Cold Storage

What Is Cold Storage?

Cold storage is offline cryptocurrency storage that often involves hardware, non-custodial wallets, USBs, offline computers, and paper wallets. Cryptocurrency wallets used to receive, store, and send coins are usually classified as either hosted or cold wallets. 

Hosted wallets, also known as hot wallets, are software that can be accessed via a wallet service provider's website and are the more popular alternative due to their simplicity of use, convenience, and consistent availability. Access to funds saved in a wallet is protected by a single or more private key, depending on whether the wallet is single-signature or multi-signature. 

If the private keys are compromised, such as through theft or a phishing attempt, the monies saved on the wallet may be stolen and forever lost. Because blockchain transactions are irrevocable and bitcoin users' identities are anonymous, the original owner has little to no remedy in such a circumstance.

Why Is a Cold Storage Needed?

Cold storage adds an extra degree of security to user funds by physically removing the wallet from insecure networks, most notably the public Internet, when not being used. In addition, potential attackers cannot access the funds held on the physical cold wallet.

However, that is only possible as long as the physical cold wallet is kept in a secure location. That is why cold storage is utilized by both individuals and businesses, particularly cryptocurrency exchanges, whose business model entails maintaining custody of their customers' assets. 

Methods of Cold Storage

There are numerous ways of cold storage available, but the most prevalent are paper and metal wallets. A paper wallet is essentially a tangible piece of paper with both the public and private keys of the wallet printed on it. A hardware wallet is a specialized device, similar to a USB drive, that must be physically inserted into a computer to access funds.