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Home Cryptocurrency

Cold Crypto Storage Explained

by Money Giants Editorial Team
October 20, 2022
in Cryptocurrency, Technology
Reading Time: 6 mins read
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Cold Crypto Storage Explained

Cold Crypto Storage Explained

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Cold crypto storage comes in handy to offer extra protection to cryptocurrency wallets. This is crucial because the owner of the cryptocurrency is responsible for its security since the system is decentralized. You are the one to ensure your crypto is safe and not stolen. So, if you are a crypto enthusiast whose concerned with a high level of security, you may resort to cold crypto storage. With cold storage, there is no internet connection in the platform, hence reducing the risks of access by unauthorized users. In the end, the system becomes less vulnerable and you reduce the chances of being a victim of cyber-attacks. So, what exactly is crypto storage? How does it work? Why should investors and exchange platforms have it? please read on to find out the answers to these.

What is Cold Storage?

Cold crypto storage is used for crypto wallets not connected to the internet. It is a method used for offline storage of crypto to reduce risks of system vulnerability, hacking, and any potential access from unauthorized personnel or systems. Therefore, unlike the “hot wallets” that rely on an internet connection to store cryptocurrencies, cold crypto storage is not connected to the internet. Moreover, it can refer to other methods of storing inactive data. Simply put, cold crypto storage is a method of holding crypto offline or offline cryptocurrency storage. So, who can use cold crypto storage? 

With the increasing innovation and creation in the crypto space, more digital wallets tend to be secure. However, the investors, the crypto exchange platforms, and other companies in the crypto space need extra security measures. After all, hackers are continually devising new, improved, and complex ways of gaining access to individuals’ data and information and stealing them. However, since there is no internet connectivity, the hackers will not gain access to the cryptocurrencies. Therefore, cold crypto storage is essential to investors, crypto storage platforms, and other crypto companies.

Read: A Hardware Wallet; Do I Need One For My Crypto?

So, using cold crypto storage is a method of protecting your crypto holdings from theft. This is especially the case if the investor or crypto storage still utilizes the traditional banks. The good thing is that cold crypto storage is a safe and highly secure means of storing any crypto. Notably, you may decide to divide your cryptocurrency tokens such that you store the larger portion in a cold wallet for more security while the smaller bit remains in a hot wallet.


How Does it Work?

As earlier mentioned, hot wallets are prone to theft since they are connected to the internet. Therefore, since private keys are stored online, one can access the transactions and activities after they are broadcasted online. So, the only time your keys will be online is during the transaction. The whole idea behind cold crypto storage is to protect the private keys to the cryptocurrency. Cold crypto storage is not connected to the internet and can thus prevent the stealing of private keys. This is because the overall environment is offline, and therefore the transactions taking place are also recorded in this form. A good cold crypto storage system does not interact with any other electronic device and this is one way of maintaining the privacy and security of cryptocurrency transactions. 

Cold Crypto Storage Explained
Cold Crypto Storage Explained

Having your keys in cold storage removes them from your crypto wallet to keep hackers at bay. However, since your ownership of the private keys is safely stored in the blockchain, you can see them. Besides, you can only use them after removing the specific keys back to your crypto wallet.

Read: What to Expect in Future Metaverse Banking

Nonetheless, devices such as USBs, hard drives, or hard computers come in handy whenever a crypto transaction takes place and needs temporary storage. After this way, the investor can sign it and then transmit it online. The good thing is that the private keys are not interacting with the server during the whole process of signing online. This also makes it very difficult for any hacker to get the private keys for the transaction or access your cryptocurrency holdings.


Methods of Cold Wallet Storage

There are different methods of crypto cold storage you can take advantage of. They include;

Paper Wallets

Here, the investor prints the keys on paper and then adds a QR code. This way, he can scan it easily and complete the transactions faster. Notably, it has all the information about the coins.  

Unfortunately, it is not the safest cold crypto storage method as you can misplace the papers, have a spillage on them, forget some copies, or at times the ink might just fade away. So you can incorporate it with another more secure method of storage such as crypto banking.

Hardware Wallets

These are regular or advanced USB-like devices you can plug in and access the wallet. Thankfully, your keys are safer and more secure in hardware wallets compared to paper wallets. 

Cold Crypto Storage Explained
Cold Crypto Storage Explained

Notably, there is a variety of hardware wallet devices from retailers. You may opt for those that have added features or probably the ones that allow wireless connection.


Sound Wallets

In this method, you have to encrypt and record the private keys on audio files. Some of the products you can use under this method include CDs. Notably, you need a spectroscope app or the same product but with a very high resolution. As much as you choose the medium to use in sound wallets, it is a very expensive method of cold crypto storage.

Read: How to Transfer Crypto to Bank Accounts

Disadvantages of a Cold Storage

As much as cold wallets offers immense security of private keys and other crypto transactions, it has the following downsides;

  • Has a long and burdensome process of transferring crypto tokens from and to the hardware wallet
  • Not so convenient for use as compared to hot wallets. This is because they are not connected to the internet nor do they allow crypto online payments.
  • They tend to be more expensive compared to hot wallets.

Store Your Crypto Private Keys With Hardware Wallets

If you don’t want your wallet to contain any private keys thus preventing any other person from accessing the private keys or your crypto holdings we recommend you use cold crypto storage. There are different methods you can utilize to safely store your crypto holdings and prevent the chances of hackers from gaining access. However, when you consider cold crypto storage, keep in mind that their convenience level does not match up to that of hot wallets. Nonetheless, they are more expensive and involved a lot of processes when transferring the tokens either to or from the wallet.

Related Articles that you Might be Interested in:

Best Ways to Store your Crypto 

How to Easily for Goods with your Crypto 

Can I Start Accepting Crypto Payments in My E-commerce Business Answered 

Tags: cold crypto storagecold walletscrypto storagecryptocurrency
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