Coinbase, one of the world’s largest cryptocurrency exchanges holds around 11% of the total Bitcoin supply.
This amounts to about 2.275 million BTC, valued at roughly $129 billion, which is a quite large concentration of Bitcoin in one place.
Coinbase’s Bitcoin holdings raise centralization concerns
Coinbase’s massive Bitcoin holdings raised questions about the potential risks of centralizing so much cryptocurrency in a single exchange.
Coinbase is the fourth-largest crypto exchange globally, with around $1.5 billion in daily trading volume and 34 million monthly users.
Major companies like BlackRock, Tesla, and MicroStrategy use Coinbase as a custodian for their assets.
The centralization of this much Bitcoin under one entity creates real concerns that any issues Coinbase faces, like legal troubles, security breaches, or other crises, could have widespread effects on the whole crypto market.
Coinbase crisis, the apocalypse
Critics warn that the large amount of Bitcoin stored on Coinbase could create systemic risks for the crypto market if something were to go wrong.
CTO of Casa, Jameson Lopp noted that while Coinbase is seen as stable, it could still be vulnerable to government actions or legal pressures.
He pointed out how, in the 1930s, the U.S. government seized gold held by individuals, suggesting a similar scenario could theoretically happen to Bitcoin on centralized exchanges like Coinbase.
If Coinbase were to experience a bigger disaster, such as a hack, the fallout could cause huge panic in the market.
A major loss of customer funds might lead to a loss of trust in cryptocurrencies and trigger a large market sell-off, pushing prices lower and possibly starting a prolonged downturn.
The report also shared that 73 million Americans have accounts on Coinbase, meaning a massive number of retail investors could be impacted if the platform experiences major issues.
What if Coinbase isn’t safe? What can one do?
Coinbase has advanced security measures in place, but the concentration of so much Bitcoin with one company still poses a threat to the decentralized nature of the cryptocurrency.
Some experts, like Steven Lubka from Swan Private, argue that while a major loss is unlikely, centralizing Bitcoin under large custodians indeed remains a real concern.
In the event of a large-scale loss, some community members also speculated that there could be calls for a Bitcoin fork, similar to what happened with Ethereum after the DAO hack in 2016, to recover lost assets.
Others warned that this could be the very antithesis of the immutability of the blockchain.
But experts argue that Bitcoin’s decentralized nature would likely prevent such a move.
Lisa Neigut, founder of Base58 explained that Bitcoin’s Unspent Transaction Output model helps keep individual entities’ risks separate, meaning if one entity’s keys are compromised, it only affects them, not the entire network.
This structure is maybe the most important part for preserving Bitcoin’s decentralized design, which wants to avoid the kind of centralization risks Coinbase’s large holdings present.
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