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Storing significant amounts of Bitcoin or altcoins in a wallet hosted by a cryptocurrency exchange generally isn’t recommended. Exchanges are frequently targeted by hackers who, according to estimates, collectively stole over $1bn during 2020. But one company, Coinbase, is aiming to buck the trend and show that digital assets can be stored just as securely as traditional money.
As the original fiat-to-crypto exchange, Coinbase has worked tirelessly to develop its security measures and offer its customers with a highly secure way of storing their coins and tokens. To date, Coinbase has never been hacked, so what’s its secret? Here are five reasons why Coinbase is the world’s safest cryptocurrency exchange.
All USD deposits are FDIC-insured
While more and more financial activity has moved online natively over recent years, a future where people are paid in crypto and can pay for things on a peer-to-peer basis remains a distant dream. Most people still need “on-ramps” and “off ramps” if they want to use the money they earn to buy, save, or trade cryptocurrencies. Coinbase was the original “on ramp” that made it possible for anyone to easily buy different cryptocurrencies. But it still faced a challenge; people were wary of sending their hard-earned money to an exchange.
To combat this, all US dollar deposits stored in USD wallets on Coinbase are fully insured by the Federal Deposit Insurance Corporation (FDIC) up to a maximum of $250,000. This gives Coinbase customers peace of mind that even if the exchange is hacked or their accounts are compromised, any US dollars deposited with Coinbased are insured.
All digital assets on Coinbase are fully insured
The second reason why Coinbase has earned a reputation for being the safest cryptocurrency exchange is that it covers all of its customers’ deposits with a comprehensive insurance policy. Digital assets aren’t FDIC-insured as they are not legal tender, but all digital currency stored on Coinbase’s servers are covered by an insurance policy. This gives Coinbase customers a level of protection in the event that the exchange was hacked or its security compromised.
It’s important to note that this insurance policy only covers breeches of Coinbase’s security and it does not cover funds that are stolen due to “user error”. For instance, if a Coinbase customer falls victim to a phishing email or unwittingly reveals their account’s login details, these instances would not be covered. For this reason, customers are also advised to consider buying their own insurance policy if they want to store large amounts of cryptocurrency in their Coinbase account.
Coinbase’s “Custody” addresses most security concerns
In 2017, Coinbase launched a new company, Custody, with the aim of ensuring that all fiat currencies and digital assets are properly safeguarded at all times. The service has strict financial controls including support for setting withdrawal limits, audit tails,whitelisting IP addresses, and multiple signers. Custody is subject to regular security audits by external firms to ensure that it meets the highest possible standards.
Coinbase has made significant efforts to win over security conscious investors and traders, and offers dedicated account representatives and phone support to all Custody users. This assists customers by confirming fund transfers and making changes to accounts. Customers who use Custody can also set their accounts to be multi-user accounts. This lets teams of people work together using one account, with each member having separate permissions.
Coinbase stores 98 percent of customer deposits offline
While Coinbase’s Custody service has gone a long way towards addressing the concerns of customers and investors, the exchange still recognizes that significant threats remain. One of the main reasons why hackers are able to steal such vast amounts of cryptocurrencies from cryptocurrency exchanges is that exchanges store their assets in “hot” wallets, i.e. wallets that are connected to the internet or stored on devices like computer hard drives that are online. Coinbase took a different approach and currently stores up to 98 percent of its customer deposits offline on a variety of hard drives and paper wallets.
This approach means that Coinbase is far less susceptible to hacks in the way that other exchanges may be. With just two percent of customer deposits stored online at any one time, the chances of any Coinbase customer having their funds stolen during a hack are vastly reduced.
Coinbase runs a dedicated “Bug Bounty” program
When it comes to security, Coinbase’s team hasn’t idly sat around, waiting for their exchange to be hacked. They have a dedicated “Bug Bounty” program and offer rewards to security researchers who identify software security issues and vulnerabilities within their platform’s back-end. Researchers who discover flaws and issues are eligible to collect rewards of up to $50,000.
While current best-practice is not to store significant amounts of cryptocurrency on an exchange-hosted wallet, Coinbase has so many protections and safeguards in place that it is easily the world’s safest cryptocurrency exchange. Customers who set up two-factor authentication (2FA) on their account face relatively little risk in terms of having their accounts compromised. This makes Coinbase the best exchange for anyone looking to safely buy and trade bitcoin and other cryptocurrencies in 2021 and beyond.