Coinbase just migrated $5 billion worth of its users’ cryptocurrency to a new storage system. The move aims to improve the security of user funds on the platform.
What is most concerning, however, is the sheer volume of cryptocurrency being held on Coinbase. The $5 billion migration reportedly included 5% of all bitcoin in circulation, 8% of ethereum, and 25% of all circulating litecoin.
Earlier this month, Coinbase moved 5% of all BTC, 8% of all ETH, and 25% of all LTC in circulation to our next-gen secure cold storage. Here’s how we did it. https://t.co/8TJ6S97BnW
— Coinbase (@coinbase) December 19, 2018
There are three concerns with this.
Centralization – a huge chunk of litecoin is stored in one place and controlled by one company.
Threat of hacks – if the Coinbase custody platform were to be hacked, the attackers could theoretically steal, and therefore control, a quarter of litecoin supply.
Ownership – it means that a huge proportion of litecoin owners don’t actually own their litecoin. Coinbase holds the private keys instead.
Admittedly, Coinbase does have strong security credentials (95% of its funds are held in cold storage and the remaining 5% is insured). The exchange is also fully regulated which should protect it against fraud and reduce the likelihood of hacks.
However, leaving your coins on an exchange platform remains a high-risk strategy. Not to mention you are trusting a third-party to look after your cryptocurrency. If you don’t have the private key yourself, you don’t technically own it.
As crypto expert Andreas Antonopoulos says, “Not your keys, not your bitcoin.”