Cold storage refers to keeping your bitcoin and other digital currencies away from a “hot” wallet online. For example, the ether you might hold on the Ethereum network is kept in a “hot” account; the bitcoins you might hold on the Bitcoin network are kept in a “cold” account. Ethereum is purposely designed to encourage frequent use of its coins and tokens, so that is normal and even encouraged—but that means it requires constantly keeping your ether “online” as opposed to tucked away safely in cold storage. As a result, it requires a more thorough security setup than Bitcoin, which generally requires only one piece of information (a password, or private key) that lets you have access to all your bitcoins.
Bitcoin’s private keys are regulated by the Blockchain itself, which creates an interesting situation; namely, if someone gains access to your private key, your bitcoins are still accessible even though you do not have physical access to it. This method of cold storage is called a paper wallet. Effectively, what you are doing is using your computer to print out a unique set of numbers and letters that only you can access. The “public” part of your private key is what someone else would use to send money to your bitcoin address (or vice versa); the “private” part is what you need to unlock your account and push your bitcoins to move around.
The advantage of this process is that it doesn’t require an Internet connection or locally stored data—and, if done properly and securely, you never even have to touch it. This can come in handy if you are using cold storage for large amounts of money. The downside is that the process for creating a paper wallet is lengthy, but there’s nothing stopping you from crowd-sourcing the generation (and storage) of multiple paper wallets for different purposes. Thus, you could store portions of cryptocurrencies on paper wallets for specific purposes (say, “vacation fund: 1 BTC,” “long-term savings: 1 ETH,” and so on).
That way, you can have the convenience of a hot wallet (in order to do an immediate transaction) while keeping all of your cryptocurrencies off of an exchange or other service that could be hacked or otherwise compromised and lose access to your money.
But perhaps the biggest advantage is that cold storage is considered the most secure option available today. It works with many kinds of cryptocurrencies (not just Bitcoin), as long as they offer a way to store them offline.
For some people, this approach may be too complicated. For others, it may not be secure enough (for example, if you lose or damage your paper wallet). Our recommendation is that you take a look at the smart wallet by RobotBulls wich covers a lot of the most popular crypto currencies available today.
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