What is a Cold Storage Wallet?

/What is a Cold Storage Wallet?
What is a Cold Storage Wallet? 2018-02-04T10:35:50+00:00

A wallet is an offline ‘store’ where we can safely keep our cryptocurrency reserves. A wallet can either be a physical device such as flash drive and a USB, or it can be on platforms that offer wallet services such as Bitfinex, Coinbase, etc.

What is cold storage wallet?

One of the basic concepts a cryptocurrency enthusiast needs to know is what cold storage is? Cold storage in the crypto world means merely reserving bitcoins offline.

Cold storage becomes necessary due to security reasons, especially for those that deal with a large number of bitcoins or altcoins.

Cold storage for bitcoin refers to a user’s offline bitcoin reserve. The cold storage wallet makes retrieving the bitcoins harder than sending them. This is to ensure that your bitcoin reserve is safe from hackers.

What are the cold storage methods of storing cryptocurrencies?

There are different methods of cold storage. Here they are;

  • USB drive or other computer data storage media like a disk, hard drive, etc.
  • Paper wallet is another method of cold storage
  • Bearer item such as a physical bitcoin is another method.
  • Offline Bitcoin Hardware wallet

Cold storage wallets are usually physical devices that can be plugged into a computer when the need arises to conduct a transaction.

Cold storage wallets are unique because you will have to confirm each transaction by pressing a button on the device, making their security second to none.

How to use cold storage wallet

The first thing you need to do if you want to store your bitcoin in a cold storage wallet is to create an offline bitcoin account.

Your offline bitcoin address will come with a public and private key-pair which never goes online until you are ready to make a transaction.

The next step is for you to add bitcoins to your wallet. It operates the same way other bitcoin transactions do; you will have to be online.

  • Scan the public cold storage wallet QR code or copy the address.
  • Proceed to send funds to your cold storage wallet afterward.
  • To track the status of the sent funds, use a Bitcoin block explorer.

When you are ready to make transactions from your cold storage wallet;

  • Import your private key to another bitcoin wallet that is online. Note that any wallet that supports private key importation will work correctly.
  • After importing your private key, move your cold storage bitcoins online. You can make transactions afterward.
  • It is critical due to security reasons to discard your cold storage wallets after funds have been transferred online and create a new one.

Pros of cold storage wallets

  • They keep your bitcoins safe and secure.
  • You can store bitcoins on them for a long time with little risks involved.
  • It is easy to move your bitcoins online for a transaction when using cold storage wallets.

Cons

  • You will need new cold storage wallet after moving your funds online.
  • It is expensive for some of us.

Top 5 cold storage wallets

Cold storage wallets have become popular over the years. To help you make an informed purchase, we will walk you through the top 5 cold storage wallets.

Ledger

This is the most popular cold storage wallet, designed for those who want maximum security for their bitcoins.

It is a physical device designed for a flash drive, and you can connect it to your computer. Bitcoin transactions cannot be made on this device without activating it.

Pros

  • The metallic case attached to it makes it durable.
  • It has a screen.
  • Ledger is excellent for beginners as it is easy to set up.

Cons

  • It is expensive.
  • Buying and selling of bitcoin cannot be done without the device.

TREZOR

This cold storage bitcoin wallet offers you a very high level of protection, the reason why it is widely used by bitcoin owners.

Trezor allows you to keep private keys and sign on transactions while offline.

It is straightforward to set up. Its security is almost non-hack-able as you wouldn’t be required to have a password or a username. Bitcoins on this wallet can only be accessed via the device.

Pros

  • It is one of the most secure cold storage bitcoin wallets.
  • It supports more wallets than the others.

Cons

  • Its price tag isn’t low.
  • The transactions fees on Trezor are high.

Digital Bitbox

Its dual storage method makes it a unique cold storage wallet. It uses both USB and micro SD to store and send Bitcoin.

The wallet is protected by the software clients which prevents its vulnerability from browser-based clients. Your private key is secured in a high-security chip, making it impossible to extract physically.

It has several features such as smart verification process, Tor and Tails OS compatible.

Pros

  • It is both Tor and Tails OS compatible
  • The private key is highly secured and cannot be extracted physically.
  • Its two pieces increase its security level.

Cons

  • There is a possibility that one piece might get lost.
  • It isn’t very durable.

KeepKey

Just like the other three above, KeepKey is very easy to set up and comes with some advanced features.

It is regarded as a premium cold storage wallet due to the high level of security it offers.

Its advanced features are perfect for those of us that are experienced cryptocurrency users. Its designs are minimal; with the broad front screen its most noticeable feature.

Pros

It is the most secure cold storage wallet currently available.

It comes with some advanced features like digital screen & metal body

Cons

It is the most expensive amongst them.

Cool wallet.

This is a cold storage wallet that was developed by CoolbitX Technology. It is unique since it comes in the form of a credit card. Their security levels are very high; thus the reason bitcoin owners use them.

This wallet is the first wireless hardware wallet that makes it possible to manage bitcoin transactions from your smartphone.

Pros

  • Designed like a credit card, doesn’t need cables to operate.
  • Very high-security level
  • Bitcoin transactions can be made via smartphones.

Cons

  • It has a partial transparency of software and hardware specifications.
  • At the moment, it only supports bitcoins.

What is the difference between a cold wallet and a hot wallet?

Cold storage wallet and hot wallets differ in several ways; let us know what they are.

  • Bitcoins are kept on digital assets exchanges in the case of hot wallets while they are kept on offline devices for cold storage.
  • In the case of hot storage, a hack on an exchange platform will result in you losing bitcoins while that isn’t the case when you have bitcoins stored in cold wallets.
  • Hot wallets are web-based while cold storage wallets are hardware devices.

Pros of cold storage wallet

  • They keep your bitcoins safe and secure.
  • You can store bitcoins on them for a long time with little risks involved.
  • It is easy to move your bitcoins online for a transaction when using cold storage wallets.

Cons

  • You will need new cold storage wallet after moving your funds online.
  • It is expensive for some of us.

Pros of hot storage wallet

  • Your bitcoin reserve is safe from situations like device theft.
  • It’s free
  • You do not have to go through several processes such as importing your private keys to make a transaction.

Cons

  • You can lose your bitcoin reserve if the wallet platform is hacked.

Other types of wallets

Even though cold storage wallets are more popular, there are others. They include;

Mobile wallets

Mobile wallets allow you to store your bitcoin reserve on your Smartphone.

  • They are known as the least secure form of wallets. The mobile wallets have private keys that are stored on your Smartphone and QR code for conducting transactions.
  • Even though they are the least secure, they still come with a wealth of advanced privacy and security features.
  • A mobile bitcoin wallet has been designed to take advantage of an (NFC) feature in Smartphones.

This feature allows you to tap into a reader and pay with bitcoins without having to enter any information at all.

Pros

  • They are easy to operate.
  • They come with security features to ensure that your bitcoin storage is secure.

Cons

  • You can lose your bitcoin reserve if your smartphone gets stolen or ruined.

Online web wallets.

These are exchange platforms that offer wallet services. You will need to open an account with the trading platform of your choice.

  • The platforms allow you to buy, sell and store your bitcoin. You can only access your bitcoin reserve on their platforms.
  • These types of wallets store your private keys online; on a computer controlled by someone else and connected to the Internet.

Pros

  • Your bitcoin reserve is safe from situations like device theft.
  • You do not have to go through several processes such as importing your private keys to make a transaction.
  • You can buy, sell, and transact all on the same platform

Cons

  • You can lose your bitcoin reserve if the wallet platform is hacked.
  • A third party has access to your private keys, leaving you open to theft.

Desktop wallets

The desktop wallet is software that enables you to send and receive the virtual currency and to store the private key.

  • They are available on Windows, Mac OSX, and Linux, with each wallet coming with its unique features.
  • They are highly secured and give you total anonymity when making a transaction.

Pros

  • They are available for users of Windows, Mac OSX, and Linux.
  • Desktop wallets are secure.
  • You can make transactions anonymously.

Cons

  • You can lose your bitcoin reserve in case of theft.

To sum it up

The continued rise in the price of bitcoin has made it necessary for you to protect your bitcoins and one of the best ways you can do that is by storing them in a cold storage wallet. Hope this post will help you identify the best way to secure your Bitcoins.

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