Keep Your Bitcoins (BTC) Cool! What Is A Cold Wallet?
Having already talked about good practices managing email addresses and crypto exchanges, it’s time to move on!
The long term storage of your bitcoins and other cryptocurrencies on the exchange platform where you bought them is high on the list of bad practices for managing your crypto legacy. As ergonomic and easy as it may seem, this type of storage poses many threats which include the risk of:
- The platform being hacked
- Your account being hacked
In the world of cryptocurrency there is a famous saying by Andreas Antonopoulos: “Not your keys, not your Bitcoin”. In other words, the moment you do not have the private keys associated with your Bitcoin, they are not really yours anymore (because you open yourself up to the risk of hacking). You might be the owner of your bitcoins and other crypto assets, but only when you are in control of their keys.
If you do not plan to trade in the short term or if you are employing a ‘buy & hold’ strategy, it is much wiser and safer to store the private keys of your cryptocurrencies securely on hardware wallets otherwise known as ‘cold storage’.
What is a hardware wallet?
A hardware wallet is a physical wallet that for example can be stored in the form of a secured USB like a Ledger Nano S or X. A hardware wallet makes it possible to store the address of both the public key (the wallet’s address) and the private key (only known by the wallet’s owner). The hardware wallet is a simple and secure way to store your cryptocurrencies in cold storage. This means that the private keys of your cryptocurrencies are no longer stored online but offline, meaning they cannot be hacked.
Which hardware wallet should you choose?
Personally, I use a Ledger Nano S and I recommend this model or the Ledger Nano X (latest version of the Nano S). To get started with your Ledger Nano, there is a very detailed tutorial written by Coinhouse. I also invite you to read Ledger’s FAQ, if you have any further questions.
Where should you keep your hardware wallet?
I recommend that you store your hardware wallet in a secured place, such as a safe in your home or in a bank (the cost of renting such a safe can run into the hundreds of pounds per year, so it all depends on the value of your crypto assets).
What happens if I lose my hardware wallet?
When you configure your Ledger for the first time (normally also the case with other hardware wallets), a list of 24 words is communicated to you (this list can be reset later). It is essential to write these 24 words on a sheet of paper. For the more meticulous among you, you could laminate this bit of paper to mitigate the risks of humidity and water. This 24-word list is extremely important as it will allow you to access your cryptocurrencies stored on your Ledger if you forget or lose your Ledger’s eight digit PIN code. If this happens, don’t panic, simply type the words on a new Ledger to recover your cryptocurrencies.
Where should I keep these words?
I advise you to store the sheet containing the 24 words in a safe place separate to the one where your Ledger will be stored (perhaps another safe?). You could duplicate this list of 24 words and store it in several safes if you want, but keep in mind that if someone comes across it, they will be able to generate your private keys and in turn acquire your cryptocurrencies that you have stored on your hardware wallets.
Because it is one of the leading hardware wallet providers (if not the market leader). Besides, Ledger is a European (French) brand and it last of all offers several original features:
- It is possible to configure a 25th personalised word (in addition to the generation of the recovery list composed of 24), here is a tutorial if you need.
- It is possible to configure two different and separate spaces on your Ledger: one corresponds to the list of 24 words, the other corresponds to the list of 24 words + the 25th personalised word (see first point). These two spaces are accessible via two separate eight digit PIN codes.
- The ‘Ledger Live’ desktop application (also available on iOS and Android smartphones) makes it easy to access your Ledger from your computer.
Where can I buy a Ledger Nano X or Ledger Nano S?
Directly on the Ledger site or on Amazon (make doubly sure it is being sold directly by Ledger if you buy on Amazon). Also, please note: for security reasons, never buy a second-hand Ledger, it has to be BRAND new!
Other Cold Wallet brands
Even though Ledger is the market leader and part of France’s NEXT40 which highlights the 40 most promising start-ups in the country, other hardware options exist.
‘Different versions of Keep Key’
There is Trezor’s Cold Wallet, which you could call Apple’s answer to Microsoft (Ledger)… But also the Archos’ Safe-T or Keep-Key.
Articles dedicated to these alternate options are in the works at TheCoinTribune.
Disclaimer: The advice in this article is intended to significantly reduce the risk of theft or hacking of your crypto-assets. That being said, keep in mind that a completely risk-free alternative does not exist in the world of IT security.
I discovered Bitcoin in 2014 working as a developer and decided to go all-in at the beginning of 2017. Since then, I have tried to share as much as possible my vision for Bitcoin and its importance for the future.