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Originally Posted by Wayne 962
So, the "Bitcoin" that users have on "deposit" with Coinbase, is actually held specifically by Coinbase, and not by the individual user? That seems similar to PayPal, where you have a "balance" with PayPal (denominated in USD), but since PayPal is not a real bank, it just shows up as a liability on the PayPal corporation's balance sheet. In the case of PayPal, if something goes wrong with the company (bankruptcy, fraud, etc.), then the "account holders" would become mere creditors at a BK hearing. It's for this reason that I made sure we swept 100% of our PayPal balance into our bank account every night (they have a "secret" unpublicized tool for large customers that will do this automatically).
Seems like Coinbase is the same thing? They hold your crypto themselves, but then give you an "account balance" that you can then easily use and trade within their system (much like PayPal?).
Other than being denominated in dollars versus crypto, what is the main difference then between a company like PayPal and Coinbase?
-Wayne
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You have your own unique wallet but coinbase is still only an exchange, and should only be used as such. Most cryptocurrency users who subscribe to the ethos of bitcoin go by "not your keys, not your coins" and do not keep any serious amount on an exchange. Coinbase has the sk to your accounts, you do not.
Exchanges are just a convenient stop along the way, if bitcoin becomes an acceptable form of payment they will be needed less and less. For example, hundreds of bitcoin are traded locally every week in Venezuela, where their fiat has become unreliable due to hyperinflation. Millions of USD worth of BTC traded locally, peer to peer every week where the monthly minimum wage has dropped to about 1 usd.