March 29, 2023

Everything You Need to Know: Crypto Cold Storage Explained

Everything You Need to Know: Crypto Cold Storage Explained

As the world of crypto and digital currency is decentralized, storing and securing cryptocurrency and digital assets is the owner's responsibility. There are numerous ways this can be achieved, with some being more effective than others.

However, owner security does pose some challenges, usually, human error related. We’ve all heard stories of early Bitcoin investors losing their keys and forever being locked out of their digital wallets.

A concern in this tech-savvy space is hacks and scams. In this heavily unregulated environment, there’s little to nothing that can be done to reclaim lost assets. However, crypto cold storage is a preventative measure every investor should consider.

In this article, you’ll learn what a cold crypto wallet is, how it’s different from a hot wallet, the benefits of using one, how to set it up, and who it’s for.

Let’s get to it.

What Is Cold Storage Crypto?

To put it simply, cold storage crypto is an offline crypto wallet. Commonly, this will be a hardware wallet.

This external device plugs into your laptop, such as a USB memory stick or hard drive. Essentially, any digital wallet that is not connected to the internet is cold storage.

The only time a cold storage crypto wallet is connected to the internet is when its owner needs to perform a transaction, buying, selling, swapping, or staking cryptocurrency.

As the cold crypto wallet spends the majority of its time offline, it prevents hackers from breaching security and stealing your hard-earned crypto.

Hot Storage vs. Cold Storage Crypto

Another way to store crypto is a hot wallet, better known as a digital wallet. This is more commonly used by small-time investors and those new to crypto. As you might have guessed, the major difference between the two is that a hot wallet is always connected to the internet.

So, why does that matter, and what other differences are there?

Security & Protection Against Hackers

Although most hot wallets provide in-depth security protection and protocols, the fact they’re online makes them susceptible to hacking attempts. You’ll never have this concern with a cold wallet.

Convenient Access and Use

Hot wallets are incredibly convenient to use. You can simply open an app and begin buying, selling, and swapping cryptocurrency.

What’s more, you don’t have the concern of ever losing the wallet itself. With cold crypto storage, it’s held on a physical device.

If you lose your cold crypto wallet, you can gain access to it if you’ve created a seed phrase backup code. More on this later.

Cost of Use

When you decide a cold crypto wallet is a way forward, you’ll need to invest a little cash to get your hands on one. While it’s not expensive, it is compared to a hot wallet, which is usually free.

You can pick up a crypto cold storage device for anywhere between $50 - $150. However, you will find some cheaper and more expensive options.

Hot or Cold Storage: Which Is Best?

If you’re new to the crypto game and aren’t investing large sums, a hot wallet is best for convenience and ease of use. However, those who see cryptocurrency as a long-term investment with large sums tend to use hot and cold wallets. They’ll store the majority of their crypto in a cold wallet while having a hot wallet with a small number of funds for day-to-day trading.

Benefits of Cold Storage Crypto

Your Private Key Remains Private

You need to use your private key to access any crypto wallet. When using crypto cold storage, you are entering your private key to access an encrypted external device – which isn’t connected to the internet at the time of entering the key. This ensures no hacker can get hold of the only method of accessing your wallet.

Additional Security Measures

If the unthinkable should happen, and a malicious individual somehow uncovers your private key, you have additional security measures with a cold crypto wallet. Some of them come equipped with a pin-code, whereas more sophisticated devices could use biometric protocols such as fingerprint recognition.

No Viruses or Hackers

We’ve discussed your protection against hackers already. Another benefit of not being online is a defense against viruses.

To fall victim to a virus, you’d need to have the cold crypto wallet connected to the internet and physically download a virus to the device itself – which is incredibly difficult. Alternatively, you can easily eject the device if you suspect anything malicious or spot something out of the ordinary.

Hold All Your Cryptocurrencies

As with all digital wallets, your cold crypto storage can hold multiple cryptocurrencies at the same time. They take up very little storage space, so for convenience, you’ll be able to keep all sums in the same wallet, no matter their value. However, you may wish to spread them across multiple devices for even tighter security measures.

How To Move Crypto to Cold Storage

You know what cold storage is, its benefits, and how it compares with hot storage. Now, let’s find out how to store crypto in cold storage.

Step 1: Cold Crypto Wallet Setup

Connect your chosen hardware device to your computer and install the cold storage application that comes with the device.

Step 2: Create Wallets for Each Cryptocurrency Blockchain

Now, you need to create a wallet and address for each cryptocurrency you wish to hold in your wallet. It’s as easy as clicking the create new wallet button and selecting the crypto you want to transfer.

The wallet addresses created will be what you use when it comes to transferring crypto from your hot wallet to your new cold wallet.

Step 3: Seed Backup Code

We mentioned this earlier, but this is how you maintain access to your digital assets should you lose your cold crypto storage device.

It’s advised to keep these seed phrases stored safely offline.

Step 4: Create A Pin

Until you’ve created a pin, you won’t be able to store your private keys on your cold crypto storage device. Once you’ve added this additional level of security, you never have to worry about losing your keys again.

Step 5: Transfer Crypto

Now, it’s time to transfer from your hot wallet to your cold crypto wallet. You do this the same way you’d transfer to any other wallet. Head to your online wallet, select the crypto you wish to transfer, enter the wallet address you just created, and complete the transaction.

Beware of Unofficial Suppliers

While crypto cold storage is known as the most secure method of storing crypto, you still need to be wary of corrupted devices. You should only ever purchase from verified suppliers or directly from manufacturers.

If a price seems too good to be true, it probably is. Always veer on the side of caution and choose official products.

Who Should Use a Cold Crypto Wallet?

Cold storage crypto is a viable option for any crypto investor. It’s more suited to investors with a high volume of crypto; however, high volume is subjective.

Ask yourself this question – can you afford to lose it, and how important is it to you? If you consider your amount of crypto valuable, we suggest investing in a cold wallet.

A hot wallet is perfectly adequate for newbie investors with small amounts of crypto. It provides the flexibility you need and doesn’t bear any cost.

However, as mentioned, serious investors tend to use a mixture of hot and cold wallets. It’s best to keep a large volume of your crypto locked away offline while keeping a day-to-day trading amount in an online digital wallet.

Crypto Cold Storage Summarized

Protecting your cryptocurrency is completely down to you. If you choose to use a hot wallet, you never really own the cryptocurrency held within it. At any moment, the major exchange wallet you’re using could decide to stop releasing funds.

For ultimate security and control over the destiny of your cryptocurrency, crypto cold storage is the most feasible option. In the long run, it’s incredibly cost-effective and protects your digital assets against hackers and viruses.

Remember, never buy from a suspicious supplier. Always choose a respected retailer that stocks official devices. Better yet, go to the manufacturer directly.

If you have any questions about cold crypto storage, we’d love to hear from you. Reach out, and we’ll be happy to answer your queries.

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