Cold Storage Wallet: The Safest Way to Store Cryptocurrency
Since the crypto market matured, it became integral for everyone, from investors to miners, to use the most secure cryptocurrency wallet. Depending on how much cryptocurrency you hold, you might need to go the extra mile to protect it. If you're looking to keep your cryptocurrency as secure as possible, then Cold Storage Wallet is a must.
Whether you're a daily trader or a long-term bitcoin investor, cold storage can be a helpful strategy for storing your cryptos. Besides individual investors, cold storage wallets are also frequently used by major cryptocurrency exchanges and companies behind some of the best cryptocurrency stocks.
To discover why Cold Storage Wallets are important let's look at what they are and how they work and what makes them so safe.
What is Cold Storage Wallet
A cold storage wallet is a crypto wallet that does not have a connection to the internet. Typically, a cold storage wallet is a small device connected to a computer that allows you to store your coins.
In cold storage, the private keys are generated and stored in an offline environment, and in this way, they are inaccessible to hackers, who can easily attack online crypto-wallets.
How Do Cold Storage Wallets Work?
Cryptocurrency storage wallets allow you to protect the keys to your crypto coins. Cold storage ensures that the keys to your cryptocurrency are kept offline except during a transaction.
A cryptocurrency wallet contains two types of keys (strings of cryptographic data): a public key and a private key. The public key identifies the wallet when conducting transactions, and the private key provides access to the wallet.
To understand how transactions in cold storage work, let's say that you have a hardware wallet. To use it,
- First, connect it to your PC.
- Then, select the option to receive crypto, which will generate an address.
- You can use this address to send cryptos for storage on your cold wallet.
Transferring crypto from your cold wallet to another is similar: you connect the cold wallet to your computer, enter the recipient address, and send the crypto.
What Makes Cold Wallets Superior to Hot Wallets?
A hot wallet is a digital cryptocurrency wallet, an online wallet, whereas a cold wallet is a physical device that stores cryptos.
When choosing between these two, "why cold wallets are superior to hot wallets" often arises. With the advent of Blockchain and decentralized networks, you can now manage your finances without the involvement of banks and third parties. However, you are also responsible for protecting your assets.
In terms of security, cold wallets are the standard.
Hot wallets, in contrast, are the riskiest wallets in the world because all the digital wallets store your security data and encryption codes in their online servers, which are highly susceptible to hacker attacks, scams, and other ill-intentioned attacks.
There is no denying that most hot wallet providers have put in place major security measures, but it only takes a small hole to wipe out all of your savings.
The following are reasons why you should not store your assets solely in hot wallets:
- It means that you are again entrusting security to a third party.
- It leaves you open to hackers, both on your exchange account and on your own device.
- Puts you at risk for viruses, scams, and phishing.
- The exchange could shut down, and you could lose everything.
- In the case of theft of devices and computers, usernames and passwords can easily be accessed.
Putting it simply: if you don't hold your coins, you don't own them.
Cold storage wallets aren't just a choice. They are a necessity. Besides providing you with full control and security over your private keys and encryption, it also ensures you won't be held liable by third parties, making it the safest method of storing crypto assets.
When Should You Use a Cold Storage Wallet?
Consider using cold storage wallet if
- Security is a top priority, and you need to store a lot of Bitcoins
- It doesn't need to be used frequently or accessed everywhere
- Rather than trusting a third party to safeguard your funds, you want to do it yourself
- You are ready to purchase a hardware wallet (i.e., usually between fifty bucks and a couple of hundred dollars)
- The privacy of your personal information is important to you.
Pros and Cons of Cold Storage Wallets
When choosing a wallet, take the time to consider the major pros and cons of each type and choose one that suits your financial goals, budget, and preferences.
Here are some of the pros and cons of Cold Storage wallets to decide if these wallets are a good choice for you.
- The cold storage wallets are portable, allowing you to take your cryptocurrency anywhere.
- Physical storage devices are small and compact, making them readily accessible and easy to conceal, so security does not have to be compromised.
- You get a second layer of security from hackers. Hot wallets are digital and online, making them subject to hacker attacks and scams. Cold storage solutions eliminate this problem.
- Users can potentially transact with trusted traders in person, allowing them to be more confident that they will deal with trustworthy individuals.
- Despite cold storage hardware or paper documents being physical, they can still be stolen, lost, or damaged in person somehow.
- Cold storage wallets are not available for every cryptocurrency. You can find them easily for well-known cryptocurrencies like Bitcoin and Ethereum, but if you invest in new or rare currencies, you may have some difficulty finding one.
- The most common hardware wallets cost between $50 and $200. Not a big deal if you have a big collection of cryptocurrencies, but absurd to pay this amount for a few Satoshi. Hot wallets, however, are free and don't require any installation.
Types of Cold Storage Wallets
It is possible to find cold storage wallets ranging from the latest hi-tech solution to the downright primitive. However, most people choose one of the following cold storage wallets to keep their bitcoins secure:
- Paper Wallets
- Hardware Wallets
- Steel Backups
- Open Dime
1. Paper Wallets
In a paper wallet, the private and public keys are printed as QR codes on a piece of paper. When bitcoin was still in its infancy, it was one of the more popular crypto cold storage options.
Paper wallets can only be generated offline, and all you need is a simple piece of technology to create your own private key. A 256-bit Bitcoin private key can theoretically be generated by flipping a coin 256 times and writing down the binary digits. You can then make corresponding public keys and wallet addresses using a computer program.
For making a secure paper wallet, you should use a new, unconnected computer that has never been online and unplug any storage device that's ever been connected to the internet from the machine. When selecting a printer, choose a memory-less printer that isn't connected to the internet.
Additionally, you can use one of the specialized sites to create a cold wallet for Bitcoin. In general, such tools quickly generate keys and QR codes. You should turn off your internet after loading the web page with the tool and before generating the data you need. Afterward, you should clear your browsing history after the key generation is completed.
Also, don't copy-paste or type the key anywhere. While a paper wallet can be useful for avoiding bad actors on the internet, there are significant risks associated with it.
- There is the possibility that a paper wallet could be accidentally thrown away, overwritten, or destroyed.
- We sometimes lose track of where our paper wallets are located.
2. Hardware Wallets
Hardware wallets are digital devices that can store private keys and create wallet addresses for multiple crypto assets. These types of cryptocurrency cold wallets usually have a tiny screen and a few buttons and may even look like everyday items to avoid suspicion.
A hardware wallet is more durable and less likely to get damaged than a paper wallet, but like all digital devices, they are susceptible to water damage. They should never be exposed to harsh temperatures or magnetic fields.
Unlike software wallets, hardware wallets usually store keys on single-purpose devices, generate addresses, and sign transactions.
Hardware wallets generate seeds so that if a wallet is lost or damaged, a different device can be used to restore it. But if you lose the seed, you will not be able to recover the wallet. All the funds in the wallet are at risk if it is exposed. Back up the seed and store the words in order.
Some of Best Hardware Wallets
|Ledger Nano X||This is Ledger's latest hardware wallet. The main benefit of the Ledger Nano X wallet is that it's wireless, making it the first hardware wallet to work with iOS devices.|
|Ledger Nano S||In August 2016, Ledger, one of the most respected Bitcoin security companies, released the Ledger Nano S, the affordable display-equipped hardware wallet. It costs about $59|
|TREZOR T||With the TREZOR Model-T, SatoshiLabs offers the second generation of its TREZOR line, which debuted with the TREZOR One in 2014 and has remained one of the most popular cold storage solutions for cryptocurrencies.|
|TREZOR One||The TREZOR hardware wallet went on sale in August 2014. It allows users to store bitcoins securely and spend them with the convenience of a hot wallet. TREZOR is a small, thumb-sized portable device|
3. Steel Backups Wallets
Steel wallets are nearly indestructible stainless steel pieces that you can use to store your bitcoin private keys or backups. For example, you can etch or tile your bitcoin addresses into the metal. If you are worried about losing paper or live in an earthquake-prone area or an area prone to flooding, you can choose Steel wallets.
Steel wallets are unique in that they can act as both a "paper wallet" and as a backup to any bitcoin wallet in case your digital wallet is lost, stolen, or destroyed. These steel wallets can benefit almost anyone storing crypto regardless of how they keep their coins.
Some of the best Steel Backup wallets are
|Billfodl||It is a wallet made from highly durable steel and comes with a 100% money-back guarantee, several accessories to increase security, and is recommended by Ledger.|
|Cryptosteel Capsule||Another backup from the Cryptosteel sold by the Ledger but different from cassettes|
|Cryptosteel||The first steel wallet on the market with free shipping on orders over $150.|
The OpenDime credit stick is the first bitcoin device that enables spending bitcoins like traditional credit cards. It is a small stick, with a length of up to 4 cm and a thickness of 5 mm. In contrast to other USB drives, its solder points are visible and easy to reach as they are covered with a thin transparent plastic cover.
The Opendime is also referred to as the first Bitcoin holder since it can be used to hold all your coins and check their balance via USB.
When it comes to spending your coins, Opendime is a disposable wallet. After you transfer coins to another wallet, the device cannot be used again. You need to destroy it after using it so no one can access it.
You can use Opendime for
- Transferring Bitcoin without paying transaction fees.
- Paying high-value amounts securely.
- Paying for items with different Bitcoin denominations.
- Alternative to paper wallets that offer more secure private keys.
How to Choose a Cold Storage Wallet?
Before choosing a cold storage wallet for your crypto, you should consider the following things.
- Security. It might sound repetitive, but keeping your cryptos secure is your highest priority when choosing a crypto storage wallet, so go for a wallet that can guarantee this with no issue.
- It's also good to check that your wallet isn't incredibly difficult to use. Some wallets can be daunting because of all the options and settings that can even confuse the most advanced crypto users. Take your time and pick one that suits you best from the many wallets with user-friendly, approachable, and understandable interfaces.
- In addition to convenience, if you're more of a collector and would prefer to hoard as much cryptocurrency as possible, you probably won't need a wallet with easy access. However, the wallet should be easily accessible if you plan on making a lot of transactions.
- If you're looking at cold wallets, their size and compactness may also factor in. Perhaps you are a person who is comfortable feeling the weight of their stuff, so that a heavier wallet would be a good choice. Alternatively, maybe you prefer something so small and light that you wouldn't even notice it while carrying it around. This part depends entirely on who you are.
Additionally, you can split your savings. For example, you can keep the bulk of your Bitcoin in a cold wallet and then lock it away, but at the same time also keep a small amount of it in a digital wallet to make it easier to access and convenient to use.
Is "Cold Storage" Different Than Using A Cold Storage Wallet?
Generally, cold storage refers to any bitcoin storage that does not require an internet connection to store bitcoins. In contrast, Cold storage devices can take the form of a box, a piece of paper, a hardware wallet, or even a list of numbers and letters that you keep in your head.
How Long Can Cryptocurrency Last in a Cold Storage Wallet?
As neither one of these devices has specifically tested the longevity of its storage, and they haven't yet been on the market long enough to have any significant failures, it is safe to assume their lifespans are comparable to those of other similar flash storage devices.
Most people seem to agree that the actual cryptographic chip in Ledger and Trezor devices will last for a period of 20-30 years, similar to a standard flash drive.
What if You Lose Your Cold Wallet?
You have two main options if your cold wallet is lost or stolen.
- Get a new hardware wallet before recovering your crypto assets.
- Install a software wallet(s) and import your 12-word seed immediately.
Although there is a low risk of the recovery seed being extracted if your device is lost or stolen, it is possible for an experienced hacker who has access to the device. Whichever method you choose, make sure you prioritize security.
Do Cold Storage Wallets Cost Anything?
Yes, they do. Most cold storage options range from $50 up to $200. Some devices are more advanced, while others are simpler. Trezor, KeepKey, Ledger Nano S, and CoolWallet S are some specific brands.
Cold storage wallets are a highly effective way to prevent your cryptocurrency from falling into the wrong hands. You may feel overwhelmed when considering all of the cold storage options available. However, there's no reason to limit yourself to just one type of wallet.
Bitcoin's greatest asset is scalability, which allows you to allocate a portion of your holdings to multiple cold storage devices. But if it is handled carelessly, even the most secure cold storage can't prevent theft. Keep all details about your Bitcoin savings private, always backup your private keys, and stay safe.