Coinbase’s Centralization Push

Recently on Fox Business, Coinbase CEO Brian Armstrong spelled out the company’s ultimate objective: “...We want to be a bank replacement for people…We want to be their primary financial services account.”

To become retail and business user’s go-to financial app, Coinbase recently launched sweeping updates:

• Making all tokens on its Base Layer 2 available for trading
• Partnering with Shopify to enable USDC payments for millions of merchants
• Launching CFTC-regulated perpetual futures contracts
• Rolling out the Coinbase One Card with Bitcoin cashback.

Owning the Crypto Vertical

The company also introduced Coinbase Business, a platform offering high-yield USDC accounts and automated accounting for crypto-native companies and DAOs.

Coinbase’s latest integrations have positioned it as a one-stop hub for digital asset management—from onboarding capabilities to transaction facilitation—reducing the need for users to rely on third-party providers. By defaulting users to Base and offering direct listings for Base projects, Coinbase is rapidly becoming the most liquid and integrated Layer 2 ecosystem, outpacing competitors like Arbitrum and Optimism. The result is a vertically integrated financial OS for web3.

While Coinbase’s growth brings convenience and mainstream adoption, it also raises serious concerns about centralization. The company controls the Base sequencer, can blacklist USDC, custodies most institutional funds, and operates the largest retail onramps in the U.S. If Coinbase were to be hacked, censored, or politically targeted, the impact would ripple across the entire consumer layer of crypto, undermining the very principles of decentralization that the industry was built upon.

The risk is that, in making crypto easier and more compliant, Coinbase is recreating a system where one company controls it all —precisely what decentralized finance was meant to avoid. The industry could end up with a web2-style gatekeeper, just in a shinier, faster package.

Why Centralization at Coinbase Threatens Privacy and Crypto Holdings

Coinbase’s centralization isn’t just a theoretical risk—it has already manifested in real-world security failures.

Lax Security and Insider Threats

In 2025, a massive breach occurred when overseas customer support agents in India were bribed to leak sensitive user data. These insiders, working at a third-party contractor, provided criminals with access to names, addresses, phone numbers, email addresses, partial Social Security numbers, masked bank account details, identity documents, account balances, and transaction histories.

Armed with this information, attackers launched sophisticated social engineering campaigns, contacting users and tricking them into transferring their crypto to fraudulent wallets. The breach affected at least 69,461 users and led to an extortion attempt demanding $20 million from Coinbase. The company estimates the total cost of remediation and reimbursement could reach $400 million.

Regulatory Failures and Compliance Gaps

Coinbase’s security lapses are not new. In 2023, the New York Department of Financial Services (NYDFS) fined Coinbase $50 million for “significant failures” in its compliance program, including inadequate KYC, transaction monitoring, and cybersecurity controls.

The NYDFS found that these weaknesses left Coinbase vulnerable to criminal activity, including fraud, money laundering, and other illicit conduct. As part of the settlement, Coinbase was required to invest an additional $50 million in compliance improvements and submit to independent monitoring.

Despite these measures, the 2025 breach revealed persistent vulnerabilities, especially in managing insider threats and third-party contractors. The company’s rapid growth and drive to “own the vertical” have outpaced its ability to secure user data and maintain robust compliance.

The Privacy and Custody Risks of Centralization

When one company controls the majority of user data, wallets, and transaction infrastructure, a single breach or insider compromise can have catastrophic consequences. The 2025 incident exposed not just personal information, but also account balances and linked bank accounts—giving criminals everything they need to target victims and steal their crypto holdings through social engineering.

Unlike decentralized protocols, where risk is distributed and no single party holds all the keys, Coinbase’s model creates a massive honeypot for attackers. The more users and assets it accumulates, the greater the incentive for both external hackers and internal bad actors to exploit its systems.

Coinbase’s quest to become the “Apple of crypto” would clearly impact user experience and adoption. But this centralization comes at a steep price: it creates a single point of failure for privacy, security, and financial sovereignty. The recent bribery scheme and regulatory enforcement actions are stark reminders that even the largest, most regulated platforms can fall short in protecting users.

For anyone who values the original promise of crypto—resilience, privacy, and decentralization—Coinbase’s dominance should be a cause for concern, not celebration.

As the industry continues to evolve, users and builders must weigh the convenience of centralized platforms against the existential risks they pose to the future of digital assets.

FAQs

How is Coinbase positioning itself in the crypto ecosystem?

• By integrating onboarding, payments, trading, and asset management directly into its platform, Coinbase is creating a vertically integrated Layer 2 ecosystem, with high liquidity and direct listings for Base projects.

Why are some in the industry concerned about Coinbase’s centralization?

• Centralization means a single company controls key aspects of infrastructure, custody, and data. For Coinbase, this includes controlling the Base sequencer, having the ability to blacklist USDC, and holding the largest retail onramps in the U.S., which makes it a single point of failure for much of the crypto economy.

What happened in the Coinbase security breach?

• Third-party customer support agents in India were bribed to leak sensitive user data, including names, contact information, partial Social Security numbers, bank details, account balances, and transaction histories. Criminals used this data for social engineering attacks, targeting at least 69,461 users.

What was the financial impact of the Coinbase breach?

• Attackers demanded $20 million in extortion, and Coinbase estimates remediation and reimbursement costs could reach $400 million.

Has Coinbase faced prior regulatory issues over security?

• Yes. In 2023, the New York Department of Financial Services fined Coinbase $50 million for failures in KYC, transaction monitoring, and cybersecurity controls, and required an additional $50 million investment in compliance.

How does centralization affect privacy and custody risk?

• When one company holds most user data, wallets, and infrastructure, a breach exposes everything at once, making it easier for attackers to target victims. This creates a large "honeypot" that incentivizes insider collusion or external hacking attempts.