Cryptocurrencies are a hot topic right now, and for good reason. They offer a number of unique benefits that set them apart from traditional currencies. One of the big benefits of cryptocurrency is that it’s entirely digital. This means that there is no need for any physical form of storage. That means no more carrying around stacks of cash or worrying about losing your hard-earned money in the wilds of Wall Street. However, one drawback to this technology is that it’s vulnerable to theft and loss. This is where cold storage comes in. It is simply keeping your cryptocurrencies offline so that they cannot be accessed or used by anyone else. This protects them from malicious hackers and thieves, as well as fluctuations in the market.
How to store cryptocurrency offline
Storing cryptocurrency offline is a great way to keep your coins safe and secure. There are a few different ways to do this, and each has its own advantages and disadvantages. Here are the three best methods:
- Paper Wallet: A paper wallet is a very simple way to store your coins. All you need is a piece of paper with your private key written on it. You can then store this paper wallet in a safe place, like a locked drawer. When you want to spend your coins, you can simply print out the private key and use it to unlock the wallet on your computer.
- Cold Storage: Another great way to store your coins is by storing them in cold storage. This means that you keep your coins outside of the reach of hackers. To do this, you can either use an online cold storage service or store them offline on a USB stick.
- Bitcoin Core: Bitcoin Core is the most popular way to store cryptocurrencies offline. It’s free and easy to use, and it’s one of the safest methods available. Simply download Bitcoin Core and install it onto your computer. Then, create a new wallet by entering your private key into Bitcoin Core.
What is Cold Storage?
Cold storage is a term used to describe a type of storage that keeps digital assets offline, either in physically secured locations or on segregated networks. Offline storage allows for greater security and prevents hacking or theft. It can be used for cryptocurrencies, as it provides additional security and eliminates the possibility of theft or loss in the event of a cyber attack. Cryptoassets can also be stored in this kind of storage to reduce volatility.
Some popular cold storage platforms include hardware wallets like Trezor and Ledger, as well as online wallets like Coinbase and Bitfinex.
One important thing to remember when using it: always make sure you have a backup of your coins in case something goes wrong.
What are the Benefits?
1. Cold Storage is Secure
Cryptocurrencies stored in cold storage are more secure than those held on an exchange because exchanges are vulnerable to hacks and cyberattacks. For example, in February 2018, $40 million worth of Ethereum has stolen from the DAO (decentralized autonomous organization) Ethereum Foundation after a vulnerability was exploited on its platform. The theft occurred just a few days after the platform had raised over $150 million in Ether.
2. It is More Flexible
Digital assets stored in cold storage can be traded at any time without fear of price volatility or other market conditions affecting their value. This flexibility makes them ideal for long-term investments or day trading strategies. For example, when news broke that Facebook was exploring ways to use cryptocurrency as part of its payments system, Bitcoin prices climbed by 10% within minutes of the announcement. This example shows how quickly prices can move when trading cryptocurrencies are involved which may not be the case if they were stored in cold storage.
3. It Allows for Higher Returns
Because cryptocurrencies are not subject to government or financial institution control, they offer higher returns than traditional investments. For example, Bitcoin has returned over 1000% in the last seven years while other traditional investments such as stocks and bonds have only returned around 50-100%.
4. Cold Storage Allows for More Control
Cryptocurrencies stored in cold storage allow for more control over their investment because they are not subject to the whims of the stock market or other market conditions. This allows you to make better decisions about your long-term investment goals.
How to make a paper wallet
A paper wallet is essentially a digital file that contains your cryptocurrency ownership information. To create one, you will need some basic supplies: a printer, an offline computer with internet access, and a piece of paper.
- Print out the applicable wallets for each cryptocurrency you own. For example, if you own Bitcoin, print out the Bitcoin wallet sheet.
- On an offline computer with internet access, open the PDF file you printed out and save it to your hard drive or another permanent storage location.
- On the same computer, sign up for a free online wallet service such as Blockchain or Coinbase Wallet. (Coinbase has tiered pricing plans so be sure to select the appropriate one for your needs.)
- Once you have logged in to your online wallet account, click on the “Addresses” tab and copy the 18-word bitcoin address listed there. Do not forget this number! You will need it to create your paper wallet later on.
- Now open up a new document in your PDF editor of choice and paste in the bitcoin address from Step 4 into the text box at the top of the document. Next, enter how much bitcoin you want to put into your paper wallet in the Amount field below and hit “Create Paper Wallet” at the bottom of the window that pops up. Your finished paper wallet will look something like this:
- Once you have created your paper wallet, fold the sheet of paper in half so that the bitcoin address and amount are on one side, and then fold the other side over so that the amount is now hidden. Slide the folded paper into your wallet and keep it safe!
Conclusion
Cold storage is a crucial part of any cryptocurrency portfolio. It’s important to remember that cryptocurrencies are volatile and can be very risky, so it’s important to have a strategy for how you will handle your coins in the event of a market crash. Having cold storage means you have them stored offline, which reduces the risk of them being hacked or stolen. You can read more about how cold storage works here.
