Hardware Wallet Needed if Using Coinbase Vaults?

Bitcoin Questions and AnswersCategory: QuestionsHardware Wallet Needed if Using Coinbase Vaults?

Scott asked 1 year ago

Is a Hardware Wallet necessary if using Coinbase Vaults? I\’d like to keep things simple but obviously want to keep things safe. I buy coins as an investment, not to actively use. Is there a $ threshold where you would move some to a Wallet? Thank you.

1 Answers
Steven Hay answered 1 year ago

Hey Scott,
Just to clarify, there’s no way to use a hardware wallet *with* the Coinbase Vault feature. It’s one or the other.
I’d say this boils down to who you trust more – Coinbase or the hardware wallet manufacturer. Personally, I trust hardware wallets a lot more. Numerous Bitcoin exchanges have lost funds over the years, due to hacks, errors or other problems. Exchanges are also subject to regulatory risk – it’s very unlikely, but the US govt. could seize Coinbase (and your funds) at some point, if they were so inclined. Coinbase might even seize your funds themselves, or at least report you to the authorities who would seize them in turn, if they suspected you of illegal activity.
As for hardware wallets, they’re not perfect either but their entire business rests on providing reliable security. A lot of smart people have inspected their hardware and software, which I believe is open source. To my knowledge, there have been no widespread hardware wallet hacks which resulted in major losses.
A hardware wallet hack would almost certainly depend on a thief getting access to your seed phrase backup (which should not be kept on any kind of networked digital device). It’s possible that a thief could hack the device itself *if* they had very advanced knowledge and tools but this is highly unlikely. Individual hardware wallets are also a much smaller (and probably invisible, in most cases) target to thieves than a massive Bitcoin exchange with millions of client accounts.
Long story short; hardware wallets are much safer than trusting your private key to any third parties.

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