Cold wallets, also known as cold storage, refers to the method of storing virtual currencies such as Bitcoin offline. This is the most safe and secure method of storing virtual currencies.
It plays the role of a wallet by keeping a reserve of Bitcoin or other virtual currencies. Since it is completely separated from the Internet, the risk of having one’s virtual currency stolen due to unauthorized access is greatly reduced. On the other hand, there are some wallets which remain connected to the Internet. These are called hot wallets.
Types of cold wallets include paper wallets and hardware wallets. Paper wallets are a printed form of wallet whereas hardware wallets are a tamper-proof electronic device used to store coins in an offline setting.
Paper wallets, as the name suggests, are pieces of paper on which important information like addresses and private keys are printed. Since they are offline, it is a very secure method of storage. Therefore, the chance of being hacked is significantly decreased. One potential downside of this method is the risk of becoming illegible due to the ink fading over time.
Hardware wallets are a type of offline wallet which stores users’ private keys in a more secure hardware device.
Since cold wallets are not connected to the Internet, they are safeguarded from hacking. However, it is not suitable for frequently making deposits and withdrawals from them. Proper care must be given to avoid loss and theft.