Cold storage is a storage facility used when we need to preserve something for a long period of time. In the same way, cold storage is used in the crypto ecosystem to keep the keep your cryptocurrencies safe.
Why is Cold Storage necessary?
It is important for you to know that if a user owns the private keys of their crypto coins, then only they own the coins otherwise not. If a user is holding their cryptocurrencies on exchanges and hosted wallets, then they can lose their coins in a second.
This can happen as the exchanges and the hosted wallets hold the private key to the user coins and if something goes wrong with the servers or if they are shut down, the user can lose their crypto coins forever.
To safeguard you any of these risks, the concept of cold storage comes into play. The cold storage or the Cold wallet means storing the private keys of your coin in an offline ecosystem, away from the internet.
The online system can be hacked or can shut down at any moment which makes your hard earned cryptocurrencies vanish in an instant. To avoid any of these situations, cold wallets hold the keys of your coins in an offline manner so that they are not vulnerable to the volatility of the online environment.
Cold storage Wallets
- Desktop Wallets
Desktop wallets are a common type of cold storage and these are clients which only exist on your personal computer. The private keys of your coins are encrypted and stored on your desktop which is offline. Only, during the transactions of funds, you go online.
- Paper Wallets
A paper wallet is the commonly used and the cheapest form of cold wallets in the market. The private keys of your coins are generated offline where you don’t have to worry about their security.
- Hardware Wallets
Hardware wallets are the safest mode of cold wallets and they are electronic devices like Trezor, Ledger Nemo 5 or KeepKey which stores the private keys in an offline system. If the device gets damaged, then funds can also be recovered by using a backup seed key.