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What is Cold Storage?


Cryptocurrency is more than just a new hot investment or an overly complicated way to make money. It’s a completely new way of looking at how we spend, save, and invest. 

Rather than relying on banks to secure your funds, letting them whittle away your savings with fees, surcharges, and minuscule interest rates, you can make your money work for you. But you also take on the responsibility of securing your funds.

By pulling your money from banks, you lose some of the security that’s built into modern-day banking. Gone are the bank vaults and encryption. 

Cryptocurrency does have built-in security measures. But let’s say you used your old desktop to mine cryptocurrency back in 2011 and made 30 bitcoins. That’s about $1.5 million! Suddenly, what was once a simple digital transaction now has the makings of a heist movie. Hackers are also more familiar with cryptocurrency than your average Joe or Jill Shmo. 

People are making thousands of dollars and exponential returns on their investments. But some people are also losing thousands, or even tens of thousands of dollars, from avoidable mistakes. If you lose your keys, there’s no way to get that money back. Also, the security of your private key is the most important part of protecting your investment. The solution to this problem may be cold storage. 

Cold storage, or cold wallets, are wallets that keep your private and public keys off of the Internet. By restricting the possibility of someone seeing your private key, you can keep your currency secure. After all, if someone gets their hand on your private key, they can clear out your account. 

Paper wallets are considered cold because they are not actively on the Internet. But when you hear “cold storage,” it mostly refers to hardware devices that are specially designed to protect your private keys. These devices provide added layers of protection to keep your cryptocurrency offline. 

Why would you need cold storage?

Despite not being hidden behind major firewalls or in huge bank vaults, cryptocurrency is relatively secure. The cryptography built into the process keeps your money safe. If no one but you knows your private key, your cryptocurrency should stay where it is. But there are potential issues for user error. And sadly, you cannot call up 1-800-Bitcoin customer service if you lose your private key or get bamboozled out of all of your crypto.

One main issue is that people well-versed in cryptocurrency are very tech-savvy. If you’re a newbie to the crypto market, simple mistakes can be a major issue. And with one single bitcoin being worth tens of thousands of dollars, hungry hackers are becoming more enterprising. 

People all over the world are using cryptocurrency, which increases the potential for hacking or cyber-attacks. Not to mention, hackers were ahead of the curve and often using crypto before it became as popular as it is now. 

So how can you better keep your private key from ever seeing the light of day?

Cold storage is the best way to keep your money safe. Of the various types of crypto wallets, they are the safest and the best suited for large amounts of money. Cold wallets make sense if you are managing a large amount of money. A good security measure is to have one private wallet for your major crypto-investments. 

Cryptocurrency, like investing, is a long game. You’ll want to keep your coins since the built-in scarcity will naturally drive up their value. Just like you may have had a separate savings and checking account to manage your fiat currency, aka US dollar, you may want to have a seperate wallet for saving and for trading. And you can use your cold storage device to give your crypto an extra layer of protection.

How do cold storage devices work? 

Cold storage devices help create a way for you to manage your crypto in an offline environment. This could be by signing transactions offline or keeping your private key from ever being “live” on the Internet. This facilitates the privacy of this wallet by reducing the ways a hacker could get a sneak peek at your private key. After all, the reason banks have intense firewalls and encryption is to better protect your money. So now that you are taking control of your money, you’ll want to step up your security measures.  

If you’re new to cryptocurrency you’ll want to pace yourself before you make major moves with your crypto. But if you have big plans for your finances, a cold storage device can be your computer version of a bank vault. You’ll likely have a wallet to trade but you’ll want to have a secure wallet for your large investments. Cold storage wallets can range from $60 to $120. There’s also the option of deep cold storage. Deep cold storage offers an even deeper level of security by keeping your crypto offline and managed by a dedicated service provider. 

Observing cryptocurrency from the sidelines and educating yourself is great. But if you’re diving in and investing, you want to do everything in your power to protect that investment. If you plan to take on the security of your crypto you’ll want to opt-in to two-factor authentication, commit to securing your private keys, and if you have large investments, consider cold storage to protect these coins.

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