A few months back we released our Vault product, and the response has been outstanding. Coinbase is now storing more bitcoin than any company in the world (that we know of).
But since the beginning of Coinbase, we’ve heard some clear feedback from our customers: Coinbase should let customers control their own private keys.
In the wake of MtGox and numerous other hacking incidents, bitcoin users are rightfully cautious about anyone claiming to store their bitcoin securely. At Coinbase, we made a decision early on that for bitcoin to reach mainstream adoption, we would need to provide great security as a service to our customers (instead of asking them to understand technical concepts like encryption and private key storage). While we still feel this is a useful service to many consumers, we underestimated the demand for user controlled security in the bitcoin ecosystem, and today we hope to make a big step toward supporting it.
Our new Multisig Vault gives the customer complete control of their own private keys. Coinbase has no ability to move funds (which means you are safe from Coinbase being hacked, going bankrupt, or anyone seizing your bitcoin). It also means that you as a customer have much greater responsibility in storing your backup key securely. If you lose this backup and forget your multisig password, Coinbase cannot help you recover your bitcoin. For this reason, we only recommend this feature for advanced users.
When you go to create a vault, you will see a new option labeled “I will manage security myself”:
In subsequent steps you will be asked to store a backup key securely.
Our individual Multisig Vault intelligently distributes three keys, two of which are required to send bitcoin. Coinbase controls one key, you control one key, and both Coinbase and you control a third shared key, but it is encrypted with a password that only you know (see diagram below).
You can also create group vaults that require 2 of 3 or 3 of 5 keys, with multiple key-holders. This is great for institutions or families (so family members can have access to funds if you pass away or become incapacitated). On groups vaults, Coinbase does not hold any of the keys.
In either case, Coinbase cannot move your bitcoin on your behalf — only you can.
This diagram displays the distributed architecture of the individual vault keys:
We’ve distilled multisig to be as simple as possible so hopefully most of the technical details don’t get in the way. In the majority of cases, you will use your Multisig Vault much in the same way as you use your Coinbase Wallet or Coinbase Vault right now.
What else should I know?
The Multisig Vault is available to all Coinbase users today.
Our vault is a 100% free product
We think this will greatly improve bitcoin adoption amongst institutions and high net worth individuals looking to store larger amounts of bitcoin securely
We also launched a free open source tool to recover your bitcoin stored in the Multisig Vault, in the event Coinbase is ever unavailable or goes offline
How does this pair with the Coinbase Wallet?
We think the vault pairs nicely with our wallet product (which has hosted security that Coinbase controls). Think of the wallet like a regular wallet in your pocket; you might store $100 there because it is more convenient, but you wouldn’t carry your entire life savings in your wallet.
The wallet has security managed by Coinbase, and this enables a number of additional features which make it easier to spend bitcoin in the lowest friction way possible (which isn’t possible in a multi-sig wallet). For example in the hosted wallet sending money is much faster, you can use our two-click checkout with merchants, subscription or debit payments options are available, you can fully interact with the wallet through our API, and even create things like off blockchain micro-transactions.
A Coinbase managed wallet paired with a customer managed Multisig Vault offers the best of both worlds: a convenient way to spend bitcoin day-to-day plus complete control of your bitcoin savings.
We feel this hybrid approach offers the best of both worlds.
We also launched a new page describing our Multisig Vault at https://www.coinbase.com/multisig
To get started, try creating your own Multisig Vault today.