Cold Storage

Sep 26, 2018 By Katherine Flores

What is crypto currency cold storage?

This is an easy one. Cold storage reserves crypto coins offline. There are various ways to do it as well as reasons why. Essentially, it comes down to security.

Let’s say we’re talking about large amounts of currency. For instance, an agent in an exchange likely processes hundreds of thousands of bitcoins. But they certainly don’t keep them all online. The website operator likely keeps a majority in reserve or cold storage. That’s because an exchange really only needs to keep the amount needed for anticipated use online. The rest is safer kept elsewhere.

But that’s high-level crypto coin accounting compared to the average bitcoin bro. What about us? Is there a reason for a regular person who dabbles in crypto currency to use cold storage?

Yes, indeed. Here’s a small sampling:

Many Simply Store Crypto Currency on a Computer

Your crypto currency is already on the computer, so it’s a natural fit for cold storage.

There, cold storage can be protected with a vault or other built-in safety precautions.

However, computers crash and data recovery can be pricey or even fail with incidents like fire, magnetic, or water damage.

Ironically, the opposite situation presents just as much of a security challenge. That’s because data can still technically be recovered after a system is abandoned by the user - in some cases even after multiple overwriting attempts.

If you’re connected to the Internet (which is likely most days, let’s get real) that means your security is only as good as whatever encryption you use.

Even with encryption if the machine or location are hacked the key could be stolen as soon as it is decrypted.

On a USB drive

Nice thing about USBs is how portable and easy they are to use and store. But by the same token, that means they can also be easily lost.

The issues with water, magnets, and fire that can happen with computer storage apply to USBs as well.

Be careful of proprietary formats because data can be difficult to recover if the software or hardware to decode is on the older side.

Wallets

Time to get technical. When it comes to storage, we’re not actually talking coins.

In fact, when you buy crypto coins there’s a public number created as a record.

This record becomes a private key once in the wallet of whoever owns the balance.

Thus, cold storage can often mean offline storage of the public and private keys which can be used to gain access to the wallet. Let’s dig into some cold storage wallets.

Within a hardware wallet

These have major mojo compared to standard software wallets because:

Private keys can be stored in a protected area so they can’t be transferred out of the device in plaintext.

Hardware wallets are immune to computer viruses that may hack software wallets.

Both secure and interactive, private keys don’t need to touch vulnerable software in a hardware wallet.

In a paper wallet (a physical document)

Paper is notoriously fragile. Even laminated it can be easily damaged and doesn’t stand the test of time well.

Light can fade the ink of the lettering (numbering). So, if you keep your coins on paper it may be smartest to lock them away from any light source.

There’s also a higher likelihood of mistakes with a paper transfer of information.

Engraved on an item, such as a physical bitcoin

This is how some people avoid the challenges paper presents. They have their precious crypto engraved on either a coin or other totem.

These are pretty sturdy so they can likely stay pretty safe as long as you keep them under the radar to avoid theft.

Within a hardware wallet

These have major mojo compared to standard software wallets because:

Private keys can be stored in a protected area so they can’t be transferred out of the device in plaintext.

Hardware wallets are immune to computer viruses that may hack software wallets.

Both secure and interactive, private keys don’t need to touch vulnerable software in a hardware wallet.

For Deep Cover, Try Deep Cold Storage

Got a raging case of trust issues? Deep cold storage may be just the thing for you.

Deep storage makes it harder to retrieve coins from storage than it is to enter them there.

A simple example would be a safe deposit box that has a USB with an encrypted wallet file inside. In that case you could send additional bitcoins to the wallet but to spend them you’d have to use the encryption password and physically open the box.

Looks like cold storage may just be the answer if you’re asking yourself where to best keep your crypto currency safe and sound. Luckily there are lots of options and levels of safety. So, you’re likely to find one that works for you.