If you want to be your own bank and manage your crypto holdings personally without using a custodial service provided by a 3rd party (such as Coinbase), understanding the importance of private keys and how to store them is crucial.
Private keys are literally the keys to your crypto - they allow you to send funds from your blockchain wallet to someone else. This means that if an attacker with malicious intent gets access to your private keys, they will be able to steal everything you own in that particular wallet.
You can store your private keys in a hot wallet or a cold wallet.
Hot wallet vs. cold wallet
What’s the difference between the two? Hot wallets are blockchain wallets that are always online, and have access to the internet at all times. Think of MetaMask, Rabby or Phantom - these are software wallets. Software wallets usually allow you to generate a new wallet directly in the application. This is easy and straightforward, but comes at the cost of security - as the generated seed phrase or private keys are still stored locally on the same device as the app and are technically accessible from the internet, even if they are encrypted.
Of course, being internet-enabled opens up an easy way for hot wallets to be compromised, which means your private keys could be in danger. This is where cold wallets come into play.
Advantages of cold wallet storage
Cold wallets are methods of storing your private keys offline, without a direct connection to the internet. There are several ways to store sensitive data offline, the simplest being a piece of paper. However, you can’t actually work with your crypto that way, as you have no way to initiate and approve transactions - so the best cold wallet storage is a security-focused device with features necessary to easily manage your holdings. This is essentially what a dedicated cryptocurrency hardware wallet does for you.
Now that we’ve mentioned the basics, let’s have a look at some types of cold storage:
Paper wallets
Mentioned above, paper wallets are the least secure type of cold storage, as anyone can gain access to your funds with access to the paper with your private keys written down on it. Additionally, paper as a material can easily break down, burn, or get wet, making it vulnerable to loss.
Metal wallets
Metal wallets are a more element-proof alternative to paper wallets, and they usually come in the form of metal cards or tubes on which you write down your private keys. Some allow you to assemble them from metal letters. These can withstand fire, dust and water, but you run into the same problem as you do with paper wallets: you can’t actually initiate or approve transactions with a metal plate with your private key scratched onto it.
Hardware wallets
Hardware wallets are devices that were designed and built to protect your private keys while giving you the possibility to actually manage your crypto (as you can approve transactions on them). They come in all shapes and sizes, some connect via the internet while keeping your private keys offline due to unique split architecture, some connect via USB, and some Bluetooth or other technology. The core concept of a hardware wallet is that it’s an air-gapped security device that allows you to sign transactions with your private keys without actually exposing any sensitive data to the outside world.
As you may have guessed, a hardware wallet is the best possible method of cold storage, and the ideal approach for using cryptocurrency.
Deep cold storage
Deep cold storage is a method of storing your private keys that isn’t easily accessible - this could be anything from a hardware wallet in a bank safe in Switzerland, to a custom 3D-printed puzzle box only you know how to open - stored in a container that’s buried in the Nevada Desert. Alternatively, you can set up multi-sig - requiring approval from multiple wallets in order to send funds - ideally with two or more hardware wallets that are stored in different locations.
Guarding your recovery phrase
The recovery phrase is the key to your crypto holdings. If you lose it, you lose access to your funds. Memorizing your recovery phrase is the most crucial step, but consider using a metal recovery seed plate for a more durable and fire-resistant backup option.
Never share your recovery phrase with anyone, not even customer support or someone claiming to represent your cold wallet provider. Phishing scams often try to trick users into revealing this vital information. Store your recovery phrase completely offline - not on your computer, phone, or cloud storage.
Maintaining strong security practices
Regularly updating your cold wallet software and firmware is essential. These updates often include security patches that address newly discovered vulnerabilities. Stay vigilant against phishing attacks that might arrive through emails or websites designed to trick you into entering your recovery phrase.
Be cautious of unsolicited emails or links, and only access your cold wallet software from trusted sources. Implement strong passwords for your cold wallet device and any companion apps, and avoid using the same password for multiple accounts. If available, enable two-factor authentication (2FA) to add an extra layer of security by requiring a second verification code when accessing your cold wallet - though be wary of using a phone number for these purposes to avoid SIM swap attacks.
Where should I store my cold wallet?
Choose a safe and dry location, ideally a fireproof lockbox or safe deposit box.This protects your cold wallet from physical damage, theft, and potential fire hazards.
Can I recover my crypto if I lose my cold wallet?
Yes, if you have your recovery phrase securely backed up. This recovery phrase is a series of words that acts as a master key to your crypto holdings. If you lose your cold wallet but have your recovery phrase, you can access your crypto on a new cold wallet device.
Is a cold wallet worth it?
The answer depends on your risk tolerance and the value of your crypto holdings. If security is a major concern and you hold a significant amount of crypto, a cold wallet offers a significant security advantage. The cost of a cold wallet is typically much lower than the potential loss of your crypto due to hacking or theft.
Can cold wallets be traced?
Transactions on the blockchain are public by nature, meaning anyone can see them. However, these transactions aren't necessarily linked to a specific person unless you reveal your identity information. For instance, you might see a wallet address receive or send crypto, but you wouldn't necessarily know who owns that wallet.
How do I choose a cold wallet?
When choosing a cold wallet, consider the following factors:
- How user-friendly is the interface? Is it suitable for beginners or more experienced users?
- Does the wallet offer features like multi-signature transactions, PIN protection, and secure chip technology?
- Research the brand's history, track record, and customer support. Choose a reputable brand with a history of security and positive user feedback.
GridPlus empowers crypto security
The world of cryptocurrency offers exciting possibilities, but security remains a paramount concern to protect your private keys offline and away from potential threats.
In this vein, GridPlus introduces the Lattice1, a hardware wallet designed to enhance your crypto security posture.
The Lattice1 prioritizes the safety of your digital assets. Its multi-layered security architecture utilizes advanced technology to isolate and safeguard your private keys. State-of-the-art features like a secure enclave and tamper detection minimize external threats both online and physical.
Intuitive management for everyone
Gone are the days of complex, legacy cold storage solutions. The Lattice1 boasts a large, user-friendly touchscreen and a streamlined interface, making it easy to manage your crypto holdings and see the details of your transactions to make sure they are accurate. Review transactions clearly before signing, and enjoy a hassle-free experience that puts you in control.
Flexibility for your growing portfolio
The Lattice1 breaks away from the limitations of traditional hardware wallets with its innovative SafeCard system. Store multiple cryptocurrency portfolios, and manage different accounts effortlessly using additional SafeCards. This enhances organization and provides unparalleled flexibility as your digital portfolio expands.
Additionally, the GridPlus Lattice1 offers a compelling combination of advanced security and intuitive user experience. Learn more about how the Lattice1 can elevate your crypto security and empower you to confidently navigate the world of digital assets.