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What Is a Cold Wallet and Why Do You Need One?

A person holding a pink suede wallet.
Photo by Robert Bogdan on Pexels.
Voyager Digital Files For Bankruptcy: What Should You Do Next?

If you leave your cryptocurrency in the hands of popular DeFi exchanges like Metamask and Coinbase, it’s not exactly safe. The recent bankruptcy filing by Voyager Digital is an example of the risks. At the moment, all crypto assets held by Voyager are frozen in limbo as the exchange pays its debts. So, how do you keep your crypto safe from online exchanges? They use a hot wallet: crypto storage connected to the internet. It would be best if you had a cold wallet to secure your assets. But, what is a cold wallet?

What is a cold wallet?

Simply put, a cold wallet is crypto storage that never has and will never connect to the internet. Instead, it stores your private keys, or unique access codes, to your crypto offline. Keeping your assets offline protects them from hacks or unauthorized access. It also gives the owner complete control of their digital assets. 

Your investments are safe even if a DeFi exchange goes bankrupt. All transactions with a cold wallet require an intermediary. Because it’s not connected to the internet, you need an intermediary like a USB drive to make exchanges. So it’s a bit more involved to make transactions with a cold wallet, the price you pay for security.

Examples of cold wallets

Cold wallets can take a few different forms. One of the most common is a hardware wallet. These devices, such as Ledger and Arculus, store your private keys offline and use an app to secure your crypto. Though, there are differences between those as well.

Many choose to use a paper wallet, a piece of paper with your private keys. A scannable QR code on the paper wallet can help with transactions. The issue with a paper wallet is it’s easily damaged. If it becomes illegible, you lose access to that crypto forever.

Offline software wallets such as Guarda and Exodus splits the transaction process into two parts. First, an offline wallet that stores your crypto works together with an online wallet that holds public keys. The online wallet is an intermediary between the receiver and sender to keep your private keys cold.

A cold wallet is your best bet if you want to ensure your digital assets are safe. They tend to be a bit more involved. But the extra effort is worth the peace of mind.


David Grasso contributed to this article.

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