Do you agree that Bitcoin has gained popularity on a large scale since it got introduced in the market?
Now many companies are accepting and using these virtual currencies.
Plus, the number of investors and tokens is also increasing quickly.
The downside has given rise to many thefts and frauds, including hacking.
So, these digital currencies do not have any strong security for users because of theft and fraud.
However, users’ responsibility is to decide the safest ways to store these tokens. The central question that arises here is, where to keep Bitcoin?
It is impossible to store Bitcoin similarly to a traditional store of value.
Conversely, Bitcoin is not an individual physical coin that you can store rather.
It is a form of computer software based on a network.
Here are ways to help you understand what cold storage is and how you can keep your storage safe in a secure system.
And if you want to know more, visit here.
Before we know how cold storage works, we need to understand the concept of cryptocurrency wallets.
Is a cryptocurrency wallet the same as a traditional wallet that holds cash?
These wallets act as storage devices for cryptocurrency tokens.
Nevertheless, these wallets do not have physical wallets.
Still, they work as digital tools that consist of public and private keys.
What is Cold Storage and how does it work?
You can keep your keys offline when transactions are not in process.
It has two keys based on cryptographic data: public and private keys.
The role of the public key is to identify the crypt wallet during transactions.
Each method of cold storage has a different procedure.
If you have a hardware wallet, it follows a unique process to connect it to the computer.
Then you can select the option to obtain crypto that will produce an address.
In this way, you can send your crypto to this address to store in your cold wallet.
However, this device is applicable for public and private keys, so all transaction information is removed after you disconnect from your computer.
Comparison of Cold Storage vs Digital Wallet
The digital wallet is the inverse type of cold wallet.
Digital wallet, also named ad hot wallet, has a connection with the internet.
Here are some key comparisons for both storage types.
- Cold wallets are safer than digital wallets. There is no doubt that digital wallets can offer a high level of security, but since they are online, there is more risk of being hacked.
- In terms of convenience, digital wallets tend to be more convenient. You can send and receive crypto payments quickly, while cold wallets have less security.
- Many hot wallets are free of cost. At the same time, cold wallets have different types, including hardware wallets that cost between $50-$100. Plus, some ways can make cold wallets free of cost, and it is also possible to store crypto keys in written form.
Methods of Cryptocurrency Cold Storage
The most common methods for cryptocurrency cold storage are as follow.
1. Paper Wallets
Paper wallets can protect against hackers and malfunction attacks.
Plus, it includes printing public and private keys on paper.
These wallets have a QR code that can be scanned to a software wallet to make transactions.
These paper wallets consist of the relevant information required to spend the coins, and their safety has a significant concern.
However, it is also favourable to encrypt and duplicate the paper wallet to ensure safety.
2. Hardware Wallets
Other storage devices are similar to a USB drive that can store secret keys.
These devices can be kept safe in storage to ensure their security and fall into the wrong hands.
The importance of these wallets is growing fast, and it has become a safe way in offline mode.
These tiny devices are also waterproof and virus-proof, even supporting multi-signature transactions.
These devices play an essential role in sending and receiving virtual currency.
Plus, they have a QR scan camera and QR code.
In short, cryptocurrency is a favourable investment consisting of both hot and cold storage.
However, these keep more cryptocurrency storage in cold storage, but hot wallets are suitable for smaller trading amounts.
So, cold storage is a smart option that you can consider if you intend to make a considerable investment.