Cold wallets are used to store cryptocurrencies offline, making them less vulnerable to hacking and other cyber threats. They usually exist in the form of hardware devices (like USB drives) or paper wallets where private keys are stored in a physical medium. Users access their funds by connecting the wallet to a device or entering a private key, thus separating the storage of digital assets from online networks. This method is particularly favored by long-term investors who wish to hold cryptocurrencies securely without frequent trading.