Cold storage
The offline holding of cryptographic keys, a condition of insurability for a cryptoasset in institutional custody.
In January 2018, the Japanese exchange Coincheck lost some 58 billion yen of NEM tokens. They were held in a hot wallet without multi-signature. Cold storage is the opposite answer: the cryptographic keys stay offline, out of reach of a network intrusion. At a professional custodian, the insurer audits it, along with multi-signature, physical security and penetration testing, before it will cover cryptoassets. An asset in institutional custody, in audited cold storage, becomes a bar in a vault for the insurer, and is insured on that basis. The same asset in self-custody finds no taker. The nuance is flow. A custodian has to bring some funds online to meet withdrawals, and that hot share, capped, is written on much tighter terms. The insurability of a digital asset therefore grows as it gives up circulating on its chain.
The insurer covers the cryptoasset only by treating it as an immobile, guarded bar in audited cold storage. It does not cover it for what it really is, an asset that circulates on a chain.
cold storage, cold wallet, offline custody
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