A cold wallet stores the private keys to a cryptocurrency offline, typically on a dedicated hardware device or even paper. Because the keys never touch an internet-connected computer in normal use, they are far harder for a remote attacker to steal. It is the opposite of a "hot" wallet, which stays online.
The trade-off is convenience. Moving funds from cold storage takes a deliberate extra step, which is exactly the point: it protects against the most common losses, which come from hacks, malware and phishing rather than sophisticated physical attacks.
Cold storage shifts the risk onto you. Lose the device and its backup phrase with no copy, and the funds are gone for good — there is no support line to reset them. Safe, redundant backup of the recovery phrase matters as much as the device itself.
Worked example
Moving long-term Bitcoin holdings from an exchange to a hardware wallet takes them offline, out of reach of an exchange hack.
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This definition is general education, not investment advice. Markets — especially crypto — are volatile and you can lose money. Please read our disclaimer and see our methodology.