In May of 2025, the largest U.S. based cryptocurrency exchange, Coinbase, revealed a major data breach where sensitive customer information had been stolen. Hackers paid foreign customer support representatives to get access to personal information, such as names, birthdates, and partial Social Security numbers. The hackers then threatened to expose the stolen data online unless the organization paid them a $20 million ransom.
Coinbase CEO Brian Armstrong would not pay the ransom and, instead, put out a $20 million reward for information that would lead to the perpetrators’ arrest. The company put its breach at $180 million to $400 million in remediation and customer reimbursement costs.
Understanding Custodial vs. Non-Custodial Wallets
This event highlights the dangers of custodial wallets, where a third party holds and controls users’ private keys. Although custodial wallets are convenient and have support, they also pose vulnerabilities since users have to rely on the custodian’s security.
Non-custodial wallets, on the other hand, allow users to have complete control over their private keys, minimizing dependency on third parties. This ensures that users are less exposed to hacks that target centralized platforms. At the same time, though, it leaves all responsibility for protecting private keys in the hands of the user.
Best Practices to Protect Cryptocurrency Assets
To minimize risks, users should adhere to the following best practices:
- Use Non-Custodial Wallets: Use wallets for which you have control over the private keys, either hardware wallets or trustworthy software wallets.
- Turn on Two-Factor Authentication (2FA): Add an additional layer of protection for your accounts by turning on 2FA.
- Be Cautious of Phishing Attacks: Always ensure the legitimacy of messages purporting to be from wallets or exchanges.
- Update Software Regularly: Update wallet software and hardware regularly to ensure defenses against known vulnerabilities.
The breach at Coinbase is a harsh reminder of the need for individual responsibility in protecting digital holdings. By knowing the contrasts between non-custodial and custodial wallets and carrying out effective security measures, individuals can more easily safeguard their cryptocurrency.
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