A cold wallet is a cryptocurrency wallet that is not connected to the internet. With cold storage, the generation and storage of the private keys is done in an offline environment. Online environments are vulnerable to hackers, who therefore actively attack online crypto wallets. Most exchanges and brokers have a large part of their cryptocurrency in cold wallets. This makes it impossible for hackers to steal the cryptocurrency from the wallets, because you need to be physically at this location.
This also means that not everyone can quickly withdraw all cryptocurrency from an exchange. An employee first has to collect it from the cold wallet and send it to the hot wallet. How this exactly happens is unknown. All the exchange I asked keep this a secret. The opposite of a cold wallet is a hot wallet.
For users it is also possible to store your cryptocurrency in a cold wallet. Take a look at the popular cold storage options below.
Cold storage in a hardware wallet (safest)
A hardware wallet is the most secure option for the cold storage of cryptocurrencies. Unfortunately, a hardware wallet is not free. It is a physical device that is very similar to a USB stick. It signs transactions using the private keys that are stored offline. You therefore manage your own private keys with a hardware wallet. When you manage your private key yourself, you know that you are 100% the owner of your crypto.
There are 3 popular hardware wallets available on the market:
- Ledgar Nano X
We strongly recommend a hardware wallet if you want to store your cryptocurrency secure and offline. Especially if the goal is to not touch it for a while, but to store it for a longer period of time. A disadvantage is that not all coins are yet supported by the different manufacturers. There are regular updates for new coins. Keep an eye on the website of the manufacturer or the newsletter.
Do you still want to make use of a cold wallet, but don’t want to spend any money? Then a paper wallet might be an option for you. This is the cheapest form of cold storage. Paper wallets are free to use and are the cheapest available form of a cold wallet.