The Problem with exchanges
There are many ways to store your cryptos. The most common way to store these digital assets is to store them on a wallet within an exchange such as Coinbase. The big question that arises here is…. Are your cryptos safe when storing them on a wallet in an exchange?
Let’s look at the Mt. Gox exchange to answer this question. Mt. Gox was one of the first exchanges that allowed users to buy and sell cryptos online. It was created back in July of 2010 and by 2013 and into 2014 it was handling over 70% of all BTC transactions.
In February of 2014 Mt. Gox suspended trading, closed their services on the exchange and shut down their website and filed for bankruptcy protection from creditors. It is said that approximately 850,000 Bitcoins went missing and were likely stolen that belonged to customers and the company. At that time, the value of those Bitcoins was valued at 450 million U.S. dollars. To this day nobody really knows what happened regarding how the Bitcoins disappeared from the exchange.
What is Cold Storage?
What is cold storage and how does it work you may ask? Cold Storage simply means that you are taking the digital cryptos or coins and getting them off the exchange, offline and into your physical possession. That’s right, you OWN the digital assets and have physical OWNERSHIP of them. How cool is that?
Due to Mt. Gox event taking place and many others like it since 2014, it has opened a whole new market for cold storage. Because people feared losing their cryptos in a crypto exchange, a few companies decided to create devices that allowed the investor to move their cryptos off an exchange and store them on a device.
This is like taking a word document and storing that on a flash drive like you would for work purposes or for school projects. The difference is, that these devices for storing cryptos are much more sophisticated than a simple flash drive.
When I speak to people about doing this, they usually ask me how you would go about getting them back online after you have taken them offline? That’s a great question and the answer to that is simple. If you have an internet connection and a computer, you can connect the cold storage device through USB connection.
The next step is to login to your exchange account that you have online and transfer your coins from the Cold Storage Device back to your online exchange wallet, so that you can sell your cryptos or trade them for others on the global market.
I must admit, I like this a whole lot better than buying stocks from a stock exchange. Think about it for a minute… wouldn’t it be nice if you could do this with your digital stocks that you apparently OWN when your logged into your Fidelity stock broker account or whoever you might have as your stock broker service?
That brings me to the next point of why Cold Storage is the safest and securest way to store your crypto currencies. Imagine for a minute that the Stock Market froze up and you couldn’t sell your stocks. Hypothetically speaking, let’s say the brokers shut down and went offline. You would probably be a nervous wreck. I know I would, and the first thing I would be panicking about, is whether my stocks will be there or not when the crisis is over. Afterall, your stocks are a digital asset as well right?
The cold storage devices protect you from events like this and hackers online. It’s a security measure you can take to GUARANTEE that your cryptos are safe from such events!
The Trezor Wallet
There are several different options for storing your cryptos on a cold storage device. For this article we are going to focus on just one of the best offline crypto wallets or devices called the “Trezor Wallet”. We picked this wallet because of the following reasons.
- We use the Trezor Wallet ourselves to store our cryptos offline.
- It’s one of the most secure devices on the market.
- It is very easy to use and understand.
The Trezor wallet consists of a unique security layer that is IMPOSSIBLE to hack in our professional opinion. When you first receive your Trezor Wallet you will be asked to set it up online through the Trezor website.
For further instructions on how to do this we have put together a video from when we first set up our first Trezor Wallet. It will walk you through how that works with downloading the firmware so that your Trezor device communicates with the Trezor’s website.
Watch the Video below:
The Trezor Recovery Seed
Every cold storage device should come with a recovery seed. This is set up just in case any firmware update doesn’t go through successfully and your wallet data gets wiped out in the process.
A recovery seed acts like a restore point that you would use on a PC. if you wanted to bring the data back to its last stored point before you experienced technical issues, you would re-enter the recovery seed from Trezor’s website while the device is connected to the computer.
The recovery seed consists of a series of 24 different words in order from 1 to 24. The words are assigned to you when you first set up your Trezor wallet. Once the recovery seed is set you are ready for the next step which is setting up your PIN number. (Before you move on to the PIN # write down your recovery seed on a piece of paper and lock it up somewhere you won’t forget it.)
The Trezor PIN #
The Trezor PIN number is a number you create that is 9 digits long. This is probably the most important security layer that the device is equipped with and we will explain why. When you have your PIN number set, you will be asked to enter that PIN when you connect your device to the Trezor website.
To get to your wallet and the PIN number pad follow the steps below.
- Go to Trezor.io website and select Wallet.
- Select the Device you have in your possession. It will be either the Trezor One or the Trezor Model T.
- Once you have chosen your device it will take you to the Pin Pad number.
- You will take your Trezor device that is plugged in and look at your Pin pad numbers that are displayed on the Trezor screen and punch in your Pin number according to where it is positioned on the Device and place that number into the same position on the website PIN pad.
After you have completed these steps it will take you directly into your Crypto account where you have access to your Cryptos. From here you can buy and sell directly to one of the exchanges that are available within Trezor Wallet.
This is a new feature that was just added to Trezor wallets in the last month or two and is very convenient to users who want to just sell and trade directly from Trezor. (Write down your crypto address for the specific coins you hold and store these somewhere safe as well.)
What makes the PIN number so secure?
The reason why this security layer is so secure is because it requires you first to know what the PIN number is in order to get into the account. Secondly if someone were to steal your device, they would need the PIN number and access to a computer to begin trying to hack the device.
If they don’t have the PIN number, they would have to guess the order of your numbers in sequence of how you set the PIN up.
Furthermore, when you enter the number onto the website PIN pad the numbers don’t display so, if someone was looking over your shoulder, they aren’t going to know what your PIN number is unless they see both your PIN pad from the device and your PIN pad from the website.
For example – They would need to know that your PIN was set up as follows… 236542789.
The PIN pad generates a new set of numbers automatically when you enter the numbers in the wrong order and positions those numbers at a new location on the PIN pad. This is completely random and creates an additional layer of security if someone were trying to high jack your user transmission from the website and they were trying to hack your account over the internet. It would be virtually IMPOSSIBLE for someone to know what numbers your punching into the PIN pad.
If you knew your device was physically stolen, you could go the website and just reset your PIN# at that point from Support Center or submit a ticket and get in touch with the company to take the next steps.
Our Final thoughts
Out of all the wallets that we have online and offline, we like the Trezor wallet the best due to it’s unique security measures that are implemented in the device. It is a great feeling knowing that we can take our coins off exchanges and hold them in our physical possession.
It helps you sleep better at night knowing that you no longer have to worry about another MT. Gox type situation going down with an exchange that you bought cryptos on, because you no longer have to let your cryptos sit on their exchange.
It’s hard to imagine that we can hold a digital asset in our hands now and it will be very interesting to see how TREZOR evolves with technology as they release new Firmware updates and new devices in the future.
If you are interested in purchasing a TREZOR Wallet the TREZOR One wallet would be our first recommendation. There is a new wallet they have called the TREZOR Model T which we will cover in greater detail in another post.
We are affiliates with TREZOR so we must let you know, that if you CLICK on one of our links in this article we do receive a commission on any purchase. It is greatly appreciated if you do make a purchase however, it is not our intention to sell you something here.
This article was created to help you understand what you are getting with the TREZOR wallet when you buy one. We wanted to also help you understand the security measure that are implemented into the device from a technical perspective.
Please feel free to share your experience with the TREZOR wallet if you own one and leave comments in the comments section. Thank you and we look forward to covering more information as it is released on this device.