1

Apparently Coinbase handles the private keys for your wallet which allows them to easily handle buying and selling.

As Coinbase is a hosted wallet, we do not provide users with their private keys; doing so would prevent us from taking advantage of our secure cold-storage technology to protect your bitcoin funds.

Isn't this exactly what Mt Gox did before it was compromised?

  • Maybe you should just ask: 'How does coinbase handle private keys?' Coinbase and MtGox provide different services. – Kinnard Hockenhull Jun 9 '14 at 18:20
5

You're right that in this regard, Coinbase and Mt.Gox are similar: they control the private keys, and incompetence or malice on their part could result in the loss of your coins. One difference is that Coinbase doesn't keep a balance of USD (or other fiat) in your account, only bitcoins. The other major difference is that Coinbase has not (AFAIK) shown any signs of incompetence or malice jeopardizing your bitcoins stored there (these signs, I hear, were around for a long time before Mt.Gox finally died).

Cold storage is a good thing when done correctly: it improves security and doesn't prevent instant bitcoin withdrawals (except in exceptional circumstances).

Still, personally, I will (long-term) store my bitcoins in a local client or my own cold storage, not an exchange or online wallet. There's still a real (maybe even higher!) chance of loss this way, but it'd be due to my incompetence, not someone else's.

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