Cold Storage is a short-term and long-term cryptocurrency storage solution that involves storing most or all of your cryptocurrency reserves offline, away from the Internet.
Types of offline storage include a computer or smartphone not connected to the Internet, hardware wallets like the Ledger Nano, a USB thumb drive that is kept in a safe and secure location (like a bank safe deposit box), on a piece of paper (again, kept somewhere safe), or even on other physical items, such as being engraved on an actual coin or on a piece of wood.
The idea here is that your cryptocurrencies are at greater risk of theft or loss if they are kept in a centralized exchange wallet or in a wallet on another internet-connected device. You have complete control over your storage device and aren’t relying on anyone else.
Cold wallet options like a Nano or thumb drive are ultra-portable and you can take them with you practically anywhere.
The biggest plus is that your private keys never leave the device. All transactions made with the storage device are done locally, drastically improving your exposure to cyberattacks.
While cold storage eliminates problems introduced by services like crypto exchanges, other issues arise out of its use.
For example, actively trading becomes harder as tradeable assets sometimes need to be moved out of cold storage and into a hot wallet before they can be used.
Hardware-based cold storage wallets can also be expensive and more difficult to set up than a traditional exchange wallet.
And let’s be honest, some people have issues figuring out their TV remote. A USB thumb drive cold storage device introduces a technical barrier to getting started.