Coinbase’s New dApp Wallet and Browser Is a Step Forward for Security and Freedom

Jason BalesJason Bales
Coinbase’s New dApp Wallet and Browser Is a Step Forward for Security and Freedom

This week, Coinbase launched a limited-access trial run of its newest innovation: Ethereum dApp and NFT access directly from the platform’s popular mobile app.

Select Coinbase users can now access trading on decentralized exchanges (DEXs) like Uniswap and Sushiswap, borrowing and lending on decentralized finance (DeFi) platforms like Compound and Curve, and purchasing NFTs through marketplaces like Coinbase NFT and OpenSea. Yes, OpenSea – Coinbase’s leading NFT marketplace competitor. 

In the true spirit of web3 integration, Coinbase will allow users to access its top competitor’s marketplace directly from its own mobile app. And all while alleviating its users from the burden of memorizing and storing their private keys and recovery seed phrases.

How is this possible? Powered by Coinbase’s new dApp wallet and dApp browser, the platform’s mobile app experience now includes Multi-Party Computation (MPC) technology, which uses threshold signatures to split secret shares of a single public key. In short, both you and Coinbase have to sign off on a transaction for it to verify and complete. 

Threshold signatures are faster, cheaper, and easier to use across dApps than multisig, or multisignature, schemes. For more information on MPC technology and threshold signatures see Coinbase’s article on digital signatures.

If your crypto wallet is stolen or hacked or you forget your private key and recovery seed phrase, Coinbase’s live support can help halt transactions and recover the wallet because of its MPC technology. With full self-custody wallets, rejecting transactions from a hacker who has access to your private key or recovering your wallet without your seed phrase is impossible. 

This new crypto wallet type is a hybrid of Coinbase’s self-custody wallet and its platform-custody accounts. It bridges the gap between full user control (and responsibility) and full platform control (and dependency), and allows casual crypto and NFT users to (mostly) freely harness the power of Ethereum dApps in a (mostly) secure way. 

“We needed something that has the benefits of both self-custody wallets and Coinbase-secured wallets,” said Coinbase employee Pete Kim. “Our solution to the problem was a ‘semi-custodial’ wallet system. The idea is pretty simple: the user keeps some key material on their device and Coinbase keeps some key material. Both are needed to use the wallet. If only one party is hacked, funds are still safe.”

Of course, there are still concerns with a centralized entity having any control over a user’s assets. But casual users want added security and this is a good compromise. 

Coinbase holds over $250 billion worth of assets in both cryptocurrencies and fiat currencies on its platform, according to its most recent earning report. The entire Ethereum DeFi ecosystem has under $100 billion in total value locked (TVL), according to DeFi Llama. This opens up a world of possibilities for casual crypto and NFT holders and could open the floodgates for billions of dollars worth of sidelined cryptocurrencies. 

But it's not without risk. Coinbase users might lose their non-self-custodied assets in the case of company bankruptcy, according to a recent Fortune article.

“Hidden away in Coinbase Global’s disappointing first-quarter earnings report - in which the U.S.’s largest cryptocurrency exchange reported a quarterly loss of $430 million and a 19 percent drop in monthly users - is an update on the risks of using Coinbase’s service that may come as a surprise to its millions of users,” Nicholas Gordon writes. “In the event the crypto exchanges goes bankrupt, Coinbase says, its users might lose all the cryptocurrency stored in their accounts too.”

This hot topic of debate, which exploded on Crypto Twitter (CT), was quickly dismissed by Coinbase’s co-founder and CEO Brian Armstrong.

“There is some noise about a disclosure we made in our 10Q today about how we hold crypto assets,” Armstrong wrote on Twitter. “Your funds are safe at Coinbase, just as they’ve always been.”

Coinbase echoed Armstrong's statement.

“As we’ve said for years in our User Agreement with you (Section 2.6.1) your assets are just that - yours,” Coinbase wrote in a message to its customers. “Not ours or anyone else’s. Customer retail funds are and always will be accounted for entirely separately from our corporate accounts.”

“We’ll say it again,” the message continues. “Your funds are your own. They have been and always will be accounted entirely separately from our corporate accounts.”

That’s the kind of security casual users are looking for. Right now, it’s too difficult, confusing, and scary to create a hot wallet or cold storage wallet and interact with web3 protocols. Coinbase’s new dApp wallet and browser seems like a beneficial middle ground and potentially massive DeFi and NFT onboarding tool. 

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