What is the Coinbase vault?
The Coinbase vault is an option to store your cryptocurrency offline without operating your own hardware wallet. Instead, Coinbase manages your assets for you. As opposed to a hot wallet, which is connected to the internet, the vault’s offline nature protects your assets from online attacks. Further, additional measures, like email checks and transaction delay periods, provide additional security. While maintaining your own offline hardware wallet may be the most secure option, utilizing Coinbase’s vault may be a solid low-maintenance alternative for safely storing large amounts of crypto. As the vault compromises accessibility in favor of security, the vault is recommended for assets you access infrequently.
What are the Risks in Using Coinbase’s Vault?
With the vault, Coinbase takes tokens from your hot wallet and stores your money offline in geographically-diverse physical safes. All Coinbase users have vault access with no additional charges or fees, and vaults are compatible with any currency on the exchange. (However, different currencies cannot be stored in the same vault, so users may have to set up multiple vaults.) There are two primary measures that secure vault transactions: multi-party approvals and withdrawal delay periods. First of all, when you open your account, you may elect to approve transactions either as an individual or with a trusted group. If you choose the group option, you can require ⅔ or ⅗ of the members’ signatures to permit transactions (a greater number of signatures renders greater security). Or, if you’re approving as an individual, you must provide a second email to authorize withdrawals. Second, all withdrawals can be reversed within 48 hours. While this is not ideal for quick, frequent transactions, the vault’s two-day cancellation window offers an additional safety net. (In contrast, normal bitcoin transactions are instant and irreversible.)
How can I maximize my vault security?
You may still consider additional measures to maximize your account security. First and foremost, Coinbase recommends a password that is long, random, and unique to your account. Second, some Coinbase users also suggest using a private email server to create a second email address you use for nothing else. Make sure that the new email’s recovery is separate from the primary email, and do not store the new email in a centralized password manager if the primary email is stored there.
Finally, implementing two-factor verification (2FA) enhances security by requiring two forms of verification. This way, even a hacker who has your password cannot immediately access your account. Importantly, Coinbase’s default SMS-based 2FA is vulnerable to sim-swap attacks (when a hacker gains control of your phone number and receives your 2FA codes). An authenticator app paired to your Coinbase account can mitigate this issue, as it will generate codes on a local device. These codes can’t be redirected like an SMS.
What are the risks of storing my crypto in a Coinbase vault?
“Not your keys, not your coins” is a common crypto phrase: with the Coinbase vault, Coinbase possesses your funds, and the management is not in your own hands. Though there have been instances when exchanges have stolen from their customers, this is very unlikely with a well-established exchange like Coinbase, which enforces stringent security measures.
Is Coinbase’s Vault Insured?
While Coinbase Vault insurance does cover cybersecurity breaches to its platform, it does not protect against losses due to breaches of your personal credentials (i.e., an individual’s lack of due diligence to protect his account will not be covered). It’s also worth noting that crypto is not considered legal tender, so the tokens are not be covered by FDIC insurance.
Coinbase Vault Alternatives: Hot Wallets and Cold Wallets
Here are a couple other factors to consider when evaluating hot and cold wallets. Hot wallets (including mobile, desktop, web, and most custody exchange wallets) optimize for accessibility. As they connect directly to trading platforms like Coinbase, they enable frequent, convenient transactions, so they’re appealing to crypto investors who trade often. However, hot wallets generate the private keys to your coins on the internet, which opens opportunities for hackers to steal your coins (especially if you don’t implement adequate security). Hot wallets may be likened to checking accounts: while they’re useful for quick transactions and trades, they should hold only small amounts of spending money, not the bulk of your savings.
Alternatively, cold wallets (also known as offline or hardware wallets), which are not connected to the internet, are widely regarded as the safest storage option. Both hot and cold wallets have public keys (like the crypto address for the cold wallet) and private keys. However, while hot wallets store your private keys on the internet, cold wallet private keys remain offline. This way, you can view your portfolio without putting your private keys at risk. Further, when a transaction takes place, the private key used to sign the transaction does not end up online as it would with a hot wallet.
However, while cold wallets may be ideal for safely storing the majority of your coins, it’s important to note that if you lose your device or forget your private keys, you may lose your money. So, if you’re deciding between utilizing the Coinbase vault and managing your own hardware wallet, you may assess your own expertise, which will determine security levels. In contrast, although the vault places your money in Coinbase’s control, Coinbase is a prominent exchange with expertly implemented security measures. Thus, when evaluating which option is most secure, you may assess both your confidence in your own ability to manage your offline wallet, as well as how much you trust Coinbase.
Coinbase Overall: Pros and Cons
As you’re deciding how to store your crypto and evaluating whether the Coinbase vault is the right option for you, it’s worth assessing some pros and cons of the Coinbase platform overall. We’ll start with the positives. First, Coinbase is a generally safe option: regarded as one of the most well-established crypto exchanges, Coinbase is the largest U.S.-based exchange and is also popular with investors around the world. An industry-leader in security, Coinbase stores 98% of its customers’ assets offline and uses bank-standard encryption for its website. Further, Coinbase’s robust collection of features accommodates beginner and expert traders alike. Both the user-friendly interface and the low minimum to fund accounts increase convenience and lower barriers to entry. Coinbase also offers “earn while you learn” video classes, which allow beginners to earn certain currencies by taking classes that educate users about crypto. Further, experts appreciate the abilities to trade on several platforms, access more than 150 currencies, and easily convert one currency to another.
However, there are a couple downsides worth noting. The most frequent complaint is that Coinbase’s fees can be higher than other exchanges’. Investopedia also warns that the fees are not always transparent, especially as Coinbase recently removed the full fee schedule from their help page. However, Coinbase does display costs when you enter a trade, so you know what you’re paying before finalizing. Finally, users do mention sub-par customer service: as reaching a human is virtually impossible, the platform is primarily self-service.
Should You Use Coinbase’s Vault instead of Cold Storage?
In conclusion, the Coinbase vault can integrate security with convenience, as it offers offline storage that you don’t have to manage yourself. Though operating your own hardware wallet is widely regarded as the gold-standard for security, the Coinbase Vault may be a more realistic, less involved option (and is still certainly much more secure than a hot wallet). As the vault’s security measures delay access to funds, though, it’s worth considering utilizing wallets for day-to-day transactions and vaults for longer term storage of large amounts of crypto.