How to safely transfer your crypto to a cold storage wallet (2024)

How to safely transfer your crypto to a cold storage wallet (1)

Cold storage wallets offer the best crypto security to guard your digital assets in the precarious conditions of bear markets.

With some crypto platforms currently freezing withdrawals due to harsh market conditions, the need for self-custody has become more important.

Centralised exchanges such as Coinbase (COIN), Gemini and Binance have so far honoured the escalation of redemptions amid the current crypto-crash, but ultimately you don't own digital assets until you hold them in your own wallet where you control the private keys.

You can do this by creating a new crypto address and storing the private keys for accessing it in a secure offline format, usually a flash-drive called a cold storage wallet.

Since the terra/Luna crash in May, crypto-platforms such as the Celsius Network have frozen accounts due to the spike in redemptions and the Voyager Digital exchange restricted the daily withdrawal limit to $10,000 (£8,140) because of exposure to the crisis-laden Three Arrows Capital crypto hedge-fund.

Read more: Crypto live prices

Three Arrows Capital has reportedly filed for bankruptcy, after receiving a reprimand from the Monetary Authority of Singapore (MAS), where it is legally domiciled.

The MAS issued a public reprimand of Three Arrows Capital for providing “misleading information to the regulator and exceeding the threshold set for assets under management".

This was in reference to a 2021 position in the Grayscale Bitcoin Trust (GBTC) that amounted to $1.2bn.

However, in Singapore, Three Arrows Capital is only registered to manage assets under $180m.

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The MAS note also stated that “in light of recent developments which call into question the solvency of the fund managed by Three Arrows, MAS is assessing if there were further breaches by Three Arrows of MAS’s regulations".

Cold storage wallet

Below is a step-by-step guide on how to create a new crypto address and store the private keys for accessing it in a secure offline format, usually a flash-drive called a cold storage wallet.

There are many different types of cold storage wallets that can be used to store crypto from companies like Trezor and Ledger.

Ledger is one of the most popular providers of cold storage wallets, with products such as the Nano X or Nano S, which look like USB sticks with small digital interfaces. They typically cost between $50 and $300.

After you have purchased a hardware wallet and plugged it into your computer, you will download the app that comes with the device.

How to safely transfer your crypto to a cold storage wallet (2)

This app will allow you to create a new wallet whose private keys will be stored on your cold storage device.

You will then be given a seed phrase, which you must write down on a piece of paper and keep offline.

This seed phrase will allow you access to your private keys if your cold storage device is lost or destroyed.

Read more: Crypto: Tether hole widens as it loses another billion in a day

You will then set up a PIN for accessing your device. After entering and confirming your pin you can select the coins you want to store on your wallet.

The device will generate a new address so you can receive bitcoin (BTC-USD), ethereum (ETH-USD) or crypto from a different blockchain.

How to set up and add crypto to a cold storage wallet

1. The Set-up

Plug one end of the USB cable provided with your cold storage wallet into the device itself, and plug the other end into your computer.

2. Installing cold storage wallet application

The installation application that comes with your cold storage wallet will attempt to download onto your computer. Select the download for either Windows or macOS.

3. Adding specific cryptocurrency blockchains

You will now be asked to create a new wallet for a specific cryptocurrency blockchain, such as bitcoin, ethereum or dogecoin.

Select the blockchain of the cryptocurrency that you wish to store then click "create new wallet" and confirm creation on your cold storage device.

4. Adding seed phrase backup code

You will now be given a "standard seed backup" code. You must keep this in a safe, off-line, place.

This will give you access to your private keys if you lose your cold storage wallet. Once selected, it will tell you that you have successfully created it.

It is advised to write these seed phrase words down in paper and never store them online. You will then have to enter the seed phrase keywords back into your cold storage wallet device to confirm them.

5. Create your PIN

You will then be asked to create a pin to access your device. Click "Set PIN."

After setting your pin you will then be able to store the private keys to your cryptocurrencies on your device. Usually bitcoin and ethereum are set up by default. If you want to add bitcoin to your cold storage wallet click "receive" to get your address.

6. Transfer cryptocurrencies from online 'hot wallet' to cold storage wallet

Go to the online exchange or other "hot wallet" location where your bitcoin or other cryptocurrencies are stored and send them to your new cold storage wallet address.

Apart from your cold storage wallet getting lost or damaged, another danger is buying your crypto cold storage wallets from an unofficial supplier. You could end up with a rigged device that has pre-programmed seed words that can be used to unlock your assets.

The easiest way to protect against receiving a corrupted device is to buy directly known official manufacturers of cold storage wallets, such as Trezor, Ledger or Keep Key.

Watch: Can you live exclusively off bitcoin?

As an enthusiast with extensive knowledge in cryptocurrency and blockchain technology, I want to emphasize the critical importance of safeguarding your digital assets, especially during volatile market conditions. The recent incidents involving freezing withdrawals on certain crypto platforms highlight the necessity for self-custody, and one of the most secure methods to achieve this is through the use of cold storage wallets.

Let's break down the key concepts mentioned in the article and provide additional insights:

Centralized Exchanges vs. Self-Custody:
- The article mentions platforms like Coinbase, Gemini, and Binance facing challenges during market downturns. It underscores the idea that true ownership of digital assets only occurs when held in a personal wallet where the user controls the private keys.
Cold Storage Wallets:
- Cold storage wallets offer enhanced security by keeping private keys offline, protecting them from online threats. The article recommends creating a new crypto address and storing private keys in a secure offline format, typically on a flash drive known as a cold storage wallet.
Recent Incidents and Risk in Centralized Platforms:
- The article cites instances of platforms freezing accounts and restricting withdrawal limits due to market crises. This emphasizes the vulnerability of centralized exchanges and the potential risks associated with relying solely on them for asset storage.
Three Arrows Capital Bankruptcy and Regulatory Oversight:
- The mention of Three Arrows Capital filing for bankruptcy and facing regulatory reprimands from the Monetary Authority of Singapore (MAS) highlights the importance of regulatory compliance in the crypto space. The MAS reprimand was based on misleading information and exceeding asset management thresholds.
Credit Lines and Collateral Support:
- Centralized exchanges seeking credit lines from entities like FTX and Alameda Research, as well as agreements for substantial credit lines with institutions like Voyager Digital and BlockFi, indicates the broader financial impact of market instability.
"Not Your Keys, Not Your Coins" and the Shift to Self-Custody:
- The article concludes with the phrase "not your keys, not your coins," emphasizing the growing awareness of the importance of self-custody. Users are urged to move their assets to wallets where they control the private keys, reducing the risk of being locked out during exchange or platform issues.

Now, let's delve into the step-by-step guide for creating a cold storage wallet, referencing popular providers like Ledger:

Types of Cold Storage Wallets:
- Various providers, such as Trezor and Ledger, offer cold storage wallets. Ledger, with products like Nano X or Nano S, is highlighted as one of the popular choices.
Setting Up a Cold Storage Wallet:
- After purchasing a hardware wallet, users download the corresponding app. The app guides users through creating a new wallet, generating a seed phrase, and setting up a PIN for device access.
Seed Phrase Backup:
- The crucial step of creating a seed phrase is emphasized, which must be written down on paper and kept offline. This seed phrase serves as a backup to access private keys in case the cold storage device is lost or damaged.
Adding Cryptocurrencies:
- Users select the cryptocurrencies they want to store on the wallet, and the device generates a new address for receiving those assets. The article specifically mentions Bitcoin and Ethereum as default options.
Transferring from Hot Wallets:
- To enhance security, users are advised to transfer their cryptocurrencies from online "hot wallets" to the newly created cold storage wallet address.
Protecting Against Risks:
- A warning is issued about the potential dangers of buying cold storage wallets from unofficial suppliers. It emphasizes the importance of purchasing directly from reputable manufacturers like Trezor, Ledger, or Keep Key to avoid the risk of compromised devices.

In conclusion, the step-by-step guide and associated concepts underscore the proactive measures individuals can take to secure their digital assets through the use of cold storage wallets, especially in times of market uncertainty and potential platform issues.