There are many ways to store Bitcoin and other cryptocurrency. All of the ways involve a cryptocurrency wallet, but there are many different wallets available. Some methods of Bitcoin storage involve keeping your tokens in the Cloud with a web-based wallet. You might be one of those who keeps Bitcoin in a wallet at a cryptocurrency exchange. There is also what is known as cold storage for Bitcoin. It just might be the safest way to hold your crypto.
Setting up Bitcoin cold storage is not especially difficult to do. In fact, it can be one of the simplest ways to manage your holdings. Let’s take a closer look at cold storage for cryptocurrency and how you can set it up.
What is Bitcoin Cold Storage?
Cold storage can be simply defined as an offline wallet for storing Bitcoins. A cold storage solution typically uses a digital wallet just like other forms of crypto storage, with one important difference. The wallet is stored in such a way that it is not continuously connected to the Internet. This means that the contents of the wallet have more protection against unauthorized access.
Online cryptocurrency wallets can be vulnerable to a number of different threats. Wallets can be hacked or subjected to malware and viruses. Pretty much any threat that your computer is vulnerable to also extends to your online cryptocurrency wallet. Those who have large crypto balances do not want to risk losing their investment.
A good way to explain cold storage is to first understand that cryptocurrency wallets are basically a set of private keys. The wallet provides storage for these keys and the keys serve as a unique identifier. These keys are what make it possible to send and receive Bitcoin from other individuals. Lose your keys and you lose access to your Bitcoin.
With cold storage your transactions are signed with your private keys offline. When you initiate a transaction online the transaction is temporarily transferred to an offline wallet. This wallet can be kept on paper, a USB stick, or even a piece of hardware like the Nano Ledger.
Setting Up Your Own Bitcoin Cold Storage
Setting up a cold storage solution for Bitcoin is very simple. It can also be very affordable depending on the method you choose. A paper wallet can be obtained for free online while hardware wallets like the Trezor and Nano can cost around $100. The first step in setting up your cold storage is to decide which method you are going to use.
For a paper wallet you will generally save a webpage to the desktop of your computer. This page will allow you to create a set of public and private keys without being connected to the Internet. Once you open the saved file from your desktop you’ll be asked to type some random characters or simply move your mouse around in a random pattern. This creates the random Bitcoin address which you will use, and it is stored on your computer instead of the Internet.
Once your wallet is created you can print out a copy of it. This copy will generally contain QR codes of your Bitcoin address, and may also contain the random string of numbers and letters that are used to make your wallet. Finally, you will store this paper wallet in a place that is secure. If you lose this wallet and the keys you created, recovering your Bitcoin is essentially impossible.
A better form of cold storage can be the hardware wallet. This type of device is designed to be carried on your person or safely stored in a secure location. Like a paper wallet it allows you to create public and private keys that are stored locally on the hardware wallet and not on the Internet. The only time your device would be connected online is when you are ready to send or receive Bitcoin.
A hardware wallet arrives ready to use, so there is very little setup required. You will be given prompts from the wallet’s screen that guide you through the process. The most important part of setting up this type of cold storage is making sure you secure the recovery seed that comes with your device. This seed is a group of words that can be used to recover your wallet if anything happens to it or if it is lost. Always store this seed in a private and secure place where it will not be lost or damaged.
A Final Word About Bitcoin Cold Storage
In closing let us say that Bitcoin cold storage is a good idea for anyone that holds a large amount of Bitcoin or other cryptocurrencies. Some cold storage solutions like the hardware wallet will also work with other digital tokens like Ethereum and Litecoin.
You are the only one that is responsible for protecting your cryptocurrency assets. It is up to you how you will do that, but keeping a cold storage is wise and fiscally responsible. It doesn’t have to be your main method of storage, but it should form a part of any investor’s overall plan for keeping crypto safe.