Coinbase Shares Poor Earnings and Warns That Bankruptcy Could Wipe User Funds

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  • Coinbase’s ease-of-use key holding system makes it easier for users to log in, but takes away their control over their own account.
  • While loss of users' coins is subject to legal proceedings in the event of the company’s bankruptcy, it is still a possibility.
  • Storing your coins with an exchange might be easy, but holding your coins in a separate wallet provides better control and security.

Coinbase doesn’t promise you’ll get your coins back if it goes bankrupt. Should you keep using the company?

Editorial Update

On June 6, 2023, the Securities and Exchange Commission (SEC) filed a lawsuit against Coinbase, stating that the company had facilitated the buying and selling of crypto securities. For additional information, check out our coverage here.

Coinbase shared its disappointing earnings during the year’s first quarter, reporting big losses and warning users that the coins they hold with Coinbase could be forfeited in the event of the company’s bankruptcy. This announcement flies in the face of users’ trust, declaring that the assets they have entrusted to Coinbase will not be actively protected by the company during bankruptcy.

The law is not entirely clear on this dilemma, as digital currency is an emerging field with many complex qualities. While some of the company’s leadership is assuring users that bankruptcy is unlikely, Coinbase’s declaration could see many users transitioning away from services like Coinbase Wallet and other exchange-controlled methods of storing cryptocurrency for fear of losing claim to their coins.

Coinbase keys

Coinbase attempts to make account management easy for the user by holding onto their wallet’s private keys for them, and permitting them access through a simple password. Some users prefer this, as the responsibility of holding onto a private key can be rather daunting. If you lose it, you could lose access to your coins. With Coinbase, you do not need to worry about losing your private key. Giving Coinbase this responsibility, however, comes at a cost. By allowing Coinbase to hold your private key, Coinbase has the final say when it comes to your account’s access. The ultimate control over your account no longer belongs to you, even though it might be your money in that account. With Coinbase’s new announcement regarding bankruptcy, many investors who started their crypto investments with Coinbase are encouraged to take back control over their own coins or risk losing them.

Ease now, loss later

Because of the uncertainty around cryptocurrency laws, Coinbase’s potential bankruptcy could result in many different outcomes. There is a chance that users’ coins could become part of the settlement, leaving them with no claim to their own currency. While some users have opted for the ease-of-access that Coinbase has offered by controlling their keys, this ease could soon result in coin loss. In order to ensure the safety of their crypto, Coinbase users should hold their own coins in secure cold storage wallets for maximum security.

The bottom line

As Coinbase announces its uncertainty about their users’ coins should it go bankrupt, many users are given a very tangible reason to take control over their wallets. The loss of users’ coins due to Coinbase’s bankruptcy is only one potential future of many, yet the fact that the company is openly proclaiming this possibility is giving users cause for concern. Many faithful users of exchange-managed crypto wallets could see a decrease in their user bases, as many transfer their coins to their own wallets for safekeeping. This might involve some extra effort on the part of coin holders, but it would ensure that those users maintain the control over access to their coins.

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