What Are Cold Wallets and How Do They Provide Extra Security?

We keep our money in wallets to keep it safe. The same applies to digital money: You have to put it somewhere to ensure security. 

That said, digital money, too, has wallets. However, there are two major categories of wallets for cryptocurrency: cold wallets and hot wallets. 

Among these two, hot wallets are similar to the three-fold leather purse you put in your pocket to carry your money. On the other hand, cold wallets are like piggy banks. You put your money in these piggy banks and keep it in a safe place in the hope of using it at a time of need or to fulfill any particular goal. 

Hence, your choice of crypto wallet greatly depends on your needs and goals. This guide will help you learn all about cold wallets, discuss their security, and explain how to choose the perfect hardware to ensure this security. 

So, keep reading to find ways to secure your digital wealth in cryptocurrency cold storage. 

An Introduction to Crypto Wallets 

Even though our guide promises to discuss cold wallets, we believe it is important to offer an introductory viewpoint on both cold and hot wallets. This will help you make a better choice based on your requirements. 

To understand the differences between hot and cold wallets and how each of them functions, follow the infographics below: 

What is a Cold Wallet for Cryptocurrency? 

Before we get into this detail, remember that crypto wallets do not essentially store your cryptocurrencies. Rather, they store the private key, a password that unlocks your digital vault where your digital assets are stored.  

Cryptocurrencies exist on blockchains. And, to access these blockchains, you need your private key. 

Hence, a cold wallet is a crypto wallet that helps you store your private keys offline. This wallet is a hardware device that often looks like a pen drive. 

A cold wallet’s main feature is that it stores your information (private key) offline. Consequently, your private key is safe from online vulnerabilities, such as hacking.  

Therefore, cold wallet devices are secure digital wallets that help you store your private keys offline.  

Types of Cold Wallets 

There are three major categories when it comes to cold wallets— 

• Hardware wallets (devices) 
• Paper wallets (printed keys) 
• Sound wallets (audio files) 

The infographics below will help you learn about the different types of cold wallets. 

At this point, paper wallets and sound wallets are not widely used. However, as hardware wallets strengthen, crypto owners are increasingly relying on this cold storage option to keep their assets safe. 

Here are some of the major hardware wallets for cold crypto storage: 

1. Ledger Nano S 

The Ledger Nano S is one of the most popular hardware wallets. It can be connected to your computer using a USB cable. It has a small screen and buttons for checking your transactions.  

This hardware wallet keeps your private key safe and a password that you can easily set up and use.  

The Ledger Nano S can be used to store 1,184 different types of money and tokens, including Ethereum, Bitcoin, and Litecoin.  

2. Ledger Nano X 

This is the newer version of the Ledger Nano S, with a bigger screen. It also has features that allow you to connect the hardware via Bluetooth, so you can use it with your smartphones.  

However, it costs more than other versions and supports the same 1184 different coins as its predecessor. Nevertheless, given the increasing use of smartphones, the Ledger Nano X is considered a better option and gained huge popularity. 

3. Trezor 

TREZOR is a well-known and trusted hardware wallet that offers high levels of cold wallet security for your coins and tokens.  

It has a security PIN or a recovery phrase that is 24 words long. This PIN helps you recover your wallet back if needed. Similar to Ledger Nano, Trezor also has a screen that displays information.  

You can use this crypto hardware wallet with a computer or as a USB stick. Trezor works with more than 1,060 different types of coins and tokens, including Bitcoin Cash (BCH), Bitcoin (BTC), Ethereum and others. 

4. KeepKey 

KeepKay is a well-reputed hardware wallet that supports a wide range of cryptocurrencies. Its security measures are high-end, ensuring complete safety for your private keys. 

To recover your information on a KeepKay wallet, you must apply a 12-word phrase. With this one recovery phrase, you can store multiple private keys for different blockchains on KeepKay hardware. 

5. SafePal 

SafePal functions with an air-gapped connection approach that isolates a computer or network from other networks. Therefore, it offers cold wallet security by eliminating the risks of unauthorized access or data breaches. 

The SafePal hardware works like a smartwatch, and you must pair your watch with an app to access its information. The SafePal app allows you to send withdrawal transactions and approve Dapp logins. 

You can get the SafePal app for both Android and iOS devices. Moreover, this hardware supports more than 20 Blockchain networks and over 10,000 coins. 

How do Cold Wallets Provide Extra Security? 

The core foundation of cold wallet security is that it separates the existence of private keys from the online landscape.  

When you use separate hardware to store information, no one can get to it unless you lose it physically or someone gets its access physically. 

Cold storage wallets are designed to hold crypto keys. They are non-custodial storage methods, so you cannot store any other data.  

Hence, when you connect your device to a computer or smartphone (in cases of Bluetooth-enabled wallets), you transform your cold wallet into a hot wallet. 

Once connected, your private key information is online and becomes vulnerable to attackers. 

This process works for paper wallets as well. When you scan the QR code, your private key information is transferred to a device that is connected online. This leaves the information vulnerable until you close the QR-connected page.  

Future Cold Storage Solutions 

Several new trends are coming up to make cold crypto storage better and more secure. Here are some key points that the future of crypto cold wallets can expect: 

• Multisig Support: We expect more wallets to add multi-signature features for extra security. 
• Wireless Connectivity: We already have models showcasing wireless connectivity, and they are expected to grow further. 
• User-Friendly Design: Improvements in user interfaces will make cold wallets easier for anyone to use. 
• DeFi Integration: We are looking into a future where wallets will enable you to connect with decentralized finance applications. 
• Altcoin Support: In addition to Bitcoin and Ethereum, more wallets are expected to support altcoins, which can also spike their prices. 

Looking ahead, we can expect integration with other technologies, better encryption, improved user experiences, and solutions to eliminate seed phrase vulnerabilities, like those offered by Cypherock X1.  

As cryptocurrency use grows, hardware wallets will become even more essential for secure digital asset storage. 

Bottom Line 

We expect cold wallet security to grow with future innovations. These wallets have the potential to encourage beginners and traditional investors to become interested in cryptocurrencies. 

Cold wallets solve cryptocurrencies’ biggest roadblock— online vulnerability. 

However, selecting the right cold wallet for your investments is important. To do this, you must keep your research updated and monitor all innovations and advancements in existing hardware devices. 

Following Coinfomania’s blogs, you can get this news and always stay updated about every change in the crypto world.