For over two years, Coinbase users in Wyoming have been unable access their cryptocurrency.
“I’d venture to guess I lost $100,000 to this bullshit law,” one resident complained on Reddit.
It was out of the blue, too, when in June 2015 the U.S.-based exchange suddenly suspended services for Wyoming residents. This was after state regulators clarified that Coinbase, in fact, fell under its Money Transmitter Act, and as such, needed to hold fiat currency reserves for all digital assets held on consumer’s behalf.
Finding the requirements too challenging and costly to comply with, Coinbase pulled out of the state. And a handful of users that were residents lost access to their accounts before they were able to move their cryptocurrency off the platform.
It’s been a bumpy road for those customers, one that seemed to smooth out in March of this year, when a package of blockchain business-friendly bills was passed, one of which exempted cryptocurrency exchanges from the fiat reserve requirement.
Yet a month later, Coinbase has yet to restore services in the state and reunite Wyoming residents with their crypto.
“People couldn’t get hold of customer service,” Caitlin Long, the co-founder of the Wyoming Blockchain Coalition, which pushed for the legislative package, told CoinDesk.
And while Coinbase is one of the most law-abiding and highly respected exchanges in the industry, this isn’t much of a surprise.
The exchange’s image has suffered greatly over the past couple years as its customer support buckled under the pressure of mass adoption. From lackluster uptimes to disabling the accounts of customers on vacation, Coinbase has struggled to keep its reputation clean from its user’s standpoint – even after its $100 million raise in August.
And in Wyoming, former users of the exchange are driving hours to attend the coalition’s meetings to share their Coinbase horror stories.
While Coinbase hasn’t given the word of when it might reopen services to Wyoming residents, the state banking commissioner, Albert Forkner told CoinDesk that Coinbase representatives have expressed excitement about the prospect of returning to the Cowboy State.
“They’ll be looking into the business plan to get accounts reopened in Wyoming,” Forkner said. “It shouldn’t take too long.”
But some of the locals are getting restless.
“If a company is going to be a custodian of customers’ assets, then it has an obligation to communicate with those customers,” Long said, adding:
“Now there is no excuse, and it comes down to whether Coinbase wants to do right by its customers or not.”
Coinbase did not respond to request for comment on the matter.
And while Coinbase acknowledges these unpleasant experiences – even hiring executives to focus on improving customer service – regulation has thrust it into similar situations in other states.
For one, some users who don’t even live in Wyoming anymore, but still have a Wyoming driver’s license, have also had their accounts suspended.
One Reddit user in Minnesota lamented Coinbase’s new identity verification process, which it launched in 2017 after the user had been a customer of the exchange for two years, saying:
“All of this would be fine if it was a prerequisite for use, but springing it on me now feels like they are holding my money hostage.”
The Minnesotan went on, saying it took nine days from him to get an automated reply from customer support, which merely said Coinbase was flooded with support requests and couldn’t answer them all.
Even after the verification appeared to go through, he still had trouble transferring funds.
Controlling private keys
For Long, these situations highlight the importance of users holding their own private keys.
For the uninitiated, a private key is like a very long password that can’t be reset or recovered. The “key” is usually 64 randomly generated letters and numbers, sometimes in the form of assorted words arranged in a particular order.
These private keys are needed to complete any bitcoin transaction. Unlike most personal wallet platforms, which store private keys on the user’s phone (like Mycelium) or browser (Blockchain.com), Coinbase holds these keys on users’ behalf.
It’s more convenient, definitely, since all users need to access their money is their Coinbase login, which if lost or forgotten can be reset like a normal password. But the trade-off is that users give up control of their funds, and as a consequence can be at the whims of the party that does control the key – as the Wyoming incident displays.
With that, Long likens Coinbase to a bank.
Whereas many see bitcoin as an alternative to the traditional financial industry, using third-party services like Coinbase’s feels merely like the same service with a different name.
“If you are going to keep your bitcoin in a third-party custodian that has control of your bitcoin, you haven’t really improved your situation. I think most Coinbase users don’t understand that.”
Locked door image via Shutterstock
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