Cold Storage
Holding crypto assets offline, away from exchanges and internet-connected systems.
Also called: cold wallet · hardware wallet · self custody
In plain language
Cold storage keeps private keys on a device that is never connected to the internet, which removes an entire class of remote attack.
Assets held on an exchange are, legally and practically, a claim on that exchange rather than something you directly control.
The tradeoff is speed and responsibility. Cold assets cannot be traded instantly, and losing the keys means losing the assets permanently.
Why it matters
Exchange failure is a risk that has nothing to do with your trading and cannot be hedged by any stop loss. It is managed by not keeping more on an exchange than you need to trade.
Common mistakes
- Keeping an entire portfolio on an exchange for the convenience of trading a fraction of it.
- Storing recovery phrases digitally, which reintroduces the risk cold storage was meant to remove.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A market where assets are bought and sold for immediate delivery and full ownership.
The firm that routes your orders to the market and holds your account.
The set of rules that decides how much you can lose, before you think about what you can win.
A crypto asset designed to hold a fixed value, usually one US dollar.
Any cryptocurrency other than bitcoin.