In the world of cryptocurrency, you need to be sure that your coins are safe at all times, hence the need for cold storage. According to information published in regalcryptos.com, “It’s a matter of safety, privacy, and diversification.”
Many developed countries are still adjusting to fit into the cryptocurrency socket, which is why you should make the best arrangement for your investment to stay in the safest and most crypto-friendly storage. When that happens, you will minimize government confiscation or litigation risk. Crypto assets come with serious security risks that could easily destroy your investment. Investing in crypto cold storage will ensure that you have a flawless storage system that ensures maximum security and safety for your digital assets.
Cryptocurrency cold storage—background
With a shaky world economy in the past years, many nations continue to incline towards a viable currency option. This has led to the birth of cryptocurrency, with bitcoin as the pioneer and the oldest coin. Since its inception in 2009, Bitcoin is so far the most popular cryptocurrency, with the highest market value.
Crypto assets have various benefits over the traditional or fiat currency. They are easy to transact and require low processing fees. Besides, no government or institution controls the assets. However, even with their finest attributes, the digital assets have their share of challenges.
Security issues of cryptocurrencies
Whether you invest in Bitcoin, Ethereum, Litecoin, or any other digital currency, there is always a security bug that bites every crypto investor. Today, a new generation of software exists, which hackers can use to trace your digital wallet and gain access to your virtual currencies. Hacking can also happen at the point of exchanging cryptocurrencies.
Various industry experts and leading publications are concerned about crypto security. A good number of them recommend cold storage. According to Cointelegraph, “Once you acquire enough coins that losing them would be painful, you should move them to an offline wallet—a method commonly referred to as cold storage.”
BLOCKCHAIN concurs: “Cold storage wallets offer unprecedented security measures as they store bitcoin offline. Cold storage wallets are immune to hacking attacks or data breaches.”
Since digital assets lack control, cases of hacking and fraud are on the rise, which leads to each investor asking the same question: ‘is my investment safe?’ Without a regulatory framework, you should depend on a flawless security system that keeps your Bitcoin, Ethereum, Litecoin or any other crypto asset secure.
So, where can you store your crypto assets safely? Most likely, nowhere is safe, as long as your digital assets stay online. Usually, you need keys, which are a series of codes and addresses used to access your stored investments. Each digital wallet has unique codes. Learn about how to choose a digital wallet here. Besides, if you are doing an exchange in or transferring any cryptocurrency, you should use trusted websites such as Flexcoin, Bitstamp, and others. All the same, even with a digital wallet, your virtual currencies are still susceptible to acts of fraud and hacking. To this end, a new method of crypto asset storage is in the offing—cold storage.
Why Cold Storage?
According to Bitcoin.com, “As the price of Bitcoin continues to climb, exchanges and wallet providers become more susceptible to theft. The best way to keep your coins safe is storing them yourself offline in what’s called cold storage.”
With reference to cryptocurrencies, cold storage simply means keeping your reserve of digital assets offline. It is an important requirement for any crypto investor or trader. To illustrate the point, you can take the example of what happens when you withdraw Bitcoin instantly. The operator usually keeps the reserved bitcoins in a cold storage to prevent hacking attacks or security breaches. Cold storage is not associated with any web server, which means your investment is always safe. Only a limited amount of virtual currency remains on the web server.
“Cold storage is a non-internet-connected device and/or program which generates your Bitcoin or Ethereum wallet within a reserve offline. Additionally, with cold storage, you own full control of the private keys and you have reduced the risk of potentially creating compromised private keys among many other security risks.”
Benefits of Cold Storage
- It offers safe and secure storage for large amounts of virtual currencies for a longer period
- It is not dependent on any web server, making it difficult to infiltrate by a third party
Drawbacks of Cold Storage
- It is possible to cause external damage through carelessness. However, you can recover this if you have a recovery seed
- Beginners may find it difficult to set up
- It is not ideal for quick, day-to-day transactions compared online exchanges.
Cold Storage—recommended methods
- Use a USB drive or hardware to store your virtual currencies
- Use paper wallet
- Use a Bitcoin Hardware wallet
What are Hardware Wallets?
These physical wallets enable you to store your digital assets offline. They exist in multiple forms, but the most common version is the USB stick. While they are free from hacking and fraud attempts, they are never perfect. If you go that direction, you should make sure that your preferred wallet is not a pre-owned model at any point. Common hardware wallets include:
Paper wallets are no doubt the safest means to store virtual currencies offline. With a paper wallet, you are able to save your cryptocurrency offline. The process involves printing both public and private keys on a piece of paper, which you can store in a secure place such as a fireproof safe. The printed keys are usually in the form of QR codes.
Therefore, each time you need to make a transaction or exchange, you must scan the code. Since the keys are stored separately from the web server, there are zero chances of them being stolen. One thing you must ensure is the safety of the paper wallet, so it does not land in wrong hands.
The world’s brightest minds including Bill Gates of Microsoft, Peter Thiel of PayPal, and Eric Schmidt of Google among others, have spoken positively about cryptocurrency. The earlier you adopt the cold storage, the better.
Images from Google
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