Last Updated on April 22, 2025
Quick Summary
- The practice of storing a user’s crypto assets offline to protect them from hacking and other breaches is known as cold storage.
- The best exchanges, like Coinbase, Kraken, Binance, and Bitstamp, also utilize cold storage for a considerable percentage of client funds.
- Cold wallets are instrumental in protecting customer funds, particularly after the failure of several exchanges.
- The role of regulation and third-party custody partners in crypto cold storage is on the rise.
- An increasing number of exchanges as of 2024 are publicly stating their policies concerning cold storage for investors’ peace of mind.
- The best protection is provided to clients by exchanges that use multi-signature cold storage, insurance, and regulatory compliance.
Know Why Cold Storage is Important in Securing Crypto Assets
One thing does continue to differentiate between reliable crypto exchanges even amid the volatile world of digital assets: cold storage. Users increased their awareness of where and how their funds are stored after things like the FTX collapse and increased regulatory scrutiny.
The cryptocurrency has cold storage owners kept on demand. It has become an offline wallet standard. The most prominent exchanges now maintain almost 95% of customer assets in cold wallets. That is no longer a feature, it is a necessity.
Why is Important to Understand Cold Storage
In comparison to hot wallets which are more exposed to the internet and more prone to cyberattacks, cold storage solutions are air-gapped, meaning they are closed off from anything online or digital. They usually require manual labor or multi signature signing in order to gain access.
Notable Advantages of Cold Storage
- Hacker Protection: A great number of online threats do not affect offline storage.
- Custodial Integrity: Chances of internal fraud or theft are greatly reduced.
- Regulatory Preference: Reserved for custodians of institutional grade, this custodial method is seen as the safest.
With the use of the cold storage protocols, exchanges often provide assurance that “your funds are SAFU.”
The Emergence of Cold Storage as a Challenging Necessity
Every crypto investor should be familiar with the darker chapters of the industry’s history. Negligent custody has been the downfall of countless retail and individual investors through crypto history, from Mt. Gox, Quadrigacx, FTX and others. Multiple billions have been sidelined in mere moments because of their poor security practices.
In aftermath, platforms started losing funds due to public relations fires and legal scrutiny so they prioritized segregation of their funds and custody. This sparked what some call a ‘wild’ race of proving ‘who has the most unhackable cold storage system setup’.
Top Crypto Exchanges That Use Cold Storage
Now, let’s flag notable exchanges and elicit how they utilize cold storage.
Coinbase
- Cold storage rate: About (~) 98 percent of funds residing offline
- Custody Partner: Coinbase Custody, which is regulated within the USA.
- Insurance: Hot wallets incurs up to $320M in damages
- Compliance: SOC 2, NYDFS trust license
Kraken
- Cold storage Rate: ≧95%
- Storage Setup: Air-gapped and geographically split
- Unique feature: System access cannot be granted completely by any single employee
Binance
- Cold Storage Rate: 90 percent of user’s funds
- SAFU Fund: reserve that is funded through trading fees and backed by insurance
- Infrastructure: Ledger Vault and employing their own multi-tiered security layers
Bitstamp
- Custody Partner: BitGo, a cold wallet custody provider
- Regulation: Licensed in Luxembourg and part of Bitlicense ecosystem
- Cold Wallet Strategy: Maintaining a near complete cold asset reserve with an on-demand hot wallet serves as funding.
Exchanges That Skimp On Cold Storage Are Losing Users’ Trust
Retail investors are noticing with increasing amounts of attention. Trust in exchanges that offer ambiguous custody practices or provide a very small percentage of their cold storage is rapidly declining. In 2023 and 2024, we witnessed a huge outflow of assets from exchanges that were opaque.
“When exchanges won’t tell you what percentage of your funds are in cold storage, it’s not a red flag—it’s a fire alarm.”
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How Cold Storage Actually Works Behind the Scenes
Unplugging a hard drive isn’t the only step in the process. Modern cold storage employs:
Multi-Signature Technology
A subset of private keys is distributed among parties, where each user holds a key. A transaction can be completed only if all cosigners grant their approval, thus eliminating the risk associated with a single point of failure.
Geographic Redundancy
Camping Fort Knox, but for storing crypto, key shards and wallet backups are kept around the world, in vaults.
Hardware Security Modules (HSMs)
Keys and private keys are made and kept on these strongholds, secured against tampering.
What is Driving Change in The Cold Storage Sector
There are multiple governmental supervision bodies in the US, like NYDFS, that have set some prerequisites like operating with cold storage and maintaining capital reserve limit which all US exchanges need to follow if they want to function in that area.
Along with the above, MiCA regulation set in the European Union makes custodial services for crypto assets of institutional grade expanding the growth of secure platforms leading to streamlined practices of uniformed storage.
There are other exchanges that have created business synergies with custodial services that specialize in providing insured, audited and insightful cold helium storage for example Anchorage, Fireblocks, Ledger Vault.
Key Points of Consumer Blockchain: Key Factors To Test For In A Crypto Exchange
Some of the major factors you can focus on or revolve your attention around when looking for a platform to exchange or trade your crypto are:
- What percentage of the exchange’s user funds are kept in cold wallets?
You would want to see something like 90 and above. - Is there any form of reclamation or audits regarding the exchange’s cold storage practices?
- Are funds kept by third-party custodians or insured corporations?
- Do they operate within set boundaries or regulations of your region?
If you wish to remove funds from custodians entirely to have nuanced control, you can transfer them to self custodied cold wallets at Trezor, Ledger and even the rising PlutoChain Wallet.
Securing the Future of Cryptocurrency Cold Storage
Cold storage is more than just a protection method; it’s a testament of faith in the current crypto world. In 2024, the crypto exchanges that are transparent with their operations and maintain an offline custody system are the ones earning the trust of investors, onboarding institutions, and contributing to exponential adoption.
The crypto world is changing for the better. And as technology advances, a single principle is and will always remain intact: If it’s not offline, it’s not safe.
Disclaimer:This article is for informational purposes only and does not constitute financial advice. Always research security practices and exchange policies before investing.
