Coinbase delivers intense action or vigorously escalates the situation.
Coinbase delivers intense action or vigorously escalates the situation.
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Coinbase is striving to admit only reliable individuals.
The crypto platform submitted a patent application for a risk-assessment system for "warm restore requests" in digital wallets. A warm restore involves relocating cryptocurrency from "cold storage," which means a physical hardware wallet kept offline, to "warm storage," meaning online storage, such as within a crypto exchange (think of it like moving money from a safe at home to a bank).
This system evaluates the risk involved with that transfer. Using artificial intelligence, Coinbase's system assigns a "risk score" based on various factors.
Initially, the system examines the user's account history, which includes authentication passcode usage, the frequency of warm restore requests, constraints set for hot wallets, and whether they've endured an assault in the past. It also scrutinizes the crypto or asset being accessed, examining factors such as the asset's volatility and "opinion data derived from public conversation" about the asset. It also takes into account the time and location of the request.
If the calculated risk score doesn't meet a pre-established cutoff, the system instantly denies the request.
Given that cryptocurrency is often a target for theft, cold storage wallets provide extra safeguards that a standard digital wallet doesn't, making them "significantly safer" for long-term investors, according to Coinbase. However, warm restores can be instigated for malicious purposes, such as in cases of customer impersonation or stolen authentication credentials.
Coinbase is the leading crypto exchange in the U.S. by trade volume with a quarterly trading volume of $145 billion and $130 billion in assets on its platform. Safeguarding such vast amounts merits utmost consideration when it comes to cybersecurity.
Jordan Gutt, Web 3.0 Lead at The Glimpse Group, stated that bolstering security measures using tech like this could aid in "encouraging user adoption as we prepare for the following market surge."
"Not only does the patent safeguard its users' crypto assets, but it helps Coinbase build trust among its customer base," Gutt told me.
Coinbase hasn't always had a smooth run with security issues. In February, the 0ktapus hacking group, which had targeted more than 130 tech companies, attacked Coinbase, stealing the login credentials of one of its employees to gain access to internal systems. The company also disclosed a multi-factor authentication breach in October 2021 that affected 6,000 customers. Furthermore, in March of this year, a Coinbase user sued the company after a hack resulted in him losing "90% of his life savings," which the company refused to compensate.
While enhancing cybersecurity might help protect users' assets and restore user trust, the patent doesn't deal with how to safeguard the collected data post-processing, said Ali Allage, CEO of BlueSteel Cybersecurity. The AI model collects a lot of sensitive user data to make its risk analysis determination, Allage said, and that data should be protected at all costs.
"They're trying to safeguard the end user, and my gut instinct tells me that their intentions are good," said Allage. "I believe it's just one of those things where the entire picture needs to be considered."
Risk analysis with AI isn't totally uncommon, noted Allage, and plenty of companies employ AI fraud detection. This patent may confront challenges in the approval process if Coinbase can't demonstrate its offering is unique.
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The patent application by Coinbase could potentially attract interest from investors in the finance and technology sectors, as they look for innovative ways to mitigate risks associated with digital assets.
Given the increase in cyber attacks on cryptocurrency exchanges, investments in strengthening security measures, such as the risk-assessment system for warm restore requests, are crucial for firms like Coinbase to maintain a positive reputation and user trust.