Michael Pierre was sitting in his Brooklyn, New York,
apartment last summer when he received a text on his iPhone from an unknown
number, then immediately lost service. Worried his phone was being hacked, he
quickly checked his most valued app: Coinbase, a cryptocurrency company where
he had stored digital coins worth $100,000.
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Pierre could not log in. Panicked, he emailed Coinbase for
help. The company later told him that an “attacker” had reset his password and
drained his account. Pierre said he was shocked because he had expected
Coinbase’s security to detect suspicious activity and stop the theft.
“I was thinking about retirement, family, having money for
those rainy days,” he said. “And within a couple of minutes, it was all taken
away from me.”
Pierre, 47, a lawyer and onetime Coinbase employee, began
urging his former colleagues to investigate the episode and to compensate him
for the missing cryptocurrencies, which would be worth more than $400,000
today. He received little assistance, he said. So in January, he sued Coinbase,
accusing the company of negligent security measures and failing to protect his
money.
His cautionary tale is one of dozens from Coinbase customers
around the world who say that their accounts were plundered by attackers or
that they were locked out of their life savings without warning or reason — and
that the company failed to detect the issues and did little to help. As
Coinbase prepares to go public in the next few weeks, cementing its status as
one of the world’s biggest cryptocurrency enterprises, its users’ experiences
show how the company sometimes still struggles to address basic customer
service complaints.
That raises questions for Coinbase at a crucial moment. No
major cryptocurrency company has gone public before, and some investors have
speculated that Coinbase could be valued at as much as $100 billion. Its
listing would also underline how cryptocurrencies have surged in popularity in
the pandemic. The price of Bitcoin, the best-known digital currency, has broken
records since November.
Coinbase’s going public is “seminal” for the cryptocurrency
industry, said David Silver, a lawyer who represents digital currency
investors. But he added that if the company wanted to be “the Goldman Sachs of
crypto,” it “needs to maintain quality customer support.”
In a statement, Casper Sorensen, Coinbase’s vice president
for customer experience, said the company was grappling with a “24/7 crypto
economy, which, combined with a substantial increase in demand, has created a
unique set of customer experience challenges.” To address those, the company
said it had added 2,000 customer support employees in recent months and
decreased wait times for help.
Coinbase added that it had never been hacked. It said 0.004
percent of its users had experienced “account takeovers” in the past year,
where someone breached their devices and then gained access to their Coinbase
accounts. The company said it educated its users on how to keep their accounts
secure.
Coinbase declined to comment on any individual cases or
litigation.
Compared with banks and regular money, digital currencies
and financial exchanges carry an extra degree of risk. Unlike money transferred
through a bank, Bitcoin can be traded instantly, and transactions cannot be
reversed or, often, traced to an individual, making it easier to steal. Many
laws that protect people’s money and require banks to maintain tight security
do not apply to digital currencies.
Coinbase was founded in 2012 by Brian Armstrong, who is the
chief executive, and others. At the time, Bitcoin and other cryptocurrencies
had just started emerging as a way to decentralize finance by allowing people
to send money to each other across the globe without the need for a bank.
But trading Bitcoin without help from an institution proved
tricky. So Armstrong created Coinbase as a “currency exchange” — essentially, a
place where people could buy, sell and transfer cryptocurrencies through what
is known as a digital wallet. The company would take a fee each time a customer
placed an order.
Today, Coinbase has 43 million customers, according to its
offering prospectus. It turned a $322 million profit last year, while its
revenue more than doubled to $1.27 billion. In December, it filed to go public.
It plans a direct listing, in which no new shares are issued.
As Coinbase has grown, it has fielded customer complaints.
The concerns have centered on two main issues, according to legal documents and
interviews with more than a dozen Coinbase users, as well as social media posts
and surveys of customers: that the company’s security was fooled by attackers
who infiltrated their accounts and then stole their money, or that they were
suddenly barred from their accounts, either because of a technical glitch or
seemingly for no reason at all.
Coinbase rarely bars users from their accounts, it said, but
it may do so if it is investigating a violation of its terms of service or
suspicious activity.
Losing account access can be crippling because some people
use Coinbase as a de facto bank where they deposit their paychecks. The
frustrations have been compounded because the company is often unresponsive to
entreaties for assistance, users said.
The issues have become so prevalent that a forum about
Coinbase on Reddit has been flooded with requests from people seeking help for
unlocking their accounts. One Reddit user, who posted that he lives in Vietnam,
has left dozens of comments asking for help getting back into his account,
which he said has been frozen for more than a year.
“I need to unlock my account,” wrote the Reddit user, whose
handle is kuromodzz. “Please reply my emails and give me solutions. I can’t
lose my money!”
Gonçalo Maia, 24, a web developer from Lisbon, Portugal,
said he was blocked from his Coinbase account, which has about 27,000 euros, or
$32,000, in January. In response, he set up a Coinbase-related group on the
messaging platform Discord. It has since attracted more than 300 people, many
of whom bemoan how they cannot get into their accounts. Some said they had
since been unable to afford food and pay their rent.
“They are hurting people,” said Maia, adding that many feel
“hopeless.”
After The New York Times asked Coinbase about Maia’s
account, he received an email from the company saying he had violated its terms
of service and would not be allowed to use its platform. Maia said he did not
know what he did wrong. He added that he was happy that Coinbase was letting
him withdraw his frozen funds first.
Christine Duhaime, a financial crimes expert, said that
Coinbase and other cryptocurrency exchanges should have to act the same as
large banks, which need legal reasons to freeze assets and are obligated to
quickly investigate missing or stolen funds. Coinbase’s listing, she said,
could be a step toward aligning the crypto world with laws governing
traditional financial institutions.
“Coinbase, by going public and being subject to greater
regulatory oversight, is moving more into the light, where there is, or will
be, greater visibility and comfort,” she said.
One of Coinbase’s most frustrating aspects, some users said,
is that a real person does not appear to be reading their complaints.
Coinbase said real customer support agents respond to
inquiries.
For most Coinbase users, legal recourse is also limited.
Under the company’s terms of service, users agree to settle disputes through
private arbitration or small claims court, rather than pursuing a class-action
lawsuit.
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