Coinbase Launches 'Wrapped Bitcoin', Justin Sun Criticizes Security And Decentralization

Coinbase launched 'Wrapped Bitcoin', Justin Sun criticized security and decentralization (Photo; Doc. Bitcoin Exchange)

JAKARTA - Coinbase, one of the largest crypto exchanges in the world, launched its newest Bitcoin wrapping product, cbBTC. The move received strong criticism from the founder of Tron (TRON), Justin Sun, who called the launch a dark day for BTC and assessed the huge risk to decentralized finance (DeFi).

Justin Sun stated that cbBTC does not have Proof of Reserve, is not audited, and can freeze user balances at any time. Through his Twitter account, Sun criticized that this product only asks users to trust Coinbase blindly, without transparency. He even called cbBTC a Bitcoin central bank, because of concerns that one call from the United States government could lead to the seizure of Bitcoin related to cbBTC.

Sun's criticism has its roots in growing concerns about Bitcoin wrapping products, especially WBTC (Wrapped Bitcoin) which is the 15th largest digital asset by market cap. Previously, BitGo, the WBTC manager, announced a partnership with Bit Global to diversify Bitcoin storage operations in various jurisdictions, but this move caused controversy over Justin Sun.

Despite Sun's strong criticism, Coinbase remains adamant that cbBTC products are safe and reliable. Coinbase representatives told Decrypt that cbBTC can be used on various DeFi platforms, both on Ethereum and Base networks, Coinbase's own network. Coinbase also confirmed that they would not hand over custodian key controls or use Bitcoin reserves for borrowing or investing purposes without user approval.

In addition, Coinbase also stressed that their already recognized security practices will prevent malicious intent against BTC reserves that support cbBTC. All of this is done to ensure cbBTC can still be trusted by regulators.

The controversy surrounding the launch of cbBTC is not only about technical issues, but also sparked a greater debate about the future of DeFi and the balance between innovation and decentralization. One of the main issues is the involvement of centralized companies, such as Coinbase, in DeFi ecosystems that ideally are decentralized. This sparked concerns among the crypto community about centralization and the potential for excess control by third parties.