You don’t have to be a millionaire to feel the need to protect your crypto investments. Once you have found which cryptocurrency to buyif the timing was good, you quickly won a small protection jackpot. In this article, we’ll explore what a cold wallet is, how it works, and why it’s an essential solution for securing your cryptocurrencies.
What is a cold wallet?
A cold wallet is a type of cryptocurrency wallet designed to work offline. Unlike hot wallets (online wallets connected to the internet), cold wallets are disconnected, making them almost invulnerable to online attacks and hacks.
Difference between cold wallet and hot wallet
- Hot wallet: This wallet is connected to the Internet, which makes it more convenient for frequent transactions, but it is also more exposed to cyber attacks. It usually takes the form of an app or a widget.
- Cold wallet: works offline, therefore ideal for long-term crypto-currency storage without the risk of online theft. It takes the form of a physical object, knowing that there are several formats, resembling USB sticks, credit cards or iPods.
Cold wallets are mostly used by investors who have a significant amount of cryptocurrency and who want to avoid the risks associated with connected wallets.
Be careful not to confuse a hot wallet with a cryptocurrency exchange platform (e.g. Binance, Bitpanda). Indeed, even the best site to buy cryptocurrency it is generally not as security optimized as a hot wallet.
Different types of cold wallets
There are several types of cold wallets, each with specific features in terms of security and ease of use.
Hardware wallets
Hardware wallets are physical devices, some similar to USB keys, that store the private keys of your cryptocurrencies. They provide increased security through layers of physical and software protection. Here are some popular examples:
- Ledger Nano X: compatible with many cryptocurrencies, it is secured by a certified microprocessor. Ledger is a French company that ranks among the unicorns.
- Model T safe: highly regarded for its ease of use and security.
Paper wallets
A paper wallet consists of printing or writing your wallet’s public and private keys on paper. Although this type of wallet is extremely secure against hackers, there is an obvious risk if the paper is lost or damaged.
Metal wallets
Metal wallets are metal plates engraved with your private keys. More durable than a paper wallet, they are fire and water resistant, making them very popular for those looking for a long-lasting solution.
Advantages of a cold wallet
Using a cold wallet offers significant security benefits. Here are the main benefits of storing your cryptocurrencies offline.
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Protection against hackers
When the wallet is offline, it is safe from cyber attacks, malware and hacking attempts. The only way to get to it is to physically own it, making it virtually impossible to compromise over Internet.
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Ideal for long-term storage
If you plan to keep your cryptocurrencies for several years without exchanging them often, a cold wallet is the ideal solution. It gives you peace of mind knowing that your funds are safely stored.
In addition, cold wallets have greatly improved their user experience to facilitate cryptocurrencies.
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Full control over your private keys
With a cold wallet, you hold the private keys to your wallet. This means that only you have access to your cryptocurrencies, unlike wallets on exchanges where your assets are managed by a third party.
Disadvantages of a cold wallet
Although they are very secure, cold wallets also have some disadvantages that you should consider.
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Complexity of use
Cold wallets require a bit of technical knowledge to configure properly. It can be difficult for a novice user to understand how to secure, back up and access their cryptocurrencies.
In the end, it remains like any new technology or home appliance you would want to get. To get started with your new toy, you need to read manuals or watch videos.
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Inaccessibility for quick transactions
Because they are not connected to the Internet, cold wallets are not suitable for quick transactions or frequent exchanges. Access to funds usually requires connecting the wallet to a computer, which can be impractical in case of an urgent need.
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Risk of loss or physical damage
A physical wallet can be damaged, lost or stolen. To minimize this risk, it is advisable to keep a backup of private keys in a safe place.
Using a cold wallet properly is essential to maximizing the security of your cryptocurrencies. Here are some best practices:
- Configure the recovery phrase:
When setting up your cold wallet, you will be asked to note down your recovery phrase (seed phrase) consisting of 12 to 24 words. Be sure to save this phrase because it’s the only way to get your funds back if you lose your wallet.
- Avoid digital copies:
Never store your recovery phrase or private keys digitally, even on your phone or computer. Hackers could gain access to data stored on these devices.
- Use PIN codes and lock features:
Most hardware wallets allow you to set a PIN code. Make sure you set a complex code (not your birthday!) and don’t share it with anyone.
- Secure physical storage:
Cool wallets and their recovery phrases must be kept in a safe place, away from prying eyes and where possible away from water (if there is a risk of flooding in your area) or fire.
Comparison of the best cold wallets
To help you choose a cold wallet, here is a comparison chart of the most popular options.
|
Cold wallet |
Species |
Supported cryptocurrencies |
Price |
Security |
|
Ledger Nano |
A hardware wallet |
Bitcoin, Ethereum and 1000’s more |
About €149 |
High security |
|
Model T safe |
A hardware wallet |
Bitcoin, Ethereum and 1000’s more |
About €129 |
Very high security |
|
Paper wallet |
Paper wallet |
Bitcoin, Ethereum |
Release |
Physical security |
|
Metal wallet |
Metal wallet |
Bitcoin, Ethereum |
Various (20-50 €) |
Extreme durability |
Should you really be using a cold wallet?
The use of a cold wallet largely depends on your situation:
- For long-term investors: A cold wallet is necessary to secure assets that you do not intend to sell quickly, especially if the amounts invested reach thousands of euros.
- For active traders: a hot wallet where some of your funds are in cold storage to limit risks might be more suitable.
Cold wallets help keep your investments safe. Their initial costs are often offset by the peace of mind they offer users in the face of digital threats (eg hacks).
Conclusion
Cold wallets are an essential element for guaranteeing security in the world of cryptocurrencies. They help protect your assets from cyber attacks and are particularly suitable for long-term storage. However, they require precautions in use to avoid accidental losses (unfortunately often irreversible). By adopting best practices, you can benefit from a secure and durable storage solution for your cryptocurrencies.
Whether you are a cautious investor or new to cryptocurrencies, Cold wallet is undoubtedly a wise choice to keep your digital assets safe.