In 2020 the cryptocurrency market is finally starting to get the recognition it deserves as a technology as revolutionary as the internet itself. People are scrambling to get setup with the right services to buy and store their cryptocurrency. For most people Coinbase is the easiest way to convert paper money into digital currency. But is Coinbase safe to store your funds or link your bank account to? We’ll dive deep into that here.
Coinbase is a company founded in 2012 and based in San Fransisco, CA. According to Wikipedia they’re a digital asset broker which allows users to buy, sell, send, receive, and store many of the largest cryptocurrencies:
- Bitcoin (BTC)
- Bitcoin Cash (BCH)
- Ethereum (ETH)
- ERC20 Tokens — These are ICO’s launched on Ethereum
- Litecoin (LTC)
If you’re here, chances are you’re already interested in investing in cryptocurrencies like Bitcoin, Ethereum, or Litecoin. The next step is to bridge the gap and learn how to actually get in the market (and stay in the market by safely storing your crypto).
Coinbase is the most accessible platform for users in the United States and most other western nations as far as what it allows users to do: buy, sell, send and receive BTC, BCH, ETH, LTC, and they’ve recently announced they’ll soon be offering ERC20 tokens. You can purchase the cryptocurrencies with credit card, debit card, or with a bank account.
This makes it really attractive especially for first time cryptocurrency investors because it’s so easy to get into the market. It’s so easy that it’d honestly be a challenge to screw up on Coinbase by user error.
But accessibility isn’t what you’re here for, the big question is:
Is Coinbase Safe?
There are three points when it comes to the safety and security of Coinbase:
- Digital currency insurance
- FDIC insurance
Security Team at Coinbase
Coinbase invests heavily in cybersecurity to prevent hacks on their system. The Director of Security at Coinbase, Philip Martin, was a founding member of the Palantir security team, a Counterintelligence Agent in the US Army, and a whole host of other impressive accomplishments. Philip built and oversees an elite team of cybersecurity experts from Silicon Valley and all around the world to monitor and protect your investments 24/7/365.
Imagine if hundreds of the smartest people in cybersecurity were watching your investment in real time, keeping an eye out for suspicious activity.. pretty comforting right?
Digital Currency Insurance
When you store your digital cryptocurrency on Coinbase, it’s protected by a third-party insurer against theft and hacking. In the event that Coinbase’s elite security team isn’t able to stop a hacking attempt, the third-party insurer will step in and reimburse users for their loss. This is an entirely separate insurance policy from the FDIC insurance for USD deposits.
FDIC Insurance for USD Deposits
With Coinbase it’s possible to deposit and store US Dollars, not just cryptocurrency. When you do that, you’ll be fully insured just like with the digital currency insurance above. But we aren’t just talking any insurance, we’re talking full FDIC backing by the United States Government. This means if your account gets hacked, you aren’t going to rely on some insurance company to put up a stink about why they shouldn’t pay out the claim.
You’ll literally have the same FDIC on the dollars you’re storing in Coinbase as you do on your savings account dollars. It’s pretty hard to find fault with that!
So really though, is Coinbase Safe?
Yes. Overall Coinbase is extremely safe. But don’t leave yet, there is a bit of a caveat. They’ve been vetted the same as other giant US Financial institutions – so if you trust your money sitting in your bank account, then I’d say you’re fine with using Coinbase for general purposes.
I wouldn’t necessarily recommend you store your cryptocurrency on Coinbase, but it’s a fantastic place to convert USD to bitcoin. For storing crypto, there’s really no other option other than to get a hardware wallet like the Ledger Nano S (these have insane demand and can be out of stock for months, I’d recommend getting one ASAP!)
The Ultimate Crypto Starter Pack
Are you looking for a starter pack to get into not just bitcoin but the other disruptive technologies that blockchain is unleashing? If I was starting over from scratch, I’d get these three things and be set:
- A free Coinbase account to convert dollars, euros, pounds, etc into the big cryptocurrencies. (We both get $10 of free bitcoin with my referral link below)
- A hardware wallet like the Ledger Nano S (so popular they’re often sold out for months, stock up while you can) – this is the only thing on the list you’ll have to pay for, and it’s the absolute most important. Before I had a hardware wallet I was constantly stressed out storing coins on exchanges and keeping track of private keys and seed words for wallets. It’s insanity, and I wouldn’t wish that on my worst enemy. Just suck it up and get one, it’s the only thing you need to buy to have your own bank at home. ***Only buy these off the official Ledger site, there are many stories of scammers on Amazon, eBay and other places online selling compromised Ledger’s as new, including a guy who lost $35k. These things are in such high demand, Ledger has no reason to be selling them for a discount through other channels.
- The free Google Authenticator app – two-factor authentication (2FA) dramatically reduces the ability to have someone hijack your accounts. This is the biggest thing you can do to keep online accounts from being hacked, and not only cryptocurrency accounts. Are you aware if a hacker gets your email password from a keystroke logger they can then go in and reset all your passwords around the web by using the “Forgot Password” link on websites? Give up access to your main email account and all of a sudden your bank, credit card, brokerage accounts, and all the other things you’ve signed up for are compromised. Start using 2FA on all your important online accounts today!
Coinbase in Canada and Australia
Unfortunately operating an international cryptocurrency exchange that plays by the governments’ laws means that there are no universal answers when it comes to Coinbase.
For example, at the time of writing Australian and Canadian Coinbase users are able to purchase, send, and receive cryptocurrency. Notice something missing? They can’t sell! For whatever reason you can’t yet sell your cryptocurrency on Coinbase if you’re from these two countries.
That doesn’t mean that it’s a one way street though. If you want to cash out you can always just sell it on one of the first peer to peer bitcoin trading sites, LocalBitcoins. You can go straight to the Canadian site or the Australian site.
Coinbase in the United Kingdom
If you’re in England, Scotland, Whales, or Northern Ireland don’t stress too much. You’ll be able to buy & sell on Coinbase. There’s a bit of an extra process involved to get it done though. You’ve got to do a SEPA transfer or a 3D Secure debit/credit card.
Taken from Coinbase:
The following steps will get you started:
- When logged into your account, go to the payment methods page.
- Click ‘Add a Credit/Debit Card’ at the top of the page.
- Enter your card information (The address must match the billing address for the card).
- If needed, add a billing address for the card.
- You should now see a window that says ‘Credit Card Added’ and a ‘Buy Digital Currency’ button.
- You can now buy digital currency using the ‘Buy/Sell’ page anytime.
The following steps will walk you through the 3DS purchase process:
- Go to the ‘Buy/Sell Digital Currency’ page
- Enter the desired amount
- Select the card on the payment methods drop down menu
- Confirm the order is correct and click ‘Complete Buy’
- You will be directed to your bank’s website (Process different depending on bank)
Coinbase Security FAQ’s
Is Coinbase the MOST Secure Bitcoin Wallet?
Ehh that’s a tricky question. For storing your US dollars yes. I don’t think I have to explain how secure FDIC is, or that the US Government wouldn’t offer FDIC to an unsecure partner to begin with.
For cryptocurrency it’s a different story though. The most secure way to store your Bitcoin or Ethereum will definitely be with a hardware wallet like the insanely popular Ledger Nano S. If you’d like a full review of the different wallets that are available, check out our ultimate guide to cryptocurrency wallets (if you don’t feel like reading it, I recommend a Coinbase account and a Ledger Nano S wallet).
Should I set up Two-Factor-Authentication 2FA?
YES. This is so easy to do. Please do yourself a favor, download the Google Authenticator App and just do it!! The fastest way to get hacked and lose all of your investment is to not double protect your account. This will make it so you and only you have the code to access your account. Don’t test it!!
What if someone hacks into Coinbase and steals the USD I have deposited there?
This is a bit tricky Let’s say you have $1,000 in USD in your Coinbase wallet. As far as I can tell if a hacker gains access to your account and they withdraw your USD, you will be covered by the FDIC for up to $250,000 of deposits, just like your bank does.
But let’s be real, there’s no way a hacker would do it this way. If they get into your account and you have $1,000 USD sitting in your wallet, they’re going to immediately buy Bitcoin, Litecoin, Ethereum, or Bitcoin Cash and send it off to a wallet that they control. They would never withdraw the money to a bank account they control because that account will have their name on it! Not to mention that withdrawals take days to process. If they manage to get the transfer out of Coinbase and to their private wallet then the only option is for exchanges to blacklist funds from that wallet, which isn’t really that effective.
As far as I’ve been able to tell this hasn’t been a situation to set the precedent here. I’d be willing to bet that when Coinbase accounts get hacked with small amounts of money that Coinbase just covers it out of their own pocket to keep attention away from this loophole in case they need to fall back on the FDIC for a big hack in the future.
Don’t take this as financial advice, but in my opinion if you’ve got less than $100,000 sitting on Coinbase you’re definitely okay, as they’ll most likely just reimburse you if something happens. However, even if someone hacks in, buys cryptocurrency with your USD, and transfers it out, you won’t be out of luck. Why? Because Coinbase has private insurance for cryptocurrency (more on that in the next question).
What if someone hacks Coinbase and steals all of the Bitcoin, Ethereum, or Litecoin that I have stored there?
Coinbase also has a separate insurance policy to protect against the theft of your digital currencies. It is NOT the FDIC program because FDIC is only valid for US Dollar deposits, which it will no longer be once you purchase bitcoin. So far Coinbase hasn’t had any major hacks to test it’s cryptocurrency insurance, regardless I’d recommend buying your cryptocurrency with Coinbase and then storing it on a Ledger Wallet.
What if I give someone my password and they steal my money from Coinbase?
You will most likely NOT be covered. Before you freak out, this is the same as it is with your bank account. You NEED to be careful with your passwords no matter what financial institution we’re talking about. Many people aren’t anywhere near as responsible with creating strong passwords as they should be. The good news is, generally people take this a lot more seriously when they get involved with cryptocurrency.
If you currently use online banking, then you’re not really taking on any additional risk in this manner. In fact, Coinbase will probably be safer for this because they strongly push for you to set up two-factor-authentication (2FA) with a service like Google’s Authenticator App.
Can I create a bitcoin address with Coinbase?
Yes! Coinbase makes it really easy to generate addresses with one click of a button. No messing around with complicated software or algorithms. For more information about cryptocurrency addresses check out this post.
Is it safe to link your bank account to Coinbase?
As far as being able to trust Coinbase themselves with your bank account, it’s extremely unlikely that Coinbase would create a false charge on your account and run away. Coinbase is one of the few US-based crypto companies that simply wouldn’t be able to pick up and run from the government if they pulled something like this.
There are a few things that you’ll need to setup and think about to determine if it’s secure for you to connect your bank account to Coinbase:
- Do you have a strong password on Coinbase?
- Do you have two-factor authentication setup on your Coinbase account?
- How often do you check your bank statements?
Strong Passwords and Two-Factor Authentication
Does your Coinbase account follow Google’s recommendations for a strong password and two-factor authentication setup? These two things are able to stop the overwhelming majority of attacks. Basically you’d need to fall for two phishing attacks, with one of them being a difficult stunt for hackers.
First, they would have to get your actual Coinbase password. They’d need to either install a keystroke logger malware on your computer or send you to a phishing site posing to be Coinbase (always just type in coinbase.com, don’t click email or web page links to get there!!!)
Second, they’d have to hack or gain physical access to your phone that has the authenticator on it. This is a big challenge for hackers because 2FA passwords change every few seconds making it extremely difficult to orchestrate. NEVER follow unsolicited SMS messages on your phone. This is the fastest way to get your 2FA hacked.
How often do you check your bank statements?
Generally if you’re in the United States you’ll have a minimum of 60 days to dispute any unauthorized transactions to your bank account. However, it’s best if you can catch errors within two business days to reduce your liability. This is taken straight from the US Government’s Consumer Financial Protection Bureau website:
“Let’s say you lost your debit card or PIN or either was stolen. If you notify your bank or credit union within two business days of discovering the loss or theft of the card, the bank or credit union can’t hold you responsible for more than the amount of any unauthorized transactions or $50, whichever is less. If you notify your bank or credit union after two business days, you could be responsible for up to $500 in unauthorized transactions.
Also, if your bank or credit union sends your statement that shows an unauthorized debit, you should notify them within 60 days. If you wait longer, you could also have to pay the full amount of any transactions that occurred after the 60-day period and before you notify your bank or credit union. In order to hold you responsible for those transactions, your bank or credit union would have to show that if you notified them before the end of the 60-day period, the transactions would not have occurred.”
This offered to all US Citizens for fraud protection by law. It applies not only to Coinbase but to any fraudulent transactions that occur. So even if Coinbase were to get hacked and your bank information was stolen, you’d still be covered.
My advice on linking your bank account to Coinbase
I used to recommend linking up your debit card because it was the same amount of fees as a bank transfer. I now suggest that you link your bank account and transfer the funds in.Get Coinbase <- Get $10 worth of Bitcoin for FREE when you buy $100 of Bitcoin Get Ledger Nano S <- Get FREE shipping on the best crypto hardware wallet
The downside to this is that you have to wait 3-5 long business days for the funds to arrive in your account, but avoiding the new fee of 3.99% for debit cards is well worth it in my opinion.