What Is Cold Storage in Crypto?

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While cryptocurrencies are decentralized, they raise a lot of concern regarding their security. Hackers are not left out to see that they mince something out of investors’ portfolios by hacking it. There was a need then to look for a more secure way of storing cryptocurrencies, and one of them is using the cold storage method.

Cold storage, therefore, is removing the cryptocurrency keys from the online exchanges and storing them somewhere where there is no network connectivity. So far, this method is the safest to keep your crypto safe.

To enhance security, a cold storage method should in no way be connected to an electronic device where one can easily access the keys. One must plug them into internet connectivity only when they want to use the keys.

In the past, cold storage used to work in a way such that investors could write the keys down and keep them securely on paper. However, this has advanced, and many users can now store their cryptocurrency more securely.

To better understand how cold storage works, we will guide you through several ways to ensure that you keep your portfolio safe from hackers.

How Cold Storage Works

To understand how cryptocurrency works, it is essential to search and understand the concept behind it. For example, using wallets to hold the crypto is the same as using physical wallets to hold physical cash.

Digital wallets offer public and private keys as their digital storage tools. The private key allows the user to access the crypto in the wallet, while the public key helps identify a defined crypto wallet when carrying out transactions.

A hardware wallet is used, whereby the user connects it to a computer to transfer the required information..When you receive the crypto for storage, an address is generated and saved in the cold storage. Once saved, one is required to disconnect it from the computer, and at this time, it is completely disconnected from any online transaction.

This process is like transferring to a different cold wallet. You only need to connect to a computer, send it to the wallet of choice, and disconnect again, and the crypto is saved offline.

Methods Used to Store Cryptocurrency in Cold Storage.

There are various methods to store crypto in cold storage, the most popular ones being hardware and paper wallets. It, however, depends on the user’s needs, some of these methods can be highly secure, but others are ambiguous.

Hardware Wallets

A hardware wallet is a physical device that resembles a USB drive, where you can plug it into a computer if you want to access your keys. They are the most recommended and safe ways of cold storage. You do not necessarily have to use the USB drive to store, but any other device used for storage can be effective. Other devices that can securely store your keys are Bluetooth or even an old iPhone device that is no longer used for other purposes.

We also have Air-gapped devices, which cannot be connected wirelessly and are great ways for cold storage. However, it depends on the features of the device in question. These devices can be bought from commercial hardware retailers or merchants. Before purchasing, confirm that they are virus and waterproof for extra safety.

 Others have a multi-sign signature, which is even more secure- this means that to access the cryptocurrency, more than one user will be required to approve the transaction by use of the private keys.

Paper Wallets

Though safe, this method is more prone to hackers than the aforementioned. It involves printing your private and public keys and using a QR code to enhance security. These are then stored in a safe locker for later access. However, they have a limited level of protection because one can misplace it, or fire can burn it, and you end up losing the entire portfolio.

Deep Cold Storage

Using a hardware wallet to secure your crypto is a safe method, but there is a deeper way of storage where you can still store in hardware storage but add enhanced security—for instance, digging a hole in your garden and placing it there. You could cement the area so that retrieving the same would require extra effort. This can even be a better way to remember the area when you want to retrieve it.

Sound Wallet

The use of sound wallets can be an expensive way to store cryptocurrency, depending on the device used for storage. The wallets use an encryption way of saving audio information with the keys. High-security measures are used to retrieve the same. The code is hidden in the audio files, and its interpretation can only be made using a spectroscope.

Which is Better? Cold Storage or Digital(hot) Wallet

There are two types of cold storage- cold storage and digital or hot wallet. A comparison of the same can be made based on several features.

Convenience– Digital wallets are more convenient when it comes to retrieval. You only login into your account and receive or send your crypto. Cold storage takes time to retrieve and access the wallet.

Security– Cold storage is more secure, and hackers can hardly access it. This is not so for digital wallets. In as much as they have a high level of security, they carry high risk because hackers are also looking for ways to steal the portfolio.

Cost- Cold wallets carry a cost when purchasing, ranging from $50 to $150, while most digital wallets are free.

Is Cold Storage recommended for Cryptocurrency?

Since cold storage removes your private keys from your wallet, we can say that it is the best method for storing cryptocurrency since no one can access them.

Conclusion

An investor with a vision will always look for ways to keep the cryptocurrency portfolio safe. Utilizing both storage methods is essential- for instance, maintaining the bulk crypto in the cold storage and storing the crypto meant for daily trading in the digital wallet.

Considering cold storage is an excellent deal if you are an investor, ensure that security for your crypto is in place.

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