Cold Storage

Cold Storage definition: The practice of keeping cryptocurrencies offline, away from internet-connected devices, for added security.

Cold storage refers to a method of preserving and securing digital assets, most commonly cryptocurrencies, in an offline environment. Unlike "hot storage" or "hot wallets," which are connected to the internet and therefore more susceptible to hacks and unauthorized access, cold storage solutions provide a safeguard against online threats by ensuring that the digital assets remain completely disconnected from online networks.

There are various forms of cold storage, including hardware wallets, paper wallets, and air-gapped (disconnected) computers. A hardware wallet is a physical device, often resembling a USB stick, specifically designed to store cryptocurrency keys. Paper wallets involve the printing or noting down of both public and private cryptographic keys on physical paper. An air-gapped computer is a device that has never been connected to the internet, ensuring its purity from online threats.

Cold storage is often recommended for individuals or institutions holding significant amounts of cryptocurrencies, especially for long-term investments. By eliminating the potential scams associated with internet connectivity, such as phishing attacks, malware, or hacking attempts, cold storage provides an added layer of security.

However, while cold storage offers enhanced security against online threats, users must also consider physical safety. Loss, theft, or damage to the cold storage medium (e.g., losing a hardware wallet or a paper wallet getting destroyed) can lead to irreversible loss of the stored digital assets.

In summary, cold storage represents an offline method of securing cryptocurrencies, offering protection against online vulnerabilities while emphasizing the importance of safeguarding the physical storage medium.

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Michelle Legge
By Michelle LeggeHead of Crypto Tax Education
Updated Nov 21, 2023
This article has been fact checked and reviewed as per our editorial policy.