If you have a friend who’s into Crypto, then there is no chance they wouldn’t have told you about Cold wallet or Cold Storage at least once. Sure, they could have used another word for it or a sub type of it like hardware wallet or paper wallet or software wallet. So, What is a cold wallet?
If you are in search of knowing more related to what is a cold wallet and its types, you are exactly at the right place. A cold wallet stores the digital currency, i.e. the cryptocurrency without connecting to the internet. It is a hardware device that stores cryptocurrencies like Bitcoin and its private keys in an offline environment.
The cold storage crypto wallet is not available online on any computer or web server, guaranteeing security like no other. And, it makes the stealing of cryptocurrencies difficult, or even better to say, impossible for the hackers. Trezor One and Ledger Nano S are a few of the prominent cold wallets that are affordable and provides ultimate security.
The major difference between a cold wallet vs hot wallet is that a cold wallet is never connected to the internet making it resistant to get hacked while the hot wallet is connected to the internet.
Cryptocurrency Exchange Hacks
Let’s quickly see about the top 2 exchange hacks in terms of Crypto volume in $ lost so far. These exchange hacks tells us the importance of keeping your Crypto safe at all times. If you leave your Crypto in an exchange, it stays in a hot wallet that is like a honey pot for hackers. That’s why, it is not recommended to keep a huge size of crypto on exchanges.
The following crypto exchange hacks highlights the importance of cold wallet
MtGox Exchange Hack
Japan-based cryptocurrency exchange named Mt.Gox went through a severe fall down in 2014. In 2010, a US programmer started this company and sold it by 2011. Soon, in 2013, it became a big player in the world of cryptocurrency handling 70% of all the cryptocurrency transactions worldwide.
Unfortunately, the company faced the biggest Bitcoin hacking incident in history. Almost 740,000 bitcoins were stolen from the customers and 100,000 from the company causing damage of a total of 460 million USD. The company became bankrupt by the end of 2014.
CoinCheck Exchange Hack
Coincheck faced one of the biggest cryptocurrency heists that have occurred around the world. The crypto-criminals hacked the company in January 2018, causing damage to almost 523 million NEMs. Coincheck refused to repay the customers at first however the compensations were made later on.
They repaid all the users in the Japanese Yen. It was then declared that the CoinCheck stored the NEM coins in a hot wallet (wallets connected to the internet) rather than cold ones.
Cryptocurrencies may be relatively safe. However, these hacking scenarios that happened to big companies like Coincheck and MtGox showed how exchanges are always at risk, and the use of a cold wallet to store cryptocurrencies will always be a better and safer option.
Hopefully, with much more research in the future, the Crypto Exchange hot wallets will also become much safer. But, for now, it is better for everyone to move their assets into a cold wallet and take responsibility of securing your assets.
What Is A Cold Wallet Or A Cold Storage?
Reading all about security and benefits a cold wallet provides, I know you are having “what is a cold wallet?” question in your mind. Not having any connection to the internet, a cold wallet ensures that safety is not compromised.
People also refer to it as offline wallet or a hardware wallet used to store cryptocurrency. In addition, no connection to the internet ensures there is no unauthorized access to the digital currency. It stores the user’s private keys and addresses and works with the help of compatible software on the computer.
If described in easier words, a cold wallet is a simplest and most feasible way of holding the digital currency offline, keeping it safe from all unauthorized access and theft.
Different Types Of Cold Wallets
You now have all the basic knowledge of what is a cold wallet and how is it created. So, now is the time to learn about its different types.
The cold wallets are divided into 4 different types which are explained briefly below.
It is a piece of paper on which the private keys and the crypto addresses are printed in form of QR codes. To execute the transactions, these codes are then scanned. In this case, you need to visit a site for wallet generation to create the QR codes.
While the keys are generating, the users are advised to turn off their internet connection or clear the internet history. Once the codes are generated, print them out and make sure the paper it is printed on is not lost or damaged.
If proper precautions are taken, it is almost impossible for the hackers to get hold of the bitcoin private keys and addresses. It is considered one of the best ways to keep the cryptocurrency safe from malware and crypto-criminals.
Using a cold wallet does not always mean using a paper wallet. The sound wallet enhances the game of securing a crypto key to a whole new level. It uses a BIP38 encrypted key to convert the data into a sound file.
A sound wallet is your vital key to keep your money safe and protected. In easier words, it is a paper wallet but in an audio form. It assures keeping the private keys safe as encrypted audio files through different devices such as vinyl disks and CDs.
Deep Cold Custody Storage
Deep cold storage wallets have gained quite attention in recent years. Introduced by a London based company, it offers security like a bank vault to keep bitcoins keys safe and secure. So, it is the best cold wallet choice for those who decide to invest a specific amount of money into bitcoin every month, depositing it in the address and never transacting it.
An underwriter is required to ensure the protection and safety through this service. This is a drawback because to provide this service, the address, and identity of the person seeking services is required which don’t leave a chance for those who want to remain anonymous owners.
As the name implies, it is a wallet that keeps cryptocurrency’s keys safe and sound in a hardware device. So, it is becoming one of the preferred methods to keep the keys safe in an offline environment. Pi-wallet is one of the examples of a hardware wallet.
Hardware wallets are virus-protected small devices that can even support multi transactions. They have a really small space apart from ROM to store crypto apps. So, any malicious code will not fit into those devices. Not only that, they even provide the convenience of receiving and sending the virtual currency, QR scan camera, and having a micro storage backup too.
There are some software wallets out there that allows you to generate seed phrase and store your crypto safely without the need for a costly hardware wallet purchase. These wallets have a good level of security but there are reports of hacking happening in software wallets too.
For instance, there are good options in Software wallets like Electrum and Jaxx wallet. And, there are hundreds of other software wallets. Make sure the downloadable files you use to install and create wallets are safe.
If you are a serious crypto investor, it doesn’t make sense to risk thousands of dollars portfolio by keeping in a software wallet. So, in that case, make sure you invest some dollars into purchasing a hardware wallet.
Hardware Wallet Vs Paper Wallet Vs Sound Wallet Vs Deep Storage Cold Wallet
DEEP STORAGE COLD WALLET
|Type||It is like a normal document containing the private keys||It keeps the keys secure in form of audios||A device like a USB drive containing the private keys||Memory stick or memory card is used to store the keys|
|Connectivity||Paper wallet has no connection to the internet||Sound wallet doesn’t require any internet connection to be functional||Hardware wallet also doesn’t require internet connection to operate||You don’t need Internet connectivity|
|Time required for processing||The process of generating paper wallet generally takes up to few minutes||Sound wallet process takes less than a minute||It can take up to an hour for processing hardware wallet||It takes more than 2-4 hours for processing deep storage wallet.|
|Backup||Doesn’t have any backup||Sound files are stored in devices like CDs and Vinyl Disks||Has a backup||Has backup by not storing everything in one place|
|Security||Users have to be careful in keeping it safe||You need to keep CDs or disks or thumb drives safely in a private place||Security features protect the device from malware and viruses||Ensures security by placing keys in different places rather than in just one place.|
What is a cold wallet and some of its different types have been discussed briefly, however, choosing the best one from so many choices is never easy.
It is a safe and secure hardware wallet, with two different power packing variants, namely Ledger Nano S and Ledger Nano X.
Ledger Nano S
Ledger Nano S is considered one of the best and most popular cold crypto wallets in the market these days. It is super secure, has resistance to physical damage, and supports more than 1500 different cryptocurrencies at one time. However, it is a bit expensive.
Additionally, Ledger Wallets allow you to receive and send different cryptocurrencies. This wallet always holds the coins offline making it super secure and resistant to getting hacked. Bonus, it comes with a secret pin so even if your device is stolen, the pin needs to be known to get access.
When you receive the device, you will have to choose a PIN that can be of a total of 4 digits. Only you will know this PIN and you have to enter this pin manually whenever you need to use the device.
What makes Ledger Nano S prominent is the fact that it not only holds bitcoins but also has the potential of holding 1500 different cryptocurrencies that no other wallet offers. Hence, people also refer it to as one of the cheapest multi-currency wallet.
Ledger Nano X
Ledger Nano X is one of the newest Ledger wallets that has a major security improvement and wire-free better user experience. As as result, it is extremely easy to use. The package it comes with includes 1 USB C cable, Ledger Nano X itself, Keychain for the device, and 3 recovery sheets.
It is extremely easy to manage because it requires only one application to store almost 27 coins and 1500 tokens from the computer or smartphone all in the same place. You just need to press a single button to send payments.
It is almost similar to Ledger Nano S, however, the biggest advantage is everything can be done on a smartphone when it comes to Ledger Nano X and you don’t need your computer or your laptop to carry here and there.
Additionally, it comes with two-factor authentication ensuring better security and safety. You can access it from any computer using a fingerprint reader. It is the best cold wallet choice for people who want to have transactions through iPads or iPhones or even Android devices.
After making it clear for you what is a cold wallet and what is a ledger wallet, I’m moving forward to providing you another option that is the Trezor cold storage wallet.
A Trezor wallet is the original hardware wallet. It allows safe storage of a wide range of cryptocurrencies and safety send and receive them. It allows holding the private keys in a physical wallet unlike software wallets,
Also, the wallet never connects to the internet which makes it safe and secure. However, it costs a bit much so if you have a few coins, it’s not worth the investment.
We will go into detail about the two variants of Trezor wallets. One is Trezor One and the other is Trezor Model T. Read further how these differentiate themselves for you to make the right choice.
The Trezor One wallet gives you full control over the bitcoins you possess. In other words, there is no third party that can either freeze or lose your cryptocurrency. However, your responsibility is to back up the wallet and secure it properly.
Bonus, you will not need to read guidelines for securing your keys because Trezor One is here for the rescue. It leaves behind all the key-loggers and viruses that will ease your worry about securing your keys.
Best of all, it supports all the operating systems including Linux, Windows, etc. On mobile devices, you can only download this on Android for now. You get full privacy from the software wallet that you use to access crypto assets in combination with the physical device.
Trezor Model T
The Model T of Trezor wallet is quite similar to the Trezor One. The major difference it comes up with is a touch screen instead of two buttons. However, the small size makes it a bit less feasible to use.
The major benefit is the security is further optimized because the dubbed core was written from the scratch. This hardware wallet is a major improvement over the Trezor One model. They have firepower to perform even in a malware prone device but don’t try this on purpose.
The security researchers and the verification of track record by the company make it one of the best choices of hardware wallets. Also, the experts are always ready to help you out with the queries making it a customer-friendly service.
It is a hardware wallet that supports almost 40 different cryptocurrencies. The bonus point is it comes at a very affordable price. However, when comparing to the main competitors like Trezor and Ledger wallets, it lacks the company reputation and coin support.
The OLED display and the confirmation button in a keep key wallet reviews every bitcoin transaction that you make. As a result, this ensures the trust you put in them does not waver.
Cool Wallet S
It is one of the hardware wallets that combine portability and security together. These wallets are totally controllable by mobile apps and Bluetooth connections. Consequently, it comes in the size of a credit card with a screen and a button. This design makes it solid and yet lightweight, making it one of the feasible choices.
The Cold Wallet S comes with many user-friendly features that include receiving, sending, storing, and trading the cryptocurrencies within the application and hardware wallet. And, this makes it a strong choice for the users.
As a result, it maintains almost 5,000 downloads and a rating of 4.6 stars among 400 reviews which is a strong sign of a well-designed service.
Ledger Nano Vs Trezor Vs KeepKey Vs CoolWallet
COOL WALLET S
|Supported cryptocurrency||Ledger wallet supports 1250 assets||Trezor wallet supports 1180 assets||KeepKey wallet supports 40 assets||Cool wallet S supports 30 assets|
|Physical appearance||Rely on two buttons||The T model comes with a touch screen||Only one button||One flat button|
|Durability||Sleek look and more durable||Made of plastic therefore less durability||High durability because of anodized aluminium||Durable enough carry easily in your wallet or purse or backpack|
How to create a Cold Wallet?
If you are worrying how to create a cold wallet after learning the answer for “what is a cold wallet” question, this section will cover it all for you. When we learn more about Cold Wallet, the last step is to actually create it and start using it. So, let’s split the section into cold wallet with software wallet and hardware wallet separately.
They both have the same process of creating the seed phrase, backing them up and using a public private keypair to access your crypto assets. But, there is a slight difference in the user experience side. Without further ado, let’s see how to create a cold wallet.
How To Create Cold Wallet With Software Wallet?
To create a cold wallet, you will need to have an old computer and software that can perform all actions export transactions, import transactions and sign. Also, you need an additional computer to run the watch only wallet to check the transaction history and outputs.
We are going to create a cold wallet for Electrum wallet, which is a major Software wallet.
Please follow the below steps, while using latest version of Electrum wallet on your computer.
- Open Electrum on your computer and then click “File” option
- After that, click New/Restore to create the name of the wallet
- Choose the type of wallet you need according to your requirements
- Consequently, go ahead and select “create a new seed” and proceed to the next step
- Now, You will see a code containing 12 words keyphrase or seed phrase. Copy it on a piece of paper or your personal diary and then store it in a safe place
- The next step will ask you to retype the code again
- Then, your wallet becomes functional and ready to use
How To Create Cold Wallet With Hardware Wallet?
We will use Ledger Nano as the example to create cold wallet with hardware wallet in our case. Ledger Nano has the highest market share of all hardware wallets sold in crypto space.
Step 1 : Download Ledger Live To Set Up Ledger Wallet Device
Ledger Live is their in-house software that allows users to initiate the configuration of your Ledger nano device and start managing your crypto assets with a one stop dashboard.
Ledger Live is a nice, clean dashboard that lists all Crypto assets you own and shows you in USD or any other currency how much you own. Then, you can also use Ledger Live to finally send or receive cryptocurrency.
Step 2 : Decide PIN To Secure Your Device And Note Your Recovery Phrase
When you set up your Ledger nano wallet, you will first be required to enter a 4 to 8 digit PIN. I recommend you going with the strongest 8 digit PIN.
After that, you will see 24-words recovery phrase on your screen one by one. You have to write them down in a safe place as it appears on your screen when you click both buttons together.
Once you note down, Ledger will ask you to confirm some of the words in some place to confirm you have it safely with you. Once you successfully provide those test words, the Ledger device will generate a strong private key for your device basis the security keyphrase that is unique to the device.
Remember, the 24-words recovery phrase is the only way to access your private key. Your lose access to your crypto assets if you lose this and your Ledger device gets reset. Also, it’s a no-brainer that you need to store the keyphrase in a secure and safe place. Finally, don’t share it with anyone except your spouse or children.
Step 3 : Install Necessary Crypto Apps On Your Ledger Device From Manager Tab
Now that you Ledger device is functional and ready to go, head over to Manager tab in Ledger Live. Over there, you will see most of the Crypto applications that are supported currently by Ledger listed. Next, install the crypto apps for cryptocurrencies you want to store in Ledger wallet.
Step 4 : Add Crypto Accounts To Manage Crypto Assets
The last step is to add crypto accounts which are currently supported on Ledger Live to send or receive Crypto assets. If some Crypto assets you are looking for is not directly supported, then look for external wallet services.
I hope this article covered most of your questions like what is a cold wallet, its different types, and their differences to make your choices easier and precise.
Cryptocurrencies are becoming prominent day by day. However, storing it on either a hot wallet or a cold wallet is the choice of the users using it. The hot wallet involves the use of an internet connection while the cold wallet doesn’t.
Cryptocurrency exchanges are always at risk because of the attacks that hackers can do. And they are never going to stop doing that. Therefore, security is one of the major concerns when it comes to digital currency.
If you are looking to just get your feet wet and don’t want to invest in a hardware wallet, then read our Bitfi wallet review to see if it fits you. But, I highly suggest you go for Ledger Nano Wallet, if you are investing big into Crypto that you wish to not lose.
Finally, Cold wallets are mostly secure hardware wallets. The best action can be using a cold wallet which is relatively safe because it ensures security and safety of the keys as there is no exposure to internet or other attack-able system. Therefore, it is naturally resistant to online hacking.
I am a data analyst by profession who loves to crunch numbers at daytime and come home wondering how my passive income numbers for the day look like. I believe in being rich rather than looking rich. Follow me for Cryptocurrency, FIRE, Personal Finance, Credit Cards and Digital Nomad updates