Non-fungible tokens are still emerging as a relatively new and revolutionary form of blockchain technology, and security surrounding NFTs is still playing catch up. While it can be difficult for investors to ensure that their assets are kept safe at all times, they’re unlikely to find a more reliable way to keep their non-fungible tokens than cold storage.
But what is cold storage? And why is it so trustworthy? Let’s take a deeper look at why cold storage is a leading solution in ensuring that your NFT art, collectibles, accessories, and digital assets are securely stored.
What Is a Cold Wallet?
In a nutshell, 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 secret phrase.
As cold wallets work offline, it’s effectively impossible for hackers or cybercriminals to access anything secured on 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 they are best used “cold,” you can also utilize one as a “hot” wallet connected to the internet, though this will make your assets far more vulnerable to thieves.
How Cold Wallets Work
Cold storage ensures protection by operating entirely offline. This means that it should be impossible for the hardware to communicate with other electronic devices unless plugged in via a USB or other port.
One key issue with a hot wallet is that signed transactions can be broadcast online, which means that it’s possible for hackers 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 digitally signed in confidence. Because the private key won’t come into contact with a connected server while transactions are brokered, even if a hacker sees a transaction, they would have no access to the private key used to initiate it.
Despite their strong levels of security, it’s important to note that this added security can make the process of transferring funds to and from cold wallets considerably more complex and long-winded. However, many investors believe this is worth paying for watertight encryption.
Although we often think of cold wallets as USB drive hardware like a stick, cold storage can come in the form of a hard drive, CD, offline computer, and even a piece of paper, albeit with varying levels of authentication and security.
Should You Store Your NFTs in a Cold Wallet?
If you’ve invested or created NFTs and are keen to keep your assets safe online, there’s no better way to look after your digital portfolio than through a cold wallet.
When using the Ethereum blockchain, which currently homes much of the decentralized finance landscape, including NFTs, your private key is essential to broker transactions and hold non-fungible tokens.
By holding a cold wallet that empowers you to keep your private key offline, you can ensure that your private information remains out of reach for criminals online.
In comparison, a hot wallet keeps your keys online, which can lead to security issues and problems with privacy.
Popular hardware wallets like Ledger and Trezor all feature two-factor authentication, which can help to ensure that nobody will be capable of making a transaction using the contents of your wallet unless they’re physically holding it.
With this in mind, if you’re interested in the strongest 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, looking after any valuable digital assets is a stressful task. However, the process is simple and highly automated for ease of use.
1. Create and Remember your Seed Phrase
When you first set up your cold wallet, you’ll generate a seed phrase if you’re using a hardware wallet. It’s essential that you make a note of this seed phrase and keep it safe, as you’ll need the seed phrase to recover your wallet. Never let your seed go anywhere online, and never share it with anyone. Make a note of your seed phrase with a pen and paper, and never type it 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 get into the linking process. Connecting your cold wallet to a hot one means that you can use your hardware wallet to trade, transfer, and sell your crypto assets. This process is automated, and it should be straightforward for your MetaMask wallet to identify a connected hardware wallet if it’s plugged into your USB drive.
Provided that 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’ve connected to MetaMask as a satellite hot wallet, you can use it to transfer your NFTs from online marketplaces like OpenSea to your cold wallet.
Once again, OpenSea has an automated function for connecting online wallets. However, because your wallet has to 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 moving into cold storage.
4. Send Your NFTs to Cold Storage
The fifth and most important step in this process involves transferring your tokens from your hot wallet to the ETH address linked to your cold storage device. Although it’s entirely possible to transfer directly from exchanges like OpenSea to your ETH address, sending your collectibles directly to your connected MetaMask wallet may be more straightforward before moving them onto your hardware wallet.
Building a Cold NFT Collection
Whether you’re buying and selling digital artworks or accumulating collectible tokens, cold storage is certainly the safest way to ensure that your NFTs are well-protected at all times. In addition, because NFTs are proof of ownership that’s recorded on the blockchain, it doesn’t stop you from viewing your assets, making it the perfect solution for collectors interested in holding their tokens over long periods.
As the technology develops, we’ll likely see more security options and seamless measures introduced to keep assets safe online. But, for now, NFTs kept in cold storage can do a stellar job of keeping tokens protected from cybercriminals.