Why Use Cold Storage For Crypto (1 Convincing Reason)

September 20, 2021

Cold storage is a way of storing cryptocurrency offline.

This means that the wallet and private key will be stored in an offline location, such as a USB drive or paper wallet.

This reduces the chance of getting hacked because hackers need to get physical access to your cold storage device, which is much more difficult than just hacking into an online computer that contains no valuable information.

What’s Cold Storage?

First you should understand what “cold” means when it comes to cryptocurrency wallet.

A cold wallet has nothing to do with temperature.

It’s all about how the wallet is stored. If a wallet is not connected to the internet, and has therefore not been exposed to any malware or other threats, then it can be said that this particular wallet resides in a “cold” state.

Advantages of Cold Storage

Cold storage is a good way to keep your cryptocurrency safe, secure and away from any kind of threat actors or hackers.

The main goal of cold storage is to make it as hard as possible for the hackers to get access to your private keys and steal your money.

In short, you can say that cold storage is simply about removing the online aspect from cryptocurrency wallets.

Some people even compare cold wallets with safety deposit boxes at banks – just like a safety deposit box, a common feature of cold wallet design is that they can’t be easily connected to a computer – usually a USB stick.

So you’re probably wondering why anyone would bother going through all this trouble to create a “dumb” wallet – we’ll explore this in more detail below.

Why use Cold Storage For Your Crypto?

You can think of cold storage as your own personal bank account that you store under the mattress, only much easier to access and with better security.

If you ever find yourself worrying and asking “can I keep my crypto on exchanges?”, then it’s probably time to move your funds into cold storage.

Some people choose to hold most of their cryptocurrency at exchanges so they can trade easily and quickly, but this is one of the riskiest things you can do with cryptocurrency because there have been several examples where exchanges were hacked and people lost all their money.

Furthermore, if an exchange gets shut down or goes offline for some reason, you can pretty much kiss your money goodbye (just ask people affected by the Mt. Gox exchange collapse).

What Happened with Mt. Gox exchange collapse

Mt. Gox was a Bitcoin exchange based in Japan which allowed users to create accounts and trade Bitcoins.

The company filed for bankruptcy protection from creditors in February 2014.

MtGox said it had found 200,000 of the bitcoins it thought were lost, but later said it actually recovered about 202,000 BTC.

In April 2017, the trustee reported that around $91 million worth of bitcoin was sold between late March and early April 2017 – marking the end of the firm’s bankruptcy proceedings.

The sale was said to have realized $561 million in cash, and coincided with a major shift of the exchange from online to offline.

In other words people alot of money and there was nothing really they could do about it.

That’s why cold storage became so popular and IS the best store your cryptos safely.

Is cold storage really safer?

The main purpose of cold storage is to protect crypto currency funds from theft, but contrary to popular belief it may not always the safer option.

There are some attacks that might be harder to perform with a device entirely off-line or with no direct interface to any computer. For example, someone who is physically in your house may know where you keep your hardware wallet and can steal it.

Also, viruses found on USB flash drives have been known to completely wipe wallets stored on them (see virus blackmailing details here).

So if you store cryptocurrency locally even on an encrypted hard drive that’s infected by one of these viruses, the malware will most likely find its way onto your wallet too, making this hardly safe at all.

Therefore if possible never store cryptocurrency on a system that can be infected with malware.

Instead you should create an air gap between your hardware wallet and the internet to make sure there’s no way for malware to find its way onto it.

The term ‘air gap’ means your coins should never touch any device connected to the internet (manually bring them out of cold storage once every few days, perform transactions and quickly put them back into cold storage).

The safest solution is to store cryptocurrency offline in cold storage.

To sum up, there are two main reasons why you should consider securing your cryptocurrency with cold storage:

  1. It’s safer since no online service has access to your funds – You can maintain full control over your funds which means you’re the only one who can move them It’s worth mentioning that while cold storage ensures that no one else can ever touch your cryptocurrency, remember that it’s still possible for you to lose them (e.g. if your hardware wallet gets damaged and you don’t have a backup).
  2. Many new users are attracted to cold storage because it gives them piece of mind over their funds, but even experienced users can benefit from using a cold wallet . There is no excuse for keeping any cryptocurrency online, especially if you aren’t actively trading. The more independent your funds are, the safer they will be – this is true whether you’re talking about traditional fiat bank accounts or digital cryptocurrency wallets.

Don’t put your trust in any exchange, always keep most of your hard wallet like Ledger or Trezor.

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