Coinbase Thinks It’s a Good Idea to Backup Private Keys to the Cloud

On Tuesday (February 12th), cryptocurrency exchange Coinbase said that the Coinbase Wallet app for iOS and Android had been enhanced such that it was now for users to backup an encrypted copy of their private keys to the cloud (iCloud in the case of iOS users and Google Drive in the case of Android users).

Exactly one week after launching Bitcoin (BTC) support on Coinbase Wallet (formerly known as "Toshi"), Coinbase announced that it was "introducing cloud backup for your private keys on Coinbase Wallet". Here is the tweet Coinbase sent out:

According to the blog post by Coinbase Wallet Product Lead Siddharth Coelho-Prabhu, this new feature "provides a safeguard for users, helping them avoid losing their funds if they lose their device or misplace their private keys."

Coinbase thinks although it is great that Coinbase Wallet allows users to experience "the full power of an open financial system" (i.e. " storing their own funds and accessing them anywhere in the world"), this power comes with "great responsibility." Since private keys, which are "generated and stored on your mobile device", are "the only way to access your funds on the blockchain" and owns of non-custodial wallets such as Coinbase Wallet "sometimes lose their devices or fail to backup their 12 word recovery phrase in a safe place, thereby "losing their funds forever," it would be a good for users of Coinbase Wallet to use cloud backup for their private keys, and it is now providing a feature that enables just that.

The new opt-in cloud backup feature provides "the ability to store an encrypted copy of your recovery phrase on your personal cloud account." You will, of course, need to come up with a strong password and a way to remember it somehow, but if "you lose your device or get signed out of the app," you will be able to "easily regain access to your funds with the combination of your personal cloud account (iCloud or Google Drive) and your password."

Coinbase wants you to know that this backup is "encrypted with AES-256-GCM encryption and accessible only by the Coinbase Wallet mobile app." And of course, if you lose the password for this backup, the support staff of Coinbase or your cloud service provider will not be able to help you since they don't keep a copy of this password:

"Coinbase will not have access to your password or funds at any time, preserving your privacy and control. Your cloud backup provider will also not have access to your funds, as only you know the password that decrypts your encrypted recovery phrase."

Although this feature currently only "supports iCloud on iOS devices and Google Drive on Android devices," Coinbase plans "to add support for other cloud services in the future."

Coinbase also wants to remind users that this feature is completely optional and needs to be explicitly activated. Also, it recommends that users also "backup their passphrase manually" after cloud backup activation and "activate Two-Factor Authentication on your personal Google or iCloud accounts to make those accounts harder for attackers to compromise."

Amongst experienced long-time investors in crypto, especially those who strong believe in its ideas of decentralization and self-sovereignty, the reactions on Twitters were quite negative. Here are a few examples:

 

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Sub-accounts in Crypto: What They Are and How They Work

 

Julia Gerstein, a crypto trading bots enthusiast and a content writer at TradeSanta. My final goal is to help readers find what they need, understand what they find, and use what they understand appropriately.


Speaking generally, a sub-account is a segregated smaller account that is tied to a larger primary account. Sub-accounts may serve different functions depending on the objectives of their owners. The term can refer to multiple email addresses linked to one user or secondary accounts tied to a primary account with a financial institution or a bank.

For this article, we will be looking at sub-accounts as they exist in the crypto industry, and specifically on trading platforms.

Built-in Sub-Accounts

On trading platforms, the sub-accounts feature allows users to create a set of subsidiary accounts with different trading strategies, funds and end customers. On some platforms, general accounts already come with built-in sub-accounts.

For example, exchange platform Crypto Facilities provides each user with cash and margin accounts when they sign up. While deposits and withdrawals are completed with the cash account, trading an instrument requires users to make an internal transfer from a cash account to their margin account that corresponds to the instrument in question.

Each instrument has its own margin account. This grants users more control over their funds and allows them to manage risks for each instrument separately from their main balance.

Optional Sub-Accounts

Other cryptocurrency exchanges, such as Gemini and Binance, have launched sub-accounts as an optional feature for institutional investors.

As an optional feature, sub-accounts can serve to introduce additional security measures and different access levels between the main account and its subsidiaries. Binance has underlined the differences between a master account and its subsidiaries, providing the former with the exclusive ability to view all data and balances, transfer funds between accounts, and have full managerial control and access to a range of asset audit tools.

Here master accounts have sole control over the movement of assets between sub-accounts, and can grant each of them different access levels and permissions. This ensures that the main account has the power to direct and monitor the actions of all its associated accounts, while each sub-account can perform its function independently from other sub-accounts.

Not Only for Institutional Investors

While institutional investors have been able to create sub-accounts for a while, this feature is still being introduced by more and more major exchanges.

Now even individual investors can create subsidiary accounts to try and assess the performance of distinct trading strategies. For example, HitBTC recently introduced its own sub-accounts feature that is now available per user’s request.

At HitBTC, sub-accounts enable users to create separate subsidiary accounts with which they can utilize various trading styles and strategies with operational autonomy. While each sub-account is separate, all of them are still tied to a master account and contribute to the cumulative volume of all accounts connected to the master.

Because trading volume is measured cumulatively, the use of the subaccounts feature can open up additional benefits for traders such as lower commissions due to progressive fee tiers that reward users for contributing to the liquidity on the trading platform.

Therefore, users can perform a variety of different trading activities unconnected to each other, and all the activities will still weigh in the financial favor of the parties involved. Master accounts also have access to important data such as the performance of each sub-account and total trading fees of all linked accounts combined. While the feature is designed with institutional and corporate clients in mind, on HitBTC any user can create sub-accounts upon request.

The adoption of this feature by more and more trading platforms will be beneficial for both institutional and individual traders. Some users can utilize it to execute different trading strategies or try various algorithms with a clear picture of their effectiveness, others to manage their team and analyze the performance of each account securely and conveniently.

Featured image by Tyler Franta on Unsplash