The “Free Ross” campaign which raises funds for jailed Silk Road founder Ross Ulbricht experienced a glitch last week, renewing concerns about the stability of the digital currency exchange Coinbase. This occurrence comes on the heels of Ulbricht’s latest appeal for release which was just denied in May.
A Twitter message from @free_ross dated June 15, 2017, created a bit of a social media firestorm. In it, his mother Lyn Ulbricht wrote:
Then follow us on Google News!
Later that day, Ulbricht confirmed that the Free Ross account on Coinbase had been re-enabled. In an email to Bitcoin Magazine, she remarked “I think they responded promptly because of the uproar on social media. We are not so sure of their explanation of why it happened and are looking into the record on that now.”
Later she responded, “They [Coinbase] said it was an automatic security response.”
The Free Ross account does not store all of its bitcoins on Coinbase. Rather, it was established as a convenient way to convert donations into U.S. dollars.
This recent hiccup comes as Coinbase, perhaps the world’s most popular bitcoin exchange, continues to face a litany of complaints from users. There have been numerous reports that the exchange shutters user accounts without reason or notice. It has been alleged that Coinbase frequently flags and freezes accounts when even the smallest hint of suspicious activity is suspected. In some cases, there have been complaints among users saying that any coins they had in the account at the time were never returned to them.
In a Coinbase blog post on June 4, CEO Brian Armstrong acknowledged the need for changes to address the negative customer experiences, which he attributed to growing demands on the Coinbase system.
We’re storing customer funds, and I can understand how incredibly frustrating (and scary) it is when an issue arises and you can’t get a prompt response. We haven’t done enough to keep up with the growth, and we’re taking steps now to correct it. – Brian Armstrong
Armstrong also set forth a plan to address some of the scaling solutions that Coinbase plans to implement later this year, including faster customer support response times and a new system to flag “risky withdrawals.” He indicated that the company has hired a consultant to consult on scaling and the introduction of phone support.
Bitcoin Magazine reached out to both Coinbase and Armstrong about the company’s continuing service woes in light of the problems with the FreeRoss account. In response to our questions, Megan Hernbroth from the strategic communications department at Coinbase, stated, “This account was initially blocked due to automated security feature because of the links between this account and a previously compromised one,” and referred us to the following Tweet:
She also referred us back to the June 4th blog post in lieu of comment on Coinbase’s other service concerns.
Regulatory Challenges and a New Hire
In a recent announcement on its blog, Coinbase announced that former federal prosecutor Kathryn Haun would be joining its Board of Directors. Haun was the U.S. Department of Justice’s first-ever digital currency head and was tasked with addressing financial, cyber-crime, gang and national security concerns.
Among the investigations that she oversaw were those that led to the prosecution of the two federal agents accused of theft and corruption in the Silk Road case. Both are currently serving prison sentences.
Reports that Haun would be assisting Coinbase did not sit well with many in the Bitcoin community. And the fact that her appointment occurred the day after the Free Ross account was suspended was a hot topic of discussion on sites like Reddit.
It should be noted that given its rise in prominence as the leading bitcoin exchange in the U.S., Coinbase has been experiencing a flurry of regulatory scrutiny over the past 18 months. According to the Coinbase site, it is registered as a Money Services Business with FinCEN; as such, it is subject to stringent anti-money laundering (AML) and know-your-customer (KYC) compliance requirements in addition to state laws.
In a major development which occurred last year on this front, the IRS requested a John Doe summons as part of a bitcoin probe, seeking to identify and capture Coinbase user information in the U.S. associated with someone who conducted transactions in the digital currency.
On the regulatory front, a bill being pursued in Congress called the “Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017” seeks to, among other things, further target exchanges like Coinbase under the strictures of anti-money laundering regulations. Moreover, Congress is considering including cryptocurrency holdings over $10,000 on the list of reporting requirements when travelers are entering or leaving the U.S.
When asked about Coinbase amid this onslaught of regulatory activity, Perry Woodin, a computer engineer and CEO of the blockchain governance company, Node40 had this to say: “I suspect that Coinbase is suffering from the growing pains of being the leader in a rapidly evolving industry. Add to that growth, a changing states-based regulatory scene that requires Coinbase to jump through ever changing hoops, and customer service is bound to suffer. Coinbase has reported issues where Wyoming, Hawaii and Minnesota have overly burdensome regulations, forcing the exchange to withdraw from those states.”
As Armstrong asserted in his blog post, some of the technical and service issues facing Coinbase may be attributed to the increasing demand they’re facing amid the meteoric rise taking place in the cryptocurrency world. Nevertheless, concerns abound about frequent outages that throttle buy and sell orders, often for extended periods of time. There have also been instances during these major price movement periods where the Coinbase site couldn’t be accessed at all.
Lamented libertarian singer and songwriter Tatiana Moroz: “I have had countless problems with Coinbase, from repeated errors on the platform to it not being accessible when I’ve needed to sell or buy bitcoin most. It’s not a few isolated incidents; it’s ongoing.”
Moroz went on to say that Coinbase’s customer service has basically been nothing short of a “nightmare.”
“It makes me feel completely uncared for as a customer and I know I’m not the only one. I have sent service tickets that take 2-3 weeks for them to reply to. Their fees are also high. And there never seems to be a way to reach a human, which is very scary when you have your money there.”
The Reddit post seems to underscore the frustration experienced by Moroz and scores of others regarding user experience snafus.
“Unfortunately, the subpar tier one support can cause angst that rapidly spreads across social media,” said Woodin. “I don’t know what recourse there is for users who have lost coins. I do hope that, as Coinbase continues to grow and expand, that they put more emphasis on customer support and service. Doing so will save Coinbase and their customers from unnecessary headaches.”
Lack of Options
Woodin also points to a frequently overlooked, central issue in this discussion, namely, the lack of consumer choice and competition in terms of exchanges currently in the markets. He attributes this in large part to expense and regulatory climate factors associated with launching a new exchange.
“No doubt, it can be prohibitively expensive to meet the licensing requirements imposed by many states. Movement of fiat currency is highly regulated which means any competition coming to market would have a high financial burden for compliance. I do not see this changing anytime soon.”
Moroz echoed this notion, surmising that Coinbase’s troubles are in part regulatory in nature: “What’s troubling is that the regulations and other barriers to entry allow it to operate as a monopoly essentially, and it’s difficult to avoid using them if convenience is a factor. I’d like to also note that they seem to have a presence at so few of the major conferences. Frankly, this makes me wonder about how supportive they are of the Bitcoin community in the first place.”
Libertarian economist and free-market advocate Jeffrey Tucker, in conversation Bitcoin Magazine, also weighed in with a final thought: “The fact is that there should be tens of thousands of exchanges. And there were scores that were already opening up before government intervened and forced all of these regulations on everybody. And, of course, that created a cartelized market with only a handful of players dominating everything. That allows them to exploit their customers by raising rates, by providing inferior service, not innovating. Currently, the exchange business is a non-competitive sector that, in my view, is a disaster for Bitcoin.”