Cold Wallet

What Is A Cold Wallet?

A cold wallet is a digital currency wallet that stores cryptocurrency completely offline. To put it simply, it is a crypto storage device that is not connected to the internet.

Deeper Definition

When you purchase a cryptocurrency, such as Bitcoin or Ethereum, on an exchange, you have the option of leaving it there. It is probably the easiest way to hold your coins. However, it is not the only way to do it. If you want more control over your tokens, especially in terms of security, then you may consider moving them to a wallet. There are two kinds of crypto wallets – hot wallets and cold wallets. Although both wallets offer crypto owners a secure way to store their tokens, they differ because hot wallets store the tokens online while cold wallets store them offline.

A cold wallet is a physical device that stores cryptocurrency completely offline. Typically, the device looks like a USB drive and securely stores your private and public keys – the two most important pieces of information you need to complete transactions. Your public key, otherwise known as “wallet address,” is what allows you to receive tokens, and it acts as your bank account would in the traditional banking system. It is what you send to people who want to transfer tokens to you. Your private key acts as your bank PIN, and it is what authorizes transactions when sending coins to other people’s wallet addresses.

Many people consider cold wallets as the most secure way to hold cryptocurrencies because it provides offline storage, which essentially means that hackers cannot break into your wallet and steal your coins. On the other hand, although hot wallets are secure, there are many risks to keeping your funds online. A common concern with hot wallets is that it is susceptible to online attacks from hackers. Although cold wallets offer more security, it has pitfalls that make them also risky. For instance, if you misplace the device, you lose access to your investments.

Cold Wallet Example

Cold wallets look like USB drives and cost between $50 to $200. An example of a cold wallet is Ledger Nano X. The device allows users to store more than 1,800 currencies and tokens, including Bitcoin, Ethereum, and Cardano. Using a USB cable, users can connect the wallet to their computer or use Bluetooth technology to connect it to their smartphones.