Cold storage

Trezor cold storage

Cold wallet or cold storage wallet is the hardware device to store Bitcoin or other cryptocurrency offline. It is the most secure way to store cryptocurrency. There are popular cold wallets – Trezor, Ledger Nano S, ELLIPAL Titan Cold Wallet. This is often a necessary security precaution, especially dealing with large amounts of Bitcoin.

For example, a Bitcoin exchange typically offers an instant withdrawal feature, and might be a steward over hundreds of thousands of Bitcoins. To minimize the possibility that an intruder could steal the entire reserve in a security breach, the operator of the website follows a best practice by keeping the majority of the reserve in cold storage, or in other words, not present on the web server or any other computer. The only amount kept on the server is the amount needed to cover anticipated withdrawals[1].

There are many ways to organize digital wallet security. Among the popular stand out:

  • data encryption that protects your wallet with a strong password;
  • backup that backs up your digital wallet in case of computer crashes or fraud;
  • multi-SIG method creates a transaction around each system where 2-3 people have to confirm that this particular transaction was successfully completed;
  • cold storage.

Contents

The most effective way to save bitcoins is offline (“cold”) storage. Technically, it’s storing bitcoins offline when your bitcoin wallet doesn’t have an Internet connection. It is a good idea to keep the bulk of bitcoins offline and if you need to spend a little money, then make the transfer of the desired amount to a separate online wallet. Many bitcoin clients have the option of creating a “cold” storage.

You can also make a complete analogue by simply printing the private key on paper and store this information in a safe place. There are sites offering services of generating paper bitcoin wallets. They generate a bitcoin address and create an image containing two QR codes: one public address that can be used to accept bitcoins. The second is a private key that can be used to spend bitcoins received at this address.

By printing out bitcoins, you get 100% protection from electronic ways to steal your money. When you print out your bitcoin wallet, you print your bitcoin address and private key on a piece of paper in the form of a QR code. By reading this code, you get full access to your wallet. Immediately notice that it is not so simple: you will need to resort to 2 third-party sites. Because you never know how much you can trust these sites, we recommend that you use the security measures in this article. This article describes the method with using the wallet blockchain.info Oh.

What is cold storage wallet?

How To Make A Bitcoin Wallet Offline – Cold Storage

The so-called cold storage “stores” digital coins offline, away from Internet access. To keep bitcoins offline means to reduce the threat of their abduction by hackers. Cold storage is less convenient than other methods of protection, so often a certain amount is stored online for related use, while the bulk of the money is placed on a cold storage device. This makes it easier to access coins for everyday use.

The practice of dividing money reserves is most popular among market players specializing in the purchase and sale of cryptocurrency. These platforms deal with a large volume of bitcoins, so they are a priority for hackers. In order to minimize the amount of possible losses in cases where the security system will fail, such exchangers prefer to store most of the digital money in a “cold storage”.

Methods of cold storage include keeping bitcoins:

Potential problems with cold storage methods exist but can be mitigated.

There are a number of cases where secret/private keys and/or backup seeds can be lost because of the medium on which they are stored. The the more common mediums of cold storage are listed with some of their weaknesses. Written on a piece of paper:

  • Anyone who can see it, can steal it
  • Handwriting can be hard to read or completely illegible
  • Human error in transcription can cause errors on end product
  • Paper can rot, be torn, burn, or be smoke damaged

Printed on a piece of paper

  • Anyone who can see it, can steal it
  • Type of printer – non-laser printers can run if paper gets wet
  • Have to trust printer – some have internet connections, wifi, and memory
  • Paper can rot, be torn, burn, or be smoke damaged
Engraved storage

On laminated paper

  • Anyone who can see it, can steal it
  • Lamination is prone or degradation over time and puncture or cuts that could allow moisture to get trapped in the paper and cause deterioration or rotting in some circumstances – store in cool dry place
  • Can burn or be smoke damaged
  • ‘Fireproof’ & ‘Fire-resistant’ boxes can help protect paper in a small house fire but be warned that they can sometimes fall apart in the fire and get wet if the fire is put out with water.
  • Remember people can just carry out a small safe.

Engraved / etched/ ablated/ stamped on a piece of metal

  • Anyone who can see it, can steal it
  • Some metals can deteriorate or corrode, choose a good metal; also store your metal away from direct contact other metals. Some metals that are corrosion resistant have low melting points, are extremely expensive, or hard to machine.
  • Metals can still deform or melt from heat, destroying any engraved SK. “Most house fires do not burn hotter than 1,200 degrees Fahrenheit. This temperature is typically associated with the hottest portion of a home, which is in the roof area. Homes that burn for longer than 30 minutes or consist of multiple levels sometimes burn at higher temperatures.”
  • You want to pick a metal that won’t be destroyed by a fire. So magnesium, tin, and lead are all out as engraving materials.

Silver, gold, copper, brass, bronze, nickel, cobalt, would survive the housefire fire unmelted. Some Aluminium alloys can survive but you have to have the right ones. At around 1500° Steel and Nickel should be okay. Titanium is above the housefire range and so is tungsten, however tungsten rings are known to shatter due to the brittle nature of the very hard metal.

Stored digitally on a computer

  • Computers can crash, making data recovery expensive
  • Data can still technically be recovered after a system is abandoned by the user. In some cases data can be recovered after multiple overwriting attempts and physical destruction (as long as the attacker can get all or most the pieces) so if you copy files to a new computer and ditch the old one, be careful[2].
  • Can burn or be smoke damaged
  • A traditional hard disc drive can have data corrupted by powerful magnetic fields and can physically shatter
  • A non-negligible amount of HDDs suffer from factory defects that will cause them to fail unexpectedly during their lifetime
  • Accidents can happen that could result in loss of data
  • Solid state drives (SSDs) will lose data if unpowered, they may last years before this becomes a problem but it is unwise to store long-term data in unpowered SSDs
  • If connected to internet it is another attack vector and the safety is only as good as the encryption used; I don’t know what I would recommend but it wouldn’t be BitLocker. Someone could be trying to break into the computer constantly. Even with good encryption if the machine or location is compromised the key could be stolen as soon as it is decrypted.
  • There are a lot of ongoing threats with computers, from 0-day exploits to firmware exploits and malicious USB cords
  • External hdds are good for storage for a few years at least if stored properly
  • If not connected to internet, safety is only as good as the physical protection encryption used; could someone break into the location and copy the data without anyone noticing?

Stored digitally on CD, floppy disk, laserdisc, or mini-disc

  • Plastics break down over time and with exposure to heat, humidity, regular light, all sorts of chemicals, even the oxygen in the air. This can lead to the loss of your data when stored on a medium made of plastic or written/printed on plastic.
  • Can burn or be smoke damaged
  • Can be physically damaged, making data recovery expensive or even impossible
  • Magnetic media (tapes, floppy disc) can be damaged by magnets
  • Data can become difficult to recover if the software and/or hardware to decode is old, don’t use proprietary formats

Stored digitally on a flash drive

  • Can break and have to be physically repaired before use
  • Rapidly changing magnetic fields (See MRIs) can damage the data stored on flash drives
  • Can burn or be smoke damaged
  • Can become corroded from salt water or some atmospheric conditions
  • If they break apart, some lighting conditions can cause data corruption (you can also put them back together and often still get the data)
  • Different devices are all different, even similar devices from the same production batch can be different. There are large quality differences in drives but I am assuming you aren’t using these for anything but storage.
  • There are some fake flash drives that look like they saved the data but you can’t get it back later
  • Flash drives are not advised for long term storage; they can be used as one part of a multi-medium-location-format plan.

A pre-funded physical bitcoin coin (where the manufacturer generates and installs the secret key)

  • The medium that the key is on is often paper/plastic which can burn or be smoke damaged
  • Trust in the manufacturer themselves, they could copy the key
  • Trust in their key generation procedure
  • Trust in the operational security of the manufacturer, they could be generating the keys on their everyday computer
  • Trust no one is successfully spying on them, electronically, looking through their documents while they are out of town, or with tiny tin foil hat cameras or long range ones
  • Trust that the object was not tampered with in delivery
  • Trust that no one has tampered with the object since you got it

Deep cold storage

BITCOIN & ETHEREUM PROTECTION – DEEP COLD STORAGE

Deep cold storage refers to keeping a reserve of Bitcoins offline, using a method that makes retrieving coins from storage significantly more difficult than sending them there. This could be done for safety’s sake, such as to prevent theft or robbery.

Because Bitcoins can be sent to a wallet by anyone knowing the wallet address, it is trivial to put a wallet in cold storage but to keep a copy of the addresses needed to send funds to it.

A simple example of deep cold storage is opening a safe deposit box and putting a USB stick containing an encrypted wallet file in it. The public (sending) addresses can be used any time to send additional bitcoins to the wallet, but spending the bitcoins would require physical access to the box (in addition to knowledge of the encryption password).

Deep cold storage would typically be used for holding large amounts of bitcoins, or for a trustee holding bitcoins on behalf of others. In such a case, additional precautions should be taken beyond a simple example of a single safe deposit box.

  • The box could be accessed by bank or maintenance personnel, so the contents of the box alone should not be sufficient to access the wallet.
  • The box could be stolen or destroyed in a disaster, or the media could become unreadable, so the box should not contain the only copy of the wallet.
  • The trustee could die or become incapacitated. If access to the wallet or knowledge of its location is lost, or encryption passwords are lost, the bitcoins are gone forever. Provisions should be made so that the box can be accessed by someone else as appropriate, including any encryption passwords.

See Also on BitcoinWiki

External links

References

  1. ↑ Cold Storage – BW
  2. ↑ Bitcoin & Cryptocurrency Terms: What is Cold Storage?