Cold storage is a term used to refer to a type of cryptocurrency We know a wallet as a thing you keep your money in. In cryptocurrency, we use the word wallet to refer, likewise, to a p... Click for full definition that is disconnected from the internet completely and therefore the most secure form of crypto storage.
When it comes to crypto wallets, there are many different kinds. Many people used hosted, custodial wallets (on exchanges, typically). These wallets are secured by a third-party company and they hold the keys. This is most like a traditional bank.
Now, if you move funds away from such a wallet (aka a “hot wallet”) to your own wallet, this is where cold storage comes in. You control the private keys to the wallet and those keys are kept offline. Away from the internet. In fact, you keep those keys away from any device that has an internet connection. Any internet-connected computer is capable of being hacked and therefore keys stored on it could be stolen.
So, technically, any crypto wallet where the keys are self-controlled and held offline is cold storage.
There are many different kinds of cold storage:
- Hardware wallets. This is the most common. These devices are purpose-built to securely control your wallet private keys.
- Paper wallets. The cheapest form of cold storage, where the private keys are printed to a piece of paper and that paper is then stored securely.
- USB Drive. Not the best form of cold storage, by any means. But, basically, you’re storing your private keys on a standard USB thumb drive and then you keep that thumb drive in a secure location.
- Desktop wallets. The wallet is managed via a desktop application. Private keys can be kept offline (best) or on the machine itself (but only truly secure if the machine is not connected to the internet).
Any wallet where you control the keys yourself and keep those keys off the internet is a form of cold storage.
The term likely comes from food storage, where it is typical to preserve food for long periods of time by freezing it in a cold environment.