainly the potential for this to work out, but we'll have to see.
Their terms: "THE LIABILITY OF COINBASE, ITS AFFILIATES AND SERVICE PROVIDERS, OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, JOINT VENTURERS, EMPLOYEES OR REPRESENTATIVES, TO YOU OR ANY THIRD PARTIES IN ANY CIRCUMSTANCE IS LIMITED TO THE LOWER OF (A) THE ACTUAL AMOUNT OF DIRECT DAMAGES; OR (B) FEES PAID TO COINBASE BY YOU IN THE PRECEDING THREE (3) MONTHS."*
So if you deposit with them, and they lose it, the limit of their liability is limited to the fees you paid them. Which is zero for their so-called "vault".
That's a totally unacceptable EULA for a depository institution.
Their insurance only helps you if you are a beneficiary of the insurance. That's the case with SIPC (all US stockbrokers) and FDIC (all US banks) coverage, but not at Coinbase.
Live by the EULA, die by the EULA. Those guys are no better than the other low-rent Bitcoin exchanges.
Yeah yeah I've heard that convo before. Look I'm not going to argue their EULA puts liability on Coinbase for losses of your funds. And yes I fully agree that in time it'd become ridiculous if they hold on to this part of their TOS (and will probably let it go because large institutions won't be comfortable with the lack of assurance).
But I will argue that if they insure customer funds and say $5m of them get stolen by a malicious engineer (again, noting their security practices this is extremely unlikely) they're not going to tell their customers 'sorry you're all losing money' when they get that money reimbursed and it'd destroy their business to do a greedy one-time money grab like that. Hell we even saw this with Bitstamp who paid for the $10m of lost customer funds themselves, despite zero such liability in their TOS, and despite the fact they were not insured and had to pay it out of their own pockets. (amounting easily all of revenues, let alone profits, for all of 2014 by the way, paid in full by themselves, without any obligation to do so).
To think Coinbase would then not give back these funds to the consumer despite it not costing them and being insured for that is a ridiculous assumption. It goes completely against them continually claiming that customer funds are insured against non-user related losses (e.g. not when a user gives his PW to his friend and he gets his money stolen, but rather say when Coinbase has a fuckup). And yes, I know technically Coinbase is the recipient of the insurance and that the EULA claims it's not liable, it's besides the point.
I mean, what do you think that insurance is ultimately going to be there for? Do you really think Coinbase will insure customer funds, and when they're lost say 'sorry, they're lost', and then keep whatever amount was lost after the insurance pays them out? It's a ridiculous assumption and much less likely than 'we've got you covered, we're not perfect but your funds are safe with us either way'.
So while I appreciate that you're not granted protection strictly by law (although I have my doubts about whether this part of the EULA stands up when it conflicts with so many written and implied statements by Coinbase which yes, do matter in the court of law), I hope you also appreciate that a statement like this:
> Their insurance only helps you if you are a beneficiary of the insurance
Is absolutely myopic. It's more likely that Coinbase will make their customers whole, especially with their insurance policy, than not. To say that Coinbase is no better than other low-rent bitcoin exchanges is also completely ridiculous, even if neither of them were insured, there's a gigantic difference between Coinbase and say Mt. Gox.
1) A multi-sig product, meaning you can store money using their product purely as a software layer. You control the private keys and you have full autonomy. If they disappear or go bankrupt your money is still as safe as you kept it.
2) USD wallets are kept in an FDIC insured bank account. As a money transmitter without the proper licenses they're not allowed to invest custodial funds or use them to finance business operations.
3) They're pretty reputable. Fred Ersham is one of their principle agents and on their board, just like Chris Dixon. They've got a great legal team, guys from big startups like Facebook or AirBnb as well as big finance firms like Goldman Sachs and Visa. They've received $106m in funding at close to half a billion in valuation and partner with Paypal and process payments for fortune 100 companies worth tens of billions of dollars, their investors include top VC firms, the New York Stock Exchange, a megabank and one of Japan's largest telecom companies. they're registered with Fincen and have licenses in 15+ states. That may not protect them from tech failures, but these aren't the type of people who operate an anonymous company that's super shady and will disappear and leave you with no recourse.
4) They store the vast majority of funds in cold storage. I can't argue how safe this is as not much is disclosed. But I do know that cold storage is pretty easy to set up and that their basic descriptions include a lot of redundancy and distributed trust. The gist of it is that keys never hit any network (not hackable) and are stored physically, encrypted, in locked vaults in the same banks we've trusted with storage of value, and require multiple people in different geographical locations to unlock funds. No system is perfect but this is a very secure system. 97% of funds are stored in this way, you can read a bit about it here:
https://www.coinbase.com/security
5) Their bitcoin funds are insured. The insurance includes cyber security, accidental loss and employees going rogue. Insurance is through Aon ($11b revenue in insurance premiums) and they claim only to use A+ underwriters according to S&P ratings.
Again, they're not perfect and there are certainly issues I can point out and more details I'd want to receive more information on. But if I could make a bet on (or an investment into) Coinbase I'd be very comfortable making it.
I do share the sentiment that many exchanges and bitcoin services just aren't anywhere close to bank-grade security. That's just a function of a new and nascent ecosystem. It happens in every industry and it takes a long time to get up to speed. The problem is that bitcoin is extremely sensitive because it's about carte-blance value tokens essentially, it's an extremely sensitive industry for this reason, so there's not much room for amateur-hour. But I think Coinbase, and the likes of say Xapo or Circle, and potentially Gemini, show that we're seeing an entirely different class of entrepreneurs from the likes of say last year's Mt. Gox, already.
Completely holding judgement on Gemini. I know the twins are going to strive for complete regulatory compliance, and that they're already rich and want to build a solid long-term reputable business, not a get-rich-quick scheme, and that they've got the funds to hire the right people and besides financial capital have some human capital in the VC/Tech space in their networks. So there's certainly the potential for this to work out, but we'll have to see.