Is Coinbase's Vault 100% Secure & Safe? (2020)
It’s very important to ensure your cryptocurrency is secure at all times — and while a hardware wallet is best, if you do not have substantial sums of cryptocurrency or simply do not have access to a hardware wallet where you live, then Coinbase’s Vault can be a pretty good alternative.
However it can also be a horrible choice if you do not follow some moderately complex security procedures. We’ll explain below — but don’t worry, you don’t need some high-level knowledge on security or a separate computer or anything too complicated to get a pretty decent level of security when using Coinbase’s Vault.
What are the Risks in Using Coinbase's Vault?
Before we get into how to protect your funds when using their vault, we want to cover the risks that are present in holding your funds with coinbase. So long as you follow what we outline in the next section of this article you can eliminate all but 2 very unlikely risks.
The primary concern for most people is Coinbase’s account security is not very good by default, and leaves you vulnerable to Sim-Swap attacks. Because of this it’s ESSENTIAL to set up 2fa immediately after opening a coinbase account. This will protect you from most security risks in using coinbase’s vault option, but we’ll cover best practices below to ensure your funds safety. I would like to stress this again — Set up 2FA immediately, Coinbase’s insurance against theft does NOT cover theft caused by bad account security.
It’s also important to acknowledge that Coinbase has your funds. They’re in possession of it. You have to trust them to not steal it from you. There’s been tons of exchanges in the past that have stolen from customers, and Coinbase could do it one day as well. We personally do not consider this likely though or even reasonably possible — as Coinbase makes oodles of money and will only make more and more as the cryptocurrency space expands. They have little motivation to do it, and have some checks and balances to prevent a disgruntled employee to do it (not to mention insurance to cover against that). In our view, the only real risk with Coinbase as a custodian is that the US government may have influence over them, as their founders and assets are held in the USA, and in a worse-case scenario the US government could be a threat. We wouldn’t be concerned about the exchange being hacked or funds otherwise being stolen of no fault of your own.
How Do You Ensure Security & Safety When Using Coinbase's Vault?
Due to the risks mentioned above you can never make the coinbase vault 100% safe and secure, but you can make it 99% secure, which is much better than your typical software wallet you’d be able to download on your phone or computer, and DEFINITELY safer than traditional online web-based wallets and other exchange wallets.
To begin setting up a Coinbase vault ensure you have a Coinbase Account (Sign up through our link and get $10 in free bitcoin) and then go to the Portfolio tab, click on the cryptocurrency you’d like to make a vault with, and then switch to the vault tab once the page loads. Click create vault, select an individual vault, and then follow the prompts. Before you do this though, ensure you have your ducks in a row using our guidelines below (to make sure your vault is as secure as it can be).
- — If you haven’t yet, set up 2FA for your coinbase account. This will prevent your primary account from being hacked easily.
- — Create a Second Email address you use for nothing else at a private email service like Protonmail
- — Make sure the New Email Account does not have the recovery of the First (Primary) email account you used for the Vault
- — Make sure the New Email Account is not contained in a centralized password manager (write it down) if your primary coinbase email is in a password manager
If you do the above you should be over 95% secure — if you want to get that up to 99% create the email address on a seperate device than you login to your coinbase account through, just in case your primary device has a virus. If you want to make it more or less 100% secure, get a physical hardware wallet like a Ledger Hardware Wallet, which will ensure your keys are not only 100% secure, but 100% in your control and protected against state-actors like the US government or others.
Is Coinbase's Vault a "Cold Storage" Option for Cryptocurrency?
Yes, Coinbase’s Vault is more or less a “cold storage” wallet, as 97%+ of it’s contents are held in a cold storage multi-sig wallet. A few percent may not be, as to allow for quick withdrawals (as withdrawing from true cold storage is a massive pain).
Functionally Coinbase’s Vault is a cold storage wallet, even if technically not all of your funds would be in cold storage.
Is Coinbase's Vault Insured?
We wouldn’t count on the insurance actually paying out — but yes they’re 100% insured from theft from inside or outside the company so long as it wasn’t your fault through bad account security. This is why we recommend what we recommend above, as with those precautions it’ll be nearly impossible to get hacked.
Should You Use Coinbase's Vault?
Well, no, you should get a Ledger or another hardware wallet, but if you only have a few thousand dollars in cryptocurrency or there’s none available (some countries don’t sell them yet) then using Coinbase’s Vault option, while not as good as a hardware wallet, it’s still arguably the best choice without going through lots of hassle.
Personally we used Coinbase’s Vault for a few months while waiting for our backordered hardware wallet to be delivered and we had a perfectly adequate experience with it, however we wouldn’t use it now that we have a hardware wallet, and we’d recommend if you have over $3000 USD in cryptocurrency then you should DEFINITELY buy a hardware wallet. They’re <$100 in most cases and can literally save you thousands — and more-so just give you so much more peace of mind.