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What is crypto cold storage and what are the benefits in 2022?
Upstream Jan 31, 2022 Definitions
What is crypto cold storage and what are the benefits in 2022?
Welcome to the Upstream blog and if you’re coming back for more, then welcome back Upstreamer!
In this article we’re going to cover the complex subject of crypto cold storage and its benefits but, in a way that makes it easy to understand and most importantly translate into action if you’re new to the crypto space.
We’ll break it down into the following sections so feel free to skip ahead if there’s something specific you want to learn:
- General crypto security and privacy advice.
- The biggest threat to your crypto!
- Online crypto storage wallets.
- What is a crypto key phrase?
- Best online crypto wallets for beginners.
- What is cold storage and how to use it.
- What are the best cold storage devices in 2022?
- Why cold storage is a must for HODLers
Prefer a video? We’ve got you covered
General crypto security and privacy advice
The first rule of crypto is “Do not talk about crypto”. But as you probably know all too well, this is the total opposite to most crypto peeps attitudes! As soon as most crypto bros spot a friend, family member or colleague scrolling those markets they can’t help but start asking questions about what trades they have on, what they’re HODling and some even start boasting about their balances and what price they bought Shiba at.
The best way to think about your crypto is that it’s just like money. Think for a second about the last time you told someone your bank balance or how much you took home last month. Unless you’re a bit of a twit, the likelihood is you haven’t and if you’re serious about security and privacy the same should be true when it comes to your crypto.
Talking about your crypto holdings or boasting online makes you more likely to become a target for fraud so best to keep schtum and enjoy your successes in a low key way with a few people as possible. And definitely not online!
You are most likely the biggest threat to your crypto holdings. Seriously!
It sounds harsh, but the biggest threat to your crypto is probably you. Sure there have been some high profile and unfortunate scams but most people lose their crypto because of their own mistakes or negligence and sometimes even because of tragic accidents involving boats!
Some of the most common ways people end up losing their crypto are:
- Forgetting or losing their private keys.
- Securing it so securely not even the owner can access it.
- Exposing private keys and passphrases to the internet.
- Misuse of wallet software.
- Leaving their crypto on a “trusted 3rd party” like an exchange that goes bust. We’re looking at you Mt Gox!
- Falling victim to a fraudster, usually online.
The good news is that all of these are totally avoidable so long as you are a responsible user and follow the guidance from the experts around safe crypto storage. You also need to make sure one other trusted person has access to your should you be in a tragic boating accident or meet your fate in a less glamorous way. Nobody wants to be the biggest crypto whale in the graveyard as they say!
You are essentially your own bank and your own security system
The main thing to get your head around early on is the level of responsibility that HODLing crypto gives you compared with keeping cash in a bank. With your bank balance you delegate all of the responsibility to the bank and expect the money to be there when you want it, your regular payments to be made correctly and to be able to withdraw money whenever you need to.
With crypto you have to make all of the deposits, withdrawals and transfers happen yourself using withdrawal addresses and receiving addresses. All of that coupled with what can be an unfamiliar login process to services like Binance can be overwhelming. You have another set of security info to remember as well as all of the payment payment info, so adding a layer of complexity on top of what you’re used to by using crypto wallets and cold storage is naturally daunting.
Online crypto storage wallets are the first logical step
Having said all that, the best thing to do is jump in and learn. If you’re feeling comfortable using crypto exchanges like Binance, Coinbase and KuCoin to buy, trade and move your crypto around, then we recommend you start looking at online crypto storage wallets. Crypto wallets work differently to exchanges and we made this video to explain it all. Give it watch and a thumbs up.
Online storage wallets give you access to the following benefits:
- Your crypto is moved off the exchanges, onto the blockchain and is only accessible via your own wallet.
- You’re no longer dependent on a “trusted” 3rd party. Your crypto is on the blockchain for real!
- A good initial layer of security as you have to create and keep your own unique private key phrase which is the only way to access your crypto.
- You gain access to staking pools like Upstream [UPSTR] and the passive rewards that brings (more about that in another video here).
What is a crypto key phrase?
As part of the wallet setup stage you have to generate your own public and private key phrases. You can share the public key, sometimes referred to as an address, and this will allow you to send crypto to and receive crypto from other crypto users’ wallets. The private key is just that. Private. You should never share your private key with another soul. This phrase is the key to your crypto and you’ll need to use it every time you want to access your bags. It’s vital that you write your key phrase down and keep it somewhere safe like a lock box or fire proof safe. If you lose the key phrase you will most likely lose your crypto. We literally cannot stress this enough!
What are the best online crypto wallets for beginners?
Different wallets are compatible with different crypto currencies so it’s best to do some research into the recommended wallets for your different crypto bags. We should probably do a blog on that at some point…
As a starting point we’d recommend Exodus because it supports an ever expanding range of crypto currencies, has a built in exchange for buying and trading and their support is generally really helpful if you do happen to run into issues.
You can use exodus on your laptop or your mobile devices so it’s quite versatile and the interface is easy to get used to. Exodus is also compatible with cold storage so when you do decide to upgrade to cold storage in the near future you shouldn’t have any issues with compatibility.
As we mentioned there are certain wallets that only work with certain cryptos or work better for certain crypto currencies. For example, if you’re HODLing Cardano ADA (like all the cool kids) we’d recommend taking a look at Yoroi wallet. It’s a mobile based wallet so you can access it on your phone as well as online via your browser, and it gives you access to staking rewards which is a bonus! By the way, did you know that you can earn on average 5% APY on your staked ADA by staking it with Upstream? Learn more about staking with Yoroi wallet and the passive rewards you can expect to earn here.
Now it’s time to look at cold storage
Once you’ve mastered using online wallets the next logical step to becoming a crypto security master is to start looking into cold storage wallets or, as they are commonly called, hardware wallets. For clarity, we’re not talking about cryogenically freezing your crypto, or yourself. We’re talking about getting your private key phrase off the internet.
So what actually is a hardware wallet? It’s a small usb drive sized that is locked with a pin code. You have to enter that pin code via a touchscreen or a simple interface in order to unlock it. Once you’ve unlocked your hardware wallet you can see your private keyphrase which is the key to your crypto bag.
It’s called a wallet but, a little confusingly, doesn’t actually store any of your crypto. Your crypto stays safe on the blockchain and you simply use a hardware wallet to store your private keys away from the internet and safe from online attacks. Because of that “cold” break from the internet cold storage is a much more secure way to store your private keys than an internet based wallet. It’s also definitely more secure than the post-it note you’ve tucked away in “The Art of War”!
Keeping your key phrase on a hardware wallet is more secure than an online wallet because it’s not connected to the internet and as a result its not vulnerable to hackers, viruses, malware or other digital threats.
To access your crypto key phrase you have to enter a 4 to 8 digit pin code that you create as part of the setup. That unlocks the hardware wallet and gives you access to your key phrase. You can then use the key phrase to authorise transactions on the blockchain.
To start using cold storage the first thing you need to do is choose and buy your first hardware wallet.
What are the best crypto hardware wallets in 2022?
The most popular and widely used cold storage wallets are Trezor and Ledger. These are both big names in the crypto world and some of the most trusted. Both are incredibly secure, offer support for well over 1000 different cryptocurrencies and have their own built in exchanges to top up your HODL bags when the inevitable dip comes!
You’ll be in good hands whichever one you choose but here’s a brief breakdown of the pros and cons of both:
- Ledger live mobile app.
- Optional bluetooth model.
- Stainless steel casing.
- Fiddly interface – no touchscreen.
- Firmware isn’t open source.
- Marketing database did get hacked a while back!
- Simple to use colour touchscreen model available.
- Firmware is open source.
- Simple and secure passphrase backups.
- There isn’t a bluetooth enabled model.
- No mobile app.
- The case is plastic which isn’t as hard wearing.
Why is cold storage a must for crypto HODlers in 2022?
For day traders or swing traders cold storage doesn’t really make sense. But if you’re in it for the long term and planning to HODL your crypto through the inevitable ups and downs then you should definitely look into cold storage for these reasons:
- Disconnects your private keys from the internet.
- Eliminates the risk of online attacks.
- Removes your reliance on a “trusted” third party.
- More secure than a paper note.
So essentially its all about upping your security game and ensuring your crypto is insulated from online attacks.
Thanks for reading!
That’s it for today’s blog on crypto cold storage and we hope you enjoyed reading it and found the information helpful!
As always if you have any comments, questions or just want to say hi, you can find us on twitter @upstream_ada and if you’ve got ADA to stake, you know what to do! Find our staking pool with ticker UPSTR.