In the world of cryptocurrencies, “cold storage” bitcoin refers to bitcoin (or altcoins) stored offline. Because cryptocurrencies are digital, this really means storing the private keys offline, where they are safe from hackers.
While the usage of virtual currency is rising in popularity, so too are cases of fraud and hacking.
Unlike with traditional currencies, there is no designated regulatory organization overseeing virtual currency, or any means of legal recourse if your bitcoins or altcoins are stolen. Therefore, the responsibility to protect your investment falls solely on the investor.
Thankfully, there is a way to store your bitcoins and altcoins securely: Cold storage bitcoin.
Cold storage bitcoin is widely considered the safest way to store cryptocurrencies because by keeping your investment off of the internet, you can place your currency out of reach from hackers.
There are several cold storage options for bitcoin and altcoins, such as:
- Bitcoin Hardware Wallet
- USB Drive
- Paper Wallet
- Physical Bitcoin
Each of these methods has pros and cons. For example, a paper wallet is not only susceptible to wandering eyes, but if it is hand written, human error or illegible script can be an issue. Those choosing to use physical bitcoin have to put their trust in the manufacturer’s operational security as well as their delivery method.
The responsibility of managing your cryptocurrencies is not to be taken lightly. Owners of bitcoin or altcoins must act as their own bankers, which means they have to make choices to balance ease of access with security. Understanding the available storage options is the best place to start. A cold storage wallet, or “hardware wallet” is a great option, proving both security and easy access to your bitcoin.
What is a Hardware Wallet?
A hardware wallet is a cold storage wallet that securely stores the owner’s private keys in a hardware device.
Unlike software wallets, a bitcoin hardware wallet is not susceptible to computer viruses. Unlike the paper version of a cold storage wallet, the private keys in a bitcoin hardware wallet do not need to be imported to software for access. You can use the cryptocurrency interactively and securely from the device. Additionally, the wallet protects your private keys, making it impossible for them to be transferred in plaintext.
However, there are a few theoretical ways in which a bitcoin hardware wallet could be compromised. As your own banker, it is important to understand every angle of cold storage.
For example, a corrupt production or shipping process could potentially allow for the insertion of a hardware backdoor. As with any computing device, a bug in the hardware, firmware or software could pose a threat. If you are sending cryptocurrencies through your computer, a bitcoin hardware wallet cannot protect you from malware on your computer that is designed to tamper with recipient bitcoin addresses.
At this point, the above mentioned threats are merely theoretical. As of the writing of this article, there have been no documented thefts from Hardware Wallets. For many reasons, bitcoin hardware wallets are generally thought to be the safest method of cold storage bitcoin.
Best Cold Storage Bitcoin Hardware Wallets
We live in a world of ever-changing technology and infinite possibilities, and there are always potential ways computing hardware can be compromised. So, it is important to use trustworthy equipment developed by technically proficient experts. You want to use the best to protect your investment.
Our Pick: Ledger Nano S
The Ledger Nano S is the most affordable of these three bitcoin hardware wallets, with a price point of €79. The Nano S looks like a thumb drive with a sliding cover and measures 98mm x 18mm x 9mm when fully open (60mm x 18mm x 9mm when closed). It weighs just 16.2g and is made of stainless steel and plastic.
The sleek design of the Ledger Nano S does not compromise its efficiency. Physical verification of all transactions is easily confirmed with a button on the side of the device, ensuring your transactions are protected.
The Ledger Nano S is capable of storing multiple cryptocurrencies and is compatible with companion apps like U2F, GPG, SSH, FIDO® and more. It is built on dual chip architecture (ST31/STM32, Certification level: CC EAL5+) and through cryptographic attestation the firmware of the Ledger Nano S is guaranteed.
Last Thoughts on Cold Storage Bitcoin
With the growing popularity of cryptocurrencies comes the growing risk of hacking or theft. The responsibility to protect your investment falls on you, the bitcoin investor, rather than a bank or regulatory agency. Thus, protecting your bitcoins or altcoins is an important part of using cryptocurrencies.
While there are several options for storing your cryptocurrencies, a cold storage wallet is widely considered the most effective. Cold storage bitcoin balances security with ease of use, allowing you to safely store your funds and protect them while still being able to access them when needed.
Our pick for the best hardware wallet on the market is the Ledger Nano S. It offers portability, ease of use and high security. You can’t go wrong with any of these wallets, and many who use cryptocurrencies divide their funds across more than one of these cold storage wallets for an added level of security.