Cold storage isn’t necessarily considered as much of a secure way of holding onto your digital currency as it is an alternative to using a paper wallet. Cold storage means storing your wallet offline, completely away from any Internet connection. Keeping your wallet offline greatly reduces the risk from cyber criminals hacking into your wallet and stealing your coins. But what exactly is cold storage and how can you use this form of online storage for safekeeping of your digital coins?
What is cold storage is simply put, offline storage of your Bitcoins. You may have heard of people storing their money in “paper wallets” or “paper bank” backups. This is simply a way of backing up your wallet on your computer, which you should be using anyway to keep all of your private information safe from prying eyes. There are many different services out there that allow you to back up your wallet using one of these methods. The most popular one is probably the multisig wallet.
A multisig wallet is like a combination of paper wallets and offline storage devices. Basically, a hacker doesn’t want your entire wallet known just because he broke into your computer. He wants just enough that he can get away with selling off some of your smaller wallets and then proceeding to spend the rest of his time accessing and spending the money in the bigger wallets that he had access to prior to getting the smaller ones out. Therefore, he wants all your smaller unimportant wallets offline and completely removed from his list of targets. These smaller wallets are what we are going to be backing up. So how do you back them up and keep them online?
The answer is very easy; you use specialized hardware wallets or software wallets. There are two types of cold storage you can use, physical backups and online backups. Physical backups require you to store your data in an external medium such as a hard drive or a flash drive. They can be accessed via USB drives or special physical interfaces such as Bluetooth. This type of backup does not allow you to protect your passwords or other important information from being compromised.
On the other hand, online backups use software wallets. The benefit of using software is that you can set it up so that any changes to the database are synchronized across your computers. That means when you make any changes to the software, the changes are immediately noted and applied. That is one of the major benefits of using this kind of software instead of physical storage media like a USB drive. It will give you the ability to access your data from almost anywhere in the world because all you need is your laptop or a computer with internet access.
With what is cold storage, you store all of your private information offline. You do this by inserting a QR code into the front panel of the offline software wallet. The code gives you access to your stored data only if you have the correct password. If you lose the password, then all of your stored data is lost forever.
What is cold storage also works in the other direction as well. If you have multisig wallets, then the private key will be protected even if the wallet gets damaged. Since the private key is not on display for anyone to see, no thief or burglar is going to want to target your wallet. This is also why it is a good idea to keep your multisig wallet offline when not in use, or to put it on a different computer altogether.
The last type of cold storage, which is also quite common is a paper wallet. Paper wallets are very easy to create using a thermal printing process which creates images on the paper. Many of these images are used for private key creation purposes. In order to make a paper wallet, you take several photos of coins you wish to print and then copy the private key from the top of each photo onto a piece of thermal paper. You can then heat up the copy and cut it into the right shape and size as your wallet.
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