How to store Bitcoin safely using a cold wallet

Storing Bitcoin safely is as important as knowing how to buy. It's the natural next step for anyone starting to accumulate significant amounts of BTC, stablecoins or any other cryptocurrency.

In this article, you will understand what is a cold wallet?, Why it is the best option for Bitcoin self-custody and how to use it correctly. We'll also comment on some of the main models on the market: Ledger, Trezor, Jade, ColdCard, Tangem and a home-made alternative (DIY - Do It Yourself) with dedicated cell phone.

Table of contents:

• What is a cold wallet?
• Why not store Bitcoin in a hot wallet?
• What is hardware wallet and how does it work
• Main cold wallets on the market
  • Ledger (Nano S Plus / Nano X)
  • Trezor (Model One / Model T)
  • Blockstream (Jade / Jade Plus)
  • ColdCard
  • Tangem
  • Dedicated cell phone with Blue Wallet (DIY)
• Best practices for safe Bitcoin storage

What is a cold wallet?

One cold wallet is a device that keeps your private keys offline, i.e, out of reach of the internet. This drastically reduces the risk of losing your coins to an outside attacker.

Unlike hot wallets, which run on cell phones or computers connected to the Internet, cold wallets are designed exclusively for storing keys and signing transactions securely.

There is also the term warm wallet, The term is less common and its definition varies. In general, it refers to wallets whose private keys have been created offline, but on devices that have already had contact with the internet at some point.

The greater this contact, the greater the attack surface: a previously connected device could, in theory, be compromised by malware capable of stealing coins.

In short, the terms hot, warm or cold indicate the level of exposure of the portfolio to the internet and, consequently, the degree of vulnerability of your private key.

Why not store Bitcoin in a hot wallet?

In principle, there are no major problems with using a warm wallet in a updated device, as long as they are followed good safety practices.

Hot wallets are convenient and perfectly suitable for smaller to medium amounts. The problem arises when the balance grows, either from recurring contributions or from Bitcoin's own appreciation.

You can think of hot wallet like the wallet you carry in your pocket when you leave the house, even in a relatively safe city. The risk is low, but is never zero.

The cold wallet works as a safe in the house. For someone to gain access to your funds, it would be necessary to overcome several layers of protection, which makes the attack much more difficult and unlikely.

At this point, the so-called “pillow test” comes into play: if the amount stored in your hot wallet starts to bother you when you lay your head down to sleep, it's a clear sign that it's time to move on. raising the level of security.

It's when anxiety hits that a cold wallet makes senseThe cold wallet can be used to drastically reduce the attack surface in order to restore peace of mind. When your balance grows, the cost and effort of using a cold wallet is small compared to the additional security.

What is hardware wallet and how does it work

A hardware wallet is a type of cold wallet designed specifically for storing private keys in isolation, in a dedicated physical device.

Unlike cell phones and computers, it doesn't run generic applications, doesn't surf the internet and isn't used for everyday tasks, which significantly reduces the risks of exposure.

In practice, the hardware wallet works like a digital safe. The private key never leaves the device. When you need to send bitcoin, the transaction is created in software (on the computer or cell phone), sent to the hardware wallet only to signature, and then returned already signed to the network. At no time is the private key exposed to the online environment.

This model separates two important things: convenience and security. Even if the device with the online wallet is compromised, it still can't steal your bitcoins, because does not have access to the private key.

For this reason, it is essential always check the destination address on the hardware wallet screen itself before confirming the sending of BTC, ensuring that the transaction has not been altered by malware on the connected device.

Another central point is seed phrase, This is usually made up of 12 or 24 words. It is generated when the hardware wallet is set up and represents the actual ownership of the funds. If the device breaks, is lost or stops working, it is the seed that allows you to restore the wallet on other compatible hardware.

In short, the hardware wallet exists to solve a simple problem: how to use Bitcoin without having to rely on the constant security of a computer or cell phone.

Some hardware wallets offer the use of air-gapped, The device is isolated from connections such as Bluetooth, USB cable, NFC or Wi-Fi. In this way, communication between the device and the cell phone or computer takes place via QR Codes or microSD, eliminating even more attack vectors.

Main cold wallets on the market

Ledger (Nano S Plus / Nano X)

• Popular and easy to use
• Compatible with various assets
• Proprietary firmware

Point of attention: is not completely open source (Free and Open Source Software - FOSS).

Trezor (Model One / Model T)

• Simple interface
• Fully open source
• Good historical reputation

Excellent option for those who value transparency and code auditing.

Blockstream (Jade / Jade Plus)

• Possibility of using air-gapped
• Fully open source
• Supports Bitcoin on the Liquid network (L-BTC)

The safest wallet for interacting on Liquid Network.

ColdCard

• Possibility of using air-gapped
• Recommended for advanced users (not the most user-friendly)

Point of attention: is also not completely open source (Free and Open Source Software - FOSS).

Tangem

• Wallet in the shape of an NFC card or NFC ring
• Easy to use and discreet
• Seedless traditional phrase (optional)

A good option for those looking for practicality, although it does not follow the classic hardware wallet model.

Point of attention: is not open source (Free and Open Source Software - FOSS).

Dedicated cell phone with Blue Wallet (DIY)

One solution for those who don't want to buy a hardware wallet is to use an old cell phone as an offline device to sign transactions.

It's a great alternative for anyone who has a cell phone lying around the house. Simply install Blue Wallet and then completely isolate it from Wi-Fi, mobile data or Bluetooth (tip: use airplane mode and ask your phone to forget your Wi-Fi passwords).

Once you have created your wallet on this cell phone that is not connected to the internet, you will export XPUB and scan the QR Code with your main cell phone. On your normal cell phone, it will create a wallet “watch-only”.

This means that your phone will have a view of the wallet, but will not have access to the private key, which will be stored more securely on the old phone.

With your main cell phone, you can create transactions, but instead of sending them directly, it will generate a QR Code with the transaction information structured, but not signed. With the dedicated cell phone, you go to the “Signing a transaction” and scan the QR Code.

Finally, the dedicated cell phone will use the wallet's private key to sign the transaction, and will generate a QR Code so that your main cell phone (connected to the internet) can receive the information and transmit it to the network.

This is an example of an air-gapped offline wallet, as the signed transaction was transmitted without the need for a USB cable, NFC, Wi-Fi or Bluetooth connection. 

• 100% air-gapped
• Easy to use and inexpensive for those who already have an unused cell phone at home

Point of attention: as this cell phone was not originally designed to function exclusively as a cold wallet - and has already had contact with the internet at some point - there is a possibility that it was compromised by viruses or malware before being dedicated to this function.

Best practices for safe Bitcoin storage

• Buy the cold wallet only from an official website or authorized reseller (avoid marketplaces)
• Remember to make a physical backup of the seed (on paper or metal) and store it offline and away from third parties:
  - Don't photograph your seed
  - Don't enter your seed on websites or apps
• Consider multisig to avoid physical attacks as well

Conclusion

Storing Bitcoin safely using a cold wallet is the natural step for anyone starting to accumulate BTC or other crypto-assets and starts thinking about the long term.

Whether you opt for a portfolio with a good reputation on the market or a solution DIY, When there is technical knowledge, the result is the same: limit the number of possible attacks and provide greater peace of mind in custody.

In the end, it all comes down to evaluating the cost-effectiveness according to the amount you want to save in crypto and make a conscious choice, in line with your profile and your level of comfort with risk.

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