Coinbase Global (NASDAQ:COIN) recently acquired cryptographic security firm Unbound Security for an undisclosed price. That firm, based in Tel Aviv, Israel, will be able to assist Coinbase greatly, as the latter has faced challenges with security in the past. This will benefit its users as well as the long-term future of COIN stock.
I expect that COIN stock will do much better over the coming year. For example, over the past month COIN stock peaked at $357.39 on Nov. 9 and now trades at $288.70 as of Dec. 1. That’s a drop of $68.69, or 19.2% in a little under a month.
It’s no secret that Coinbase has issues with security. For example, on Oct. 1, Coinbase said “at least” 6,000 users were robbed in phishing attacks on the company. The hacks occurred when a phishing campaign got around Coinbase’s SMS authentication.
The scope of the phishing attack became apparent when a number of users received a letter from Coinbase, saying in part, “the third party took advantage of a flaw in Coinbase’s SMS Account Recovery process in order to receive an SMS two-factor authentication token and gain access to your account.”
In the end, Coinbase ended up reimbursing the value of the currency that was robbed from these peoples’ accounts. So it cost COIN to cover this security breach.
What Unbound Security Will Do For Coinbase
Although Coinbase told the affected users that it had fixed the multi-factor authentication bypass error, the company obviously decided it had to beef up its security.
The new acquisition should help. Unbound Security is a pioneer in a number of cryptographic security technologies, including the emerging field of secure multi-party computation (MPC). This involves cryptographic algorithms that focus on the exact privacy and correctness requirements involved in data authentication. As a result, these algorithms help prevent phishing scams such as the one that hit its users this year.
The Coinbase blog on Medium that announced the acquisition didn’t specify the purchase price. But it did focus on the fact that Coinbase would have access to a number of the experts in the field at Unbound Security. The blog said Coinbase now has “access to some of the world’s most sophisticated cryptographic security experts.” So to COIN, this R&D capacity must be just as important as the company’s actual technology.
Cryptocurrencies and their trading involves a lot of security for the users and their wallets. Coinbase really had no choice but to purchase a company like this. As the company said in the blog, “Crypto can’t grow without strong cryptography and strong security.”
Where This Leaves COIN Stock
If this makes Coinbase more secure, then it will be a boon for COIN stock over the long term. Obviously, this is a long-term situation as well, since the goal is to thwart new scams and attacks on Coinbase’s data, users, assets, and privacy.
The problem is that no one will ever know the difference. Preventing a future security breach won’t push the stock higher, but another major breach will definitely hurt the stock. So in a way, this is a defensive acquisition, but its absence could lead to much harm and a lower price for COIN stock.
The bottom line is that the purchase of Unbound Security is a good move, and given time should be a good thing for COIN stock owners.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com runs the Total Yield Value Guide which you can review here.