What Is Cold Storage In Bitcoin(Cryptocurrency)?The Complete Guide.

Cold storage is a very common thing.

We cold store things which we want to preserve for a long time.

In the cryptocurrency space, investors who want to preserve their digital assets for a long-term investment use this cold storage concept.

However, this cold storage is different from other types because the crypto ecosystem is quite new and a little tricky to understand.

But here at CoinSutra, we strive to share the best practices of this industry in a non-technical way.

And in this post, we have brought up the topic of cold storage in cryptocurrencies so that you can keep your crypto coins safe.

So let’s begin.

What is Cold Storage in Cryptocurrency (aka Cold Wallets)

Cold Wallets

Some of you might know that if you hold your private keys, then only you own your crypto coins. If you don’t own your key, then you don’t “own” your coins. (See our post on Bitcoin Private Keys.)

And many of you might be just starting off with cryptocurrencies, so here’s a word of advice:

It’s important to store your digital assets such as BTC, ETH, or LTC away from exchanges and hosted wallets. If you are not doing this, you are at risk of losing all of your coins in an instant.
Exchanges and third-party wallets hold your private keys on your behalf. This is a big risk because if something goes wrong with their servers, or if they decide to shut down, then your coins are gone forever.

So don’t store your coins for more than 1-2 days with any hosted or third-party service.

Which brings us to the million dollar question:

Where should you keep your cryptocurrencies?
Which wallets/methods are the most reliable?
That’s where the need for cold storage comes in.

Cold storage (aka cold wallets) means generating and storing the crypto coin’s private keys in an offline environment, away from the internet.

The online environment is very vulnerable to hacking, as we keep seeing how ransomware extorts many people around the world. Also, we can never forget the Mt.Gox incident.

So to avoid such situations, it is essential that you keep your coins safe in an offline manner.

Luckily, the cryptocurrency space has matured a bit, and there are enough cold storage options available.

Popular Cold Storage Options

Some of the most popular cold storage options are:

Paper Wallets

Paper Bitcoin Wallets

A paper wallet is the cheapest form of cold wallets available.

It is free to use and contains a pair of private/public keys printed on a piece of paper.

In this method of storing, your private keys are generated offline so you need not worry about security. And once your transfer the coins to paper wallet’s public address, you are safe.

For different cryptocurrencies, there are different paper wallet clients available. You can make any number of paper wallets whenever required using these clients.

How To Make A Bitcoin Paper Wallet

Cryptocurrency Hardware Wallets (safest)

Cryptocurrency Hardwares-wallets

Hardware wallets are the most robust cold storage option for cryptocurrencies. However, this robustness comes with a price tag.

A hardware wallet is an electronic device. It signs transactions through the private keys which are stored offline. It also allows you to recover your funds using a backup seed key if the device is damaged or lost.

There are 3 popular hardware wallets available in the market:

Ledger Nano S (I use this)
Trezor
KeepKey
If you want to securely store Bitcoin & other cryptocurrencies in the long term, then you should definitely order a hardware wallet.

Since most of these hardware wallets have a waiting period of a month or two due to huge demand, you should order one as soon as possible.

If you are looking for a single recommendation as the best Bitcoin hardware wallet, then you should look no further than the Ledger Nano S.

At the time of writing this article, there has been no reported theft or loss from using hardware wallets.

Storing Cryptocurrency in USB Drive (Not so safe)

Storing Cryptocurrency in USB Drive

Using a USB drive as a cold wallet is one of the easiest ways to cold store your coins.

With this, you can export and save your private keys on the USB drive.

But this choice comes with its trade-offs, as anyone with access to your USB has access to your crypto coins. More over, hardware failures are common with USB.

Desktop Wallets

Desktop Wallets

Desktop wallets are clients that only exist on your computer.

They can be used to export files of encrypted private keys in an offline environment.

In these pieces of software, the private keys are stored offline on your machine. But while receiving or sending funds through them, you are online.

Do share with us in the comments which cold wallet you are using for your crypto coins. Have a question regarding Cold storage or keeping your Cryptocurrencies secure? Feel free to ask me in the comment section below.