Because cryptocurrencies are decentralized, the owner bears a large portion of the responsibility for storing them safely. There is no one you can contact if your cryptocurrency is lost or stolen. Many crypto enthusiasts who are concerned about security have turned to cold storage to keep their coins safe.
Individual investors aren't the only ones who use this type of storage. It's also popular among major cryptocurrency exchanges and some of the companies behind the best cryptocurrency stocks. To understand why, let's look at how cold storage works and what makes it so secure.
What exactly is cold storage?
Cold storage refers to cryptocurrency storage that is done offline. Any cryptocurrency wallet that is not connected to the internet is considered cold storage and is known as a cold wallet. A hardware wallet, which is typically a small device that connects to a computer, is the most common type of cold wallet.
Cold storage, because it is done offline, provides excellent security for Bitcoin (CRYPTO:BTC) and other cryptocurrencies. Hackers will be unable to gain access to your cryptocurrency unless it is connected to the internet.
What is the process of cold storage?
All cryptocurrency storage revolves around safeguarding your crypto's keys. Your keys are kept offline except during the transaction process with cold storage.
For cryptocurrency, there are two types of keys (strings of cryptographic data): public keys and private keys. During transactions, the public key identifies the specific crypto wallet. The private key is the code that allows the owner of the wallet to access the cryptocurrency stored in it.
Assume you have a hardware wallet as an example of how cold storage works. You must first connect it to your computer before you can use it. Following that, you select the option to receive cryptocurrency, which generates an address. You can send your cryptocurrency to this address to have it stored on your cold wallet. Because the device contains both your public and private keys, once you disconnect it from your computer, that information is no longer accessible.
It's a similar process if you want to transfer cryptocurrency from your cold wallet to another address. Connect the cold wallet to your computer, type in the address, and send your cryptocurrency.
Digital (hot) wallet vs. cold storage wallet
A digital wallet, also known as a hot wallet, is another type of crypto storage that is connected to the internet. Here are some key differences between cold and hot wallets:
- Convenience: Hot wallets are easier to use. They allow you to send and receive cryptocurrency quickly, whereas cold wallets sacrifice speed for security.
- Cost:The majority of hot wallets are free. Hardware wallets are the most common type of cold storage, and they typically range in price from $50 to $150. However, because crypto keys can be stored on paper, there are ways to create free cold wallets.
- Security:Cold wallets are more secure than hot wallets. Although hot wallets can provide a high level of security, their online nature means they are vulnerable to hacking.
Those who have decided that crypto is a good investment often use a combination of hot and cold storage to get the best of both worlds. They store the majority of their cryptocurrency in cold storage, but use a hot wallet for smaller amounts and day-to-day trading.
Given how critical it is to keep your cryptocurrency safe, cold storage is a viable option worth considering.A hardware wallet is a relatively inexpensive one-time purchase, particularly if you intend to make a significant investment in cryptocurrency.
Conclusion
Bitcoin's cryptography is extremely strong. You can be confident that if your Bitcoins are stored on a secure hardware wallet, the chances of them being stolen due to a random guess of your private key are nearly nil.
Close to... but not quite.
The question is also how random is random, which means that current software may not be able to generate all addresses in the 2160 address space.
If you have a large amount of Bitcoin, I would consider splitting it between multiple wallets with separate private keys.
You just never know...
happy HODL’ing.
DISCLAIMER
The author's or anyone else's views or opinions expressed in this article are for informational purposes only and do not constitute financial, investment, or other advice. Investing in or trading in crypto assets carries a financial risk.
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