In this article, we will explore what a Bitcoin cold storage wallet is, how it works, and its advantages in safeguarding your assets. We will also discuss which wallets are considered the best options for storing digital assets.
The cryptocurrency industry is known for its volatility, but its potential continues to attract users who want to make a profit. However, this space comes with certain risks such as hacking attacks that could result in users losing their invested funds. Fraudsters typically operate through two main methods: hacking wallets or deploying malicious software.
Cold wallets offer a higher level of security for storage, protecting asset holders from online threats and user errors.
Understanding Bitcoin cold wallets
A cold wallet is a tool that allows users to make offline transfers without the need for smart contracts. It is important to note that cold wallets are often confused with hardware wallets, but they are not the same.
As we have established, cold wallets can store cryptocurrency assets. The main advantage of this storage method is that it does not require an Internet connection or the use of smart contracts. Since the wallet is not connected to the Internet, it is considered a more secure option for storage, as hackers cannot access it remotely.
Furthermore, by not using smart contracts, the wallet protects the user from false approvals, making it suitable only for cryptocurrency transactions.
Users often interchangeably use the terms "cold wallet" and "hardware wallet," but they are different storage methods. Cold wallets come in various forms, and not all hardware wallets are cold storage.
Bitcoin cold wallet: function and benefits
Cold wallets are primarily used for long-term storage of valuable cryptocurrency. The advantage is that cold wallets contain private keys that are stored offline, out of reach from the Internet. This offers protection from external online threats.
Let’s dive deeper into the features of cold wallets:
Private wallets without Internet access
Cold wallets provide their users with private keys that exist offline. Importantly, these wallets do not store cryptocurrency directly. Instead, the assets are held at specific addresses on the blockchain, while the wallets contain the private keys that grant access to these assets.
This distinction is crucial in understanding how a cold wallet works. By holding the private keys to a blockchain address, you ensure the security of your cryptocurrency. For example, software or hot wallets store these keys within the device itself and require an Internet connection. This connection opens up the risk of the wallet being compromised by hackers. This is why cold wallets are considered more secure for storing cryptocurrency, as their keys remain offline, giving users peace of mind about the safety of their investments.
Working without smart contracts
Using a cold wallet helps protect you from online threats. It provides security against interactions with smart contracts and applications within the blockchain system that require permission to operate.
For example, if you want to sell an NFT project by listing it on a platform, the smart contract will need your confirmation to complete the transaction. While decentralized transactions are relatively simple, they carry certain risks, as fraudsters can make false confirmations.
When a smart contract has such permissions, the security of the wallet could be compromised. Not all smart contracts are trustworthy, and fraudulent approvals can lead to the loss of your NFT projects.
Fraudsters often use this method to steal cryptocurrency from users. This scheme remains active today, and fraudsters have already stolen over $2.8 billion through malicious smart contracts.
Cold wallets, however, do not use smart contracts, offering enhanced security for asset storage.
Types of cold wallets
Although all cold wallets are used to store private keys offline, they differ in terms of security, interface, and accessibility.
Let’s explore the various types of cold wallets available for Bitcoin storage.
Paper wallets
A paper wallet is a physical document where private keys are printed, often as QR codes. This allows users to make transactions to similar wallets. Paper wallets were among the first types of wallets used in the cryptocurrency industry and were popular around 2013-2014.
While paper wallets store private keys offline, they are essentially just a piece of paper, making this storage method less secure. The paper can be lost or damaged, and recovery of private keys is impossible since paper wallets do not support seed phrases. Furthermore, when you want to send coins from the wallet, you will face challenges, as you need to import the key into a software wallet that interacts with the Internet. This exposes your private keys to potential hackers and fraudsters due to the Internet connection. Besides, if the paper is lost, anyone who finds it can access your assets. Therefore, although paper wallets are a storage option, their significant drawbacks may result in the loss of your assets. Many more secure and reliable cold wallets are available today.
Sound wallets
Sound wallets are similar to paper wallets but store keys in audio form rather than on paper. Storing keys on CDs, flash drives, or records is more secure than paper, but these devices can also be broken or damaged, leading to cryptocurrency loss. It can be quite frustrating to lose access to your funds because of a scratch on the storage device.
This type of wallet is expensive to maintain, as decoding requires specialized software similar to spectrometer applications. This complexity can be difficult for beginners, making it challenging to set up and use.
Hardware wallets
Hardware wallets allow users to generate and store private keys using secure physical devices that do not interact with the Internet. But how can transactions be sent to the blockchain?
Hardware wallets have interfaces that enable users to conduct offline transactions, which are then signed and sent to Internet-connected devices. These interfaces are provided by apps installed on PCs or smartphones, allowing users to interact with the blockchain while safeguarding their assets. Compared to paper and sound wallets, hardware wallets are more user-friendly and do not require advanced knowledge or skills.
They have gained popularity due to their ability to protect private keys from loss or damage. This is possible through the generation of a secret mnemonic seed phrase, which can be used to restore access to a hardware wallet from any manufacturer.
Moreover, even if your hardware wallet is lost and falls into the wrong hands, accessing it is not easy. Most hardware wallets have additional protection such as a PIN code, without which unauthorized users cannot access the wallet. In addition, these wallets are equipped with advanced security chips that protect against various hacking attempts such as power glitches or attacks through different channels.
Hardware wallets are the best option for creating cold storage. They can generate any number of accounts, each with its own private key, ensuring that each account is separate and secure. As a result, users can have multiple accounts, each created for a specific purpose. For example, one account can be used for interacting with smart contracts, while another can store cryptocurrency. Even if the first wallet is compromised by fraudsters, the security of the second wallet remains intact. This feature makes hardware wallets unique and highly sought after by users due to the security they provide.
Understanding hot wallets
A hot wallet is a platform used to store private keys that requires access to the Internet due to its operation on the blockchain. These wallets offer a user-friendly interface, which has contributed to their popularity. This convenience allows for quick and easy transactions.
Hot wallets have features that allow users to store, send, and receive tokens—all on a single device. They can be used on any device connected to the Internet, giving you the flexibility to manage your funds on your PC, smartphone, or tablet.
In addition, access to a hot wallet can be managed across multiple devices simultaneously. So, if one device is lost or stolen, you can restore access to your assets via the seed phrase or backup.
Top hot wallets
A Bitcoin cold wallet is just one option for storing cryptocurrency. Today, the industry offers a wide variety of hot wallets. Let’s take a look at some of the best ones.
Meta Mask
MetaMask is a popular hot wallet known for its compatibility with Ethereum and ERC-20 tokens. Created in 2016, it quickly gained popularity and became one of the most widely used platforms for decentralized applications (dApps). It is particularly perfect for those actively involved in DeFi and NFT projects. However, its major drawback is its limited support for other blockchains.
Coinbase
Developed by major exchange Coinbase, this wallet offers enhanced reliability. With the Coinbase wallet, users can manage their assets through a dedicated app. The wallet supports a wide range of coins and also works with dApps.
Moreover, Coinbase Wallet allows users to store NFT collections and even buy cryptocurrency using credit and debit cards. It supports multiple payment methods, including debit cards, bank accounts, and local providers.
Trust Wallet
Trust Wallet supports 65 blockchains and thousands of coins, including those from Binance. It offers many features and is highly user-friendly. For example, users can easily interact with decentralized applications thanks to its built-in browser, which simplifies interaction with DeFi and NFT ecosystems. However, this app may not be the best option for complex operations due to its range of features.
Cryptomus
Cryptomus is a hot wallet with an intuitive interface that allows users to easily manage their assets. It includes a conversion feature, enabling users to exchange one cryptocurrency for another directly within the wallet. One of the wallet’s advantages is staking, which allows users to earn interest from storing their assets in various networks.
In addition, Cryptomus supports numerous cryptocurrencies, including Bitcoin, Ethereum, USDT, Litecoin, and others. Though it is relatively new, this wallet offers features such as 2FA, KYC, and data encryption, ensuring both security and ease of use.
Unique features of cold wallets
The key advantage of a cold wallet is that it operates without an Internet connection, which is not the case with hot wallets. This feature makes cold wallets much more secure for storing crypto assets. Since the wallet does not interact with the Internet, it ensures both safety and full ownership of your assets.
In contrast, with a hot wallet, you do not have full control over your assets. For instance, an exchange could freeze your assets if they suspect fraud. If you choose to store your funds this way, it is essential to select a trusted and secure platform.
Another option is a non-custodial hot wallet, which will not be blocked by exchanges but is more vulnerable to hacks.
How to choose BTC cold wallet
When selecting a cold wallet, it is important to consider which cryptocurrency you wish to store, as each wallet supports a specific set of assets.
Here is an overview of some cold wallet options:
- SafePal supports over 100 blockchains and their cryptocurrencies.
- Trezor works with more than 9,000 crypto assets.
- Ledger supports over 5,500 crypto assets.
- KeepKey allows interaction with more than 7,000 cryptocurrencies.
In addition, the price of a cold wallet will vary depending on the model and features, so it is important to consider your budget when making a choice.
Best cold wallets for cryptocurrency
As of today, hardware cold wallets are considered the best cold wallets and outperform all other types of cryptocurrency storage.
Let's take a closer look at some of the most popular models: Ledger, Trezor, and KeepKey.
KeepKey
This company has created only one model of this wallet. It features a metal casing, which gives the wallet weight and makes it bulkier than its competitors. It also adds durability, which is a significant advantage.
In addition, the wallet has a button that must be pressed to confirm a transaction, which helps protect your cryptocurrency from accidental transfers.
The wallet also includes a waiting mode if the PIN code is entered incorrectly multiple times. Initially, the device is locked for 8 seconds, and the lock time doubles after each failed attempt.
Key features:
- Supports 7,000+ cryptocurrencies and 450+ blockchains
- Compatible with macOS, Windows, and Linux
- Micro USB connection
- Size: 38 x 93 x 12 mm
- Weight: 54 g
- Price: around $78
- 12-word seed phrase
Ledger Nano S Plus
This model is an upgraded version of the Nano S released in 2016. The new wallet has a larger screen, more memory, and a revised USB port.
It also has a reset protection feature that activates if the user enters the password incorrectly multiple times.
Key features:
- Supports 5,500+ cryptocurrencies
- Compatible with macOS, Windows, Linux, and Android
- USB-C connection
- Size: 62.39 x 17.40 x 8.24 mm
- Weight: 21 g
- Price: around $67
- 24-word seed phrase
Ledger Nano X
This wallet is one of the models from Ledger. The key distinction from the Nano S Plus is its Bluetooth capability, which allows users to connect to a smartphone, as well as its compatibility with iOS. In addition, this model is larger in size.
The wallet automatically resets if the user enters the PIN code incorrectly multiple times.
Key features:
- Supports 6,500+ cryptocurrencies
- Compatible with macOS, Windows, Linux, iOS, and Android
- USB-C and Bluetooth connections
- Size: 72 mm x 18.6 mm x 11.75 mm
- Weight: 34 g
- Price: around $130
- 24-word seed phrase
Trezor Model One
Trezor is one of the most popular hardware wallet manufacturers along with Ledger, known for its functionality and demand. Trezor offers several wallet models and supports more cryptocurrencies than Ledger wallets.
The Model One can interact with macOS, Windows, Linux, and Android devices. With the iPhone, it can only be used to view the wallet. It also features two buttons on the panel.
The wallet focuses on security and offers two-factor authentication. The device resets if the PIN code is entered incorrectly about 17 times.
Key features:
- Supports 1,000+ cryptocurrencies
- Compatible with macOS, Windows, Linux, Android, and iOS (view only)
- Micro USB connection
- Size: 60 mm x 30 mm x 6 mm
- Weight: 12 g
- Price: around $60
- 12/24-word seed phrase
How to purchase cryptocurrency for storage
There are various platforms and exchanges where you can purchase digital assets. To do so, you need to create an account, link it to your email, and then deposit funds into your account.
Important: In order to work with fiat assets, you must complete the KYC verification.
You can top up your account using the P2P system, which is one of the easiest deposit methods.
Here is how it works:
- Locate the "Deposit and Withdrawal" button on the panel and click it.
- Select the desired currency and choose a seller.
- Submit a transaction request.
- After connecting with the seller, you will need to send fiat money, after which the seller will send you cryptocurrency.
Conclusion
In this article, we have explored what a Bitcoin cold wallet is and what other types of cryptocurrency storage exist.
We have found that cold storage is the safest option because it is not connected to the Internet, making it harder for malicious actors to access your data.
Please keep in mind that earning with cryptocurrency has many nuances. The key is to take them into account and follow the rules, and then you can make big profits in this industry.
Back to articles
