Non-fungible tokens are still emerging as a relatively new and revolutionary form of blockchain technology, and the security surrounding NFTs is still catching up. While it may be difficult for investors to ensure that their assets are kept safe at all times, they are unlikely to find a more reliable way to keep their tokens non-fungible than cold storage.
But what is cold storage? And why is it so reliable? Let’s take a deeper look at why cold storage is a leading solution to ensure your NFT art, collectibles, accessories and digital assets are safely stored.
What is a cold wallet?
Simply put, a cold wallet is a piece of hardware that allows you to store cryptocurrency and blockchain-based digital assets like NFTs completely offline and protected by layers of security like passwords, PIN codes, and a 24-word passphrase.
Since cold wallets work offline, it is impossible for hackers or cybercriminals to access anything secured in a cold wallet. However, the downside is that your assets will need to be uploaded online before you can make a transaction or transfer your assets.
Cold wallets get their name because they are best used when kept offline, away from threats and vulnerabilities. Although it is best to use them “cold”, you can also use one as a “hot” wallet connected to the Internet, although this will make your assets much more vulnerable to thieves.
How cold wallets work
Cold storage ensures protection by operating completely offline. This means that it should be impossible for the hardware to communicate with other electronic devices unless it is connected via a USB or other port.
A key problem with a hot wallet is that signed transactions can be transmitted online, meaning hackers may be able to access the private keys used to complete the transfer of currency or assets.
However, with cold wallets, any transaction initiated online is transferred offline, where it is confidentially digitally signed. Because the private key will not come into contact with a connected server while transactions are being negotiated, even if a hacker views a transaction, he or she will not have access to the private key used to initiate it.
Despite their strong levels of security, it is important to note that this added security can make the process of transferring funds to and from cold wallets considerably more complex and lengthy. However, many investors believe that waterproof encryption is worth paying for.
Although we often think of cold wallets as USB drive hardware as a device, cold storage can come in the form of a hard drive, CD, offline computer, and even a piece of paper, albeit with different levels of authentication and security. .
Should you store your NFTs in a cold wallet?
If you have invested in or created NFTs and want to keep your assets safe online, there is no better way to take care of your digital portfolio than through a cold wallet.
Using the Ethereum blockchain, which is currently home to much of the decentralized finance landscape, including NFTs, your private key is essential for negotiating transactions and holding non-fungible tokens.
By having a cold wallet that allows you to keep your private key offline, you can ensure that your private information stays out of the hands of online criminals.
By comparison, a hot wallet keeps your keys online, which can lead to security issues and privacy concerns.
Popular hardware wallets like Ledger and Trezor feature two-factor authentication, which can help ensure that no one can make a transaction using the contents of your wallet unless you physically have it.
With this in mind, if you are interested in the highest level of security for your assets to keep them safe, you should prioritize purchasing a hardware-based cold wallet.
How to store NFTs in a cold wallet
Storing your NFTs offline in a cold wallet for the first time can be daunting. After all, taking care of any valuable digital asset is a stressful task. However, the process is simple and highly automated for ease of use.
1. Create and remember your opening phrase
When you first set up your cold wallet, it will generate a seed phrase if you are using a hardware wallet. It is essential that you make a note of this opening sentence and keep it in a safe place, as you will need it to recover your wallet. Never let your seed go anywhere online, and never share it with anyone. Write down your opening sentence with pen and paper, and never write it down on your smartphone or take a screenshot.
Once you set up your wallet, a new Ethereum (ETH) address will be created. This is your cold storage address.
2. Link your wallet to MetaMask or other preferred “hot” wallets
Now, you can enter the pairing process. Connecting your cold wallet to a hot one means you can use your hardware wallet to trade, transfer, and sell your crypto assets. This process is automated and it should be easy for your MetaMask wallet to identify a connected hardware wallet if it is connected to your USB drive.
As long as your MetaMask wallet is connected to the same computer as your hardware wallet, there should be no issues on this front.
3. Connect to your preferred NFT marketplace
Now that you have connected to MetaMask as an active satellite wallet, you can use it to transfer your NFTs from online marketplaces like OpenSea to your cold wallet.
Once again, OpenSea has an automated feature to connect online wallets. However, because your wallet must be connected to the internet to store NFTs purchased directly from an exchange or marketplace, your non-fungible tokens will need to be transferred to MetaMask before going into cold storage.
4. Send your NFTs to cold storage
The fifth and most important step in this process is to transfer your tokens from your hot wallet to the ETH address linked to your cold storage device. Although it is entirely possible to transfer directly from exchanges like OpenSea to your ETH address, sending your collectibles directly to your connected MetaMask wallet may be easier before moving them to your hardware wallet.
Building a Cold NFT Collection
Whether you’re buying and selling digital artwork or hoarding collectible tokens, cold storage is undoubtedly the safest way to ensure your NFTs are well protected at all times. Also, because NFTs are proof of ownership that is recorded on the blockchain, it doesn’t prevent you from seeing your assets, making it the perfect solution for collectors interested in holding on to their tokens for long periods of time.
As technology develops, we are likely to see more security options and built-in measures to keep assets safe online. But for now, cold-stored NFTs can do a stellar job of keeping tokens safe from cybercriminals.