Cold storage is the term used in crypto currencies to store coins offline, i.e. without online systems having access to private keys. It’s like freezing something to keep it fresh and undamaged until you can use it again. In contrast, systems connected to the Internet are often referred to as „hot wallets“.
What does the Bitcoin revolution mean?
Why do you do the whole Bitcoin revolution? It’s about minimizing risks. While physical theft is of course possible, at Bitcoin it is much less likely than unauthorized access via the Internet. On the Internet, one is constantly exposed to the attack attempts of a large number of people, who attack many targets in different ways and often with unforeseen means. A classic thief is exposed to a higher risk, must be targeted, and how to protect against it is much more obvious. Using computers securely on the Internet is more complicated than locking the door or putting something in a safe deposit box. It is therefore advisable not to store Bitcoins online, i.e. in „hot wallets“.
It is only advisable to keep amounts that are required for regular Bitcoin payment transactions conveniently on smartphone or desktop wallets. But what options are there to keep your savings and long-term investments safe?
Software of the Ethereum code
If you want to save Bitcoin offline, you can of course get the idea to simply „pull the plug.“ The solution is usually a computer or smartphone disconnected from the Internet. In the simplest variant, you operate a regular wallet on a device that is separate from the Internet, so you can only receive Ethereum code on it at first. As soon as you want to transfer it, however, you have to be connected to the Internet again. To avoid this problem, there are wallets such as Armory, which make it possible to create a transaction on an online device, transfer it to an offline device, sign it there, and then transfer it back to the online device for sending. This means that the wallet remains „cold“ even when it is sent.
However, there are still many IT-specific attack areas. Usually the device is taken online at least for the installation of the wallet, whereby it is in principle susceptible to malware from the Internet. Even the transfer of transactions or software, for example via USB sticks, is not completely free of risks. In the case of software problems, the repair is usually extremely cumbersome and accompanied by additional dangers.
Paperwallets / Wallets made of steel
A popular variant is a so-called „paper wallet“ – the private keys on paper. The big advantage is that this solution is secure against malware – what does not insist on an electronic device does not need to be afraid of computer viruses. Common „paper wallets“ consist of a printed private key and the corresponding Bitcoin address (Public Key), both as text and as QR code. The two big difficulties with paper are how to generate the keys securely and how to output the Bitcoin securely later. Since manual generation is extremely cumbersome and tedious, software is usually used. However, this opens up different attack scenarios. If the software that generates the private keys is compromised, the coins are in danger. For example, malicious software could display predefined addresses instead of random ones for which someone else already has the private key and is just waiting to steal incoming bit coins.
Instructions often recommend downloading the source code for a web page such as bitaddress, transferring it to an offline device, checking that nothing has been tampered with (if you can), and then printing addresses and keys. To make this cumbersome step easier and safer, there are integrated solutions, such as the Mycelium Entropy, a kind of USB stick that generates Bitcoin addresses and can print directly from it without involving computers.
The second problem is that to send coins that are on paper, the corresponding private keys must be imported into software. This exposes them to the same dangers as a software-based solution, at least for a short time. If you are afraid that your paper wallets will burn, wash out or fade, you can of course also use material with better durability. Crypto Steel, for example