In this guide, I will help you decide whether to use the Coinbase wallet or the Coinbase vault. I will explain the difference between the two, describe how each works, and the pros and cons of using them.
What’s Coinbase Wallet?
Coinbase Wallet is a non-custodial digital wallet that allows you to store your digital assets. You do not need to have a coinbase account to set up a Coinbase Wallet but the two are compatible i.e. it’s easy to send funds from one to the other.
When you set up a Coinbase Wallet you do not need to provide personal information such as an email address or proof of ID. When you create a new wallet Coinbase Wallet will issue you a 12-word seed phrase which you need to store somewhere safe. In contrast to other wallets, Coinbase wallet lets you store your seed phrase on your Google Drive which is protected with a password. Doing this makes it more idiot-proof because you can recover your seed phrase. However, it does expose you slightly more to being hacked.
Coinbase Wallet is a hot wallet meaning that it is connected to the internet. It’s available as a mobile app for Android and iOS devices and a browser extension for Chrome and Brave browsers.
To access the wallet you can set up fingerprint identification but you can’t use two-factor authentication (2FA). 2FA requires access to a centralized server which the Coinbase Wallet by definition does not offer as it encrypts your keys locally on your device.
Coinbase wallet supports assets on the following chains:
- Ethereum and EVM-compatible chains
- Avalanche C-Chain
- BNB Chain
- Gnosis Chain
- Fantom Opera
What is a Coinbase Vault?
Coinbase vaults are a free cold storage service offered to Coinbase users. You do not need to have a Coinbase Wallet to use Coibase vaults. The key feature of a vault is that it locks up your crypto assets for a minimum of 48 hours which you can extend to 72 hours. This way should anyone gain unauthorized access to your funds and try to move them you will be notified by email in the meantime and can take action.
In addition to offering a secure storage solution Coinbase vaults have additional security features
- Transactions need to be confirmed by two email addresses
- You have the option to set up more than 3 approvers to multi-sign transactions.
Should I use a Coinbase Wallet or a Coinbase vault?
If you plan to hold crypto for the long term and want an idiot-proof solution, the crypto vault is a better solution. For example, I don’t trust myself to manage private keys and store them somewhere safe. I will either lose the piece of paper where I have written down the seed phrase or If I am using a cold wallet I might lose the device itself.
On the other hand, leaving any sizeable amount on a crypto exchange is not very appealing as there is the risk of getting hacked. Coinbase vaults are equivalent to storing your crypto funds in the safe deposit boxes at your bank. The time delay adds an extra buffer making it the most secure way to store your funds if you don’t want to manage your private keys.
The only other exchange I know of that offers a time-delay is Kraken. But with Kraken you can use 2FA to change the delay time so if anyone were to hack your account they could in theory change the time delay whereas with the Coinbase Vault there is not way to change it.
Another benefit of the vault is that it is tied to the Coinbase platform. This means you can buy crypto with fiat using your credit card debit card or bank transfer which you can’t do if you are using the Coinbase Wallet.
When should you use a Coinbase wallet instead of a vault?
You should use the wallet if you want to be in control of your private keys and secondly, if you want to participate in DeFi.
DeFi (Decentralized Finance) is a whole different world where you can borrow, lend, and earn a yield on your crypto. To do that you need to use an online wallet.
Also if you care about your privacy and don’t want to share your personal details then the wallet is a better option for you. The Coinbase exchange is regulated by the Securities Exchange Commission and needs to comply with Know Your Customer and anti-money laundering regulations.
Alternatives to Coinbase Wallet and Coinbase vaults
To minimize the risk of losing your assets to an attack or bad luck it would be best you spread the risk by using multiple storage solutions. if you trust yourself to manage your private keys then the safest option is to use an offline storage wallet such as a Ledger or Trezor device. These are hardware devices that resemble a USB drive and which require you to physically click on the device to authorize any transactions. They are very hard to hack as you need physical access to the device and even then they are pretty much tamperproof.
Most people store their crypto on cryptocurrency exchanges. Experts consider this the least safe solution as crypto exchange tends to get hacked or go bust from time to time even the large ones. However, exchanges such as Coinbase and Kraken have built a reputation around security and store the majority of their funds in cold storage making it very hard for hackers to steal funds.
While Self-custody wallets are considered safer these too tend to get hacked from time to time. The most notable recent hack was when Atomic Wallet lost over $100M in user funds.
The best option is to use a hardware wallet that gives you a recovery option in case you lose the device and seed phrase. Ledger is the only hardware wallet to offer a Recover subscription program that costs $10 per month. If you want to store your long-term investments somewhere safe then this is probably the safest option.
In practice, you are going to end up with multiple wallet addresses. Some you will use to participate in DeFi, some to diversify risk.
Is Coinbase vault same as wallet?
No, a coinbase vault is a cold storage solution offered to Coinbase Exchange users. A vault has a time delay of 48 hours and requires approval from two email addresses for a transaction to go through. A vault is custodial and you do not have access to the private key of your public address (public key). A wallet offers you self custody which means the private keys are locally encrypted on your device and only you can authorize transactions.
Does Coinbase charge for vault?
No, the Coinbase vault service is free of cost.
Is Coinbase wallet the best wallet?
The Coinbase wallet is one of the most popular wallets. It is not the most secure as it is a software wallet. However, it supports multiple chains and has a browser extension that you can plug into any DeFi platform. Its biggest drawbacks are that it does not have fiat-to-crypto conversion options and that it does not support some cryptocurrencies such as Litecoin, Bitcoin Cash, or Monero.
Is Coinbase wallet safe from hackers?
To date, Coinbase wallet has not been hacked. However hot wallets have been known to get hacked and are considered less secure than cold storage wallets. Coinbase Wallet allows you to store your seedphrase on your Google Drive using a password. Should you choose that option you need to be aware that if someone compromises your password they could gain access to your funds.
Is Coinbase wallet cold storage?
No, the Coinbase Wallet is a hot storage solution because it is connected to the internet. If you are searching for a cold storage solution consider using a hardware device such as a Ledger or Trezor device or a coinbase vault.
What are the three types of crypto wallets?
There are three main categories of crypto wallets: 1) hot wallets or software wallets are connected to the internet. They are the easiest to use but also the most exposed to being exploited. 2) Cold wallets also known as hardware wallets are USB-type devices that are not connected to the internet. These don't get hacked. 3) A paper wallet which means you write both the public key and private key on a piece of paper. This is way more tedious but some control freaks consider it safer as there is no device or software to hack.
Are you wondering whether you should use multiple crypto wallets or one wallet to rule them all? Using many wallets means you need to manage multiple seed phrases and makes it hard to keep track of your total portfolio. Using a single wallet exposes you to more risk. What if you get hacked or lose your seed phrase? What if you lose your device if you use a hardware wallet? Is there even a single wallet that can accommodate everything you want to do with your crypto assets? Having used more than 17 different wallets, I guarantee you that you too will end up using many wallets as you become better acquainted with the world of crypto. Read more.