One of the main concerns with keeping a large amount of cryptocurrency in a hot wallet online is the potential for hacking. If your online wallet is hacked, you could end up losing some — or all — of your crypto tokens. And it can be very difficult or even impossible to get them back.
To provide more security for large stores of cryptocurrency, some exchanges, like Coinbase, offer crypto vaults.
So the question becomes: is Coinbase Vault safe? Let’s look at what a crypto vault does, and specifically, whether Coinbase Vault is a good choice for you.
What is a crypto vault?
A crypto vault is basically a custody service offered by an exchange or other trusted source to help you store your crypto and digital currency offline that might be considered a step up from a crypto wallet. As you learn how to invest money, knowing where to keep it is a big part of protecting your assets.
When you have your own hardware wallet, also known as a type of cold wallet, you have a way of storing your cryptocurrency in a way that isn’t connected to the internet. For example, I keep my own cold wallet, which holds the bulk of my crypto tokens, in a fireproof and waterproof document safe, along with the rest of my important documents.
If you want to store a larger amount of cryptocurrencies offline, but you don’t want to get your own cold storage wallet, you can use the services of a crypto vault to make it happen. With a crypto vault, the custodian removes the bulk of your tokens from a hot wallet connected to the internet and instead stores them offline.
Vaults can also be used by multiple owners, which allows you to share ownership of the included tokens and requiring authorization from all the owners before you remove tokens from the vault. Withdrawals from a vault are more secure than withdrawals from a wallet, adding another layer of protection. This also makes them less convenient than a crypto wallet, which is why you might choose to have both.
If you have a Coinbase account, then you have access to the vault it built for its users. The Coinbase Vault is compatible with any cryptocurrency available on the exchange, including Bitcoin (BTC) as well as altcoins such as Ethereum (ETH), Dogecoin (DOGE), Litecoin (LTC), and others. You can read our Coinbase review for more information.
Other crypto exchanges also offer similar services. For example, Gemini offers its Custody product, which is basically a crypto vault. You can learn more about Gemini by checking out our Gemini review.
How does the Coinbase Vault work?
Basically, a crypto vault is designed to provide long-term storage for larger amounts of cryptocurrency. As you learn how to buy cryptocurrency, you need to figure out where to hold your tokens.
You might keep a reasonable number of tokens on an exchange or in a hot wallet for easy access in trading or for transactions, but if you’re hoping to store them for the long term, they’re likely safer in a vault or some other cold storage. It’s similar to the difference between keeping your money in a bank account where you could transfer it or spend it versus storing it away in a safe deposit box that is harder to access and requires a key.
With Coinbase, 98% of the assets in your vault are literally stored offline in safe deposit boxes and physical vaults around the world. On top of that, the Coinbase Vault focuses on enforced waiting periods for withdrawal and it’s possible to add extra security features to approve a withdrawal as well.
Another feature of Coinbase Vault is that it’s possible to invite multiple owners. That way, if you have crypto assets that you own with other people, you can set up protocols to prevent one person from withdrawing tokens without consent from the other designated approvers.
A Coinbase Vault can be set up for free by any Coinbase user, just as you can set up a crypto wallet with Coinbase for free. The vault is listed in the portfolio section of your account. You can easily move assets from your Coinbase wallet to your vault, and it’s also possible to provide your vault address to others so you can receive tokens from outside sources.
If you want to withdraw assets from your vault, you have to take certain steps:
- Go to Coinbase.com and select the vault option from your portfolio.
- Select withdraw.
- Decide how much crypto you want to withdraw from your vault.
- An email including the details of the approval will be sent to your email for approval.
- If you have co-owners of the vault, approval messages will be sent to their email accounts as well
- The request must be approved, either by you and/or your co-owners.
- Once the approval is granted, there’s a 48-hour waiting period.
- After the waiting period, the crypto will be withdrawn from the vault and appear in your Coinbase account.
It’s also important to note that you can only have one withdrawal request active at a time with Coinbase Vault.
Is Coinbase Vault safe?
Is Coinbase safe? Is their vault actually safer? It depends on how much you trust Coinbase. For the most part, because the vault makes use of offline storage, it is generally considered safer than keeping your coins or tokens in a hot wallet attached to the internet, or on an exchange.
With an account takeover, such as those reported by CNBC earlier in 2021, you could see the funds in your Coinbase account disappear fairly quickly if your username and password are used to access your account. However, if the bulk of your crypto assets are stored in Coinbase Vault, they would be less susceptible to scams. Even with an account takeover, an attempted withdrawal from your vault would not only be subject to a waiting period, but the email address associated with the vault would be notified for approval. You would not approve the withdrawal, of course, and then the request would expire.
If you’re interested in managing your own storage, you could use a cold storage wallet or a paper wallet (a piece of paper with your private and public keys printed on it). Both of these methods are disconnected from the internet and less susceptible to hacks or account takeovers. If someone somehow does get access to your private keys, they could potentially access your digital assets, but it’s harder with personal cold storage and paper wallets for others to get your information.
Should you use the Coinbase Vault?
Coinbase Vault could be a good fit for someone who has amassed a large amount of value in cryptocurrencies, but who doesn’t want to deal with the inconvenience of managing their own cold storage or paper wallet. Vault can be a good way to store a large value of digital assets for the long term. At the same time, you can keep a smaller amount of cryptocurrency in your exchange account or in a hot wallet for regular transactions or trading.
Because it takes multiple days to withdraw, Coinbase Vault is not practical for someone who wants to use it for daily transactions or to trade cryptocurrency. If you only occasionally want to withdraw your money, say to exchange for fiat currency, then the vault could be a smarter fit for you.
- Offline storage is more secure than keeping digital assets in an exchange account or hot wallet
- Required approval from co-owners keeps one person from withdrawing all the assets
- Provides a way to store your cryptocurrencies long term
- Easy way to store your digital assets without the inconvenience of managing your own cold storage or paper wallet
- Difficult to access the assets stored in the Vault
- You don’t have the same level of control as you would have with a paper wallet or your own cold storage
- Limited to the tokens available on Coinbase
What is the point of Coinbase Vault?
Coinbase Vault is designed for the long-term storage of cryptocurrencies. It’s a way to take advantage of cold storage for your digital assets without having to figure out how to use your own cold storage or paper wallet.
Does Coinbase guarantee your money?
Coinbase carries crime insurance designed to protect against cybersecurity breaches. However, the insurance coverage doesn’t extend to account takeovers. It’s also important to note that cryptocurrencies aren’t considered legal tender, so your tokens are not covered by Federal Deposit Insurance Corp. (FDIC) insurance.
Is Coinbase good for long-term storage?
Depending on your goals, Coinbase Vault could be a good choice for long-term storage. If you trust Coinbase to protect your digital assets through its offline storage, you can keep your money there for the long haul. However, for crypto assets you want immediate access to, it makes more sense to keep some smaller amounts on an exchange or in a hot wallet so they can be easily accessed.
Coinbase Vault could be one way to take the hassle out of offline storage of your crypto assets. You can have increased security for the bulk of your cryptocurrencies while keeping a smaller amount readily available for daily transactions or for trading.
If you feel confident about the Coinbase wallet and Coinbase Vault, then Coinbase might be a good exchange for you to use. But if you’re not sure, then check out our list of the best cryptocurrency exchanges.
Disclosure: The author has positions in crypto assets mentioned in this piece, including Bitcoin, Ethereum and Dogecoin. She also uses Coinbase.
FinanceBuzz is not an investment advisor. This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.