5 Cryptocurrency Cold Storage Methods

Online storage is open, vulnerable, and prone to attacks. Thankfully, we now have safety measures that secure digital assets better, but there are still large vulnerabilities that can be avoided with cold cryptocurrency cold storage methods. Although this method of storing crypto is not for everybody, it is still safe in comparison to other methods of storage.
Long-term online crypto storage is like leaving hay in the open and expecting animals not to try to get to it. Even if they don’t initially, they will, eventually. Hence, cold storage methods are suitable for certain players in the industry, especially long-term investors. Cryptocurrency is highly valuable and a target for hackers. Unfortunately, once stolen, it is almost impossible to recover. Cold storage removes this threat to the safety of online digital assets by storing them offline.

For investors, the safety of their assets is paramount. That is why in this guide, we will discover what cryptocurrency cold storage is and explore some methods to use in storing assets offline.

Let’s get started.

What is cryptocurrency cold storage?

Cryptocurrency cold storage is removing your cryptocurrency keys from your online wallet and storing them somewhere that is not connected to the internet, a network, or another device. There are different types, and some may even be electronic. However, electronic cold storage devices should not have the ability to independently communicate with another device unless physically connected to that device.

The need for cold storage arose due to the increasing rise in crypto theft by hackers. The first idea of cold storage involved writing down the keys on a piece of paper and removing them from the wallet. However, cold storage has evolved since then, becoming easier for users to secure their assets offline.

Although it is now widely used for maximum protection of crypto, cryptocurrency cold storage methods are particularly important for two sets of people in the crypto market, and they include: long-term investors (HODLers) and investors with large amounts of crypto.

5 most popular cryptocurrency cold storage methods

The number of cryptocurrency cold storage techniques is limitless. The difference from one to another depends on the level of security and accessibility each has. However, here are the five most popular cold storage methods widely used by investors:

Hardware wallets

Hardware wallets are the most commonly used crypto cold storage technique. They are physical devices, such as USB drives, that are designed specifically for storing crypto keys offline. They are electric devices that cannot, by themselves, connect to another electric device.

To use them, the user has to connect them physically to another electronic device, like a phone or a computer, sign the transaction offline, and then broadcast it offline.
Hardware wallets stand out from other cold storage methods because they are not vulnerable to online attacks, are portable, and can be used for years if handled properly. The downside with this method is that it can be stolen or lost, and if the recovery phrase is lost, then the funds are gone forever.

A real-life example that highlights the risk of hardware wallets is the case of James Howells, a computer engineer who mistakenly disposed of a laptop hard drive containing the private key for 8,000 Bitcoin in 2013. Attempts at recovering the hard drive have remained futile, and sources have it that the search for the missing digital treasure is over. This digital asset is estimated to be worth $8 billion by 2030.

Paper wallets

Paper wallets were the first cryptocurrency cold wallet storage method. It is a physical printout or carefully written public and private keys that are usually generated offline for safety.

The way it works is quite simple. You simply generate your wallet address and keys on an offline computer that is secure, and then print these keys out. Any transactions with your assets will involve you entering these keys into a crypto wallet.

Another method of using paper wallets is by adding a QR code that contains all the needed information for the transaction. By simply scanning the QR code, you can make a transaction faster, but this reduces the security of the wallet as it needs a device with a camera, both of which could be compromised.

Compared to many other cold storage methods, paper wallets are extremely cheap as they require just a printer and paper. However, a major downside is that they are less durable. With time, the paper may fade, tear, or be destroyed by water or fire. In addition, they require extensive technical knowledge in order to be safely generated.

Metal wallets

In terms of durability, metal wallets are the go-to. They are resistant to destruction by water or fire and light mechanical destruction. However, metal wallets do not by themselves store the crypto assets; they store the recovery phrase to your wallet. Thus, they guarantee that your wallet is not lost forever if your hardware wallet is destroyed.
They are made by inscribing your seed phrase on a stainless steel plate. They serve more as a backup for other cold storage methods, as they are practically indestructible. Although, like hardware wallets, they can also be stolen or lost.

Sound wallets

These wallets are not as common as the other cryptocurrency cold storage methods because they are expensive. It involves encrypting and recording your private keys in sound storage files such as Compact Discs (CDs) and vinyl discs. However, it does not just end there. To use these keys, a spectroscope application or high-resolution spectroscope must be used to decipher the code hidden in these audio files. Due to the cost of using and the technical knowledge, they are rarely used today.

Deep cold storage

Deep cold storage is hardware storage with a twist. The twist is that it is a hardware wallet that is inconvenient and requires time and effort to retrieve the private keys. Some cold storage methods may be as crude as placing your hardware wallets in a waterproof container and burying them, or they can be as sophisticated and modern as entrusting them into the care of professional custodians who proceed to store them in high-security offline vaults. Some of these vaults may even be physical bunkers.

This method provides insurance for institutions with very high networth investors or those that have an enormous amount of digital currencies. The drawback of this method is that in many cases it requires entrusting the assets into the care of a third party. Therefore, any internal or external attack on the entrusting body puts your assets at risk.

Conclusion

The choice of which cryptocurrency cold storage method to use ultimately depends on your budget, the technical skill required, and the risk involved with each method. As this guide highlights each of these, it is a good place to start if you are considering using cold storage techniques to secure your digital assets. Remember, your keys are very important. If you don’t control the keys, you don’t control the coins!

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