A blockchain data mining company claims to have cracked Coinbase’s cold wallet system to conclude they hold nearly 1 million bitcoin, some 5% of the total supply.
“Coinbase has constructed a cold wallet library composed of many 8,000 ~ 10,000 BTC addresses,” they say.
With this already assumed as there’s an unusual number of “perfect” 10,000 BTC addresses and even more of ₿5,000, but what is astonishing is their hot wallet system.
“Coinbase’s hot wallet is very interesting. Unlike other exchange’s hot wallets, which are a fixed address or several fixed ones, Coinbase’s hot wallet is a one-time use,” says Li Ye, technical lead at Chain.info.
Most exchanges keep all their coins in one cold wallet address, with extreme measures then taken to protect the private key of that address.
Coinbase probably Shamir chops the private key and then chops the cold wallet itself into many addresses and then perhaps sends it off to some Swiss bunker.
The hot wallet bit however is a finding because it suggests they must be using a very complex and sophisticated system to keep the bitcoin moving in and out of Coinbase while maintaining their inaccessibility to outsiders.
“At present, most on-chain data service providers are unable to provide Coinbase data, which also shows that the design of Coinbase has realized the effect of improving the security and privacy of the wallet. Chain.info is currently the only platform on the market that provides Coinbase’s relatively complete wallet data,” they claim.
They say they did this through some manual excavation to then “train a machine learning model, and use the model to automatically identify and cluster the top 10,000 addresses on the Bitcoin Rich list.”
Top 10,000. So to put them off, instead of having clear numbers you have dirty ones, and instead of using ₿10,000 chunks you go to ₿1337 or lower, with cost obviously being a consideration here as at some point you get to bird fountain meme levels.
As both a broker and an exchange, and as one that can claim it has never been hacked in addition to being perhaps the oldest one in the above list with a focus on the US market, that Coinbase is the biggest custodian of bitcoin is perhaps not surprising.
That their lead is so huge, however, is a bit of a revelation. The second position, for example, is around 33% of Coinbase’s holdings.
That second position is Huobi, which too is interesting but not very surprising because their trading engine and high frequency market makers in addition to futures as well as them too having no prominent hacks, makes the Chinese originating exchange a very easy option for traders.
There’s no Bitmex here, but Binance comes third with the other ones somewhat close although Bitfinex still seems to be a competitive player.
In combination the top five exchanges have about 10% of the total supply at circa 2 million bitcoin, and the top 10 have ₿2.5 million in their possession.
That aligns with other stats that suggest just 10% of the supply sets the price, but as this is only a limited number of exchanges that does not include things like Bithumb, we’d estimate probably around 30% of the total supply is on exchanges, and maybe circa 50% is under third party custodians.