Precious Ruby
+1 authors
8mins read
Published on: Jan 17, 2024
#Glossary
A cold storage in crypto involves a storage system in which BTC and other cryptocurrencies are stored on a physical device.
• Using a cold storage in crypto it difficult for hackers to access them and steal coins.
• Ensuring that you have a proper contingency plan regarding the recovery phase or the private key connected with the cold storage option is essential.
• The combination of cold and hot storage allows for more secure storage with easy access.
• Cold storage is more secure but less accessible, while hot storage is easily accessible for day-to-day operations but has increased risks.
Private keys are essential as they are used to validate transactions, and, when connected to the internet, such keys and related assets may be at risk of being stolen.
In cryptocurrency, a cold wallet is a storage system in which BTC, and other cryptocurrencies are stored on a physical device. Crypto cold storage (also known as cold wallets) is a secure method of keeping your digital assets safe from online threats. It involves storing the private keys, which act as passwords to access and manage your cryptocurrency offline.
Cold storage protects your crypto because these keys are created and kept in a location not connected to the internet. This measure is in stark contrast to hot wallets, which are always connected to the internet, making them more susceptible to potential hacking, phishing, and other cyber threats. This guide will discuss what is a cold storage in crypto and why a crypto cold storage wallet is crucial in improving security and how you can transfer your coins to cold storage.
The problem with private keys is that they become susceptible to online risks when held in an online wallet. One risks experiencing network-based theft because all commerce transactions are performed through one device online.
Cold storage minimizes the threats of private key leaks since these keys are not exposed to network connections. Although moving to cold storage could seem like a complicated process, it is often a simple one that boosts the protection of your assets.
Below we will go through how to get started saving your funds in a cold storage.
To get started, acquire a cold storage device. Various types are available, such as hardware wallets, paper wallets, and metal wallets. Hardware wallets, like the Ledger Nano S Plus or Trezor Safe 3, are popular due to their secure chip technology and user-friendly features.
Download and install the software provided with your chosen cold storage device. This software facilitates the setup and management of your device. During this process, you'll create a new wallet, set a PIN code, and generate a seed phrase or backup code. This seed phrase is a crucial backup if you lose your device or forget your PIN. Keep this code offline and in a secure location.
Once the software is set up, connect your cold storage device to your computer or phone. Through the software, generate a receiving address and send your crypto from your hot wallet or exchange account to this address. Confirm the transaction on your cold storage device by pressing buttons or scanning a QR code. Your balance will then be visible on the cold storage device.
After confirming the transaction, disconnect your cold storage device from your computer or phone. Store it securely in a location like a safe, drawer, or vault. It's crucial to avoid losing or damaging the device. By doing this, your cryptocurrency is now stored offline, shielded from potential online threats.
Cold storage is crucial in crypto for three main reasons: integrity, security, and value.
• Integrity: Imagine private keys as your crypto's secret password. In cold storage, these keys stay offline, safe from internet threats. This means you have complete control, preventing unauthorised access and unwanted transactions.
• Security: Unlike hot wallets connected to the internet, cold storage shields your coins from hacking and other online threats. It acts like a fortress, keeping your keys offline and reducing risks of theft or fraud. It's a robust defence against cyberattacks.
• Value: Cold storage protects your coins from market ups and downs. Shielded from inflation and regulatory uncertainties, it maintains the value of your assets. Your crypto stays unaffected by market volatility, ensuring long-term stability.
Most common types of crypto cold wallets:
Hardware wallets are small devices that connect to your computer or phone to store private keys in a secure chip. Examples include Ledger Nano S Plus, Trezor Safe 3, ELLIPAL Titan Cold Wallet, SecuX V20.
Paper wallets are physical documents with printed private keys, usually generated using online services or software. It is inexpensive, easy to create, and immune to online hacking. However, they are vulnerable to physical damage, loss, or theft and are less user-friendly.
Metal wallets engrave private keys on durable metal plates, resisting fire, water, and other physical hazards. Examples include CRYPTOTAG, Billfodl, and ColdTi. They are more expensive, and more complex compared to paper wallets.
Hot and cold storage are two distinct methods for safeguarding your cryptocurrency, each with its characteristics and applications. Hot storage refers to wallets or platforms connected to the internet, making it convenient for managing and accessing your cryptocurrency anytime and anywhere. Examples include MetaMask, Exodus, Mycelium, and Coinbase.
Although hot storage is user-friendly and suitable for frequent transactions, its online exposure increases its vulnerability to hacking, phishing, and malware. Cold storage and hot storage defer in the following ways:
Features | Hot Storage | Cold Storage |
Connectivity | Hot storage is always connected to the internet, offering seamless access to your cryptocurrency. | Cold storage keeps your keys offline, requiring you to transfer funds to hot storage for usage. |
Security | Hot storage is more susceptible to cyber threats due to its online presence. | Cold storage, being offline, provides robust protection against hacking, phishing, and malware. |
Usage | Hot storage is ideal for frequent transactions and trading, given its online accessibility. | Cold storage, on the other hand, suits long-term holding and securing crypto assets from potential threats. |
Discussions about the use of hot and cold wallets are mainly related to security. Some of the most famous security breaches happened with hot wallets connected to the internet. For instance, the KuCoin exchange in Singapore was hacked in September 2020, and about $281 million of crypto assets were stolen, but the majority of them were recovered.
On the other hand, cold wallet providers such as Ledger have also faced incidents like the one in July 2020, when user data was leaked, although no funds were stolen from the wallets.
When it comes to choosing hot and cold storage, several factors can help, including the quantum of crypto assets and the degree of their usability. Other people prefer combining them to have the conventional ways of making payments and at the same time have the security features of the online models. Intermediaries like Coinbase use several types of cold storage, which they believe is the “gold standard of cryptocurrency asset security”. It is usually recommended that large amounts of cryptocurrency, or those not used frequently, be stored in cold wallets.
The following are the best cold storage wallets for crypto available:
The Ledger Nano S Plus stands out as a preferred choice for users. Supporting a vast selection of over 5,500 coins and tokens, it ensures compatibility with a sleek design, a large screen, and a secure chip. This hardware wallet is not only user-friendly but also affordable and dependable.
Another reliable hardware wallet, the Trezor Safe 3, accommodates over 1,000 coins and tokens. Its user-friendly interface includes a touchscreen and a micro-SD card slot. Enhanced security features, such as a passphrase option, contribute to its durability and trustworthiness.
For those prioritising convenience and security, the ELLIPAL Titan Cold Wallet supports over 10,000 coins and tokens. The mobile app facilitates QR code scanning for transaction signatures, and the device's metal casing and self-destruct mechanism add an extra layer of protection. ELLIPAL Titan offers a secure, robust, and convenient solution.
The SecuX V20 is a versatile hardware wallet supporting over 10,000 coins and tokens. Its Bluetooth feature provides seamless connectivity to smartphones or laptops. With a colour touchscreen and a vault-grade security chip, it balances portability and security. SecuX V20 is known for its versatility, portability, and reliability.
For those valuing discretion and innovation, the CoolWallet Pro offers a unique solution. Shaped like a credit card, it supports over 1,000 coins and tokens. Innovative features like Bluetooth connectivity, a biometric sensor, and staking functions make it a discreet and functional cold wallet.
Using a hardware wallet for cold storage, which is protecting your crypto assets from theft, is as simple as storing your private keys and creating new ones, keeping them away from potential risks on the internet.
But the most important aspect is always backing up the wallet’s recovery phrase or private key, which can be done in several ways. Some will store it on a simple paper copy, while others prefer to have it etched on hardware devices.
Many crypto investors have lost access to their wallets, which is largely attributed to poor backup options. Thus, it's important to consider the kind of storage you are going to use.
Yes, cold storage is good for crypto since it preserves the cryptocurrency's private keys and minimizes the risk of the funds being stolen by hackers.
To sell crypto from cold storage, one has to transfer the crypto to a hot wallet or to an exchange directly. The main use of cold storage is to store funds, not for immediate trading or exchanging.
Physical cold storage, such as a hardware wallet, can malfunction or get damaged. Still, the idea of cold storage and its security are safe provided there is a backup of the private key or the recovery phrase.
Although the cold wallet’s private keys are not exposed to the internet and thus not easily hackable, other aspects of the cold wallet service, such as user data, can be breached, as has been depicted in previous incidents.
Yes, you can get your crypto back if you misplace your cold wallet and the only thing you have is the backup recovery phrase or the private key. This backup enables you to regain control of your crypto assets on a new device.
Expanding storage options can reduce associated risks. Storing all your cryptocurrencies in a single cold wallet can be dangerous in the event of loss or damage to the wallet, and thus, using multiple wallets can act as diversification.
The value of a cryptocurrency can go up depending on the market, but the actual cryptocurrency held in a cold wallet will not increase unless there is a staking function within the wallet.
Disadvantages of cold storage include that it is not liquid or convenient, there may be costs incurred on purchasing hardware wallets, and the risk of losing access if the backup measures fail or are not properly set up.
Things to avoid when using cold storage include poor management of the backup of the recovery phrase or the private key, such as using poor cold storage devices or unconfirmed ones, and failure to keep the physical device safe.
Yes, transferring funds from a cold wallet to a hot wallet and vice versa is possible. This is normally accomplished by having one transfer a transaction from the cold wallet to an address linked to the hot wallet.
The price of a cold wallet also differs depending on its type and brand. Cold wallets, which are further divided into hardware wallets, usually range between $50 and $200.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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