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That sinking feeling of padding down your pocket in search of your wallet – and it’s gone! You vaguely recall that youngster nudging you on the tube, apologising for his stumbling and moving on, and it dawns on you that you’ve been pick-pocketed. Your cash. Your cards. All in the hands of a crafty con artist. While there’s not much more you can do to secure your physical wallet, your digital currency is another story.
Cold storage may sound like a term that would be used in the logistics chain of frozen food, but it’s not. The smart techie people refer to systems as either hot or cold. Hot implies that a system is connected, live or running, while cold suggests it's offline or down. It follows then that cold storage simply means to have your cryptocurrency secured in an environment or manner where it’s not connected to any cryptocurrency network, or Internet at all. There are two levels of this method: cold storage and deep cold storage.
Cold storage refers to a process where you generate a cryptocurrency wallet and private key online, but then take these details offline, and store them on a device that isn’t connected to the Internet. This could be in the form of a flash drive or even a paper wallet which is then kept in a safe, or another secure location.
Cold storage is a good way to protect your cryptocurrency and wallet file, while providing easy access to your private key when you would like to transact but it still presents some level of risk. As your private key originated online, a record of it would remain somewhere on the Internet, and any cryptocurrency transactions would need to be signed online too. To mitigate this entirely, you could opt for deep cold storage.
Deep cold storage, as used by Bitstocks, ensures the entire process happens in an offline environment, and therefore remains the safest, and our enforced method, of storage. There are typically 3 elements to deep cold storage.
Firstly, your wallet and private key are generated offline, and the signing of transactions happens on a system not connected to the Internet in any way, shape or form. This ensures it’s never exposed to a potentially compromised system or connection.
Secondly, details are secured with encryption to ensure that even if your wallet file lands up in the wrong hands, your information is password protected.
Thirdly, storage of your encrypted wallet file or paper wallet is generally at a location or facility that has restricted access, such as a safety deposit box at a bank.
Deep cold storage is the best method to safeguard a large individual cryptocurrency portfolio held for the long term, or for trustees holding cryptocurrency on behalf of others. When it comes to your money, one can never be too careful. Deep cold storage is the safest method to ensure your crypto investment remain securely tucked away.