What is Cold Storage?
Cold storage, also known as “offline storage” is a way of storing digital assets, such as cryptocurrencies and NFTs, offline. It is often compared to “hot” storage, which enables users to use and manage their crypto assets online.
Because it is not connected to the internet, it is characterized by its enhanced security and reduced risk from hacking attempts, spyware, and malware.
A cold wallet is a form of cold storage used to protect crypto assets from online threats. A wallet is deemed a cold wallet if it holds private keys offline. The public keys of a cold wallet may still be available online to allow users to receive crypto directly to their cold wallets without compromising security.
This type of storage empowers users with self-custody since it gives users absolute control over their private keys, and complete ownership and control over their funds. With more power comes more responsibility and hence it’s important for cold storage users to understand the different aspects of self-custody.
There are three types: hardware wallets, paper wallets, and deep cold storage.
- Hardware wallet: A hardware wallet is a portable physical device designed to hold a user’s private keys offline. Hardware wallets store private keys offline so they are never connected to the internet. This reduces the risk of scammers using the internet as an attack vector to gain unauthorized access to your private keys from the hardware wallet.
- Paper wallet: A paper wallet involves a user printing their public keys and private keys or seed phrase on a piece of paper, and keeping the piece of paper in a secure location. It often has a QR code to make the transaction process faster. While papers are inexpensive, they can easily get lost or destroyed, and if that happens then the user may never be able to access their digital assets again.
- Deep cold storage: This is a type of storage where the user holds their private keys in a completely offline location that requires time and effort to retrieve, such as an encrypted USB drive stored inside a vault requiring several steps to access (or in a safety deposit box). The goal of deep cold storage is to prioritize the security of the assets over access, making access as inconvenient as possible.