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ShapeShift Vs. Coinbase – Two Useful Tools for US-based Cryptocurrency Investors

Coinbase provides a better starting point for investing in cryptocurrency than ShapeShift. Unlike ShapeShift, Coinbase accepts US dollar deposits and debit card payments. After you verify your ID using Coinbase’s automated ID verification system, you can quickly and easily make your first crypto purchase.

Once you have some crypto funds, you may want to consider using Coinbase in tandem with ShapeShift to invest in altcoins. ShapeShift does not accept US dollars or any other fiat currency. However, it does offer support for more altcoins than almost any other exchange.

Keep reading to learn more about the key similarities and differences between ShapeShift and Coinbase.

ShapeShift Coinbase
Strengths
  • Supports bitcoin and over 50 altcoins.
  • Altcoin-to-altcoin trades.
  • No verification needed.
  • Beginner friendly.
  • Good worldwide / US availability.
  • Supports US, European and international bank deposits.
  • Good worldwide / US availability.
  • Easy integration with GDAX.
  • Automated ID verification.
  • Accepts debit cards.
Weaknesses
  • No support for fiat currencies.
  • No advanced trading options.
  • Expensive compared to Poloniex.
  • Doesn’t accept credit cards.
  • Poor altcoin support.
  • High commission fees.

Background

ShapeShift

Shapeshift on mobile
Source: ShapeShift

In the early years of ShapeShift, nobody knew the true identity of its leader. Erik Voorhees– ShapeShift’s founder and CEO– opted to remain anonymous several years after ShapeShift’s 2013 debut. After Voorhees revealed his identity, he told CoinDesk that the reason why he used a pseudonym at first was that he didn’t want to draw attention to himself.

“I wanted the early launch of ShapeShift to be about the innovation of the site itself and its advancement over traditional order-book exchanges, rather than about me.”

ShapeShift was innovative at the time primarily because it was one of the very first non-custodial exchanges.

When you use a non-custodial exchange like ShapeShift, you can provide your own crypto wallets. There’s no need to transfer your funds out of your wallet and into a central site. Because non-custodial exchanges never hold onto large amounts of money, they aren’t very attractive targets for hackers.

Voorhees described the innovations that ShapeShift brought to the table in the following way shortly after he revealed his identity:

“There is a better way. Bitcoin services can be built to significantly reduce or eliminate the need for trust at all … ShapeShift was built as a demonstration of this principle: exchanges occur without custodianship of user funds. Indeed, there are no user accounts whatsoever.”

Related: ShapeShift.io Review: More Altcoin Trading Options than Most Exchanges

Coinbase

Source: Coinbase

Unlike ShapeShift, Coinbase opted to take a more centralized approach to cryptocurrency when it opened its doors in 2011. Despite the fact that Coinbase follows a more traditional business model, Coinbase’s experienced leadership and willingness to comply with standard financial service regulations has helped it become one of the leading crypto exchanges in the US.

Coinbase was founded by Silicon Valley entrepreneur Brian Armstrong and trading algorithm expert Fred Ehrsam. Armstrong launched UniversityTutor.com and several other internet startups before co-founding Coinbase. Ehrsam had helped Goldman Sachs fine-tune their automated trading system before he partnered with Armstrong.

Most exchanges either cater to beginner investors or specialize in catering to the needs of frequent traders. Coinbase, however, has attempted to appeal to both demographics. The core Coinbase site is a retail-oriented exchange that features a simplified, easy-to-use interface. Coinbase’s advanced exchange GDAX, on the other hand, offers advanced features like fee discounts for high volume traders and the ability to place limit orders.

In the early years of Coinbase, the exchange didn’t offer nearly as many features. Initially, Coinbase was just a crypto wallet– or in other words, a website for storing bitcoin and other cryptocoins. Venture capital investments from big-name companies like USAA, BVA, NTT Docomo and Valor Capital Group have given Coinbase the financial resources it needed to increase its size and scope.

Related: Coinbase Review: A Popular Exchange With Smart Money Behind It

Supported Currencies and Listing Policies

ShapeShift supports far more digital currencies compared to Coinbase. Currently, Coinbase only lists bitcoin and five altcoins: bitcoin cash, ether, litecoin, dash and dogecoin. ShapeShift, on the other hand, offers over 50 digital coins.

Coinbase offers far better support for government-issued fiat currencies. ShapeShift still doesn’t accept any type of fiat currency, but Coinbase lets its users deposit and exchange US dollars, euros and a wide range of other European currencies.

Listing policies

ShapeShift and Coinbase don’t offer many details regarding how they decide whether or not to list a digital currency.

Security and Hacks

Despite the fact that ShapeShift’s non-custodial model leaves it less vulnerable to cyberattacks compared to custodial exchanges, it has in fact been the victim of one publicized hack. In 2016, a ShapeShift employee made away with $230,000 worth of bitcoin. That theft did not affect ShapeShift’s customers in any way, though– and after the robbery, ShapeShift earned goodwill in the cryptocurrency community by publishing the results of its security investigation on CoinDesk.

Coinbase’s security record is completely clean. Security measures like SQL injection blocks and IP address whitelists and a bug bounty program have helped keep the exchange safe. The bug bounty program grants financial rewards to white-hat hackers for finding bugs that could compromise Coinbase and its sister site, GDAX.

Availability and verification

ShapeShift and Coinbase both have good availability in the US and around the world.

Because ShapeShift only supports cryptocurrencies, it doesn’t have to comply with as many regulations as Coinbase does. As a result, ShapeShift can operate in almost all US states except New York and Washington. Both of those states have stricter cryptocurrency regulations compared to the rest of the country.

Coinbase has had to do more work to get licensed in the US because it accepts US dollar deposits. It’s available in every US state except Wyoming, Hawaii and Minnesota. Coinbase even managed to secure a license to operate in New York state. New York state’s BitLicense is so expensive and burdensome that leaders of several crypto exchanges have made comments about it in the press. Recently, the Wall Street Journal reported that Coinbase is looking into acquiring a federal banking license. If Coinbase manages to acquire a federal banking license, it will likely be able to expand its features and availability in the United States.

Abroad, ShapeShift and Coinbase are available in almost every nation that’s not an enemy of the United States. However, features of both exchanges may vary from region to region. Canadian residents, for example, can’t initiate sell orders on Coinbase. They can, however, post buy orders. (Click here to find out which Coinbase features are available in your country.) ShapeShift recently decided to block its US-based customers from buying certain altcoins

Verification policies

Government regulators in the US ask more from crypto exchanges that let their customers deposit US dollars. If an exchange supports the dollar, it usually has to have their customers fill out mandatory KYC (Know Your Customer) information and comply with AML (Anti Money Laundering) standards. Crypto exchanges that only support digital coins don’t need to comply with as many requirements. However, many “crypto only” exchanges still follow AML/KYC guidance with the expectation that they will eventually need to follow the same rules as traditional financial services.

ShapeShift is one of the few crypto exchanges that does not force its customers to identify themselves. Anyone can use ShapeShift’s exchange services without going through the hassle of going through an ID verification system.

Coinbase does require its users to identify themselves. An automated ID verification system shortens the amount of time it takes to get through the process. If the ID verification algorithm doesn’t trigger an error, you may be able to start using Coinbase immediately after submitting scans of your ID documents. If there’s a problem, you may have to open a support ticket to get it resolved.

Trading, Fees and Apps

Trading interface

ShapeShift and Coinbase both feature intuitive, easy-to-use interfaces.

If you already have a crypto wallet with funds in it, using ShapeShift to make an exchange is a simple process. To initiate a transaction, all you need is a pair of crypto wallet addresses. The first address is where your funds will go once the transaction is complete. If the exchange fails for any reason, your funds will end up in the second wallet.

sendone 1
Sourceː Coinbase

After you provide those two addresses, ShapeShift handles the rest of the exchange for you. All you have to do is send your funds to ShapeShift using the address provided in the next step of the process.

sendrecieve 1
Sourceː Coinbase

Here’s what Coinbase’s core interface looks like. The Coinbase dashboard lets you flip between several popular crypto markets. Buttons on the top of the interface allow you to access all the core features.

pasted image 0 1
Sourceː Coinbase

One convenient thing about Coinbase is that it accepts fiat deposits. You can fund your Coinbase account by linking Coinbase to your bank account. Bank card purchases are also available.

pasted image 0
Sourceː Coinbase

Fees

ShapeShift is cheaper to use compared to Coinbase.

Though ShapeShift doesn’t charge any upfront fees, it does charge a kind of “behind the scenes” fee by offering higher-than-market-value prices for cryptocurrencies during an exchange. In other words, ShapeShift profits from the spread between the prices it offers and the actual market prices for cryptocurrencies. This difference between ShapeShift’s price and the actual market price is usually around 0.5%, according to one of ShapeShift’s knowledge base articles.

Coinbase, on the other hand, uses a rather unusual and complicated system for calculating its fees. The fee system is composed of two different “methods.”

  • Method 1. Coinbase’s first fee method applies a percentage fee to your purchase. This fee varies depending on where you reside (in the US, this fee can be as high as 4%).
  • Method 2. Method 2 consists of two fees. The first fee is a 2.49% fixed fee. There’s also a 1% fee that maxes out at $50 USD.

If you reside in the US, you’ll likely wind up paying fees under both methods for most types of Coinbase transactions. Because method 1 alone can result in fees as high as 4%, ShapeShift is clearly far less expensive to use– especially if you live in the US. However, the fact that Coinbase supports fiat purchases gives it a distinct edge, since the vast majority of beginner crypto investors use their fiat funds to make their initial investments.

Mobile apps

ShapeShift and Coinbase are about even when it comes to app support. Both exchanges have highly-rated apps for Android and iOS.

Customer Support and Community

Coinbase’s recent unveiling of live phone assistance has given it a distinct edge over ShapeShift and nearly every other crypto exchange when it comes to technical support. Most other crypto exchanges rely on self-service websites and ticket-based support centers to process help requests.

ShapeShift Coinbase
Ticket-based system Yes Yes
Telephone support No Yes
Online chat No No
Knowledge base Yes Yes
FAQ Yes Yes
In-house forum No No

Cryptocurrency Regulation

ShapeShift has a much edgier stance regarding government oversight compared to Coinbase. In fact, ShapeShift is one of only a handful of crypto exchanges that does not have any type of ID verification policy at all.

When Washington passed Senate Bill 5031, ShapeShift shed some light on its philosophy regarding its lack of a KYC policy when it announced that it would leave the state.

“We would be required to spend hundreds of thousands of dollars to maintain a [Washington state] license, only to extract our users’ personal information and store that information for hackers to steal.”

Along with Washington’s Senate Bill 5031, ShapeShift has also criticized New York’s BitLicense in the press. During a conference in Manhattan, Voorhees had this to say about the state of crypto regulation in New York state:

“Let’s call the BitLicense what it is—an absolute failure.”

Coinbase’s approach to regulation is the mirror opposite of ShapeShift’s. Rather than sticking to a “crypto only” business model, the exchange sought to acquire all licenses it needs to support the US dollar and other fiat currencies early on. Coinbase invested in acquiring a BitLicense rather than abandon customers in New York. Also, Coinbase limits its menu of supported cryptocoins to the ones that US regulators don’t have an issue with. (The US Securities and Exchange Commission recently started issuing subpoenas to exchanges that list certain coins.)  And– as mentioned above– Coinbase may also be preparing to apply for a federal banking license.

Final Thoughts

Most beginner crypto investors will probably want to start out with Coinbase. Coinbase offers support for US dollar deposits and debit cards, which makes it a convenient way to make your initial investment. After you’ve converted some of your fiat funds to crypto, you can use your Coinbase wallet to invest in altcoins via ShapeShift. ShapeShift’s fees are reasonable, plus it offers much better altcoin support compared to Coinbase.

Alex Munkachy

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