So you have bought yourself some crypto and are wondering whether you should just leave it on Coinbase or get yourself a hardware device such as a Ledger wallet. In this post I will help you clarify your thoughts and make a decision. Ledger is considered by many to be the safest solution while Coinbase has more than one offering to offer including the Coinbase exchange, Coinbase Vaults and Coinbase Wallets. So let’s take a closer look at each and help you decide.
If you hold a large amount of crypto and trust yourself to not lose your physical device or the codes you have written on paper then invest in a Ledger device. To protect yourself further you can get a Ledger Recover subscription for $10 per month which allows you to recover your seed phrase in case you lose it. This way you are 100% protected and have that extra peace of mind.
It is the most secure option. If, however, you want an idiot-proof way to store your crypto that does not involve managing a physical device and seed phrases then consider Coinbase’s free vault service: a cold storage solution that has a 48-hour time lock. Finally, if you want a wallet to participate in DeFi so that you can borrow, lend, stake, and earn a yield on your assets consider a software wallet such as Coinbase Wallet. Finally, if you are an active trader you are better off keeping your funds on Coinbase.
Coinbase vs Ledger vs Coinbase Wallet at a glance
|Offers a cold storage vault with a time lock
|Extremely secure: is offline and uses a tamper proof chip
|You own your private keys
|It costs money
|small learning curve
|small learning curve
|You can buy crypto with fiat
|Range of supported cryptos
|For active trading
|You can participate in DeFi
Let me walk you through what the whole deal about storing crypto is.
How storing crypto works
When you own crypto you don’t actually own anything.
There is just an entry in a file saying that id number: adaouh131p3houaqi94998999 has 1 bitcoin.
That long numeric string is known as a public address.
Now here is the catch: if you want to move that 1 BTC to another address you need a secret code called a private key.
If you have the private key then that bitcoin is yours. If anyone else gets access to that private key then they can send the bitcoin somewhere else. Hence you want to keep your private key very safe.
There are two ways you can manage private keys.
1. Non-custodial wallets
The first is to use a wallet that encrypts your private keys on your device. That device can be your phone or laptop or it can be a separate usb-type device that is not connected to the internet. Using an internet-connected device is known as a hot wallet whereas cold wallets such as Ledger, Trezor, and KeepKey are not connected to the internet making them harder for hackers to access.
When you store your keys in a wallet the wallet will issue you a 12 to 25-word seed phrase.
This seed phrase can derive all your private keys for the different public addresses you own across various blockchains.
So for example in the same wallet, you can have a Bitcoin address where you store your bitcoin, an Ethereum address where you store your ETH, a dogecoin address for your DOGE, and so on. Each public address has a corresponding private key and all private keys can be derived from your seed phrase.
If you lose the seed phrase or someone steals it you can wave bye-bye to your crypto. This is a scary thought which is why many people would rather someone manage their keys for them. Which brings us to the second way to manage your keys.
When you store your crypto on an exchange such as Coinbase, the exchange does not share the private keys of your public address with you. Instead, they hold your private keys on your behalf and manage the process in the background for you.
For example, if you want to send bitcoin from your bitcoin address you just press a button that says “Send” on Coinbase and Coinbase will send the bitcoin using the private keys from your address without sharing them with you.
The benefit of storing your assets on Coinbase is that it is idiot-proof. It is one of the largest crypto exchanges and there are no keys to manage. If you lose your password you can always recover it like you can on any other centralized platform.
Coinbase requires that you go through a KYC (Know Your Customer) process which means they can verify your identity and restore your account or issue you a new password if you lose it.
The drawback to using Coinbase is that if it goes bust or gets hacked then there is no recourse to get your money back.
Your crypto is not FDIC insured like your savings in your bank account are.
However, Coinbase does offer some extra options for you:
Coinbase Storage options
1. Coinbase Vault
A coinbase vault is a free cold storage service that allows you to lock up your crypto for a specified time before a transaction can execute. The minimum is 48 hours. This means that if you issue an order to send your crypto elsewhere Coinbase will notify you and execute the transaction only after 2 days.
This way if someone gains access to your account and tries to steal your digital assets you will be notified in the meantime and can take action.
In addition, transactions have to be verified by two email addresses and if you like you can add additional signatories to approve the transaction.
The crypto is stored offline which makes it almost impossible for hackers to access. The benefit of using a vault is that you have an added layer of security at no cost which is idiot-proof because you don’t have any private keys to manage.
2. Coinbase wallet
For those who want to take custody of their private keys, Coinbase has a software wallet called Coinbase Wallet. You don’t need to have a Coinbase exchange account to use Coinbase Wallet and you do not need to provide any personal information when setting up a Coinbase Wallet.
The Coinbase Wallet is available on Android and iOS devices and there is also a Coinbase Wallet browser extension. When you set up your wallet for the first time Coinbase Wallet will ask you if you want to store your seed phrase on your Google drive. In this case, you will share your email and you will create a password to protect your seed phrase. If you choose this option it is riskier because passwords are easier to hack and a hacker could potentially gain access to your wallet. The main benefit of having a Coinbase Wallet is that you can hook it up to decentralized finance applications. This way you can borrow, lend, stake, or earn a yield on your crypto. To find out more about DeFi follow my tutorials here
Bottom line on Coinbase: you can use the coinbase exchange if you don’t trust yourself to store your private keys safely. Coinbase’s vault solution is pretty secure and you can always use the Coinbase Wallet to participate in DeFi with smaller amounts. See What Is the Difference Between Coinbase and Coinbase Wallet for more.
The other alternative is to use a hardware wallet such as a Ledger device to store your crypto assets.
Why use Ledger wallets
Ledger hardware wallets are considered the best crypto wallets on the markets today. There are three devices on offer:
The Ledger Nano S plus, the Ledger Nano X, and the Ledger Stax.
A Ledger is a physical device resembling a USB stick but solely dedicated to securely storing your keys. To set up and use a Ledger wallet you connect it to the Ledger Live app which you can open and install on your desktop or mobile phone. You can connect via a USB-C cable or Bluetooth if you use the Nano X or Stax models.
The cool thing about Ledger is that even if you are connected online via the Ledger App you can only authorize transactions by physically pressing on buttons on your device. A hacker would need to have physical access to your device. More importantly, even if a hacker were to have access to your device Ledger uses a Secure Element chip which is impossible to hack. While the silicon chips that your toaster or microwave oven use can be hacked, Secure Element chips are tamper-proof.
Ledger vs Coinbase
The main weakness that Coinbase has is that is a central point of failure. If something goes wrong they could potentially freeze your assets. Imagine for example that a government declares crypto illegal and forces Coinbase to freeze transactions. Or what if Coinbase ends up being another FTX that was stealing customer funds to place risky bets and ended up going bankrupt? Ledger’s cryptocurrency wallet protects you from these extreme scenarios. You own the keys to your wallet and as a cold storage wallet, hackers can’t access your device from a distance.
But what if I lose my Ledger device or seed phrase?
Up until recently if you lost both your device and seed phrase there was no way to recover your funds. There are horror stories like these with people’s houses or cars getting burgled and people not remembering where they have placed their seed phrase so they can set up a new wallet and recover their funds.
However, Ledger has introduced a new service called Ledger Recover. For a monthly fee of $10, you can opt into this service which will allow you to recover your seed phrase if you lost it. However, keep in mind If you choose the recover option you will need to share personal details such as an email address, name, and proof of address. You can find out more about it in my Ledger wallet review as well as the Ledger academy.
Most users store their funds on a cryptocurrency exchange
Despite the risks, according to an interview with Ledger’s CEO, Pascal Gauthier, Ledger most crypto investors are storing their crypto assets on exchanges. This is because people assume that having a password and two-factor authentication are sufficient guarantees to protect their funds. Plus most crypto investors are not as savvy and cannot be bothered learning about the nuances of managing a non-custodial wallet.
Can I participate in DeFi with Ledger?
The Ledger Live App has a web3 browser which means you can participate in some web3 activities. Alternatively, Ledger is compatible with other wallets such as Trust Wallet that offer a wider range of Web3 dApps you can plug into. What Ledger does not have is a browser extension. On the other hand, if you set up a Coinbase Wallet it has a browser extension which means you can participate in a wider range of DeFi activities.
Alternatives to Ledger and Coinbase
In 2023, Ledger, the most popular hardware wallet in the crypto industry, released a new feature called Ledger Recover. This one feature completely threatens the whole point of having an offline wallet and Ledger’s PR department has been facing a difficult time ever since. A hack that compromised DeFi platforms using code developed by Ledger in December 2023 further exacerbated the situation. In this comprehensive Ledger wallet review, I will walk you through what Ledger is and how you can use it. We’ll be taking a look at the main benefits that the wallet offers and what its drawbacks are. We’ll also dive into whether the new Ledger Recover feature is something to be concerned about or not. At the end of this review, you will have a good sense of whether Ledger is for you or not. Read more.