Cold Storage – Crypto Glossary Definition:
Cold storage, also known as “offline storage,” is a secure method of storing digital assets, such as cryptocurrencies and NFTs, in a way that keeps them offline and disconnected from the internet. This is in contrast to “hot” storage, which involves storing assets in online wallets or connected devices.
How Cold Storage Works:
Cold storage is favored for its heightened security and reduced exposure to online threats, including hacking attempts, spyware, and malware. To implement cold storage, individuals or organizations typically use specialized devices or methods that keep the private keys associated with their digital assets offline.
One common form of cold storage is a “cold wallet,” which is a cryptocurrency wallet designed for offline use. In a cold wallet, the private keys required to access and manage the assets are stored offline, making them inaccessible to potential online attackers. While the public keys associated with the wallet may still be accessible online for receiving funds, the critical private keys remain safeguarded offline.
By using cold storage, users retain full control over their private keys, ensuring absolute ownership and security of their digital assets. However, this security comes with increased responsibility, as users must manage and safeguard their offline storage devices or methods diligently.
Various methods can be employed for cold storage, including hardware wallets (e.g., Ledger or Trezor), paper wallets, or offline software solutions. These methods provide a reliable means of protecting digital assets, particularly when significant amounts of cryptocurrency are held for an extended duration.