Cold wallet

Cold storage means the private keys are generated and kept on a device that never connects directly to the internet. The most common form is a hardware wallet, a small device that signs transactions internally and only sends out the signed result, so the key never touches a computer. Paper wallets and air-gapped computers are older alternatives.

Keeping keys offline protects against remote hacks and malware, which is why exchanges and funds hold most of their reserves in cold storage. The trade-off is convenience: each transaction requires the device, and the owner remains responsible for safeguarding it and its seed phrase.

Cold wallets do not prevent every loss. Users can still be tricked into approving a malicious transaction on the device, or lose funds if the backup is stolen or destroyed.