Convenience Comes With a Cost on Coinbase

In the madness of the 2017 Bitcoin bull run, United States-based exchange Coinbase managed to quickly grab the lion’s share of the market. If you take a look at app store downloads in 2017, you’ll see that Coinbase was dominating even the most popular social media apps. Users were flocking to the app store to download Coinbase and acquire crypto, and the price subsequently reached all time highs. The glory of Coinbase was that users did not need to know everything, or really anything about cryptocurrency in order to ride the wave and profit; you could simply download the app, put in some personal info, connect your bank, and start acquiring crypto. The fact that Coinbase holds your coins for you was seen as an added bonus for crypto-rookies, unaware or unconcerned with the fact that they did not have ownership of their private keys. Convenience was key to Coinbase’s success, but unfortunately, convenience comes at a high price. 

Cost of Convenience

Coinbase appealed to users with their simple interface that provided a relatively good user experience when compared to most other crypto exchange options at the time. However, what some users did not have the foresight to realize is that acquiring crypto is only half the battle. If you amass a large amount of crypto and keep it on the Coinbase app, your funds are only as liquid as Coinbase wants them to be. This week, a reddit user was made aware of Coinbase’s ability to enforce limitations first-hand, as his daily withdrawal limit was reduced to $10 USD. Doing some quick math, if you happened to make $1,000,000 during a bull run, it would take you approximately 274 years to withdraw all of your funds. I really cannot imagine a more tortuous scenario than making an incredibly profitable trade and then being denied access to your funds. But remember, when the crypto is kept on an exchange, they are not technically your funds. 

Photo: https://i.imgur.com/4tSBgoD.png

Exchanges Aren’t All Bad…

The goal of this story is not to scare you away from exchanges, rather, it is to make you aware of their potential ability to exercise power over your funds. Many exchanges still provide great services, and some even provide interest to incentivize users to keep their funds on their platform. Exchanges are becoming aware that the convenience of the service that they offer is not enough to override people’s desire to have control of their private keys.

Just a One Off?

With all that said, it is highly unlikely that this event was anything more than a one-off occurrence. If you keep your funds on Coinbase, there is no reason to panic, you are probably going to be fine as long as you are not participating in any illicit activity. That may be exactly what happened here; this user may have had sanctions placed on his account due to a history of participating in criminal activity using Bitcoin. Although Coinbase has yet to release a statement regarding the incident, it is highly unlikely this was a random restriction. Regardless, their ability to add restrictions at will is something that is concerning to members of the crypto community.

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