All these three are different by their own virtue and have different features, functionalities, and use cases.
Therefore, all these three are significantly different but to a new crypto user it may not look so.
Since differentiating these two options requires considering too many things which may be overwhelming and nearly impossible for a beginner, this article will be of great help to them.
Ideally, a crypto vault is designed in such a way that it complements an average wallet account.
The vault, in this case, is much more like a savings account of your bank which you use for your day-to-day spending, just like your leather wallet.
If you look into these from a more practical perspective, perhaps the only difference between them would be that a crypto vault is just like a wallet but with many uses to it.
There are also a few other notable differences between a crypto wallet and a vault such as in their added security features and their shared aspects.
It is these differences between a vault and a crypto wallet that this article explores along with their implementations.
8 Differences Between Crypto Wallet and Vault
Depending on the amount of crypto you want to store, you can either choose a cold wallet or online wallet, and if the amount is large, you can use a crypto vault for storing them.
However, choosing one among crypto wallet and vault will not only depend on your needs but also on your knowledge about the two options.
If you lack that, do not fret because all those differences are entailed in this article for you. Here they are.
A crypto vault is nothing more than a custody service basically which is usually offered by a crypto exchange.
A crypto vault is considered to be one step up from a crypto wallet where the custodian moves the major portion of your crypto holdings from the hot wallet that is connected to the internet and stores them offline instead.
On the other hand, a crypto wallet is just a unique address on blockchain. This wallet shows the number and types of crypto coins held in it by the users.
This is visible to all on the blockchain but it cannot be accessed by them. This is because the coins need to be decrypted before they are transferred to any other wallet or somewhere else.
For that, a private key is required which is in possession with the owner of the wallet only. A few specific crypto wallets may have more than one address.
This adds to the safety of the wallet. When you use one of the addresses for making a transaction, you will need to replace the old one by generating a new address.
Though the old one is still usable, it is considered to be compromised and is therefore not recommended to use any further.
A crypto vault can be used by multiple owners or participants. This means that you can share the ownership of your vault including the tokens.
However, a proper authorization will be required from all those who are supposed to use the same vault before removing crypto coins from it.
However, on the other hand, this is not the case in a crypto wallet which is designed usually for sole use, which is why you have a private key for it to operate that you should keep a secret always.
3. Best For
A crypto vault is best for those who need to store a large amount of crypto coins.
It is also a good option to store your coins for a long term or if you need to withdraw your money occasionally, for example, to exchange crypto for fiat currency.
You should also be okay with the limited access to your coins since withdrawing is a hassle, the limited availability and support of crypto tokens, and lower level of control in comparison to a cold storage or paper wallet.
On the other hand, a crypto wallet is best for those users who are okay with managing your wallet and have a smaller amount of crypto coins to store. It is also good if you need to make transactions on a regular basis.
4. Working Process
The crypto wallets work mainly by using the set of private and public keys that are related to it.
The public key is the same as your email address which you give to others to send you an email, in this case, to receive crypto coins.
To access the coins sent you will need to use the secret private key, which is the same as the password to your email account.
On the other hand, a crypto vault works on the basis of the approvals given by the owner or owners for a transaction.
In order to withdraw your crypto assets, say from your Coinbase vault, you will need to select the amount you want to withdraw and an email along with all details will be sent to you and/or the co-owners for approval.
If approved, the withdrawal will happen after a wait period of 48 hours and the money will be transferred to your account.
At this point you should keep in mind that at a time you can have only one active withdrawal request from your crypto vault.
The crypto wallets provide a significant set of advantages, which however, may vary according to the type and the service provider. However, the most common advantages of using a crypto wallet are:
- Faster and easier trading
- Zero network fees and
- Quick login.
Some providers also ensure special safety features such as fingerprint or face ID and some may even restore your wallet in case you lose the keys.
On the other hand, the vaults or more ‘traditional’ wallets come with several beneficial features as well. Some of these are:
- You will be in total control of your private keys, and, therefore, access to your coins and funds.
- You also have the true ownership of the security keys which is good since the provider cannot access your vault and bad as well because they cannot recover your vault.
However, network fees may be applicable when you use your vault because the trades will be settled directly on the blockchain.
6. Withdrawals and Convenience
It is more secure to withdraw crypto coins from your vault than a crypto wallet. This is because the crypto vaults come with an extra layer of protection.
However, this also makes it a bit less convenient for the users as compared to withdrawing crypto tokens from a crypto wallet.
On the other hand, withdrawing crypto coins from your wallet is much easier and more convenient but the same cannot be said in terms of security.
It is for the good and bad of both these options that experts advise crypto users to use both.
7. Account Protection
In a crypto vault you can expect to have a more advanced protection for your account. Typically, when you make any payment from your crypto vault it is delayed by 48 hours.
During this time the provider of the vault service will try to contact the account owner, or you, personally.
Until you confirm the payment, it will not be processed. If there are multiple users of the vault, as it is in group vaults, then every user must confirm the transaction to happen.
However, on the other hand, in the case of crypto wallets, it is not required to go through all these hassles during transactions because it has only one user who knows what he or she is doing.
8. Geographic Distribution
The coins stored in a crypto vault are not stored on one single server.
For example, if you use the Coinbase vault, about 98% of the total number of coins held will be stored in multiple servers that are distributed in different places or network of servers geographically.
All these are not connected to each other directly by the global internet.
On the other hand, it is not the case in a crypto wallet because you own it personally, along with the private key.
Which is Better – Crypto Wallet or Vault?
Ideally, you will not find many if you are looking for significant differences between a crypto wallet and a crypto vault.
You might be quite disappointed to know that, in the end, a crypto vault is just a special type of crypto wallet.
It is just that these vaults come with a few additional services as well as a few advanced protection systems.
Therefore, it can be safely said that when it comes to a face-off between a crypto wallet and a crypto vault, the choice is entirely up to you and you should choose the one that is more convenient to you to use and meets all your needs.
Typically, a crypto vault resembles a chamber or a room which comes with maximum security.
On the other hand, typically, a crypto wallet is an encrypted address where cryptography is used to store the crypto coins safely as well as the public and private keys required to access them.
The person who holds both these keys can only make a transaction related to that particular wallet.
It is just like your bank account number and the password, both of which are needed to use the account.
A crypto wallet can be of different types such as:
- Paper wallet – This is quite secure since it is not published or stored in a network and thereby is protected from the hackers, though storing can be an issue since the paper may wear out, get damaged or lost.
- Offline wallet – This consists of a computer to update the keys that are encrypted and comes in two types namely hardware and software offline wallet. The former is an expensive personal device that needs additional authentication to use which makes it much safer. The latter needs special software to be installed on the computer which is vulnerable to virus and malware attacks through the operating system or internet connectivity.
- Online wallet – This stores the crypto coins in the cloud that you can access from anywhere and any device via a wallet service provider which however may raise some security concerns.
As for the crypto vaults, ideally, if you choose to go with Coinbase and open an account with them to trade your crypto coins, you will have access to the vault built by them for their users.
It supports all types of crypto coins that are available on the exchange which includes Bitcoin, Ethereum as well as other Altcoins such as Dogecoin, Litecoin and more.
Their custody product functions more like a vault basically allowing the users to store their crypto assets for a long term even if the amount is pretty large.
When you use the crypto vault service of an exchange you will see a vault tab right next to the wallet tab.
You can transfer any amount of crypto coins to this vault from your wallet.
Once you transfer it, the coins are stored there safely until you wish to transfer them again from there after taking the authorized steps.
The good thing is that there is usually no penalty for taking out your crypto coins from the vault.
Therefore, setting a part of your crypto coins aside in a vault is a good thing to do because it will help you a lot when you need it most on a rainy day such as your retirement or the like.
Another good thing about the crypto vaults is that there may be some vaults provided by specific companies, such as Xapo, that come with insurance to protect the funds stored in the vaults.
In the end, it can be said that, while one of these gives emphasis more on safety and personal trust, the other is more about dependency and restriction to ensure security.
Therefore, you should take every little aspect of a crypto wallet and a crypto vault into consideration to choose between them and the ultimate decision should always depend on your needs.
However, when you choose a crypto vault, just make sure that you compare different types of them and make your final choice.
While making your comparison make sure that you focus on particular aspects of the vault such as:
- Fees – Though there are usually no fees charged from users who want to hold their crypto coins in vaults, there can be fees charged for purchasing them before you store them in the vault. Usually, this fee is a flat fee or a percentage of the transaction fee.
- Registration – There may be some crypto exchanges, such as Coinbase, that will allow you to access or set up your vault without needing to register additionally for it if you have an account with them. However, others may not. Also, check the countries supported by the exchange before you register.
- Security – Make sure that you check for the security aspects of the vault before finalizing. It should include checking the approval process and delay time while making withdrawals. There are a few providers that may allow you to configure these setups.
- Access – Finally, check the accessibility of the vaults before you choose because the requirements and time factors may vary depending on the host of the vault.
However, if you follow the advice of the crypto experts it will be more prudent to follow a hybrid approach while storing your crypto coins instead of using any one among a crypto wallet and a crypto vault.
When you use both, one will allow easier and faster access to some of your funds when you need them, and, on the other hand, the other will keep your long-term savings safe.
When you compare between a crypto wallet and a crypto vault, it is necessary that you know the differences between them, which includes a lot more than the security levels. This article surely has helped you a lot in that particular matter.