Deciphering the Myths about Cryptocurrency Custody

Over the last couple of months, I have noticed some inaccuracies popping up about how cryptocurrency custody and storage solution are perceived by the global crypto community. If left unresolved, these myths can mislead millions of people and hinder them enjoying the full benefits of a decentralized system.

Today, we look at the top myths about cryptocurrency custody and decipher them for you.

Myth 1# Not Possible to Trade Cryptos Using Assets in Cold Storage

This is one of the most misleading myths we have come across online and offline. Most of the accredited custodian service providers such as Coinbase allow their clients to trade over-the-counter through delayed settlement. What this means is that you can trade in crypto even if your digital assets are in an offline storage. The assets are only transferred when the trade is completed.

Myth 2# Not Possible to Earn Interest on Digital Assets in Cold Storage

This is also one of the most common myths about cryptocurrency custody that you should not believe in if you want to take your cryptocurrency trading game to the next level. Nowadays, there is alternative energy intensive mining models of securing blockchains.

Cryptocurrency Custody

A good example is Tezos, a major cryptocurrency project that allows clients to delegate funds that are in cold storage to a baker and earn an interest. In this model, the baker is equivalent to the conventional Bitcoin miner. A small percentage of the total funds are kept online.

Concisely, your funds will be in a secure cold storage but you still have the ability to participate in the blockchain network and earn an interest.

Myth 3# Hardware Security Modules Are Similar to Cold Storage

There is a select group of cryptocurrency traders who are of the idea that hardware security modules, often abbreviated as HSMs are as good as cold storage. Coinbase is one of the platforms that extensively use them in their architecture.

Numerous studies and experiments have shown that the two are not equal. Hardware security modules offer good security but they do not match the security features offered by cold storage. For instance, air gapping private keys in cold storage means that they are completely offline. They cannot be accessed remotely by a hacker.

In addition, cold storage has an additional manual step that makes it even harder for any unauthorised personnel to access your funds. You can rest easy knowing that it is not just software that is protecting your digital assets.

Myth 4# Hot Storage vs. Cold Storage

The first thing to note is that both cold and hot storage are important to the industry and most of the companies that offer cryptocurrency custodian services use them to provide solutions to their clients. Nonetheless, they are not the same, each has its own pros and cons that you need to consider before making your final decision.

Hot storage is idea for customers who require real-time access to their digital assets. This form of storage poses such security risks that need to be addressed. Cold storage means that the assets are stored offline.

 Do you have any other myths about cryptocurrency custody that you would want us to address? Please share with us through the comment section. You can also read trending cryptocurrency news here.