Cold Storage Wallet for Crypto | A Complete Guide

Spread the wealth!

The popularity of cryptocurrency has continued to reach new heights, consequently, the popularity of a cold storage wallet for crypto is skyrocketing as well.

In this new digital age, the world is changing in ways we’ve never seen before. The days of traditional fiat are slowly diminishing. The days of securing your wealth with gold and silver simply because they were the “real thing” are long gone.

Today, anyone can secure their wealth no matter which country they live in simply by holding crypto. But where would you keep your crypto stored? The answer is a wallet. But this begs the question: “What kind of wallet should I use”?

Now, it’s worth noting that cold storage wallets are not the only option available. Hot (online) wallets are also a place where people store their crypto, but we’re going to be focusing on cold storage wallets in this article.

Holding your crypto in a cold storage wallet does not mean you’re holding it inside a fridge, or some other cold container, and a hot wallet does not mean that you’re storing it within a hot device. Cold and hot simply refer to whether the wallet is offline or online.

In this article, we will be going in-depth on cold storage wallets, their advantages, disadvantages, and variations. After you read this article, you’ll be able to find the perfect wallet based on your intentions with crypto.

What is a Cold Storage Wallet?

You’ll often hear cold wallets under the following terms:

  • Offline Wallets
  • Cold Wallets
  • Hardware Wallets

For the remainder of this article, we’ll be calling them ‘cold wallets’ for the sake of saving time.

A cold wallet cannot connect to the internet or run complicated apps.

A cold wallet is simply an offline storage for your crypto… except, it doesn’t literally hold crypto. The idea that cold wallets hold crypto is a common misconception all over the internet. Crypto never actually leaves the blockchain, instead, the ownership of crypto in the blockchain is simply transferred from one person to another.

This is similar to how rice stones acted back in the ages of ‘primitive money‘.

So, technically, a cold wallet is simply a storage device that holds passwords known as “keys”. These keys are what give your wallet access to the crypto transactions in a ledger known as the blockchain.

The privacy of the information within a wallet is achieved by having the offline wallet use a process known as random number generator (RNG) to generate keys.

But… what exactly are keys?

Public Adress, Public Key, & Private Key

You’ve probably heard these terms being thrown around with crypto when talking about cold and hot wallets, so let’s get into their meaning:

Public Adress: This is what you send to other people who want to pay you with crypto.

Public Key: This is a long string of numbers generated by the private key, it is used by the wallet to make the public address.

Private Key: This is a long string of numbers that allows you to access your crypto whenever you’d like.

In summary, the private key is an extremely long string of numbers used to derive the public key. The public key is also made up of a long string of numbers so it is compressed and shortened to form the public address. Thus, the public address is a hashed version of the public key, and the public key is a public version of the private key. 

This is why you only need the private key backed up, everything is derived from it. Most devices will offer a seed phrase so that you don’t need to remember the private key. But, again, make sure to keep this away from ANYONE. Don’t share your seed phrase with anyone because it is the equivalent of your private key.

Although cold wallets are storage devices, the other purpose they serve is signing transactions.

Your wallet uses the private key to sign transactions on your behalf and broadcast them to the blockchain. Your digital signature is how you prove ownership of a certain private key without actually exposing it. This is done through the use of complex mathematical rules known as cryptography.

This is similar to signing a check and giving it to a person!

Benefits of Cold Wallets

cold-storage-ledgerCold wallets are popular because of the security advantages they offer over hot (online) wallets. Since they are not connected to the internet, there is 0 risk that anyone can hack into them, even if you plug them into an untrusted device.

Having crypto in a cold wallet is similar to having cash in a regular wallet, it offers people a feeling of control of having their crypto in their pocket and not needing an internet connection.

But always make sure that you keep your private key separate and locked up. This way, no one else can have access to your funds.

And if you were to ever lose your cold wallet, you can still access your funds with another wallet simply by using your private key. If you forget the private key or seed phrase, it’ll be the same as carrying cash and losing it when you lose your wallet.

Having a cold wallet is a reassurance that your coins aren’t going to be scammed and stolen at any given time. You don’t need to trust any third-party service providers – the responsibility rests solely on you.

Summary of Benefits:

  • Disconnected from the internet
  • 0 Exposure to hackers
  • No reliance on anyone or anything but you for safety
  • A feeling of control over your crypto

Disadvantages of Cold Wallets

Pricing

A common complaint about cold wallets among the crypto community is their hefty prices; this is subjective, however, as someone with a large number of crypto holdings will see the prices of these devices as nothing if it means keeping their crypto safe.

Alternatively, someone with small holdings in crypto might see this contraption as a large overkill and a little bit too expensive.

Generally, cold storage wallets are within the price ranges of $50 to $100. The prices of each wallet depend on the functionality of the wallet. The more expensive they are, the more functions they will have, the less expensive they are, the more they only act as storage devices.

But keep in mind, the more simple a device, the harder it will be to hack into it. The fancier the device gets, the more probable it will be to hack.

Don’t support all cryptos

Another common disadvantage is the limited support of different cryptocurrencies by each wallet. This means that the wallets may not be able to hold all kinds of crypto because they don’t yet support them. This is very common because the number of cryptocurrencies is growing faster than the options of wallets that support more crypto varieties.

No Interest-Earning Potential

Certain apps, such as BlockFi, have high-interest earning potential. For example, by holding your bitcoin with BlockFi, they will pay you 6% APY for it. If you were to hold regular US currency as crypto, also known as US Dollar Coin (USDC) they pay you 8.6% APY for it. They also offer a rewards Bitcoin credit card with amazing rewards.

By holding your crypto in a cold wallet, you forego this kind of earning-potential advantage. Also, it’s worth noting, most of these types of companies actually hold their customers’ crypto on cold wallets. BlockFi is one of these companies that holds its customers’ crypto on a cold storage wallet.

Less practical

The third disadvantage of cold wallets is that they aren’t as practical as hot wallets. This means that even though you have the private key in your pocket, accessing the crypto is more complicated than it would be on a hot wallet. Don’t worry, I’ll explain…

How Transactions Work with Cold Wallets

If you want to access your funds in a hot wallet, all you have to do is pull out your phone or laptop and log into your account, and boom! You have access to your funds and can complete a transaction with the tap of a finger.

Cold wallets are different though. To access your funds using a cold wallet, you must:

  1. Plug your wallet into the laptop or other device you want to use
  2. Download a bridge program (a program that allows the connection between your wallet and your electronic device) onto your device.
  3. Allow the bridge program to make the connection to your wallet. Your wallet will only allow very specific data to pass through it. In other words, only crypto transactions can pass through it.
  4. Once the transaction is received, it signs it on the hardware wallet itself and sends it back to the bridge program. The private key never leaves the wallet.

Note: ALWAYS make sure the transaction you’re approving on the hardware wallet matches the transaction your bridge program is showing on your PC or other electronic device.

This process is much more complicated if all you wanted to do was send crypto to another person, or if you wanted to trade your crypto in some crazy dip.

With this being said, the overall lesson is this: if you want to store your crypto for the long term, use a cold wallet. If you want to trade or you’ll be using it regularly in transactions, cold wallets might not be the most practical option.

Best Cold Wallet Options

Trezor

This is a very well known device within the crypto community because it was the first crypto storage device out there!

trezor wallet features

Trezor is considered one of the leading cold storage devices on the market. It is well known for its protection of cryptocurrency against physical damage as well as software compromises within a device you might plug it into.

It is a sturdy, simple device that does not allow for any software compromises to pass through it.

Ledger Nano S

One of Trezor’s biggest competitors is the Ledger Nano S. Offering protection at a lower price. Its biggest advantage is the smaller size and larger compatibility.

ledger nano s

It’s probably obvious from the look of it, but this device is not nearly as sturdy as a Trezor, so keep this in mind when purchasing this less expensive alternative.

KeepKey

Although relatively newer than its prior comparisons, KeepKey grew in fame due to its sleek and sophisticated design.

KeepKey wallet

What differentiates the KeepKey the most from its competitors is its size, weight, and look. It is a much bigger wallet.  The price tends to be lower for this one too.  As far as compatibility, security, and storage, it is quite similar to the Ledger and Trezor.

KeepKey also supports a smaller variety of cryptos in comparison to its prior two competitors. Also, it has received some negative reviews on quality and its customer support.

Summary

With the continuing growth of cryptocurrency popularity, more people are looking into the best wallet options for holding crypto. With the increase in customer demand, more wallet options will continue to appear.

Although these wallets may cost money in comparison to having a free hot wallet, the added offline security is a great benefit to have.

When purchasing any of these wallets, however, ALWAYS purchase them directly from their website. Do not purchase them through a third party seller. There have been cases of fraud reported by people who bought hardware wallets on eBay and sometimes Amazon. I would never advocate for running this risk, as it could result in the irreversible loss of your crypto.

Have you used a hardware wallet? What feedback do you have on them? Do you have any questions? Please let me know in the comment section below!


Spread the wealth!

Recommended Articles

22 Comments

  1. I agree with what you said at the beginning of the article – today investing is moving to the internet and to cryptocurrencies, and this mass interest has already begun. I, too, have recently started researching this area, and I look forward to any interesting article with useful information that expands my horizons.
    Thanks for the great description of cold storage wallet for cryptocurrencies, now this area is much clearer to me.
    I wish you all the best
    Nina

    1. Thank you for your comments! I appreciate your feedback

  2. This is all new to me! I am still in the learning stage on the crypto currency world. It seems so easy yet so confusing. Cold storage and hot storage is also something new to me, your article has given me a great in-depth explanation on this aspect! Thank you for your advice in buying the cold wallet via their official website, I actually wanted to take a look at some options from Amazon. Good thing you warned me beforehand, all these frauds really do scare me! 

    In your opinion, is the Trezor better or the Keepkey? I have my eyes on these two but not sure which one is a better device. Thank you so much for your awesome article, really opened a new door for me in the crypto world. Keep it up and hope to see more! 

    1. I personally prefer the Trezor because the KeepKey is still new and heavier. I personally prefer the lighter option. I see no need in carrying bulky items, so, over the two, I choose Trezor

  3. Hello there, Misael! This is a very interesting article. I have only recently been hearing more about crypto currency but I have not heard of a cold wallet. It seems like a pretty handy device since it can store crypto currency offline which means it will be difficult to hack according to what I read from your article. This seems like a very awesome function. On the other hand, it seems a bit scary to think if the key were to be lost. If that were to somehow happen, is there any way to obtain a spare key?

    1. Yes, you can use your seed phrase to access your crypto on a different wallet. But don’t lose your seed phrase, otherwise, your crypto will be lost 🙁

  4. I have wanted to invest in Crypto for quite some time but the idea of keeping my valuable assets online and vulnerable has stopped me.  While the cost of a cold wallet is small enough (in my opinion) that it wouldn’t stop me from acquiring one, the lack of interest may, especially in light of the fact that many “holding companies” also use cold storage and they pay interest.  Having said that, I assume my crypto will still increase in value as the market goes up, even in my own cold wallet, correct?  So I would still be earning?

    1. Yes, that is correct. You will only be exposed to the volatility of the crypto you hold. So, if it goes up, the value in your wallet goes up as well.

      Even though there is no interest, value to will up as the crypto’s value goes up

  5. I heard about cryptocurrency, but I definitely lack knowledge about it. I even searched the web before I can finally relate with your topic.

    Reading about how you presented storing crypto gave me interest of knowing more about Crypto.

    So you triggered my interest not only about where to save them safely but also to read more from your website. My brother and nephews have been talking about it and even engaging to generating bitcoins without really sharing for what they say risk factor. I would like to personally increase knowledge about Cryptocurrency.

    Thanks for sharing your website.

    1. I’m glad this was helpful! That’s really interesting that your family is mining for Bitcoin! 

      If you want to learn more about cryptocurrency, I highly encourage you to read my Cryptocurrency article. And since crypto bases itself on blockchain technology, I also would encourage you to read my blockchain article. They will be very educational reads!

  6. The world is changing like never before (well, it’s certainly the first time in my lifetime I’ve been ordered to stay inside for a year). so, if I’ve read this right, a cold wallet is a security measure that protects your crypto from being stolen? Like a safe that regularly changes its code and share the code only with you.

    Is it really a 0 risk of being found by being hacked or could someone find them by hacking your computer directly?

    Reading this I do agree the high price is subjective if you have a lot to lose you will pay more for this type of thing if you are only just beginning to understand crypto (like myself) its probably not something to worry about yet.

    1. Well not quite. It’s a device that stores your keys, so they will not be on the internet at all, that’s why it’s risk-free.

      And to answer your second question, as of the information and technology currently available, yes it really is a 0-risk device (unless you lose it and forget your seed phrase)!

  7. Hello Misael, thanks for this informative post.

    I have to admit that cryptocurrency and all around it is a mystery to me. I had no idea that hot storage or cold storage for bitcoins already exist!! Your post shed some light for me about the subject, although I still have a lot of mistrust about bitcoins and cryptocurrency. But knowledge is power, and ignorance the source of fear lol.

    Thanks for posting, keep up the good work!

    Sofia

    1. Of course! I’m glad this was helpful!

      Yes, absolutely. Knowledge is power! Since you mentioned that you still have a lot of mistrust of cryptocurrency because of the lack of knowledge on it, take a look at this article where I go over everything about crypto. It is specifically for beginners!

      Thanks for your comment 🙂

  8. Hi Misael

    wow what an Awesome article!

    I enjoyed the fact that you set it out so well and made it very easy to read and follow.

    I am busy doing my own investigation on Crypto and so I learnt a lot from your post.  I am still learning the “what is crypto?” 

    Congratulations and I wish you every success.

    Best wishes

    Sheen

    1. Thank you for your comment 🙂 I’m glad this was helpful

  9. Great article you have here and quiet an informative one too. The security measures implemented by the cold wallet are kind of beneficial considering that the gadget is always offline. Although am curious, like what’s the proceed or way forward in scenario were the actual cold wallet is stolen or lost? 

    1. If you lose your cold wallet, you can transfer the funds to a new wallet by having access to your seed phrase. Using that will give you access to your funds on a different device. It’ll transfer your private key to the new device you use

  10. I have always been an interest in cryptocurrencies. But it’s such an intimidating world. No doubt, you are a good teacher. You can make explain a complicated concept in simple words and I appreciate that. For instance the fact that you talk about the rock stone helped me a lot. I have a diploma in history. Great article, Misael.

    1. That’s very exciting to hear! Thank you for your feedback 🙂

  11. This is a very informative article on cold wallets for crypto. At the moment I have an ETF in Ethereum, so I have not had the need for a wallet for crypto coins, but I have been looking at investing in other crypto currencies. I was not aware of the differences between hot and cold wallets, so your description of online and off-line, has really clarified it for me. 

    I have bookmarked your post that I can refer back to it. 

    1. That’s very interesting! And I’m glad to hear this was helpful 🙂 

Leave a Reply

Your email address will not be published. Required fields are marked *