What is cold wallet?

A wallet whose private keys are kept on a device not connected to the internet, such as a hardware wallet.

Cold storage is the standard approach for holding significant amounts long term, and the terms overlap: cold storage names the practice, a cold wallet is the thing doing it. Contrast with a hot wallet, which keeps keys on a connected device for convenience.

The trade being made is explicit. You remove the risk of remote theft and take on full responsibility for backup, inheritance, and physical safekeeping. Neither side of that trade is obviously smaller than the other.

How it works

A cold wallet generates and stores its private key internally and never exports it. To spend, an unsigned transaction is passed in, the device signs it using the key it holds, and the signed transaction is passed back out for broadcast. The key does not leave.

Confirmation happens on the device's own screen. This is the property that makes it more than an encrypted USB stick: the device shows you the destination address and amount it is being asked to sign, so malware on your computer cannot substitute a different recipient without you seeing it.

Setup produces a recovery phrase, typically 12 or 24 words following BIP-39. That phrase is the wallet. The device is a convenience for using it safely, and losing the device with the phrase intact costs nothing but the replacement hardware.

Cold wallets can still be attacked. Supply chain tampering, a phrase entered into a phishing site, and coercion all bypass the device entirely, which is why buying direct from the manufacturer and never typing a phrase into any screen are the standing rules.

Example

Illustrative. You hold 5,000 dollars across three assets on an exchange. You buy a hardware wallet, initialize it yourself so the phrase is generated on the device rather than supplied in the box, and withdraw each asset in a single transaction. Three withdrawal fees are paid once. Your exposure to the exchange failing goes to zero and your exposure to losing a piece of paper goes to 5,000 dollars, which is why the backup is where the remaining work sits.

Why it matters when you buy

Where you intend to keep coins after buying shapes which venue is sensible, because withdrawal support and withdrawal fees vary widely and some venues restrict withdrawals to certain networks. The fee comparison shows the withdrawal side, and self-custody versus exchange custody sets out the trade in full.

Related terms

cold storage — the practice this device implements; hot wallet — keys on a connected device; hardware wallet — the most common form; seed phrase — the backup that matters more than the hardware; self custody — the model it belongs to.

Questions

Do I need one to buy crypto?

No. You can buy and hold on an exchange. A cold wallet becomes relevant when the amount is large enough that the exchange failing or freezing withdrawals would matter more to you than losing a backup would.

Which coins can it hold?

Support varies by device and firmware. Major assets are broadly covered, newer chains less so, and sending an unsupported asset to a device address can make it very difficult to recover.

Is a phone wallet cold?

No. A phone is internet-connected, so a wallet on it is a hot wallet, however well the app is written. Some devices pair with a phone while keeping the key offline, which is a different arrangement.