Educational Post
What Is Cold Storage?
Cold storage is when you keep your digital assets offline to make sure they are safe from hackers. In fact, what you keep offline are the private keys, not the assets. Private keys are cryptographic keys that grant access to your cryptocurrency holdings. Unlike hot wallets, which are connected to the internet and susceptible to online vulnerabilities, cold storage methods keep your private keys offline at all times.
How Does Cold Storage Work?
There are different ways to isolate your private keys from online exposure, including hardware wallets, paper wallets, and air-gapped systems.
Hardware wallets
Hardware wallets are physical devices designed to securely store private keys. These devices often resemble USB drives and offer an additional layer of protection through encryption and PIN authentication. By generating and storing keys offline, hardware wallets ensure that access to funds remains restricted from online threats.
Paper wallets
Paper wallets involve printing or writing down private keys on paper. These physical copies can be stored in a secure location, such as a safe or vault. Paper wallets are considered cold storage since the keys are entirely offline, reducing the risk of cyber attacks.
Paper wallets were popular in the early days of Bitcoin but are now discouraged due to risks. Paper is fragile and can be easily damaged. There are also concerns related to using a potentially infected computer or printer.
Another risk is the misconception that funds can be sent multiple times from the same address. When sending funds from a paper wallet, you must send the entire balance to avoid losses.