A cold wallet is one of the mandatory elements of the virtual cash system that is emerging before our eyes. The reason is now cryptocurrencies can be used to deposit to melhor site de cassino online or to purchase anything online. To get a better idea of the matter, let us remind you of some points related to cold storage of cryptocurrency.
Cryptocurrency Cold Storage
First, let’s remember what a cryptocurrency wallet is. Its two encrypted numbers (data sets) that allow access to the disposal of their own virtual money, and the software to do so.
The encrypted numbers are called keys. One key is public, the other is private. It’s similar to an email, login, and password. The first is communicated to recipients to receive correspondence, the second is kept secret, and is used to manage the contents of the box. There are similarities to remote access to a bank account.
Cold storage of cryptocurrency is a way of placing the contents of a wallet: keys and some additional information, on devices disconnected from the Internet. In contrast to cold storage, there is hot storage. It keeps all data, including keys, on the Internet.
In practice, there are several variants of cold storage:
- Paper keys/wallets. In this case, the generated keys are printed and stored on paper. They are entered into the computer when logging into the wallet program. Numbers, letters, and QR codes are used to record the keys.
- A cold storage tool may be a memory card. The so-called “cold flash drive for cryptocurrency” is a storage medium on which the keys are recorded.
- A more complex and functional option is to place the wallet on two computers. The first one is connected to the network, a hot wallet is created in it, but the private key is not entered. On this computer, you write a command to transfer funds. The information content of the wallet is copied to another computer that is not connected to the Internet but also has a wallet program. The private key is entered on this device. Here the electronic signature of the transaction is entered. The information is transferred back to the first computer. The signed transaction goes into the network.
- An even more complex method of cold storage is to partition the information array. The key is split into several fragments. The wallet operation can only take place when all the pieces are simultaneously connected to the system.
- It’s possible to protect the login by using several private keys that are kept by different persons. Operations are allowed only when all the keys are entered together. An important clarification – cold keys are stored, all other information is placed in the blockchain. And the cryptocurrency blockchain is distributed across multiple connected and unconnected devices.
Types of Cold Wallets
Here, the program and keys are installed on a special electronic device compatible with computer hardware. It looks like a usb flash drive with a button, sometimes with a screen.
The process of using it looks like this:
- The hardware wallet is connected to the computer.
- The computer logs in, authorizes itself with the keys.
- Disconnects the hardware wallet from the computer until the next session.
The best cold cryptocurrency wallets, if you evaluate them from the security point of view, are hardware wallets, on specialized devices. Even if it falls into the wrong hands, such a wallet won’t “open” because it can be used only after entering an additional password. Another difference between hardware devices and all other cold wallets is the price.
Collective name for all cold wallets installed on personal computers. A wallet of this type will work even on a device not connected to the Internet. Among desktop wallets, there are: thick and thin wallets.
The difference between them is this:
- A thick wallet downloads, i.e. copies into itself the entire blockchain array of the cryptocurrency with which it is supposed to work. After transactions are made, the data is uploaded back into the network, and the system is updated.
- Thin wallets don’t require downloading hundreds of gigabytes of copied data, the blockchain remains online, there is an online exchange of information. According to experts, the security of thick cold wallets is higher. But thin wallets also provide more security than hot wallets, whose contents are entirely online.
Tablet and Mobile Cold Wallets
Similar to desktop wallets, but have less of their memory. So, they are always thin. Another important difference between cryptocurrency wallets (both cold and hot) is the ability to work with one or more currencies at once.
Creators of digital currencies more often designed separate wallets for their product, the need for multi-currency applications was met by third-party developers. The security of single-currency wallets is usually rated higher.
Wallets that have not yet been used to make payments are much safer from hackers. That is why there is a practice of creating new wallets after transactions are made. When storing significant amounts of money, this is justified.
Pros and Cons of Cold Wallets
The advantages of the product can be summarized as follows:
- Cold wallets provide maximum security for cryptocurrency.
- Unused wallets installed on unplugged devices provide almost absolute security.
Cold wallets also have disadvantages. The main ones are:
- Lesser, compared to hot wallets, speed of transactions. This is dictated by the special treatment of wallet security.
- Less convenience, especially for inexperienced users. The reasons also lie in the area of security.
- Higher traffic consumption during operations. Thicker variants become the most demanding.
- Hardware cold wallets, despite their outward simplicity, are comparable in price to smartphones.
The optimal choice for experienced, time and financially secure users would be a combination of different types of cold and hot wallets:
- Hot wallets are good for frequent transactions, for withdrawals. The multicurrency nature of hot wallets makes transactions even more convenient and faster.
- Cold wallets “store” currency more reliably, especially when disconnected from the network.
Additional protection is provided by frequent wallet changes.