A cold wallet is an offline cryptocurrency storage device that keeps private keys disconnected from the internet, providing enhanced security against hacking and malware. Unlike hot wallets, which remain online for convenience, cold wallets like hardware devices (e.g., Trezor, Ledger) or paper backups ensure only the user controls access. They work by generating and signing transactions offline, making them ideal for long-term investors holding significant assets, though they may involve extra costs and reduced convenience for frequent use.