You typically expect a strong sense of security when it comes to the storage of your assets. Whether it be physical or digital, money or goods of all sorts, you want them to be in good hands. Cryptocurrency storage is no different, and one of the most trustworthy security systems is called ‘cold storage.’
What is it?
The term ‘cold storage’ refers to preserving cryptocurrencies offline. They are generally a more secure option, especially when dealing with a large amount of currency.
Cold wallets – also called ‘hardware’ wallets‘ – are one of the best tools for safeguarding cryptocurrencies. This is because of the offline asset storage and also because it’s put physically into the owners’ hands. Cold stored cryptocurrency is not as susceptible to hacking, phishing, and other damage that leads to a loss of digital assets. Moreover, they are the ideal wallet for long-term storage.
Here is an example that pertains to cold storage being a necessary safety precaution. A Bitcoin exchange usually provides an instantaneous withdrawal feature that’s probably responsible for hundreds of thousands of Bitcoins. To minimize the chances of an intruder stealing the reserve, the website’s operator follows a cold storage practice. In other words, keeping a majority of the reserve off the web server or any other computer. The only amount remaining on the server is the amount that will cover any potential withdrawals on a short term basis.
An extension of cold storage is ‘deep cold storage.’ Likewise, it refers to keeping a reserve of cryptocurrencies offline. However, it uses a method that makes coin retrieval from storage much more difficult than deposits. Regardless, it is for the sake of safety and aids in the prevention of theft or robbery.
Methods
There are various methods of cold storage, which include keeping Bitcoins...
- ...on a USB drive or any other type of data storage medium in a safe place.
- ...on a paper wallet (an obsolete storage method that works by having a single private key and Bitcoin address on paper).
- ...by using an offline Bitcoin hardware/cold wallet such as Trezor.
Mediums & Weaknesses
As is the case with most crypto creations and systems, there are some potential issues with cold storage methods. With that in mind, while they do exist and are rampant, it is possible to mitigate them.
Be that as it may, secret/private keys and/or backup seeds are vulnerable to being lost due to their storage method. Here are just some of the more common cold storage mediums and their notable weaknesses.
1 – Existing on a piece of paper in writing (paper wallet)
- Anyone who can see it can steal it just as easily.
- Handwriting can often be difficult to read
- Any error in the transcription can result in causing errors on the end product.
- Paper itself can rot, tear, burn, or can be susceptible to smoke damage.
2 – Existing on a piece of paper in print
- Just like with writing on paper, anyone who can see it can easily steal it.
- Needs access to a printer
- Need to have complete and total trust in the printer pertaining to Internet connection, Wifi, and memory.
- Just like with writing on paper, the paper is vulnerable to an array of damages.
3 – Existing on paper that is laminated
- Those who can see it can also steal it, as per usual with paper mediums.
- Lamination is prone to degradation, cuts, and punctures. The latter two allows moisture to get into the paper and it can lead to deterioration.
- Can burn and/or be susceptible to smoke damage.
- “Fireproof”/“Fire-resistant” boxes protect paper in a small house fire, but can sometimes fall apart in the fire. That or get wet when the fire is being put out.
4 – Digital storage on a computer
- Computers can crash and frequently make data recovery expensive.
- Even after a user abandons a system, recovery of data is still technically possible. In some cases, it’s possible after several overwriting attempts and even physical
destruction. - Magnetic fields can corrupt data on a traditional hard disc drive and can physically shatter it.
- There are various accidents that can result in a loss of data.
- Computers continuously face ongoing threats. These range from 0-day exploits to firmware exploits, as well as malicious types of USB cords.
- External HDDs (Hard Disk Drives) are only good for storage of a few years, so long as there’s proper storage.
Hot Storage: what’s the difference?
There is another wallet/storage method that exists as some sort of a counterpart to cold storage. It is, appropriately titled, a ‘hot wallet.’ This term refers to any type of cryptocurrency wallet that connects to the Internet. In general, these wallets are very easy to set up and access and they also accept more tokens. With that said, they can be vulnerable to hackers, possible regulation, and certain other technical susceptibilities. While cold storage is more secure, hot wallets accept more cryptocurrencies than cold does.
Overall, the primary distinction between a hot wallet and a cold wallet is one crucial thing: Internet exposure. Investopedia editor, Jake Frankenfield, explains that:
“There are different reasons why an investor might want his or her cryptocurrency holdings to be either connected to or disconnected from the internet, and so it’s not at all uncommon for cryptocurrency enthusiasts to hold multiple wallets, some of them hot and some of them cold.”
People who want to trade or make frequent purchases with their cryptocurrency assets will often choose a hot wallet over cold storage. But often, they only store the amount needed for the short term, with the bulk of the digital assets safely cold stored away. This is usually due to holdings in the cold wallet are not transferable across the Internet. Be that as it may, hot wallets tend to face security issues much more frequently than cold storage methods.
Now that’s not to say that hot wallets are inherently unsafe ways to store your cryptocurrencies. The focal point of this section is strictly to compare the two different methods, not make hot wallets appear inferior. Hot wallets are able to access parts of the Internet and enable crypto trades and purchases because they connect to the Internet. Whereas cold storage is completely detached from the Internet ecosystem and is, in its true essence, a place of storage as opposed to one of usage.
Chris Castiglione, One Month writer, provides this perfect analogy: “...a hot wallet can be thought of like a pocket wallet that you walk around town with, cold storage is a bank vault.”
Wallets to check out
There are a good number of cold wallets that are available today. The top wallets have been narrowed down to the following five.
Wallet #1: Ledger Nano S PLUS
A device the size of a USB that has a metal casing for extra durability. The general design is very simple and compact, and its interface is incredibly easy to use. This device operates through Ledger Live, which is a desktop app that allows interaction with the device.
This device is notable not only for its portable design but also for the number of coins and tokens it supports. It supports over 1,000 coins and tokens. This includes Bitcoin, Litecoin, Zcash, Ethereum, Ethereum Classic, Dogecoin, and Dash. In addition, it supports a wide variety of ERC-20 tokens. Moreover, the device can interact with online wallets like MyEtherWallet, Electrum, and Mycelium.
It’s potentially more secure from potential hackers thanks to the physical buttons that are necessary for executing transactions. It possesses a tamper-proof feature that frequently checks the integrity of the hardware wallet every time it turns on.
Wallet #2: Trezor Model T
This is a second-generation device that stores multiple cryptocurrencies offline. Trezor One had a simple format with two buttons and a screen. Model T is an upgrade of the Trezor One, specifically removing the two buttons and making it a full-colour touchscreen. It is comparatively more secure with PIN entry, passphrase entry, and device recovery occurring on the device. That is to say, security and recovery functions do not happen on a computer or mobile device.
The newest Trezor comes with a magnetic dock for safekeeping and has a seal that lets you know of any intrusion. Furthermore, it supports over 700 coins, with some absentees being EOS and Tron. These cryptocurrencies include Bitcoin, Ethereum, Ripple, Litecoin, Bitcoin Cash, Monero, and Dash.
Wallet #3: Keepkey
A device that’s slightly larger than Ledger and Trezor that functions as a Hierarchical Deterministic (HD) wallet. This makes it ideal for generating and storing a limitless number of keys. It consists of a large screen and requires very little technical knowledge to use.
This wallet supports roughly 54 coins, including Ethereum, Bitcoin, Dash, Litecoin, Dogecoin, Bitcoin Gold, and numerous ERC-20 tokens. Moreover, it has a desktop client app, which interfaces with the wallet.
Wallet #4: Coldcard
A Bitcoin hardware wallet that signs transactions and can also function offline. It has an array of special features, including its ability to operate offline throughout its lifecycle. It has a crypto-security chip and it accepts MicroSD for very easy backup. The software is open-source, which means that you can modify it any way you want, assuming you understand blockchain programming.
An additional feature is a secondary wallet. This creates an additional private key, which will allow another wallet onto the same device. This is very useful in case of robbery or any other dangerous situations. The cryptocurrencies residing on the main account will remain secure, while the secondary wallet’s contents are for the situation at hand.
Wallet #5: ELLIPAL Titan 2.0
This wallet is the outcome of research on what the best way to secure cryptocurrencies is. It supports many cryptocurrencies, including Bitcoin, Litecoin, Monero, NEO, Ethereum, and ERC-20 tokens. As is, there are other cryptocurrencies that the wallet is taking into consideration. The wallet itself requires no updates or downloads of any kind to remain up to date.
There is a major advantage that this wallet has over other cold storage wallets. While many keep their private keys on computers, the Bitfi doesn’t store them anywhere. So, if someone steals or seizes the wallet, they are unable to extract the assets in it. In lieu of storing the private keys, the wallet calculates the key via algorithm whenever the user types in the passphrase.
If you're interested in recording your seed-phrases in a compact notebook, there's a cool one that I'd recommend you check out on Amazon called - 'CRYO Crypto Seed Phrase Storage Notebook - Waterproof Stone Paper Book - Cryptocurrency Recovery Phrase Password Keeper - Cold Storage Wallet Backup Journal - Pocket Size 2-Pack' - and you can access it here https://amzn.to/3BQWowi
