How do I put my crypto in cold storage?

As a cryptocurrency investor, securing your assets is crucial. One of the best ways to protect your crypto holdings is by using cold storage. Cold storage keeps your private keys offline, away from internet-connected devices that could be hacked. This guide will walk you through the process of setting up cold storage for your cryptocurrency.

Table of Contents

What is cold storage?

Cold storage refers to keeping your cryptocurrency private keys offline. This prevents cyber criminals from being able to access and steal your coins through online methods. Some examples of cold storage devices include:

Hardware wallets like Trezor or Ledger

Paper wallets
USB drives
External hard drives

These devices are not connected to the internet, so your private keys remain secure offline. Hot wallets, on the other hand, are digital wallets connected to the internet. While convenient for making transactions, they are more susceptible to hacking attacks.

Why should I use cold storage?

Here are some key reasons to use cold storage for your cryptocurrency:

Prevents hacking – Keeping your private keys offline prevents cyber attacks that target internet-connected devices.

Protects against human error – Accidentally deleting wallet files is impossible with offline cold storage.
Avoids exchange risks – Exchanges can be hacked, go bankrupt, or engage in fraud – cold storage avoids these risks.
Peace of mind – Cold storage gives crypto investors confidence their assets are truly safe and secure.

For major holdings that you plan to hold long term, cold storage is considered best practice by many cryptocurrency enthusiasts.

How to generate cold storage wallet

Here are the basic steps to generate a cold storage crypto wallet:

Choose your cold storage device – this could be a hardware wallet, USB drive, paper wallet, etc.

Generate a new wallet address on the device.
Save and securely back up your private keys and recovery seed phrase.
Send cryptocurrency to your new cold storage wallet address.

Store the device offline in a safe place.

Specific steps vary depending on the type of cold storage option you choose. We’ll go into more detail for different cold storage methods later in this guide.

Best practices for cold storage security

To maximize the security of your cold storage, follow these best practices:

Generate your keys offline – Never create keys on an internet-connected device.
Use complex random passwords – Ensure passwords are long and entirely random.
Backup your recovery phrase – Save your backup phrase somewhere secure like a safe deposit box.

Encrypt devices – Use device encryption for hardware wallets and USB drives.
Test recovery process – From time to time, test withdrawing a small amount to ensure the process works.
Avoid typing keys on devices – Typing on a compromised device can expose keys.

Setting up a hardware wallet

Hardware wallets like Trezor and Ledger offer excellent cold storage security. Here are the steps to set one up:

Purchase a hardware wallet device.
Initialize your new device and create a PIN.

Write down the recovery seed phrase on the included backup cards.
Confirm you have accurately written down the phrase.
Send a small test transaction to your new wallet’s public address.

Wipe and reset the wallet device.
Use the recovery phrase to restore your test transaction wallet.
Verify the restore was successful by checking your balance.

Safely store the initialized device and recovery phrase backup in secure places.

Your cryptocurrency holdings can now be sent to your hardware wallet address for offline cold storage. Make sure you keep the recovery phrase in a safe place – it can restore access if you lose the device.

Creating a paper wallet

Paper wallets allow you to print out your private and public keys to store offline. Here’s how to create one:

Head to a paper wallet generator site like WalletGenerator.net while offline.
On the “Wallet Details” tab, add as many wallets as you want to create.
Toggle on the “BIP38 Encrypt” option to encrypt the private keys.

Select “Generate New Address.”
Print the front and back of the paper wallet in high resolution.
Carefully handwrite the recovery phrase on the printed wallet.

Fold the wallet and store somewhere very secure like a safe deposit box.
When ready to withdraw funds, sweep the private key at an offline computer.

As long as you create and store the paper wallet completely offline, it offers excellent security.

Using a USB drive for cold storage

An encrypted USB drive can also be used for cold storage. Here’s a simple procedure:

Acquire a new USB drive and create an encrypted partition using Disk Utility (Mac) or BitLocker (Windows).
Ensure no internet connection and generate a crypto wallet on the encrypted USB drive.

Backup the wallet recovery phrase somewhere secure like a safe deposit box.
Eject and securely store the encrypted USB drive offline.
When ready to withdraw funds, plug drive into an offline computer and decrypt to access.

This basic process can provide good security if done properly, but hardware wallets are typically considered superior.

Storing assets on cold storage

Once your cold storage is generated, you can begin transferring crypto assets to the wallet address:

Exchanges – Withdraw directly from your exchange to the cold storage wallet address.

Software wallets – Send from your software wallet to the cold storage address.
Other wallets – Transfer funds from any other wallets by sending them to the cold storage address.

Make sure to double check the full cold storage address before sending! When ready to sell or spend coins, you’ll need to retrieve the funds by transferring them off of cold storage.

Withdrawing from cold storage

Withdrawing funds from cold storage requires bringing the private keys online temporarily. This can be risky, so follow best practices:

Only connect cold storage devices to offline, clean computers when possible.
Move funds to a software wallet on the offline device before connecting to internet.

Only keep the private keys online as briefly as possible.
Immediately disconnect the cold storage device after the transaction.
Consider using a new cold address for highest security.

With hardware wallets, you can connect them temporarily to an internet-connected device to sign transactions and then immediately disconnect them after.

Cold storage risks

While cold storage is quite secure, you still need to watch out for risks like:

Device failure – Hardware wallets or USB drives can fail, so backup your keys.

Physical theft – Someone with physical access could steal your cold storage devices.
Destruction – Fire, water or other damage could destroy your cold storage solutions.
Forgetting passphrase – Forgetting your recovery phrase can make cold wallets inaccessible.

To mitigate these risks, have robust backups, store devices securely, and regularly check you can access your cold wallet.

Cold storage options comparison

Type	Security	Ease of Use	Cost
Hardware wallet	Excellent	Moderate	$50 – $200
Paper wallet	Good	Difficult	Cheap
Encrypted USB drive	Fair	Moderate	Cheap

Hardware wallets offer the best combination of security and usability. Paper wallets are highly secure but can be tricky to properly generate and store. Encrypted USB drives strike a balance but security is lower than hardware or paper wallets.

Conclusion

Using cold storage is an excellent way to protect your cryptocurrency from online threats. Determine the right option for your risk tolerance, holdings size, and technical abilities. Stay disciplined in following best practices for security like generating keys offline and having robust backups.

With proper precautions taken, cold storage lets cryptocurrency investors sleep easier knowing their assets have some of the best protections possible against theft and hacking.