I recently came across an interesting news story: a certain politician's cold wallet that was seized is still being cracked. This made me curious—since cold wallets are touted for security, why are they still being hacked? The answer actually involves a deep understanding of blockchain wallets.

Many newcomers to the crypto world are confused about what a wallet actually is. Simply put, a cryptocurrency wallet doesn't store assets like a bank account; it's a digital container that allows you to store, send, and receive virtual assets. Think of it as a passport in the blockchain world, representing your identity in the virtual space.

A wallet has three core elements. First is the private key, which is the most critical. Only the person with the private key can use the wallet. The private key is a 256-bit randomly generated number based on cryptography, and it is unique. Second is the public key, which miners use to decrypt and identify the wallet. Lastly is the address, representing a specific location on the blockchain, used for sending and receiving assets. Technically, the address cannot be reverse-engineered to obtain the private key.

There are mainly two types of wallets today. Hot wallets are connected to the internet, including exchange wallets, browser extensions, and mobile apps. They are convenient for transactions but carry higher risks. For example, exchange wallets, although owned by users, are controlled by the exchange. When the exchange encounters issues, assets may become unrecoverable. That’s why investors often withdraw funds when a major exchange faces risks. Browser extensions like the well-known MetaMask wallet keep private keys locally, giving users more control, but since they are connected online, they are still vulnerable to hacking.

In contrast, cold wallets store private keys offline, on hardware devices like hard drives or USB sticks. They only connect to a computer when needed, greatly reducing the risk of theft by hackers. Common cold wallet brands include Ledger and Trezor, priced around $100 to $250. Even if a cold wallet is lost or damaged, as long as you remember your private key and seed phrase, you can recover your assets by connecting it to a computer and reading the blockchain data.

However, it’s important to buy cold wallets through official, legitimate channels. When you receive the device, verify that the packaging is intact to prevent malicious pre-installed software. Because of this security advantage, many people use cold wallets to store assets they don’t plan to trade immediately.

According to statistics, after a major exchange collapsed, about 450k BTC were transferred to cold wallets in 2022, reducing the exchange-held Bitcoin to below 12% of the total. This reflects that investors tend to hold their assets themselves when facing market risks.

If you hold cryptocurrencies, it’s recommended to use both types of wallets. Hot wallets are for convenient trading, while cold wallets are for secure storage. Choose based on your budget and usage habits to balance convenience and security. Especially when the security of exchanges is uncertain, cold wallets are indeed a safer way to store assets.