In order to get a handle on what cold storage actually is, it’s important to review the fundamentals of the “bitcoin wallet.” In the same way that you can use a traditional wallet to store your paper currency, you can use a bitcoin wallet to store your bitcoin in digital form.
In other words, you can think of your bitcoin wallet as your personal bitcoin mailing address.
This might sound like having a bank account, but it’s actually quite different.
Instead of needing to trust a third party to keep your cryptocurrency secure, you can use a bitcoin wallet as your sole gateway to the decentralized network. There’s no need to ask a branch manager for permissions when you want to transfer bitcoin, there aren’t any annoying forms to fill out, and transfers happen within minutes.
Bitcoin wallets can be used to:
- Pay for items with bitcoin by transferring your payment to merchants who accept cryptocurrency.
- Receive bitcoin deposits from customers, friends, or relatives.
- Maintain your financial privacy by making anonymous purchases.
What is Bitcoin cold storage?
As you can see, bitcoin wallets are incredibly useful. All of this begs the question, however, of how many different types of bitcoin wallets there actually are.
Generally speaking, Bitcoin wallets come in two main types:
The phrase “hot wallet” refers to any bitcoin wallet that requires the internet to function properly. Hot wallets derive their name from the fact that they need electricity to work. If the power goes out, then so does your hot wallet.
For example the popular mobile wallet BRD is an example of a hot wallet.
Not only do cold wallets work without an active internet connection, but many cold wallets don’t even need a computer. Cold wallets have several similarities to traditional physical wallets, but they also have a few differences.
For example, the Ledger Nano X and Nano S are the most popular cold wallets on the market.
Is “Cold Storage” Different Than Using A Cold Wallet?
In general, “cold storage” refers to any bitcoin storage device that does not require electricity. A cold storage device can be a physical box, a piece of paper, or a list of numbers and letters that you keep in your head.
“Hot storage,” as you may have guessed, is simply the analogous generalization for storage devices that require an internet connection.
Thus, hot wallets are an example of hot storage devices, and cold wallets are an example of cold storage devices.
The Major Differences Between Cold Storage And Hot Storage
In contrast to hot storage, cold storage provides:
- Increased security protections
- A reliable way to keep your bitcoin offline
- An easy way to transport your bitcoin between your various wallets
What are the different types of bitcoin cold storage wallets?
When it comes to choosing a cold storage wallet that can help keep your bitcoin secure, the most popular choices tend to be:
Hardware wallets include USB sticks and other digital storage devices that you can use offline. Typically the private key to coins is never exposed to the internet because the device itself is air gapped.
The steel wallet is literally a piece of indestructible stainless steel that you can use to carry your bitcoin private keys or backups in. This makes it an excellent choice if you’re concerned about losing paper or live in an area with lots of flooding, fires or earthquakes.
You can checkout how they work in the video below:
Steel wallets are interesting because they can act as both a “paper wallet” or as a backup for any kind of Bitcoin wallet in case yours is lost, stolen, or destroyed. Almost any crypto holder can benefit from one of these steel wallets regardless of how they choose to Store their coins.
If you’re concerned about malicious computer hackers getting access to your wallet, then a paper wallet is one of your best options.
Setting up a paper wallet is for HIGHLY advanced users only. There are many ways to get a paper wallet wrong – all of which can result in a total loss of funds. Proceed at your own risk.
As the world’s first bitcoin credit stick, the OpenDime device lets you spend your bitcoin balance in the same way that you would use a traditional credit card.
For a great review and walkthrough on how the open dimes are used, watch this video:
Comparing The Most Popular Cold Storage Wallets
So now you know of all the different options when it comes to choosing between cold storage wallets. Let’s compare them all to each other to see which one would be best for you.
Paper Wallets Vs. Hardware Wallets
Technically speaking, hardware wallets fall somewhere in between a traditional hot wallet and a pure cold storage device.
With hardware wallets, the private key is stored digitally on a microchip, like a hot wallet. But that chip is never exposed to an internet connection.
Paper Wallets Vs. Steel Wallets
Steel wallets have two primary uses:
- They can be used to backup any kind of hardware or software wallet. Typically these wallets spit out a 12 to 24 word phrase you can use to get your coins back if your main wallet is lost, stolen, or destroyed.
- They can be used as a more sturdy version of a paper wallet. After you have generated your paper wallet, you can recreate the private key in the steel wallet using the provided tiles. Afterward you can keep the paper Wallet with the steel wallet and if there is ever a fire or a flood, you have a copy of the paper wallet that will survive.
In the video below, you can see Billfodl (the most popular steel wallet) get put through several tests. It even survived an explosion using 600 gallons of jet fuel.
Paper wallets and steel wallets are both protected from hardware data degradation, however the ink on the paper can disintegrate or run if it gets wet or too hot. Steel wallets are also protected from this risk.
Paper Wallets Vs. OpenDime
The OpenDime is basically a cross between a hardware wallet and a steel wallet. If you’re partial to the idea of carrying a paper bitcoin wallet, then OpenDime can be another viable option. Like hardware wallets, open dimes are subject to data degradation over time.
In summary, bitcoin cold storage is an effective way to keep your cryptocurrency from falling into their wrong hands. Even though it can be easy to end up feeling overwhelmed when you consider all of the cold storage options available, there’s no reason to limit yourself to just one wallet type.
One of bitcoin’s best features is that it’s easily divisible, so you can allocate a portion of your holdings to several different cold storage devices at once.
Most cryptocurrency users keep some bitcoin in cold storage and some in a hot wallet to have some funds that are ready to use.
Whichever way you choose to allocate your bitcoin, make sure to keep security at the forefront of your plan.