In a world where assets are digitalized, and transactions can be made with smartphones and laptops without the services of local banks, many digital asset owners have encountered the challenge of a safe cryptocurrency storage.
In 2014, Mt. Gox, a bitcoin exchange company based in Japan, lost over 700,000 bitcoin of its customers, Nice Hash lost $60 million to hackers in 2017; also, in 2018, the cases of hackers and theft showed the risk involved in hoarding assets in an online exchange wallet. Therefore, it is necessary to hold digital currency as a long-term investment using cold storage system as against the regular hot wallet.
Cold storage is removing your cryptocurrency keys from your wallet and storing them somewhere that is not connected to the network or internet.
Another advantage of cold storage is that virtual currency can be stored offline, preserving its value from the upheavals in the crypto market. Since the cold storage system is not connected to the internet, they are less prone to hacks and theft.
“Depreciation of FTX” also serves as a good reason to hold cryptocurrency in cold storage because on an online exchange platform—the virtual assets can only be accessed if an exchange is to distribute the funds; money can then be lost if the exchange is mismanaged or hacked.
The cold storage system’s drawback is the difficulty of trading stored coins because of the security of accessing stored digital currency, thus making the digital currency less liquid. Some popular cold storage wallets are Ledger, Trezor, and Ellipal.
Ledger has two cold storage wallets; the Ledger Nano S Plus and Ledger Nano X. Ledger supports over 5500 different cryptocurrencies, and the hardware is designed to connect to a computer via USB cable and iOS or Android-enabled mobile devices with Bluetooth functionality.
Trezor is compatible with a web browser, desktop OS, and Android devices. Trezor is considered better than Ledger by many because it lacks Bluetooth compatibility, which protects it from Bluetooth hackers.
Ellipal uses QR codes instead of USB or Bluetooth connectors. Ellipal supports more than 10,000 different tokens.
How to move cryptocurrency to cold storage
The first thing to do is to purchase a cold storage wallet directly from the manufacturer. This is important because an untrusted device could have been encrypted with a password to defraud new users.
- Connect the cold storage device to your computer
- Download the software provided with the cold storage wallet
- Keep the seed phrase or backup code offline by writing it in a safe offline directory (maybe a diary)
- Select your cryptocurrency type, follow the guidelines to create a new wallet
- Setup a pin for your device
- Log on to the exchange and send the virtual currencies to the address of the cold storage wallet
Keeping the device safe alongside the seed phrases is important because losing both could lead to a complete loss of assets. If only the hardware is lost, another hardware can be purchased to recover the asset.
Although losing the device and the seed phrase may be risky, one thing is sure – you have full control of the asset, unlike having a virtual asset on an exchange. How safe do you consider this?
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