The Bitcoin frenzy has turned out to be a boon for Coinbase.
The San Francisco-based company that was founded in 2012 has gained massive popularity thanks to the rising value of Bitcoin, as it gave users just what they needed to jump on to the cryptocurrency bandwagon.
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Coinmama allows customers in almost every country to buy bitcoin. They charge a 4.9%-5.9% (depends on volume) fee on each purchase.
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Bitpanda is a Bitcoin broker based in Europe.
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The popularity of Coinbase can be judged from the fact that it had 13.3 million accounts in November 2017 as compared to 5.5 million at the beginning of that year.
In fact, Coinbase was adding around 100,000 new customers daily in late November 2017, and the exponential growth seems to have continued through 2019 and on into 2020.
Coinbase Investor Alistair Milne pointed out in one tweet that in 2019, Coinbase added a whopping 8 million new users.
That is a definite drop in the rate of new users from the 2017 figures, but considering that 2019 was a majorly bearish year for Bitcoin, that is still quite an achievment.
And Coinbase now reports it has over 35 million user accounts.
Coinbase even far surpasses the number of active accounts on Charles Schwab, one of the US’s largest stock brokerages.
Below are Charles Schwab’s total active accounts by year (source: Charles Schwab)
That’s not very surprising if we consider that this cryptocurrency exchange gives users a wide variety of options to manage their investments. The brokerage side of Coinbase’s business allows retail customers to purchase cryptocurrencies such as Bitcoin with their bank accounts. Meanwhile, the exchange side of the business is for traders to sell and purchase cryptocurrencies by placing bids and offers.
Notably, Coinbase supports more than 50 fiat currencies and cryptocurrencies such as BTC, USDC, ETH, LTC, ETC, and ZRX. So, Coinbase provides a lot of features to users looking to get in on the cryptocurrency boom, and this is why it has proven to be so popular so far.
More than $6 billion worth of digital currency has been exchanged on Coinbase as the company has expanded its operations to 33 countries globally, making it the largest Bitcoin exchange globally.
However, this doesn’t mean that the platform is without any flaws. Just 28%, or 7 million, of the total number of accounts on Coinbase are funded. Of those 7 million accounts, just 600,000 users are actively trading on Coinbase’s platform.
There are many reasons you might not want to do your trading or buying on Coinbase.
Many Bitcoin enthusiasts got into Bitcoin because they like the fact that there is a cap on supply. This prevents inflation from occuring.
However, if a large institution like Coinbase is holding enough coins on deposit, they can use them to manipulate the market. As long as enough people don’t withdraw their coins at once, it will always appear as though your coins are sitting in your account.
Here is a short one-minute video of how fractional reserves works
This is called fractional reserve banking (because the institution only has a fraction of the total number of coins on deposit). This is a way around the supply cap because when you deposit your coins on Coinbase, you essentially have an IOU from coinbase for your coins. Coinbase may actually be using your coins to trade or manipulate the market. There is no way of knowing for sure unless you go to withdraw your coins. And even if they can give you your coins, they may have just taken them from another depositer.
This is what happened with Mt. Gox and Bitfinex’s Tether.
We now have a way for exchanges to cryptographically prove they have full reserves via Blockstreams Proof of Reserves tool.
That Coinbase has not agreed to this audit indicates they do not have full reserves on deposit and so
That is almost once every 3 days…
And this can be very aggravating if you are trying to sell or buy or move your coins during major market movements and you cannot do it.
Imagine you need to change a buy order on coinbase because the market is moving against you and you are met with this screen:
That is what thousands of traders were met with on a daily basis in 2017.
Coinbase maintains that these outages and delays are due to various technical issues. But many users wonder if it is to take advantage of market conditions using user funds.
Regardless of the reason, if you want an exchange that has a more reliable server status, one of the exchanges listed above may be a better fit for you.
In 2019, Coinbase announced they had acquired blockchain analysis firm Neutrino. What they did not mention at the time (but was discovered in the following week) was that Neutrino was founded by ex-Hacking Team members.
According to Wikipedia,
HackingTeam is a Milan-based information technology company that sells offensive intrusion and surveillance capabilities to governments, law enforcement agencies and corporations. HackingTeam has been criticized for selling its products and services to governments with poor human rights records, including Sudan, Bahrain, Venezuela, and Saudi Arabia.
Coinbase had effectively hired a blockchain spyware development startup to monitor user on their platform. Vice ran an editorial on Neutrino’s past and Coinbase acknowledged it, but initially brushed it off.
One week later, Coinbase agreed to “transition out” the members of Neutrino who had previously been a part of Hacking Team.
We took some time to dig further into this over the past week, and together with the Neutrino team have come to an agreement: those who previously worked at Hacking Team..., will transition out of Coinbase.
The damage had been done, though. Many Bitcoiners called on others to #DeleteCoinbase.
We now know that Coinbase is utilizing Neutrino’s tech to discover as much as they can about your transactions on their platform.
And Neutrino’s story doesn’t end here.
In June of 2020, US governmental contracting disclosure documents surfaced showing that Coinbase had bid on a contract to supply the IRS and the DEA with data designed to doxx the identities behind Bitcoin addresses.
The following month in July 2020, it was also discovered that Coinbase had secured a 4 year contract to provide this data to the US Secret Service.
Brian Armstrong had this to say about the situation:
It's expensive to build this capability, and we want to recoup costs. There is an existing market for blockchain analytics software, so we sell it to a handful of folks as well. It also helps us build relationships with law enforcement which is important to growing crypto.— Brian Armstrong (@brian_armstrong) July 12, 2020
If that is something that you’d prefer to keep to yourself, you may want to choose a different exchange.
There are a few more Coinbase alternatives out there that users can consider.
For instance, Gemini is one of the fastest-growing Bitcoin exchanges globally, but it supports limited areas such as the U.S., Canada, Hong Kong, Singapore, South Korea, and the United Kingdom.
However, Gemini’s advantage is that it doesn’t charge fees for wire deposits or withdrawals.
Kraken is another notable Bitcoin exchange out there, but it ran into operational issues earlier this year that led to a website downgrade and other performance-related problems.
If you are interested in trading ETH and ERC20 tokens and prefer to use decentralized exchanges, then the biggest one right now is Uniswap.
On Uniswap, users can trade between various trading pairs via Uniswap’s smart contracts without handing over their coins to centralized exchange. Instead they are deposited into the smart contract which then handles the trades.
The most interesting thing about Uniswap right now though is that its trade volume recently eclipsed that of Coinbase’s.
Coinbase is a solid exchange and broker for newcomers and seasoned pros alike. It has a long history and no major hacks. They even reimbursed some of their users when a flash crash in ETH wiped out a lot of users holdings due to automatic sell orders on the orderbook. This was something Coinbase was certainly not obligated to do and speaks to their longterm plans to be a major institution in the crypto space.
However, some of the above negatives have caused many to second guess whether they want to hand over their money and their personal data to Coinbase when there are so many other great alternatives out that that demand less of their users and offer just as many features. We have listed out our favorites above in case you too decide Coinbase is not the exchange for you.