Cold Wallets: Which One To Choose?
The recent turmoil surrounding Ledger's firmware update has sparked discussions about choosing the right cold wallet. Since the most trusted of cold wallets has tarnished its reputation, who should users turn to?
Over the past few years, with the rising popularity of decentralized systems and blockchain technology, the queries on cryptocurrencies have risen exponentially. Starting with Bitcoin, a wide variety of cryptocurrencies have joined the party! As a result, the world is being taken over by numerous buzzwords relating to the industry, and “Cold Wallets” stand to be one of the most sought-after and highly discussed among these.
About Cold Wallets
Whether you're familiar with just the basics of crypto or someone already obsessed with it, you've likely heard the term "Cold wallet" being thrown around. But what exactly are they?
To begin with, for crypto owners, there are two major viable ways to store their assets/currencies that are on the blockchain: A hot wallet or a cold wallet. While hot wallets are like carrying cash in your pocket, cold wallets are like storing your money in a fortified vault.
A cold wallet, also known as a hardware wallet, basically refers to a form of cryptocurrency storage that is kept offline, away from the internet. It secures the users' digital assets by providing an extra layer of protection against hackers and cyber threats. Unlike hot wallets, which are connected to the internet, cold wallets are considered more secure because they are not susceptible to online attacks and vulnerabilities.
How Do Cold Wallets Work?
When dealing with crypto assets, the safest option one could possibly store their assets is a cold wallet. To understand how cold wallets protect your assets, let’s first take a look at how they work.
In the world of cryptocurrencies, digital assets like Bitcoin and Ethereum are stored on a decentralized digital ledger called the blockchain. When you own these assets, you have a pair of cryptographic keys: a private key and a public key. What this means is that the asset can only be claimed if you have the keys. “Not your keys, not your crypto ”. The function of a cold wallet, or any wallet, is to store these keys through which you know the assets belong to you. In order to transfer these keys from the blockchain, users usually use a compatible software wallet to transfer their assets from the blockchain network to the cold wallet. Once the transfer is completed, the private keys are stored in the cold wallet and encrypted. So, even if the connected device to the wallet is hacked or its security gets compromised, your assets can sit still in your cold wallet.
Looking Into The Options
Whether it’s for the BitMart hack of 2021 or the Coincheck attack in 2018 that lost $530 million, you have all the right reasons to be concerned about the security of your digital assets. As long as you have the private keys of your assets secure, it should be fine. But the question follows: where should you store these private keys? Most of the attacks, phishing, and security threats generally come from online sources. Hence, the best means of storing them would be by cutting them off from the internet.
At this point, it is obvious why one should go for cold wallets when it comes to storing their keys. However, with so many options available these days, it can get confusing. Although all of these wallets promise the same security features and serve the same purpose, there are subtle differences that set them apart from each other. Besides Trezor and Ledger being the big names on the field, ColdCard, KeepKey, BitBox02, Foundation, Tangem, and Keystone have also gained a fair share of popularity in the market.
When it comes to cold wallets, Ledger has gained astonishing popularity with its hardware devices: Ledger Nano X and Ledger Nano S. To protect your crypto assets, Ledger wallets utilize secure chip technology, PIN codes, and offline storage of private keys. Besides supporting multiple cryptocurrencies, they have user-friendly interfaces and come with software called Ledger Live, which takes the ease of your asset management to the next level. Ledger wallets require physical confirmation for transactions and offer backup and recovery options through a recovery phrase.
If you've made up your mind to invest in a cold wallet, investing in a device with a well-established reputation seems to be a great choice! And with Ledger, you get a user-friendly interface, a wide range of crypto support, an emphasis on backup and recovery, and regular security updates with continuous improvements.
However, Ledger's all-so-good reputation has recently been on the verge of being tarnished due to some questionable features it is up to bring. The company has been looking into ways to make the recovery of assets a priority and introduced the term "social recovery," where the user's seed phrase is divided into shards and distributed to different authorized locations. The seed leaving the hardware turned out to vilify the whole purpose of using cold wallets, and no one is very happy with the update.
With all the controversies generated on the internet, Ledger has confirmed that the feature is optional, meaning it is up to the user if they would be willing to compromise their security for the extra measure of recovery.
Trezor wallets are hardware wallets similar to Ledger cold wallets. They provide secure offline storage for private keys, ensuring protection against online threats. Trezor wallets have features such as generating multiple blockchain addresses for privacy and control over transactions. Users need to physically confirm transactions on the device itself, adding an extra layer of security. However, when it comes to supporting cryptos, Trezor wallets fall behind Ledger. The user interface offered may also be slightly complex for some users. For the positives, Trezor uses OSS making the firmware updates traceable.
With that being said, Ledger’s current firmware update feature is pushing the crowd toward Trezor. Given the trend, people might shift to Trezor. If there’s anything that is preventing a significant rise in Trezor’s sales would be their hardware vulnerability which makes the seed extractable. Besides that, Trezor’s integration with CoinJoin/Wasabi will supposedly block you for arbitrary reasons.
In the end, the choice between Trezor and Ledger depends on personal preferences, the desired range of supported cryptocurrencies, and the user experience.
ColdCard is one of the most secure signing devices out there for self custody of your assets. Produced by CoinKite, it comes with some exceptional features which make it stand out from the other available options. When it comes to security, ColdCard utilizes its security element, a microprocessor with the least amount of connection to the outside world thus protecting the keys from any possible attacks. The wallet is also open source and offers Multisig support. As a result, the transactions become more secure, the trust is put in the code operating the wallet instead of the company, and the chances of a single-point failure are reduced to almost null.
Aside from that, the “Brick Me” PIN feature allows ColdCard users to protect their funds by destroying the card immediately after entering the PIN in case of any emergency.
The drawback with Coldcards is that it is primarily made focusing on Bitcoin and its user interface is complex to the point that the whole process of setting it up might exhaust you. When compared to the designs of Ledger and other cold wallets, the ColdCard seems to be bulkier and a fuss to carry around. However, given its top-notch security service, most users don’t seem to mind using one.
Safepal is one of those wallets that users are currently considering switching to from Ledger.
Considering that it is open source, supports a fairly wide range of cryptos, and has air-gapped security features, it won’t be absurd if the wallet takes over a significant portion of the market.
What could be a downside to this wallet is that it might not support as many coins as Ledger does. Aside from that, Safepal has a reputation for having a smooth interface that is easier for a beginner to handle. When compared to Trezor, it allows QR transactions which provide users with an added layer of security.
However, SafePal seems to be quite lagging behind when it comes to updates and customer support. It can be a major turnoff for people who prefer not to use devices manufactured in China.
With the ongoing controversies regarding Ledger, KeepKey is another alternative that crypto heads are switching to. Before being taken over by ShapeShift, KeeKey was in the same line as Ledger and Trezor. This could be a reason why people are now choosing it as an alternative. With a minimalistic design and simple interface, Keepkey has established its name as a beginner-friendly cold wallet. Despite its limitations with the range of coin support, we might see a significant rise in the popularity of KeepKey following the recent brawl over Ledger.
Ledger’s recovery feature has compelled them to release the fact that the seed phrase is able to leave the hardware devices. The questionable abilities of these cold wallet companies are pushing users to look for alternatives that might be safer. That’s where Keystone comes into the scenario. Having security features similar to most cold wallets, keystone offers an air-gapped QR code system for secure transactions. This makes sure your device does not have to be connected physically to another device that might have its security compromised.
The main concern Ledger users had was regarding its firmware being able to export the seed to third-party locations. This concern is somewhat acknowledged by Keystone’s open-source secure element firmware, allowing users to verify the key generation and storage.
The whole mess about cold wallets started when Ledger’s behavior confirmed to users that the seed phrases have the ability to leave their cold wallets. To further aggravate the issue, Ledger’s response to users leaving for other cold wallets confirmed that the firmware of the wallets can always be maliciously modified to extract the seed phrase. Amidst this clout of uncertainty, Tangem wallets might be the best possible option left.
With all the security features of a traditional cold wallet, Tangem wallets offer more by eliminating the risk of mishandling the recovery seed. Instead of a seed phrase, the wallet’s backup system solely relies on having multiple hardware cards. The users can set multiple wallets as a backup system.
Besides that, the wallet’s simplicity of operation, lack of reliance on battery, and uninterrupted access to the funds make it a super convenient option.
Choosing cold wallets has always been of immense importance in the crypto-verse. But the recent debate over Ledger’s firmware update is expected to cause some significant changes in the system. The lesson to be learned through this is you can never be enough educated or assured about the security of your digital assets. Since the field is still blooming and there’s a lot to come, it is always worth keeping your eyes open and doing your own research. The security and full custody of digital assets is still a veiled area to be discovered.