What is a cold wallet and how does it work? Differences between hot wallet and exchange account, recovery words storage and safe use will be taken into consideration.
Update (October 30, 2026): The guide has been rewritten with updated information following the Binance attack. How the cold wallet works, its differences from hot wallet and exchange account, and safe usage steps have been added.
A cold wallet is a type of wallet that stores the private keys that allow you to access your cryptocurrencies in an environment that is not connected to the internet. Since the keys remain offline, they are much more difficult to obtain remotely, so they are considered the safest option for assets that will be held for a long time.
The issue is on the agenda again after the attack on the night of October 29, when billions of dollars of crypto money were withdrawn from Binance's hot wallets. Binance announced that the incident affected approximately $6.3 billion in assets and that it would cover losses, but withdrawals were suspended for a while. We compiled the details of the attack in our news on whether Binance was hacked. Such events raise the question “should I keep my cryptocurrencies in the exchange or in my wallet?” It brings the question to mind again.
What is a Crypto Wallet for?
Cryptocurrencies do not actually stay in the wallet, they are recorded on the blockchain. The main job of the wallet is to store the private key that allows you to spend or transfer these assets. The person who has the private key controls the assets at that address. The definition added to the Capital Markets Law by Law No. 7518 defines a wallet as a tool that enables online or offline storage of crypto assets or their private and public keys.
Wallets are divided into two according to where they keep the key: those that keep them in an environment connected to the internet are called hot wallets, and those that keep them separate from the internet are called cold wallets.
What is a Hot Wallet?
A hot wallet is a wallet where the private key resides in an internet-connected device or service. Phone applications, browser add-ons and desktop wallet programs are in this group. Wallets where exchanges keep a portion of customer assets for daily withdrawal transactions are also hot wallets.
The biggest advantage of hot wallets is their practicality. Making a trade, sending a transfer or connecting to apps takes a few seconds. The downside is that they are the first target of attackers because they are connected to the internet. Malware, fake applications and phishing pages mostly target hot wallets. Even in the App Store, fake applications appeared that emptied users' wallets.
What is a Cold Wallet and How Does It Work?
In a cold wallet, the private key never appears on the internet. The most common type is hardware wallets the size of a USB stick. These devices generate and store the key in a secure chip within themselves. When you want to make a transfer, the transaction is prepared on the computer or phone, but the confirmation and signing step takes place inside the device. This way, even if your computer is infected with malware, the private key will not leave the device.
Most hardware wallets display the recipient address and amount on the device's screen and ask you to confirm the transaction with buttons on the device. This step provides an additional check against the address you see on the screen being changed by malicious software. Access to the device is also protected by a PIN code.
A hardware device is not the only type of cold wallet. Wallets created on a computer that is never connected to the internet and “paper wallets” where the key is printed on paper also fall into this group. However, paper wallets are not recommended today due to their difficulty of use and risk of errors.
Differences Between Cold Wallet and Hot Wallet
Feature Hot wallet Cold wallet Location of private key Internet-connected device or service Offline device or environment Ease of use Very convenient, instant transaction Every transaction requires a device and confirmation Risk of remote attack Higher Much lower Cost Usually free Device fee for hardware wallet Convenient use Day trading, small amounts Assets to be held for a long time
Many users use both: a small amount for daily transactions sits in the hot wallet or exchange, the rest is stored in the cold wallet. Exchanges similarly keep the majority of customer assets in cold wallets.
Should Cryptocurrency be kept in the Stock Exchange or in the Wallet?
The private key of the cryptocurrencies you hold on an exchange is not with you, but with the exchange. This means that your access to your assets depends on the operation, security and decisions of the exchange. When there is an attack or technical problem, such as in the Binance example, the exchange may stop withdrawals and you cannot move your assets elsewhere during this period. Similar attacks have previously occurred on exchanges such as BtcTurk and Bybit.
If it is in your own wallet, you have the key. This means it is not possible for anyone to freeze your account or hold your withdrawal. But the responsibility also shifts entirely to you: if you lose your recovery words or lose them to someone, there is no customer service to return your assets.
Crypto asset platforms in Turkey came under the supervision of the Capital Markets Board (CMB) with Law No. 7518. If you are going to use the stock exchange, the first step should be to check whether the platform is included in the lists published by the CMB.
What Should Be Considered When Using a Cold Wallet?
Buy the device only from official channels. Second-hand or unboxed devices may have been tampered with before.
Keep the seed phrases safe. This list, usually consisting of 12 or 24 words, provided during installation, is the only way to retrieve the wallet even if the device is lost. Write it on paper or a metal plate, do not photograph it or save it to cloud services or note applications.
Do not share your recovery words with anyone. A real wallet manufacturer or support team would never ask for these words. Any requesting message, email or site is a fraud attempt.
Check the address on the device screen. Before confirming the transfer, make sure that the receiving address is the same as what you see on the device screen.
Keep the wallet software and firmware up to date, but only make updates from the manufacturer's official app.
Try it with a small amount first. Sending a small test before a major transfer allows you to catch address errors early.
Security on your computer is also important. Recent attacks such as crypto theft targeting Mac users have shown how easily hot wallets and browser plug-ins can be targets.
Is a Cold Wallet Necessary for Everyone?
For someone who trades small amounts and frequently, a cold wallet may not be practical as it requires additional steps for each transaction. If you have an amount that you intend to keep for a long time and cannot afford to lose, moving the assets to a cold wallet under your own control is the most well-known method to reduce risk. Whichever path you choose, it is important to remember that the value of cryptocurrencies can change very quickly and there is always a risk of loss.
