Coinbase and Coinbase Wallet are two separate platforms that cater to different aspects of cryptocurrency management. While both are owned by Coinbase, they serve distinct purposes and target different user needs. I have extensive experience with both of them and have been using them since 2017. In this article, we will explore the various differences between Coinbase and Coinbase Wallet, delving into their features and user experience.
- Coinbase Vs. Coinbase Wallet in a Nutshell
- What’s a Crypto Address?
- Understand What the Coinbase Exchange Does
- Understand What the Coinbase Wallet Does
- What Is the Relationship Between Coinbase and Coinbase Wallet?
- 7 Key Differences Between Coinbase and Coinbase Wallet
- Setting Up a Coinbase Wallet
- Setting Up a Coinbase Account
- Wallet Alternatives
Coinbase Vs. Coinbase Wallet in a Nutshell
Coinbase is a crypto exchange where you can trade cryptocurrencies
When you store your crypto on Coinbase you don’t have custody of the crypto.
Coinbase is keeping it safe for you but if they were to lose your crypto you wouldn’t be able to get it back.
On the other hand, Coinbase Wallet is a place where you can store your crypto and where you hold the access codes to the account.
Even if Coinbase were to go bust you would still own your crypto coins.
No one can mess things up apart from yourself if you lose the access codes.
Before we delve further I would like to make sure you understand the concept of a crypto address.
What’s a Crypto Address?
Cryptocurrencies live on a digital ledger that anyone can see.
For example, the Ethereum blockchain has a ledger with information that says things like Mary has 3 ETH, Mark has 2 ETH, and so on.
Except it doesn’t name people.
Instead of names, it uses long strings of letters like this:
You don’t know who that user is but you know how much ETH they have.
In crypto speak this long string of numbers is called a public address.
Now each public address also has a corresponding long string of characters called a private key.
The private key to this address might be something like:
The private key allows you to perform transactions.
For example, Mark can use his private key to send Mary his 2 ETH. After the blockchain updates, Mary’s public address will have 5 ETH and Mark’s will have none.
You can think of a public address like the address of your house.
You can share your house’s address with anyone.
This way they can send you presents.
But only you can enter your house because you hold the keys. And these you don’t want anyone else to have a copy of.
If not then check out my more in-depth explanation of what a crypto address is.
So how do Coinbase and Coinbase Wallet differ in the way they manage private keys?
Let’s take a look at the exchange first.
Understand What the Coinbase Exchange Does
After you sign up to coinbase and verify your identity the first thing you’ll do is move cash to Coinbase from your bank account and buy some crypto.
When you buy the crypto it will be available at a public address.
The only problem is that you don’t hold the private keys to that address.
How big of a problem is that?
If you are trading a relatively small portion of your savings it is probably ok.
Coinbase is a publicly traded company that claims to store 97% of its crypto assets in encrypted, geographically separated, cold storage i.e. offline.
It also takes out insurance for cybersecurity breaches.
However, if you are storing your life’s savings on Coinbase then you need to be aware of the risks.
The biggest risk is that of the exchange blowing up
Imagine you purchased 100 BTC 4 years ago and have left it sitting on a cryptocurrency exchange.
Say this exchange is really well known. It has athletes and celebrities sponsoring it and it is one of the largest. It’s valued at billions of dollars and is said to go public soon.
Then one day you read in the news that this exchange is having some liquidity issues.
People are pulling their money out but there are delays.
The next day you find that the exchange has frozen transactions while it seeks to raise bailout funds.
An agonizing week goes by when you read that it turns out the owners of the exchange were using your Bitcoin to take risky bets on the market that didn’t work out.
Yeah right, you’re thinking. As if this would ever happen.
Well unfortunately in crypto it happens all the time.
The example above is not imaginary. It’s what happened to FTX in November 2022. (For other low points of 2022 check out Why Did Crypto Crash in 2022: Unpacking the Key Events)
FTX was the flashiest exchange at the time. And it blew $400Bn in the air.
Another risk is that Coinbase.com suddenly decides to or is forced to restrict withdrawals.
So if you have a sizeable amount of crypto it is safer if you store it off exchanges.
One way to do that is to use Coinbase’s Wallet. Let’s take a close look at how it works.
Understand What the Coinbase Wallet Does
The Coinbase Wallet is a digital wallet that focuses on providing users with complete control over their private keys and offers decentralized applications (DApps) integration.
It is designed for those seeking a secure and self-custodial solution for managing their digital assets.
With Coinbase Wallet, users can securely store, send, trade, and receive a wide range of cryptocurrencies.
The wallet supports popular cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE) and many ERC-20 tokens. Note that Monero XMR is not supported.
In addition to its core features, Coinbase Wallet also offers a built-in Web3 browser, allowing users to seamlessly interact with decentralized applications directly from the wallet.
This integration enables users to access a wide range of DApps, including decentralized exchanges, lending platforms, and decentralized finance (DeFi) protocols.
Furthermore, Coinbase Wallet prioritizes security by implementing multiple layers of protection. The wallet utilizes secure enclave technology to store private keys on the user’s device, ensuring that only the user has access to their funds.
Additionally, Coinbase Wallet supports biometric authentication, such as fingerprint or face recognition, for an added layer of security.
What Is the Relationship Between Coinbase and Coinbase Wallet?
The obvious relationship between the two is that the same developers have built the exchange and the wallet.
So there are some synergies.
For example, when you transfer money to your Coinbase wallet you can transfer from another wallet or you can click on a button that says “use Coinbase Pay” which will hook you up to your Coinbase (exchange) account.
It’s not really decentralized.
I have often come across wallets describing themselves as being decentralized. What they mean is that you own the keys and that you can plug into DeFi DApps that allow you to earn a yield like lending your crypto.
In addition, it refers to the overall user experience.
On the Coinbase wallet, you can also swap cryptocurrencies.
Here the user experience is similar to the user experience on decentralized exchanges like Uniswap, Pancake Swap, and the like.
However, I find the term “decentralized” misleading as it suggests that the app is managed independently by a community of developers which it is not.
In the case of Coinbase Wallet, the app is promoted and developed by Coinbase who have a commercial interest in the app.
Furthermore, the term “decentralized” is associated with being more secure but that is not the case with wallets.
The wallet is as secure as the code that the developers have used to build it.
Should hackers be able to exploit a vulnerability in the code it could mean waving goodbye to your assets.
The most recent case of this happening was with Atomic Wallet. Check out my article on Atomic Wallet vs. Coinbase for more on this.
7 Key Differences Between Coinbase and Coinbase Wallet
Infographic summarizing Coinbase vs Coinbase Wallet
#1. Coinbase is for beginners
When comparing Coinbase and Coinbase Wallet, the first and foremost difference lies in their functionalities.
Coinbase acts as a centralized exchange, catering to users who want to easily buy, sell, and trade cryptocurrencies.
It offers a sleek and intuitive user-friendly interface, making it ideal for beginners entering the crypto space.
#2. Coinbase wallet is for storage and DeFi
On the other hand, Coinbase Wallet primarily focuses on providing users with a secure and decentralized storage solution for their digital assets, offering more advanced features for experienced traders and DApp enthusiasts.
While Coinbase allows users to buy, sell, and trade cryptocurrencies, Coinbase Wallet goes beyond that by enabling users to interact with decentralized applications and manage their own private keys.
Coinbase Wallet provides functionalities such as staking, voting in governance protocols, and accessing various DApps directly from the wallet interface.
Coinbase Wallet also supports non-fungible tokens (NFTs), allowing users to store and manage their unique digital assets.
Important note: Coinbase Wallet is a software solution that is connected to the internet. This means that it is more susceptible to hacking compared to a hardware wallet.
#3. Coinbase is for adding funds or cashing out.
One crucial difference between Coinbase and Coinbase Wallet is the support for fiat currencies.
Coinbase allows users to link their bank accounts and deposit fiat currencies such as USD, EUR, and GBP.
This feature enables users to easily convert their fiat currency into cryptocurrency and vice versa.
Coinbase Wallet, being a self-custodial wallet, does not support direct fiat currency deposits or conversions. It is primarily designed for storing and managing cryptocurrencies.
This means you need an exchange to onboard your fiat and buy some crypto. It doesn’t have to be Coinbase’s exchange.
#4. Coinbase vs Coinabse Wallet fees
Transaction fees vary between Coinbase and Coinbase Wallet.
Coinbase charges a variable fee for each transaction, which depends on the payment method and transaction size.
Coinbase Wallet, being a self-custodial wallet, does not charge any transaction fees for sending or receiving cryptocurrencies.
However, users will incur fees when interacting with DApps or when conducting transactions on the underlying blockchain networks.
#5. Coinbase offers Customer support
When it comes to customer support, Coinbase has a dedicated support team available to address user inquiries and provide assistance.
The platform offers various channels of support, including email and live chat.
Coinbase Wallet, being a self-custody wallet, does not offer the same level of customer support. There is no integrated chat button or contact form like there is on coinbase.com.
However, users can seek support from the wider Coinbase support team for general inquiries related to Coinbase products and services.
#6. You can swap a wider range of coins on Coinbase.com
Coinbase wallet has a section where you can swap one coin for another.
However, Coinbase Wallet only supports assets available on the following blockchains:
Also, you can only swap between tokens on the same chain. So for example you can’t swap between ETH and SOL because ETH sits on the Ethereum Network and SOL sits on SOLANA.
It’s important to note that you can’t trade Bitcoin. You can store it but you can’t buy or sell it in the wallet.
However, you can buy the wrapped version of Bitcoin that sits on Ethereum. See What is Wrapping in Crypto to understand this better.
Keep in mind that when you swap coins on Coinbase Wallet you are not trading on Coinbase. You are trading on a decentralized exchange like Uniswap or Sushiswap and the like. Coinbase wallet plugs into a decentralized exchange aggregator called 0x to find the best price available on decentralized exchanges.
#7. You don’t need to KYC for Coinbase Wallet.
To open a coinbase wallet account you don’t need an email address or bank account and you don’t need a coinbase account.
The only thing you need is funds and your 12-word seed phrase.
That sums up the differences between Coinbase and Coinbase Wallet. For more, you might find the following resource useful
Setting Up a Coinbase Wallet
The coinbase wallet is available as a mobile app on Android and iOS devices and as an extension on Google Chrome.
In the screenshots below I have used the Chrome browser extension but the steps are identical on the mobile wallet.
Step 1: Issue seed phrase
Like all wallets when you set up a new Coinbase Wallet account it does not issue your private keys directly.
Instead, it gives you a 12-word seed phrase.
The 12-word seed phrase corresponds to a private key which you can check after signing up. But because private keys have so many characters wallets have defaulted to using a seed phrase instead.
You can get one from the other using cryptography.
So just like how you don’t want anyone to have access to your private keys you also don’t want them to have access to your seed phrase. Hence make sure you store your seed phrase somewhere safe.
The safest place is an offline device or piece of paper. Of course, you need to be careful where you store those. There are many stories of people searching through landfills for devices that they threw away by mistake.
Step 2: Create a password
Next, the wallet will ask you for a normal password for you to confirm transactions. Usually, that’s all you’ll care about. You only need the seed phrase for when you want to recover your wallet. For example, if you set up the Chrome extension first then you can use your seed phrase to use the same account on your mobile app.
Setting Up a Coinbase Account
Setting up an account on Coinbase is completely different.
In order to sign up you need to verify your identity to comply with KYC (know-your-customer) regulations.
Once you sign up you will be asked to set up a password and two-factor authentication.
From there on you can transfer funds from your bank account and start trading crypto.
Note how at no stage are you given a seed phrase or private keys. This is the main difference between Coinbase and Coinbase wallet.
Other famous wallets include MetaMask, Trust Wallet, Atomic Wallet (now hacked), and Exodus.
If you don’t want to use a hot wallet that is hooked up to the internet then you might want to consider hardware wallets like the Nano Ledger or a Trezor device.
While hot wallets are readily available to download on mobile devices, you’ll need to order a hardware wallet.
But hardware wallets are a better option if you want to be 100% secure.
There is also a third option which is to use a Coinbase Vault. This is a free cold storage custodial solution offered by Coinbase to its customers whereby there is a forced 48-hour delay for moving your crypto and you can have multiple co-signers to approve transactions.
Is Coinbase wallet insured?
No your funds in your coinbase wallet are not insured. You are solely responsible for them and you take on any risk there might be with the wallet getting hacked.
Should I move my crypto from Coinbase to Coinbase wallet?
If you have a sizeable amount of crypto it will be safer to store them on Coinbase Wallet than on Coinbase. However, software wallets too are prone to attack. A safer option still would be to use a hardware wallet that is not connected to the internet. This would make it virtually impossible for anyone to steal your device. The only risk would be that you lose it.
Do I need a Coinbase wallet if I have Coinbase?
No having a Coinbase Wallet account is not a prerequisite for opening an account with Coinbase. The main reason to use a Coinbase Wallet is to take self custody storing your assets and to participate in DeFi more actively.
Is Coinbase wallet safer than Coinbase?
Coinbase wallet is thought to be safer than Coinbase because you have self custody of the funds. However, this does not mean the wallet is less susceptible to a hack compared to the exchange.
Why do people use Coinbase wallet?
People use the Coinbase wallet to store large amounts of funds while having access to the private keys for those funds. They also use the wallet to participate in DeFi activities like lending or earning a yield in a liquidity pool.
How do I cash out my Coinbase wallet?
You can't cash out directly on the Coinbase wallet. You will need to move your funds to another exchange and cash out your crypto assets there.
Can you sell crypto on Coinbase wallet?
Yes, you can use the swap functionality to sell you crypto on a decentralized exchange. But you can only sell it for other crypto. And you can't sell Bitcoin. Only BNB, Solana, Polygon, Avalanche and ERC-20 (Ethereum) assets.
What happens to Coinbase wallet if Coinbase fails?
The two are independent from eachother. While they may share the same developers noone has access to your funds on Coinbase Wallet. Should Coinbase fail your funds on Coinbase Wallet should be secure.
Is there a fee for Coinbase Wallet?
Coinbase Wallet does not charge any fees for transactions. However you do need to pay network fees and exchange fees to the third party exchanges that Coinbase Wallet uses.
In this article, I will walk you through all you need to know about how crypto lending and borrowing works. Read more.