Since its inception, Coinbase has experienced success, criticism and controversies in equal measure. Among its success is its growth to become among the leading crypto exchanges in the world. Among the controversies are insecure infrastructure and privacy concerns. In this article, we will highlight the history of Coinbase, criticism and controversies the American cryptocurrency exchange has faced through its growth.
Is Coinbase good? While Coinbase is one of the largest crypto exchanges in the world with million of users and million of dollars in daily transactions, we do not advise you to use Coinbase because of many issues such as transparency, privacy, and security. In addition, Coinbase is known for pushing and listing high-risk shitcoins. There are good Coinbase alternatives such as Kraken (global), Swan (global) and Relai (EU and Switerland).
The history of Coinbase goes back to 2012 when the price of bitcoin was just $10. It was founded by Brian Armstrong and Fred Ehrsam, a former Airbnb engineer and a former Goldman Sachs trader, respectively. The American entrepreneur and investor Olaf Carlson-Wee was the first employee of the company. Its name comes from coinbase transactions, which is the first transaction that introduces cryptocurrency into a block.
Its first funding was USD150,000 from Y Combinator startup incubator program in 2012. Since then it has received millions of dollars in funding from venture capital firms and banks. In February 2021, Coinbase parent company Coinbase Global filed for a direct listing to go public with the Securities and Exchange Commission. In March 2021, it fell under review by the U.S Office of Foreign Assets Control due to concerns that it had provided blockchain service to blacklisted individuals or companies. Its estimated value is $47 billion while its first day of trading in April 2021, Coinbase closed at a price of $328.28 per share.
Currently, Coinbase has over 50 million users. As of March 2021, it was the largest cryptocurrency exchange in the United States.
Is Coinbase a wallet? Apart from being a cryptocurrency exchange, Coinbase customers have a choice of a hosted wallet or a non-custodial wallet. The Coinbase app, the crypto exchange where you buy and sell crypto, is a hosted wallet. However, you can also use the standalone Coinbase Wallet app, which is a non-custodial wallet.
Coinbase Controversies and Criticisms
Coinbase has grown to become one of the biggest crypto players in the world. However, there has been a lot of Coinbase controversies and criticisms around its growth. For instance, in 2014, Coinbase faced queries from users and regulators over its fast growth. Among the current controversies, its facing is its plan to sell blockchain analytics software to IRS and Drug Enforcement Agency (DEA) with users fearing the privacy of their information. It is estimated that Coinbase will make over $250,000 from the deal.
In 2016, Coinbase was put under pressure to provide data to the IRS for tax purposes. It gave in to the pressure and it is how it became tax compliant. Since then, many users have been wondering if Coinbase gives private user information to the federal government and third parties. Coinbase stated that it does not share sensitive data with the authorities.
Does Coinbase report to IRS? Does Coinbase provide tax form? Yes, Coinbase reports to IRS and it sends the IRS Form 1099-MISC for U.S. traders who made more than $600 from crypto rewards, stacking and/or fees through Coinbase.com, Coinbase Pro, and Coinbase Prime.
In 2019, Coinbase Neutrino controversy emerged after it acquired Neutrino, a blockchain intelligence platform. Neutrino provides software for law enforcement and financial institutions to investigate and track transactions on the blockchain. Its founders were previously the executives of Hacking Team, a technology company known for selling surveillance technologies to governments around the world. Many users reiterated the move and saw it as a counter to Coinbase’s supposed commitment to democracy and transparency. It gave a statement saying that Neutrino was only meant to make cryptocurrencies safer and easily accessible.
The other issue that Coinbase is facing is criticism over its customer service and insecure infrastructure. In 2017, there was a heated criticism on Reddit over its customer service. Coinbase doesn’t seem to care about the complaints as the problems continued to persist. Some customers complained of having lost their funds or having their accounts frozen. At some point, one of the posts gained over 1,100 upvotes urging Coinbase to return $200,000 deposited funds that had not appeared on the exchange.
Complaints against Coinbase have been growing at an alarming rate with users infuriated since there is nothing being done towards their complaints. This has given room for competitor cryptocurrency companies like Kraken to grow after people started to leave Coinbase. Coinbase also faced challenges with banks like Barclays that started to fine users who traded in cryptocurrencies using their accounts.
To mute the many complaints, Coinbase CEO Brian Armstrong asked the users to embrace private transactions. However, the company went ahead to blacklist anonymous transactions.
In 2016, Coinbase faced a significant lawsuit that emanated from a scam known as Cryptsy. The Coinbase class action lawsuit came to a close in 2019 with the company having to hand out almost $1 million to Cryptsy victims.
Coinbase also faced another legal tussle with IRS. In late 2016, Coinbase was forced to provide users’ data to the IRS for tax purposes. Finally, Coinbase had to give in to the pressure and provided users’ data in 2018 and it became tax compliant.
Coinbase Security: Has Coinbase Ever Been Hacked?
One of the questions that have been emerging from the criticism and controversies surrounding Coinbase is whether funds are safe. This is especially due to the fact that many users see Coinbase to be having poor infrastructure that threatens the security of their funds. The truth is that there hasn’t been any hack so far and also, Coinbase is FDIC-insured. However, in 2019, there was a failed hack into Coinbase infrastructure.
The Future of Coinbase
With the many criticisms and controversies surrounding Coinbase, the question remains, what is the future of Coinbase? Is Coinbase good or bad? Although some criticisms are serious than others, all are significant and have an effect on its future. The most worrying thing is its dealings with DEA and IRS. Its users are worried about their private information regarding cryptocurrencies getting into the hands of the authorities.
The company has failed to fix issues in its customer care service and the frequent outages due to infrastructure. What it means is that its users have to cope with its challenges and especially about privacy protections. With many of its users moving to migrate to competitor companies, Coinbase may lose a significant market share if it does not address these issues.
Final Thoughts on Coinbase Cryptocurrency Exchange
At the moment, Coinbase is among the most used cryptocurrency exchanges in the U.S. The challenges have given other competitors like Kraken and Swan a chance to grow and amass a significant market share. Although Coinbase has a large market share, it is likely to see lose it for failing to work in infrastructural improvement, transparency and privacy concerns.