Cold Storage
A method of storing cryptocurrency private keys completely offline and disconnected from the internet. Cold storage provides the highest level of security against remote hacking, phishing, and malware attacks. Methods include hardware wallets, paper wallets, and metal seed phrase backups.
“Institutions like exchanges keep the majority of customer funds in cold storage, with only a small percentage in hot wallets for daily operations.”
Hardware Wallet
A physical device specifically designed to securely store cryptocurrency private keys offline in a tamper-resistant secure element chip. Hardware wallets sign transactions internally without ever exposing private keys to an internet-connected computer, protecting against malware, phishing, and remote attacks.
Seed Phrase (Recovery Phrase)
A series of 12 to 24 words, generated following the BIP-39 standard, that serves as the master backup for a cryptocurrency wallet. The seed phrase deterministically derives all private keys and addresses in a wallet, meaning anyone with the phrase can fully restore the wallet on any compatible device. Losing the seed phrase means permanently losing access to the funds.
Hot Wallet
A cryptocurrency wallet that is connected to the internet, enabling quick and convenient access for frequent transactions. Hot wallets include browser extensions, mobile apps, and exchange wallets. While more convenient than cold storage, they are more vulnerable to hacking and phishing attacks.