Cold Wallet & Cold Storage
A Cold wallet and cold storage refer the the method of storing one’s private keys in an offline fashion. Exchanges and third-party wallets hold your private keys on your behalf. This is a big risk because if something goes wrong with their servers or they are hacked, then your coins could be gone forever. They saying goes that if you don't own your private keys, then you don't “own” your coins. Taking the step to store your private keys offline is one step to really “owning” your coins. This is done as an added security step to help mitigate the ability for something to happen to your coins in your wallet. Because the private keys are not connected online and not connected to a server, even if an online hacker came across a transaction of yours, they would not be able to access the private key used for the transaction.
There are a few different methods of using cold storage:
● Paper Wallet - A paper wallet is simply a document that has the public and private keys written down on it. It is the cheapest form of cold wallets available as it is free to use. Unfortunately, since the keys are printed on a piece of paper they are easy to lost and subject to potential damage. In both cases the loss of the private keys means the loss of coins.
● USB drive or external hard drive - A USB or hard drive is one of the easiest ways to store your coins offline. With this method, you can export and save your private keys directly onto a device for safe keeping in a safe or any other secure location.
● Hardware wallet - A hardware wallet looks and functions similarly to a USB . It is a physical device that enables you to securely generate and store your private keys offline. Using pin access, you can connect a hardware wallet to an internet enabled computer to be able to exchange and manage your assets. If you happen to lose or damage your hardware wallet, a set of backup seed keys can recover your funds. Some of the most notable hardware wallets are Trezor, Ledger, and KeepKey. Hardware wallets are the safest and most robust cold storage option available.
● Offline software wallet - An offline software wallet acts similarly to a hardware wallet. An offline wallet splits a wallet into two accessible platforms - an offline wallet containing the private keys and an online wallet containing the public keys. The online wallet generates new unsigned transactions which are moved offline to be signed with the private keys. The transactions are then moved back to the online wallet to be broadcast to the network. Some of the most notable software wallets are Electrum and Exodus.
Pros/Cons for Each Cold Storage Option