Tutorial – What Are Cold Wallets?

As with any money, the safe storage of your cryptocurrencies is a must. In another article, we introduced you to the concept of cryptocurrency wallets – which are typically mobile or desktop applications used to store your coins – but today we’ll walk you through a specific kind of cryptocurrency wallet – the cold wallet!

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What Is a Cold Wallet?

Cold wallets are cryptocurrency wallets which are not connected to the internet, unlike so-called hot wallets. Their lack of connection to the outside world means that cold wallets are significantly more secure than hot wallet alternatives, which makes them a popular choice for storing large amounts of cryptocurrency.

Technically, a cryptocurrency wallet is any way of storing the private keys for your funds. As a result, cold wallets can be anything from specialized hardware devices to just pieces of paper on which the keys are printed – in fact, these are the two main forms of cold wallet.

What Are Hardware Wallets?

Hardware wallets are specialized hardware devices designed with just one purpose: to keep your keys safe. Much like a USB flash drive, hardware wallets can be plugged straight into your computer. Then, with the help of dedicated software, you can gain access to and control the funds in the wallet – without ever exposing your private keys to the outside world.

Basic features of most hardware wallets include a simply, password-based entry system and a 12, 18, or 24 word long recovery phrase in case you forget the password or damage/lose the device. Functionality for sending funds is often included in the dedicated software, while receiving funds requires nothing more than the wallet’s address.

Top Hardware Wallets

There are a variety of hardware wallets on the market, but the most popular of them are produced by just three most brands: Trezor, Ledger, and KeepKey.

• Trezor produces two hardware wallets, the Trezor One and the Trezor Model T. The Trezor One is the base model; it retails at 69 EUR plus VAT (83.49 EUR, approx. 96 USD) and features all the basic features of a hardware wallet plus Trezor’s incredible support for over 500 coins. The Trezor Model T is available for 149 EUR plus VAT (180.29 EUR, approx 206 USD), with added functionality as a universal vault for passwords and other digital keys.
• Ledger produces three hardware wallets, the flagship Ledger Nano S, the Ledger Blue and brand new Ledger Nano X. Ledger offers the Nano S for 99.99 EUR inclusive of VAT (approx. 114 USD), with all the features you’d hope for and an impressive selection of colors! The Ledger Blue retails at 279.99 EUR also inclusive of VAT (approx. 320 USD), but comes with a large touchscreen for improved ease-of-use and latest Ledger Nano X costs 119 EUR (VAT Included).
• KeepKey only offers one hardware wallet, which is sold under the same name. The KeepKey wallet retails at 129 USD (approx. 113 EUR) and offers a selection of cryptocurrencies somewhere in between the alternatives, with support for a total of 54 coins.

Admittedly, these three companies offer very similar products in terms of price, usability, and effectiveness. As long as the wallet supports your coin(s), it shouldn’t matter too much which you choose.

Pros and Cons of Hardware Wallets

In case you’re wondering how hardware wallets shape up against some of the traditional alternatives, like desktop or mobile wallets, we’ve collected some of the advantages and disadvantages of using a hardware wallet Here are those pros and cons:

Pros

• Keep coins hidden from the outside world
• Easy access when coins are needed
• Recovery phrase in case of damage or loss

Cons

• Small upfront cost may be off-putting for smaller holders
• Some technical savviness required for everyday usage
• Limited support for various coins
• Require second, primary device to access coins

Although we’ve listed fewer pros than cons, there’s no doubt that the added security from storing your coins on any type of cold wallet – hardware wallet or not – is well worth the cost!

What are Paper Wallets?

Paper wallets are any pieces of paper on which the private keys for your funds are written or otherwise printed. Most paper wallets are indeed printable documents which are automatically generated using currency-specific software, featuring QR codes for the wallet’s public and private keys.

While paper wallets boast the same security benefits of any cold wallet, they’re much more difficult to use; although receiving funds requires nothing more than the wallet’s address, sending funds from a paper wallet will require you to import the wallet’s entire contents onto a separate hot wallet, which can be a very tedious process!

Pros and Cons of Paper Wallets

With this information in mind, how do paper wallets compare to the alternatives? Here are the advantages and disadvantages of using a paper wallet:

Pros

• Keep coins hidden from the outside world
• Near zero upfront cost
• Copies can be made easily

Cons

• Some technical savviness required for setup
• Require second, primary device to access coins
• entire contents must be moved to send a transaction of any size
• No password or similar authentication mechanism

Again: there are fewer pros than cons on this list, but paper wallets do a great job of keeping your funds safe!

Final Thoughts: Hardware vs Paper Wallets

There is no doubt that hiding your funds away from the outside world greatly improves security, and cold wallets are the best way to do that. In this article, we reviewed the most common cold wallets – hardware wallets and paper wallets – but you’re probably wondering which is best.

Looking back at the pros and cons of each option, it seems like price is the deciding factor. In most cases, we’d say that a hardware wallet is preferable if you can afford it. With that said, paper wallets are equally effective if you don’t need access to your funds, or as part of an advanced, long-term storage strategy.