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What is a cold storage in cryptocurrencies?



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Hello Stella,
In traditional banking, you can have your money refunded back after theft by a third party. However, with cryptocurrencies, if your wallet or account is tampered with and your coins get stolen, you cannot get them back. This is because many of the digital currencies are not supported by a government or central bank, meaning they are decentralized. As such, a safe and secure storage medium is required for cryptos.
Even though the majority of crypto wallets are digital, hackers still hack them surmounting the security measures.
This is precisely where cold storage comes in.
Cold storage is an offline wallet for storing bitcoins. Using cold storage, you store your digital wallet on a platform without an internet connection. This platform shields your wallet from cyber hacks, unlawful access, and other exposures that occur to systems connected to the internet.

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Cold storage is a term that involves keeping your Bitcoin or another digital currency into offline wallets. Cold storages are not connected to the internet, greatly reducing the chance of getting your assets stolen and diminishing the attack surface. This concept makes the assets invulnerable to hacking attempts and malware.

It’s impossible to retrieve stolen cryptocurrency assets due to the fact they’re decentralized, unlike with compromised bank accounts where the bank is often able to help retrieve the money. 

One of the methods of practicing cold storage is using a wiped computer that’s not connected to the internet and installing a cold wallet using a data storage device.

Another way to do it is to buy a hardware wallet that preserves cryptocurrency private keys. There are also other ways such as paper wallets or storing your assets on data storage devices but these are considered less safe.

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Hi Stella, thanks for the question.

Cold storage refers to preserving cryptocurrencies in an offline environment, or in other words, in a space that’s not connected to the internet. This concept is utilized to protect the cryptocurrency from cyber hacks and other types of unauthorized access. 

Cryptocurrency exchanges provide users with an ability to instantly withdraw their cryptocurrency. During this period of withdrawal, digital currencies are exposed to vulnerabilities and this is why cryptocurrency investors use cold storage to keep the reserves offline.

Some of the methods of using cold storage include:

- Keeping the reserves on a data storage that’s not connected to the internet.
- Keeping the cryptocurrency on a paper wallet (getting a single private key and cryptocurrency address printed out on paper
- Using a cryptocurrency cold wallet such as Ledger Nano X, Exodus, Trezor etc.

Although it can be a very safe way to preserve your cryptocurrency, cold storage has its shortcomings such as getting your paper wallet stolen or losing your HDD/USB flash drive.


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