Cold Storage Options: Types of Cold Wallets for Crypto Investors
There are a lot of bitcoin investors and crypto experts who advocate for the use of cold wallets because of their security features.
As we discussed in our previous blog, looking into hot versus cold wallets, digital assets are deemed more secure in cold storage because they are not connected to the Internet. Once your devices like computers and smartphones have become exposed to the Internet, they can be at risk for malware, viruses, and hacking attempts.
With cold wallets, you need a physical medium to store bitcoin and altcoins. Here are some of the cold storage options available for you:
What are hardware crypto wallets? These are physical and electronic devices that store your crypto keys without the need for an internet connection. Hardware wallets use a random number generator (RNG) to generate both public and private keys.
The most significant advantage of using hardware wallets is security. Since it does not need an internet connection, your bitcoin assets or altcoin funds in the wallet can be protected from online hacks and viruses. By generating and storing your private keys offline through a hardware wallet, you can prevent hackers from getting access to your coins.
If ever a thief tries to steal your hardware, you can still prevent that person from reaching your funds by protecting the hardware wallet with a PIN code.
So what if the hardware gets into the hands of another person? Will you still be able to retrieve your cryptocurrency funds? Yes, definitely. For as long as you have created a secret backup code or a recovery phrase, you can still get your funds back.
If you don’t intend to use a crypto trading software but would only like to hold your digital assets for a long time as a HODLer, then hardware wallets can suit your needs. Or if you only want a little part of your crypto funds to be used for trading, you can also choose among the variety of options for hardware wallets then place your trading funds in a hot storage.
Some cryptocurrency exchanges allow the connection of your hardware wallet to the trading platform. By doing this, you can add a layer of security in your transactions since the private keys would never leave your device.
To sum up, the advantages of hardware crypto wallets are as follows:
- You can quickly secure bitcoins and altcoins in it;
- You can back up your codes for added security in case your device gets stolen or lost;
- There is less margin of error since setting it up is not complicated; and
- You can use a combination of multiple hardware wallets.
And since there is no such thing as a perfect cryptocurrency wallet, there are trade-offs to be made. Here are the disadvantages of using hardware wallets:
- Hardware wallets are relatively pricey;
- Some people who are just starting to learn about the technology involved in cryptocurrency may find it challenging to use.
When purchasing a cryptocurrency hardware wallet, make sure that you buy from a trustworthy and competent manufacturer to keep your funds secure.
Paper wallets are documents that contain a public crypto address for receiving Bitcoin or altcoins plus a private key that would allow you to spend Bitcoin or altcoins in that address. These codes can be physically printed out in paper in the form of QR codes, which can be scanned for the execution of crypto transactions.
There are paper wallet service providers available, which would allow you to create a random Bitcoin address or crypto address with its own private keys. Once you have generated the keys, you can then print it out on a piece of paper. Some paper wallet providers even offer tamper-resistant designs for security purposes.
Since paper wallets are printed out on a piece of paper, then it is not connected to the Internet. This offline character of paper wallets makes them entirely safe from viruses, malware, and hacks.
Despite these advantages, you still have to take extra precautions when using a paper wallet. Before anything else, you have to check your device for any spyware that could compromise the security of your computer activities. Once you have setup the paper wallet on your chosen wallet service provider, be sure that the website code can run offline which would allow you to disconnect from the Internet but still be able to generate your keys. Then, be sure that you are the only one present when generating the codes on your paper wallet. You surely don’t want prying eyes to be the cause of your lost funds. When your keys are ready to be printed out, also check your printer device and remove its connection from any wireless network. Finally, make an extra effort in protecting that piece of paper. You can laminate it, put it in a sealed plastic folder, or keep it safe in your vault.
Very few bitcoin traders and crypto investors are now considering the use of paper wallets because of its inherent flaws. For one, paper wallets are not suitable for sending funds in small amounts or in a partial manner. The keys in your paper wallet correspond to the sum of your digital assets in a particular crypto address. You cannot spend the digital assets stored in your paper crypto wallet for multiple transactions.
If you intend to spend or transfer just part of your funds, then you will have to import your paper wallet private key into a software wallet such as a desktop wallet. Through this, you can proceed with your desired transaction. However, know that this will empty your paper wallet. You cannot reuse your paper wallet once you have used it once.
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