Cold Wallet
What Is a Cold Wallet
A cold wallet is a type of cryptocurrency wallet not connected to the internet. It securely stores digital assets, protecting them from online threats like hacking, phishing, and malware. Cold wallets are considered among the safest ways to store cryptocurrencies because they are offline and less vulnerable to cyber-attacks.
There are various types of cold wallets, each offering different levels of security and convenience. Hardware wallets are physical devices resembling USB drives, designed specifically for offline storage. They store private keys in a secure element within the device, keeping them isolated from potential online threats.
Paper wallets are physical documents containing a cryptocurrency address and its corresponding private key, usually generated by a wallet generator tool. This information is often presented as a QR code, which can be scanned to facilitate transactions. While paper wallets are immune to online attacks, they are vulnerable to physical damage and loss. Air-gapped devices are computers or smartphones that have never been connected to the internet. They are used to generate and store private keys offline. Transactions are signed on the air-gapped device and then transferred to an online device via QR code or USB for broadcasting to the blockchain. This method ensures that private keys never come into contact with potentially compromised online environments.
How Does a Cold Wallet Work
Cold wallets keep the private keys needed to access and manage cryptocurrencies offline. When a user wants to store their digital assets in a cold wallet, they generate a private key and a corresponding public key. The public key can be shared to receive funds, while the private key, which must be kept secret, is used to sign transactions. To make a transaction, the user generates it on an online device using the public key, transfers it to the cold wallet for signing with the private key, and then transfers the signed transaction back to the online device to broadcast it to the blockchain network. This process ensures that the private key remains offline and protected from online threats.
Crypto Cold Wallets Vs Crypto Hot Wallets: What’s The Difference
Here are some key areas in which cold wallets and hot wallets stack up against one another:
Security
Crypto cold wallets are commonly considered safer and less risky than their hot wallets counterparts because users’ crypto assets are stored offline which makes them less vulnerable to online attacks and hacking.
Cost
Hot wallets are typically free whereas hardware wallets can cost anywhere between $50 to $200.
Convenience
Crypto assets in cold wallets tend to be less liquid as users typically have to take multiple steps to access their crypto. Hot wallets, on the other hand, are always connected to the internet making them more convenient than cold wallets, especially for users who frequently buy and sell cryptocurrencies.
In addition, if you lose the pin and/or the seed phrase of your cold wallet, you can lose access to your crypto assets.
Should You Use A Crypto Cold Wallet
Storing your crypto assets is about striking the right balance between security and functionality and it is ultimately a personal decision. If you trade frequently, storing your crypto in a hot wallet or leaving it on an exchange might make more sense for you. On the other hand, if you tend to HODL your crypto, then buying and storing your crypto assets in a cold wallet might be a better option. You can even do both by allocating the amount of crypto you plan to trade on a hot wallet and the remaining amount to your cold wallet.
In short, the decision to use a crypto cold wallet should align with your own profile and needs.
List Of Some Crypto Cold Wallets
Ledger
Founded in 2014, Ledger makes non-custodial hardware crypto wallets, the Nano X and Nano S, for users who are looking to store their cryptocurrency offline. The company has offices in France and the US to create “secure solutions for blockchain applications.”
Trezor
Trezor is a hardware wallet developed by SatoshiLabs that is headquartered in Prague, Czech Republic. Trezor translates to “vault” in Czech which highlights the company's goal of providing users with wallets that come with top-notch security to protect their crypto assets.
Bitbox
A product of Shift Crypto AG (formerly known as Shift Devices AG), a Zurich-based company, Bitbox allows users to store a number of cryptocurrencies offline through the use of their hardware wallets. Bitbox wallet was first launched in 2015 and the wallet comes in a form similar to that of a small USB drive.
Keepkey
Keepkey was originally founded by Darin Stanchfield back in 2015. The company was later acquired by Shapeshift in August 2017 and the acquisition allowed Keepkey devices to be integrated with Shapeshift crypto exchange platform.
Ellipal
The Hong Kong-based company’s flagship product is the Ellipal Titan, which is the world’s first air-gapped cold wallet. Unlike wallets from Ledger and Trezor, the Ellipal Titan does not need to be physically connected to a computer via cable or Bluetooth. Instead, the cold wallet uses QR codes for data transmission.
Crypto cold wallets offer users an alternative method to store their cryptocurrencies besides storing them on hot wallets and on crypto exchanges. Like any other storage method, cold wallets have their own pros and cons. It is up to the individual to strike the right balance based on his or her own profile.