Cryptocurrencies have become a popular and very accessible asset class. Virtually anyone can invest in them, and stories of millionaires who have grown up on cryptocurrencies are heating up the mood around new cryptocurrency projects, NFTs or the metaverse. Despite the extreme volatility and unpredictability of this relatively new market, the number of crypto investors is increasing year on year and turnover on cryptocurrency exchanges is breaking new records leaving regulated markets behind.
We will not write about whether it is worth investing in cryptocurrencies - we leave this type of decision to you. However, if you have decided to invest in the crypto market, it is worth protecting your wallet in the right way. Market experts know that cryptocurrencies can be stored in two types of wallets - the so-called hot wallet and the cold wallet.
The main difference is that hot wallets connect to the internet, while cold wallets remain offline. This makes hot wallets more convenient to use, but not as secure. The risk of a cold wallet being hacked is much lower than with a hot wallet.
Another difference is the price. Most hot wallets are free. Cold wallets usually cost from a few hundred to even a few thousand. For this reason, cryptocurrency investors often wonder at what point the security of a cold wallet makes it worth the price.
What makes a cold wallet the best option for cryptocurrency security?
When you buy crypto, you have several different storage options:
Store it wherever you bought it. Some of the best cryptocurrency exchanges store coins in their own cold wallets for security. However, this is still not recommended. The exchange will technically have control over your crypto, and there is also a risk of your account being hacked.
Move it to an independent hot wallet, which is a digital wallet on the internet, computer or smartphone.
Move it to a cold wallet, which is any type of storage that is not connected to the internet. The most common types of cold wallets are hardware wallets (devices designed to store cryptocurrencies).
Both hot and cold wallets store your private keys, which give you access to your crypto. If someone else gets hold of your private keys, they can steal your crypto.
While many people use hot wallets without a problem, there are risks involved. The company behind the hot wallet stores your private keys on its web servers. If it is hacked, your private keys could be at risk. There is also the possibility that the device hosting your hot wallet could be infected with malware.
A cold wallet eliminates this risk. Your private keys are stored offline in the wallet. Even when the hardware wallet is connected to your computer, your private keys never come into contact with your computer. You can connect a cold wallet to a malware-infected computer without putting your crypto at risk.
When should you use a cold wallet?
As a general rule of thumb, you should use a cold wallet when you have more cryptocurrency than you could lose. For small amounts of cryptocurrencies, a cold wallet is not necessary. It does not make sense to pay a few hundred zloty to protect a crypto that is worth a few hundred zloty.
Given the price range for cold wallets, you might consider buying one when you have more cryptocurrencies. A cold wallet is also a good idea if you plan to regularly invest money in crypto. Everyone's risk tolerance is different and there is no one-size-fits-all answer. But given how much cryptocurrency prices can rise, it's a good idea to be cautious. A one-off wallet purchase of a few hundred is not much considering how valuable crypto can be.
Spend some time shopping around and reading reviews before buying a cold wallet. Each cold wallet has a different design and features. The types of cryptocurrencies you can store also depend on the wallet you choose. Compare your options to find a cold wallet that suits you.
Private user keys - your code for a cold wallet
When you buy a cryptocurrency, you receive two keys: a public key, which acts like an email address (meaning you can safely give it to others - so you will be able to send and receive funds), and a private key, which is usually a string of letters and numbers (and which you should not give to anyone). The private key can be thought of as a password that opens a virtual safe with your money. As long as only you have access to your private key, your funds are safe and can be managed from anywhere in the world with internet access.
The public and private key system is one of the cryptographic innovations that enables digital money to exist and guarantees its security:
Cryptocurrencies are decentralised. This means that no bank or other institution holds your digital money. Instead, your cryptocurrencies are distributed across a network of computers via a technology called blockchain. One of the features of cryptocurrency blockchains is their openness: all public keys and transaction information are available to anyone.
Through complex mathematics, a public key is generated by a private key, as a result of which they are paired together. When you make a transaction with your public key, you confirm your identity with your private key.
Everything is both public and anonymous - you don't have to give your name, address or any other information to use cryptocurrencies.
Although anyone can see when bitcoin is bought, sold or used, only the holder of the private key can execute and see their transactions.
Where should private keys be stored?
As with any password, it is very important to ensure the security of private keys. The two main ways to protect them are:
Storing them online in a hot cryptocurrency wallet. In this case, it is advisable to choose a wallet independent of the exchange, offered by a company with a strong track record of security and features such as two-factor authentication (2FA).
Storing them offline in a secure location - in this case, the private key in the form of code is stored in a form and location that provides adequate physical security.
Deposit the cryptocurrency wallet or private keys in the Safebox24 vault
If you opt for a cold wallet, it is worth depositing both the wallet and the private key in a location such as a safe deposit box in a certified vault. The solution offered by Safebox24 offers the comfort of security, but also 24/7 access.
In the case of cryptocurrencies, in the safe deposit box you can deposit, among other things:
logins and passwords for your hot cryptocurrency wallets;
cold cryptocurrency wallets;
private keys in the form of an access code to your cold cryptocurrency wallets.
It is important that you have unlimited access to your safe deposit box. Safebox24 vaults are available to clients 24 hours a day, 365 days a year. Access to the vault and safe deposit box is granted after signing a contract in the form of biometric keys - face ID (face scan) and fingerprints (touch ID). From this point on, Safebox24 users have unlimited, discreet and independent access to the vault and safe deposit box.
Every Safebox24 safe deposit box is insured. You can choose your insurance limit and insure your safe deposit box, without revealing the contents, up to EUR 500,000. You do not have to disclose to anyone what you store in your safe deposit box.
About us
Safebox24 is an independent safe deposit and safe deposit box operator. In 2019, Safebox24 was the first operator in Warsaw to build a state-of-the-art, secure, certified vault with 24/7 access from scratch. In 2020, Safebox24 built another facility in the centre of Kraków - the most modern, automated vault and deposit facility in Poland with 24/7 access. Ultimately, Safebox24 plans to open more than a dozen vault and deposit facilities across Poland.