Coinbase(NASDAQ: COIN) Promises to Cover User Losses After Hackers Accessed Personal Data of 1% of Monthly Transacting Users

Last week, Coinbase(NASDAQ: COIN) told customers about a security breach in which criminals accessed personal data from around 1% of its monthly transacting users.

Last week, Coinbase (NASDAQ:COIN) informed customers about a security breach in which criminals accessed personal data from around 1% of its monthly transacting users. The popular cryptocurrency exchange estimates the hack could cost it between $180 million and $400 million, according to its May 14 SEC filing.

The hackers bribed Coinbase employees in foreign countries to gain access to user information on its internal systems. They were able to siphon personal data from about 0.1% of Coinbase’s monthly transacting users—which comes out to roughly 97,000 users—before they were detected and their access was terminated. The hackers then demanded a $20 million ransom from Coinbase, which the company refused to pay. Instead, it offered the money as a reward for information that helped to catch the criminals.

Coinbase promises to cover user losses

Coinbase says it is contacting all affected users by email and will reimburse any losses. While the criminals didn’t access sensitive data such as passwords, 2FA, or cryptocurrency keys, they did get their hands on significant amounts of personal data. That includes names and addresses, as well as masked Social Security numbers and bank account details.

This gives the hackers enough information to mount targeted social engineering attacks. These can be sophisticated schemes in which criminals use your information to trick you into giving up security codes, logging on to fake sites, or transferring money. For example, they might pose as Coinbase representatives and tell customers to move crypto into a so-called “safe” account.

According to The Block, Coinbase had around 9.7 million monthly transacting users.

Repaying losses is only part of the picture

Coinbase says it will be covering any customer losses that result from the hack. It is also planning to introduce stricter anti-fraud protections, further strengthen its security controls and open a new support hub in the U.S. It is also firing the employees who were involved in the incident.

However, the attack raises questions about the safety of funds on crypto exchanges. To be clear, it’s not uncommon for banks to be hacked. In fact, it happened to Santander in Spain last year. Cyberattacks are, unfortunately, part of modern life.

Even so, banks generally have better security and more consumer protections. Coinbase is choosing to make clients whole, but it doesn't have to. In contrast, the Electronic Funds Transfer Act (also known as Regulation E) requires banks to reimburse customers for fraudulent transactions. And if a bank fails, FDIC insurance protects customer money. Similarly, most top brokerages will reimburse fraudulent losses, and SIPC protection kicks in if the brokerage collapses.

At a time when crypto is becoming more mainstream and the U.S. government is increasing scrutiny of institutions in its quest to prevent money laundering activities, news of this hack is particularly relevant. A new bill that would place tighter regulations on so-called "crypto futures" institutions is also being considered by Congress this year.

Put simply, assets on cryptocurrency exchanges are currently more at risk than those held in banks and brokerage accounts.

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