There are a lot of unique aspects that make blockchain technology and cryptocurrencies attractive, whether it's the decentralization aspect, the ability to revolutionize payments, or the fact that past data on the blockchain can't be altered.
But that doesn't mean that blockchain technology doesn't face cyber threats and attacks regularly. Just like regular money, cryptocurrencies are vulnerable.
That's why security is paramount. You can store your cryptocurrencies in an online digital wallet, but an even safer way is through cold storage, which effectively means taking your cryptographic key information that allows you to transact and access your cryptocurrencies offline. There are several different kinds of cold storage. Let's take a look at the different options.
1. Hardware wallets
Hardware wallets are probably the most common type of cold storage. They are basically like an advanced flash drive that allows you to store your private keys in an offline and portable manner. You must plug hardware wallets into devices to access your key.
Image source: Getty Images.
But a hardware wallet is much more than just a storage device. In a hardware wallet, your private key is essentially embedded within the device, so when you go to send or approve a crypto transaction, instead of copying the key or even having to pull it up on the screen, both of which can leave you exposed to potential attacks, you just click a button through the wallet.
Hardware wallets can also store and work with many different types of blockchains and there are programs that allow you to trade directly from your wallet as opposed to transferring assets into some kind of online digital wallet first.
Hardware wallets are definitely one of the most secure ways to store your crypto assets, but there is some risk. For instance, if you forget your pin number to log in to the wallet or outright lose the physical wallet, you will typically have a recovery phrase that you can use to recover your private key to access your funds from another wallet. But if you forget or lose that phrase, then you are in trouble. Many tokens have been lost because of lost recovery phrases. Hardware wallets aren't always cheap either, but are overall one of the best options for cold storage.
2. USB Drive
If you can't afford a hardware wallet then you can use a traditional USB flash drive to store your private crypto keys, but this will not be nearly as secure as a hardware wallet. USB drives can't enable transactions at the click of a button. They are pretty much only useful for storing your private key offline. I would only suggest using a USB drive as a temporary solution.
3. Paper wallets
Putting your private key or a QR code on paper and storing it somewhere is a very low-tech form of cold storage -- and not a good one at that. Think about how many papers you've misplaced, damaged, or forgotten about in your life. I'd rate a flash drive as a better option than a paper wallet.
4. Sound wallets
If you are into spy movies and have a little bit more cash to spend then a sound wallet might be the cold storage option for you. A sound wallet enables a person to record their private key onto a CD but in an encrypted manner so another listener might only hear static when they go to play the CD. Users can then decrypt the key using a spectroscope application. This is a cooler but more nuanced cold storage solution.
5. Deep cold storage
Deep cold storage continues on the theme of spy thrillers. Basically, you take your cold storage method and make it even harder to access, literally. An extreme example would be to dig a hole and bury your cold storage. It becomes a lot harder for a perpetrator to steal your cold storage device if they need to dig six feet into the ground. Another method might be splitting your private key into several parts, putting each part on a flash drive, and then putting each flash drive in a different safety deposit box at a different bank branch in, say, seven separate locations. One on each continent if it pleases you. This strikes me as a less practical approach, but to each their own.
