Meaning Of Cold Wallet In Cryptocurrency

When you hear cold wallet, what comes to your mind? I guess it is a wallet that is cold. We shall discuss the meaning of cold wallet in Cryptocurrency. Also, we will discuss hot wallet in cryptocurrency, hardware wallet, paper wallet and why cold wallet is preferred. Well, read through this article to find out all these.

Meaning Of A Cold Wallet?

Another name for cold wallet is cold storage. We can define a cold wallet as a cryptocurrency wallet that is not connected to the internet or any other unsecure networks when not in use. The idea of cold wallets is to maximize protection of crypto wallets. However, this is in contrast to hot wallet in cryptocurrency. So, what is a hot wallet? It is virtual wallet that is obtained from a service provider’s server.

Like we said earlier, the importance of cold wallets is to safeguard cryptocurrencies stored in it. Cryptocurrency wallets usually face attacks like hacking and phishing. If the wallet isn’t strongly secured, it may risk losing all the stored assets.

People who use the cold wallet more are, heavy investors and crypto exchanges. This is because, the control a large amount of coins and wouldn’t risk to lose them to threats. This is why hackers majorly target big crypto investors as the will realize a lot of coin. Most importantly, it is advisable to diversify the storage on coins. Cold wallets store user’s address and private key in the computer. It does this with the help of some useful softwares.

The forms of cold wallets are two. Namely: hardware wallet and paper wallet. Let us discuss paper wallet first.

Overview of Paper Wallet

What is a paper wallet? A paper wallet is a piece of paper with the public address and the private key of the wallet printed on it. This different features have its specific function. You use the public address to obtain cryptocurrencies. While, you access the stored money with the private key. There is a unique quality associated to paper wallet. The posses a quick response code. When you scan this QR code, the details you need appear. It enhances usability. Some examples of cold wallets are ; smart cards and sound wallets. Meanwhile, let us discuss hardware wallet.

Overview of Hardware Wallet

What is a hardware wallet? Also known as offline wallet. A hardware wallet is an electronic device that we must manually plug into a computer to access it. This hardware wallet is very common around us. An external hard-drive or a USB can harbor this wallet.

The benefit of this hardware wallet is, hackers cannot access it. This is because, it isn’t stored online.

Why Is Cold Wallet Preferred?

It functions by performing tansactions and storing vital informations like the private keys, offline. Therefore, hackers cannot access the wallet.

Most crypto wallet users don’t really know what it does. It is important to it function for good functionality. Don’t be surprised to know that, a crypto wallet does not really save coins. You save your coin on blockchain. What the cryptocurrency wallet does, is to save your private keys for easy access of the coins. Like we discussed earlier, the cold wallet might be a hardware or paper wallet.

  • Hardware wallets – physical devices with high security codes. Its main function is to save the private keys to the wallet offline.
  • Paper wallets – printed documents which contain both public and private keys.

Challenges that face cold wallets are: loss of physical device, delayed accessibility, damage of the hard ware device, etc. Use of cold wallet isn’t very convenient for consistent traders. They need to always access their wallet for transactions.

More Info on Cold Wallet

The fact that cold wallets operate offline doesn’t mean that it is the best. Its duty is to safeguard your coins from external attacks. That is the major benefit of cold wallets. It is also affordable. On the other hand, users can lose all their assets when dey misplace it. Unless it is found, there is no restoration, as those assets are not backed up.

It excites some cold wallet user that it is resistant to hackers. The forget to take careful measures in purchasing the hardware wallet. DeCicco warns that, it is better to buy a hardware wallet from the manufacturer, than from a second hand. The hardware bought from a second hand might have been corrupted, therefore risking your coins and investments.

Active traders rarely use cold storage or wallet. This is because the consistently trade with coins. So, it is advisable to use a hot wallet if you are a crypto trader. Then, use a cold wallet if you want to buy and store the coins over time.

CONCLUSION

Did you find the discussion informative? I hope it does. However, try to study more on meaning of cold wallet in cryptocurrency, hot wallet in cryptocurrency and why cold wallet is preferred.

See the List of things to learn.
  1. Blockchain Technology
  2. Defi
  3. NFTs
  4. DAOs
  5. Crypto
  6. Web 3.0
  7. Altcoin Tokenomics
  8. Metaverse
  9. Smart Contracts

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