By:| 3 min read | 20/07/2018
We can think of cold wallets as a safe and secure way to store your cryptocurrency in almost the same way that your real-life wallet stores your Canadian dollars and coins. A cold wallet can also be considered your offline crypto piggy bank.
That said, unlike traditional ‘pocket’ wallets, digital wallets don’t actually store your cryptocurrency. In fact, currencies don’t get stored in any single location or exist anywhere in any physical form. All that exists are records of transactions stored on the blockchain.
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Cold wallets are not continuously connected to the internet, which means they are safe from internet-related hacks. One would only connect their cold wallet to the internet in order to transfer crypto into it or transfer crypto out of it.
In most cases, this type of wallet is used by those who have purchased large amounts of crypto and need to securely store it. Anyone owning a significant amount of any type of cryptocurrency would be doing themselves a disservice in not owning a cold wallet and putting it to use.
There are two types of cold wallet, one is a hardware wallet and the other is a paper wallet. They both technically work in the same way but, have obvious differences.
The average paper wallet is a document printed on paper (occasionally printed on plastic). Each paper wallet contains a public address that allows you to receive bitcoins and a private key which allows you to spend or transfer Bitcoins stored at that address. All of that data is typically stored or held in a QR code.
Although using a paper wallet means that the information stored on this document isn’t digitally available anywhere online, and is very secure from online hacking, its mobility may be a security risk. Paper wallets are best stored in a safe place.
Paper wallets might be easy to use and perfect for beginners, most crypto enthusiasts turn to a hardware wallet when they’re ready to move their crypto into cold storage. Most hardware wallets start at $100 USD, and all things considered, it’s money well spent. Hardware wallets have many additional security features that would be impossible to add on to a paper wallet. Hardware wallets, resemble USB thumb drives, or external hard drives. The difference is additional security features and the functionality of a digital wallet.
Many of the higher tier hardware wallets have a single button, that authorizes transactions. In any case, the main feature of hardware wallets is that one’s private key never leaves the wallet: internet hacks do not affect them.
KEY FEATURES TO LOOK FOR IN A HARDWARE WALLET:
HOW TO USE A COLD WALLET
Regardless of whether you’re using a paper wallet or a hardware wallet, you’re going to need an intermediary, and it’s called a software wallet. Software wallets are available for your desktop or even in the cloud.
You’ll want to research which solution works best for you and your cold wallet.