After playing around with CoinBase, I have come to understand that with CoinBase, you have the limited rights to “control” your Bitcoins, as the User Agreement states. But, in my opinion, you don’t have the right to “own” your Bitcoins. Why? Well, first of all, let’s check out the CoinBase User Agreement. This one liner in section 3.3 explains it all:

3.3 Coinbase users are in control of their bitcoin at all time, and Coinbase keeps 100% of customer funds in storage.

CoinBase users are indeed in control of their Bitcoins, although I have argued in this Reddit post, that they’re not technically in control “at all time.” This is a good thing that you keep (some of) your rights to control them, but it turns out, that you really don’t OWN your Bitcoins. Indeed, ownership of Bitcoins is not stated in the User Agreement. It seems that your Bitcoins are transferred to their pooled accounts, and from there, you have the “limited right” to control where they flow. Unfortunately, in the meantime, I think I’ll resort to using the BlockChain.info for my online wallet needs.

Here is my little experiment:

I went and requested to receive 1 Bitcoin to my CoinBase-generated Bitcoin address: I checked the address on BlockChain.info, the site where you can search the flow of all Bitcoins by any Bitcoin Address, to check the status of this address:

Indeed, it has 0 Balance as expected. I went to Mt. Gox to transfer 1 BTC to my CoinBase-generated address: I checked out BlockChain.info again, and saw the 1 BTC as expected: CoinBase shows the transfer as Pending, makes sense: Now, here is the interesting part – where I show that you don’t technically own your Bitcoin, since this new Bitcoin now flows to a new Bitcoin address. Also technically you don’t control where your Bitcoins go “all the time” in the digital sense as the User Agreement claims:

What do you think just happened? CoinBase initiated a second transfer “on your behalf” to some unknown Bitcoin address – or in other words – THEIR account. And now, the Bitcoin no longer belongs in your original Bitcoin address. So you own a Bitcoin in a CoinBase sense, but not in the digital crypto-currency sense.

Personally, I support CoinBase and their ambition to bring Bitcoin mainstream and I also realize they’re still in “Beta” mode. But, I will limit CoinBase to only small transactions, if any at all, and won’t plan to use them as a permanent storage source unless they seriously re-consider their business model.

It’s not that I’m afraid they’ll steal my coins – I do trust them. But there are just certain factors/risks that they can’t control, and when things break, I want to know that I have ownership of the coins, and that I can truly transfer them at will, without having to go through their hoops.

I wish they kept the users’ coins in the Bitcoin BlockChain where they belong without having to rely on their own internal accounting.