In November 2021, Coinbase, one of the world’s most popular digital currency exchanges, was slapped with a class action suit filed in the California Northern District Court. The plaintiff, Adam Alfia, alleged that Coinbase failed to protect customer accounts against data breaches and took unreasonable steps such as freezing customer accounts for extended durations to mitigate the cyberattacks.
Adam Alfia further stated a transaction of $50,000 to purchase Ethereum was made in his Coinbase account, a transaction he claims was not authorized by him. When he brought his grievances to the company, Coinbase responded by freezing his account and locking him out for two months, making it impossible to reverse the $50,000 debit made from his Bank of America account.
Unfortunately, this isn’t the first Coinbase lawsuit of its kind the company is facing. It has become notorious for freezing customer accounts and taking actions that have been previously described as dubious, unethical, and illegal.
Is Coinbase safe? Can I sue Coinbase for inadequate protection? This article explores the answers to these questions and more.
What Is Coinbase?
Coinbase is a cryptocurrency exchange that allows individuals to buy, sell, and exchange Bitcoin and several other types of cryptocurrency. The company operates in more than 100 countries worldwide, has more than 50 million users, employs roughly 3,000 individuals, and supports an ecosystem of almost 10,000 financial institutions.
If you’re new to the world of crypto exchanges, you’re probably wondering: What is Coinbase wallet, and is it the same as Coinbase?
Coinbase vs Coinbase Wallet
To understand the difference between the two, you first need to understand what a cryptocurrency exchange is and how it is different from a cryptocurrency wallet.
You can think of a cryptocurrency exchange as a brokerage service. It allows users to trade in digital assets and even supports digital currency conversion into fiat currency and vice versa. Coinbase, Kraken, Gemini, and Binance are all examples of cryptocurrency exchanges.
A cryptocurrency wallet is software (or a physical device in some cases) that allows users to store crypto assets as well as their private keys. Additionally, users can use cryptocurrency wallets to send, receive, and spend their cryptocurrency. Coinbase Wallet, Electrum, Ledger, and Exodus are all examples of cryptocurrency wallets.
To sum up: Is Coinbase a crypto wallet? No, it’s not. Coinbase Wallet is the crypto wallet. Coinbase (single word) is a cryptocurrency exchange.
Is Coinbase Wallet Safe?
In light of the recent reports of customers’ Coinbase crypto wallets getting hacked, the question on your mind is likely – How secure is Coinbase Wallet? Going by the growing number of proposed class action suits against the company for allegedly failing to secure users’ cryptocurrency wallets from unauthorized money transfers, your guess is as good as any.
Coinbase security breaches have resulted in hackers conducting unauthorized transfers of crypto assets and fiat currency, to which end the company responded by freezing accounts and locking customers out in a bid to mitigate the breaches.
Given how volatile cryptocurrency is, customers’ inability to access their cryptocurrency wallets for extended periods proved problematic when they needed to buy or sell their assets. As a result, many suffered severe financial losses due to missed investment opportunities.
Can You Sue a Cryptocurrency Exchange?
There are generally two forms of cryptocurrency litigation—class action suits or single suits. On the one hand, you can sue an entire cryptocurrency exchange as a class so that all the affected individuals can receive assistance.
On the other hand, you can opt to sue the exchange as an individual to recover damages for any financial losses you might have incurred as a result of the actions taken by the company. Several lawsuits have been lodged against various exchanges and crypto wallets by users who have allegedly been frozen out of their accounts for extended periods.
There are also several suits alleging that crypto wallets have failed to adequately safeguard their wallets against hackers who’ve somehow managed to bypass the platforms’ security protocols and proceeded to carry out unauthorized transactions on customers’ accounts.
In November 2021, a federal judge approved a warrant authorizing the recovery of Bitcoins worth more than $600,000 after a Coinbase user fell victim to an alleged scam. Earlier that year, they purchased 200 Bitcoins, whose value appreciated about $12 million by the time the warrant was issued.
According to the user, they received a pop-up notification that appeared to be from the Coinbase app, indicating that their account had been locked. They later learned that the notification did not originate from the app. It was part of an elaborate fraud scheme to steal cryptocurrency from the user’s account.
According to the Federal Trade Commission (FTC), cryptocurrency scams account for more than $80 million in reported losses every year.
Coinbase Arbitration Agreement
In January 2022, Coinbase updated the terms of its user agreement to include an arbitration clause. Users were compelled to agree to the new terms before they could continue using the platform.
By including an arbitration clause, Coinbase effectively prevents users from filing a lawsuit when a dispute arises. Parties to the agreement would instead enter into arbitration to resolve the issue, avoiding civil court litigation entirely.
If you’re a Coinbase user and are currently using the cryptocurrency exchange or the wallet, you’ve, in effect, agreed that any dispute that arises from here on out is to be settled out of court. You will not be able to pursue any legal claim against Coinbase through a lawsuit.
Arbitration agreements are legally binding. This means that if you later decide that you want to pursue the matter in court, you will either:
- Not be able to; or
- Rack up massive amounts in legal fees trying to get a lawyer to invalidate the agreement
By including an arbitration clause, Coinbase has found a way to keep disputes confidential and limit litigation costs. This move is likely in light of the numerous lawsuits the company is currently fighting in court.
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