Earlier in July, the popular Bitcoin exchange, wallet, and payments processor – Coinbase, announced Coinbase Vault, a free, optional service for safer long-term Bitcoin storage. The Vault wasn’t immediately available to all users, and was instead gradually rolled out. General availability was targeted for July 16th, and although Coinbase seems to have missed their target by a few days, the Vault is now available to all users worldwide.
The general recommendation for Bitcoin wallets is to store a small percentage of one’s bitcoins in a hot wallet for day-to-day use, while keeping the majority of one’s coins in cold storage. This is safer than keeping all of one’s coins in one hot wallet, because in the event that the wallet is stolen (physically or hacked), only a small portion of one’s bitcoins are lost. However, creating and managing a cold wallet isn’t always easy, especially for Bitcoiners who may not be as tech-savvy. That’s why Coinbase has created the Vault as a secure cold storage solution for the average Bitcoin user.
Using the Vault is as easy as using a regular Coinbase account. Unlike traditional cold storage, Vaults don’t require users to generate paper wallets, store them safely, manage private keys and backups, etc. More advanced users may scoff at the thought of a third party controlling one’s private keys, but the Vault was designed with the average user in mind.
“We’ve seen non-technical people struggle with storing their own keys (and it can be quite dangerous without careful diligence) so we think our vault product (which handles all security and backups for you) is going to be the safer option for most people.”
-Brian Armstrong, CEO of Coinbase
Since Coinbase Vault is more of a savings account than a typical wallet, it has many security features. Along with SSL encryption, the account password, and two-step verification from regular wallets, Vaults can have multiple co-signers for withdrawals and require verification from two email addresses.
Once a withdrawal is initiated, the Vault owner can cancel the withdrawal within a 48 hour window. This intentional delay makes up for the fact that normal Bitcoin transactions are instant and irreversible. So even if an unauthorised person somehow gets access to the Vault, the Vault owner has a 2-day safety net to cancel the withdrawal, change passwords, and take any other necessary actions.
Coinbase claims to store 97% of bitcoins offline (in cold storage) in various safe places across the globe. This makes the bitcoins almost invulnerable to hackers.
Although not currently available, Coinbase plans to offer multi-signature technology to the Vault. This means that one Vault Bitcoin address would be associated with multiple private keys, and withdrawing would require signatures from at least m of n keys.
Many have praised Coinbase’s efforts to make safe Bitcoin practices more accessible to the everyday person.
“More near computer illiterate people like be are going to be buying BTC, and Coinbase seems like the safer and simpler option.”
-TDBit on “Why I will store on Coinbase”
“This is a fantastic option for the majority of the public, who do not have the technical expertise (nor should) to generate a paper wallet.”
However, one of the key issues (no pun intended) that keeps popping up is Coinbase’s policy of managing private keys. Unlike services such as Blockchain, Coinbase doesn’t give the user control over his/her private keys. As a result, many Bitcoiners are speculating what would happen in situations such as Coinbase collapsing like Mt. Gox or the U.S. banning Bitcoin altogether.
“What I Have Learned From Having Coins On Mtgox:
If you, and you alone, don’t own the private keys, you don’t own the coins.”
While trusted members of the Bitcoin community such as Andreas Antonopoulos have independently audited Coinbase’s security and solvency, the lack of direct control over one’s private keys is still something to consider. However, Coinbase appears to be making continuous efforts to balance security and convenience, and overall, Coinbase Vault seems like a great way to bring safe Bitcoin storage to the everyday person.
Last modified: July 24, 2014 22:54 UTC