Coinbase Thinks It’s a Good Idea to Backup Private Keys to the Cloud

On Tuesday (February 12th), cryptocurrency exchange Coinbase said that the Coinbase Wallet app for iOS and Android had been enhanced such that it was now for users to backup an encrypted copy of their private keys to the cloud (iCloud in the case of iOS users and Google Drive in the case of Android users).

Exactly one week after launching Bitcoin (BTC) support on Coinbase Wallet (formerly known as "Toshi"), Coinbase announced that it was "introducing cloud backup for your private keys on Coinbase Wallet". Here is the tweet Coinbase sent out:

According to the blog post by Coinbase Wallet Product Lead Siddharth Coelho-Prabhu, this new feature "provides a safeguard for users, helping them avoid losing their funds if they lose their device or misplace their private keys."

Coinbase thinks although it is great that Coinbase Wallet allows users to experience "the full power of an open financial system" (i.e. " storing their own funds and accessing them anywhere in the world"), this power comes with "great responsibility." Since private keys, which are "generated and stored on your mobile device", are "the only way to access your funds on the blockchain" and owns of non-custodial wallets such as Coinbase Wallet "sometimes lose their devices or fail to backup their 12 word recovery phrase in a safe place, thereby "losing their funds forever," it would be a good for users of Coinbase Wallet to use cloud backup for their private keys, and it is now providing a feature that enables just that.

The new opt-in cloud backup feature provides "the ability to store an encrypted copy of your recovery phrase on your personal cloud account." You will, of course, need to come up with a strong password and a way to remember it somehow, but if "you lose your device or get signed out of the app," you will be able to "easily regain access to your funds with the combination of your personal cloud account (iCloud or Google Drive) and your password."

Coinbase wants you to know that this backup is "encrypted with AES-256-GCM encryption and accessible only by the Coinbase Wallet mobile app." And of course, if you lose the password for this backup, the support staff of Coinbase or your cloud service provider will not be able to help you since they don't keep a copy of this password:

"Coinbase will not have access to your password or funds at any time, preserving your privacy and control. Your cloud backup provider will also not have access to your funds, as only you know the password that decrypts your encrypted recovery phrase."

Although this feature currently only "supports iCloud on iOS devices and Google Drive on Android devices," Coinbase plans "to add support for other cloud services in the future."

Coinbase also wants to remind users that this feature is completely optional and needs to be explicitly activated. Also, it recommends that users also "backup their passphrase manually" after cloud backup activation and "activate Two-Factor Authentication on your personal Google or iCloud accounts to make those accounts harder for attackers to compromise."

Amongst experienced long-time investors in crypto, especially those who strong believe in its ideas of decentralization and self-sovereignty, the reactions on Twitters were quite negative. Here are a few examples:

 

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Israeli Hacker Indicted For $1.75 Million Cryptocurrency Theft

A hacker from Tel Aviv named Eliyahu Gigi was recently indicted for his alleged role in stealing roughly NIS 6.1 million (or $1.75 million) in cryptocurrencies from people in numerous different countries, including Germany, Belgium and the Netherlands.

According the indictment filed this week, Gigi operated numerous scam websites that infected computers with malware that would steal cryptocurrencies that were stored on the devices.

The hacker stole nearly $2 million worth of bitcoin, ethereum, and dash, before they were arrested in June of this year. Gigi carefully covered his tracks by attempting to use remote servers and doing his best to conceal the cryptocurrencies and the wallet addresses that they were stored in.

He then transferred the currencies between different wallets, split them into different cryptocurrencies and used other tactics to obfuscate the ownership of the funds.

During the investigation, it was initially suspected that Gigi was guilty of stealing $100 million, however, once the investigation was concluded, that number was significantly scaled down to less than $2 million.

According to the Israeli publication Globes the investigation was conducted by the Israeli Police's cyber unit, and led to the arrest of Gigi and his younger brother, a 22-year-old demobilized soldier. The news outlet adds:

At the outset of the investigation, suspicions were raised that the two brothers had stolen $100 million from digital accounts kept in bitcoin through an international fishing fraud. The indictment eventually filed was against only the older brother, and the initial suspicions that $100 million had been stolen were scaled down to NIS 6 million. [$1.75 million]

Police were initially tipped off to the crime after receiving reports the hacker was sending messages to users on cryptocurrency forums, directing them to a website that claimed to offer wallet management software.

Some of the users who received the message thought that the website looked suspicious. Worried about their security, they reported the websites and Gigi's forum accounts to police.