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Cryptocurrency Custody Myths Finally Addressed

The CEO and co-founder of Coinbase, Brian Armstrong, has cleared up the misunderstanding surrounding the hot and cold storage for digital assets such as Bitcoin. In this piece, the ongoing debate on the issue of cold storage versus hot storage will be adequately addressed.

First Misconception: Funds in Cold Storage Cannot Trade Crypto

This is not true. There are platforms that allow customers to trade over-the-counter (OTC) using delayed settlement such as Coinbase Custody. The meaning of this is that customers can trade while their funds are stored safely offline and only get transferred at the completion of the trade.

Second Misconception: Cold Storage Promotes Reliance On An Authorized User

A well-rounded crypto custody solution doesn’t depend on a particular person. Rather, it makes use of multiple keys to achieve redundancy and consensus. The bigger the transaction, the more the involved parties need to consent. A well-designed custody solution has this as a fundamental aspect of its operation. A recovery program that is well-tested should consider supply chain attacks, malicious insiders, natural disasters, etc.

Third Misconception: Hardware Security Modules Compares To Cold Storage

HSMs are undoubtedly great security tools. When they are well implemented, the security they offer can come close to that of cold storage but cannot be said to be a match. In Cold storage, “Air gapping” private keys means to totally disconnect them from the internet, making it harder for attackers to penetrate. The addition of this manual step raises confidence in customers because the security of their money is not only provided by software.

Hot Storage Versus Cold Storage

Both of them are very useful in the industry. They each have their strength, and one is not superior to the other. Hot storage works best in situations whereby customers require real-time access to funds. Security risks are consequences of making use of hot storage, but such can be mitigated.
Cold storage is a better choice when security is a priority, typically when large amounts are involved. Funds can be staked and traded in cold storage, but it has a shortcoming which is a delay when it comes to the withdrawal of funds which could take hours.

Conclusion

From the reasons mentioned above, customers will be able to have a better understanding of cold and hot storage of crypto funds and be able to make more informed choices. For every job there is a right tool for it, the same is true in the crypto community, and customers should always make use of the right tools to accomplish their tasks.

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