Coinbase Sets Industry Record With “Crypto Migration”
A few weeks back, “whale watching” Twitter pages — accounts that track notable crypto wallets — saw an abnormal influx of reported “sightings.” Initially, a majority of commentators cast aside the transactions — which amounted to hundreds of millions of dollars in Bitcoin (BTC), Ethereum (ETH), and others — as somewhat odd, but nothing to write home about. Some seeming “crackpot” theorists speculated that the transactions could be attributed to Coinbase and its secretive operational security practices.
While some cast aside the aforementioned theory as rumors, in a recent blog post, the San Francisco-based startup revealed that many of those “whale” transactions were, in fact, its own security measures.
Opening its announcement with a bang, the $8 billion-valued startup divulged that it recently moved 5% of all BTC, 8% of all ETH, and a jaw-dropping 25% of all LTC (centralization concerns eh?) in circulation via a series of transactions — which Coinbase has dubbed presumably the “largest crypto migration on record.” And by the looks of it, the dollar value of holdings that the startup is sent, a collective $5 billion (valued on Dec. 7th, 2018), is the largest sequence of transactions executed by a single entity, whether it be a crypto firm, whale, investment group, or Satoshi Nakamoto himself.
Coinbase’s VP of Security, Phillip Martin, went on to explain the occurrence in a case study. The firm representative, who headed this operation, first drew attention to Coinbase’s earliest security protocols, which consisted of simple hardware wallets held in a safety deposit box. As time went on, as Coinbase’s assets under management (AUM) figure increased, it was logical to “build a system that ensured broad consensus on movements from cold storage.”
The platform’s security practices, now in their fourth iteration (generation), weren’t explained in-depth but were alluded to in a series of cryptic messages from Martin. Coinbase’s in-house security expert first made it clear that the “gold standard of crypto asset security is” through cold (offline) storage techniques, adding that 98% of all Coinbase-managed holdings are currently frozen, so to speak.
Martin then added that Coinbase’s ideology surrounding bonafide cold storage is the use of “multiple geographically separated [non-corrupt] humans,” who are mandated to complete physical tasks, to subsequently enable transactions. And with this, while not explicitly stated, it can be assumed that Coinbase has put these measures into motion. The firm representative wrote:
In our latest version, which initially rolled out with Coinbase Custody and now handles all cold storage at Coinbase, we start with a secure foundation with a highly controlled and audited key generation process and continue with a globally distributed key storage and transaction approval system.
Coinbase added that this system mitigates the risk of key loss and misuse (ex. inside jobs), while still supporting “world class key governance and audit while being currency agnostic.” This new system, which has been in the works for months, will likely play a key role in the startup’s underlying mission to build an open financial system for the world.
Interestingly, this migration came just around the time that Binance, arguably Coinbase’s foremost competitor, also underwent a similar shift in security, as revealed by firm CEO Changpeng Zhao.