Fortune Doesn't Understand the First Rule of Crypto

2 Min Read
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Coinbase was out with bad earnings, and the stock dropped. In their quarterly report, they included language as required by the SEC:

https://fortune.com/2022/05/11/coinbase-bankruptcy-crypto-assets-safe-private-key-earnings-stock/

Coinbase said in its earnings report Tuesday that it holds $256 billion in both fiat currencies and cryptocurrencies on behalf of its customers. Yet the exchange noted that in the event it ever declared bankruptcy, “the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings.” Coinbase users would become “general unsecured creditors,” meaning they have no right to claim any specific property from the exchange in proceedings.

Fortune goes on to say:

That shouldn’t happen.

An individual’s ownership of cryptocurrency is supposed to be immutable and absolute; that's one of the key selling points touted by blockchain evangelists everywhere. But when a user creates a Coinbase account, they often end up storing their cryptocurrency in a wallet controlled by Coinbase, which means the individual is giving away at least part of their control over their own funds.

Wrong. Full stop. The rest of your article is garbage.

Let's say it again for the cheap seats.

Rule #1: not your keys, not your crypto

When you put funds on an exchange, or stake in a contract, or do anything where crypto assets are no longer in your wallet - it is no longer your crypto. You are then relying on a third party to do something on your behalf.

Most of the time, that works fine.

Sometimes it doesn't.

If Coinbase were to suddenly go bankrupt you as a customer with funds on the exchange are last in line to claim any funds. Chances are there will be little to none left.

Be smart about where you hold your funds and for what purpose - and never forget Rule #1.

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