Anyone new to cryptocurrency might be wondering about some of the terms being used, such as cold storage and hot storage. No, we aren’t talking about storing our crypto coins in refrigerators or warming ovens. It’s all about how readily accessible they are. They can be almost impossible to hack but not totally impossible all the time. We’ll get to that in a minute. For now, let’s take a closer look at cold storage, then we’ll get to why you need it.
What Exactly Is Cold Storage?
Since crypto is something that only exists in the digital realm, a series of records in ledger entries as it were, it literally exists throughout a network of global computers. However, you can choose to pull your crypto offline into a hardware storage device where the keys to unlock it cannot be found. These are most often little USB storage devices that are as handy as they are secure.
Cold storage simply refers to any kind of device you can plug into your computer and then download your cryptocurrency for safe storage. It’s like putting all your valuables into a vault at your local bank. Robbers can more easily gain access to your home than a vault in a bank that is often guarded by armed security. If you keep track of just how quickly crypto can gain value, check out the Ethereum Price Index on okx.com. Within a single day, the price can go up in double-digit percentages, so that’s how valuable it is and why you want to ‘vault’ it.
While it is next to impossible to hack cryptos, it isn’t 100% impossible. So do bear in mind that when you aren’t using that cold wallet, disconnect it from the internet! You only need it connected if you need to pull some of those coins out to be added to your hot wallet to be used. If it’s connected, it can be found, and you really don’t want that, do you?
In short, cold storage simply refers to storing your digital crypto coins offline.
The Pros and Cons of Cold Storage
Now you can see that the one major pro is security. You can’t get more secure than removing your crypto from where it can be found. However, it is not as convenient as a hot wallet, which you will need for doing transactions with your crypto. In order to use your crypto, you need a hot wallet. So, a cold wallet is less convenient because you have to move any crypto you intend to use back into that hot wallet where you first recorded it. Cost is another factor, but since those little cold storage devices cost less than taking the family out to dinner at most restaurants, that shouldn’t be a major consideration. Hot wallets are typically free but you need both cold and hot wallets.
A Final Word of Warning
To keep it short and simple, don’t lose that device! If you are holding the bulk of your crypto in a cold wallet, in cold storage, you had better make absolutely certain you don’t lose it! This would be like leveling the bank in which you’ve stored all your precious gems and stock certificates in their vaults! That little piece of hardware holds the bulk of your investments, whatever you haven’t left in a hot wallet for convenience, so if you lose it? It’s gone forever.