Coinbase.com is a crypto brokerage where you buy or sell crypto in exchange for cash. Once you make a purchase on Coinbase.com, your crypto is stored securely by the platform.
Coinbase Wallet, on the other hand, is a self-custody wallet. This means that the private keys, which represent ownership of your crypto, are stored directly on your device. You can think of Coinbase Wallet as similar to a traditional wallet that holds your cash, meaning you have direct access to and control of your crypto assets without needing to go through the brokerage.
You can also set up a Dapp wallet on Coinbase.com. This is a crypto wallet where Coinbase holds half of your private key and the device that your dapp wallet is on stores the other half.
A custodial wallet is a type of wallet where a third party holds the private keys on your behalf to manage your funds. Using a custodial wallet usually requires you to provide certain documents as part of a KYC (Know Your Customer) process, which is designed to verify the identity of customers and ensure their authenticity.
In the case of your Coinbase.com account, Coinbase acts as the custodian.
A self-custody wallet, also known as a self-hosted wallet, is a type of wallet where your private keys are stored locally on your device, giving you complete control over your funds and assets. To access and manage your wallet, you typically use a 12-word recovery phrase, which should be securely backed up and kept confidential.
Anyone can sign up for a self-custody wallet, even if you don’t have an email address or a bank account.
There are three main differences:
1. Control of funds
Custodial wallets: A third party manages the private keys and funds on your behalf.
Self-custody wallets: You manage your own private keys and funds, typically via a 12-word recovery phrase.
Custodial wallets: Your trades are managed and executed over a third-party exchange. You can also send your money from a custodial wallet to a self-custody wallet to conduct further activities.
Self-custody wallets: You can interact directly with decentralized applications, such as DEX trading, lending, liquidity pools, etc. Your transactions are usually done in real-time and on-chain.
Self-custody wallets: As the owner, you hold all of the wallet’s information. Your wallet is secured via a 12-word recovery phrase, which must be kept private and backed up securely. If you lose your private keys, Coinbase Wallet cannot help recover your account. Never share your recovery phrase with anyone and back it up in a safe location.