Coinbase, the US-based exchange that sought to make Bitcoin mainstream for American audiences, is a veteran crypto platform frequently recommended to people worldwide, especially if they are new to crypto.
There are quite a few factors that place Coinbase ahead of its competition. First of all, unlike off-shore-based exchanges owned and operated by unknown entities, Coinbase is both based in the US and regulated by the local authorities. Moreover, it’s operated by a dedicated team of well-known experts. All of that plays an important part in the exchange’s reputation: it will not likely disappear into the night with anyone’s funds.
Coinbase is also often praised for its security practices that protect the funds of crypto owners. While some of these practices have become mainstream, the Coinbase Vault, a security feature recently integrated by the platform, is a unique mechanism that provides crypto owners with some unique choices, like delayed withdrawals and multi-signature options that are not offered on other cryptocurrency exchanges.
This guide will explore why Coinbase vaults are useful and how opening a Coinbase vault can help you with your own cryptocurrency transactions.
How Are Coinbase Vaults Different From Coinbase Wallets?
As you probably know, the first thing you need in order to make cryptocurrency transactions is a crypto wallet. Like many other crypto exchanges, Coinbase offers its own online wallet to its customers. Once you open a Coinbase account, you get a unique Coinbase wallet for all the cryptocurrencies you purchase on the platform.
Coinbase wallets are convenient for crypto traders because the digital currencies you store there can be immediately traded on the Coinbase exchange. A lot of traders want to be able to take advantage of crypto price volatility to make profitable trades, so it works to their advantage to be able to trade rapidly without too much back and forth between platforms. Since Coinbase wallets are custodial wallets, customers are saved from the trouble of protecting their own private keys, as the exchange handles all of that for its customers and provides the necessary security.
That said, there are certain risks associated with keeping large amounts of digital currencies on exchange wallets as they are connected to the internet and therefore vulnerable to theft attempts. That is why a lot of people prefer to have a cold wallet on the side: either a paper wallet or a hardware wallet (such as a Trezor or Ledger wallet) that provides cold storage off the internet. But the trouble with cold wallets and offline storage is that you become your own chief of security, as the responsibility of keeping your private keys falls solely on you, plus it takes longer to make transactions.
But what if you are looking for a middle ground between the two? That’s where Coinbase vaults come in.
What Are Coinbase Vaults?
Simply put, Coinbase vaults offer online crypto storage with extra security measures by removing the immediacy Coinbase wallets provide. Think of your regular Coinbase wallet as a spending account: you can withdraw from funds anytime and make all the impulse purchases you want.
Coinbase vaults, however, add a waiting period before they approve any withdrawals, so they are much like savings accounts. If you put your crypto assets in a Coinbase vault, it means you want to be careful with how you spend them, as the vault prevents you from making sudden decisions that you might come to regret.
Of course, that feature becomes all the better when you learn about the real improvements Coinbase vaults introduce – multi-signature features for group vaults. While Coinbase wallets are mostly geared towards individuals, with Coinbase vaults it is possible to open group vaults that are controlled by more than one person. That means couples, families, and business partners can own and control cryptocurrency by simply opening a Coinbase account. Coinbase vaults allow people to share the responsibility for their crypto-related decisions.
How Do Coinbase Vaults Work?
So now that we know how useful Coinbase vaults can be, let’s look at how they work in more detail. Coinbase vaults are available to all Coinbase customers, and they are free of charge. You can open a Coinbase vault for free for every type of digital currency you own.
Depositing crypto assets into Coinbase vaults works just like depositing crypto into your Coinbase wallet. You can open a vault and make crypto deposits fast and easily. Each Coinbase vault has a unique address, just like a wallet address.
However, vaults differ from wallets when it comes to making withdrawals. It takes more time and extra security steps to request a withdrawal from a Coinbase vault than from a Coinbase wallet. With vaults, you need to confirm your request from two separate email accounts within 24 hours. Your cryptocurrency will be withdrawn to your wallet after a 48 hour waiting period following your initial withdrawal request.
You should be aware that there is no way you can skip that 48 hour waiting period on withdrawals, so you won’t be able to make emergency trades on the fly either. That said, you can still take advantage of Coinbase staking rewards and APY with the crypto in your vault. Just like you do with the funds on your savings account – you can’t use them for daily spending, but you can benefit from them in other ways.
The 48 hour waiting period and email confirmations are also valid for group vaults.
All cryptocurrencies offered on the Coinbase platform can be stored in Coinbase vaults, including popular assets like Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC), Binance Coin (BNB), Cardano (ADA), and Solana (SOL).
How to Set Up a Coinbase Vault?
If you already have a Coinbase account you have everything you need to open your vault. If you don’t, go to Coinbase.com and open an account first. Once you sign in, you can see all the cryptocurrency in your Coinbase wallet through the Assets tab. Select the cryptocurrency you want to create a vault for. You will see the option “Create Vault”.
As you are creating a new vault, you are asked whether it is a group vault or an individual vault. Individual vaults are controlled by you, whereas group vaults require other signers. In the next section, we will explore group vaults in more detail, so let’s assume you are opening an individual vault for yourself.
Coinbase already has the email address you used for your account, but you will be asked to provide a secondary email address. This allows for greater security as now you have to confirm a vault withdrawal from both addresses. This adds a bit more security to the regular two-factor authentication process.
Once you open a cryptocurrency vault, you will receive a vault address for depositing your assets to the vault. It is important to remember that every cryptocurrency has its own vault and vault address. If you try to send ETH to a BTC vault, your assets can be lost between these different blockchains. Since you can open a single vault for each cryptocurrency, you will be fine as long as you send the right coins to the right vault address.
How Do Group Vaults Work?
Group vaults work a little bit differently than individual vaults. The person who opens the group vault is the master account holder but shares the group vault with other Coinbase users. When you are opening a group vault, you are able to add other Coinbase users as group members.
While everyone can deposit into a Coinbase vault, withdrawals are more complex. Only the master account holder can make a withdrawal request from the vault, and once the request is sent, a certain number of group members have to approve the request. A withdrawal can only be made if the majority of the co-signers approve the request.
Withdrawals are completed after the 48 hours waiting period, just like in the case of individual vaults. However, the master account holder can cancel the request during that time period. Co-signers can’t cancel withdrawal requests, but if the majority of signers don’t approve the request in 24 hours, the withdrawal will be canceled automatically. You can see how multi-signature implementation can be useful for business partners or anyone who wants to take advantage of mutual funds.
How Do You Send Bitcoin and Other Cryptocurrencies to a Vault?
As we said before, all cryptocurrency vaults come with a specific vault address. Vault addresses are like wallet addresses, and anyone can make crypto deposits to a vault through that vault address. For example, if you have a Bitcoin vault address, anyone can send BTC to your vault through their own crypto wallets.
Once you create a vault, you can click on “Deposit” to see your specific vault address for that cryptocurrency. Coinbase allows you to copy-paste the vault address, either in full or in the form of a QR code. A QR code that represents your vault address can be found on the Coinbase mobile app as well.
You don’t have to use a Coinbase wallet in order to send digital currencies to a Coinbase vault. However, if you are going to send assets from your Coinbase wallet, you must use the Coinbase website through a browser, as the Coinbase mobile app doesn’t support vault deposits yet.
A Few Words Before You Go…
A Coinbase vault is a method for storing digital assets long-term to prevent frivolous spending. Unlike regular Coinbase wallets, vaults require a 48 hour waiting period before withdrawals can be completed, so you don’t have immediate access to your funds. Vaults also have extra security, as they require confirmations from not one but two separate email accounts.
Perhaps the most exciting aspect of a Coinbase vault is that it can be accessed and controlled by multiple people. Group vaults allow people to create mutual savings account for their digital assets. Withdrawals have to be confirmed by the majority of vault signers before they can be completed, so it is suitable for families, friends, and business partners who want to open a mutual cryptocurrency fund.