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Coinbase has just transferred $ 5 billion of its users' cryptocurrency into a new storage system. The move aims to improve the security of user funds on the platform.
What is most worrying, however, is the sheer volume of cryptocurrency held on Coinbase. The $ 5 billion migration included 5% of all bitcoins in circulation, 8% of ethereum and 25% of all circulating litecoin.
Earlier this month, Coinbase transferred 5% of all BTCs, 8% of all ETHs and 25% of all outstanding LTCs to our next generation 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 piece of litecoin is stored in one place and controlled by a company.
Hack threat – if the Coinbase custody platform were hacked, the attackers could theoretically steal, and then control, a quarter of litecoin supply.
Property – Means that a huge percentage of litecoin owners do not actually own their litecoin. Instead, Coinbase holds private keys.
Of course, Coinbase has strong security credentials (95% of its funds are kept 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 the fact that you trust a third party that deals with the cryptocurrency. If you do not have a private key, you do not have it technically.
If you are reading this and have a litecoin (or any cryptocurrency) sitting on Coinbase, consider moving it to a secure, complete backup hardware portfolio.
As the cryptologist Andreas Antonopoulos says, "Not your keys, not your bitcoins".
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