What Is a Cold Wallet?

Cold wallets are cryptocurrency wallets that are not connected to the internet or any other unsecure networks when not in use. This is done to provide an additional layer of security over that offered by the more widespread hot wallets, which are software wallets stored on a user’s local computer or accessed from a service provider’s servers via a website interface.

Cold wallets are employed by individual cryptocurrency users as an affordable and relatively simple way of insulating one’s crypto funds against the threat hacks, phishing and other vectors of attack that may lead to permanent loss of coins.

They are even more in demand with businesses that hold custody over their customers’ funds, such as cryptocurrency exchanges. By storing the coins that belong to tens or even hundreds of thousands of users in a centralized manner, these businesses become highly enticing targets for hackers and physically separating most of the reserves from the Internet is the only reliable way to protect from attacks.

Cold wallets come in many different forms, the two most popular ones being paper and hardware wallets.

A paper wallet is a piece of paper with the public address and the private key of the wallet printed on it. The public address is used to receive cryptocurrency and the private key to access the funds stored and send them. Paper wallets often come with QR codes that can be scanned with a smartphone for ease of use.

A hardware wallet is an electronic device that must be physically plugged into a computer to be accessed. These can range from amateur homemade inventions to commercially available consumer devices (often in the form-factor of a USB stick or drive) to proprietary solutions designed by professional engineers to order.

Other, less popular cold wallet types include smart cards and even sound wallets, which store private keys in the form of audio on CDs or vinyl records.