Storing your cryptocurrency is the most important part of investing. Just like a bank account is necessary to store your fiat, a wallet is required to keep your digital assets secure. However, you might not know that there are various types of cryptocurrency wallet and storage.
Today, we’re going to focus on cold storage.
What is Cold Storage?
If you’re storing your assets online, you may know that these assets are always at risk. A platform can suffer from a hack or other attack, for instance. In that case, you could very well lose access to your cryptocurrencies.
This is where cold storage comes into play. Cold storage is a form of storing Bitcoin and other cryptocurrencies offline. There’s no way for any bad actors to gain access to them. It’s certainly the safest way to hold your assets.
Cold storage is the act of holding your cryptocurrencies physically rather than on a cryptocurrency exchange.
The Different Types of Cold Storage
Just like there are different ways to store your assets online, there are various types of cold storage.
A hardware wallet is a USB device that holds your digital assets offline for you. You can keep that wallet in a vault, in your desk, or anywhere else you feel it is safe. That, and you can use them to transfer your assets without connecting to the internet. In fact, all of the transferring occurs entirely on the device.
With a hardware wallet like Trezor or Ledger, you can do all of the transferring with on-device buttons. There’s no way to misclick your mouse or accidentally send the assets to the wrong address. Everything is simplified to streamline the asset transfer experience.
A paper wallet is easy to set up, though it requires a bit of technical knowledge. To start, you must generate a wallet address by creating a random set of numbers and letters. From there, you can go to a paper wallet tool online, download a file, and print the code out.
That piece of paper must then be protected. It’s a good idea to laminate the paper so it doesn’t tear, losing you access to your assets. Keep it in a safe or somewhere else secure. Treat it similar to a hardware wallet in terms of storage.
The Pros and Cons of Cold Storage
Now that you’re aware of the different types of cold storage, take note of this method’s pros and cons.
For one, know that cold storage makes your assets a little less accessible than say, a web wallet. It’s not a recommended method for day traders. However, if you do day trade, it’s smart to keep the majority of your assets in cold storage. Keep a tradable amount in hot storage, but keep the rest disconnected from the internet. That way, there’s never a chance of losing all of your cryptocurrency.
These wallet types simply make investors feel like they’re more in control of their assets. There’s no relying on another company or person to store them. It’s all up to the holder. That said, specifically, when it comes to hardware wallets, these storage devices aren’t particularly cheap.
In fact, they might be financially out of reach for some investors. Hardware wallets like Trezor and Ledger cost anywhere from $50 to $100 dollars at any time. Of course, it’s definitely worth the price for keeping your funds secure. But, it’s not the most accessible way to store your cryptocurrencies.
However, as cryptocurrencies grow and become more mainstream, we’re bound to see more offline storage devices. The idea of cold storage will certainly become more accessible, and more storage methods are bound to release as time goes on.
When it comes to finances, security is always key. Offline, cold storage is the way to go if you’re serious about cryptocurrency investments.