What Is Cold Storage Crypto?

25.08.2022

Cryptocurrencies operate in a decentralized system, meaning transactions are carried out especially on decentralized exchanges, without the influence of a third party. This means the responsibility of securely storing your crypto is mainly on you.

As much as possible, you want to ensure your crypto assets are safe and protected from cyber-attacks. Cold storage crypto wallets are one of the investors' top-tier options for keeping their coins. This article will explain why the cold storage method is a preferred option and how it works.

What Is Cold Storage?

what is cold storage crypto wallet

Cold storage is a term common in the food industry to refer to edibles prone to spoilage in a short period. These consumables are stored in cold storage environments, which preserve the items and increase their shelf life. So what is cold storage crypto wallet used for?

In crypto, cold storage wallets are not used to keep coins from spoiling but from hackers. These wallets are called cold wallets, and they are offline crypto wallets used to keep cryptocurrencies without connection to the internet.

Although an internet connection is required to send your assets to the wallet, it is not required to store and hold them. Once the internet connection is removed, the chances of a hacker stealing your private keys and accessing your wallet are eliminated.

The development of cold storage for cryptocurrencies was facilitated by the constant occurrences of private key theft leading to huge crypto asset losses. Today, crypto users bank on cold wallets to secure their assets and stay safe from thefts.

How Does Cold Storage Work?

To understand how crypto cold storage works, let's look at its design and functionality. Most cold wallets are designed to be hardware devices. They depend on the internet only to receive or send crypto assets from or to a web-based wallet. On the other hand, hot wallets are web-based wallets used to receive, send and store crypto coins while remaining on the internet.

Each cold wallet has two types of keys; public and private keys. When you use cold wallets, your keys are kept offline and inaccessible by anyone on the internet. When you connect your hardware wallet to the internet, the public key is required to identify the wallet address enacting a transaction, similar to how an email address helps differentiate one person from another.

On the other hand, the private key grants you access to receive or send cryptocurrencies in your wallet. After which, you disconnect your device from the internet, and the information on your public and private keys goes offline and remains in your cold wallet. Some of the best crypto cold storage include Ledger, Ellipal, and Trezor.

Cold Storage Wallet vs. Digital (Hot) Wallet

What is crypto cold storage advantage over a digital or hot wallet? The table below shows the differences between cold and hot wallets based on security, convenience, and cost.



Cold Storage Wallet

Digital/Hot Wallet

Security

More security without risk of being hacked.

Can provide a high-security level but still has the risk of getting hacked.

Convenience

Trades off convenience for security.

More convenient and easy to access and use anytime.

Cost

Hardware wallets cost about $50 to $200

Most hot wallets are free

Whether you use the best bitcoin mining hosting service to mine bitcoins or trade them on an exchange, it's important to keep your assets safe. Investing in a $50 to $200 hardware wallet is a smart choice for the long-term security of your assets.

Cryptocurrency Cold Storage Methods

crypto cold storage wallet

Over time, the designs of a crypto cold storage wallet have changed, and some are no longer as popular. The most common cold storage methods are hardware wallets and paper wallets. Here's a brief description of each storage method.

Paper Wallets

Paper wallets are the cheapest and probably the least secure of all the crypto cold storage wallets. It involves browsing a website that provides paper wallet services, printing your public and private keys on paper offline, and generating a QR code for transactions. The limitations to paper wallets include:

  • Misplacing the paper
  • Damage to the paper, for example, spills or ink getting faded.
  • Losing the paper subject you to high-security risk as your QR code contains access to all your wallet information.

The kind of paper wallet service you enroll for depends on the crypto you want to store, as there are different services for different cryptocurrencies.

Hardware Wallets

Hardware wallets are the best cold storage wallet crypto when it comes to security levels. They are produced in the form of a device closely resembling a USB drive. Hardware wallets are the safest ways to keep your coins and secure your private keys.

When you use a hardware wallet, you sign transactions to send or receive crypto coins or NFTs with your private keys kept in your wallet. You can recover your assets through a backup seed phrase if you lose your hardware wallet. Here are some of the most popular hardware wallets.

  • Ledger Nano X
  • Tezor Model T
  • Ellipal Titan
  • SafePal S1
  • KeepKey

Desktop Wallets

Another crypto wallet cold storage method is the desktop wallet. These wallets store your private keys in the hard drive of your computer. They are not compatible with mobile devices and are accessible only on a PC. Desktop wallets are more secure than hot wallets but are less secure than hardware wallets.

You can use a desktop wallet to export a file containing your encrypted private keys in an offline environment. Like the hardware wallet, your assets are kept entirely offline, but you must connect to the internet to receive or send cryptocurrencies. Examples are;

  • Atomic Wallet
  • Electrum
  • Armory
  • Coplay
  • Bitcoin Core

Replenishment of a Cold Storage Wallet

how to store crypto in cold storage

Let's explore how to store crypto in cold storage. Each cold storage requires a slightly different step to add crypto coins.

Paper Wallet

Open your hot wallet and transfer your assets to the public address shown on your paper wallet. After completing the transfer, visit blockchain.info to monitor the progress of your transaction. Once complete, your crypto coins will be stored in your paper wallet.

Hardware Wallet

Ensure your device is set to receive the particular crypto you want to transfer. Afterward, go to the wallet you're sending the coins from and paste your device's address as the recipient. Once the transfer is complete, you can view your coins on your hardware wallet.

Desktop Wallet

Open your desktop wallet and tap on the receiving address. You'll find your public key, which is the receiving address you'll send your funds to. You can send coins from a crypto exchange or a hot wallet to the address.

But of all the options, what is the best cold storage crypto wallet for making safe transactions? The hardware wallet is the most user-trusted cold storage for crypto.

Which Cold Wallet To Choose?

Among the options of cold storage for crypto, what factors should guide which wallet you choose? Below is an overview of all the types of cold wallets and their unique features.

Cold Storage Wallets

Cold Wallets

Pros

Cons

Paper Wallets

  • Cheap
  • Can be shared as gift cards
  • Convenient to carry around
  • Needs a trusted supplier
  • Loss of the paper can expose you to hacks
  • Once lost, the information stored on it cannot be restored
  • Subject to damage such as liquid spills and getting torn or worn

Desktop Wallets

  • Easy to use on PC
  • Safe and secure
  • Good availability and accessibility
  • Once the PC is lost or damaged, private keys cannot be restored
  • Can be hacked

Hardware Wallets

  • Highly secure
  • Can be restored upon loss or damage
  • Can't be hacked
  • Requires payment for purchase
  • Can get damaged

So, what is cold storage crypto wallet's unique advantage over a regular hot wallet? Security. If you're looking for a very secure way to keep your crypto assets, consider purchasing a hardware wallet that provides the highest level of security.

Connect your cold wallet to your computer and select an option to receive crypto. An address will be generated, which is the destination address you'll input on the crypto website you're sending your coins from. After sending your coins to the address, your coins will sit in your cold storage when you disconnect from your PC.
Yes, cold storage options for holding cryptocurrencies are very safe. They're more secure than web-based wallets or hot wallets. This is because they keep your crypto assets entirely off the internet except when you need to send or receive coins. But even then, your private keys are still not accessible on the internet but are kept safe in your wallet.
Whether you're buying crypto from a centralized exchange like Binance or a decentralized exchange like Uniswap, the best place to keep your coins is in a cold storage wallet. There has been news of hot wallets getting hacked but none about hardware wallets.
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