Best Ways to Ensure Long Term Crypto Storage
The HODL Gang
There is no shortage of malpractices in the crypto market. Plus, the amassing greed, negligence of fundamentals, and other types of human errors all contribute to the constant loss of funds. Fortune Magazine reported that about 4 million Bitcoins had been lost forever. This happened because many people who held bitcoin in their wallets either forgot their passwords or lost their backup phrases.
HODL is what we in the market keep telling each other when it comes to not selling our funds. But what about storing them? How do we encourage each other to store our funds for time immemorial securely?
What if one day you suddenly feel like you want to spend the crypto you have, even if you know it might increase in value? What if you lose the device you stored the funds on? What happens if someone decides to hack your device and steal all your funds? What if you, like thousand others, realize you haven’t backed up your funds properly?
How to Store For Long Term
In essence, Cryptocurrencies are usually stored in the form of a file on their device, the so-called ‘wallet.’ If this file is lost, hacked, or corrupted, the coins are gone forever. And so, you should always make sure to keep good care of the funds that are stored in that file.
To ensure our readers don’t go on to face the same problems, we have compiled a list of the best ways to store your crypto securely and for a long time. Here we go.
A Hardware wallet is a physical, electronic device designed to protect an individual’s cryptocurrency funds by securing their private keys. The idea behind hardware wallets is to separate the private keys from online storage methods, such as computers or smartphones, which are more susceptible to being compromised. Storing your private keys offline prevents this, as hackers would have to physically steal your hardware wallet and gain access to a user’s private keys.
The core innovation is that the hardware wallet must be connected to your computer, phone, or tablet before coins may be spent. Hardware wallets keep private keys separate from vulnerable, internet-connected devices. Your all-important private keys are maintained in a secure offline environment on the hardware wallet, fully protected even should the device be plugged into a malware-infected computer.
There is a huge market for hardware wallets service providers. Each wallet with specific features, such as a wide range of supported coins, increased factor authentication, additional flexibility, etc.
The Ledger Series hardware wallets, i.e., Nano S and Nano X, are among the most popular and versatile hardware wallets out there. The Ledger wallets’ best feature is that they are immensely more secure and trustworthy than online or Hot wallets. Cold wallets, such as Ledger Nano X, Ellipal Titan, or Trezor, offer one of the best security in terms of crypto storage.
The most basic form of cold storage is a paper wallet. A paper wallet is simply a document that has public and private keys written on it. The document is printed from the bitcoin paper wallet tool online with an offline printer. The paper wallet or document usually has a QR code embedded on it to be scanned and signed to make a transaction easily. The drawback to this medium is that if the paper is lost, rendered illegible, or destroyed, the user will never access his address where his funds are.
One of the advantages of having a paper wallet is that it takes more time to put it back online and withdraw than a hot wallet once you transfer it. That forms another layer of security as it discourages you from taking out funds because it is too much work.
Paper wallets are easy to use and provide a very high level of security. Using a paper wallet is relatively straightforward. Transferring Bitcoin or any other currency to your paper wallet is accomplished by transferring funds from your software wallet to the public address shown on your paper wallet. Alternatively, if you want to withdraw or spend currency, all you need to do is transfer funds from your paper wallet to your software wallet. This process, often referred to as ‘sweeping,’ can either be done manually by entering your private keys or scanning the paper wallet’s QR code.
N.B.: Paper wallets were trendy between 2011 and 2016, as there were very few options to store Bitcoin and other cryptocurrencies. Paper wallets are now considered obsolete and even dangerous to store your cryptocurrency on.
A Hashed Time-Locked Contract (HTLC) is traditionally a mechanism to ensure payments are made, i.e., to eliminate counterparts’ risk. HTLC’s are made by creating channels with two or more parties. Person A creates a channel, waits for person B to send the agreed-upon price; Person A approves, and the contract is closed.
i.e., If Alice has an HTLC channel open to Bob and Bob has a channel open to Charlie, Alice can use an HTLC to pay Charlie through Bob without any risk of Bob stealing the payment in transit.
But, concerning the current discussion, we can modify the Time-Locked Contract to our benefit.
One of the HTLC is that you can customize who to send the funds to when approved and when to send it. And so, why not create an HTLC where both parties are the same person, and the transit of funds is me sending to myself in the future?
Say Alice creates an HTLC channel and deposits a certain amount of funds in it. Alice mentions another wallet address in the contract, specifying to send funds to that address when approved or when the contract time has passed. When the contract lapses, the funds will be directly sent to the specified wallet, like clockwork.
In this case, we used an HTLC, modified it, and made sure our funds are locked for a period we want. Think of it as a gift to you from yourself. An HTLC ensures that your funds are secure and locked. Meaning that unless specified, you cannot touch your funds, and they will remain locked.