Master Crypto Security: Why Cold Wallets Are Essential

Cryptocurrency hacking is a major threat. In 2022, $3.7 billion was stolen, making it the worst year for crypto theft. Although the amount stolen dropped to $1.7 billion in 2023, hacking incidents rose from 219 to 231.

Security is a key challenge in the crypto world. While cryptocurrency offers great opportunities, it also involves significant risks many users ignore. Managing private keys, protecting wallets, avoiding scams, and understanding regulations can be overwhelming. Lack of knowledge often leads to costly errors, like losing funds, hacking, and falling for fraud. Whether you’re a beginner or an experienced investor, knowing these risks and how to safeguard yourself is essential for success in crypto.

Companies like AMLBot can help recover stolen crypto. But sometimes restoring crypto is impossible even in centralized wallets, we discussed that in our article about TON wallet. This article will explore preventive steps to protect your crypto assets, including defining cold wallets, their principles, how to use them, and the best options available.

What is a Crypto Wallet?

A digital wallet allows users to securely store, send, and receive cryptocurrencies like Bitcoin, Ethereum, and others. Think of it as a virtual version of a physical wallet, but instead of holding cash, it holds cryptographic keys that are used to access and manage your crypto assets.

These wallets are essential for interacting with blockchain networks. There are two main types: hot wallets (connected to the internet) and cold wallets (offline storage).

Types of Crypto Wallets:

1. Hot Wallets
   • Software Wallets: These are applications or programs you install on your device, such as a computer, smartphone, or tablet. They’re connected to the internet and allow quick access to your crypto for transactions. Examples include:
     • Mobile Wallets: Apps like Trust Wallet or Exodus.
     • Desktop Wallets: Software like Electrum or Exodus.
     • Web Wallets: Online platforms like Blockchain.com or MetaMask that let you access your crypto from any browser.
   • Advantages: Convenient, fast access for frequent transactions, easy setup.
   • Disadvantages: Vulnerable to hacking since they’re online.
2. Cold Wallets
   • Hardware Wallets: Physical devices (like USB drives) used to store private keys offline. Examples include:
     • Ledger Nano X
     • Trezor Model T
   • Paper Wallets: A printed piece of paper containing your private key and public address, often generated from websites like BitAddress or WalletGenerator.
   • Advantages: More secure because they are offline, less vulnerable to online threats like hacking.
   • Disadvantages: Less convenient for quick access or transactions, easy to lose or damage if not properly backed up.
3. Custodial Wallets
   • These wallets are managed by a third party, such as an exchange (e.g., Coinbase or Binance). The exchange holds the private keys on your behalf.
   • Advantages: Easy to use, often include user support, good for beginners.
   • Disadvantages: You don’t control your private keys, meaning you’re trusting the third party for security.
4. Non-Custodial Wallets
   • With non-custodial wallets, users have full control of their private keys and are responsible for their security. Examples include MetaMask, Trust Wallet, and Exodus.
   • Advantages: Full control over assets, more security, and privacy.
   • Disadvantages: If you lose your private keys, your crypto is gone forever.

Summary:

• Hot Wallets: Connected to the internet, fast transactions, but less secure.
• Cold Wallets: Offline, more secure, but less convenient.
• Custodial Wallets: Managed by third parties, easier to use but you don’t control your keys.
• Non-Custodial Wallets: Full control over your crypto, but with greater responsibility for security.

Why is a cold wallet important for crypto security?

With the growing array of crypto wallet types available today, cold wallets are often cited as the most secure choice for protecting digital assets. Let’s examine why cold wallets stand out as the preferred solution for safeguarding cryptocurrency investments.

A cold wallet is essential for crypto security because it stores private keys offline, making it immune to online hacking attempts and malware. Since cold wallets primarily are not connected to the internet, they are far less vulnerable to theft via phishing attacks, exchange hacks, or malicious software. This makes them one of the most secure options for long-term storage of cryptocurrencies, especially for large amounts that you don’t need to access frequently. Cold wallets provide a level of protection that online wallets (hot wallets) can’t match, ensuring your assets remain safe from unauthorized access.

Crypto security specialist comment 

I had an interview with a real security specialist. From the perspective of security, the simplest application is, the more difficult it is to hack it. Primarily the cheapest and simplest applications are the safest. And when it comes to the matter of saltiness, it all depends on the price of the hack. For example: when you have 10 000$ in your crypto wallet, its hack will cost 50 – 100 000$ which is not profitable for hackers. But if you store 100,000$ there, this game starts to make sense.

The Safest Way to Store Crypto on a Cold Wallet

If you prioritize security but worry about losing your seed phrase, follow these simple steps to store your crypto safely:

1. Purchase a Cold Wallet: Choose a reliable hardware wallet from a trusted manufacturer.
2. Generate and Secure Your Seed Phrase: After setting up your wallet, note down the seed phrase (a series of 12–24 words).
3. Divide the Seed Phrase into Four Parts: Split your seed phrase into four portions, ensuring no single part can unlock your wallet alone.
4. Distribute and Store: Keep one part yourself and give the other three to trusted individuals.

Recovery Process

In case you need to restore your wallet:

1. Visit the official wallet recovery site or use your cold wallet device.
2. Input any two parts of your seed phrase.
3. Follow the instructions to recover access to your wallet.

This method ensures that even if a part is lost or compromised, you retain control while safeguarding your crypto against theft or accidental loss.

Comparison of Best Crypto Wallets

When it comes to storing Bitcoin securely, choosing the right cold wallet is crucial. Here are some of the best cold wallets for Bitcoin that combine strong security features, ease of use, and reliability:

Here’s a comparison table for Keystone, Ledger, Trezor, Tangem, and Coldcard cold wallets based on your criteria:

Criteria	Keystone	Ledger	Trezor	Tangem	Coldcard
Number of Supported Coins	5,500+ coins (Bitcoin included)	5,500+ coins (Bitcoin included)	1,800+ coins (Bitcoin included)	Primarily Bitcoin and Ethereum	Primarily Bitcoin
Source Code Open	Partially open	No	Yes (Trezor firmware is open)	Partially open	Yes
Platform Clients	iOS, Android	Windows, macOS, Linux, iOS, Android	Windows, macOS, Linux	iOS, Android	Windows, macOS, Linux
Price	$39 – $245	$62 – $149	$49 – $219	$59.9 – $180	$150 – $400+
Interaction Interface	4-inch touchscreen	Buttons (Nano) / Touch (Stax)	Buttons	NFC (phone tap)	Physical keypad
Seed Phrase	Standard 12/24-word phrase	Standard 24-word phrase	Standard 12/24-word phrase	Backed up via card	Standard 24-word phrase
Size/Weight	152 x 78 x 16 mm / 115g	72 x 18.6 x 11.75 mm / 34g (Nano X)	64 x 39 x 10 mm / 22g	Credit card size, very lightweight	90 x 50 x 9 mm / 40g
Passphrase Support	Yes	Yes	Yes	No	Yes
Secure Element	Yes, 1 secure element	Yes, 1 secure element	No	Yes, NFC chip doubles as secure element	Yes, 1 secure element
Airgapped	Yes (QR code-based)	Partially (Bluetooth on Nano X)	No	No	Yes (MicroSD and QR for transfers)

Notes on the Criteria:

1. Number of Coins: Keystone, Ledger, and Trezor support a broad range, with Tangem and Coldcard primarily Bitcoin-focused.
2. Open Source: Trezor and Coldcard are known for open-source firmware; Keystone and Tangem have partial transparency.
3. Platform Compatibility: All models have cross-platform compatibility; Tangem is mobile-centric.
4. Price Range: Varies by model and security features; Tangem offers the most affordable options, while Coldcard leans higher-end.
5. Interaction Interface: Keystone is notable for its touchscreen; others rely on physical buttons or NFC (Tangem).
6. Seed Phrase: All but Tangem support traditional 12/24-word recovery; Tangem uses a card-based backup.
7. Size/Weight: This information may not be significant to most users but provides an idea of portability.
8. Passphrase Support: Tangem does not support passphrases; all others do.
9. Secure Element: Most wallets include a secure element for enhanced protection; Trezor does not.
10. Airgapped Functionality: Keystone and Coldcard excel in airgapping for enhanced offline security.

How Does a Cold Wallet Protect My Crypto Assets?

A cold wallet protects your crypto assets by storing your private keys offline, making it nearly impossible for hackers or malicious actors to access your funds remotely. Here’s how it works:

1. Offline Storage: Cold wallets, such as hardware wallets, never connect to the internet. This significantly reduces the risk of your private keys being compromised by online threats like phishing, malware, or hacks. Since private keys are stored offline, they can’t be stolen via online attacks.
2. Secure Transactions: When you want to make a transaction, you sign it on the cold wallet device itself, without exposing your private keys to the internet. This ensures that even if your computer or mobile phone is compromised, your crypto assets remain safe.
3. Recovery Options: Cold wallets typically offer backup and recovery mechanisms (such as a seed phrase or recovery keys), so if your device is lost or damaged, you can restore your wallet and access your funds.
4. Physical Protection: Cold wallets are physical devices, often in the form of USB drives or specialized hardware (e.g., Trezor, Ledger). This adds an extra layer of protection since the only way to access your funds is through physical possession of the wallet.

Critique of Crypto Wallet Options

Not All Ledgers Are Safe. While Ledger is one of the most well-known names in the hardware wallet space, not all Ledger devices are equally secure. The security of Ledger devices largely depends on whether you’re using Ledger Nano S or Ledger Nano X.

Thus, while Ledger wallets are generally secure, the risk of security flaws increases with Bluetooth-enabled models, and older models (like the Nano S) have been criticized for not offering advanced protection like screens or additional security layers.

Tangem Wallet Example

While Tangem Wallet offers an innovative approach to cryptocurrency storage, it’s important to first address a general misconception in the space: not all crypto wallets are created equal, and this includes Tangem. Despite its interesting concept, there are several drawbacks when compared to more established hardware wallets like Ledger or Trezor.

1. Limited Security Features

Unlike many other hardware wallets, Tangem Wallet doesn’t offer the same level of security features, such as a PIN code or passphrase protection. This can be a serious risk for users who want an additional layer of protection on top of the secure storage of private keys. If the ring is lost or stolen, there’s no recovery option like a seed phrase, making it very difficult to regain access to the funds.

2. No Backup or Recovery Mechanism

One of the major security concerns with Tangem Wallet is the lack of a recovery seed. Most hardware wallets use a recovery seed (a series of words) to back up your private keys. If your wallet is lost or damaged, you can use the recovery seed to restore access to your assets. Tangem Wallet relies on physical possession of the wallet, and if it is lost, there’s no way to retrieve the funds. This makes it a risky choice for anyone who values long-term security.

3. Limited Coin Support

Although Tangem is expanding its compatibility, it still doesn’t support as many cryptocurrencies as popular wallets like Ledger or Trezor. These wallets support a wide range of tokens and coins, whereas Tangem primarily supports Bitcoin and a handful of other coins, limiting its usefulness for users with diverse portfolios.

4. Not Truly Cold Storage

While the Tangem Wallet is a hardware wallet, it still requires an internet connection (via the mobile app) for certain functions like setting up and managing the wallet. This somewhat diminishes its status as true cold storage, since it is connected to a mobile device, which could be vulnerable to hacking or malware.

5. Form Factor Limitations

The wearable ring design of the Tangem Wallet is innovative but comes with practical limitations. While it’s a cool concept, it’s not necessarily the most practical for users who want a more traditional or universally compatible form factor. It also may not be suitable for those who don’t want to wear their wallet on their finger or prefer the convenience of a small, easy-to-store device like the Trezor Model T or Ledger Nano X.

6. Price vs. Functionality

At its price point, the Tangem Wallet doesn’t offer the same value for money as other competitors in the space. For the price, users can get a more versatile hardware wallet like the Ledger Nano X, which provides more security features, better cryptocurrency support, and the ability to create backups in case of loss.

While Tangem Wallet offers a unique and convenient form factor for those who are interested in a wearable crypto wallet, it falls short in key areas such as security, coin support, and backup options. If you’re looking for a secure, reliable, and feature-rich cold wallet for a diverse cryptocurrency portfolio, Tangem may not be the best option. Traditional hardware wallets like Ledger or Trezor offer better security and recovery options at a similar or lower price point, making them more suitable for serious crypto users.

Conclusion

Cold wallets are essential tools for securing your cryptocurrency assets, offering protection by keeping your private keys offline and away from online threats. They provide an added layer of security, preventing hacking attempts, phishing attacks, and malware from compromising your funds.

When selecting the best cold storage wallet, it’s important to consider factors like supported cryptocurrencies, security features, ease of use, and budget. Options like Ledger Nano X and Trezor Model T are popular for their versatility and robust security, while wallets like Coldcard and Ellipal Titan provide enhanced security measures for more advanced users. Whether you’re a Bitcoin-only enthusiast or hold a variety of digital assets, there’s a cold wallet tailored to your needs, ensuring that your crypto investments remain safe and secure for the long term.