Coinbase was rocked by an unfortunate case at the end of August 2022. Georgian traders were able to exploit a bug in the famous platform for their own benefit. This remained online for a few hours and thousands of dollars of profit were fraudulently generated. Thus, many traders in Georgia were able to cash in crypto for 100 times the expected market rate!
As a result, all the accounts of the traders who took advantage of this error were suspended. The euphoria was short-lived, as Coinbase is now forced to account for its actions. But this situation shows that markets are not infallible. Take a look at this story with us in this article!
How did traders multiply their profits by 100 on Coinbase?
An error at a third-party vendor resulted in an abnormal exchange rate on cryptos due to a simple decimal point error. The mix-up allowed nearly 900 Georgian traders to sell their cryptos for far more than they should have. A technician at Coinbase said on Blockworks:
‘At the end of August, prices for cryptos denominated in the Georgian national currency had been priced at GEL 290 instead of GEL 2.90. The missed decimal point was due to a “third-party technical issue.”
As a result of this case, already two national banks have independently frozen the funds, as traders took advantage of the flaw. The number of beneficiaries is very small and corresponds to only 0.001% of total users. The damage caused could have been much greater if the error had not been noticed so quickly. Some users will still have been able to withdraw a certain amount of funds, which will also be recovered by the country’s banks.
Heavy consequences for the Georgian traders involved
Coinbase is a large, publicly traded platform. It reserves the right to recover, and cancel, transactions that have been made insidiously as stated in its terms and conditions. But things are getting worse for traders, as all their funds, even those not related to their trade, have been frozen.
This leaves them unable to pay for anything they need for their daily lives with their own funds, such as groceries, rent payments, etc. Georgia is a small country south of Russia and borders Turkey. Coinbase does not allow its inhabitants to interact with it, as inhabitants of the European Union can do.
Coinbase has very good means to track down traders who have exploited the bug. There are several levels of access that regulate the exchanges between users, and it is operated according to the KYC (Know Your Customer) process. Level 3 requires the user to send their personal information and prove their address. The second level allows the user to buy cryptos by providing their photo ID via a passport or driving licence for example. With this process, it is difficult to disappear into thin air without leaving a trace!
Traders’ tricks to profit from the Coinbase bug
According to an anonymous trader who testified on the case, fiduciary deposits are not allowed in Georgia on Coinbase. However, it is possible to make transfers, send and receive cryptos as well as withdraw crypto funds. To get around these restrictions, traders had to perform specific manipulations. The methods used could be simple arbitrage between exchanges, transfers of cryptos bought on another platform and resold on Coinbase, or selling cryptos bought on Coinbase for fiat currency.
Coinbase also to blame according to some anonymous traders
For some traders, Coinbase’s actions are also to blame in this case. According to them, the platform did not react in time, leaving the bug active for almost 7 hours. They believe that Coinbase was aware of the problem early on, but that it was too late to fix it.
We’ll have to wait a while to find out what happened. For the time being, all funds generated by this case are being returned to the injured parties.
Is it safe to trade on Coinbase?
Coinbase is one of the most popular platforms in the world. This technical problem does not affect the quality of service provided by the platform. If you notice such a bug, it is recommended that you report it to the site in question using the various communication channels available. If you do not inform the platform, do not exploit the bug if you think it is an error, as this will avoid any unnecessary problems.
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