Once you have bought the bitcoin or any other crypto coin, the next step is to store it properly. We have been hearing for long about the hacking of exchanges, stealing of crypto from personal accounts and so forth. So storing your digital currency is also important. A common way is that we buy a bitcoin or any other currency from an exchange and store them in a digital wallet. There have been instances where people left their coins on the exchange only.

Bitcoin Storage Types

We can divide our storage types into hot and cold storage, before discussing into the storage details. We shall discuss the Hot Storage and Cold Storage types.

Remember, bitcoin on your computer is like carrying money around in your wallet or your purse. This is called “hot storage”. It’s convenient but also somewhat risky.

On the other hand, offline storage is “cold storage”. It’s locked away somewhere and not connected to the internet. In one sense, it is safer and more secure but less convenient.

Hot and Cold Storage for Bitcoin

We should have different keys for different types of storage. Here we are toiling with the idea of why not having both a hot and a cold storage to increase safety and also convenience. One can use cold storage to keep his coins secure as an asset. He can use a hot storage for a part of his crypto assets which he can be used for sending and other commercial transactions. We may like to move our coins back and forth between our hot and cold storage.

Cold storage is not online, and so the hot storage and the cold storage won’t be able to connect to each other across any network. But, cold storage doesn’t have to be online to receive coins. The hot storage knows the cold storage addresses, it can send coins to cold storage at any time.

If the amount of money in hot wallet becomes uncomfortably large, you can transfer a part of it over to cold storage, without putting your cold storage at risk by connecting to the network.

Next time the cold storage connects it will be able to receive from the blockchain information about those transfers to it. Then the cold storage will be able to do what it wants with those coins.

As we saw earlier, for privacy and other reasons we want to be able to receive each coin at a separate address with different secret keys. So whenever we transfer a coin from the hot storage to a cold storage we’d like to use a fresh cold address for that purpose. But since cold storage is not online, the hot storage should be able to find its address in some way.

For more readings, please see the below articles as well:

Digital Signature

Blockchain Basics Demystified

Bitcoin Technology History – Digital Currencies Before Bitcoin

Pin It on Pinterest

Share This