What Is Cold Wallet?

The basic idea of a cold wallet is that the private key that signs transactions never comes into contact with internet-connected devices. With hardware wallets, the transaction is prepared on a computer or phone and sent to the device, the user confirms the recipient address and amount on the device screen, and the signature is made inside the device. Because the private key never leaves the device, malware on the computer cannot directly access the key. Paper wallets and computers that are never connected to the internet are also among cold storage methods.

Cold wallets are widely used for high-value assets that will be held for a long time. Cryptocurrency exchanges also generally keep most of their users' assets in cold storage protected by multisignature, and transfer only the portion needed for daily withdrawals to hot wallets.

A cold wallet does not eliminate risks, it only changes their nature. If the recovery phrase is lost, the assets can never be accessed again; if it is photographed or stored digitally, the advantage of cold storage is lost. Fake or tampered devices, phishing attempts that ask for the recovery phrase and failing to check what is being signed on the device screen are also main risks; for this reason, it is recommended to buy devices from the manufacturer's official channels.