Air-gapped crypto wallets are expanding the cold storage options available to cryptocurrency investors. Read on to learn what air-gapped crypto wallets are, how they work, and which options are available today. 

What Are Air-Gapped Crypto Wallets?

An air-gapped crypto wallet is a wallet that is detached from any kind of wireless connection, including Wi-Fi, Bluetooth, and NFC devices. Fully air-gapped wallets also don’t support USB drives. 

These wallets derive their name from the cybersecurity term “air-gap,” denoting the complete separation of a gadget or network from others. The absence of communication with other networks or devices shields them from hacking, malware, and phishing attacks.

How Do Air-Gapped Wallets Work?

A typical air-gapped crypto wallet transaction generally occurs in the following steps:

  • If you’re transacting bitcoin (BTC), you must create a Partially Signed Bitcoin Transaction (PSBT) using a Bitcoin wallet. 
  • Then, you’ll export that PSBT to your air-gapped wallet (either using a Micro SD card or by scanning a QR code)
  • Next, you sign the transaction using the private keys of your air-gapped wallet.
  • Then, you export the transaction back into your original Bitcoin wallet (either by scanning a QR code or by putting the Micro SD card back into the first wallet).
  • Finally, you’ll broadcast the transaction to the blockchain after confirming the transaction on the original wallet.

And that’s it!  

Types of Air-Gapped Crypto Wallets

There are three broad categories of air-gapped crypto wallets. 

  • Air-gapped hardware wallets: Air-gapped hardware wallets are devices specifically built for storing your private keys offline. They have digital displays and buttons that help you see and toggle through different functions. Examples include the Coldcard Wallet, Ellipal Titan, and NGRAVE ZERO.
  • Air-gapped computer wallets: You can also dedicate a personal computer as your air-gap wallet. That would require disconnecting it from the web and all wireless connections. You can transfer your PSBT to these computers through USB or SD card slots. Likewise, you can move signed transactions out of them through the same media for blockchain verification.
  • Air-gapped smartphone wallets: Finally, you can use your Android and iOS smartphones for the same purpose. You can do so by factory resetting your device to function without an internet connection. Then, you’d install air-gapped wallet software, typically through a Micro SD card, to start using it. 

Benefits and Drawbacks of Air-Gapped Wallets

Now that you understand what air-gapped crypto wallets are and how they work, let’s explore some of their pros and cons.  

Pros

Here are some of the benefits of using air-gapped wallets:

Full asset control

Air-gapped wallets give users total control of their digital assets. Unlike hot or multi-sig wallets, air-gapped wallet owners hold and manage their private keys themselves. That gives them an increased level of autonomy consistent with the cryptocurrencies’ decentralized nature.

Increased privacy

Exclusive ownership of private keys gives owners privacy that many in the crypto space crave. Their self-custody feature saves users the need to undergo KYC checks, helping conceal their personal information.

Enhanced security

Additionally, they offer robust security compared to non-air-gapped wallets. That’s because of their disconnection from the internet and external devices. This separation helps to protect them from hackers, phishers, and malware attackers.

Cons

Despite their advantages, air-gapped wallets also have their drawbacks, which include:

They aren’t foolproof

One of the major setbacks of air gap wallets is that they aren’t foolproof. To conclude a transaction, users have at some point to connect to an online platform either by SD cards or QR codes. That brief window of connecting to the internet can make them vulnerable to the same vectors they claim to guard against.

Difficult to set up

Moreover, setting up smartphone and computer air gap wallets requires technical know-how. That is a disadvantage for those who may not have that ability.

Danger of losing private keys

Owners also take full responsibility for their private keys. They, therefore, may lack safeguards in case of instances where they lose their keys or face unauthorized access. 

Are Air-Gapped Wallets Safe?

Air-gap wallets are arguably the safest crypto storage option. However, you need to be an advanced cryptocurrency user who knows how to process partially signed transactions and securely manage private keys. Therefore, they are not the best option for beginners seeking an easy-to-use crypto storage solution.