What is the difference between Bitcoin and Bitcoin Vault?

There are three possible ways to store your crypto: a wallet, a vault, and an exchange. All three have different use cases and deserve their own place under the sun, but for a new cryptocurrency user, the choice might become overwhelming. Besides, when it comes to the difference between a Bitcoin Wallet and a Vault, there are quite a lot of things to consider.

This article explores the difference between the BTC wallet and vault and later focuses on exchanges and their implementations. If you are not interested in technical details and are simply looking for a “Cryptocurrency storage 101”, we have a nice infographic on the subject that explains the basic differences without delving on the reasons behind them.

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What is a Bitcoin Wallet

In order to explain what exactly is a Bitcoin wallet, first, we must explain what is Bitcoin and how it works.

A Bitcoin (and any other unit of any cryptocurrency) is a unique digital token. For example, “SaMpLe1rPe34nu5hbn3rx6pj4“. These tokens are stored on the Blockchain — a digital ledger that is encrypted and simultaneously updated on all devices that are connected to it. Each of those devices has a Bitcoin address (public key) that is used to identify it. Some of them have more than one.

What is the difference between Bitcoin Wallets

There are many different kinds of Bitcoin wallets. We will review and compare the most interesting ones.

What is a Paper Bitcoin Wallet

If you looked at the explanation above and thought “Wait a minute, I can simply write down the public and private keys and use a piece of paper as my wallet” — congratulations. You have figured out the safest, but not the most convenient way to store your Bitcoin. It would look somewhat like this:

Paper wallets are not connected to the internet and can not be hacked. But there are significant disadvantages to them too.

• You can only use a paper wallet once. Due to safety reasons, you should not use each paper wallet for more than one incoming and one outgoing transaction. Bitcoin Wiki has a whole page dedicated to why you should not do otherwise. And while you can create a lot of keys for the same wallet, it will most likely lead to a massive mess.
• You can not recover your paper wallet. The second you lose this piece of paper, the wallet is gone with all the money on it. There is no fallback procedure to recover it unless you made a copy of the wallet somewhere. And even then you can only hope that you will get it before someone else transfers all your crypto away.

Paper wallets are a rather inconvenient way to actually use crypto. But if you just want to store and not actively use — a paper wallet in a fireproof safe (or even a secure cell in a bank) is probably the best way to do this. For example, Winklevoss twins store their BTC fortune on paper wallets and they have no regrets about it.

What is a Bitcoin Vault?

The name Bitcoin Vault was, pardon the pun, coined by CoinBase in 2014 as a “more secure option for Bitcoin storage”, compared to their own online Bitcoin Wallet. Since then, many other companies started providing both wallets and vaults as a separate service.

The main differences between the Bitcoin Wallet and Vault are:

• Advanced account protection. All payments from the Vault are delayed by 48 hours, during which the vault provider will try to contact the account owner personally. The payment will not proceed until the account owner voices the confirmation. If there are several owners (which is possible with group vaults), then all of them need to approve the transaction.
• Geographic distribution. Most of the Bitcoins are not stored on the same server. For example, Coinbase Vault stores 97% of Bitcoins in the geographically distributed network of servers, that is not connected to the global internet directly.
• Additional features. Some companies provide Premium features for their Vault users. For example, Xapo provides insurance for all the Xapo Vault accounts.

However, if you are looking for a significant difference between a Bitcoin Wallet and a Vault — you might be a little disappointed. At the end of the day, a Vault is just a Wallet on steroids with some more paranoid protection systems and some additional services. So when it comes to the BTC Vault vs Wallet face-off, the choice is completely up to you.