What is cold storage in crypto all about?

Cold storage in crypto is one of the many ways in which you can keep your digital assets like NFTs secure. In the world of cryptocurrency exchanges, cold storage is the key to managing and maintaining your financial well-being.

What is cryptocurrency cold storage?

For storing cryptocurrencies like Bitcoin, Ethereum or Cardano etc, a cold wallet is used offline. Also known by the name "cold storage", this digital or electronic wallet is stored on a network or platform that is not linked to the internet, hence, safeguarding the wallet from viruses, cyber hacks, unauthorized access and other cyber casualties that a system bridged to the internet is prone to.

Cold storage or wallet measures are generally useful for individual investors, however, organizations and crypto exchanges which are a part of the crypto space also utilize this wallet. This wallet can also be referred to as other modes of operation for keeping and storing inactive data like videos, regulatory compliance, backup information and photographs.

Since there has been an increase in the number of exploits and hacks in the crypto environment, the use of cold storage has become more relevant. There are many types of cold storage. However, the two most common types are hardware wallets and paper wallets.

After knowing what is cold storage all about, let’s take a look at how it works.

How does cold storage work?

Private keys lie at the heart of the cold storage system. Cryptos are not stored in a wallet; they live on the blockchain. The private keys are held by wallets.

Talking about private keys, what are they? Private keys are generally one of the two kinds of keys in use. Public keys are a set of numbers that are utilized to recognize a wallet. It is alike to an email address or an account name. Whereas, private keys are numeric codes that kinda work like a debit card or credit card PIN. The users get access to their accounts with a private key. It must be kept safe to stop hackers from accessing the storage. Security of these keys is the main focus of all crypto storage, whether cold or hot in the crypto environment.

In order to establish a protective layer in the complete cryptocurrency exchange system, the user has to limit the access to their funds, so that the wallets and their private keys can work together in maintaining security.

To make your understanding about cold storage more detailed, here are some of its types:

Cryptocurrency cold storage methods1. Paper Wallets

They are the traditional cold storage system in crypto space. It stores public and private keys on a piece of paper. This kind of wallet has a low-tech nature, thus, while using it, make sure to keep it away from the other and elements.

2. Hardware Wallets

As the name suggests, it is considered as the most sturdy cold storage option for crypto. It is a frequently used kind of wallet that resembles a flash drive. It maintains private keys in offline and portable hardware. Usually, this wallet doesn’t come cheap.

3. USB drives

Since many hardware wallets cost a fortune, investors prefer a USB to store their crypto keys. But, USB’s are not that safe as compared to hardware wallets.

4. Sound Wallets

These wallets are outdated cold storage methods in the crypto exchange environment. It includes encrypting anf then storing the private key onto Compact Discs (CDs) or vinyl discs.

5. Deep cold storage

This kind of cold storage is generally preferred by traders who are looking to go out of their way to make their funds protected. These wallets bury the private keys under the ground, breaks them and puts them in different vaults services.

To wrap it up, cold storages are a great option for keeping your funds optimally secured. With their high safety protocols, they can store your digital assets protected for a long time and prevent them from hackers and viruses.