Introduction

There are several methods crypto investors use to store digital assets, and cold storage is one of those methods. Imagine we just had all our digital assets on exchange platforms without a place to store them; won't it cause chaos? The general meaning of cold storage is storing something of value in a place to extend its lifespan. For cryptocurrency, it's almost the same thing too. Cold storage for crypto tokens and off-chain transactions is an interesting topic for many crypto-minded individuals out there.

First Things First - Let's Understand Bitcoin Wallet

It would be easier to understand the idea behind cold storage after first exploring the Bitcoin wallet. There are multiple ways to make a bitcoin wallet secure. The popular ways include encryption, multi-sig, backup, and cold storage; none is 100% perfect. The first method is to encrypt your wallet using a powerful password. The second method is to make a backup of the particular wallet you're trying to secure.

Multi-signature (multi-sig) is another technique used to protect bitcoins. It refers to creating a multi-signature transaction system through which at least 2 people need to sign for the coin to be released. Let's proceed;

So, What is a Cold Storage?

As some investors love to call it, Cold storage or online treasury services are a type of off-chain transaction between two users over the internet. You might be thinking, how can an offline transaction take place online? Imagine you want to save your coins in a trust wallet, and your data is switched off. Will it work? Of course not, unless you switch your website code to an offline version, and that will be explained later on.

Basically, what happens is that the two users open a separate wallet using their private keys, which are stored in a server and only accessible by the users. Any crypto-asset added to this account is not visible to the hackers because they cannot access it unless both users share the password. This service's off-chain system protects you from such attacks as there is no way for the attackers to know which wallets the user is accessing as long as both have the private key.

Problems of Public Storage Services

The main problem with most public storage services out there right now is that they are vulnerable to hacking. The reason is that these services only use one instance of the private keys and are therefore prone to hacking. Hackers can use any old computer to access your account and create new passwords, whereas, with desktop wallets, you are safe from any such risks because the private keys are stored on your computer and not on the internet. In case you happen to lose your private keys, then you can easily create them again. Also, the process is very complicated and requires a lot of attention and regular monitoring.

However, despite these advantages, some disadvantages still exist when using the offline version of the cryptocurrency Wallet. As already mentioned, the primary disadvantage of this type of wallet is that you are limited to the number of currencies that you can hold. Also, the transactions will be slow. Transactions take a lot longer than normal because of all the downloading and constant interaction with the database. This means that you will rarely have the chance to make multiple transactions, as you will have to wait for the download and other factors.

Benefits of Using a Cold Storage

In contrast, the process with the cold storage/cold wallet is much simpler and faster. Transactions are fast, and the number of transactions does not get affected. Also, the hardware wallets used for this system are quite expensive. The hardware is based on special security and is very difficult to hack. Even though we see many advantages and disadvantages of the cold storage cryptocurrency wallet, some people do not like this system. Some people prefer the traditional way of keeping their private keys, which they think is more secure. However, those who do not have physical access to their keys cannot avoid using the cold storage system. In fact, this system has become so popular nowadays that even individuals with shared wallets will keep their private keys on their laptops.

The disadvantages of using the traditional methods will always be the speed and security issues. There will always be a risk of getting hacked, whether using a traditional system or the cold storage cryptocurrency wallet. On the other hand, there are some advantages, like the ability to hold multiple private keys. Although not all users will find these advantages important.

Different Types of Cold Storage

Paper Wallet

Paper wallets are documents containing a public cryptocurrency address and one private key for spending and receiving Bitcoins or Altcoins(shitcoins inclusive). You can print out this key on paper in the form of a QR code and scan it for executing your transactions. There are different paper wallet platform providers, but they all share a similar feature: permitting arbitrary crypto addresses, each with its own exclusive private keys. Certain paper wallet platforms will offer you tamper-proof designs to strengthen the security meter.

This offline feature of paper wallets makes them very safeguarded from malware, hacks, and viruses. Even amid all these benefits, you stand to enjoy, you still need to cross-check your paper wallet for any adware lurking around to break into the security of your computer. After setting up your paper wallet, your next point of duty is to make sure that the website code can run in offline mode. Doing this will make sure you can still generate your keys without an internet connection.

Once your QR Code is on paper, you can laminate it and store it in a bank vault, your private vault, or whatever means you feel very secure. It is vital to know that paper wallets are not the best option for sending funds partially to a receiver/spending them partially. When you want to spend or transfer partial funds, you will need to import your paper wallet private key into a desktop wallet, which will empty your wallet so you can't make use of it again.

Hardware Wallet

Hardware wallets are physical and electronic devices that do not require an internet connection. They are another excellent means to store your crypto keys. How does it work? The hardware wallet employs the use of a random number generator to generate public and private keys. The most top-notch benefit of these wallets is the high-security level because an internet connection is not needed. You know, a connection to the internet is a connection to more than one system, which might translate to connecting with hackers. The no internet connection feature ensures your Bitcoin and Altcoins are safe from online threats, hackers, and other viruses. Your digital assets can even be kept buffered from these threats when you set a Pin Code.

Suppose your hardware wallet mistakenly or intentionally falls into the wrong palms. In that case, you will still be able to recover your funds by creating your pin code or recovery phase, provided that you have created it earlier. This wallet is the best choice for crypto traders and investors who want to securely store their digital coins without dealing with any crypto trading software. Certain crypto exchange platforms allow you to connect your hardware wallet to their platform to give your transactions more security. According to top analysts, the best way to get a hardware wallet to secure your assets is to buy from a trustworthy and reliable crypto hardware wallet manufacturer. To make it easier for you, here are the most reliable options for hardware wallets—Cobovault, Ledger Nano X, Trezor, and Ledger Nano. There are others, but you can't go wrong with these four.

It will surprise you to know that these hardware wallets can't be downloaded on Playstore or Applestore. You have to wait for between two to three months before getting them due to how investors and traders rush them for asset security. Some hardware cold wallets models can be purchased for less than $120, and some are very expensive.

A comparison amongst users showed that the security feature of the models is very similar. The difference is that the more expensive ones could come with Bluetooth and a touchscreen for comfortability. Did you know that multiple digital assets wallets like Cardano, Tron, Dogecoin, Bitcoin, Ripple, and Ethereum can be hosted on a hardware wallet? Within few seconds, your new wallet will be installed on your hardware wallet. This is a big advancement compared to other cold storage options whereby you need to add a new wallet for every asset.

Desktop Wallets

Desktop wallets are installable software compatible with common desktop operating systems such as Mac, Linux, Windows, etc. It is common knowledge that laptops or desktops need to have an internet connection for better functionality, so the best safety measure you can take is to purchase antivirus, strong firewall and anti-malware. The following options are very good desktop wallets to store your Digital Assets - Exodus, Electrum, Bitcoin Core, and Jaxx Chrome Extension.

Deep Cold Storage

Another cold storage method that is worthy of note is Deep Cold storage. In recent years, it has gained a lot of popularity. A London-based company is the brain behind this innovation. The level of security of deep cold storage is like that of a bank vault. So imagine your crypto assets being treated like government secrets in bank vaults. Deep cold storage is insured by an underwriter. The implication is that it provides security against loss of assets or theft in extreme cases. However, there is a disadvantage of this service if you choose to see it that way. The disadvantage is that it requires the address and identity proof of the individual who wants to use the service. This is a huge turn-off to those big investors/traders who are seeking anonymity. A nice example of deep cold storage(DCS) is the Custody Service by Elliptic Vault.

USB Drive

This is one of the oldest and convenient means through which cold storing of crypto tokens can be done. The USB allows the export of private keys. The only downside to this method is that once someone unauthorized grabs your USB, that's the end of your digital asset. The drive will not require any form of facial recognition or password.

Conclusion

In conclusion, cold storage methods of storing crypto are actually the best. A wise trader once said,

Anyone serious about his digital assets would begin to store them using cold storage methods because once all these exchange platforms go down, 90% of your investment in coins is going down too.

This is an accurate statement if you research it. If you know anyone who has been looking for a way to cold store his assets for the rainy day, share this article with them. At the same time, which do you prefer, On-chain or Off-chain storage? Kindly drop your answers in the box below and state your reasons too.