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Bitcoin Cold Storage: Understanding Cold Wallets

By RAIN EDITORIAL TEAM - Jun 05, 7:00 PM

Bitcoin has experienced a surge in popularity in recent years, increasing its usage and acceptance. However, a surge in popularity is a double-edged sword, bringing in an increase in fraud, theft, and hacking as well. So what should Bitcoin holders do when it comes to securing their assets? In this guide, let’s look at Bitcoin cold storage, aka offline storage.

What Is Bitcoin Cold Storage?

In this context, cold storage does not refer to your freezer. In the crypto space, cold storage refers to physical devices or cold wallets which allow you to store your cryptocurrency offline (hence the word “cold storage”). Cold storage devices are also unable to communicate with other devices unless you physically connect them to a device and access your keys and are the safest way you can secure your Bitcoin. Cold storage devices can be USB devices, hardware wallets, and even a piece of paper.

To better understand Bitcoin cold storage, it is crucial to understand the concept of a wallet in crypto. Wallets in crypto function like physical wallets, except they hold two keys, a public key, and a private key. The keys are simply strings of cryptographic characters required to complete a transfer from or to the wallet. The public key can be compared to your email, helping identify your wallet so other users can transfer Bitcoin. The private key acts as your password, allowing you to access the funds. 

Hot Wallets Vs. Cold Wallets: The Eternal Debate  

Bitcoin wallets can be divided into two categories, hot wallets and cold wallets. Hot wallets are extremely popular and are the most common method of storing. However, they can also be vulnerable and prone to online attacks since they are connected to the internet. A cold wallet offers better security because it is not connected to the internet.

Hot Wallets 

Hot wallets are connected to the internet, offering quick access to your crypto. Desktop wallets, exchange wallets, mobile wallets, and multisig wallets are all examples of hot wallets. These wallets have several advantages but also come with certain disadvantages. 

Advantages Of Hot Wallets 

  • Gives users quick and easy access to their crypto 

  • Hot wallets are supported by a host of devices, significantly increasing convenience. 

  • Hot wallets are user-friendly, making them ideal for beginners. 

Disadvantages Of Hot Wallets 

  • Hot wallets are particularly vulnerable to hackers and other threats originating online. 

  • Technical issues with hot wallets could result in you losing your keys forever. 

Cold Storage

Hot wallets come with several security risks, so experts recommend cold wallets to store a majority of your crypto. A cold wallet is an offline wallet that secures it from threats such as hackers and other malicious actors who could try and steal your crypto. Examples of cold storage wallets are hardware wallets and paper wallets. 

Advantages Of Cold Wallets 

  • Complete safety from hackers and other malicious actors means these offer better security. 

  • Cold wallets enable you to hold your cryptocurrencies for a long duration without any hassles. 

Disadvantages Of Cold Wallets

  • Cold wallets can be lost or stolen. 

  • Cannot be used for daily transactions. 

Types Of Cold Storage Wallets 

Cold wallets are designed to give you reasonably easy access to your crypto without the security hassles that come with 

Paper Wallets 

Paper wallets are another highly secure option to store your crypto. Once your wallet has been created, you can print out the public and private keys on paper. The keys are also printed as a QR code which allows you to access your funds. bitaddress.org is an example of a paper wallet.

Hardware Wallets 

Hardware wallets are physical devices that allow users to store their crypto offline. Though not as popular as hot wallets, hardware wallets quickly gain popularity as they offer unparalleled security while also making transactions fairly straightforward. Hardware wallets come in many shapes and sizes, with USB-style hardware wallets gaining popularity thanks to their ease of use. 

Advantages Of Hardware Wallets 

  • Because hardware wallets are cold wallets, your private keys are securely stored offline. The keys cannot be transferred out of the device. 

  • Most hardware wallets are extremely portable and can be carried with ease. 

  • Hardware wallets offer significantly better security compared to hot wallets. 

  • Hardware wallets allow you to store multiple addresses. 

  • Transactions are simple. All you have to do is plug in your wallet to your laptop, follow the instructions and complete your transaction. 

  • A pin code protects hardware wallets. Even if your wallet is compromised, your funds remain secure. 

Disadvantages Of Hardware Wallets 

  • Hardware wallets could have vulnerabilities that could put your crypto at risk. An example of this vulnerability would be the one discovered in Ledger. 

  • Hardware wallets are subject to carelessness and could be lost or stolen. 

  • Hardware wallets offer limited versatility when storing different types of coins. 

Best Cold Wallets 

There are several cold wallet offerings in the market, but we have compiled a list of top wallets that you can choose from to make it simpler.

Ledger Nano X 

The Ledger Nano X is a second-generation cold wallet and is often considered the best cold wallet. It allows users to buy, manage, and exchange their Bitcoin on the go. It comes with the Ledger Live software and supports all the prominent cryptocurrencies, including Bitcoin, Dogecoin, Litecoin, Ethereum, etc. 

Trezor Model T

Trezor Model T allows users to access third-party exchanges such as CoinSwitch and Changelly through the Trezor Internet Interface. It also supports Windows and Linux and also comes with one of the best Android apps available for cold storage crypto investment. The wallet also features 2FA, password manager, and compatibility with ERC-20 tokens while also supporting an array of cryptocurrencies, including Bitcoin. 

bitaddress.org

bitaddress.org is a simple-to-use paper wallet. Unlike Ledger and Trezor, this is free to use. All you need to do is generate your Bitcoin address by moving your cursor and then downloading your private key and public address.

In Closing 

Understanding the different types of storage options is fundamental before moving ahead and investing in bitcoin. This guide has touched upon most points regarding storage devices and discussed the best way to store your Bitcoin offline while also listing some popular options for cold storage. Before settling on a particular wallet or storage device, always remember to give the security that it offers paramount consideration. 

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