A cold wallet is a crypto wallet that keeps your private key offline. Because the key never touches the internet, a hacked laptop or a phishing site cannot steal it. That is why people move their savings to cold storage once the amount starts to matter.
In practice, a cold wallet is usually a small device, also called a hardware wallet. It can look like a USB stick, a bank card or even a ring. Below we explain how it works, which types exist and what to check before you buy one. If wallets in general are new to you, start with our overview of what an e-wallet is and which types exist.
Contents
- What a cold wallet is
- How a hardware wallet works
- Types of cold wallets
- When a cold wallet makes sense
- How to choose a cold wallet
- How to set up a cold wallet
- Mistakes that cost people their coins
- Moving crypto between a cold wallet and SharPay
What a cold wallet is
Coins never sit inside any wallet. They are records on the blockchain, and the private key proves which of them belong to you. Whoever holds the key can move the coins. So crypto security comes down to one question: where does the key live?
A hot wallet keeps the key on an online device, such as a phone app or a browser extension. A cold wallet keeps it on a separate chip that never goes online. The coins stay on the same blockchain either way. Only the place of the key changes.
How a hardware wallet works
The device does one job: it signs transactions. When you send coins, the app on your phone or computer prepares the transfer and passes it to the wallet. The wallet signs it inside its own chip and returns only the signature. The key itself never leaves the device.
This is also why a cold wallet is safe even with an infected computer. Malware can see the transaction, yet without the key it cannot create a new one. To understand why a signature is enough to move coins, it helps to know how a blockchain records transfers.
Most devices also ask for a PIN. On many of them, several wrong attempts wipe the chip. A stolen wallet is then useless to a thief. You then restore the coins on a new device from the backup.
Types of cold wallets
USB and Bluetooth devices
The classic form: a small gadget with buttons and often a screen. Ledger and Trezor are the best-known examples. You check the address and the amount on the device itself. That protects you if your computer shows a fake address.
NFC cards and rings
A newer form that works with a smartphone. You tap the card to the phone to sign a transfer, and there is no battery or cable. Tangem is the best-known example. Such wallets often come as a set of two or three cards. The extra cards serve as a backup instead of a written phrase.
Paper and air-gapped wallets
A paper wallet is a printed key or phrase. It costs nothing, yet it burns, fades and gets lost. An air-gapped computer that never goes online is another option. It suits technical users rather than beginners.
When a cold wallet makes sense
A cold wallet is worth buying once the amount on it would hurt to lose. As a rough guide, your crypto savings exceed the price of the device several times over. Basic hardware wallets start at around 50 USD.
It also makes sense if you hold coins for years and rarely move them. For daily spending, by contrast, a cold wallet is slow, since every payment needs the device at hand. Most people therefore combine the two. Savings stay in cold storage, while a small amount sits in a hot wallet linked to a virtual card you can top up with crypto for payments.
How to choose a cold wallet
Six questions cover almost every choice:
- Which coins and networks does it support? Check your exact coins and networks, not only Bitcoin and Ethereum.
- Does it have a screen? A screen lets you confirm the address on the device. Without it, you rely on your phone’s screen.
- How do you back it up? A recovery phrase of 12 or 24 words, extra backup cards, or both.
- What form suits you? A USB device for a computer, Bluetooth or NFC for a phone.
- How good is the app? You will use it every time, so check reviews of the app, not only of the device.
- Where do you buy it? Only from the official store or an authorised reseller, never second-hand.
How to set up a cold wallet
- Order the device from the official website and check that the box is sealed.
- Install the official app and create a new wallet on the device itself.
- If the wallet uses a recovery phrase, write it down on paper or a metal plate. Never photograph it or type it into a computer.
- Set a PIN or an access code.
- Send a small test amount, then restore the wallet from the backup to make sure it works.
- Only after that, move the main amount.
Our step-by-step guide on how to create a crypto wallet covers the same steps for software wallets.
Mistakes that cost people their coins
Most losses come from people, not from hacked devices. The common ones are simple:
- a recovery phrase stored as a photo, in the cloud or in a notes app;
- a device bought on a marketplace with a phrase “already set up”;
- a “support agent” who asks for the phrase to “verify the wallet”;
- the wrong network chosen when sending coins to the wallet;
- a single backup kept in the same place as the device.
A real support team never asks for your recovery phrase. Anyone who does is a scammer, whatever the website looks like.
Moving crypto between a cold wallet and SharPay
A cold wallet keeps coins safe, but it cannot pay in a shop. To spend crypto, you move part of it to a hot wallet that connects to cards. The SharPay crypto wallet works this way, with USDC, BTC, ETH, DAI, LTC, XRP and TUSD.
In the opposite direction, sending coins from SharPay to your cold wallet costs only the network fee. Check that the network on both sides matches before you send.
When you need regular money, send the coins from the cold wallet to SharPay and exchange them in the app. USDC can then go to a Mastercard or Visa card for 3%, with a minimum of 30 USDC. The full route is described in our guide on how to cash out crypto.