A Coinbase Vault is an augmented security feature for Coinbase.com users who want to store their crypto assets more safely. In this post I do a complete review of Coinbase’s vaults: I will tell you what they are, how they work, and whether they are worth it.
- What is a Coinbase Vault?
- Coinbase Vault infographic
- Who can use a Coinbase Vault
- Should I use a Coinbase Vault?
- Has Coinbase ever been hacked?
- Steps to set up a Coinbase Vault
- What happens when you try to withdraw from a Coinbase vault?
- How to plan for long-term storage
- Benefits of Using a Coinbase Vault
- Common Concerns
What is a Coinbase Vault?
A coinbase vault is like a savings account for your crypto with the following extra security features.
- Withdrawals are delayed by at least 48 hours no matter what. This is a built-in feature and can’t be changed. The logic is that it gives you enough time to react in case someone has managed to hack your account and initiate a withdrawal.
- You need a cosigner to confirm the withdrawal and you can have a group account with more than one user to approve the withdrawal.
- The private keys to the account are stored offline in physical vaults and safe deposit boxes around the world.
Coinbase Vault infographic
Who can use a Coinbase Vault
Coinbase Vaults are available to Coinbase.com users free of cost.
Should I use a Coinbase Vault?
Coinbase is a publicly traded company and one of the most recognized crypto exchanges alongside Binance and Kraken.
If you hold a large amount of crypto and plan to hold it for the long term then it will be safer if you move your funds off cryptocurrency exchanges and into either a wallet or a vault.
Option 1: Use a Coinbase Vault
The Coinbase Vault is a secure storage solution that doesn’t require you to learn about wallets and allows you to manage everything through Coinbase’s familiar and easy-to-use interface.
The joint account feature and delayed withdrawal functionalities are also not available on Wallets.
Note: In my research, I found that Kraken also offers a delayed withdrawal option but not via a vault and they don’t offer joint accounts that require co-signing.
Option 2: Use a Wallet
The alternative to using a Coinbase Vault is to use a wallet.
There are two types of wallets: hot wallets and cold wallets
a. Hot wallets
These are mobile apps or Chrome browser extensions that are always connected to the internet. And anything that is connected to the internet has a higher risk of getting hacked.
Popular wallets include Coinbase Wallet, Trust Wallet, Atomic Wallet (recently got hacked), and Exodus to name a few.
Setting up a crypto wallet only requires that you safely store a 12-word seed phrase that is generated when you open an account.
There is no need to KYC.
You don’t even have to share an email address.
However, if anyone were to find your seed phrase, it would be equivalent to them having access to your funds.
So you want to store it safely and preferably offline.
In contrast, a Coinbase Vault does not require that you store a seed phrase.
Instead, Coinbase holds custody of the private keys to your account on your behalf.
Compared to a Coinbase Vault a digital wallet is less secure because it is online.
However, should you opt for the Coinbase Vault as a storage solution it means you have to trust Coinbase with your funds.
In the past, I would have been naive enough to say that doesn’t sound like too much of a risk.
But not that I’ve seen a large exchange like FTX blow up I no longer feel that comforted by the thought.
There is a saying in crypto that goes:
Your keys, your Bitcoin. Not your keys, not your Bitcoin.Andreas Antonopoulos, Bitcoin advocate, tech entrepreneur, and author
OK, if hot wallets are susceptible to hacking what about cold wallets then?
Let’s take a look at how Coinbase’s crypto vault compares against cold wallets
b. Cold wallets
A cold storage wallet is a hardware device that looks similar to a USB drive.
Popular hardware wallet companies are Ledger and Trezor.
These wallets often come with additional security features, such as built-in screens and buttons for verifying transactions.
The main benefit of using a cold wallet is that, unlike an online wallet, the device is not connected to the internet.
A hacker would need to have access to both your private keys (that 12-word keyphrase) as well as your device to access your funds.
So hardware wallets are one of the most secure types of wallets.
Hardware Wallets vs. Coinbase Vault
So how do hardware wallets compare against a Coinbase?
Personally, I have two problems with cold wallets
- The first is, do you really want a large amount of crypto to be stored on a hardware device in your home? What if someone steals it or if you lose it? You know those stories of people searching through landfills to find their old hard drives with large amounts of Bitcoin in them?
- The second is, what if you misplace or lose your password and become like Stefan Thomas who only has 2 guesses left to access millions worth of BTC on a hardware device he stored his Bitcoin in back in 2011?
Compared to those 2 events happening I rather like the option of having a reputable custodian take care of my crypto with the extra security features of cold storage, multiple approvers, and delayed withdrawals.
Keep in mind that some cryptocurrency wallets do offer multi-signature technology but you need to be a little technical minded to use them.
Apart from hot and cold wallets, there is also the option of using a paper wallet.
This refers to literally writing your private keys on a piece of paper which you then store somewhere safely like a safe deposit box.
While this method is cost-effective, it requires extra care to protect the paper from physical damage, loss, or theft.
Has Coinbase ever been hacked?
Yes in 2021, 6,000 accounts were hacked due to an exploit.
Coinbase patched it up and reimbursed users’ funds.
The vaults were not affected.
Steps to set up a Coinbase Vault
Getting started with a Coinbase Vault is a relatively straightforward process.
Here is a step-by-step guide:
- Sign in to your Coinbase account on your desktop. Vaults are not available on the Coinbase mobile app.
- Click on the left where it says my assets
- Select the asset you would like to place in a vault and click on the vault tab
- Click Create Vault
- Name your vault
- Choose whether you want an individual account or a group account. An individual account will allow you to initiate withdrawals but you will still need to add a second email to approve the withdrawal. In Coinbase’s interface, the language is a little misleading here. A group account means that a master account can initiate withdrawals but then a minimum number of co-signers are needed to approve. Either 2-of-3 or 3-of-5.
- In the next tab, you will be asked for your primary and secondary email address. You will need to click on the confirmation email in both to proceed.
- Once you have confirmed your email, Coinbase will let you know that you are good to go. At the bottom, you will see the default time delay of 48 hours. You can increase this to 72 hours if you want.
- Now that you have successfully set up your Coinbase Vault, transfer your cryptocurrency holdings from your regular Coinbase account to the vault by clicking on deposit. You will also see options to delete the vault or click on “i” to see more information about your vault.
What happens when you try to withdraw from a Coinbase vault?
- First, you will need to confirm your withdrawal request using two-factor authentication
- Second, your co-signers will need to approve the withdrawal. If you have a solo account your second email address needs to approve the withdrawal.
- Finally, the withdrawals will be completed after 48 hours (or whatever time limit you set) have passed.
How to plan for long-term storage
Make sure you have systems in place for other people to be able to access your vault.
If you have a large amount of digital assets that you want to hand down to your kids you should probably figure out beforehand how those assets will be transferred to your beneficiaries.
I am not your financial advisor but these would be good considerations to make when setting up a vault on coinbase.
Also, consider extreme situations like what happens in the unlikely scenario that one of the co-signers passes away.
Benefits of Using a Coinbase Vault
There are several benefits to using a Coinbase Vault for storing your cryptocurrencies:
- Enhanced Security and peace of mind: The multi-signature functionality and offline storage provided by Coinbase Vaults significantly reduce the risk of unauthorized access and hacking attempts.
- Ease of use: Coinbase Vaults offer a user-friendly interface and straightforward setup process, making it accessible to users without technical expertise.
- Insurance Coverage: Coinbase is insured against cybersecurity breaches. This does not cover you losing your login credentials.
- It forces you to avoid rash decisions. The time-delayed withdrawals ensure you don’t make any sudden trades without thinking them through. For example, say you want to exit your position then you are going to have to wait at least 48 hrs before being able to do that.
- Withdrawal Waiting Period: Some users may find the waiting period for withdrawals inconvenient, especially if they require immediate access to their funds.
- Third-Party Risks: While Coinbase Vaults offer advanced security measures, it’s important to be mindful of potential risks associated with relying on a third-party service (meaning Coinbase) to store your cryptocurrencies.
What is the difference between Coinbase vault and Coinbase wallet?
A Coinbase Vault is a custodial wallet that is managed by Coinbase on your behalf. It offers multi-signature features, cold storage and delayed withdrawal times. You need a coinbase.com account to use the Vault. On the other hand, Coinbase Wallet is a non-custodial decentralized cryptocurrency wallet that anyone can use. It is a great way to plug into DeFi and you manage the keys to it.
What is the difference between vault and wallet?
A vault is a custodial wallet that the exchange manages for you with extra security measures. They have access to the private keys of the address. A wallet on the other hand is non-custodial meaning you are responsible for the your private keys. Compared to a hot wallet a vault is more secure because it is offline. Compared to a hardware wallet it depends on wether you want to manage your private keys or entrust them to a third party for safe keeping. There is always risk in anything you do.
Is it better to keep coins in Coinbase or wallet?
In general most crypto experts will say that you should keep digital currencies off exchanges and in your wallet.
Is Coinbase wallet safer than Coinbase account?
Moving your funds to a wallet removes the risk of Coinbase going bankrupt and taking your funds. However, both Coinbase and your wallet could get hacked. Coinbase insures some proportion of its funds against security breaches. If you are going to use a wallet use a hardware wallet. Alternatively, if you have a large amount of crypto which you plan to hold for the long term consider placing them in a Coinbase Vault which offers an additional layer of security compared to just leaving them on the exchange.
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. In this article, we will explore the various differences between Coinbase and Coinbase Wallet, delving into their features and user experience. Read more.