The recent collapse of the now-failed FTX crypto exchange must be one of the strongest cases made for self-custody and cold storage in cryptocurrency history. This is undoubtedly a pivotal moment with a clear message: when you give your private keys to third parties, you are likely to lose them.
So, it should come as no surprise that crypto investors are flocking to cold storage solutions. For example, hardware wallet company Ledger saw sales skyrocket the week after the FTX disaster, while Trezor saw a 300% increase in sales revenue due to FTX contagion.
It is obvious that Bitcoin and crypto investors are ready to start exploring their options and are moving their digital assets into cold storage solutions. But how safe is cold storage? Let’s find out in today’s edition of Ask Cryptovantge.
Cold storage offers exceptional security
If recent events have taught us anything, it must be that our hard-earned cryptocurrencies are not secure when stored on an exchange. Remember the saying “not your keys, not your coins?” This is not a new lesson.
Cold storage wallets such as the Ledger Nano S Plus or the Trezor Model-T, on the other hand, offer excellent security and are considered the safest of all wallets. They look similar to a USB drive and combine the ease of use of a digital interface with the security of an offline device. Compare that to having a safe in the bank at home where you keep your valuables.
Unlike software wallets, cold storage wallets are developed in such a way that you never have to trust the software on your mobile device to hold your private keys. By design, cold storage wallets prevent your private keys from leaving your device.
Another great reason to use cold storage is the fact that it teaches you to be self-sufficient when it comes to your crypto coins. Bitcoin, for example, was created as a peer-to-peer currency that does not require third-party intermediaries such as governments, banks, or other institutions.
So, when you use a cold storage wallet, you’re effectively becoming your bank. It may not necessarily be for everyone, but it can be comforting and empowering to know that you have complete control over your crypto assets.
Of course, you don’t need to own a hardware wallet to buy, store, or send cryptocurrencies, but we highly recommend it because it will significantly improve security by reducing the risk of your cryptocurrency being stolen. Or by hackers or CEOs of crypto exchanges and their cronies. Here’s a closer look at some of the best hardware wallets.
What are the disadvantages of cold storage?
Fortunately, there aren’t too many drawbacks to using cold storage as a solution to keep your cryptocurrency safe. Perhaps, the only real disadvantage of cold storage is that your assets are less liquid and therefore more difficult to trade quickly. However, unless you are a day trader, this should not be a problem.
Some other minor drawbacks could be the fact that it may take some time to understand how your cold storage wallet works. Especially for new crypto users, this can prove to be a daunting task. Remember, security always outweighs convenience. Finally there is the disadvantage that hardware wallets cost money, so an initial investment is required.
Of course, if you choose to use a paper wallet, which is also considered a cold storage solution, the daunting learning curve would not be a deterrent at all. Damage caused by water and fire could be though.
Conclusion
Although most cold storage solutions are slightly bulkier than software wallets, they are also much more secure. It is also very unlikely that a cold wallet will be hacked. Even if hackers were somehow able to get their hands on your physical device, they would still have to guess your secret pin code. After three failed attempts, the device would be reset to factory settings.
At the end of the day, it is your sole responsibility to keep your crypto coins safe. So, invest in a hardware wallet, get your cryptocurrencies from exchanges and in cold storage.
Remember, Sam Bankman-Fried’s recent FTX crash and its alleged criminal shenanigans are just the latest reminders that self-custody and cold storage are the safest methods you have to maintain control of your private keys and therefore your crypto coins.
No doubt, more reminders will come and rob the fortunes of crypto investors. But not yours, because your fortune will be safely stored in a cold storage wallet.
