Cold Storage

Cold Storage is a short-term and long-term cryptocurrency storage solution that involves storing most or all of your cryptocurrency reserves offline, away from the Internet.

Types of offline storage include a computer or smartphone not connected to the Internet, hardware wallets like the Ledger Nano, a USB thumb drive that is kept in a safe and secure location (like a bank safe deposit box), on a piece of paper (again, kept somewhere safe), or even on other physical items, such as being engraved on an actual coin or on a piece of wood.

The idea here is that your cryptocurrencies are at greater risk of theft or loss if they are kept in a centralized exchange wallet or in a wallet on another internet-connected device. You have complete control over your storage device and aren’t relying on anyone else.

Cold wallet options like a Nano or thumb drive are ultra-portable and you can take them with you practically anywhere.

The biggest plus is that your private keys never leave the device. All transactions made with the storage device are done locally, drastically improving your exposure to cyberattacks.

While cold storage eliminates problems introduced by services like crypto exchanges, other issues arise out of its use.

For example, actively trading becomes harder as tradeable assets sometimes need to be moved out of cold storage and into a hot wallet before they can be used.

Hardware-based cold storage wallets can also be expensive and more difficult to set up than a traditional exchange wallet.

And let’s be honest, some people have issues figuring out their TV remote. A USB thumb drive cold storage device introduces a technical barrier to getting started.

Related Terms

Hardware Wallet

A type of cryptocurrency wallet that’s based on a physical device, such as a USB thumb drive with buttons and a screen, that stores your private keys to your cryptocurrency funds. A hardware wallet is considered a cold wallet in that it isn’t connected to the Internet, keeping your wallet (and wallet funds) away from hackers and theft.

Cold Wallet

Cold wallets are not connected to the Internet, providing added security over hot wallets. Cold wallets are not directly exposed to Internet security threats like hacks, phishing attempts, malware, viruses, and other attacks that could lead to the permanent loss of your cryptocurrencies and digital assets.

Wallet

Made up of a unique public address called your public key (similar to your bank account number) that you can share with the world, your friends, family, and other businesses and companies that you trust, to send and receive digital assets. A wallet also stores a private key (much like the PIN that you use to access your bank account at the ATM), which, when combined with the public key, confirms ownership of the wallet, and allows you as the wallet owner to view the digital record of your wallet transactions, and allows you to perform actions such as buying, selling, withdrawing, and swapping funds.

Desktop Wallet

A common type of crypto wallet used to securely store and manage your private keys on a computer hard drive. They’re considered more secure than web-based wallets, since you can only access them from wherever your computer is located, and again, you control your private keys.

Paper Wallet

Another form of cryptocurrency wallet that is literally a physical piece of paper with your public and private keys written or printed on it. It lets you store and access your cryptocurrency offline, or not connected to the Internet.