5 Types of Cold Storage for Crypto Investors
There are many unique aspects that make blockchain technology and cryptocurrencies attractive, be it the decentralization aspect, the ability to revolutionize payments, or the fact that past data on the blockchain cannot be changed.
But that doesn’t mean blockchain technology doesn’t face cyber threats and attacks on a regular basis. Just like regular money, cryptocurrencies are vulnerable.
That is why safety is most important. You can store your cryptocurrencies in an online digital wallet, but an even more secure way is through cold storage, which effectively means taking cryptographic key information that allows you to trade and access your cryptocurrencies offline. There are several different types of cold storage. Let’s take a look at the different options.
1. Hardware wallets
Hardware wallets are probably the most common type of cold storage. They are basically like an advanced flash drive that allows you to store your private keys in an offline and portable way. You need to connect hardware wallets to devices to access your key.
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But a hardware wallet is much more than just a storage device. In a hardware wallet, your private key is essentially built into the device, so when you go to send or approve a crypto transaction, instead of copying the key or even having to pull it up on the screen, both of which can leave you vulnerable to potential attack, just click a button through your wallet.
Hardware wallets can also store and work with many different types of blockchains, and there are programs that allow you to trade directly from your wallet as opposed to transferring assets to some sort of online digital wallet first.
Hardware wallets are definitely one of the safest ways to store crypto assets, but there is some risk involved. For example, if you forget your PIN to log into your wallet or simply lose your physical wallet, you’ll usually have a recovery phrase that you can use to recover your private key to access your funds from another wallet . But if you forget or lose that phrase, you’re in trouble. Many tokens have been lost due to lost recovery phrases. Hardware wallets aren’t always cheap either, but are overall one of the best options for cold storage.
2. USB drive
If you can’t afford a hardware wallet, you can use a traditional USB flash drive to store your private crypto keys, but this won’t be nearly as secure as a hardware wallet. USB drives cannot activate transactions by clicking a button. They are mostly only useful for storing your private key offline. I would only suggest using a USB drive as a temporary solution.
3. Paper wallets
Putting your private key or a QR code on paper and storing it somewhere is a very low-tech form of cold storage – and not a good one. Think about how many papers you have misplaced, destroyed or forgotten in your life. I would consider a flash drive a better option than a paper wallet.
4. Sound wallets
If you’re into spy movies and have a little more money to spend, an audio wallet might be the cold storage option for you. An audio wallet allows a person to record their private key onto a CD, but in an encrypted way, so another listener might just hear static when they go to play the CD. Users can then decrypt the key using a spectroscope application. This is a cooler but more nuanced cold storage solution.
5. Deep cold storage
Deep Cold Storage continues with the theme of spy thrillers. Basically, you’re taking your cold storage method and making it even harder to access, literally. An extreme example would be digging a hole and burying your cold storage. It will be much more difficult for a criminal to steal your cold storage if they need to dig six meters into the ground. Another method might be to split your private key into several parts, put each part on a flash drive, and then put each flash drive in a different safe deposit box at a different bank branch in, say, seven separate locations. One on each continent if that pleases you. I think this is a less practical approach, but to each their own.
