- Cold storage means storing your bitcoin offline, making it less vulnerable to hacking.
- Cold storage options include USB drives, paper wallets or hardware wallets.
- “Deep” cold storage means placing the cold wallet in a vault or safety deposit box.
In the Swiss mountains, there’s an old military bunker where millionaires hide their bitcoin. The bunker was converted into a secure vault by Xapo – a cryptocurrency storage company.
The richest bitcoin investors arrive here with their encrypted hard drives in the strictest secrecy.
This is the ultimate in bitcoin “cold storage.”
In simple terms, cold storage means storing your bitcoin offline where it cannot be hacked. It is the opposite of a “hot” wallet which is connected to the internet.
Why should I use cold storage?
Safety from hacks: Your bitcoin is most vulnerable when it’s stored online. Thieves and hackers can potentially access online wallets precisely because they are connected to the internet. To ensure your cryptocurrency wallet isn’t hacked, move it to an offline, cold storage wallet instead.
Long-term holding: Cold storage is ideal for long-term investors who want to buy crypto, hold it and forget about it. But if you’re looking to trade or spend bitcoin regularly, you might want a hot wallet, which is easier to access day-to-day.
What is a cold storage wallet?
Here are a handful of options to store crypto offline:
1. Hardware wallets
Hardware wallets are the ultimate cold storage, designed specifically to store cryptocurrencies. They are only connected to the internet for a short moment while you transfer your bitcoin. You then keep them safely offline.
Hardware wallets look like a small USB storage device. They are usually virus-proof, water-proof and come with backup technology. They’re easy to use. Some even have software so you can quickly check your balance. Examples include Ledger (pictured above) and Trezor.
2. Paper wallets
A paper wallet is exactly as it sounds: a piece of paper! That might not sound secure, but it’s never connected to the internet. You can’t hack paper.
The paper wallet contains your private key, either written by hand, printed out, or displayed by a QR code. Without the private key, no-one can steal your crypto.
The downside, of course, is that you could lose or destroy the paper wallet, so always keep a backup.
3. USB stick or external hard drive
Alternatively, you can keep your private key stored as a file on a USB stick or external hard drive.
4. Hot/cold storage hybrid
Some desktop wallets and software wallets now have a “cold storage” mode. You can store some of your crypto safely offline while keeping some online for frequent trading or purchasing.
The downsides of cold storage
If you lose your cold storage device, your bitcoin is gone forever.
Let’s say your hardware wallet is stolen. Your paper wallet is damaged by water. Your hard drive gets corrupted. In all these cases, you cannot get your money back.
It’s estimated that 30% of all bitcoin in circulation is already gone because of this problem.
When you’re using cold storage, always keep a backup, just in case.
Another problem is ease of access. Cold storage isn’t ideal if you want to spend bitcoin or trade it regularly. One option is to keep a large amount in cold storage and a small amount in hot wallets for frequent use.
What is deep storage?
Deep storage is the next level. Take your hardware wallet and place it in a vault or safety deposit box (or a military bunker in Switzerland).
Not only is your bitcoin stored offline and safe from hackers, it is now safe from theft too.