Bitcoin cold storage might sound like storing your cryptocurrency inside of a fridge, but the reality is quite different.
When it comes to cryptos, hot and cold storages refer to the wallets that hold them. There are many different ways to store your Bitcoin (or any other cryptocurrency at that), so it might be confusing as to which methods are the best and which are the worst, especially if you’re a beginner in the field.
In this guide we’re going to talk about all things “cold storage Bitcoin”: we’ll talk about how to store Bitcoin offline, cover the best cold storage wallets (also the worst!) and compare hot wallets vs cold wallets (such as Ledger Nano S and Trezor).
We’ll start slow, though – to make sure that we’re both on the same page, let’s walk through the definitions.
Understanding Bitcoin Cold Storage
So, what is Bitcoin cold storage?
In the cryptocurrency world, cold storage refers to physical objects (usually complex, yet small devices) in which you would store your cryptocurrencies.
These devices are encrypted with special security codes to protect your crypto coins and still be accessible at any given point in time. Other than cold storage, these devices can also be called cold wallets.
In turn, hot storage (or hot wallets) refers to digital crypto storing wallets – these wallets can be available on the internet, your desktop or any place in between.
There’s a lot of discussions about which wallet is the better, superior choice. So before we go any further with the Bitcoin cold storage guide, let’s try and answer this question.
Hot Wallet vs Cold Wallet
The two methods of how to store Bitcoin offline are subject to an ongoing debate. In this debate, people compare and contrast hot wallets vs cold wallets in hopes of finding the perfect choice for storing their cryptocurrencies. We’ll talk about both hot and cold storage Bitcoin.
There are a lot of positions from which you could start this debate. Personally, though, I think that there should be only one – security.
It doesn’t matter how much the wallet costs, how good it looks or how many options it has – everything becomes arbitrary when the storage method lacks security.
If one day you wake up and check your hot or cold wallet just to see that all of your funds have been hacked and stolen, I think that the visual attractiveness of the wallet is going to be the least of your worries.
Keeping the above-given example in mind, my main point of focus when talking about hot and cold storage (Bitcoin) is going to be security.
If the storage method seems superior in most aspects but appears to lack adequate means of scam prevention, it’s off this list.
Having said that, I will, however, present objective information about both Bitcoin storage methods – both from their strong and their weak sides.
Bitcoin Hot Storage – Pros and Cons
It is probably safe to say that the hot storage method is the most popular way to store cryptocurrencies. There are a couple of reasons behind this.
First of all, hot storage is usually free.
There are probably hundreds if not thousands of websites offering their wallets to people looking for hot storage methods – free of charge! This brings in a lot of traffic, especially if the site markets it right.
Another great factor when it comes to online and desktop wallets is that it doesn’t matter what kind of a cryptocurrency you want to store – you’ll probably find a wallet for it.
Even some of the least popular and well-known cryptocurrencies often have designated digital wallets to store them. Most of the time, the creators or developers of these currencies themselves have optional, specifically designed wallets that you can use.
This fact alone skyrockets the number of hot storage users, for there are a lot of people that hold other cryptocurrencies, not just Bitcoin or Ethereum.
One more attractive feature that digital wallets have is that they are easily accessible. If you’re on your desktop or laptop, you could access your wallet by a couple of clicks. This eliminates the option of always needing to have a physical item by your side whenever you want to perform a transaction.
The Down Side
The main critique for hot wallets, though, is their safety. I’ve mentioned earlier that this should be the top priority when it comes to crypto storages, so we’ll waste no time and jump straight into it.
By default, hot wallets are connected to the internet. While this isn’t an issue in itself, it might eventually cause one. Potential hacker, thieves, and other mischievous individuals are constantly looking for new ways and methods to break into people’s wallets and steal their cryptocurrencies.
A lot of websites and companies that offer digital crypto storage have already experienced this and are continuously trying to improve their security measures. While this is commendable, it offers little to no condolences to the people who have already dealt with scammers.
If a hot wallet is up to date and is constantly getting security updates and other improvements integrated, this does lower the possibility of a security breach. A lot of the more well-known and serious businesses that deal with digital wallets try to do this.
Unfortunately, you can never be fully sure – all it takes is one single fault and all of your crypto earnings and savings might be gone forever.
If you store your Bitcoin online, another possible danger arises – technical faults.
Online wallets store your wallet key inside of their servers. While the site is up and running, that’s all fine and dandy.
However, if something like a technical glitch or malfunction does occur, you might lose your key (and in turn – your crypto coins) forever.
A lot of websites even offer disclaimers and require you to sign a document that releases the company of all responsibility if a similar event does occur.
Summary
Let’s make a quick summary.
Hot wallet pros:
Usually free; Can store almost all cryptocurrencies out there; Easy to use, “hold your hand through the entire process” kind of a thing; Available in just a few clicks of a button.
Hot wallet cons:
It being free might lead to poor performance, technical faults, etc; You don’t feel like you’re in control – any technical issue might erase any savings that you possess; Vulnerable to scams, fraud, susceptible to hackers and thieves.
Now that you have a better understanding of hot wallets, let’s transition to the cold ones.