Is Cold Wallet Storage the Ultimate Crypto Storage Option?

When it comes to storing your crypto, there are a few ways you can do with it, each of which strikes a balance between security and convenience. 

On the one hand, there is holding your crypto on exchanges, which offers you instant access to your funds for trading but carries the biggest security risk. 

On the other hand, there are ultra-secure air gapped hardware wallets that the army would use if it held crypto. Somewhere on this scale is a happy medium, and it is this happy medium, known as a cold wallet, that we will explore today through our guide to cold wallet storage.

Why Are Cold Wallets Better?

Regarding crypto storage, there are two types available – ‘hot’ wallet storage and ‘cold’ wallet storage.

Hot wallets are those that are almost always connected to the internet. These include mobile wallets, computer desktop wallets, and exchanges. These wallets are very convenient and are more secure than they used to be, but they still present several security risks.

On the flip side, we have cold wallets. A cold wallet is a wallet that is not connected to the internet, except when used to manage the wallet in question. These sit at the other end of the security/practicality spectrum due to the fact that there are more steps involved in using them, but they are much safer. 

Cold wallets often come in the form of hardware wallets such as Ledger or Trezor – USB devices that act as the gateway to your crypto holdings – and paper wallets, the kind that Bitcoiners have been using since 2011 to store assets offline. Especially during times of crypto market turbulence.

Wise heads in the crypto space will tell you that cold wallet storage is the way to go, so what exactly are the benefits of a cold storage crypto wallet over a hot wallet? Let’s find out.

How Are Coins Held on a Blockchain?

Before we learn about hot and cold wallets, we need to know how crypto is actually stored on a blockchain.

The key thing to remember about crypto wallets is that, unlike with a regular wallet, your crypto is not actually sent to the wallet. This is because of how the blockchain works. In many ways a crypto wallet, be it hot or cold, is like a banking app – the money is not actually in the app, it is in a bank account that you are accessing through the app. 

This is the same with a crypto wallet – your crypto is sitting on an address on the blockchain, and the only way to access it is through an app of some sort. So think of your cold wallet as a key to your safe, rather than the safe itself.

With that understood, let’s learn about cold wallet storage.

What is a Cold Wallet?

Cold wallets are simply crypto wallets that are not connected to the internet, apart from when coins are being sent or received. This is in contrast to hot wallets, such as a mobile wallets, which are connected to the internet whenever the device is – which is almost all the time. 

The window of opportunity for a hacker to do nefarious things is vastly reduced with a cold storage wallet option, although the risk is not mitigated entirely.

Another reason a crypto cold wallet is more secure than a hot wallet is that it is entirely in your possession, as are the coins within it. This means that the only way someone can gain access to the coins associated with the wallet is through physically accessing the device itself. 

Even if someone were to somehow get their hands on your cold wallet they would need a password or some other kind of login in order to do anything with the funds, representing another layer of security. This is different from a hot wallet, where access to your funds typically sits on a central server, a server whose security methods you have no idea about.

Can a Cold Wallet be Hacked?

Along with this idea of personal security comes the concept of controlling your funds. This can be boiled down to a key mantra in the crypto space – not your keys, not your coins. 

This famous phrase refers to your private key, which is akin to the password of a banking app, allowing you to restore access to your cold storage wallet should you lose the device itself or it malfunctions. It is therefore very important, as anyone who has it can get into your Bitcoin cold wallet and take your funds.

When you are informed of your private key, write it down somewhere and keep it very safe (not online of course). If your cold storage wallet for cryptocurrency breaks or you lose it, don’t panic – as long as you have this private key or mnemonic you can restore access to your funds on another device. 

This is the advantage of having the coins stored on the blockchain and the cold wallet storage device being a portal, rather than it being the location of the coins themselves.

If you are very careful with your private key, the chances of your cold wallet USB device or paper wallet being hacked are extremely low. The only other risk you face is downloading rogue software, but if you download from official sources you will almost certainly have a hack-free experience with a crypto cold wallet.

How to Use a Cold Wallet

Using a cold storage crypto wallet is much easier than it used to be, which has helped drive their popularity. 

Cold wallet crypto devices now come with dedicated software, which is what you will use to manage the coins in the wallet. It’s simply a case of plugging the cold wallet into your computer and logging on to the program – once you’re there you can check your portfolio, send funds, and in some cases even stake your coins. 

If you generate a transaction you need to confirm it on the cold storage wallet itself before it will proceed. This is a security feature that ensures no one can remotely move the funds in your wallet.

Paper wallets are a little more complicated, but still worth exploring, seeing as they’re much less expensive than a cheap cold wallet – they’re completely free. When you send funds to a paper Bitcoin cold wallet address you will be left with a QR code and a private key to print out. 

The QR code is in effect your free hardware wallet and the private key is, as we know, the way you unlock it, so whatever you do, don’t store them in the same place.

When you want to check the contents of the paper cold storage wallet or send funds from it, you can use the QR code using a resource such as blockchain.com, enter the private key and you will have access to the funds in the wallet.

Is a Cold Wallet Really Necessary?

Hopefully, this guide has left you with the firm impression that, indeed, cold storage wallets, whether a fancy USB hardware wallet or a piece of paper, are worth their weight in gold (or Bitcoin).

Most reputable crypto outlets, even exchanges, recommend holding the bulk of your crypto in a cold wallet for security purposes and only keeping a small proportion in a hot wallet for easy access. 

Cold wallet storage technology has come along leaps and bounds in recent years – almost like the casino VPN market – and prices have come down, making cold storage wallets much more affordable for the regular crypto user. You don’t even need the best cold wallet on the market – even a cheap cold wallet will keep your funds more secure than a hot wallet.

They each have their pros and cons, but what constitutes the best cold wallet for cryptocurrency is something only you and your budget can decide. However, with paper cold storage wallets still absolutely free and more secure than any hot wallet or an exchange, there’s no excuse for not taking the best care possible care of your crypto balance.

Finding a Safe Crypto Exchange in 2022 is Pivotal – Here’s How…

‘Trust’ and ‘cryptocurrency’ aren’t phrases that tend to go hand in hand. That being said, when it comes to using a cryptocurrency exchange, trust is essential. 

The same can be said for security – you need to know that the entity handling your wallet or funds is going about things the right way and that you aren’t at risk of losing it through a hack or negligence on the exchange’s part.

There are now almost 500 centralized exchanges out there – yes 500 – and the issue of which is the safest crypto exchange is, therefore, more important than ever. 

In this guide, we break down what constitutes a trusted crypto exchange and what to look out for before you hand your cryptocurrency over to someone else to look after.

Age Isn’t Just a Number

A safe crypto exchange isn’t determined so by its age alone, but it can contribute to its overall reputation in the space. 

An exchange that has been going for five years or more will have already experienced at least one bear market and lived to tell the tale. This experience can matter when it comes to making sound business decisions during difficult times.

An older exchange is also battle-hardened and has stronger fundamental principles in place when it comes to protecting your money. Too many fly-by-night exchanges pop up in a bull run and then exit scam just a few months later.

It’s no coincidence that older exchanges typically rank higher in volume, with Binance and OKX (both established in 2017) being first and second in the top 10 crypto exchanges by volume. Coinbase (2012), Gate.io (2013), Huobi (2013), Kucoin (2017) and Crypto.com (2016) take up five of the remaining seven places in the top 10.

This shows how older exchanges are typically the most trusted crypto exchanges, and therefore the most used.

A safe crypto exchange stays on the right side of the law

Crypto compliance has been the core topic of conversation within the crypto space since it really came onto the radar in 2017. 

Since that time, exchanges have taken (or been forced to take) steps to ensure that the criminal element that uses its platforms is minimized, and we can use an exchange’s attitude towards such things as a guide as to whether we can consider it a trusted crypto exchange.

Of course, the cryptocurrency world is a global beast and spreading all the time. This makes crypto regulation a patchwork affair that differs from country to country, but we can get a steer on how compliant an exchange is by seeing how keen it is to comply with local financial laws.

Given the complexity of the compliance topic and its global variances, it’s very hard to give a definitive answer as to which is the most compliant exchange.

Almost all the top 10 crypto exchanges now require full Know Your Customer (KYC) and Anti-Money Laundering (AML) checks before you can open an account.

You should be wary of those that still allow the opening of anonymous accounts. This shows that they are willing to turn a blind eye to regulations and therefore will attract a more criminal element, which means they are more likely to be investigated and perhaps even shut down by authorities. Naturally, this puts them far down the list of safest crypto exchanges.

Check the compliance element of any exchange you plan to join before you do so. This can usually be found very easily on its website.

How secure are your funds?

Security is a huge factor when looking at safe crypto exchanges. An exchange that doesn’t look after its backend properly is liable to get hacked, putting customer funds at risk and could lead to you getting rekt.

There is an important difference between types of hack – the kind of hack that brought Mt. Gox to its knees in 2014 saw funds stolen from the wallets of the exchange itself, representing a flaw in the platform’s security. 

Other hacks, for example the Coinbase hack in 2021, see individual user accounts compromised due to phishing attacks and the like. These are typically not the fault of the exchange and do not affect the exchange’s funds, so they are not ‘hacks’ in the strict sense.

Unfortunately, there is no easy way to check how secure an exchange is before something happens to it. Only when an incident occurs can it be shown where the vulnerabilities were. 

Hacks can happen… Even at a safe crypto exchange

Our only guide then is how many times an exchange has been hacked in the past. For example, Kraken, which was founded in 2011, has never been hacked, showing that it should clearly be towards the top of any crypto exchanges list when it comes to security. The same can be said of Coinbase, although both have had user accounts compromised in the past.

Binance, the biggest exchange by volume, has been hacked once in its history. This shows that it is a very safe crypto exchange considering how much of a honeypot it is, and indeed almost all other exchanges out there have been hacked at least once in their life. 

You should only be wary if an exchange has been hacked multiple times (although multiple hacks are usually enough to kill an exchange anyway) or if it has launched very recently – usually, one incident is enough for an exchange to overhaul its security.

You should also judge how an exchange handles your own account security to get an idea of how secure it is overall. If it only offers password logins and has nothing further, such as two-factor authentication, you should assume that it treats its own security in a similarly shabby way.

A good reputation often proceeds a safe crypto exchange

Even the most safe crypto exchange can experience problems – it is how they deal with them that matters. This is why review sites should help guide you when it comes to which are the most trusted crypto exchanges. They should not represent the first and last word on the matter, but they will give you a very good idea of what the exchange does well and what it does badly.

Check out various review sites, both mainstream and crypto-focused, to give yourself a really clear idea of how their users feel about these exchanges.

If you spot a theme, for example, lax security or poor customer service, consider how much that matters to you compared to how you’ll use the exchange.

Trust, but verify, if you want to find a safe crypto exchange

Trust, as they say, has to be earned, and this is the case with crypto exchanges. Those who have been in the crypto space for a few years will likely have a favorite exchange and will only swap if something extraordinarily bad happens. Many crypto users have wallets with multiple exchanges rather than putting all their eggs in one basket, and this is probably a sensible move.

Those looking to make a shortlist of safe crypto exchanges should draw on the experiences of those already in the space. This can come through reviews and other user-based feedback. Once they have their selection in mind, drill down into the compliance and security aspects of the exchange to see if these meet their expectations.

No exchange is perfect, but some supposed safe crypto exchange platforms are much more trustworthy than others. However, don’t forget that any centralized exchange has the power to seize your assets if it thinks you have transgressed in any way. Or, on the orders of a government. Ensure that your long-term holdings are held off these exchanges just in case and to make sure you play it safe.