TL;DR- Coinbase has a ‘self-custody’ browser extension wallet you can use to pull your crypto off the exchange and store yourself. If executed properly, this is a very safe option. However, you and you alone will be responsible for keeping your recovery phrase. We’ll go over the pros and cons.
What is the Coinbase Wallet?
If you’re familiar with MetaMask, the Coinbase Wallet is nearly the same thing. The Coinbase Wallet is a browser extension that stores your private keys (and thus your crypto). Browser extension wallets are handy if you’re looking to buy or sell crypto with various DeFi platforms. This includes, UniSwap, SushiSwap, and more. You can also use browser extension wallets to buy NFTs from various marketplaces or buy assets for crypto gaming, like Axies.
This is different from having crypto on the Coinbase exchange. If you buy crypto on Coinbase and don’t move it to a wallet that you own, all you have is an “I owe you” from Coinbase for your coins. This means that if the exchange gets hacked- and exchanges get hacked every now and again- you could lose your money. Do a quick Google search of ‘crypto exchange hack’ if you don’t believe me. Still, Coinbase is one of the safest exchanges out there.
Is the Coinbase wallet safe?
Yes, the Coinbase browser extension wallet is safe provided you choose a strong password and store your recovery phrase offline. It can be a great way to start having self-custody of your crypto assets. I like to follow the approach of spreading my crypto around- exchanges, hardware wallets, software wallets, lending platforms, etc. This way if something happens on one of these I’m not completely wrecked.
Look at this for Coinbase’s explanation of the wallet with a short video.
Wallet types, explained
Before we get down to the steps for setting up a Coinbase wallet, I want to quickly go over the three main ways hodlers store their crypto assets.
Hardware wallets: I recommend these the most. These are completely ‘cold storage’ meaning your crypto and private keys are air-gapped from the internet. Offline storage has proven to be the safest method of owning cryptocurrency. The two main firms that own the market with these are Ledger and Trezor.
Software wallets: This is what the Coinbase Wallet is. The wallet lives on your computer, and is protected with your password and seed phrase. I consider these a step up from hosted wallets because these actually give you custody of your own crypto. Since these do live on a computer, the chances of a hack are greater than those of a hardware wallet.
‘Hosted’ wallets: These are the “I owe you” wallets from the exchanges. This is the default wallet when you buy crypto on Coinbase, Binance, or KuCoin. You don’t own this wallet- the exchange does. You’re free to send a receive crypto from these wallets just as any other. The good news here is that if the exchange is reputable and safe (and Coinbase is both of these), you’re more protected in case something bad happens. Coinbase is a publicly traded company in the US, and is obligated to have customer service that can fix issues.
Steps to setting up a Coinbase self-custody wallet (for Google Chrome)
1. Go to Coinbase.com/wallet. Make sure this web address is correct. Click on the Download Coinbase Wallet button.
2. Today I’ll be using Google Chrome for the Coinbase Wallet setup, but the wallet is compatible with several different browsers. The setup process for each is similar. You’re brought to the Chrome Web Store after clicking the Download Coinbase Wallet button. Click Add to Chrome. On MacOS, you’re asked to confirm. Click Add Extension.
3. You’ll land on the Coinbase Wallet extension page. Here you’ll have a choice to import an existing wallet (i.e. MetaMask, Trust Wallet, etc.). If this is what you’d like to do, click import existing wallet. Otherwise you can continue to follow this example (creating a new wallet) by clicking Create new wallet.
4. You’re brought to the pick username page. In the blank box create a username. The subtext below the box will let you know if the username meets Coinbase’s criteria.
5. It’s time to back up your wallet. Coinbase will bring you to the backup your wallet screen. This part is important. Write down (yes, physically write it down) your seed phrase in a few different places you know it will be safe- i.e. your planner, or a post-it that you keep in your nightstand. There’s also the copy to clipboard option for your seed phrase if you’d like to copy and paste it to a doc on your computer. I prefer to write it down and stay completely hack-proof. Once you’re done with this important step, click the “I understand….” box. Then click Continue.
6. Coinbase will quiz you on words and their order on the next screen to verify that you’ve written your seed phrase down somewhere. Complete the exercise and then select continue.
8. Follow the steps Coinbase gives you to pin the extension on your browser. Funding your wallet can be done by copying the addresses and sending funds from different exchanges. Here’s an example of sending funds from Coinbase to a hardware wallet- the idea and steps are the same.
Now you’ve got a browser extension wallet that’s ready to go! You can quickly connect your wallet to do and pay for various things on the web. If you spot a great NFT collection on OpenSea, you can use your Coinbase wallet to buy a new NFT.
Keep in mind that crypto is unfortunately still dangerous and fraud and theft are still widespread. Always use two-factor authentication if you can. Choose very strong passwords. Assume that one day someone is able to control your computer- would they be able to get your crypto? I hate that the space is still like this, and I think its keeping a lot of people away. But make sure to do everything you can to protect yourself.