Crypto Investors Prefer Cold Storage To Hot Storage – Why?

Why Crypto Investors Prefer Cold Storage To Hot Storage

Leaving your virtual coins in the exchange where you purchased them may be a go-to variant, but did you know that increasingly more investors have turned to cold storage options? This is, of course, due to security concerns, but there are more aspects to consider regarding cold wallets, so a comprehensive guide on using them might be needed so that you can decide on a storage option that suits your specific needs.

Needless to mention that a cryptocurrency wallet is absolutely essential to protect your assets. But the question is, “What’s right for me?”. There are a lot of wallet programs to pick out from, but these typically fall under two primary categories: hot and cold. They vary in terms of accessibility, convenience, security, and other properties. The latter, however, seems to be the favorite of many investors, especially those holding vast amounts of cryptocurrency.

A deeper insight into its upsides and downsides is more than helpful, so let’s get into it!

What is a Cold Wallet?

A cold wallet, also called cold storage, is an electronic wallet not connected to the Internet, so it stores your private key completely offline. Many of these resemble USB drive devices, so they stand a far lesser risk of theft. As long as there’s no Internet connection, your holdings are safe from cyber hacks, unauthorized access, and other weaknesses that a system relying on the Internet is prone to. A big advantage of this type of storage is that it can’t be compromised by viruses that might be on your PC, as the private key is never linked to your network-connected device or potentially susceptible software. Storing your crypto is just as important as buying your coins reasonably. Reputable exchanges like Binance offer pertinent data regarding the Bitcoin price, market cap, trading volume, etc., so consider starting your research here.

It’s very important to understand that a cold wallet – or any other type of wallet – doesn’t store actual coins but rather the private keys, i.e., pieces of code, associated with them and, thus, crucial for giving access to your cryptocurrency. Cold storage also protects other types of inactive data, including backup information, photographs, video, and regulatory compliance, so it has a far broader meaning than mere crypto storage. Due to its versatility and high security, it’s used by numerous individual investors, as well as companies and exchanges engaged in the crypto space.

Careful, though; cold storage isn’t impenetrable. It’s true that it’s safer than hot storage, but today’s hacking possibilities have advanced considerably, so you can’t be 100 percent sure your assets are completely protected from theft. The best you can do is to orient yourself toward a hardware wallet bought directly from a manufacturer.

Cold storage is the most secure and recommended option if you plan to hold your crypto investment long-term. But a hot storage or exchange is more reasonable if you’re more interested in trading or cash.

Types of Cold Wallets

A cold wallet may take various forms, so if you’re looking to store your Bitcoins or Altcoins offline, you definitely have options.

  • Paper wallets. This type of cold storage is considered by many the safest one, and for a good reason. Its name suggests exactly how it works, i.e., your public and private keys will be written on a piece of paper, a document whose possessor is the only one who can access it. The security of a paper wallet goes beyond limits, as such documents are often printed from the crypto paper-wallet app online using an offline printer and then deposited in a safe box at a bank or even at the owner’s home. As for using it to sign a crucial transaction, it’s accompanied by a Quick Response (QR) that makes things easier.
  • Hardware wallets. This kind of cold storage is based on a USB drive device or smart card used to secure private keys. The means of storage vary, as you can choose from an advanced device with Bluetooth, battery, etc., to a basic USB storage drive. Just like in the case of paper wallets, it’s crucial to keep these devices in a secure place, as any loss or harm could cancel access to your virtual coins.
  • Deep cold storage. Did you think storing your paper wallet in a safe box is secure? Well, deep cold storage is the next level. It takes energy and time to recover your private key, as it can be buried five feet down in your yard or placed in a waterproof container. It’s certainly something else, but it’s uncommon and only recommended if you hold vast amounts of Bitcoin or any other large cryptocurrency.
  • Offline software wallets. This type of storage is similar to a hardware wallet, with the mention that it’s divided into two platforms – an online wallet where you keep the public key and an offline wallet where you store the private key. They work in tandem to ensure safe transactions in such a manner that the former generates the unsigned transactions and the latter helps with their signing.
  • Sound wallets. Among all these storage mediums, this is undoubtedly the fanciest but most ambiguous and expensive. It implies recording and encrypting the corresponding key in audio files on items like vinyl disks and CDs. So, you may wonder how you’re going to access it this way. You should use a high-resolution spectroscope or spectroscope application to decode the concealed code in these sound files.

Physical Coins – Another Kind of Storage

Bitcoin investors can benefit from all of the above-mentioned storage mediums, and even more. Physical coins have started to surge in popularity, as more and more holders choose to purchase physical Bitcoins. How is that possible? Well, the crypto you buy has a temper-proof sticker encompassing a fixed amount of Bitcoin. However, in order to buy the physical crypto, you must pay a modest premium over the already existing value of Bitcoin that you’re purchasing, comprising the transportation of the coin itself and manufacture cost.

So, which cold storage would you choose for your next investment?

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