A cold wallet (also called a hardware wallet) is a wallet used to store cryptocurrencies. The biggest feature of a cold wallet is that it is not connected to the Internet. Therefore, a cold wallet is one of the safest ways to store crypto.
A wallet can be stored on a USB flash drive, this is a common method. Your wallet consists of a public and a private key. You can think of the public key as your account number; to do something with the account number, you must unlock it with the private key. This is similar to login credentials at a bank. There are several companies that offer cold wallets. Trezor and Ledger are examples. When you purchase one of these wallets, an account number is created where the funds will reside. These balances are therefore on the blockchain but to access them, the hardware wallet must connect to the blockchain. The wallets offered by companies look like USB sticks and often have built-in security. For example, when setting up the wallet, a user must set a numeric code.
In addition to the cipher code, the user is also given a recovery seed/recovery phrase. This consists of 12 or 24 words. In case the hardware wallet is lost or if the numerical code is entered incorrectly too often, the funds will be blocked. With the recovery seed, it is still possible to access these funds. It is therefore important to keep the hardware wallet and the recovery seed separate. Thus, in case a hardware wallet is stolen with the recovery seed, it is possible to steal all assets.
Another way of cold storage is through a paper wallet. This is literally a piece of paper on which the public and private key are written. This is not secure because there is no password on the paper and there is no recovery if the paper is lost. However, it is possible to keep the paper in a safe or well hidden
