You've heard of the term cold wallet and want to know what it's all about and whether this type of wallet is really the best solution for the secure storage of cryptocurrencies? In this article, we explain what you need to look out for as well as the advantages and disadvantages of using a cold storage wallet.
The secure storage of your cryptocurrencies is of crucial importance. A key aspect of this is protecting your private keys, because if you lose them, your coins are gone too. True to the motto: Not your keys - not your coins.
Furthermore, hacking attacks, phishing attempts and other methods of theft on crypto assets as well as bankruptcies of corrupt trading platforms have increased in recent years. To protect your cryptocurrencies from these kinds of situations, you can opt for a cold storage wallet. This special type of wallet enables the offline storage of private keys, making them virtually inaccessible to external parties.
What are private keys?
A cryptocurrency private key is like a secret password or number that gives you access to your digital wallet. It is a kind of secret code that allows you to access and manage your own cryptocurrencies. With this private key, you can carry out transactions, send or receive your coins and control your crypto assets. Your private keys must be kept secure and secret at all times, as someone who has access to this key would theoretically also have access to your cryptocurrencies.
Different types of cold wallets explained
Cold storage wallets can come in two forms: Paper wallets and hardware wallets. Paper wallets essentially consist of written notes or QR codes on which the private key is noted. Hardware wallets, on the other hand, are physical devices that need to be connected to a computer, similar to external storage media. As soon as your private keys are stored offline, it is generally considered "cold storage".
A distinction is also made between custodial wallets and non-custodial wallets. The custodial wallet is managed by a custody wallet provider who is authorised by the customer to manage the private keys securely. The keys are therefore held in a kind of fiduciary custody. The non-custodial wallet, on the other hand, is held by a non-custody wallet provider. Customers have sole access to their private keys. Non-custody wallet providers therefore have neither legal nor de facto power of disposal over the third-party assets.
Hot Wallet vs. Cold Wallet
Most crypto exchanges and trading platforms offer hot wallets. Although users have direct access to the exchange and can trade cryptos in seconds, they do not have access to their private keys. The main difference to cold wallets: hot wallets are continuously connected to the internet and the user data is stored on the servers of the exchanges.
Security is the key aspect of cold wallets
In contrast to hot wallets, cold wallets store the recovery seeds exclusively offline. The recovery seed is an encrypted code that is used to restore the wallet. Offline storage makes cold wallets secure. Before coins can be moved in and out of the cold wallet, a connection to your private keys is required.
However, please note that the security of a cold wallet also depends on the secure storage of the recovery seed. Additional complex passwords offer further protection here.
Pros and cons of cold storage wallets
The biggest advantage of cold wallets is undoubtedly their security. However, this also has certain disadvantages, especially when it comes to accessing your coins quickly. Depending on the type of cold wallet you have chosen, you must first connect your wallet and identify yourself using your keys before you can access it.
In addition, most cold wallets are non-custodial wallets where you are responsible for the safekeeping of your cryptocurrencies. If you lose the recovery seed, you will unfortunately no longer have access to your coins.
When is a cold storage wallet recommended?
In general, it is always worth using a cold wallet. Especially in today's turbulent times, when dubious providers are being exposed. If you store your coins in a cold wallet, they are safe from theft by cyber criminals or the bankruptcy of crypto exchanges or platform providers. You can restore your wallet at another exchange at any time using your recovery seed.
We recommend that you keep a small percentage of your cryptocurrencies in hot wallets so that you can access them easily at any time and react quickly to exciting market movements. However, you should keep the majority of your crypto savings safely in a cold wallet.
Discover the Cointract cold wallet
At Cointract, we have thoroughly analysed the challenges and disadvantages of cold wallets and created an innovative solution that is unique in Switzerland and allows you to store your coins securely.
You can activate your cold wallet with just a few clicks in the Cointract app. The advantage: we automatically generate a separate sub-wallet for every coin that you can move to your cold wallet with us. And it's free of charge. You will receive an encrypted PDF from us listing the private keys for each coin. Keep this PDF safe, because only with this information can you have your wallet restored elsewhere.
In the app, you have a complete overview of your coins in the vault. You can easily and quickly move your coins from the hot wallets (trading and earning) to your cold wallet and back again.
Try it out and let us know what you think of Cointract's cold wallet.
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