Cold Storage Methods for Bitcoin
When Bitcoin first launched back in 2009, it wasn’t particularly popular. The concept of an unregulated, digital currency was, understandably, lost on most people and it took a fair amount of years before any positive attention arrived.
Due to people’s indifferent attitude, Bitcoin wallets weren’t thought about much, especially by those who are on the lookout for new ways to hack or defraud others online.
However, around 2014 Bitcoin finally started making waves in the investment community and the buzz started to spread. Come 2017, people’s love of Bitcoin grew as the price started to surge, and this trend has only continued upwards in both value and popularity.
However, with so much attention on Bitcoin, the fraudsters, tricksters, and hackers started turning their attention to the community as well.
The cryptocurrency was finally seen as something worth having, and therefore, it was something now worth stealing.
Since there is no regulation, there is no way for an investor to get their coins back if they’re stolen, therefore, high priority was placed on the security of crypto wallets and people became more aware than ever of the importance of choosing the right wallets for their needs.
Even now, knowing how to store your crypto safely is essential to keeping your assets safe and out of the wrong hands.
The safest but least convenient way is by using a paper wallet. The most convenient but least safe is a hot wallet. And somewhere in the middle are cold wallets.
Let’s look at cold wallets in more detail below and touch on the other common ways of keeping your Bitcoin safe.
What Is Cold Storage?
Cold storage wallets are wallets that are not connected to the internet in any way. To do this, you have to remove your crypto keys from an online wallet and store them on a device offline, a USB, for example.
This way, the cold storage has to be plugged into your device in order to get your keys when you need them. Keeping the keys off the internet means they cannot be hacked online.
Originally, the only option for offline storage was a paper wallet. This meant someone had to write their keys down on a piece of paper to keep them offline. While this method is not convenient, for many, it was a much more appealing option than an online wallet due to security concerns.
However, as Bitcoin’s popularity grew, offline storage that didn’t involve paper was created as a kind of the middle man between paper and online.
Understanding Cryptocurrency Storage
Cryptocurrency wallets are, in theory, much like the wallet you keep in your back pocket. Your physical wallet holds your cash, your crypto wallet holds your private and public keys. Both wallets protect and store something of value.
The keys you get with a wallet are a series of cryptographic characters needed in order to complete transfers to and from the wallet. The public key is like an email address, it’s your wallet’s ID so others know where to send BTC.
Your private key is like your email account’s password, without it you can’t send an email - or in this case, you can’t send BTC.
While your public key is, as the name suggests, safe for anyone to see. Your private key should never be shared or told to anyone. If someone has your private key, they can empty the contents of your wallet before you even realize it.
Cold Storage Options
There are several options you can use if you want to use a cold storage method. And don’t forget you can set up as many wallets as you want if you want extra security by spreading your crypto out across several storage methods.
Hardware wallets can be plugged into the device you want to use when accessing your wallet. A hardware option will look like a USB stick and are a safe option for anyone who is concerned about security.
You can use anything from a standard USB storage drive to an advanced device with a battery, Bluetooth, or other features that may make you feel better. Any device that is air-gapped is more secure than those that can connect wirelessly as an air-gapped device has no connection ability whatsoever.
You can buy a hardware wallet from a number of retailers or online. You can go to any specialist computer store and they'll have a range for you to choose from. You can pay for one that is waterproof and virus-proof.
You can even select one that even supports multi-signature (multi-sig) transactions for yet another layer of security.
Sound wallets are expensive, relatively speaking, and obscure compared to other options. However, that doesn’t mean you shouldn’t give them a chance.
This storage involves encrypting and recording your private keys in sound files on products such as CDs or vinyl disks. The code is hidden within these audio files and can only be deciphered using a spectroscope application or high-resolution spectroscope.
It sounds complicated but if you are holding a lot of BTC, it’s an incredibly safe way to keep your mind at peace.
Deep Cold Storage
Deep cold storage is where you keep your cold wallet somewhere that requires a lot of steps and is tricky to access.
For example, if you have a safe at home, popping your USB in there isn’t deep cold storage because it’s easy for you (and anyone else) to get to.
Deep cold storage needs to be more complicated.
For example, you put it in a waterproof container and bury it ten feet underground, or put it in a bank's security deposit box three cities over. You may even consider hiring a third-party company that stores it for you in their vault which requires a lot of paperwork to access.
Anything that takes time and is a huge inconvenience is considered cold storage. This method won’t be appealing to those who don’t hold much BTC or like to trade frequently but for anyone who has a lot or wants to focus on a long-term investment, making it difficult to access can prevent the temptation to use, spend, or trade your cryptocurrency.
Paper wallets are in a category in their own right, but they’re also technically a cold storage method, so they’re worth quickly mentioning here.
Paper wallets can be the most secure option. But only if the owner stores the paper correctly. If you leave the paper lying around where it can be seen, stolen, thrown away by mistake, or weathered, then it’s the least secure.
However, if you keep it in a bank’s security box then it can be just as safe, if not safer than another cold storage method.
A paper wallet will have a QR code of your keys, or it’ll have your keys literally written down by you.
If you set up a paper wallet, be sure to copy down the keys correctly. Keep the paper somewhere weather-proof, waterproof, and fireproof, and don’t use ink that will fade quickly.
Frequently Asked Questions About Cold Storage Methods
Is Cold Storage Best for Cryptocurrency?
Yes, cold storage is the best way to store cryptocurrency because it removes any risk of hacking or theft online.
What Happens When You Put Your Keys in Cold Storage?
When you put your keys in cold storage, they are removed from your online wallet. You’ll still be able to see your crypto in the wallet because it’s stored on the blockchain but you can’t use them until you put the keys back in the wallet.
Is the Inconvenience of Cold Storage Worth It?
The answer will depend on your goals. If you want to keep your BTC as a long-term investment and don’t plan on needing to or wanting to access them for a long time, then the inconvenience is more than worth it.
For those who like to access their BTC frequently in order to sell or trade then, it may not be worth it. However, it’s always worth considering having a hot wallet and a cold wallet so you can store some more securely offline while still being able to easily access the rest.
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